<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
HOME INTERIORS & GIFTS, INC.
AND THE GUARANTORS NAMED IN FOOTNOTE (1) BELOW
(Exact name of Co-Registrants as specified in their charters)
<TABLE>
<S> <C>
TEXAS 5023
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
TEXAS 75-0981828
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
DONALD J. CARTER, JR.
CHIEF EXECUTIVE OFFICER
4550 SPRING VALLEY ROAD
DALLAS, TEXAS 75244-3705
(972) 386-1000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Principal Executive Offices and Agent for Service)
Copies to:
GLENN D. WEST
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is a compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to the Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
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PROPOSED
MAXIMUM
PROPOSED AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING OFFERING
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT PRICE(2)
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10 1/8% Senior Subordinated Notes due 2008............ $200,000,000 100% $200,000,000
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Senior Subordinated Guarantees(4)..................... -- -- --
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<CAPTION>
<S> <C>
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AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE(3)
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10 1/8% Senior Subordinated Notes due 2008............ $59,000
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Senior Subordinated Guarantees(4)..................... --
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</TABLE>
(1) Dallas Woodcraft, Inc., a Texas corporation (I.R.S. Employer Identification
No. 75-1248263), GIA, Inc., a Nebraska corporation (I.R.S. Employer
Identification No. 75-2819682), Homco, Inc., a Texas corporation (I.R.S.
Employer Identification No. 75-1725861), Homco Puerto Rico, Inc., a Delaware
corporation (I.R.S. Employer Identification No. 75-2695262), and Spring
Valley Scents, Inc., a Texas corporation (I.R.S. Employer Identification No.
75-2729831).
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated in accordance with Rule 457(f) under the Securities Act of 1933,
as amended.
(4) The 10 1/8% Senior Subordinated Notes due 2008 are guaranteed by the
Co-Registrants on a senior subordinated basis. No separate consideration
will be paid in respect of the guarantees.
------------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
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 the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED AUGUST 21, 1998
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR
10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
HOME INTERIORS & GIFTS, INC.
Home Interiors & Gifts, Inc., a Texas corporation (the "Company") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the letter of transmittal accompanying this Prospectus (the
"Letter of Transmittal," which together constitute the "Exchange Offer"), to
exchange $1,000 principal amount of 10 1/8% Senior Subordinated Notes due 2008
(the "New Notes") issued by the Company for each $1,000 principal amount of
10 1/8% Senior Subordinated Notes due 2008 (the "Old Notes") issued by the
Company (the "Original Offering"), of which an aggregate principal amount of
$200.0 million is outstanding. The form and terms of the New Notes are identical
to the form and terms of the Old Notes except that the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will not bear any legends restricting their transfer. The New Notes will
evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the Indenture (as defined) governing the Old Notes.
The Exchange Offer is being made in order to satisfy certain contractual
obligations of the Company. See "The Exchange Offer" and "Description of New
Notes." The New Notes and the Old Notes are sometimes collectively referred to
herein as the "Notes".
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW
NOTES.
------------------------------
The New Notes will bear interest at the rate of 10 1/8% per annum, payable
semi-annually in arrears on June 1 and December 1 of each year, commencing on
December 1, 1998, and will mature on June 1, 2008. The New Notes will be
guaranteed (the "Guarantees"), jointly and severally, on an unsecured senior
subordinated basis by all of the Company's present and future Restricted
Subsidiaries (as defined), subject to the exceptions described herein. Except as
set forth below, the New Notes will not be redeemable at the option of the
Company prior to June 1, 2003. Thereafter, the New Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid interest and
Additional Amounts (as defined), if any, thereon to the redemption date. In
addition, at any time and from time to time on or prior to June 1, 2001, the
Company may, subject to certain requirements, redeem up to an aggregate of 35%
of the aggregate principal amount of New Notes at a redemption price equal to
110.125% of the principal amount thereof, plus accrued and unpaid interest and
Additional Amounts, if any, thereon to the redemption date, with the net cash
proceeds of one or more Equity Offerings (as defined) by the Company, provided
that at least 65% of the originally-issued aggregate principal amount of New
Notes remain outstanding immediately following each such redemption. The New
Notes will not be subject to any sinking fund requirement. Upon a Change of
Control (as defined), the Company will be required to make an offer to
repurchase the New Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase. See "Description of New Notes."
The New Notes will be general obligations of the Company. The New Notes will
be unsecured and will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined) of the Company and will rank pari passu
in right of payment with all Senior Subordinated Indebtedness (as defined) of
the Company. The Indenture permits the Company to incur additional indebtedness,
including indebtedness of subsidiaries, and Senior Indebtedness, subject to
certain limitations. In connection with the Recapitalization (as defined), the
Company obtained a senior credit facility in an aggregate amount of $340.0
million (the "Senior Credit Facility"), which includes a $40.0 million revolving
credit facility (the "Revolving Loans"). The Senior Credit Facility is
guaranteed on a senior basis by the Company's Restricted Subsidiaries and is
secured by a lien on substantially all of the assets of the Company and its
subsidiaries. As of June 30, 1998 the aggregate principal amount of the
Company's outstanding Senior Indebtedness was $300.0 million. See "Risk
Factors," "Description of Senior Credit Facility" and "Description of New
Notes."
------------------------------
THE COMPANY AND THE GUARANTORS (AS DEFINED) WILL ACCEPT FOR EXCHANGE ANY AND
ALL OLD NOTES VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED (AS SO EXTENDED, SUCH TIME AND
DATE BEING THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN
CUSTOMARY CONDITIONS. SEE "THE EXCHANGE OFFER."
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes pursuant to the Exchange Offer, where such Old 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 New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed, for a period of 90 days after the Registration Statement (as
defined) has been declared effective, to make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
No public market existed for the Old Notes before the Exchange Offer. The
Company currently does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the New Notes is currently anticipated.
The Company will pay all the expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
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> 3
AVAILABLE INFORMATION
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
may be inspected and copied at the public reference facilities of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
This Prospectus does not contain all the information set forth in the
Registration Statement filed with the Commission on Form S-4 with respect to the
New Notes (the "Registration Statement") and the exhibits and schedules thereto,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document set forth all material
elements of such documents, but are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. Copies of the Registration
Statement and the exhibits thereto are on file with the Commission and may be
examined without charge at the public reference facilities of the Commission
described above. Copies of such materials can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The reports, proxy
statements and other information may also be obtained from the web site that the
Commission maintains at http://www.sec.gov.
The Company is required by the Indenture to furnish the holders of the
Notes with copies of the annual reports and the information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act, as long as any
Notes are outstanding.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY
MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE
INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH
ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES
OR STATEMENTS WILL BE REALIZED AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE
SUCH DIFFERENCES INCLUDE: (1) LOSS OF DISPLAYERS; (2) LOSS OR RETIREMENT OF KEY
MEMBERS OF MANAGEMENT; (3) LOSS OF SUPPLIERS; (4) IMPOSITION OF STATE TAXES; (5)
CHANGE IN STATUS OF INDEPENDENT CONTRACTORS; AND (6) INCREASED COMPETITION. MANY
OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT.
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE THE RESULTS OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS
OR CIRCUMSTANCES. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT
THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS, SEE
"RISK FACTORS."
i
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with the more detailed
information, financial statements and notes thereto appearing elsewhere in this
Prospectus. Unless the context otherwise requires, all references herein to the
"Company" or "Home Interiors" include Home Interiors & Gifts, Inc. and its
consolidated subsidiaries and all references to the "Recapitalization" include
the Merger, the Recapitalization Financings (as defined) and the transactions
related thereto. All capitalized terms used in this Prospectus without a
definition are defined as set forth below under the caption "Description of New
Notes -- Certain Definitions."
THE COMPANY
Founded in 1957, Home Interiors is the largest direct seller of home
decorative accessories in the United States. The Company's products include
framed artwork and mirrors, plaques, candles and candle holders, figurines,
planters, artificial floral displays, wall shelves and sconces (the "Products").
The Company sells the Products to approximately 51,500 non-employee, independent
contractor sales representatives ("Displayers") who resell the Products using
the "party-plan" method to conduct in-home gatherings or shows ("Shows") for
potential customers. The Company believes that by providing Displayers with the
appropriate support and encouragement, Displayers can achieve personally
satisfying and financially rewarding careers by enhancing the home environments
of their customers. For the year ended December 31, 1997, the Company's net
sales, operating income and net income were $468.8 million, $89.6 million and
$62.2 million, respectively.
The Company's product line consists of approximately 600 to 700 items. Most
of the Products are designed for display and sale in coordinated decorative
groupings, which encourages customers to purchase several accessories to achieve
a "complete" look. Products are targeted to women who are interested in
decorating their homes, but have a limited budget. The Company's Products are
sold throughout the continental United States at suggested retail prices ranging
from $2 to $93 per item, with approximately 80% of the Products ranging in price
from $7 to $30.
Because the Company believes that it is important to its success to develop
and introduce new Products that anticipate and reflect changing consumer
preferences, the Company's merchandise department regularly coordinates new
Product introductions. Each year, members of the merchandise department
circulate approximately 900 proposed or prototype items to selected Displayers
for their review. Based on that review, the Company introduces approximately 150
to 225 new Products each year to replace less popular items. Approximately 28%
of the dollar volume of Products purchased by the Company in 1996 and 1997 were
purchased from and manufactured by the Company's subsidiaries. Products not
manufactured by the Company are purchased from approximately 25 foreign and
domestic suppliers. The Company is either the largest or the only customer of
many of its suppliers and most of its Products are manufactured exclusively for
Home Interiors.
The Company's marketing and sales strategy is focused on motivating the
Displayers to purchase the Products from the Company and resell them to their
customers. Because the Company does not use mail-order catalogs, retail outlets
or other sales methods, it is entirely dependent on the Displayers to purchase
and sell the Products. Displayers can profit from the difference between the
purchase price of the Products paid to the Company and the sales price charged
to their customers, and can also earn money and prizes based on the dollar
amount of Products purchased from the Company by them and Displayers they have
recruited. In addition, Displayers can benefit from periodic discounts and
incentives offered by the Company to stimulate sales. Recruiting new Displayers
and retaining existing Displayers is critical to the Company's ability to
maintain and increase its revenues. Home Interiors encourages Displayers to
recruit new Displayers who will sell Products to customers rather than merely
purchasing items for personal consumption. In contrast, the Company believes
that many other direct selling companies encourage recruiting, irrespective of
the future sales potential of the new recruits. The Company offers a variety of
training materials to assist new and experienced Displayers and sponsors a
variety of training and motivational meetings, mailings and rallies for all
Displayers.
1
<PAGE> 5
COMPETITIVE STRENGTHS
Home Interiors believes that its success and its opportunities for
continued growth and increased profitability primarily result from the following
competitive strengths:
Trained and Productive Sales Force. The Company believes that its
sales force is one of the best trained in the direct sales industry. New
Displayers are introduced to the Company through a series of
Company-developed video cassettes and other training materials and are
trained by experienced Displayers who have attended a training course at
the Company's Dallas headquarters focused on developing new recruits. The
Company continually provides direct communications to each Displayer
through mailings, meetings, seminars and rallies designed to recognize
exceptional Displayer performance, discuss selling "tips," introduce new
Products and programs and provide motivation. In 1997, the average Company
domestic Displayer sold Products with a suggested retail price of $15,800,
while the average independent salesperson of other companies in the direct
selling industry sold items worth $4,800 (at retail), according to the
Direct Selling Association (the "DSA"). In addition, the Company believes
that the retention rate for its Displayers is higher than that of other
direct sales companies. At December 31, 1996 and 1997, 40% and 45%,
respectively, of Displayers had been Displayers for two or more years,
compared to the industry average of 24% in 1996 according to the DSA.
Consumer Focused Product Line. Because the Company believes it is
important to its success to develop and introduce new Products that
anticipate and reflect changing consumer preferences, the Company's
merchandise department regularly coordinates new Product introductions.
Merchandise department personnel attend home decor trade shows, analyze
other market information and meet with Displayers and suppliers to
identify, evaluate and design new Products. The Company distributes
approximately 900 proposed or prototype items annually to selected
Displayers for review, including a determination of whether the suggested
retail prices are attractive. Based in large part on the Displayers'
review, Home Interiors introduces approximately 150 to 225 new Products
each year to replace other less popular items.
Stable Margins. The Company has generated relatively stable gross
profit and operating profit margins primarily due to (i) the Company's
practice of generally maintaining stable cost and selling prices on all
Products after introduction to the Product line and (ii) the low level of
fixed assets and corporate overhead required for the Company's business.
Efficient Delivery System. The Company has established a delivery
system to achieve quick and cost-effective delivery of Products to its
Displayers. Home Interiors believes that most other direct sales companies
deliver products directly to the end customer and assess a freight charge
to the customer. In contrast, the Company delivers Products to the
Displayers free of charge if minimum order sizes are met. Deliveries are
usually made within four to five days of the Company's receipt of an order.
The Company is able to provide free delivery because of (i) volume
discounts it receives from common carriers and (ii) its use of
locally-based independent freight distributors ("Local Distributors"),
enabling the Company to avoid the premiums charged by common carriers for
delivery to private residences, which is where most Displayers receive
deliveries.
Popularity of Direct Sales. The Company believes that direct selling
is an established, growing and well received sales method. According to the
DSA, approximately 9.3 million Americans sold approximately $22.2 billion
of products on a direct sales basis in 1997. This represented a 9% increase
in the number of direct salespeople and a 7% increase in the dollar amount
of direct sales from 1996.
2
<PAGE> 6
BUSINESS STRATEGY
The Company's business strategy is to maintain its position as a leader in
the direct selling industry and to maximize new growth opportunities. To achieve
these goals, the Company intends to:
Improve the Productivity of Displayers. In order to improve Displayer
productivity, the Company provides training programs, rallies, seminars and
incentive programs designed to maintain and increase Displayers' knowledge
of, and motivation and enthusiasm for, the Products and the Company. In
addition, the Company is exploring the application of technology which
could reduce the time a Displayer must allocate to the administration of
her business, thereby increasing the time Displayers have available to sell
Products.
Expand and Retain the Displayer Base. The Company seeks to attract new
Displayers with programs that encourage existing Displayers to recruit new
Displayers. In addition, Home Interiors designs financial incentives and
training and motivational programs to improve its Displayer retention rate.
Maximize Product Attractiveness. The Company continually works with
its manufacturing subsidiaries, independent suppliers and Displayers to
design and sell a coordinated Product line that provides an attractive
value to the Displayers' customers.
Improve and Diversify Manufacturing Capability. The Company frequently
reviews its manufacturing processes to maximize its ability to produce
high-quality, price-competitive Products.
Expand International Operations. The Company has a limited presence in
Mexico and Puerto Rico, but believes these markets represent growth
opportunities. In addition, the Company will consider opportunities in
other countries. The Company also plans to hire management personnel with
international direct selling experience to expand its international sales
efforts.
THE RECAPITALIZATION
On June 4, 1998, Home Interiors and Crowley Investments, Inc. ("CII"), a
newly formed corporation organized by Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse"), concurrently with the closing of the Original Offering, merged,
with the Company being the surviving corporation and the Company's pre-
Recapitalization shareholders receiving approximately $827.6 million in cash
(the "Consideration") for approximately 90% of their pre-Recapitalization
shares. In connection with the Recapitalization, (i) HM/RB Partners, L.P., a
Delaware limited partnership ("HM Partners"), and other affiliates of Hicks Muse
(the "Hicks Muse Shareholders"), contributed approximately $182.6 million in
cash to the equity of the Company and, as of the date of this Prospectus, held
approximately 66% of the outstanding shares of the Company's common stock, $0.10
par value per share ("Company Common Stock") and (ii) the Company's pre-
Recapitalization shareholders retained 10% of their pre-Recapitalization shares,
which, as of the date of this Prospectus, constituted approximately 34% of the
outstanding Company Common Stock.
The funding required to pay the cash Consideration paid to
pre-Recapitalization shareholders in the Recapitalization and the fees and
expenses incurred in connection with the Recapitalization was approximately
$851.9 million. These cash requirements were funded by (i) $169.3 million of
cash and cash equivalents held by the Company, (ii) an aggregate of $300.0
million in borrowings under a $340.0 million syndicated, senior secured credit
facility entered into by the Company as part of the Recapitalization (the
"Senior Credit Facility"), (iii) the issuance by the Company of $200.0 million
aggregate principal amount of the Notes in the Original Offering and (iv)
approximately $182.6 million of equity provided to the Company in connection
with the Recapitalization by the Hicks Muse Shareholders (collectively, the
"Recapitalization Financings"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recapitalization" and
"-- Liquidity and Capital Resources."
3
<PAGE> 7
The following table sets forth the sources and uses of funds for the
Recapitalization (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Existing cash...................... $ 169.3
Senior Credit Facility(1).......... 300.0
Notes(2)........................... 200.0
Hicks Muse Shareholders
contributions.................... 182.6
--------
Total Sources................. $ 851.9
========
USES:
Consideration...................... $ 827.6
Transaction fees and expenses(3)... 24.3
--------
Total Uses.................... $ 851.9
========
</TABLE>
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(1) Consists of $200.0 million aggregate principal amount of the Tranche A Loan
(as defined) and $100.0 million aggregate principal amount of the Tranche B
Loan (as defined). As of June 30, 1998, the interest rates payable on
outstanding Tranche A Loan and Tranche B Loan were approximately 7 3/4% and
8 1/4%, respectively. In addition, as of June 30, 1998 the Company had
$40.0 million of Revolving Loans which were available and undrawn. See
"Description of Senior Credit Facility."
(2) Represents gross proceeds to the Company from the issuance of $200.0
million aggregate principal amount of the Notes.
(3) Includes discount to the initial purchasers, expenses in connection with
the Original Offering, fees and expenses in connection with the Senior
Credit Facility and other legal and accounting fees and expenses incurred
in connection with the Recapitalization. Approximately $11.6 million
consisting of the underwriting discount to the Initial Purchasers and
certain other fees and expenses is included in debt issuance costs as of
June 30, 1998, and will be amortized over the term of the related debt. The
remaining $12.7 million of Transaction fees and expenses have been treated
as a treasury stock transaction cost, and accordingly upon retirement of
all treasury stock, existing additional paid-in capital of $1.1 million was
eliminated and the remaining costs of $11.6 million were charged to
retained earnings.
MANAGEMENT AND OWNERSHIP
The Company's management team has been led by Donald J. Carter, the son of
the Company's founder Mary C. Crowley, who has been Chairman of the Board of the
Company since 1986 and with the Company since the early 1960's. Following the
Recapitalization, Donald J. Carter remained with the Company on a part-time
basis and his son, Donald J. Carter, Jr., became Chairman of the Board. In
addition, Barbara J. Hammond remained with the Company as President and
Christina L. Carter Urschel remained with the Company as Executive Vice
President. See "Management." In connection with the Recapitalization, management
and certain employees (i) retained all or a portion of their equity interest in
the Company and (ii) were granted options to acquire additional shares of
Company Common Stock. See "Management -- 1998 Stock Option Plan for Key
Employees."
Hicks Muse is a leading private investment firm with offices in Dallas, New
York, St. Louis, London and Mexico City that specializes in leveraged
acquisitions, recapitalizations and other principal investing activities. Hicks
Muse and its predecessor firm have completed or have pending over 200
transactions having a combined transaction value of more than $28 billion.
The Company's principal executive office is located at 4550 Spring Valley
Road, Dallas, Texas 75244-3705, telephone (972) 386-1000.
4
<PAGE> 8
THE EXCHANGE OFFER
THE EXCHANGE OFFER......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, Old Notes representing $200.0
million aggregate principal amount are outstanding.
The terms of the New Notes and the Old Notes are
substantially identical in all material respects,
except that the New Notes will be freely
transferable by the holders thereof except as
otherwise provided herein. See "Description of New
Notes."
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to the Company and the
Guarantors, the Company and the Guarantors believe
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale, sold and otherwise transferred by any
registered person receiving the New Notes, whether
or not that person is the registered holder (other
than any such holder or such other person that is
an "affiliate" of the Company or the Guarantors
within the meaning of Rule 405 under the Securities
Act or a broker-dealer who purchases such New Notes
directly from the Company to resell pursuant to
Rule 144A or any other available exception under
the Securities Act or a person participating in the
distribution of the New Notes), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that (i)
the New Notes are acquired in the ordinary course
of business of that holder or such other person,
(ii) neither the holder nor such other person is
engaging in or intends to engage in a distribution
of the New Notes, and (iii) neither the holder nor
such other person has an arrangement or
understanding with any person to participate in the
distribution of the New Notes. See "The Exchange
Offer -- Purpose and Effect." Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where those Old Notes were
acquired by the broker-dealer as a result of its
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of these
New Notes. See "Plan of Distribution."
REGISTRATION RIGHTS
AGREEMENT.................. The Old Notes were sold by the Company on May 28,
1998, in a private placement in reliance on Section
4(2) of the Securities Act and immediately resold
by the initial purchasers thereof in reliance on
Rule 144A under the Securities Act. In connection
with the sale, the Company and the Guarantors
entered into a Registration Rights Agreement with
the initial purchasers of the Old Notes (the
"Registration Rights Agreement") requiring the
Company and the Guarantors to make the Exchange
Offer. The Registration Rights Agreement further
provides that the Company and the Guarantors must
use their reasonable best efforts to (i) cause the
Registration Statement with respect to the Exchange
Offer to be declared effective on or before
November 24, 1998 and (ii) consummate the Exchange
Offer on or before the 45th business day following
the date on which the Registration Statement is
declared effective. See "The Exchange
Offer -- Purpose and Effect."
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, , 1998 or such later
date and time to which it is extended by the
Company and the Guarantors.
5
<PAGE> 9
WITHDRAWAL................. The tender of the Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
INTEREST ON THE NEW NOTES
AND THE OLD NOTES.......... Interest on each New Note will accrue from the date
of issuance of the Old Note for which the New Note
is exchanged or from the date of the last periodic
payment of interest on such Old Note, whichever is
later. No additional interest will be paid on Old
Notes tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer -- Certain
Conditions to Exchange Offer."
PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of the Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the Exchange Agent (as defined) at the address
set forth herein. Persons holding the Old Notes
through the Depository Trust Company ("DTC") and
wishing to accept the Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program ("ATOP"), by which each tendering
participant will agree to be bound by the Letter of
Transmittal. By executing or agreeing to be bound
by the Letter of Transmittal, each holder will
represent to the Company and the Guarantors that,
among other things, (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such New Notes, whether or not such
person is the registered holder of the Old Notes,
(ii) neither the holder nor any such other person
is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the
holder nor any such other person has an arrangement
or understanding with any person to participate in
the distribution of such New Notes, and (iv)
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Company or the
Guarantors. Pursuant to the Registration Rights
Agreement if (i) the Company determines that it is
not permitted to effect the Exchange Offer as
contemplated hereby because of any change in
applicable law or Commission policy, or (ii) any
Holder of Transfer Restricted Securities (as
defined) notifies the Company prior to the 20th day
following consummation of the Exchange Offer (a)
that it is prohibited by law or Commission policy
from participating in the Exchange Offer (b) that
it may not resell the New Notes acquired by it in
the Exchange Offer to the public without delivering
a prospectus and that this Prospectus is not
appropriate or available for such resales or (c)
that it is a broker-dealer and owns Old Notes
acquired directly from the Company or an affiliate
of the Company, the Company is required to file a
"shelf" registration statement for
6
<PAGE> 10
a continuous offering pursuant to Rule 415 under
the Securities Act in respect of the Old Notes.
The Company will accept for exchange any and all
Old Notes which are properly tendered (and not
withdrawn) in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
EXCHANGE AGENT............. United States Trust Company of New York is serving
as Exchange Agent (the "Exchange Agent") in
connection with the Exchange Offer.
FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
EFFECT OF NOT TENDERING.... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer
thereof. The Company and the Guarantors will have
no further obligation to provide for the
registration under the Securities Act of such Old
Notes.
7
<PAGE> 11
THE NEW NOTES
ISSUER..................... Home Interiors & Gifts, Inc.
SECURITIES OFFERED......... $200.0 million aggregate principal amount of
10 1/8% Senior Subordinated Notes due 2008.
MATURITY................... June 1, 2008.
INTEREST................... June 1 and December 1 of each year, commencing
December 1, 1998.
SINKING FUND............... None.
OPTIONAL REDEMPTION........ Except as described below, the Company may not
redeem the Notes prior to June 1, 2003. On or after
such date, the Company may, subject to certain
requirements, redeem the New Notes, in whole or in
part, at the redemption prices set forth herein,
together with accrued and unpaid interest and
Additional Amounts, if any, thereon to the date of
redemption. In addition, at any time and from time
to time on or prior to June 1, 2001, the Company
may, subject to certain requirements, redeem up to
35% of the aggregate principal amount of the New
Notes with the net cash proceeds of one or more
Equity Offerings by the Company, at a redemption
price equal to 110.125% of the principal amount to
be redeemed, together with accrued and unpaid
interest and Additional Amounts, if any, thereon to
the date of redemption, provided that at least 65%
of the originally issued aggregate principal amount
of the New Notes remains outstanding after each
such redemption. See "Description of New
Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase the New Notes at a price equal to 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
purchase. See "Description of New Notes -- Change
of Control."
GUARANTEES................. The New Notes will be guaranteed (the
"Guarantees"), jointly and severally, on an
unsecured senior subordinated basis, by the
Company's direct and indirect, existing and future,
Restricted Subsidiaries, other than Subsidiaries
organized under the laws of a jurisdiction other
than the United States or any State thereof,
provided that such subsidiary's assets and
principal place of business are located outside the
United States. The Guarantors also guarantee all
obligations of the Company under the Senior Credit
Facility. The Company's obligations under the
Senior Credit Facility are secured by substantially
all of the assets of the Company and the
Guarantors. The obligations of each Guarantor under
its Guarantee will be subordinated in right of
payment to the prior payment in full of all
Guarantor Senior Indebtedness (as defined) of such
Guarantor to substantially the same extent as the
New Notes are subordinated to all existing and
future Senior Indebtedness of the Company. See
"Description of New Notes -- Ranking and
Subordination" and "-- Guarantees of New Notes."
RANKING.................... The Notes will be unsecured and will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Company and
will rank pari passu in right of payment with all
Senior Subordinated Indebtedness of the Company. As
of June 30, 1998 the aggregate principal amount of
the Company's outstanding Senior Indebtedness was
$300.0 million (representing outstanding borrowings
under the Senior Credit Facility) and the Company
had no Senior Subordinated Indebt-
8
<PAGE> 12
edness outstanding other than the Notes and had no
Subsidiary Indebtedness outstanding. See
"Description of New Notes -- Ranking and
Subordination."
RESTRICTIVE COVENANTS...... The Indenture will limit, among other things, (i)
the incurrence of additional indebtedness and
issuance of capital stock, (ii) layering of
indebtedness, (iii) the payment of dividends on,
and redemption of, capital stock of the Company,
(iv) liens, (v) mergers, consolidations and sales
of all or substantially all of the Company's
assets, (vi) asset sales, (vii) dividend and other
payment restrictions affecting Restricted
Subsidiaries and (viii) transactions with
affiliates of the Company. See "Description of New
Notes -- Certain Covenants."
USE OF PROCEEDS............ The Company and the Guarantors will not receive any
proceeds from the exchange of New Notes for Old
Notes pursuant to the Exchange Offer. The Company
used the net proceeds from the Original Offering to
(i) pay a portion of the cash portion of the
Consideration (approximately $827.6 million) and
(ii) pay fees and expenses related to the
recapitalization (approximately $24.3 million).
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the New Notes.
9
<PAGE> 13
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of the Company for the five fiscal years ended December 31, 1997 and for
the six months ended June 30, 1997 and 1998. The historical consolidated
financial data for each of the three years in the period ended December 31, 1997
have been derived from, and should be read in conjunction with, the Company's
consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent auditors, that are included elsewhere in
this Prospectus. The historical consolidated financial data for each of the two
years in the period ended December 31, 1994 have been derived from the Company's
consolidated financial statements, which have also been audited by
PricewaterhouseCoopers LLP, independent auditors, not included elsewhere herein.
The historical consolidated financial data for the six-month periods ended June
30, 1997 and 1998 have been derived from the unaudited consolidated financial
statements of the Company and include, in the opinion of management, all
adjustments necessary to present fairly the data for such periods. Due to the
seasonality of operations and other factors, the results of operations for the
six-months ended June 30, 1998 are not indicative of the results that may be
expected for the full year. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Consolidated Financial Statements" appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT DISPLAYER DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $490,977 $515,341 $482,950 $434,299 $468,845 $208,520 $236,073
Cost of goods sold............................... 258,137 262,623 261,806 225,137 239,664 106,524 116,087
-------- -------- -------- -------- -------- -------- --------
Gross profit..................................... 232,840 252,718 221,144 209,162 229,181 101,996 119,986
Selling, general and administrative:
Selling........................................ 71,815 73,276 72,857 68,489 72,172 30,943 40,456
Freight, warehouse and distribution............ 44,020 43,116 41,041 37,167 41,284 18,672 20,916
General and administrative..................... 18,518 28,841 25,398 22,246 26,319 11,569 11,999
(Gains) losses on the sale of assets........... (919) 209 (14) (2,077) (198) -- (5,179)
Recapitalization expenses(1)................... -- -- -- -- -- -- 6,198
-------- -------- -------- -------- -------- -------- --------
Total selling, general and administrative.... 133,434 145,442 139,282 125,825 139,577 61,184 74,390
-------- -------- -------- -------- -------- -------- --------
Operating income................................. 99,406 107,276 81,862 83,337 89,604 40,812 45,596
Other income, net................................ 5,485 6,434 2,997 5,066 10,507 3,770 1,163
-------- -------- -------- -------- -------- -------- --------
Income before income taxes....................... 104,891 113,710 84,859 88,403 100,111 44,582 46,759
Income taxes..................................... 38,313 42,737 35,315 33,957 37,919 17,373 18,570
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
cumulative effect of accounting change......... $ 66,578 $ 70,973 $ 49,544 $ 54,446 $ 62,192 $ 27,209 $ 28,189
======== ======== ======== ======== ======== ======== ========
Net income(2).................................... $ 68,889 $ 70,522 $ 49,544 $ 54,446 $ 62,192 $ 27,209 $ 28,189
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Gross profit percentage.......................... 47.4% 49.0% 45.8% 48.2% 48.9% 48.9% 50.8%
EBITDA(3)........................................ $104,046 $112,171 $ 85,944 $ 84,610 $ 92,019 $ 41,981 $ 48,112
EBITDA margin(4)................................. 21.2% 21.8% 17.8% 19.5% 19.6% 20.1% 20.4%
Depreciation and amortization.................... $ 5,559 $ 4,686 $ 4,096 $ 3,350 $ 2,613 $ 1,169 $ 1,497
Capital expenditures(5).......................... 26,751 3,135 1,408 2,126 4,617 1,036 4,778
Ratio of earnings to fixed charges(6)............ -- -- -- -- -- -- 14.4x
DOMESTIC DISPLAYER DATA:
Number of orders................................. 716,081 754,439 782,996 710,008 732,202 341,938 376,095
Average order size(7)............................ $ 686 $ 683 $ 617 $ 610 $ 635 $ 607 $ 620
Number of Displayers at end of period(8)......... 37,500 38,300 45,200 37,800 44,200 43,700 50,200
Average number of Displayers during period(8).... 33,800 38,300 41,200 39,900 42,400 39,700 47,500
</TABLE>
10
<PAGE> 14
- ---------------
(1) Recapitalization expenses consist of amounts paid to the Company's financial
advisor and attorneys in connection with the Recapitalization.
(2) Net income differs from income from continuing operations before cumulative
effect of accounting change for the year ended December 31, 1993 due to the
cumulative effect of change in accounting principle that resulted from the
Company's adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," and the effects of discontinued operations.
Net income differs from income from continuing operations before cumulative
effect of accounting change for the year ended December 31, 1994 due to the
effects of discontinued operations.
(3) EBITDA represents operating income plus depreciation and amortization and
Recapitalization expenses, but excludes any gains or losses on the sale of
assets. EBITDA is generally considered to provide information regarding a
company's ability to service and/or incur debt, and it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. EBITDA should not be considered in isolation, as a substitute
for net income, cash flows from operations or other consolidated income or
cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
(4) Defined as EBITDA as a percentage of net sales.
(5) Capital expenditures for the year ended December 31, 1993 include
$22,715,000 for the purchase of a building, which was transferred to CCP (as
defined herein) on December 31, 1994 in connection with the Spin-Off (as
defined herein).
(6) The ratio of earnings to fixed charges has been omitted for the years ended
December 31, 1993 through 1997 and the six months ended June 30, 1997
because fixed charges were de minimis during these periods. For purposes of
determining the ratio of earnings to fixed charges, earnings are defined as
income before income taxes less the undistributed equity in earnings of an
affiliate plus fixed charges. Fixed charges consists of interest expense on
all indebtedness, which includes amortization of deferred financing costs.
(7) Average order size is calculated based on net sales divided by number of
orders. For purposes of this calculation, international sales of $1,224,000
and $4,093,000 for the years ended December 31, 1996 and 1997, respectively,
and $1,098,000 and $2,907,000 for the six months ended June 30, 1997 and
1998, respectively, have been excluded from net sales.
(8) Prior to July 1997, the Company had a policy of removing from its Displayer
count Displayers who had failed to place an order within the 14 prior weeks.
The Company revised this policy in mid-1997 to encourage inactive Displayers
to reinitiate their sales activities. At December 31, 1997 and June 30,
1998, the Company had included in the Displayer count approximately 1,400
and 5,100 Displayers, respectively, who had not placed an order within the
14-week period ended as of such dates.
11
<PAGE> 15
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary unaudited pro forma consolidated
financial data of the Company for the year ended December 31, 1997, the six
months ended June 30, 1997 and 1998 and the latest 12 months ended June 30,
1998. The historical consolidated financial data as of June 30, 1998 has been
derived from the unaudited consolidated balance sheet of the Company and
include, in the opinion of management, all adjustments necessary to present
fairly the data for such period. The unaudited summary pro forma consolidated
financial data give effect to the Recapitalization, and are derived from, and
should be read in conjunction with, the Unaudited Pro Forma Consolidated
Financial Statements, including the notes thereto, appearing elsewhere in this
Prospectus. The unaudited summary pro forma consolidated financial data are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have occurred if the
Recapitalization had been consummated on the date indicated, nor are they
necessarily indicative of the future operating results or financial position of
the Company. The information set forth below should also be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements," including the related notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, LATEST TWELVE
DECEMBER 31, ------------------- MONTHS ENDED
1997 1997 1998 JUNE 30, 1998
------------ -------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT DISPLAYER DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $468,845 $208,520 $236,073 $496,398
Cost of goods sold...................................... 239,664 106,524 116,087 249,227
-------- -------- -------- --------
Gross profit............................................ 229,181 101,996 119,986 247,171
Selling, general and administrative:
Selling............................................... 72,172 30,943 40,456 81,685
Freight, warehouse and distribution................... 41,284 18,672 20,916 43,528
General and administrative............................ 26,319 11,569 11,999 26,749
Gains on the sale of assets........................... (198) -- (5,179) (5,377)
-------- -------- -------- --------
Total selling, general and administrative........... 139,577 61,184 68,192 146,585
-------- -------- -------- --------
Operating income........................................ 89,604 40,812 51,794 100,586
Other income (expense):
Interest expense...................................... (45,231) (22,700) (25,168) (47,699)
Other income.......................................... 2,884 406 378 2,856
-------- -------- -------- --------
Total other expense, net............................ (42,347) (22,294) (24,790) (44,843)
-------- -------- -------- --------
Income before income taxes(1)........................... 47,257 18,518 27,004 55,743
Income taxes............................................ 17,570 7,338 10,964 21,196
-------- -------- -------- --------
Net income(1)........................................... $ 29,687 $ 11,180 $ 16,040 $ 34,547
======== ======== ======== ========
OTHER FINANCIAL DATA:
Gross profit percentage................................. 48.9% 48.9% 50.8% 49.8%
EBITDA(2)............................................... $ 92,019 $ 41,981 $ 48,112 $ 98,150
EBITDA margin(3)........................................ 19.6% 20.1% 20.4% 19.8%
Depreciation and amortization........................... $ 2,613 $ 1,169 $ 1,497 $ 2,941
Capital expenditures.................................... 4,617 1,036 4,778 8,359
Ratio of EBITDA to cash interest expense................ 2.1x 1.9x 2.2x 2.2x
Ratio of earnings to fixed charges(4)................... 2.0x 1.8x 2.1x 2.2x
DOMESTIC DISPLAYER DATA:
Number of orders........................................ 732,202 341,938 376,095 766,359
Average order size(5)................................... $ 635 $ 607 $ 620 $ 640
Number of Displayers at end of period(6)................ 44,200 43,700 50,200 50,200
Average number of Displayers during period(6)........... 42,400 39,700 47,500 47,000
</TABLE>
<TABLE>
<CAPTION>
ACTUAL AS OF
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 23,938
Property, plant and equipment, net.......................... 20,378
Total assets................................................ 116,463
Total debt (including current maturities)................... 500,000
Shareholders' deficit....................................... (444,157)
</TABLE>
12
<PAGE> 16
- ---------------
(1) Fees and expenses paid to the Company's financial advisor and attorneys of
$6,198,000 in connection with the Recapitalization, which were expensed as
incurred in June 1998, have been excluded from the unaudited pro forma
consolidated statements of operations.
(2) EBITDA represents operating income plus depreciation and amortization, but
excludes any gains or losses on the sale of assets. EBITDA is generally
considered to provide information regarding a company's ability to service
and/or incur debt, and it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. EBITDA
should not be considered in isolation, as a substitute for net income, cash
flows from operations or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles, or as
a measure of a company's profitability or liquidity.
(3) Defined as EBITDA as a percentage of net sales.
(4) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes less the undistributed
equity in earnings of an affiliate plus fixed charges. Fixed charges
consists of interest expense on all indebtedness, which includes
amortization of deferred financing costs.
(5) Average order size is calculated based on net sales divided by number of
orders. For purposes of this calculation, international sales of $4,093,000
for the year ended December 31, 1997, $1,098,000 and $2,907,000 for the six
months ended June 30, 1997 and 1998, respectively, and $5,902,548 for the
twelve months ended June 30, 1998 have been excluded from net sales.
(6) Prior to July 1997, the Company had a policy of removing from its Displayer
count Displayers who failed to place an order within the 14 prior weeks.
The Company revised this policy in mid-1997 to encourage inactive
Displayers to reinitiate their sales activities. At December 31, 1997 and
June 30, 1998, the Company had included in its Displayer count
approximately 1,400 and 5,100 Displayers, respectively, who had not placed
an order within the 14-week period ended as of such dates.
13
<PAGE> 17
RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below, as well as the other information set forth in this Prospectus, before
making an investment in the New Notes. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, the risk factors set forth below.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions 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 and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "The Exchange Offer -- Purpose and
Effect." Based on interpretations by the staff of the Commission, as set forth
in no-action letters issued to third parties, the Company believes that New
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 New
Notes are acquired in the ordinary course of such holders' business and such
holders, other than broker-dealers, have no arrangement or understanding with
any person to participate in the distribution of such New Notes. However, the
Commission has not considered the Exchange Offer in the context of a 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 as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any holder is an affiliate of the Company or the Guarantors or
is engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) may not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes pursuant to the Exchange Offer must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Registration Statement is declared effective, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." In addition, to comply with
the securities laws of certain jurisdictions, if applicable, the New Notes may
not be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. The Company and the Guarantors have agreed,
pursuant to the Registration Rights Agreement, subject to certain limitations
specified therein, to cooperate with the holders to register or qualify the New
Notes for offer or sale under the securities laws of such jurisdiction as any
holder reasonably requests. Unless a holder so requests, the Company does not
currently intend to register or qualify the sale of the New Notes in any such
jurisdictions. See "The Exchange Offer."
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SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company incurred substantial indebtedness in connection with the
Recapitalization. As of June 30, 1998 the Company had (i) $500.0 million of
consolidated indebtedness, (ii) $40.0 million of revolving credit availability
(the "Revolving Loans") under its Senior Credit Facility and (iii) approximately
$444.2 million of consolidated shareholders' deficit. On a pro forma basis, the
Company's ratio of earnings to fixed charges would have been 2.2 to 1.0 for the
twelve months ended June 30, 1998. See "Capitalization" and "Unaudited Pro Forma
Consolidated Financial Data." The Company may incur additional indebtedness in
the future, subject to certain limitations contained in the instruments and
documents governing its indebtedness. Accordingly, the Company will have
significant debt service obligations. See "Description of the Senior Credit
Facility" and "Description of New Notes."
The Company's high degree of leverage could have important consequences to
holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures, future
acquisitions (if any) and general corporate or other purposes may be impaired,
or any such financing may not be on terms favorable to the Company; (ii) a
substantial portion of the Company's cash flow available from operations after
satisfying certain liabilities arising in the ordinary course of business will
be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds that would otherwise be available to the Company; (iii) a
substantial decrease in net operating cash flow or an increase in expenses of
the Company could make it difficult for the Company to meet its debt service
requirements or force it to modify its operations; (iv) high leverage may place
the Company at a competitive disadvantage and may make it vulnerable to a
downturn in its business or the economy generally; (v) because a portion of the
Company's borrowings may be at variable rates of interest, the Company may be
exposed to risks inherent in interest rate fluctuations; and (vi) all of the
indebtedness incurred in connection with the Senior Credit Facility is secured
and is scheduled to become due prior to the time the principal payments on the
Notes are scheduled to become due. As of June 30, 1998, $300.0 million of the
Company's indebtedness was subject to variable interest rates. On July 1, 1998
the Company entered into an interest rate swap agreement to limit the effects of
increases of interest rates on $75.0 million under the Senior Credit Facility.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 11 to the Consolidated
Financial Statements.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) and to
satisfy its other debt obligations will depend on the future performance of the
Company and its subsidiaries, which to a certain extent will be subject to
economic, financial, competitive and other factors beyond the Company's control.
Based upon the Company's current operations and anticipated growth, management
believes that future cash flow from operations, together with the Company's
available borrowings under the Senior Credit Facility, will be adequate to meet
the Company's anticipated requirements for capital expenditures, interest
payments and scheduled principal payments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." However, if the Company's future operating cash flows are
less than currently anticipated, it may be forced, in order to meet its debt
service obligations, to reduce or delay acquisitions or capital expenditures,
sell assets or reduce operating expenses, including, but not limited to,
investment spending such as selling and marketing expenses, expenditures on
management information systems and expenditures to develop new Products. If the
Company were unable to meet its debt service obligations, it could attempt to
restructure or refinance its indebtedness or to seek additional equity capital.
There can be no assurance that the Company will be able to effect any of the
foregoing on satisfactory terms, if at all. In addition, subject to the
restrictions and limitations of the Recapitalization Financings, the Company may
incur significant additional indebtedness to finance acquisitions, which could
materially and adversely affect the Company's operating cash flows and its
ability to service its indebtedness. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Description of Senior Credit
Facility" and "Description of New Notes."
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RELIANCE ON DISPLAYERS
The Company's business is significantly dependent upon its Displayers. As
of June 30, 1998, the Company had approximately 51,500 Displayers, 50,200 of
whom were located in the United States and 1,200 and 100 of whom were located in
Mexico and Puerto Rico, respectively. Primarily because of the nature of the
direct selling industry, and as a result of numerous general and economic
factors, Displayer turnover, which averaged approximately 46% annually during
the two-year period ended December 31, 1997, is generally higher than the
turnover of sales personnel in other industries. Accordingly, the success of the
Company's business depends on the Company's ability to recruit, train, motivate
and retain the Displayers, including Unit and Branch directors and Trainers (as
defined). The recruiting, motivation and retention levels of Displayers depend
upon, among other things, (i) the managerial capabilities and personal charisma
of the Company's senior management, (ii) the Company's ability to offer an
attractive business opportunity to Displayers by enabling them to achieve
acceptable profit margins on the resale of Products, (iii) the Company's ability
to provide adequate and timely recruiting and training incentives to existing
Displayers, (iv) the introduction of new Products and marketing concepts, (v)
the effectiveness of the Company's commission and incentive programs and
discounts and (vi) general economic conditions. The Company competes with other
direct selling organizations, even with those whose products do not compete with
the Company's Products, in recruiting and retaining Displayers. There can be no
assurance that the Company's efforts to recruit, train, motivate and retain new
Displayers will be successful, and any failure by the Company to successfully
recruit, train, motivate and retain its Displayers could have a material adverse
effect on the Company's business, financial condition and results of operations
or its ability to pay interest and principal on the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ENCUMBRANCES ON ASSETS TO SECURE SENIOR INDEBTEDNESS
The Company's obligations under the Senior Credit Facility are secured by a
first priority pledge of, or a first priority security interest in, as the case
may be, substantially all of the assets of the Company and its subsidiaries
(including the common stock of such subsidiaries). If the Company becomes
insolvent or is liquidated, or if payment under the Senior Credit Facility or in
respect of any other secured Senior Indebtedness is accelerated, the lenders
under the Senior Credit Facility or holders of such other secured Senior
Indebtedness will be entitled to exercise the remedies available to a secured
lender under applicable law (in addition to any remedies that may be available
under documents pertaining to the Senior Credit Facility or such other Senior
Indebtedness). The Notes will not be secured. Accordingly, holders of such
secured Senior Indebtedness will have a prior claim with respect to the assets
securing such indebtedness. See "Description of Senior Credit Facility" and
"Description of New Notes."
SUBORDINATION OF THE NOTES AND THE GUARANTEES
The New Notes will be unsecured senior subordinated obligations of the
Company and the indebtedness evidenced by each Guarantee will be unsecured
senior subordinated indebtedness of the relevant Guarantor. The payment of
principal, premium (if any), and interest on the Notes and the payment of any
Guarantee will be subordinated in right of payment to all Senior Indebtedness of
the Company or all Senior Indebtedness ("Guarantor Senior Indebtedness") of the
relevant Guarantor, as the case may be, including all indebtedness and
obligations of the Company under the Senior Credit Facility and such Guarantor's
guarantee of such indebtedness and obligations. As of June 30, 1998, Senior
Indebtedness of the Company and Guarantor Senior Indebtedness of the Guarantors
were $300.0 million, respectively. In addition to the foregoing, the Company had
$40.0 million of availability under the Revolving Loans under the Senior Credit
Facility. The Company does not expect to borrow funds under the Revolving Loans
during 1998. Borrowings under the Revolving Loans, if any, will constitute
Senior Indebtedness. The Indenture will permit the Company to incur additional
Senior Indebtedness, provided that certain conditions are met. In addition, the
Indenture will permit Senior Indebtedness to be secured. By reasons of the
subordination provisions of the Indenture, in the event of insolvency,
liquidation, reorganization, dissolution or other winding-up of the Company or a
Guarantor, holders of Senior Indebtedness of the Company or Guarantor Senior
Indebtedness, as the case may be, will have to be paid in full before the
Company makes payments in respect of the Notes or a Guarantor makes
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<PAGE> 20
payments in respect of its Guarantee. In addition, no payment will be able to be
made in respect of the Notes if (i) any Senior Indebtedness is not paid when due
or (ii) any other default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms. Accordingly,
there may be insufficient assets remaining after such payments to pay amounts
due on the Notes. Furthermore, if certain other defaults exist with respect to
Designated Senior Indebtedness (as defined), the holders of such Designated
Senior Indebtedness will be able to prevent payments on the New Notes for
certain periods of time. See "Description of New Notes -- Ranking and
Subordination."
SUBSTANTIAL RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Senior Credit Facility and the Indenture contain numerous restrictive
covenants, including, but not limited to, covenants that restrict the Company's
ability to incur or refinance indebtedness, pay dividends, create liens, sell
assets and engage in certain mergers and acquisitions. In addition, the Senior
Credit Facility requires the Company to maintain certain financial ratios. The
ability of the Company to comply with the covenants and other terms of the
Senior Credit Facility and the Indenture, to make cash payments with respect to
the Notes and to satisfy its other debt obligations (including, without
limitation, borrowings and other obligations under the Senior Credit Facility)
will depend on the future operating performance of the Company and its
subsidiaries. In the event the Company fails to comply with the various
covenants contained in the Senior Credit Facility or the Indenture, as
applicable, it would be in default under such agreements, and in any such case,
the maturity of substantially all of its long-term indebtedness could be
accelerated. A default under the Indenture would also constitute an event of
default under the Senior Credit Facility. The Senior Credit Facility prohibits
the repayment, purchase, redemption, defeasance or other payment of any of the
principal of the Notes at any time prior to their stated maturity. See
"Description of Senior Credit Facility" and "Description of New Notes."
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company will depend to a significant extent on
the efforts of Donald J. Carter, Jr., Barbara J. Hammond and Christina L. Carter
Urschel, as well as other senior management personnel. Although the Company
entered into Executive Employment Agreements with these three individuals at the
time the Recapitalization, there can be no assurance that the Company will be
able to retain their services. Although the Company might be able (if necessary)
to find replacements for these key executives, the loss or unavailability of
their services could have a material adverse effect on the Company's business,
financial condition and results of operations and its ability to pay interest
and principal on the Notes. For more than ten years prior to October 1997,
Donald J. Carter was the Chief Executive Officer of the Company and the
principal officer in charge of its daily operations. Although Donald J. Carter
entered into a five-year Executive Employment Agreement with the Company at the
time the Recapitalization was consummated, he became Chairman Emeritus of the
Company and will not work on a full-time basis. The Company does not intend to
obtain key-man insurance with respect to any senior management personnel. See
"-- Control of the Company" and "Management."
The Company's future success will also require the recruitment, retention
and integration into the Company's business of other highly qualified
management, sales, marketing and product development personnel. Although
management of the Company believes that such qualified personnel can be
recruited, retained and integrated into the Company's business, the market for
such individuals is highly competitive, and there can be no assurance that the
Company will be able to do so on a timely or economic basis.
CONTROL OF THE COMPANY
As of the date of this Prospectus, the Hicks Muse Shareholders owned
approximately 66% of the outstanding shares of Company Common Stock. As a
result, the Hicks Muse Shareholders, subject to the terms of the Shareholder
Agreement (as defined), are able to elect a majority of the members of the Board
and thereby control the management and policies of the Company. In addition, as
the owners of more than a majority of the outstanding shares of Company Common
Stock, the Hicks Muse Shareholders are able to approve any action requiring the
approval of the holders of Company Common Stock, including the adoption
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of amendments to the Company's Amended and Restated Articles of Incorporation
and the approval of mergers or sales of all or substantially all of the
Company's assets.
RELIANCE ON RELATIONSHIPS WITH SUPPLIERS
The Company's business depends to a significant extent on its relationships
with certain outside suppliers. Other than H.T. Ardinger & Son Company, which
supplied the Company with 19%, 19% and 17% of the dollar volume of Products
purchased by the Company in 1995, 1996 and 1997, respectively, and Oxford
International, which supplied the Company with 13% of the dollar volume of
Products purchased by the Company in 1997, no supplier furnished the Company
more than 10% of the dollar volume of Products purchased by the Company during
any of the last three fiscal years. The Company utilizes a relatively small
number of suppliers that manufacture finished Products for the Company. Many of
these supplier relationships have existed for many years, and the Company has
relied upon long-standing arrangements with these suppliers, many of which sell
exclusively to the Company. The Company has no written supply agreements with
any of its suppliers and the Company's relationship with any supplier may be
terminated at any time by either party. The Company has from time to time in the
past made loans to its suppliers for various business purposes. However, as a
result of the Recapitalization Financings, the Company's ability to continue
this practice is restricted. If the Company's relationships with its suppliers
were significantly impaired or terminated, or if its suppliers were to
experience financial or other business difficulties, it could have a material
adverse effect on the Company's business, financial condition and results of
operations or its ability to pay interest and principal on the Notes.
THE SPIN-OFF
On December 31, 1994, the Company distributed the stock of Carter-Crowley
Properties, Inc. ("CCP") to the Company's shareholders (the "Spin-Off"). The
Spin-Off was structured and intended to qualify as a tax-free distribution to
the Company and its shareholders under Section 355 of the Code (as defined
herein). No ruling regarding the Spin-Off was obtained from the Internal Revenue
Service ("IRS"), however, so there can be no assurance that the IRS will not
assert that the Spin-Off did not qualify for tax-free treatment under Section
355. If the IRS were to successfully make such an assertion, the Company would
be taxed at prevailing corporate federal income tax rates on the excess of the
fair market value of the stock of CCP at the time of the Spin-Off over the
Company's tax basis in the stock of CCP. If the Company were obligated to pay
this tax, it would have a material adverse effect on the Company's business,
financial condition and results of operations or its ability to pay interest and
principal on the Notes.
In connection with the Spin-Off, the Company and CCP executed a Joint and
Mutual Release pursuant to which CCP agreed to indemnify the Company for CCP's
share of any deficiencies in consolidated federal income taxes when and to the
extent that CCP actually realizes a tax benefit as a result of the adjustment
giving rise to such deficiency. If the IRS were to assert a deficiency for
consolidated taxes that was attributable to CCP, the Company would be required
to pay such tax deficiency in full and would receive indemnification from CCP
only to the extent and at such time, if ever, that CCP actually realizes a tax
benefit as a result of such adjustment. Furthermore, since CCP has liquidated
substantially all of its assets, the Company's ability to enforce its rights
against CCP may be limited. The IRS is not currently auditing the consolidated
federal income tax group of which the Company is the common parent. The Company
anticipates that, in the absence of a request by the IRS for an extension, the
statute of limitations for the assessment of any federal income tax deficiency
against the Company in relation to the Spin-Off or with respect to taxable
periods of CCP subject to the Joint and Mutual Release will expire on September
15, 1998.
ACCUMULATED EARNINGS TAX
In connection with the Company's federal income tax audit with respect to
1992 and 1993, the IRS asserted that the Company had accumulated cash in excess
of its reasonable business needs and therefore was subject to the accumulated
earnings tax. Following discussions with the Company, the IRS concluded that the
accumulated earnings tax was not applicable to the Company in 1992 and 1993.
Because significant cash has been earned and retained by the Company since 1993,
it is possible that the IRS might assert the application
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of the accumulated earnings tax with respect to tax years subsequent to 1993.
The Company believes that the accumulated earnings tax, which is imposed at a
rate of 39.6% on accumulated taxable income, is not applicable to the Company
with respect to tax years subsequent to 1993. However, because the application
of the accumulated earnings tax depends upon a subjective standard regarding
whether cash is accumulated in excess of the "reasonable" business needs of the
Company, it is possible that the Company might not prevail on such issue with
respect to one or more tax periods, in which case the Company might be subject
to significant additional liabilities for accumulated earnings taxes, which
could have a material adverse effect on the Company's business, financial
condition and results of operations or its ability to pay interest and principal
on the Notes.
STATE TAX ISSUES
Many states attempt to impose income and other similar taxes on companies
that solicit orders in those states. In the past, the Company has successfully
defended itself in two states against, and settled claims by a third state on a
basis unfavorable to the Company in connection with, allegations that it should
be subject to state income tax. Recently, the Company determined that in some
states certain changes in the nature of its business activity require the
Company to begin paying state income or other similar taxes for the first time.
There can be no assurance, however, that the Company will not be required to pay
income taxes and associated penalties for past periods in any state,
particularly if that state should assert that the Company must pay income or
other similar taxes in the future. In addition, one state has successfully
asserted that the Company owed sales taxes for past periods and there can be no
assurance that other states will not successfully impose sales, use or other
similar taxes which the Company may not be able to recover from the Displayers.
Any imposition of state or local income, sales, use or other similar taxes and
the Company's inability to recover some or all of taxes from the Displayers
could have a material adverse effect on the Company's business, financial
condition and results of operations or its ability to pay interest and principal
on the Notes.
OBLIGATIONS UPON A CHANGE OF CONTROL
Upon a Change of Control, each holder of a Note may require the Company to
repurchase such Note at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase.
There can be no assurance that the Company will be able to raise sufficient
funds to meet its repurchase obligations upon a Change of Control or that, in
any event, the Company would be permitted to do so under the terms of the Senior
Credit Facility. See "Description of New Notes -- Change of Control."
INDEPENDENT CONTRACTOR STATUS
The Company treats the Displayers (including directors) as independent
contractors. The Company believes that this treatment complies with applicable
law. Nevertheless, there can be no assurance that Displayers or others will not
claim, or that a court would not rule, that the Displayers are employees rather
than independent contractors for labor and employment law or third-party
liability purposes, in which case the Company could be liable for substantial
damages. In addition, if federal or state authorities should successfully assert
that the Displayers should be treated as employees, the Company may be liable
for failure to withhold and pay income, unemployment and other taxes, including
any applicable penalties and interest, or to participate in state-mandated
workers compensation programs. Any such liability could have a material adverse
effect on the Company's business, financial condition and results of operations
or its ability to pay interest and principal on the Notes.
PRODUCT COMPETITION
The home decorative accessories market is highly competitive. Products sold
by the Company compete with products sold elsewhere, including by department and
specialty stores, mail order catalogs and other direct sales companies. Certain
of the Company's competitors have greater financial, distribution and marketing
resources than the Company, and products similar to the Products can be
purchased elsewhere.
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The Company competes in the sale of Products on the basis of quality, price
and service. The Company manufactures many of the Products and purchases
finished Products from a limited number of outside suppliers, which allows it to
exercise some control over the manufacturing process, the quality of the
Products and the prices it charges to Displayers. This control allows the
Displayers to charge prices within a range believed to be acceptable to their
customers. If the Company's relationship with its suppliers or the availability
of raw materials should adversely change, or if the cost of raw materials or the
Company's manufacturing process should significantly increase, the Company could
suffer a competitive disadvantage. Any adverse change in the Company's
relationship with its suppliers or the availability of raw materials could have
a material adverse effect on the Company's business, financial condition and
results of operations or its ability to pay interest and principal on the Notes.
See "Business -- Competition."
PRODUCT INTRODUCTION
Due to changing consumer preferences, the Company's success is dependent
upon the continuous introduction and acceptance of new Products. The Company's
product line consists of approximately 600 to 700 Products, and each year
approximately 150 to 225 Products are discontinued and replaced with new or
modified Products. Delays in new Product introductions can result from a number
of causes, including changes to a Product's features, failure of finished
Products supplied by others to meet specifications and the lack of availability
of finished Products or raw materials. Significant delays in the introduction
and availability of new or enhanced Products could have a material adverse
effect on the Company's business, financial condition and results of operations
or its ability to pay interest and principal on the Notes.
The Company currently develops Products for its manufacturing subsidiaries
and is in the process of further expanding its internal merchandise department.
Although the Company continues to use the services of some third party design
firms, the expansion of its internal merchandise department has allowed it to
terminate its relationship with two firms that had designed Products for the
Company for a number of years. The Company intends to continue to create,
manufacture and test market new competitive Products through its internal design
department. The Company's future success will depend in part on its ability to
select and adequately test-market new competitive Products, as well as to
enhance its existing Products, in a timely manner. See "Business -- Products."
ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to federal, state, local
and foreign laws and regulations relating to the storage, handling, generation,
treatment, emission, release, discharge and disposal of certain substances and
wastes. As a result, the Company is involved from time to time in administrative
or legal proceedings relating to environmental matters and has in the past and
may in the future continue to incur capital costs and other expenditures
relating to environmental matters. Liability under environmental laws may be
imposed on current and prior owners and operators of property or businesses
without regard to fault or knowledge about the condition or action causing the
liability. The Company may be required to incur costs relating to the
remediation of properties, including properties at which the Company disposes of
waste, and environmental conditions could lead to claims for personal injury,
property damage or damages to natural resources. The Company is aware of
environmental conditions at certain properties which it now owns or leases or
previously owned or leased which are undergoing remediation and the Company has
in the past and may in the future be named a potentially responsible party
("PRP") at off-site disposal sites to which it has sent waste. In addition, from
time to time, the Company has purchased and sold real estate that may have had
environmental contamination.
The Company believes, based on current information, that any costs it may
incur relating to environmental matters will not have a material adverse effect
on the Company's business, financial condition and results of operations and its
ability to pay interest and principal on the Notes. There can be no assurance,
however, that the Company will not incur significant fines, penalties or other
liabilities associated with noncompliance or clean-up liabilities or that future
events, such as changes in laws or the interpretation thereof, the development
of new facts or the failure of other PRPs to pay their share of cleanup costs
will not cause the Company to incur additional costs that could have a material
adverse effect on the Company's business, financial condition
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and results of operations or its ability to pay interest and principal on the
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 14 to the Consolidated Financial Statements.
INTERNATIONAL OPERATIONS
The Company has recently expanded its sales efforts into Mexico and Puerto
Rico. Although management of the Company believes that growth opportunities in
Mexico and Puerto Rico and other countries exist, the Company cannot accurately
predict whether it will be successful in its international operations. Various
political and economic conditions may affect the Company's success in
international markets, including import or export restrictions, increases or
variations in taxes, unexpected changes in regulatory environments and currency
exchange fluctuations. These conditions, with the resulting adverse impact on
local economies, may make it difficult for the Company to achieve adequate
operating margins in such markets.
MANAGEMENT INFORMATION SYSTEM; YEAR 2000
The Company is in the process of implementing a new and significantly more
sophisticated management information system (the "Computer System"). As of June
30, 1998, the Company had spent approximately $3.7 million on the Computer
System. The Company expects that it will incur an additional $1.1 million to
implement the balance of the Computer System, which the Company expects to
rollout in late 1998 and early 1999. Any delay beyond 1999 in the implementation
of the Computer System, or any unexpected difficulties in the transition to or
effectiveness of the Computer System, could have a material adverse effect on
the Company's business, financial condition and results of operations or its
ability to pay interest and principal on the Notes.
As a result of certain computer programs being written using two digits
rather than four digits to define the applicable year, any of the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions, send invoices or
engage in normal business activities. The Company is in the process of
implementing new software to be included in the Computer System with the
expectation that all of such software will function properly beyond 1999. There
can be no assurance, however, that such software will be Year 2000 compliant.
The Company has not yet determined whether its material non-information
technology systems such as manufacturing and physical facilities are Year 2000
compliant although the Company is currently conducting an assessment of Year
2000 compliance of such systems. Moreover, the Company has not yet ascertained
whether its third party suppliers, freight carriers and other vendors with whom
the Company transacts business have adequately addressed their Year 2000
compliance issues. The Company has commenced an assessment of whether third
parties material to the Company's business will be Year 2000 compliant by the
year 2000, however, the ability of third parties with whom the Company transacts
business to adequately address their Year 2000 issues is outside of the
Company's control. In response to these uncertainties, the Company intends to
commence work on contingency plans to address potential problem areas with its
internal non-information technology systems and with suppliers, freight carriers
and other third party vendors once the assessment is complete. It is expected
that assessment, remediation, if required, and contingency planning activities
will be on-going through 1998 and 1999 with the goal of appropriately resolving
all material internal and third party issues. There can be no assurance,
however, that the failure of the Company or such third parties to adequately
address their respective Year 2000 issues will not have a material adverse
effect on the Company's business, financial condition and results of operations
or its ability to pay interest and principal on the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
SEASONALITY
The Company's business is influenced by the Christmas holiday season and
promotional events. Historically, a significantly higher portion of the
Company's sales and net income has been realized during the fourth quarter, and
levels of net sales and net income have generally been slightly lower during the
first quarter
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as compared to the second and third quarters. Working capital requirements also
fluctuate during the year and reach their highest levels during the third and
fourth quarters as the Company increases its inventory for the peak season. In
addition to the Company's peak season fluctuations, quarterly results of
operations may fluctuate depending on the timing of, and amount of sales from,
promotions and/or the introduction of new Products. As a result, the Company's
business activity and results of operations in any quarter are not necessarily
indicative of any future trends in the Company's business.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
incurrence of indebtedness and other obligations in connection with the
Recapitalization and to the subsequent transfer of a portion of the proceeds
thereof to the Company's shareholders to pay the Consideration. If a court were
to find in a lawsuit by an unpaid creditor or representative of creditors that
the Company did not receive fair consideration or reasonably equivalent value
for incurring such indebtedness or obligations in connection with the
Recapitalization and, at the time thereof, the Company (i) was insolvent, (ii)
was rendered insolvent by reason of the Recapitalization, (iii) was engaged in a
business or transaction for which the assets remaining in the Company
constituted unreasonably small capital, or (iv) intended to incur or believed it
would incur obligations beyond its ability to pay such obligations as they
mature, such court, subject to applicable statutes of limitations, could void
the Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company, or take other action detrimental to the holders of
the Notes. Some courts have held that an obligor's purchase of its own capital
stock does not constitute reasonably equivalent value or fair consideration for
indebtedness incurred to finance that purchase.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, a
company would be considered insolvent at a particular time if the sum of its
debts was then greater than all of its property at a fair valuation or if the
present fair saleable value of its assets was then less than the amount that
would be required to pay its probable liabilities on its existing debts as they
become absolute and matured. On the basis of the Company's historical financial
information, its recent operating history as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other factors, management of the Company believes that after the
Recapitalization the Company was not insolvent, it had sufficient capital for
the businesses in which it is engaged and it is able to pay its debts as they
mature. There can be no assurance, however, as to what standard a court would
apply to evaluate the parties' intent or to determine whether the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Recapitalization or that, regardless of the standard, a court would not
determine that the Company was insolvent at the time of, or rendered insolvent
upon consummation of, the Recapitalization.
In addition, the Guarantees may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of any of the
Guarantors. In such a case, the analysis set forth above would generally apply,
except that the Guarantees could also be subject to the claim that, since the
Guarantees were incurred for the benefit of the Company (and only indirectly for
the benefit of the Guarantors), the obligations of the Guarantors thereunder
were incurred for less than reasonably equivalent value or fair consideration.
If such a claim was successfully asserted a court could avoid a Guarantor's
obligation under its Guarantee, subordinate the Guarantee to other indebtedness
of a Guarantor or take other action detrimental to the holders of the Notes.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The New
Notes constitute a new class of securities with no established trading market.
The Old Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages Market. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for the
remaining untendered Old Notes could be adversely affected. There is no existing
trading market for the New Notes, and there can be no assurance regarding the
future development of a market for the New Notes, or the ability of holders of
the New Notes to sell their New Notes or the price at which such holders may be
able to sell their New Notes. If
22
<PAGE> 26
such a market were to develop, the New Notes could trade at prices that may be
higher or lower than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. Each initial purchaser has advised the
Company that it currently intends to make a market in the New Notes. The initial
purchasers are not obligated to do so, however, and any market-making with
respect to the New Notes may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the New Notes or that an active public market for the New Notes will
develop. The Company does not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the New Notes.
23
<PAGE> 27
THE RECAPITALIZATION
On June 4, 1998, Home Interiors and CII, a newly formed corporation
organized by Hicks Muse, concurrently with the closing of the Original Offering,
merged, with the Company being the surviving corporation and the Company's
pre-Recapitalization shareholders receiving approximately $827.6 million in cash
for approximately 90% of their pre-Recapitalization shares. In connection with
the Recapitalization, (i) the Hicks Muse Shareholders contributed approximately
$182.6 million to the equity of the Company and, as of the date of this
Prospectus, held approximately 66% of the outstanding Company Common Stock and
(ii) the Company's pre-Recapitalization shareholders retained 10% of their
pre-Recapitalization shares, which, as of the date of this Prospectus
constituted approximately 34% of the outstanding Company Common Stock.
The funding required to pay the cash Consideration and pay fees and
expenses incurred in connection with the Recapitalization was approximately
$851.9 million. These cash requirements were funded by (i) $169.3 million of
cash and cash equivalents held by the Company, (ii) an aggregate of $300.0
million in borrowings under the Senior Credit Facility, (iii) the issuance by
the Company of $200.0 million aggregate principal amount of the Notes and (iv)
approximately $182.6 million of equity provided to the Company in connection
with the Recapitalization by the Hicks Muse Shareholders. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
24
<PAGE> 28
USE OF PROCEEDS
The Company and the Guarantors will not receive any proceeds from the
exchange of New Notes for Old Notes pursuant to the Exchange Offer. The proceeds
from the Original Offering were used by the Company to (i) pay a portion of the
cash portion of the Consideration (approximately $827.6 million) and (ii) pay
fees and expenses related to the Recapitalization (approximately $24.3 million).
The following table sets forth the sources and uses of funds for the
Recapitalization (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Existing cash...................... $ 169.3
Senior Credit Facility(1).......... 300.0
Senior Subordinated Notes(2)....... 200.0
Hicks Muse Shareholders
contributions.................... 182.6
--------
Total Sources................. $ 851.9
========
USES:
Consideration...................... $ 827.6
Transaction fees and expenses(3)... 24.3
--------
Total Uses.................... $ 851.9
========
</TABLE>
- ---------------
(1) Consists of $200.0 million aggregate principal amount of the Tranche A Loan
and $100.0 million aggregate principal amount of the Tranche B Loan. As of
June 30, 1998, the interest rates payable on outstanding Tranche A Loan and
Tranche B Loan were approximately 7 3/4% and 8 1/4%, respectively. In
addition on June 30, 1998 the Company had $40.0 million of Revolving Loans
under the Senior Credit Facility which were available and undrawn. See
"Description of Senior Credit Facility."
(2) Represents gross proceeds to the Company from the issuance of $200.0
million aggregate principal amount of the Notes.
(3) Includes discount to the initial purchasers, expenses in connection with
the Offering, fees and expenses in connection with the Senior Credit
Facility and other legal and accounting fees and expenses incurred in
connection with the Recapitalization. Approximately $11.6 million
consisting of the underwriting discount to the Initial Purchasers and
certain other fees and expenses is included in debt issuance costs as of
June 30, 1998, and will be amortized over the term of the related debt. The
remaining $12.7 million of Transaction fees and expenses have been treated
as a treasury stock transaction cost, and accordingly upon retirement of
all treasury stock, existing additional paid-in capital of $1.1 million was
eliminated and the remaining costs of $11.6 million were charged to
retained earnings.
25
<PAGE> 29
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998. The information set forth below should be read in conjunction with the
"Selected Historical Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ACTUAL AS OF
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 23,938
=========
Long-term debt (including current maturities):
Senior Credit Facility(1)
Tranche A Loan due 2004.............................. $ 200,000
Tranche B Loan due 2006.............................. 100,000
10 1/8% Senior Subordinated Notes due 2008................ 200,000
---------
Total long-term debt.............................. 500,000
Shareholders' deficit:
Common stock.............................................. 1,523
Additional paid-in capital................................ 181,546
Accumulated deficit....................................... (627,104)
Other..................................................... (122)
---------
Total shareholders' deficit....................... (444,157)
---------
Total capitalization......................... $ 55,843
=========
</TABLE>
- ---------------
(1) The Senior Credit Facility consists of six-year Revolving Loans providing up
to $40.0 million of availability, a six-year Tranche A Loan and an
eight-year Tranche B Loan. Payments on the Tranche A Loan are due quarterly
over six years as follows: $25.0 million in years one and two, $30.0 million
in year three, $35.0 million in year four, $40.0 million in year five and
$45.0 million in year six. Payments on the Tranche B Loan are due quarterly
over eight years as follows: $1.0 million in each of years one through six,
$45.0 million in year seven and $49.0 million in year eight.
26
<PAGE> 30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company for the five fiscal years ended December 31, 1997 and for
the six months ended June 30, 1997 and 1998. The historical consolidated
financial data as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997 have been derived from, and should be read
in conjunction with, the Company's consolidated financial statements, which have
been audited by PricewaterhouseCoopers LLP, independent auditors, that are
included elsewhere in this Prospectus. The historical consolidated financial
data as of December 31, 1993, 1994 and 1995 and for each of the two years in the
period ended December 31, 1994 have been derived from the Company's consolidated
financial statements, which have also been audited by PricewaterhouseCoopers
LLP, independent auditors, not included elsewhere herein. The historical
consolidated financial data as of June 30, 1997 and 1998 and for the six-month
periods then ended have been derived from the unaudited consolidated financial
statements of the Company and include, in the opinion of management, all
adjustments necessary to present fairly the data for such periods. Due to the
seasonality of operations and other factors, the results of operations for the
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the full year. The information set forth below should
also be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Consolidated Financial
Statements" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT DISPLAYER DATA)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $490,977 $515,341 $482,950 $434,299 $468,845 $208,520 $236,073
Cost of goods sold......................... 258,137 262,623 261,806 225,137 239,664 106,524 116,087
-------- -------- -------- -------- -------- -------- --------
Gross profit............................... 232,840 252,718 221,144 209,162 229,181 101,996 119,986
Selling, general and administrative:
Selling.................................. 71,815 73,276 72,857 68,489 72,172 30,943 40,456
Freight, warehouse and distribution...... 44,020 43,116 41,041 37,167 41,284 18,672 20,916
General and administrative............... 18,518 28,841 25,398 22,246 26,319 11,569 11,999
(Gains) losses on the sale of assets..... (919) 209 (14) (2,077) (198) -- (5,179)
Recapitalization expenses(1)............. -- -- -- -- -- -- 6,198
-------- -------- -------- -------- -------- -------- --------
Total selling, general and
administrative....................... 133,434 145,442 139,282 125,825 139,577 61,184 74,390
-------- -------- -------- -------- -------- -------- --------
Operating income........................... 99,406 107,276 81,862 83,337 89,604 40,812 45,596
Other income, net.......................... 5,485 6,434 2,997 5,066 10,507 3,770 1,163
-------- -------- -------- -------- -------- -------- --------
Income before income taxes................. 104,891 113,710 84,859 88,403 100,111 44,582 46,759
Income taxes............................... 38,313 42,737 35,315 33,957 37,919 17,373 18,570
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
cumulative effect of accounting change... $ 66,578 $ 70,973 $ 49,544 $ 54,446 $ 62,192 $ 27,209 $ 28,189
======== ======== ======== ======== ======== ======== ========
Net income(2).............................. $ 68,889 $ 70,522 $ 49,544 $ 54,446 $ 62,192 $ 27,209 $ 28,189
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Gross profit percentage.................... 47.4% 49.0% 45.8% 48.2% 48.9% 48.9% 50.8%
EBITDA(3).................................. $104,046 $112,171 $ 85,944 $ 84,610 $ 92,019 $ 41,981 $ 48,112
EBITDA margin(4)........................... 21.2% 21.8% 17.8% 19.5% 19.6% 20.1% 20.4%
Depreciation and amortization.............. $ 5,559 $ 4,686 $ 4,096 $ 3,350 $ 2,613 $ 1,169 $ 1,497
Capital expenditures(5).................... 26,751 3,135 1,408 2,126 4,617 1,036 4,778
Ratio of earnings to fixed charges(6)...... -- -- -- -- -- -- 14.4x
DOMESTIC DISPLAYER DATA:
Number of orders........................... 716,081 754,439 782,996 710,008 732,202 341,938 376,095
Average order size(7)...................... $ 686 $ 683 $ 617 $ 610 $ 635 $ 607 $ 620
Number of Displayers at end of period(8)... 37,500 38,300 45,200 37,800 44,200 43,700 50,200
Average number of Displayers during
period(8)................................ 33,800 38,300 41,200 39,900 42,400 39,700 47,500
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $140,411 $ 43,643 $ 90,235 $132,848 $104,262 $ 63,279 $ 23,938
Marketable securities and investments..... 26,947 3,251 3,251 4,643 69,684 68,460 1,509
Property, plant and equipment, net........ 32,543 20,116 17,478 15,481 17,353 15,373 20,378
Total assets(9)........................... 471,177 252,458 147,110 195,774 244,190 204,094 116,463
Shareholders' equity (deficit)............ 416,294 62,373 99,461 141,227 189,931 162,196 (444,157)
</TABLE>
27
<PAGE> 31
- ---------------
(1) Recapitalization expenses consist of amounts paid to the Company's financial
advisor and attorneys in connection with the Recapitalization.
(2) Net income differs from income from continuing operations before cumulative
effect of accounting change for the year ended December 31, 1993 due to the
cumulative effect of change in accounting principle that resulted from the
Company's adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," and the effects of discontinued operations.
Net income differs from income from continuing operations before cumulative
effect of accounting change for the year ended December 31, 1994 due to the
effects of discontinued operations.
(3) EBITDA represents operating income plus depreciation and amortization and
Recapitalization expenses, but excludes any gains or losses on the sale of
assets. EBITDA is generally considered to provide information regarding a
company's ability to service and/or incur debt, and it is included herein to
provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements. EBITDA should not be considered in isolation, as a substitute
for net income, cash flows from operations or other consolidated income or
cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
(4) Defined as EBITDA as a percentage of net sales.
(5) Capital expenditures for the year ended December 31, 1993 include
$22,715,000 for the purchase of a building, which was transferred to CCP on
December 31, 1994 in connection with the Spin-Off.
(6) The ratio of earnings to fixed charges has been omitted to the years ended
December 31, 1993 through 1997 and the six months ended June 30, 1997
because fixed charges were de minimis during these periods. For purposes of
determining the ratio of earnings to fixed charges, earnings are defined as
income before income taxes less the undistributed equity in earnings of an
affiliate plus fixed charges. Fixed charges consists of interest expense on
all indebtedness, which includes amortization of deferred financing costs.
(7) Average order size is calculated based on net sales divided by number of
orders. For purposes of this calculation, international sales of $1,224,000
and $4,093,000 for the years ended December 31, 1996 and 1997, respectively,
and $1,098,000 and $2,907,000 for the six months ended June 30, 1997 and
1998, respectively, have been excluded from net sales.
(8) Prior to July 1997, the Company had a policy of removing from its Displayer
count Displayers who had failed to place an order within the 14 prior weeks.
The Company revised this policy in mid-1997 to encourage inactive Displayers
to reinitiate their sales activities. At December 31, 1997 and June 30,
1998, the Company had included in its Displayer count approximately 1,400
and 5,100 Displayers, respectively, who had not placed an order within the
14-week period ended as of such dates.
(9) As of December 31, 1993, total assets included $220,370,000 of net assets of
CCP. As of December 31, 1994, total assets included $136,748,000 of certain
assets held for transfer to CCP in connection with the Spin-Off.
28
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statements of operations for
the year ended December 31, 1997 and the six months ended June 30, 1997 and 1998
(the "Pro Forma Financial Statements") give effect to the Recapitalization as if
it had occurred on January 1, 1997. The Pro Forma Financial Statements are based
upon the historical accounting financial information appearing elsewhere in this
Prospectus.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable and are
described in the notes accompanying the Pro Forma Financial Statements. The Pro
Forma Financial Statements are provided for information purposes only and do not
purport to represent what the Company's results of operations or financial
position would actually have been had the transactions in fact occurred at such
dates or to project the Company's results of operations or financial position at
or for any future date or period.
The Pro Forma Financial Statements and accompanying notes should also be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto contained elsewhere herein. It is expected that the
Recapitalization will be treated as a combined stock purchase and redemption for
federal income tax purposes and as a recapitalization for financial accounting
purposes.
29
<PAGE> 33
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ACTUAL ADJUSTMENTS RECAPITALIZATION
-------- ----------- ----------------
<S> <C> <C> <C>
Net sales............................................... $468,845 $468,845
Cost of goods sold...................................... 239,664 239,664
-------- --------
Gross profit............................................ 229,181 229,181
Selling, general and administrative:
Selling............................................... 72,172 72,172
Freight, warehouse and distribution................... 41,284 41,284
General and administrative............................ 26,319 26,319
Gains on the sale of assets........................... (198) (198)
-------- --------
Total selling, general and administrative..... 139,577 139,577
-------- --------
Operating income........................................ 89,604 89,604
Other income (expense):
Interest income....................................... 7,985 (7,985)(1) --
Interest expense...................................... (362) (44,869)(2) (45,231)
Other income.......................................... 2,884 2,884
-------- -------- --------
Total other income (expense), net............. 10,507 (52,854) (42,347)
-------- -------- --------
Income before income taxes(4)........................... 100,111 (52,854) 47,257
Income taxes............................................ 37,919 (20,349)(3) 17,570
-------- -------- --------
Net income(4)........................................... $ 62,192 $(32,505) $ 29,687
======== ======== ========
OTHER DATA:
EBITDA(5)............................................. $ 92,019 $ 92,019
Ratio of EBITDA to cash interest expense.............. 2.1x
Ratio of earnings to fixed charges(6)................. 2.0x
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statements of
Operations.
30
<PAGE> 34
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ACTUAL ADJUSTMENTS RECAPITALIZATION
-------- ----------- ----------------
<S> <C> <C> <C>
Net sales............................................... $208,520 $208,520
Cost of goods sold...................................... 106,524 106,524
-------- --------
Gross profit............................................ 101,996 101,996
Selling, general and administrative:
Selling............................................... 30,943 30,943
Freight, warehouse and distribution................... 18,672 18,672
General and administrative............................ 11,569 11,569
-------- --------
Total selling, general and administrative..... 61,184 61,184
-------- --------
Operating income........................................ 40,812 40,812
Other income (expense):
Interest income....................................... 3,377 (3,377)(1) --
Interest expense...................................... (13) (22,687)(2) (22,700)
Other income.......................................... 406 406
-------- -------- --------
Total other income (expense), net............. 3,770 (26,064) (22,294)
-------- -------- --------
Income before income taxes(4)........................... 44,582 (26,064) 18,518
Income taxes............................................ 17,373 (10,035)(3) 7,338
-------- -------- --------
Net income(4)........................................... $ 27,209 $(16,029) $ 11,180
======== ======== ========
OTHER DATA:
EBITDA(5)............................................. $ 41,981 $ 41,981
Ratio of EBITDA to cash interest expense.............. 1.9x
Ratio of earnings to fixed charges(6)................. 1.8x
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statements of
Operations.
31
<PAGE> 35
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
ACTUAL ADJUSTMENTS RECAPITALIZATION
-------- ----------- ----------------
<S> <C> <C> <C>
Net sales............................................... $236,073 $236,073
Cost of goods sold...................................... 116,087 116,087
-------- --------
Gross profit............................................ 119,986 119,986
Selling, general and administrative:
Selling............................................... 40,456 40,456
Freight, warehouse and distribution................... 20,916 20,916
General and administrative............................ 11,999 11,999
Gains on the sale of assets........................... (5,179) (5,179)
Recapitalization expenses............................. 6,198 (6,198)(7) --
-------- -------- --------
Total selling, general and administrative..... 74,390 (6,198) 68,192
-------- -------- --------
Operating income........................................ 45,596 6,198 51,794
Other income (expense):
Interest income....................................... 4,276 (4,276)(2) --
Interest expense...................................... (3,491) (21,677)(3) (25,168)
Other income.......................................... 378 378
-------- -------- --------
Total other income (expense), net............. 1,163 (25,953) (24,790)
-------- -------- --------
Income before income taxes.............................. 46,759 (19,755) 27,004
Income taxes............................................ 18,570 (7,606) 10,964
-------- -------- --------
Net income.............................................. $ 28,189 $(12,149) $ 16,040
======== ======== ========
OTHER DATA:
EBITDA(5)............................................. $ 48,112 $ 48,112
Ratio of EBITDA to cash interest expense.............. 2.2x
Ratio of earnings to fixed charges(6)................. 2.1x
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statements of
Operations.
32
<PAGE> 36
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) The adjustment reflects the elimination of interest income derived from
certain cash and cash equivalents, marketable securities and investments
which will be used in connection with the Recapitalization.
(2) The adjustment reflects increase in interest expense associated with (i)
the Revolving Loans, (ii) the Senior Credit Facility, (iii) the Notes and
(iv) the amortization of the related deferred financing costs. Interest
expense has been adjusted to reflect the scheduled quarterly principal
payments on the Senior Credit Facility beginning September 30, 1998.
Deferred financing costs are amortized over the term of the related
indebtedness. The net adjustments to interest expense consist of the
following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------
1997 1997 1998
------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Expense:
Revolving Loans (commitment fee)......... $ (200) $ (100) $ (100)
Senior Credit Facility Tranche A Loan due
2004 $200,000 @ 7 3/4%................ (14,773) (7,629) (6,660)
Senior Credit Facility Tranche B Loan due
2006 $100,000 @ 8 1/4%................ (8,220) (4,120) (4,079)
Senior Subordinated Notes due 2008 @
10 1/8%............................... (20,250) (10,125) (10,125)
Historical interest expense.............. (362) (13) (3,491)
-------- -------- --------
Cash interest expense................. (43,805) (21,987) (24,455)
Amortization of deferred financing
costs................................. (1,426) (713) (713)
-------- -------- --------
Pro forma interest expense................. $(45,231) $(22,700) $(25,168)
======== ======== ========
</TABLE>
(3) The adjustment represents the income tax effect of the pro forma
adjustments at a weighted average statutory tax rate of 38.5%.
(4) Fees and expenses paid to the Company's financial advisor and attorneys of
$6.2 million in connection with the Recapitalization, which were expensed
as incurred in June 1998, have been excluded from the unaudited pro forma
consolidated statements of operations for the year ended December 31, 1997
and for the six months ended June 30, 1997.
(5) EBITDA represents operating income plus depreciation and amortization and
Recapitalization expenses, but excludes any gains or losses on the sale of
assets. EBITDA is generally considered to provide information regarding a
company's ability to service and/or incur debt, and it is included herein
to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. EBITDA should not be considered in isolation, as a
substitute for net income, cash flows from operations or other consolidated
income or cash flow data prepared in accordance with generally accepted
accounting principles, or as a measure of a company's profitability or
liquidity.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes less the undistributed
equity in the earnings of an affiliate plus fixed charges. Fixed charges
include interest expense on all indebtedness and amortization of deferred
financing costs.
(7) The adjustment represents nonrecurring fees and expenses paid to the
Company's financial advisor and attorneys in connection with the
Recapitalization.
33
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Historical Consolidated Financial Data and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
COMPANY BACKGROUND
The Company is the largest direct seller of home decorative accessories in
the United States. As of June 30, 1998, the Company sold its Products to
approximately 51,500 Displayers, including 50,200 located in the United States
and 1,200 and 100 of whom were located in Mexico and Puerto Rico, respectively.
The Company's sales are dependent upon the number of Displayers selling the
Company's Products and Displayer productivity. The Displayers' productivity
fluctuates from time to time based on seasonality and the implementation and
timing of discounts and new incentive programs.
Primarily because of the nature of the direct selling industry, and as a
result of numerous general and economic factors, during the two-year period
ended December 31, 1997, the Company experienced average annual Displayer
turnover of approximately 46%. The Company believes that new Displayers are
generally among the least productive Displayers and that the majority of
Displayers who terminate their status as Displayers in any particular year are
Displayers recruited in that year or in the immediately preceding year. The
Company's ability to maintain its sales volume and to achieve growth depends
upon its ability to attract a significant number of new Displayers each year.
The Company's ability to recruit, train, motivate and retain the Displayers
depends upon, among other things, (i) the managerial capabilities and personal
charisma of the Company's senior management, (ii) the Company's ability to offer
an attractive business opportunity to Displayers by enabling them to achieve
acceptable profit margins on the resale of Products, (iii) the Company's ability
to provide adequate and timely recruiting and training incentives to existing
Displayers, (iv) the introduction of new Products and marketing concepts, (v)
the effectiveness of the Company's commission and incentive programs and
discounts and (vi) general economic conditions.
To stimulate sales, the Company offers a variety of discounts and
incentives to Displayers. The amount and timing of discounts and incentives vary
from year to year and throughout each year. The cost of discounts is reflected
in the Company's net sales while the cost of incentives is reflected in selling
expense.
Historically, the Company has benefitted from relatively stable gross
profit and operating profit margins. Once a Product is introduced into the
Company's product line, the price at which the Company purchases the Product
from its suppliers and the price at which the Company sells such product to the
Displayers seldom changes. The Company delivers its Products to Displayers via
common carrier and a network of Local Distributors. Unlike many other direct
sales companies that the Company believes charge their customers shipping costs,
the Company delivers its Products to the Displayers free of charge if minimum
order sizes are met. The Company realizes substantial cost savings from volume
discounts it receives from its common carriers and its use of Local
Distributors. The use of Local Distributors enables the Company to avoid the
premiums charged by common carriers for delivery to private residences, which is
where most Displayers receive deliveries. In addition, the Company believes
that, as a result of its good relationships with its common carriers and the
Local Distributors, it is able to quickly deliver its Products with minimal
shipping mistakes or Product damage.
From the Company's inception until 1995, the Company allowed Displayers up
to two weeks to pay for their orders and Displayers did not collect the purchase
price of the Products from their customers until the Products were delivered. In
1995, management of the Company reviewed its credit and collection policies and
determined that Displayers were spending increased time collecting money from
their customers or reselling merchandise not accepted by their customers when
delivered. Primarily in an effort to further assist Displayers, management
implemented a "pay-with-the-order" policy (the "New Credit Policy"). This
significant change in payment policy contributed to an overall decline in many
Displayers' sales volumes in 1995 and 1996 because the Displayers' customers
were unwilling or unable to maintain their historical buying patterns under the
New Credit Policy. This reaction by their customers negatively affected the
Displayers'
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<PAGE> 38
morale. Although management believes that the New Credit Policy improved the
Displayers' ability to collect the purchase price for Products sold to their
customers (thereby allowing the Displayers to focus on selling Products), the
adverse impact of the New Credit Policy on the Displayers and their sales
volumes was not adequately anticipated. Management spent much of 1996 rebuilding
Displayer morale through increased incentive programs and better educating the
Displayers about the benefits of the New Credit Policy. Management believes that
the mid-1996 introduction of an incentive program (the "Hostess Bonus Buy
Program") which allowed Hostesses (as defined) who achieved specified Show sales
levels to purchase Products at substantial discounts and acceptance by
Displayers of the New Credit Policy caused 1997 sales to exceed 1996 sales. See
"Business -- Sales Methods and Organization."
THE RECAPITALIZATION
On June 4, 1998, the Company financed the Recapitalization through the
following simultaneous transactions: (i) the Hicks Muse Shareholders contributed
approximately $182.6 million in cash to the equity of the Company in exchange
for 10,111,436 shares of Company Common Stock; (ii) the Company borrowed $500.0
million consisting of $200.0 million of the Notes and $300.0 million under a
$340.0 million Senior Credit Facility; and (iii) the Company used the proceeds
from the contribution of equity, issuance of the Notes and borrowings under the
Senior Credit Facility, together with approximately $169.3 million of cash and
cash equivalents held by the Company to pay approximately $827.6 million for the
redemption of 45,836,584 shares of Company Common Stock, and to pay fees and
expenses of approximately $24.3 million associated with the Recapitalization.
These fees and expenses consisted of debt issuance costs of approximately $11.6
million and other fees and expenses of approximately $12.7 million. The other
fees and expenses of $12.7 million consist of a financial advisory fee of
approximately $11.2 million paid to Hicks Muse and other legal and accounting
costs of approximately $1.5 million.
In addition to the $24.3 million of fees and expenses related to the
Recapitalization, the Company paid additional financial advisory and legal fees
of approximately $6.2 million in connection with the Recapitalization. These
costs are reflected as Recapitalization expenses in the Company's consolidated
statement of operations for the three months and six months ended June 30, 1998.
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<PAGE> 39
RESULTS OF OPERATIONS
The following table is derived from the Company's consolidated financial
statements included elsewhere in this Prospectus and sets forth, for the periods
indicated, the relative percentages that certain income and expense items bear
to net sales:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................. 54.2% 51.8% 51.1% 51.1% 49.2%
------ ------ ------ ------ ------
Gross profit........................ 45.8% 48.2% 48.9% 48.9% 50.8%
Selling, general and administrative:
Selling........................... 15.1% 15.8% 15.4% 14.8% 17.1%
Freight, warehouse and
distribution................... 8.5% 8.6% 8.8% 9.0% 8.9%
General and administrative........ 5.3% 5.1% 5.6% 5.5% 5.1%
Gains on the sale of assets....... -- (0.5)% -- -- (2.2)%
Recapitalization expenses......... -- -- -- -- 2.6%
------ ------ ------ ------ ------
Total selling, general and
administrative............ 28.9% 29.0% 29.8% 29.3% 31.5%
------ ------ ------ ------ ------
Operating income.................... 16.9% 19.2% 19.1% 19.6% 19.3%
Other income, net................... 0.6% 1.2% 2.2% 1.8% 0.5%
------ ------ ------ ------ ------
Income before income taxes.......... 17.5% 20.4% 21.3% 21.4% 19.8%
Income taxes........................ 7.3% 7.8% 8.1% 8.3% 7.9%
------ ------ ------ ------ ------
Net income.......................... 10.2% 12.6% 13.2% 13.1% 11.9%
====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales. Net sales increased $27.6 million, or 13.2%, to $236.1 million
in the six months ended June 30, 1998 from $208.5 million in the comparable
period in 1997. This increase was primarily attributable to an increase in the
number of orders placed, largely as a result of an increase in the number of
domestic Displayers. In addition, an increase in average order size, primarily
resulting from the introduction of several new incentive programs and discounts
in the 1998 period, contributed to the net sales increase.
Gross profit. Gross profit increased $18.0 million, or 17.6%, to $120.0
million in the six months ended June 30, 1998 from $102.0 million in the
comparable period in 1997. As a percentage of net sales, gross profit increased
to 50.8% in the 1998 period from 48.9% in the 1997 period. This increase was
primarily attributable to the introduction of new Products with greater profit
margins, and to a lesser extent, increased manufacturing efficiencies at the
Company's manufacturing subsidiaries.
Selling. Selling expense increased $9.6 million, or 30.7%, to $40.5 million
in the six months ended June 30, 1998 from $30.9 million in the comparable
period in 1997. As a percentage of net sales, selling expense increased to 17.1%
in the 1998 period from 14.8% in the 1997 period. This increase was primarily
attributable to higher bonus accruals for directors and higher costs for
incentive programs in the 1998 period.
Freight, warehouse and distribution. Freight, warehouse and distribution
expense increased $2.2 million, or 12.0%, to $20.9 million in the six months
ended June 30, 1998 from $18.7 million in the comparable period in 1997. As a
percentage of net sales, freight, warehouse and distribution expense decreased
to 8.9% in the 1998 period from 9.0% in the 1997 period. This decrease was
primarily attributable to freight efficiencies achieved on the higher sales
volumes.
General and administrative. General and administrative expense increased
$0.4 million, or 3.7%, to $12.0 million in the six months ended June 30, 1998
from $11.6 million in the comparable period in 1997 largely due to increased
training and other costs associated with the implementation of the Company's new
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<PAGE> 40
Computer System. As a percentage of net sales, general and administrative
expenses decreased to 5.1% in the 1998 period from 5.5% in the 1997 period.
Gains on the sale of assets. The Company recorded gains on the sale of
assets of $5.2 million during the six months ended June 30, 1998 principally
from the sale of two aircraft.
Recapitalization expenses. Recapitalization expenses of $6.2 million
consisted of fees and expenses paid to the Company's financial advisor and
attorneys in connection with the Recapitalization.
Other income, net. Other income, net of other expense, decreased $2.6
million, or 69.2%, to $1.2 million in the six months ended June 30, 1998 from
$3.8 million in the comparable period in 1997. The decrease was primarily due to
approximately $3.5 million of interest expense incurred in June 1998 in
connection with the Senior Credit Facility and the Notes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales increased $34.5 million, or 8.0%, to $468.8 million in
1997 from $434.3 million in 1996. This increase was primarily attributable to an
increase in the average number of domestic Displayers and an increase in the
average order size resulting in part from a full-year impact of the Hostess
Bonus Buy Program implemented in mid-1996.
Gross profit. Gross profit increased $20.0 million, or 9.6%, to $229.2
million in 1997 from $209.2 million in 1996. As a percentage of net sales, gross
profit increased to 48.9% in 1997 from 48.2% in 1996. This increase was
primarily attributable to the success of the Hostess Bonus Buy Program that
disproportionately increased the percentage of sales of Products manufactured by
the Company which, in turn, resulted in improved manufacturing efficiencies at
the Company's manufacturing subsidiaries.
Selling. Selling expense increased $3.7 million, or 5.4%, to $72.2 million
in 1997 from $68.5 million in 1996. As a percentage of net sales, selling
expense decreased to 15.4% in 1997 from 15.8% in 1996. This decrease was
primarily attributable to several incentive programs which were offered in 1996
but not in 1997. The 1996 incentives included providing free Product brochures
and other marketing materials to Displayers who met certain sales criteria. In
1997, the Company offered more discounts rather than incentive programs.
Freight, warehouse and distribution. Freight, warehouse and distribution
expense increased $4.1 million, or 11.1%, to $41.3 million in 1997 from $37.2
million in 1996. As a percentage of net sales, freight, warehouse and
distribution expense increased to 8.8% in 1997 from 8.6% in 1996.
General and administrative. General and administrative expense increased
$4.1 million, or 18.3%, to $26.3 million in 1997 from $22.2 million in 1996. As
a percentage of net sales, general and administrative expenses increased to 5.6%
in 1997 from 5.1% in 1996. This increase was primarily attributable to training
costs incurred in 1997 relating to the implementation of the Computer System and
nonrecurring costs in 1997 arising out of a change in the estimated redemption
rate of Hostess merits (as defined) and the settlement of litigation.
Other income, net. Other income, net of other expense, increased $5.4
million, or 107.4%, to $10.5 million in 1997 from $5.1 million in 1996. This
increase was attributable to higher average investment balances and the gain on
the sale of a single investment.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales. Net sales decreased $48.7 million, or 10.1%, to $434.3 million
in 1996 from $483.0 million in 1995. This decrease was attributable to a
decrease in number of orders placed largely as a result of a decline in the
average number of domestic Displayers and, to a lesser extent, a decrease in the
average order size. Contributing to these decreases were several factors,
including (i) the adoption of the New Credit Policy in 1995, (ii) a less
effective discount program in 1996 and (iii) a 1995 recruiting campaign that
offered heavy discounting of initial Product demonstration cases to new
Displayers. This had the unintended consequence of attracting unproductive
Displayers, many of whom subsequently terminated their Displayer status.
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<PAGE> 41
Gross profit. Gross profit decreased by $11.9 million, or 5.4%, to $209.2
million in 1996 from $221.1 million in 1995. As a percentage of net sales, gross
profit increased to 48.2% in 1996 from 45.8% in 1995. This increase was
primarily attributable to the cessation of the 1995 recruiting program which
offered discounted Product demonstration cases to new Displayers and a lower
level of discounts offered to Displayers in 1996.
Selling. Selling expense decreased $4.4 million, or 6.0%, to $68.5 million
in 1996 from $72.9 million in 1995. As a percentage of net sales, selling
expense increased to 15.8% in 1996 from 15.1% in 1995. This increase was
primarily attributable to an increase in incentive programs, such as providing
free brochures and other marketing materials to Displayers for meeting certain
sales criteria.
Freight, warehouse and distribution. Freight, warehouse and distribution
expense decreased $3.8 million, or 9.4%, to $37.2 million in 1996 from $41.0
million in 1995. As a percentage of net sales, freight, warehouse and
distribution expense increased to 8.6% in 1996 from 8.5% in 1995.
General and administrative. General and administrative expense decreased
$3.2 million, or 12.4%, to $22.2 million in 1996 from $25.4 million in 1995. As
a percentage of net sales, general and administrative expenses decreased to 5.1%
in 1996 from 5.3% in 1995. This decrease was primarily attributable to the
dissolution of the Company's aircraft subsidiary at the end of 1995, which
resulted in lower aircraft operating costs in 1996 and a non-cash non-recurring
charge related to the ESOP in 1995.
Gains on the sale of assets. The Company recorded gains of $2.1 million on
the sale of two aircraft in 1996.
Other income, net. Other income, net of other expense, increased $2.1
million, or 69.0%, to $5.1 million in 1996 from $3.0 million in 1995. This
increase was attributable to higher average investment balances.
Income taxes. Income taxes as a percentage of income before income taxes
decreased to 38.4% in 1996 from 41.6% in 1995. The higher percentage in 1995 was
due to certain non-recurring items, including an adjustment recorded in 1995 for
the actual tax effect of the 1994 Spin-Off.
SEASONALITY
The Company's business is influenced by the Christmas holiday season and
promotional events. Historically, a higher portion of the Company's sales and
net income has been realized during the fourth quarter, and net sales and net
income have generally been slightly lower during the first quarter as compared
to the second and third quarters. Working capital requirements also fluctuate
during the year and reach their highest levels during the third and fourth
quarters as the Company increases its inventory for the peak season. In addition
to the Company's peak season fluctuations, quarterly results of operations may
fluctuate depending on the timing of, and amount of sales from, promotions
and/or the introduction of new Products. As a result, the Company's business
activity and results of operations in any quarter are not necessarily indicative
of any future trends in the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its historical requirements for capital through
cash flow from operations. Net cash provided by operating activities totaled
$64.7 million, $57.5 million and $60.3 million in 1995, 1996 and 1997,
respectively. The Company had capital expenditures of $1.4 million, $2.1 million
and $4.6 million in 1995, 1996 and 1997, respectively. The Company's other
significant cash outlays have historically been the payment of dividends to
shareholders totaling $8.8 million, $6.1 million and $22.2 million in 1995, 1996
and 1997, respectively. In addition, the Company purchased $10.2 million of
treasury stock in 1995.
Additionally, on December 31, 1996, the Company purchased from CCP certain
notes receivable from the Company's suppliers totaling $5.7 million. Payments
received on those notes totaled $1.8 million in 1997. The Company revised its
investment policy in 1997 and as a result purchased investments totaling $204.3
million and sold investments totaling $142.4 million during the year.
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<PAGE> 42
As a result of the borrowings under the Senior Credit Facility and the
issuance of the Notes, the Company is subject to cash requirements which are
significantly greater than its historical requirements. The Company generated
significantly higher cash flow from operations during the six months ended June
30, 1998 than in the comparable period in 1997. Net cash provided by operating
activities in the six months ended June 30, 1998 increased $18.3 million to
$31.2 million from $12.9 million in the comparable period in 1997. The increase
was primarily attributable to increases in accounts payable, income taxes
payable and other current liabilities in the six months ended June 30, 1998 as
compared to the same period in 1997, partially offset by a decline in net income
as adjusted for noncash items in the six months ended June 30, 1998 as compared
to in the same period in 1997. The increases in the Company's payable and
liability balances are primarily a result of the timing of payments.
The Company also generated significantly higher cash flow from investing
activities during the six months ended June 30, 1998 than in the comparable
period in 1997. Prior to June 4, 1998, the Company liquidated substantially all
of its investments held as of December 31, 1997 to meet the cash requirements of
the Recapitalization. As a result, proceeds from the sale of investments during
the six months ended June 30, 1998 totaled $152.8 million, or $83.7 million more
than the comparable period in 1997. Prior to 1997, the Company did not make any
material investments. The Company revised its investment policy in 1997 and as a
result used its existing cash and cash equivalents to purchase investments
totaling $132.8 million during the six months ended June 30, 1997. The proceeds
from the sale of those investments totaled $69.1 million. Purchases of
investments totaled $86.6 million during the six months ended June 30, 1998, or
$46.2 million less than the comparable period in 1997. In addition to its other
investing activities, the Company sold two aircraft in the six months ended June
30, 1998 for proceeds of $5.6 million.
The Company's use of cash for financing activities increased to $178.9
million during the six months ended June 30, 1998 from $15.9 million in the
comparable period in 1997. This increased use of cash was as a result of the
Recapitalization, pursuant to which the Company used proceeds of $182.6 million
from the contribution of equity by the Hicks Muse Shareholders, $200.0 million
from the issuance of the Notes and $300.0 million of borrowings under the Senior
Credit Facility, together with proceeds from the sale of investments as
described in the preceding paragraph, to pay $827.6 million for the redemption
of Company Common Stock, and to pay $24.3 million of fees and expenses
associated with the Recapitalization. These fees and expenses consisted of debt
issuance costs of $11.6 million and other fees and expenses of $12.7 million.
Prior to the Recapitalization, the Company's primary financing activity was the
payment of dividends. Dividends paid during the six months ended June 30, 1998
decreased to $9.6 million from $15.9 million in the comparable period in 1997.
Since the terms of the Notes and the Senior Credit Facility restrict the
Company's ability to pay dividends, the Company does not anticipate the payment
of dividends in the foreseeable future.
Payments on the Notes and the Senior Credit Facility represent significant
cash requirements for the Company. The Notes require semi-annual interest
payments commencing in December 1998 and will mature in 2008. Borrowings under
the Senior Credit Facility require quarterly interest payments commencing in
June 1998 and quarterly principal payments commencing in September 1998. In
addition, the Senior Credit Facility includes $40.0 million of Revolving Loans,
which mature on June 30, 2004. The Revolving Loans remained undrawn as of June
30, 1998, and the Company does not expect to utilize the Revolving Loans during
1998.
The terms of the Notes and Senior Credit Facility include significant
operating and financial restrictions, such as limits on the Company's ability to
incur indebtedness, create liens, sell assets, engage in mergers or
consolidations, make investments and pay dividends. Payments on the Tranche A
Loan are due quarterly over six years as follows: $25.0 million in years one and
two, $30.0 million in year three, $35.0 million in year four, $40.0 million in
year five and $45.0 million in year six. Payments on the Tranche B Loan are due
quarterly over eight years as follows: $1.0 million in each of years one through
six, $45.0 million in year seven and $49.0 million in year eight. The Revolving
Loans terminate and all outstanding amounts thereunder mature on June 30, 2004.
See "Unaudited Pro Forma Consolidated Financial Data," "Description of Senior
Credit Facility" and "Description of New Notes."
On July 1, 1998, the Company entered into an interest rate swap agreement
to limit the effect of increases in interest rates on the Senior Credit
Facility. The swap agreement provides the Company with a fixed rate of
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<PAGE> 43
interest until December 31, 2001, on $75.0 million. Pursuant to the swap
agreement, the Company is guaranteed a fixed 3-month LIBOR rate of 5.50% until
June 9, 1999. As of June 30, 1998, the 3-month LIBOR rate was 5.72%.
The Company increased its capital expenditures to $4.8 million during the
six months ended June 30, 1998 from $1.0 million in the 1997 period primarily as
a result of several nonrecurring expenditures, including the implementation of
the Computer System and expenditures related to its subsidiary, Spring Valley
Scents, Inc. ("SVS"), in the 1998 period. The Company estimates that its 1998
capital expenditures will be approximately $7.0 million principally as a result
of continued implementation of the Computer System and continued expenditures
related to SVS. The Company also expects to incur an additional $6.0 million to
$7.0 million of capital expenditures in late 1998 and throughout 1999 in
connection with its candle manufacturing operation. The Company believes that
net cash flow from operations and borrowings under the Revolving Loans, if any,
will be sufficient to fund its cash requirements in the foreseeable future,
which will consist primarily of repayment of indebtedness, working capital
requirements and capital expenditures. The Company's future operating
performance and ability to service or refinance its current indebtedness 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 -- Substantial Leverage."
INFLATION
Although the Company's operations are affected by general economic trends,
inflation and changing prices did not have a material impact on the Company's
operations in 1995, 1996 or 1997 or for the six-month period ended June 30,
1998.
ENVIRONMENTAL ISSUES
In 1989, Dallas Woodcraft, Inc., a subsidiary of the Company ("DWC"), was
named as a PRP based on allegedly having sent 2,640 gallons of waste to the
Chemical Recycling, Inc. facility in Wylie, Texas. In the future, DWC and the
other PRPs will incur costs related to the cleanup of hazardous substances at
the facility. DWC did not incur any cleanup related costs during 1995, 1996 and
1997 or during the six months ended June 30, 1998.
In 1997, Homco, Inc., a subsidiary of the Company ("Homco"), was named as a
PRP based on allegedly having transported hazardous waste to the Materials
Recovery Enterprises, Inc. facility in Ovalo, Texas. In the future, Homco and
the other PRPs will incur costs related to the cleanup of hazardous substances
at the facility. Homco did not incur any cleanup related costs during 1997 or
during the six months ended June 30, 1998.
In 1996, the United States Environmental Protection Agency issued a Notice
of Violation claiming that the Company's subsidiary, GIA, Inc. ("GIA") had
violated the Clean Air Act and Nebraska Air Regulations by failing to obtain one
or more Construction Permits for plant expansions that occurred in the 1970s and
1980s. In January 1997, GIA responded to the Notice of Violation and in January
1998, a combined construction and operating permit was proposed for the
facility. The Company believes that the permit will be issued and it is not
likely that GIA will incur penalties for the activities covered by the Notice of
Violation.
The ultimate outcome and aggregate cost of resolving all of the above
contingencies will be based on a number of factors and will be determined over a
number of years. Accordingly, the total cost to the Company cannot currently be
determined with certainty. In the opinion of the Company's management, however,
the total cost of resolving such contingencies should not have a material
adverse effect on the Company's business, financial condition and results of
operations or its ability to pay interest and principal on the Notes.
YEAR 2000
As a result of certain computer programs being written using two digits
rather than four digits to define the applicable year, any of the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000. This could result in a system
failure or
40
<PAGE> 44
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in normal
business activities.
The Company is in the process of implementing its new and significantly
more sophisticated Computer System. As of June 30, 1998, the Company had spent
approximately $3.7 million on the Computer System. The Company expects that it
will incur an additional $1.1 million to implement the balance of the Computer
System, which the Company expects to rollout in late 1998 and early 1999. The
Company is in the process of implementing new software to be included in its
Computer System with the expectation that all of such software will function
properly beyond 1999. There can be no assurance, however, that such software
will be Year 2000 compliant. The Company has not yet determined whether its
material non-information technology systems such as manufacturing and physical
facilities are Year 2000 compliant although the Company is currently conducting
an assessment of Year 2000 compliance of such systems. Moreover, the Company has
not yet ascertained whether its third party suppliers, freight carriers and
other vendors with whom the Company transacts business have adequately addressed
their Year 2000 compliance issues. The Company has commenced an assessment of
whether third parties material to the Company's business will be Year 2000
compliant by the year 2000, however, the ability of third parties with whom the
Company transacts business to adequately address their Year 2000 issues is
outside of the Company's control. In response to these uncertainties, the
Company intends to commence work on contingency plans to address potential
problem areas with its internal non-information technology systems and with
suppliers, freight carriers and other third party vendors once the assessment is
complete. It is expected that assessment, remediation, if required, and
contingency planning activities will be on-going through 1998 and 1999 with the
goal of appropriately resolving all material internal and third party issues.
There can be no assurance, however, that the failure of the Company or such
third parties to adequately address their respective Year 2000 issues will not
have a material adverse effect on the Company's business, financial condition
and results of operations or its ability to pay interest and principal on the
Notes.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure About
Segments of an Enterprise and Related Information." The new standard is
effective for financial statements for fiscal years beginning after December 15,
1997. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard is effective for fiscal
years beginning after December 15, 1999. The Company has not yet determined the
effects the new standards will have on its financial statements.
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<PAGE> 45
BUSINESS
GENERAL
Home Interiors is the largest direct seller of home decorative accessories
in the United States. The Company sells the Products to Displayers who resell
the Products using the "party-plan" method to conduct Shows for potential
customers. As of June 30, 1998, the Company sold Products to approximately
51,500 Displayers, 50,200 of whom were located in the United States and 1,200
and 100 of whom were located in Mexico and Puerto Rico, respectively. In 1996
and 1997, approximately 28% of the dollar volume of Products purchased by the
Company were purchased from and manufactured by the Company's subsidiaries. The
Company's headquarters are in Dallas, Texas.
Since its inception in 1957, the Company has sold a coordinated line of
Products to Displayers, a group of independent and self-confident women who
operate their own businesses by purchasing the Products from the Company and
reselling them to customers. The Company continues to stress the importance and
dignity of women, a philosophy adopted by its founder, Mary Crowley. This
philosophy remains deeply imbedded in the Company's training, motivation and
selling strategies. The Company believes that this philosophy has contributed to
its ability to attract and retain a loyal Displayer direct sales organization,
and to distinguish its products in the marketplace by the value placed on the
integrity of Displayers and quality of customer service and products. The
Company also believes that by providing Displayers with the appropriate support
and encouragement, Displayers can achieve personally satisfying and financially
rewarding careers by enhancing the home environments of their customers.
COMPETITIVE STRENGTHS
Home Interiors believes that its success and its opportunities for
continued growth and increased profitability primarily result from the following
competitive strengths:
Trained and Productive Sales Force. The Company believes that its
sales force is one of the best trained in the direct sales industry. New
Displayers are introduced to the Company through a series of
Company-developed video cassettes and other training materials and are
trained by experienced Displayers who have attended a training course at
the Company's Dallas headquarters focusing on developing new recruits. The
Company continually provides direct communications to each Displayer
through mailings, meetings, seminars and rallies designed to recognize
exceptional Displayer performance, discuss selling "tips," introduce new
Products and programs and provide motivation. In 1997, the average Company
domestic Displayer sold Products with a suggested retail price of $15,800,
while the average independent salesperson of other companies in the direct
selling industry sold items worth $4,800 (at retail), according to the DSA.
In addition, the Company believes that the retention rate for its
Displayers is higher than that of other direct sales companies. At December
31, 1996 and 1997, 40% and 45%, respectively, of Displayers had been
Displayers for two or more years, compared to the industry average of 24%
in 1996 according to the DSA.
Consumer Focused Product Line. Because the Company believes it is
important to its success to develop and introduce new Products that
anticipate and reflect changing consumer preferences, the Company's
merchandise department regularly coordinates new Product introductions.
Merchandise department personnel attend home decor trade shows, analyze
other market information and meet with Displayers and suppliers to
identify, evaluate and design new Products. The Company distributes
approximately 900 proposed or prototype items annually to selected
Displayers for review, including a determination of whether the suggested
retail prices are attractive. Based in large part on the Displayers'
review, Home Interiors introduces approximately 150 to 225 new Products
each year to replace other less popular items.
Stable Margins. The Company has generated relatively stable gross
profit and operating profit margins primarily due to (i) the Company's
practice of generally maintaining stable cost and selling prices on all
Products after introduction to the Product line and (ii) the low level of
fixed assets and corporate overhead required for the Company's business.
42
<PAGE> 46
Efficient Delivery System. The Company has established a delivery
system to achieve quick and cost-effective delivery of Products to its
Displayers. Home Interiors believes that most other direct sales companies
deliver products directly to the end customer and assess a freight charge
to the customer. In contrast, the Company delivers Products to the
Displayers free of charge if minimum order sizes are met. Deliveries are
usually made within four to five days of the Company's receipt of an order.
The Company is able to provide free delivery because of (i) volume
discounts it receives from common carriers and (ii) its use of Local
Distributors enabling the Company to avoid the premiums charged by common
carriers for delivery to private residences, which is where most Displayers
receive deliveries.
Popularity of Direct Sales. The Company believes that direct selling
is an established, growing and well received sales method. According to the
DSA, approximately 9.3 million Americans sold approximately $22.2 billion
of products on a direct sales basis in 1997. This represented a 9% increase
in the number of direct salespeople and a 7% increase in the dollar amount
of direct sales from 1996.
BUSINESS STRATEGY
The Company's business strategy is to maintain its position as a leader in
the direct selling industry and to maximize new growth opportunities. To achieve
these goals, the Company intends to:
Improve the Productivity of Displayers. In order to improve Displayer
productivity, the Company provides training programs, rallies, seminars and
incentive programs designed to maintain and increase Displayers' knowledge
of, and motivation and enthusiasm for, the Products and the Company. In
addition, the Company is exploring the application of technology which
could reduce the time a Displayer must allocate to the administration of
her business, thereby increasing the time Displayers have available to sell
Products.
Expand and Retain the Displayer Base. The Company seeks to attract new
Displayers with programs that encourage existing Displayers to recruit new
Displayers. In addition, Home Interiors designs financial incentives and
training and motivational programs to improve its Displayer retention rate.
Maximize Product Attractiveness. The Company continually works with
its manufacturing subsidiaries, independent suppliers and Displayers to
design and sell a coordinated Product line that provides an attractive
value to the Displayers' customers.
Improve and Diversify Manufacturing Capability. The Company frequently
reviews its manufacturing processes to maximize its ability to produce
high-quality, price-competitive Products.
Expand International Operations. The Company intends to continue
expanding its operations in Mexico and Puerto Rico and will consider
opportunities in other countries as well. The Company also plans to hire
one or more management personnel with international direct selling
experience to expand its international sales efforts.
PRODUCTS
Product Line. The Company's product line consists of approximately 600 to
700 items. The best selling Products are framed artwork and mirrors, plaques,
figurines, candles and candle holders, sconces and artificial floral displays.
Most of the Products are designed for display and sale in coordinated decorative
groupings, which encourages customers to purchase several accessories to achieve
a "complete" look. In general, the Products fit within design categories that
are favored by Displayers and their customers, such as American (including
Western and Country themes), Victorian and Traditional. The Company offers a
limited selection of seasonal Products, primarily for the Christmas season.
Prices. Products are targeted to women who are interested in decorating
their homes, but have a limited budget. The Company's Products are sold
throughout the continental United States at suggested retail prices ranging from
$2 to $93 per item, with approximately 80% of the Products ranging in price from
$7 to $30. Although Displayers may sell the Products at any price, the Company
believes that most Displayers charge the Company's suggested retail prices. The
Company believes that the suggested retail prices of the Products are lower than
the prices of products of similar quality and design available from other
sources, thereby offering the Displayers' customers excellent value. In
addition, unlike many other direct sales companies
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<PAGE> 47
which the Company believes charge their customers shipping costs, the Company
delivers its Products to the Displayers free of charge if minimum order sizes
are met.
Product Design and Introduction Process. Because the Company believes that
it is important to its success to develop and introduce new Products that
anticipate and reflect changing consumer preferences, the Company's merchandise
department regularly coordinates new Product introductions. Members of that
department attend furniture and home-furnishings trade markets, frequently meet
with Displayers and suppliers and assemble information from retail stores and
retail research sources to determine consumer buying trends, thereby enabling
them to analyze the marketability of existing Products and identify and design
new Products. Products are frequently evaluated to determine whether they should
be modified or removed from the product line. The Company annually distributes
approximately 900 proposed or prototype items to selected Displayers for review,
including a determination of whether the proposed suggested retail prices are
attractive. Based on that review, the Company introduces approximately 150 to
225 new Products each year to replace less popular items.
SALES METHODS AND ORGANIZATION
Displayers. The Company's marketing and sales strategy is focused on
motivating the Displayers to purchase the Products from the Company and resell
them to their customers. Because the Company does not use mail-order catalogs,
retail outlets or other methods of distribution, it is entirely dependent on
Displayers to purchase and sell the Products. No Displayer is an employee of the
Company, and, as independent contractors, all Displayers are responsible for
operating their own businesses. See "Risk Factors -- Independent Contractor
Status."
According to a 1994 survey conducted on behalf of the Company by a market
research firm, the typical Displayer is a 39-year old married woman, with a high
school (and perhaps some college) education, who has an annual household income
of approximately $40,000. Displayers generally work as such on a part-time
basis.
Displayers can profit from the difference between the purchase price of the
Products paid to the Company and the sales price charged to their customers,
which for Displayers who are not directors is their principal source of profit.
If Displayers sell the Products at the suggested retail prices, they generally
can earn 40% gross profit. Displayers can also earn money and prizes based on
the dollar amount of Products purchased from the Company by them and the
Displayers they have recruited. In addition, Displayers can benefit from
periodic discounts and incentives offered by the Company. See "-- Training and
Sales Support."
Generally, Displayers pay for Products ordered from the Company at the time
the order is placed, although the Company typically provides each Displayer an
unsecured line of credit of up to $2,000. The Company periodically modifies each
Displayer's credit limit based on her sales volumes.
Displayers are contractually prohibited from marketing goods other than the
Products at Shows conducted for the purpose of selling the Company's Products.
In addition, Displayers who become Trainers or directors are prohibited from
working for or selling the products of any other direct selling company.
Shows. The principal sales method used by Displayers is the "party plan,"
in which Displayers conduct Shows in the homes of other women who, by
arrangement with the Displayers, serve as hostesses for the Shows ("Hostesses").
Each Show is attended by approximately ten guests who have been invited by the
Hostess for that Show. At a Show, a Displayer will display representative groups
of Products and color brochures showing the Company's entire product line. The
typical Show lasts between two and two and one-half hours. Initially, the
Displayer demonstrates the Products, but most of the time is devoted to each
guest's decorating interests or needs and to taking orders for Products.
Typically, Products are paid for at the time they are ordered and are delivered
to the Hostess within two weeks after the Show. The Company believes that Shows
create group enthusiasm for the Products, enable Displayers to increase sales,
offer the opportunity for Displayers to develop new customers and provide
Displayers the opportunity to recruit new Hostesses and Displayers. At each
Show, in addition to selling Products, Displayers promote to the guests the
benefits of being a Hostess or Displayer.
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<PAGE> 48
Hostesses are critical to a Displayer's success. A Hostess is responsible
for inviting the guests, or prospective customers, to a Show and later for
distributing the purchased Products to each customer. To reward the Hostess for
her efforts, the Displayer purchases redeemable coupons ("Hostess merits") from
the Company and provides her Hostess with Hostess merits commensurate with the
sales generated at the Show and with the number of guests who agree to become a
Hostess for a future Show. The Hostesses may redeem Hostess merits for Products
which are available exclusively to Hostesses. In mid-1996, the Company also
began the Hostess Bonus Buy Program.
In addition to sales generated at Shows, Displayers also receive orders
generated from Product brochures which are distributed at Shows or by Displayers
and Hostesses at other locations. Each brochure is produced by the Company's
in-house photography studio and contains pictures of the Products. The Company
produces both quarterly brochures containing the Company's complete product line
and supplemental monthly brochures containing the newest and most popular
Products. All brochures have a place for the Displayer to insert her personal
contact information since Products cannot be purchased by customers directly
from the Company.
TRAINING AND SALES SUPPORT
Field Organization. The Company's training and sales support for Displayers
is designed to promote contact between less experienced or active Displayers and
more experienced or active Displayers. The Company groups Displayers into
"Units" for training and motivational purposes. In the United States, the number
of Displayers in a Unit ranges from 20 to 285, with an average of approximately
78 Displayers. Approximately 645 Units are headed by either a "Branch director"
or a "Unit director" and each Unit is grouped with other Units to constitute a
"Branch." The number of Units in a Branch ranges from four to thirteen, with an
average of approximately seven Units. As of June 30, 1998, there were
approximately 100 Branches in the United States, each of which was headed by a
Branch director. In addition, seven Branch directors, who are also Associate
District directors, and six District directors travel the United States, Mexico
and Puerto Rico, motivating, training and inspiring Branch directors. All
"directors," which includes Unit directors, Branch directors, Associate District
directors and District directors, are independent contractors and not employees
of the Company.
Recruiting and Training. Because the average annual Displayer turnover
during the two-year period ended December 31, 1997 approximated 46% (which
compares favorably to the most recently published averages for the direct sales
industry), it is vital to the Company's success to consistently recruit new
Displayers. Accordingly, the Company provides Displayers with additional
financial rewards and the possibility of promotions to different director
categories for recruiting Displayers who become successful saleswomen. The
Company's ability to recruit, train, motivate and retain the Displayers depends
upon, among other things, (i) the managerial capabilities and personal charisma
of the Company's senior management, (ii) the Company's ability to offer an
attractive business opportunity to Displayers by enabling them to achieve
acceptable profit margins on the resale of Products, (iii) the Company's ability
to provide adequate and timely recruiting and training incentives to existing
Displayers, (iv) the introduction of new Products and marketing concepts, (v)
the effectiveness of the Company's commission and incentive programs and
discounts and (vi) general economic conditions.
As part of their marketing and sales activities, Displayers seek to
identify and recruit new Displayers, typically women who have attended Shows.
Once a candidate is identified, a qualified person in the recruiting Displayer's
Unit typically interviews the candidate to explain the opportunities, time
commitment, start-up costs, training and other activities a Displayer can expect
to experience.
Though any Displayer can recruit an individual, only Displayers who are
qualified trainers ("Trainers") may train a Displayer candidate. To become a
Trainer, a Displayer must have demonstrated previous recruiting success, have
been recommended by her Branch director and have attended training classes at
the Company's headquarters. Trainers may earn commissions on the Product sales
of recruits they train. When the recruiting and sales volume of a Trainer and
her recruits reach certain levels, she may be permitted to form a new Unit and
become a Unit director.
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<PAGE> 49
The Company believes that training is a critical component of a Displayer's
success. The Company emphasizes sales of the Products and typically requires all
recruits to participate in an intensive sales-education program. Home Interiors
encourages Displayers to recruit new Displayers who will sell Products to
customers rather than merely purchasing items for personal consumption. In
contrast, the Company believes that many other direct selling companies
encourage recruiting of new sales people irrespective of the future sales
potential of the new recruits. The training program includes studying a
"training portfolio," instruction by a Trainer and observing several Shows
conducted by experienced Displayers. The training portfolio consists of five
video tapes, two audio tapes and a corresponding workbook that describe the
Company, the process of contacting Hostesses and booking Shows, conducting Shows
and managing a home-based business. New Displayers also obtain detailed
instructions from their Trainer about the Products, fundamental elements of home
decorating and methods for conducting successful Shows.
Continuing Training and Motivation. The Company believes that
Company-sponsored continuing training and motivation of Displayers is critical
to Displayer morale and, therefore, to the Company's sales. The Company hosts a
three-day annual seminar for all Displayers. At that seminar, the Company
provides motivational speakers, product displays, entertainment and meals, and
conducts ceremonies to recognize the Displayers. The Company also sponsors
one-day or two-day "rallies" every August, at locations across the United
States, to introduce the Company's fall product line, including its Christmas
seasonal merchandise.
Every two weeks, the Company mails each Displayer a newsletter that
announces new incentive programs or discounts, discusses selling techniques,
motivational strategies and Product status, as well as recognizes successful
Displayers. Unit directors typically hold weekly sales meetings for the
Displayers in their Unit, and Branch directors hold quarterly meetings for the
Unit directors and the Displayers in their Branch to discuss selling techniques,
motivation strategies, Product introductions and sales recognition.
Incentive Programs. In addition to the 40% gross profit Displayers can earn
through the purchase and resale of the Products, the Company provides incentives
to Displayers by rewarding top-performing Displayers with cash, vacation trips,
gifts and other prizes. The incentive rewards, which vary annually, are based on
the volume of Products purchased from the Company by a Displayer. The Company
also provides a variety of discount programs in connection with Product
purchases and rewards Displayers who recruit other Displayers who become
successful saleswomen.
Remuneration. Trainers and all directors can earn commissions at varying
levels based on the volume of Product purchases of the Displayers they train or
service. Directors are also eligible for performance bonuses. In addition,
Branch directors, Associate District directors and District directors are
reimbursed for certain travel and other expenses. District directors and
Associate District directors also receive $200 monthly for each Unit they
service, plus an annual payment based on the percentage of their District's
annual increase in Product purchases.
PRODUCT SUPPLY AND MANUFACTURING
Approximately 28% of the dollar volume of Products purchased by the Company
in 1996 and 1997 were purchased from and manufactured by the Company's
subsidiaries. The Company manufactures framed artwork and mirrors, plaques, and
various types of molded plastic products through the use of custom-designed
equipment. To date, the Company has been able to secure an adequate supply of
raw materials for its manufacturing operations and the Company does not expect
any material interruptions in the supply of raw materials it uses to manufacture
Products.
Products not manufactured by the Company are purchased from approximately
25 foreign and domestic suppliers. The Company is either the largest or the only
customer of many of its suppliers and most of its Products are manufactured
exclusively for Home Interiors. The Company believes that its relationships with
its suppliers are good. The Company has not had any material interruptions in
the supply of Products it purchases from suppliers. Other than H.T. Ardinger &
Son Company, which supplied the Company with 19%, 19% and 17% of the dollar
volume of Products purchased by the Company in 1995, 1996 and 1997,
respectively, and Oxford International, which supplied the Company with 13% of
the dollar volume of Products purchased by the Company in 1997, no supplier
furnished the Company with more than 10% of the
46
<PAGE> 50
dollar volume of Products purchased by the Company during any of the last three
fiscal years. See "Certain Relationships and Related
Transactions -- Relationships with H.T. Ardinger & Son Company." Many of the
Company's supplier relationships have existed for more than 20 years, and the
Company has experienced little supplier turnover in the recent years. However,
because the Company has no written supply agreement with any supplier, each
relationship may be terminated at any time by either party.
PRODUCT DISTRIBUTION
Displayers typically submit purchase orders to the Company's headquarters
weekly, with each Displayer being assigned one order processing day. Upon
receipt, orders are recorded and the Displayer's recent sales activity and
credit and accounts receivable status are automatically verified. Each purchase
order is then forwarded to one of the Company's distribution centers, where it
is filled and shipped generally on the same day it is received.
Because the Products vary significantly in size, the Company fills orders
manually. The Company has been able to achieve freight savings, minimize Product
damage and returns and increase timely delivery by, among other things, (i)
using an order-checking system which uses electronic scanners and bar codes to
minimize errors in filling orders, (ii) packaging each order in standard-sized
boxes, and (iii) preparing shipping labels that are tailored to the requirements
of each specific common carrier. The Company is able to track each order shipped
through its approximately 130 common carriers.
To minimize shipping costs, the Company utilizes a two-step process in
which the Company's common carriers ship full truck loads of Products to
approximately 190 regional delivery sites where Local Distributors sort the full
loads and deliver the Products to each Displayer. Approximately 70% to 80% of
the Products shipped by the Company are delivered in this manner. In cases where
Local Distributors are not used, the Products are shipped by common carriers
directly to the Displayers.
When the Displayer receives her bulk packaged order, she unwraps, inspects
and repackages the items for individual customers and typically delivers them to
her Hostesses for delivery to the customers. Displayers sometimes contact
customers to confirm their satisfaction with their Products. Multiple contacts
with Hostesses and customers provide Displayers with opportunities to provide
information regarding the Company and its Products, which assist in the
Displayers' sales and recruiting efforts.
COMPETITION
The Company operates in a highly competitive environment. Products sold by
the Company compete with products sold elsewhere, including department and
specialty stores, mail order catalogs and other direct-sales companies. The
Company competes in the sale of Products on the basis of quality, price and
service. Because of the number of Products it manufactures and its relatively
small number of suppliers of finished Products, the Company is able to exercise
some control over the quality and price of the Products. This allows the
Displayers to charge prices within a range believed to be acceptable to their
customers.
The Company also competes with other direct-selling organizations, even
those whose products may not compete with the Products, in recruiting and
retaining Displayers. The Company's future success will also require the
recruitment, retention and integration into the Company's business of other
highly qualified management and sales, marketing and product development
personnel. See "Risk Factors -- Reliance on Displayers," "-- Dependence on Key
Personnel" and "-- Product Competition."
EMPLOYEES
At June 30, 1998, the Company employed approximately 1,400 persons,
principally in the Dallas, Texas metropolitan area. None of the employees of the
Company are represented by a labor union or covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
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<PAGE> 51
PROPERTIES AND FACILITIES
The Company owns the following properties used for the purposes set forth
below:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION(1) PURPOSE SQUARE FOOTAGE
- ----------- ------- --------------
<S> <C> <C>
Farmers Branch Headquarters (office, distribution and 325,000
warehouse facility)
Dallas Manufacturing facility 209,000
McKinney Manufacturing and distribution facility 192,000
Grand Island, Nebraska Manufacturing facility 140,000
Frisco Distribution facility 86,000
Coppell Distribution facility 79,000
North Carrollton Distribution facility 54,000
Garland Distribution facility 54,000
Lewisville Warehouse and retail outlet 25,000
Coppell Meeting and training facility 16,000
</TABLE>
- ---------------
(1) All cities are located in Texas, except as noted
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to time
threatened with or named as a defendant in various lawsuits, including product
liability claims. The Company is not currently a party to any uninsured material
litigation and is not aware of any litigation threatened against it that could
have a material adverse effect on the Company's business, financial condition
and results of operations and its ability to pay interest and principal on the
Notes. The Company is also subject to certain environmental proceedings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 14 to Consolidated Financial Statements.
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<PAGE> 52
MANAGEMENT
Set forth below is certain information as of August 12, 1998 with respect
to those individuals who are serving as members of the Board of Directors or as
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald J. Carter, Jr. ...... 38 Chairman of the Board and Chief Executive Officer
Barbara J. Hammond.......... 68 Director and President
Christina L. Carter 35 Director and Executive Vice President
Urschel...................
Leonard A. Robertson........ 53 Chief Financial Officer
Thomas O. Hicks............. 52 Director
Jack D. Furst............... 39 Director
Lawrence D. Stuart, Jr. .... 53 Director
Daniel S. Dross............. 40 Director
Sheldon I. Stein............ 45 Director
</TABLE>
Set forth below is a description of the backgrounds of those persons who
are serving as members of the Board of Directors and as executive officers of
the Company. All of the Company's officers are appointed by the Board of
Directors and serve at its discretion.
Donald J. Carter, Jr. has served as Chief Executive Officer of the Company
since October 1997 and in June 1998 became Chairman of the Board following the
Recapitalization. Mr. Carter provides leadership in sales, marketing and
operational areas of the Company. Since he joined the Company in 1984, Mr.
Carter has also served the Company in various executive capacities, including as
Executive Vice President of Sales from 1994 to 1997. Mr. Carter is the son of
Donald J. Carter and the brother of Christina L. Carter Urschel and Ronald L.
Carter.
Barbara J. Hammond has served as President of the Company since 1995, and
is responsible for all domestic sales, development of incentive programs and
training and motivation of directors. Ms. Hammond has served the Company in
various executive capacities since 1986, including as National Sales Manager and
Executive Vice President of Sales. Ms. Hammond originally joined the Company as
a Displayer in 1960, when she was personally trained by Mary C. Crowley, and
rose to become one of the Company's top Displayers and directors.
Christina L. Carter Urschel has served the Company as Executive Vice
President since 1997, and is responsible for overseeing the training,
development and motivation of the Displayers and directors. Ms. Urschel served
as Vice President of the Company from 1994 to 1997. Ms. Urschel joined the
Company in 1987 and, since that time, has undertaken various sales and marketing
responsibilities. Christina L. Carter Urschel is the daughter of Donald J.
Carter and the sister of Donald J. Carter, Jr. and Ronald L. Carter.
Leonard A. Robertson has served as Chief Financial Officer of the Company
since 1995. Before joining the Company, Mr. Robertson held various positions,
most recently as partner, with Judd, Thomas, Smith & Company, P.C., an
independent public accounting firm that provides accounting, auditing and tax
services to the Company. Mr. Robertson is a Certified Public Accountant.
Thomas O. Hicks became a director of the Company in June 1998. Mr. Hicks
has been Chairman and Chief Executive Officer of Hicks Muse since co-founding
Hicks Muse in 1989 and has over 25 years of experience in leveraged acquisitions
and private investments. Mr. Hicks serves as a director of Berg Electronics
Corp., Chancellor Media Corporation, International Home Foods, Inc., D.A.C.
Vision, Inc., Sybron International Corporation, Capstar Broadcasting
Corporation, Cooperative Computing Holding Company, Inc., Lin Holdings Corp.,
and Viasystems Group, Inc. Mr. Hicks is also Vice Chairman of the Board of
Regents of the University of Texas System.
Jack D. Furst became a director of the Company in June 1998. Mr. Furst is a
Managing Director and Principal of Hicks Muse and has held such position since
1989. Mr. Furst has approximately 15 years of experience in leveraged
acquisitions and private investments. Mr. Furst is involved in all aspects of
Hicks Muse's business and has been actively involved in originating, structuring
and monitoring its investments.
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<PAGE> 53
Prior to joining Hicks Muse, Mr. Furst was a Vice President and subsequently a
Partner of Hicks & Haas, Incorporated, a Dallas based, private investment firm
from 1987 to 1989. From 1984 to 1986, Mr. Furst was a Merger and
Acquisitions/Corporate Finance Specialist for The First Boston Corporation in
New York. Before joining First Boston, Mr. Furst was a Financial Consultant at
Price Waterhouse. Mr. Furst serves on the Board of Directors of Omni America
Holdings Corporation, International Wire Holding Company, Cooperative Computing,
Inc. and Viasystems Group, Inc.
Lawrence D. Stuart, Jr. became a director of the Company in June 1998. Mr.
Stuart has been a Managing Director and Principal of Hicks Muse since 1995. At
Hicks Muse, Mr. Stuart coordinates all aspects of negotiating and closing the
firm's leveraged acquisition transactions and managing the firm's relationships
with professional service firms. Prior to joining Hicks Muse, Mr. Stuart had
served for over 20 years as the principal outside legal counsel for the
investment firms and portfolio companies led by Thomas O. Hicks. From 1989 to
1995, Mr. Stuart was the Managing Partner of the Dallas office of Weil, Gotshal
& Manges L.L.P. Prior thereto, he was a Partner at Johnson & Gibbs, where he was
employed from 1973 to 1989. Prior to joining Johnson & Gibbs, he was employed at
Rain, Harrell, Emery, Young & Doke. Mr. Stuart received his B.A. and J.D.
degrees from Southern Methodist University. Mr. Stuart serves on the Board of
Directors of Omni America Holdings Corporation and Chancellor Media Corporation.
Daniel S. Dross became a director of the Company in June 1998. Mr. Dross
serves as a Senior Vice President of Hicks Muse where he has been employed since
1991. Prior to joining Hicks Muse, Mr. Dross was employed for five years as a
Vice President in the investment banking division of Prudential Securities in
New York and Dallas. Mr. Dross is a graduate of Dartmouth College and received
his M.B.A. from the Wharton School of Business at the University of
Pennsylvania.
Sheldon I. Stein became a director in July 1998. Mr. Stein is a Senior
Managing Director and heads the Southwest Investment Banking Group of Bear
Stearns. Prior to joining Bear Stearns in 1986, Mr. Stein was a partner in the
Dallas law firm of Hughes & Luce, where he specialized in corporate finance and
mergers and acquisitions. Mr. Stein serves on the Boards of Directors of several
public companies including CellStar Corporation, FirstPlus Financial Group,
Inc., Fresh America Corp., The Men's Wearhouse, Inc., Precept Business Services,
Inc. and Tandycrafts, Inc. He is a member of the Board of Trustees of the
Greenhill School and a Trustee of Brandeis University. Mr. Stein received his
Bachelors degree from Brandeis University Magna Cum Laude and a J.D. from
Harvard Law School. Mr. Stein is a member of Phi Beta Kappa.
Following the Recapitalization, the number of directors of the Company was
increased to eleven, resulting in four vacancies on the Board. The Shareholder
Agreement provides that Hicks Muse shall have the right to designate two
additional directors and that the Committed Shareholders (as defined) and Hicks
Muse shall mutually designate two independent directors. On July 30, 1998, Hicks
Muse designated Sheldon I. Stein as one of its two remaining directors pursuant
to the Shareholders Agreement. See "Certain Relationships and Related
Transactions -- The Shareholder Agreement."
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during each of the
three years in the period ended December 31, 1997 to the Chief Executive Officer
and the other four most highly compensated executive officers who were serving
as executive officers at December 31, 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- --------------------------- ---- --------- ---------
<S> <C> <C> <C>
Donald J. Carter, Chairman of the Board and 1997 3,600 1,539,949(1)
(until October 1997) Chief Executive Officer 1996 3,600 1,480,572(1)
1995 3,600 1,713,744(1)
Donald J. Carter, Jr., Chief Executive 1997 192,288 190,500
Officer (since October 1997) and Director 1996 192,288 11,614
1995 192,288 --
Barbara J. Hammond, President and Director 1997 400,008 190,500
1996 400,008 22,000
1995 400,008 --
Christina L. Carter Urschel, Executive 1997 192,288 190,500
Vice President and Director 1996 192,288 11,911
1995 192,288 --
Leonard A. Robertson, Chief Financial Officer 1997 180,000 15,000
1996 180,000 11,000
1995 90,000 --
</TABLE>
- ---------------
(1) This amount represents commissions in an amount equal to 0.4% of the
Company's domestic sales (before discounts and sales of Products to
Hostesses).
EXECUTIVE EMPLOYMENT AND CONSULTING AGREEMENTS
On June 4, 1998, following the Recapitalization, the Company entered into
Executive Employment Agreements with each of Donald J. Carter, Jr., Barbara J.
Hammond, Christina L. Carter Urschel and Donald J. Carter, and entered into a
Consulting Agreement with Ronald L. Carter. Pursuant to the terms of the
Executive Employment Agreements, Donald J. Carter, Jr. will be employed as
Chairman of the Board and Chief Executive Officer of the Company for five years
with total annual compensation (including bonuses) ranging from $500,000 to
$1,125,000; Barbara J. Hammond will be employed as President of the Company for
two years with total annual compensation (including bonuses) that ranges from
$475,000 to $1,068,750; and Christina L. Carter Urschel will be employed as
Executive Vice President of the Company until the retirement of Barbara J.
Hammond (and as President thereafter) for five years with total annual
compensation (including bonuses) that ranges from $400,000 to $900,000 ($475,000
to $1,068,750 at such time as she becomes President). The Executive Employment
Agreements with Donald J. Carter, Jr., Barbara J. Hammond and Christina L.
Carter Urschel each provide for lump sum severance payments in the event such
individuals are terminated by the Company without cause (as defined in such
Executive Employment Agreements) or such individuals terminate their employment
for Good Reason (as defined in such Executive Employment Agreements). Subject to
certain exceptions, the amount of such lump sum severance payments equals (i)
five times the applicable executive's base salary if such executive is
terminated within one year after the Recapitalization or (ii) the greater of (a)
the aggregate base salary payable to the executive from the date of termination
through the expiration of the remainder of the term of the Executive Employment
Agreement and (b) three times the total base salary and annual bonus, if any,
received by the executive in the fiscal year preceding the fiscal year in which
such executive was terminated. In addition, each executive has agreed
51
<PAGE> 55
pursuant to his or her Executive Employment Agreement not to compete with the
Company during his or her employment and for a period of three years after
termination of such executive's employment for any reason.
Under the terms of his Executive Employment Agreement Donald J. Carter will
remain with the Company as Chairman Emeritus but will not work full-time. Donald
J. Carter's Executive Employment Agreement provides for an employment term of
five years and annual compensation of $200,000, plus reimbursement for certain
business-related aviation expenses, as well as the use of a Company-owned
vehicle. Donald J. Carter's Executive Employment Agreement generally requires
the Company to pay Mr. Carter's salary throughout the five-year term unless Mr.
Carter voluntarily terminates his employment during such term. Donald J. Carter
has agreed pursuant to his Executive Employment Agreement not to compete with
the Company during his employment and for three years thereafter (or, if
earlier, until such time as one of Mr. Carter's direct lineal descendents is no
longer the Chief Executive Officer of the Company).
The Company also entered into a one-year Consulting Agreement with Ronald
L. Carter, pursuant to which he will be paid $200,000 for his consulting
services. The Consulting Agreement with Ronald L. Carter includes provisions
prohibiting Mr. Carter from competing with the Company for a three-year period
after the consummation of the Merger.
1998 STOCK OPTION PLAN FOR KEY EMPLOYEES
On April 11, 1998, the Board adopted the 1998 Stock Option Plan for Key
Employees, pursuant to which options could be granted, after the consummation of
the Merger, to key employees and eligible non-employees of the Company and its
subsidiaries for the purchase of shares of Company Common Stock. The 1998 Stock
Option Plan for Key Employees was approved by the shareholders of the Company at
its annual general meeting on May 16, 1998.
The employees eligible for options under the 1998 Stock Option Plan for Key
Employees are those employees whose performance and responsibilities are
determined by the Board (or a committee thereof) (in either case, the
"Committee") to be essential to the success of the Company and its subsidiaries.
A total of 1,353,924 shares of Company Common Stock are available for grant
under the 1998 Stock Option Plan for Key Employees. Generally, the option period
(i.e., the term under which an option is exercisable) may not be more than ten
years from the date the option is granted. The Committee will determine, in its
discretion, the key employees and eligible non-employees who will receive
grants, the number of shares subject to each option granted, the exercise price
and the option period and will administer and interpret the 1998 Stock Option
Plan for Key Employees. Pursuant to that certain Agreement and Plan of Merger
dated April 13, 1998, by and between the Company and CII (the "Merger
Agreement"), and the applicable Executive Employment Agreements, immediately
after the consummation of the Recapitalization, options for 338,481 shares were
granted to each of Donald J. Carter, Jr. and Christina L. Carter Urschel at an
exercise price equal to $18.05451. Additionally, options for an aggregate of
288,080 shares were granted to other current key employees of the Company at the
same exercise price.
Although the Committee will have full discretion to determine the terms of
any option, it is expected that options will generally vest or become
exercisable in equal annual installments over a five-year period. All
installments that become exercisable will be cumulative and may be exercised at
any time after they become exercisable until the expiration of the option
period. Incentive stock options and, unless otherwise specified in the
applicable stock option agreements, nonqualified stock options may not be
transferred other than by will or by the laws of descent and distribution. The
Committee shall have the right, but not the obligation, to accelerate the
vesting of any option upon the occurrence of, or the entering into an agreement
providing for, a Change of Control (as defined in the 1998 Stock Option Plan for
Key Employees). Both incentive stock options and nonqualified stock options may
be granted under the 1998 Stock Option Plan for Key Employees.
Unless terminated sooner in accordance with its terms, the 1998 Stock
Option Plan for Key Employees will terminate on April 11, 2008, and no options
may be granted under the 1998 Stock Option Plan for Key Employees thereafter.
The Committee may amend, modify, suspend or terminate the 1998 Stock Option Plan
for Key Employees without the shareholders' approval, except that, without
shareholder approval, the Committee will not have the power or authority to
increase the number of shares of Company Common Stock
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<PAGE> 56
that may be issued pursuant to the exercise of options under the 1998 Stock
Option Plan for Key Employees, decrease the minimum exercise price of any
incentive stock options or modify the requirements relating to eligibility with
respect to incentive options. The Committee may, however, make appropriate
adjustments in the number and/or kind of shares and/or interests subject to an
option and the per share price or value thereof to reflect any merger,
consolidation, combination, liquidation, reorganization, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares or other like change in capital structure of the Company.
PURCHASE OPTION
Except in the case of options held by Donald J. Carter, Jr. and Christina
Carter Urschel, until such time as the Company has consummated an underwritten
public offering with the result that the ownership of the then outstanding
shares of Company Common Stock held by the Hicks Muse Shareholders is less than
10% of the fully diluted Company Common Stock, the Company shall have the right,
but not the obligation, to purchase an optionee's options or any shares of
Company Common Stock acquired pursuant to the exercise of his or her options in
the event of an optionee's termination of employment or the occurrence of a
Change of Control. "Change of Control" shall mean, generally, (a) any sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company to an unaffiliated person or entity or (b) a majority of the Board
shall consist of individuals other than those nominated by the majority of the
directors then serving on the Board or affiliates of the Hicks Muse
Shareholders. If the Company exercises its right to purchase any optionee's
options or shares of Company Common Stock, the purchase price shall be equal to
the fair market value (as defined in the 1998 Stock Option Plan for Key
Employees).
STOCK OPTION TRUST
Effective on June 4, 1998, the Company adopted the Home Interiors & Gifts,
Inc. 1998 Stock Option Plan for Unit Directors, Branch Directors and Certain
Other Independent Contractors (the "1998 Independent Contractor Stock Option
Plan"), in order to afford certain Unit directors, Branch directors and other
independent contractors an opportunity to acquire a proprietary interest in the
Company. Options for a total of 338,481 shares of Company Common Stock were
available for grant under the 1998 Independent Contractor Stock Option Plan. As
of July 31, 1998, options for 246,530 shares of Company Common Stock had been
granted to a trustee (the "Trust Options"), to be held in trust (the "Stock
Option Trust") for the benefit of such Unit directors, Branch directors and
other independent contractors. Under the terms of the Stock Option Trust, the
Trust Options vest in five equal annual installments from the date of grant or,
if earlier, upon the consummation of an underwritten initial public offering of
Company Common Stock satisfying certain requirements. The Trust Options expire
on the tenth anniversary of the date of grant. The Trust Options are not
exercisable until the first to occur of the 90th day following the consummation
of an underwritten initial public offering of Company Common Stock satisfying
certain requirements and the eighth anniversary of the consummation of the
Recapitalization. At such time as the Trust Options become exercisable, the
trust created under the Stock Option Trust will be liquidated and the Trust
Options will be distributed to the respective beneficiaries. Under certain
circumstances, the Company shall have the right to purchase the Trust Options,
or the shares of Company Common Stock issuable upon exercise thereof, for the
difference between the fair market value of the Company Common Stock underlying
such Trust Options and the option exercise price thereof.
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<PAGE> 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of transactions entered into between the
Company and certain of its shareholders or affiliates during the last three
years.
RELATIONSHIPS WITH CCP
Pursuant to a written consulting agreement which was cancellable upon 30
days notice, since July 1997 CCP acted as a consultant to the Company in
connection with the Recapitalization. In addition, CCP subleased a portion of
the Manor (as defined below) from the Company from June through December 1997
for monthly rental payments of $2,000. On or about December 31, 1996, the
Company purchased from CCP, for a total price of approximately $7,500,000,
various assets including 10,000 shares of the stock of Charles W. Weaver
Manufacturing Company, certain promissory notes and an airplane hanger in
Addison, Texas. CCP was a subsidiary of the Company until it was disposed of in
the Spin-Off, and Ronald L. Carter is President of CCP. Generally, the
shareholders of the Company prior to the Recapitalization own approximately the
same percentage of CCP as they do of the Company. The Dallas Mavericks, an NBA
franchise that was controlled by CCP, leased an athletic facility owned by the
Company pursuant to which it paid the Company approximately $37,000 and $40,000
in 1995 and 1996, respectively. In connection with the Spin-Off, the Company and
CCP executed a Joint and Mutual Release pursuant to which CCP agreed to
indemnify the Company for CCP's share of any deficiencies in consolidated
federal income taxes when and to the extent that CCP actually realizes a tax
benefit as a result of the adjustment giving rise to such deficiency. In 1995,
the Company paid to CCP approximately $900,000 in satisfaction of its
obligations under a tax sharing agreement between the Company and CCP related to
periods prior to the Spin-Off.
RELATIONSHIP WITH H. T. ARDINGER & SON COMPANY
Horace T. Ardinger, Jr., a former director and current shareholder of the
Company, owns H.T. Ardinger & Son Company, which supplies Products to the
Company. The Company paid H.T. Ardinger & Son Company approximately $50,756,000,
$46,920,000 and $45,601,000 during the Company's fiscal years ended December 31,
1995, 1996 and 1997, respectively, for purchases of Products.
RELATIONSHIP WITH GARDERE & WYNNE, L.L.P.
M. Douglas Adkins, a former director and current shareholder of the
Company, is a Partner at Gardere & Wynne, L.L.P., the Company's principal
outside counsel. The Company paid Gardere & Wynne, L.L.P. approximately
$546,000, $395,000, and $269,000 during the Company's fiscal years ended
December 31, 1995, 1996 and 1997, respectively, for legal services.
THE MANOR
The Company recently purchased from Donald J. Carter the real estate and
building which was Donald J. Carter's former residence (the "Manor") in exchange
for two airplane hangers and cash in the amount of approximately $340,000. The
Manor was valued by an independent appraiser at $1,925,000, and the airplane
hangers were appraised at an aggregate value of $1,580,000. The Manor is used by
the Company's personnel to train and motivate selected Displayers throughout the
year. Prior to the Company purchasing the Manor from Donald J. Carter, for each
of the three years in the period ended December 31, 1997, it leased the Manor
for rental payments of approximately $52,000 per year plus reimbursement of
expenses.
DALLAS, TEXAS CONDOMINIUM
During 1995 and 1996, the Company leased a condominium in Dallas, Texas
from CCP for use by Barbara J. Hammond, a resident of California. Beginning in
1997, the condominium was leased from Donald J. Carter. The Company paid
approximately $24,000 annually during such three-year period.
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<PAGE> 58
CARTER & SONS FREIGHTWAYS, INC.
Ronald L. Carter, a former director of the Company, is President and Chief
Executive Officer of Carter & Sons Freightways, Inc. ("Carter & Sons"), a
trucking company of which he and Donald J. Carter own all of the outstanding
stock. During the Company's fiscal years ended December 31, 1995, 1996 and 1997,
the Company paid Carter & Sons for its services as a common carrier an aggregate
of approximately $43,000, $139,000 and $96,000, respectively.
RELATIONSHIP WITH RONALD L. CARTER
The Company engaged Ronald L. Carter as a consultant for a period of time
after he left the Company in 1995 to serve as President of CCP. In 1995 and
1996, the Company paid $108,000 and $115,400, respectively, for such services.
THE SHAREHOLDER AGREEMENT
The Hicks Muse Shareholders and Adkins Family Partnership, Ltd., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family Partnership, Ltd., Donald J.
Carter, Linda J. Carter, Donald J. Carter, Jr., Christina L. Carter Urschel,
Ronald L. Carter, Carter 1997 Charitable Remainder Unitrust and Hammond Family
Trust (collectively, the "Committed Shareholders") entered into a Shareholder
Agreement (the "Shareholder Agreement") upon the consummation of the
Recapitalization, which provides that the Board shall consist of eleven members.
The Board will eventually be reconstituted to include six directors designated
by Hicks Muse, three directors designated by the Committed Shareholders and two
independent directors mutually designated by the Committed Shareholders and
Hicks Muse. As of the date hereof, the Board consists of four directors
designated by the Committed Shareholders and five directors designated by Hicks
Muse. Hicks Muse is entitled to designate one additional representative under
the Shareholder Agreement. The number of directors to be designated by Hicks
Muse and the Committed Shareholders is subject to adjustment based upon the
ownership of Company Common Stock by the Hicks Muse Shareholders and the
Committed Shareholders. See "Management."
The Shareholder Agreement also includes the Company's grant of certain
registration rights to the Hicks Muse Shareholders and the Committed
Shareholders, pursuant to which they may require, after, if ever, the Company
effects an underwritten initial public offering of Company Common Stock for
gross proceeds of in excess of $25.0 million under the Securities Act, and
subject to certain restrictions, the Company to register under the Securities
Act the shares of Company Common Stock owned by them. In addition, if the
Company proposes to register any of its securities under the Securities Act, the
Hicks Muse Shareholders and the Committed Shareholders shall have the right,
subject to certain restrictions, to include in such registration their shares of
Company Common Stock.
If any Hicks Muse Shareholder desires to transfer shares of Company Common
Stock representing more than 20% of the shares of Company Common Stock then held
by the Hicks Muse Shareholders, the Hicks Muse Shareholders must, subject to
certain restrictions, offer the Committed Shareholders the opportunity to
include in the proposed sale their proportionate share of the Committed
Shareholders' Company Common Stock. In addition, if through multiple sales of
less than 20% of the shares of Company Common Stock then held by the Hicks Muse
Shareholders, the Hicks Muse Shareholders desire to sell shares that, when
aggregated with such prior sales, would result in the Hicks Muse Shareholders
holding less than 50% of the shares of Company Common Stock held by them
immediately after consummation of the Recapitalization, the Committed
Shareholders will have the right to sell shares of their Company Common Stock in
an amount equal to the same percentage of the shares they owned immediately
after consummation of the Recapitalization as the percentage, in the aggregate,
previously sold by the Hicks Muse Shareholders.
CERTAIN OTHER TRANSACTIONS
Pursuant to the Merger Agreement, the Company entered into an agreement
(the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"), an affiliate of Hicks Muse, pursuant to which the
Company will pay Hicks Muse Partners a fee, payable quarterly, in an
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<PAGE> 59
initial amount equal to $1.0 million annually for monitoring and oversight
services to be provided to the Company. The initial fee shall be adjusted, but
not below the amount of the initial fee, on January 1 of each calendar year to
an amount equal to 1.0% of the consolidated annual earnings of the Company
before interest, taxes, depreciation and amortization, but in no event shall
such fee exceed $1.5 million annually. In addition, the Company entered into an
agreement (the "Financial Advisory Agreement") with Hicks Muse Partners pursuant
to which Hicks Muse Partners received a financial advisory fee in an amount
equal to $11.2 million for its services as financial advisor to the Company in
connection with the Recapitalization and the transactions related thereto. If
the Board requests financial advisory services from Hicks Muse Partners from
time to time after the Recapitalization, Hicks Muse Partners also will be
entitled to receive a fee equal to 1.5% of the "transaction value" (as defined
in the Financial Advisory Agreement) for each "subsequent transaction" (as
defined in the Financial Advisory Agreement) in which the Company is involved.
Each of the Monitoring and Oversight Agreement and the Financial Advisory
Agreement will terminate upon the earlier to occur of (a) the tenth anniversary
of its execution, (b) at any time prior to an underwritten initial public
offering of Company common stock pursuant to the Securities Act that meets
certain requirements, (c) if Hicks Muse and its affiliates do not beneficially
own at least 25% of the then outstanding shares of Company Common Stock and
Hicks Muse has not designated at least one member of the Board or (d) at any
time after such an underwritten initial public offering of Company Common Stock,
if Hicks Muse and its affiliates do not beneficially own at least 10% of the
then outstanding shares of Company Common Stock and Hicks Muse has not
designated at least one member of the Board.
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<PAGE> 60
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 12, 1998, certain information
regarding the beneficial ownership of the Company Common Stock by (i) each
person who owns beneficially more than 5% of the issued and outstanding shares
of Company Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company named in "Management -- Executive Compensation" and (iv)
all directors and executive officers of the Company as a group. The Company
believes that each such holder has sole voting and dispositive power over the
shares of Company Common Stock held, except as otherwise indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMPANY COMMON STOCK
FOLLOWING RECAPITALIZATION
-----------------------------
NO. OF PERCENTAGE OF
SHARES CLASS
5% SHAREHOLDERS ---------- -------------
<S> <C> <C>
Donald J. Carter............................................ 942,151(1) 6.2%
8024 FM 428
Denton, Texas 76028
Hicks Muse Shareholders..................................... 10,111,436(2) 66.4%
c/o Hicks, Muse, Tate & Furst Incorporated
100 Crescent Court, Suite 1600
Dallas, Texas 75201
DIRECTORS AND EXECUTIVE OFFICERS
Donald J. Carter, Jr........................................ 598,557(3) 3.9%
Barbara J. Hammond.......................................... 535,714(4) 3.5%
Thomas O. Hicks............................................. 10,111,436(2) 66.4%
Leonard A. Robertson........................................ 278,644(5) 1.8%
Christina L. Carter Urschel................................. 598,198(6) 3.9%
Daniel S. Dross............................................. -- --
Jack D. Furst............................................... --(7) --
Sheldon I. Stein............................................ --(8) --
Lawrence D. Stuart, Jr. .................................... --(7) --
All directors and executive officers as a group (9
persons).................................................. 11,845,405 77.8%
</TABLE>
- ---------------
(1) Includes 33,996 shares held by Linda J. Carter, Donald J. Carter's wife.
Donald J. Carter disclaims beneficial ownership of all shares held by Linda
J. Carter.
(2) Consists of (i) 10,056,048 shares of Company Common Stock owned of record by
HI Equity Partners, L.P. ("HIEP"), a limited partnership whose sole general
partner is TOH Ranger LLC ("Ranger LLC") and (ii) 55,388 shares of Company
Common Stock owned of record by HM/SS Investment Partners, L.P., ("HMIP") a
limited partnership whose sole general partner is Ranger LLC. Thomas O.
Hicks is the sole member and director of Ranger LLC and, accordingly, may be
deemed to be the beneficial owner of Company Common Stock held by HIEP and
HMIP. In addition, Mr. Hicks is a minority limited partner in HM Partners,
the sole limited partner of HIEP. Mr. Hicks disclaims beneficial ownership
of Company Common Stock owned of record by HIEP and HMIP.
(3) Includes 235 shares held by Penni W. Carter, Donald J. Carter, Jr.'s wife,
and a total of 422 shares held by Donald J. Carter, Jr. as custodian for his
three children. Donald J. Carter, Jr. disclaims beneficial ownership of all
shares held by Penni W. Carter.
(4) Consists of 258,570 shares held in the name of Barbara J. Hammond and Howard
L. Hammond, Trustees of the Hammond Family Trust, and 277,144 shares held in
the name of David and Mary Crowley Family Partnership, Ltd. Barbara J.
Hammond shares voting and dispositive power with Howard L. Hammond as
Trustee of the Hammond Family Trust. Barbara J. Hammond is one of three
directors of David and Mary Crowley Corporation, a Texas corporation that is
the sole general partner of David and Mary Crowley Family Partnership, Ltd.,
and therefore may be deemed to share voting and dispositive power with the
other directors. Barbara J. Hammond disclaims beneficial ownership of all
shares held in the name of David and Mary Crowley Family Partnership, Ltd.
(5) Includes 277,144 shares held in the name of David and Mary Crowley Family
Partnership, Ltd. Leonard A. Robertson is one of three directors of David
and Mary Crowley Corporation, a Texas corporation, that is the sole general
partner of David and Mary Crowley Family Partnership, Ltd., and therefore
may be deemed to share voting and dispositive power with the other
directors. Leonard A. Robertson disclaims beneficial ownership of all shares
held in the name of David and Mary Crowley Family Partnership, Ltd.
(6) Includes 174 shares held by Harold Clifton Urschel, III, Christina L. Carter
Urschel's husband, and 124 shares held by Christina L. Carter Urschel as
custodian for her child. Christina L. Carter Urschel disclaims beneficial
ownership of all shares held by Harold Clifton Urschel, III.
(7) Each of Messrs. Furst and Stuart hold minority limited partnership interests
in HM Partners, the sole limited partner of HIEP. Each of Messrs. Furst and
Stuart disclaims beneficial ownership of Company Common Stock owned of
record by HIEP.
(8) Mr. Stein holds a limited partnership interest in HMIP. Mr. Stein disclaims
beneficial ownership of Company Common Stock owned of record by HMIP.
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<PAGE> 61
DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the consummation of the Recapitalization, the Company
entered into a Senior Credit Facility as described below. The description below
sets forth all material elements of the Senior Credit Facility, but does not
purport to be complete and is qualified in its entirety by reference to certain
agreements setting forth the principal terms and conditions of the Senior Credit
Facility, which are available upon request from the Company. Capitalized terms
used but not otherwise defined in this "Description of Senior Credit Facility"
shall have the meaning to be ascribed to them in the Senior Credit Facility.
The Company, the Lenders party thereto, NationsBank, N.A., as
administrative agent, The Chase Manhattan Bank, as syndication agent, National
Westminister Bank, PLC, as documentation agent, Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent, and Citicorp USA, Inc.,
as a co-agent, entered into the Senior Credit Facility providing for (i) $200.0
million of tranche A term loans (the "Tranche A Loan"), (ii) $100.0 million of
tranche B term loans (the "Tranche B Loan" and together with the "Tranche A
Loan," the "Term Loans"), and (iii) a $40.0 million revolving credit facility
(the "Revolving Loans," and together with the Term Loans, the "Loans").
The Tranche A Loan amortizes quarterly over six years as follows: $25.0
million in years one and two, $30.0 million in year three, $35.0 million in year
four, $40.0 million in year five and $45.0 million in year six. The Tranche B
Loan amortizes quarterly over eight years as follows: $1.0 million in each of
years one through six, $45.0 million in year seven and $49.0 million in year
eight.
The Company may use the Revolving Loans for letters of credit in an amount
not to exceed $15.0 million. The Revolving Loans will be available until June
30, 2004.
The Company may optionally prepay the Term Loans from time to time in whole
or in part, without premium or penalty. The first $20.0 million of optional
prepayments on the Term Loans may be applied in such manner as the Company
elects and thereafter shall be applied to the Tranche A Loan and the Tranche B
Loan pro rata and within each such Tranche, pro rata based on the remaining
number of payments. At the Company's option, Revolving Loans may be prepaid, and
revolving credit commitments may be permanently reduced, in whole or in part, at
any time.
So long as the Company's ratio of Total Debt to EBITDA (as defined in the
Senior Credit Facility) is greater than 3.5 to 1.0, the Company will be required
to make mandatory prepayments of Term Loans, at the times and subject to
exceptions to be agreed upon, (a) in respect of 70% of Excess Cash Flow (as
defined in the Senior Credit Facility) of the Company and its subsidiaries, (b)
100% of the net cash proceeds of certain dispositions of assets, and (c) 50% of
the net proceeds from issuances of stock of the Company or its subsidiaries, in
each case subject to certain exceptions as set forth in the Senior Credit
Facility. Such prepayments shall be applied pro rata to the Tranche A Loan and
the Tranche B Loan and, within each such Tranche, pro rata based on the
remaining number of installments.
The obligations of the Company under the Senior Credit Facility are
unconditionally and irrevocably guaranteed by all domestic subsidiaries of the
Company (collectively, the "Guarantors"). In addition, the Company and the
Guarantors granted and/or pledged a first priority or equivalent security
interests in all of their respective tangible and intangible assets and the
capital stock of, or other equity interests in, each direct and indirect
domestic subsidiary (which is limited to 65% of the voting capital stock of, or
other equity interests in, each foreign subsidiary of the Company or such
Guarantor).
The Loans bear interest, at the Company's election, at either (i) the LIBOR
Rate plus (x) 2.0% in the case of the Tranche A Loan and the Revolving Loans and
(y) 2.5% in the case of the Tranche B Loan, or (ii) the Base Rate Basis (as
defined in the Senior Credit Facility) plus (x) 0.75% in the case of the Tranche
A Loan and the Revolving Loans, and (y) 1.25% in the case of the Tranche B Loan.
The Base Rate Basis is to be defined as the higher of (i) the NationsBank, N.A.
"Prime Rate" and (ii) the Federal Funds Effective Rate plus 0.5%.
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<PAGE> 62
The applicable margin with respect to the Loans will be eligible for
certain performance pricing step-downs based on the Company's ratio of Total
Debt to EBITDA, to be negotiated, commencing with the receipt of the Company's
December 31, 1998 financial statements.
The Company will pay a credit fee equal to the applicable margin on the
Revolving Loans, which bear interest at the LIBOR Rate (0.25% of which is a
fronting fee payable to the issuing bank) multiplied by the average daily amount
of outstanding Letters of Credit (as defined). The Company will pay a commitment
fee equal to 0.5% on the undrawn portion of the Revolving Loans. The Commitment
Fee will be eligible for certain performance pricing step-downs based on the
Company's ratio of Total Debt to EBITDA, commencing with the receipt of the
Company's December 31, 1998 financial statements.
The Senior Credit Facility contains a number of covenants customary for
facilities similar to the Senior Credit Facility which include, among other
things, restrictions on the ability of the Company and its subsidiaries to make
investments, incur additional indebtedness, create liens on assets, enter into
mergers, consolidations or amalgamations or liquidate, wind up or dissolve,
dispose of assets, pay dividends and redeem stock, redeem or make prepayments on
the Notes, make capital expenditures and engage in certain transactions with
subsidiaries and affiliates. In addition, under the Senior Credit Facility, the
Company is required to comply with specified financial ratios and tests,
including minimum interest coverage and maximum leverage ratios.
The Senior Credit Facility also contains customary events of default
including failure to pay principal on any Loan when due or any interest, fees or
other amounts that become due within five business days after the due date
thereof, any representation or warranty made or deemed made is incorrect in any
material respect on or as of the date made or deemed made, the default in the
performance of negative covenants or a default in the performance of certain
other covenants or agreements for a period of thirty days, default in other
material indebtedness, certain insolvency events, certain ERISA events, and
other customary events of default for a facility similar to the Senior Credit
Facility.
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<PAGE> 63
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on May 28, 1998 in the Original
Offering. In connection with that placement, the Company entered into the
Registration Rights Agreement, which requires that the Company file the
Registration Statement under the Securities Act with respect to the New Notes
and, upon the effectiveness of that Registration Statement, offer to the holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and which generally may be reoffered and resold by the holder without
registration under the Securities Act. The Registration Rights Agreement further
provides that the Company must use its reasonable best efforts to (i) cause the
Registration Statement with respect to the Exchange Offer to be declared
effective on or before November 24, 1998 and (ii) consummate the Exchange Offer
on or before the 45th business day following the date on which the Registration
Statement is declared effective. Except as provided below, upon the completion
of the Exchange Offer, the Company's obligations with respect to the
registration of the Old Notes and the New Notes will terminate. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement, of which this Prospectus is a part, and the summary herein of the
material provisions thereof does not purport to be complete and is qualified in
its entirety by reference thereto. As a result of the timely filing and the
effectiveness of the Registration Statement, certain liquidated damages provided
for in the Registration Rights Agreement will not become payable by the Company.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Old Notes not tendered will not have
any further registration rights and those Old Notes will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for the Old Notes could be adversely affected upon consummation of the Exchange
Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Company and the Guarantors, among other things, that (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving the New Notes, (ii) neither the
holder nor any such other person is engaging in or intends to engage in a
distribution of the New Notes, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of the New Notes and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 promulgated under the
Securities Act, of the Company and the Guarantors. Pursuant to the Registration
Rights Agreement if (i) the Company determines that it is not permitted to
effect the Exchange Offer as contemplated hereby because of any change in
applicable law or Commission policy, or (ii) any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following consummation of
the Exchange Offer (a) that it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that this Prospectus is not appropriate or available for such
resales or (c) that it is a broker-dealer and owns Old Notes acquired directly
from the Company or an affiliate of the Company, the Company is required to file
a "shelf" registration statement for a continuous offering pursuant to Rule 415
under the Securities Act in respect of the Old Notes. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Note has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of an Old Note for a New Note, the date
on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of this Prospectus,
(iii) the date on which such Old Note has been electively registered under the
Securities Act and disposed of in accordance with such "shelf" registration
statement or (iv) the date on which such Old Note is distributed to the public
pursuant to Rule 144 under the Act or may be distributed to the public pursuant
to Rule 144(k) under the Act. Other than as set forth in this paragraph, no
holder will have the right to participate in the "shelf" registration statement
nor otherwise require that the Company register such holder's shares of Old
Notes under the Securities Act. See "-- Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company and the Guarantors, the
Company believes that, with the exceptions set forth
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<PAGE> 64
below, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any person
receiving such New Notes, whether or not such person is the registered holder
(other than any such holder or such other person which is an "affiliate" of the
Company or the Guarantors within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the New Notes are acquired in the ordinary
course of business of the holder or such other person and neither the holder nor
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on this interpretation by the Commission's staff and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old 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 New Notes. See
"Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "-- Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the Exchange Offer if the holder does not participate in the
Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly 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 New 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. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture pursuant to which the Old
Notes were issued.
As of August 12, 1998, Old Notes representing $200.0 million aggregate
principal amount were outstanding and there was one registered holder, a nominee
of DTC. This Prospectus, together with the Letter of Transmittal, is being sent
to such registered holder and to others believed to have beneficial interests in
the Old Notes. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.
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. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes 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 charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
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<PAGE> 65
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent and each registered
holder 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. The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth under "-- Conditions to Exchange Offer" shall not have been
satisfied, to terminate the Exchange Offer, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "-- Book Entry Transfer," to tender in the Exchange
Offer a holder must complete, sign, and date the Letter of Transmittal, or a
copy thereof, have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver the Letter of Transmittal or copy
to the Exchange Agent prior to the Expiration Date. In addition, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal prior to the Expiration Date, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth under "-- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in
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the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If 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 evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be 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 right to waive any defects, 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. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by 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 by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "-- Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company and the Guarantors
that, among other things, (i) the New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the registered holder,
(ii) neither the holder nor any such other person is engaging in or intends to
engage in a distribution of such New Notes, (iii) neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and (iv) neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company and the Guarantors.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged Old Notes will be
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<PAGE> 67
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
ATOP is the only method of processing exchange offers through DTC. To
accept the Exchange Offer through ATOP, participants in DTC must send electronic
instructions to DTC through DTC's communication system in lieu of sending a
signed, hard copy Letter of Transmittal. DTC is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Old Notes through ATOP,
the electronic instructions sent to DTC and transmitted by DTC to the Exchange
Agent must contain the character by which the participant acknowledges its
receipt of and agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth under "-- Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice
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of withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined 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
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender, or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures under "-- Procedures for Tendering" at any time on or prior to
the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
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EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions, requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30
p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843, Cooper Station 111 Broadway
New York, New York 10276 New York, New York 10006
Attention: Corporate Trust Attention: Lower Level Corporate
Services Trust Window
</TABLE>
By Facsimile (for Eligible Institutions):
(212) 780-0592
Attention: Customer Service
For Information or
Confirmation by Telephone:
(212) 568-6565
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand or by overnight delivery service.)
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$ , which includes fees and expenses of the Exchange Agent, accounting,
legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF NEW NOTES
GENERAL
The New Notes are to be issued under the Indenture, dated as of June 4,
1998 (the "Indenture"), between the Company, the Guarantors and United States
Trust Company of New York, as trustee (the "Trustee"), a copy of which is
available upon request to the Company. The following summary of certain
provisions of the Indenture and the New Notes does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture (including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended) and the New Notes. Capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Indenture. For definitions
of certain terms used in this section, see "-- Certain Definitions" below. For
the purposes of this "Description of New Notes" section, the term "Company"
refers only to Home Interiors & Gifts, Inc. and not to any of its Subsidiaries.
Principal of, premium, if any, interest and liquidated damages (such
liquidated damages being called herein "Additional Amounts"), if any, on the
Notes will be payable, and the Notes may be exchanged or transferred, at the
office or agency of the Company in the Borough of Manhattan, The City of New
York (which initially shall be the corporate trust office of the Trustee in New
York, New York), except that, at the option of the Company, payment of interest
may be made by check mailed to the address of the holders as such address
appears in the Note Register.
The Notes have been issued in fully registered form only, without coupons,
in denominations of $1,000 and integral multiples thereof. Initially, the
Trustee will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Notes.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. As of June 30, 1998, the Company had approximately $300.0
million of Senior Indebtedness outstanding, representing outstanding borrowings
under the Senior Credit Facility. In addition, the Company had $40.0 million of
revolving credit availability under the Revolving Loans. The Indenture permits
the Company and its Restricted Subsidiaries to incur additional indebtedness,
including additional Senior Indebtedness, subject to certain restrictions. See
"-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock."
As of the Issue Date, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company 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. The Company's payment obligations under
the Notes are guaranteed, on a senior subordinated basis, by certain of the
Company's existing Restricted Subsidiaries and certain Restricted Subsidiaries
created or acquired by the Company in the future. See "-- Guarantees of the
Notes."
PRINCIPAL, MATURITY AND INTEREST
The Notes are unsecured, senior subordinated obligations of the Company and
are limited to $200.0 million aggregate principal amount, and will mature on
June 1, 2008. Interest on the Notes accrues at a rate of 10 1/8% per annum and
is payable in cash semi-annually on each June 1 and December 1, commencing on
December 1, 1998, to the holders of record of Notes at the close of business on
May 15 and November 15, respectively, immediately preceding such interest
payment date. Interest on the Notes accrues from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
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OPTIONAL REDEMPTION
The Notes may be redeemed at any time on or after June 1, 2003, in whole or
in part, at the option of the Company at the redemption prices (expressed as a
percentage of the principal amount thereof on the applicable redemption date)
set forth below, plus accrued and unpaid interest, if any, to the redemption
date, if redeemed during the 12-month period beginning on of each of the years
set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................ 105.063%
2004............................................ 103.375%
2005............................................ 101.688%
2006 and thereafter............................. 100.000%
</TABLE>
In addition, prior to June 1, 2001, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings to redeem up to 35% of the
principal amount of the Notes at a redemption price equal to 110.125% of the
principal amount thereof plus accrued and unpaid interest, if any, to the
redemption date; provided, however, that after any such redemption, at least 65%
of the aggregate principal amount of the Notes would remain outstanding
immediately after giving effect to such redemption. Any such redemption will be
required to occur on or prior to the date that is 90 days after the receipt by
the Company of the proceeds of each such Equity Offering. The Company shall
effect such redemption on a pro rata basis.
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, in the absence of such requirements or if the Notes are not
so listed, on a pro rata basis, provided that no such Notes of $1,000 or less
shall be redeemed in part. Notice of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
holder of Notes to be redeemed at its registered address. 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. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
each holder will have the right to require that the Company purchase all or a
portion of such holder's Notes in cash pursuant to the offer described below
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following the date on which the Company
becomes aware that a Change of Control has occurred, if the purchase of the
Notes would violate or constitute a default under any other Indebtedness of the
Company, then the Company shall, to the extent needed to permit such purchase of
Notes, either (i) repay all such Indebtedness and terminate all commitments
outstanding thereunder or (ii) obtain the requisite consents, if any, under such
Indebtedness to permit the purchase of the Notes as provided below. The Company
will first comply with the covenant in the preceding sentence before it will be
required to make the Change of Control Offer or purchase the Notes pursuant to
the provisions described below.
Within 30 days following the date on which the Company becomes aware that a
Change of Control has occurred, the Company must send, by first-class mail
postage prepaid, a notice to each holder of Notes, which notice shall govern the
terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
45 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to
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have any Notes purchased pursuant to a Change of Control Offer will be required
to surrender such Notes to the Paying Agent and Registrar for the Notes at the
address specified in the notice prior to the close of business on the business
day prior to the Change of Control Payment Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, to the extent applicable in connection with the purchase of Notes
pursuant to a Change of Control Offer.
These "Change of Control" covenants will not apply in the event of (a)
changes in a majority of the board of directors of the Company so long as a
majority of such board of directors continues to consist of Continuing Directors
and (b) certain transactions with Permitted Holders (including Hicks Muse, its
officers and directors, and their respective Affiliates). In addition, the
Change of Control Offer requirement is not intended to afford holders of Notes
protection in the event of certain highly leveraged transactions,
reorganizations, restructurings, mergers and other similar transactions that
might adversely affect the holders of Notes, but would not constitute a Change
of Control. The Company could, in the future, enter into certain transactions
including certain recapitalizations of the Company, that would not constitute a
Change of Control with respect to the Change of Control purchase feature of the
Notes, but would increase the amount of Indebtedness outstanding at such time.
However, the Indenture contains limitations on the ability of the Company to
incur additional Indebtedness and to engage in certain mergers, consolidations
and sales of assets, whether or not a Change of Control is involved, subject, in
each case, to limitations and qualifications. See "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness and Issuance of
Capital Stock" and "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets" below.
With respect to the sale of "all or substantially all" the assets of the
Company, which would constitute a Change of Control for purposes of the
Indenture, the meaning of the phrase "all or substantially all" varies according
to the facts and circumstances of the subject transaction, has no clearly
established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company and,
therefore, it may be unclear whether a Change of Control has occurred and
whether the Notes should be subject to a Change of Control Offer.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of the Company and its Subsidiaries may also contain
prohibitions of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. Even if sufficient
funds were otherwise available, the terms of the Senior Credit Facility may
prohibit the Company's prepayment of Notes prior to their scheduled maturity.
Consequently, if the Company is not able to prepay the Indebtedness under the
Senior Credit Facility and any other Senior Indebtedness containing similar
restrictions or obtain the requisite consents, as described above, the Company
will be unable to fulfill its repurchase obligations if holders of Notes
exercise their repurchase rights following a Change of Control, thereby
resulting in a default under the Indenture.
None of the provisions in the Indenture relating to a purchase of Notes
upon a Change of Control is waivable by the board of directors of the Company.
Without the consent of each holder of Notes affected thereby, after the mailing
of the notice of a Change of Control Offer, no amendment to the Indenture may,
directly or indirectly, affect the Company's obligation to purchase the
outstanding Notes or amend, modify or change the obligation of the Company to
consummate a Change of Control Offer or waive any default in the performance
thereof or modify any of the provisions of the definitions with respect to any
such offer.
RANKING AND SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Notes, and any Additional Amounts under the Registration Rights Agreement, is
subordinated in right of payment, to the extent set forth in the
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Indenture, to the payment when due of all existing and future Senior
Indebtedness of the Company. However, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under
"Satisfaction and Discharge of Indenture; Defeasance" below is not subordinate
to any Senior Indebtedness or subject to the restrictions described herein. As
of June 30, 1998, the Company had $300.0 million of Senior Indebtedness
outstanding (excluding unused commitments). Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company and its
subsidiaries may incur, under certain circumstances the amount of such
additional Indebtedness could be substantial and, in any case, all or a portion
of such Indebtedness may be Senior Indebtedness and may be secured. See
"-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is contractually subordinated in right of
payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinate or junior to Secured Indebtedness merely because it is
unsecured, nor is any Indebtedness deemed to be subordinate or junior to other
Indebtedness merely because it matures after such other Indebtedness. Secured
Indebtedness is not deemed to be Senior Indebtedness merely because it is
secured.
The Company may not pay principal of, premium, if any, or interest on or
Additional Amounts with respect to, the Notes or make any deposit pursuant to
the provisions described under "-- Satisfaction and Discharge of Indenture;
Defeasance" below and may not otherwise redeem, purchase or retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid when
due or (ii) any other default on Senior Indebtedness occurs and the maturity of
such Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived and/or any such acceleration
has been rescinded or such Senior Indebtedness has been paid; provided, however,
that the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of the Senior Indebtedness with respect to which either of the
events set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Notes (except (i) in Qualified Capital
Stock issued by the Company to pay interest on the Notes or issued in exchange
for the Notes, (ii) in securities substantially identical to the Notes issued by
the Company in payment of interest accrued thereon or (iii) in securities issued
by the Company which are subordinated to the Senior Indebtedness at least to the
same extent as the Notes and having a Weighted Average Life to Maturity at least
equal to the remaining Weighted Average Life to Maturity of the Notes) for a
period (a "Payment Blockage Period") commencing upon the receipt by the Trustee
(with a copy to the Company) of written notice (a "Blockage Notice") of such
default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice has been cured or waived or is no longer continuing or
(iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
but subject to the provisions of the first sentence of this paragraph and the
provisions of the immediately succeeding paragraph, the Company may resume
payments on the Notes after the end of such Payment Blockage Period. Not more
than one Blockage Notice may be given, and not more than one payment Blockage
Period may occur, in any consecutive 360-day period, irrespective of the number
of defaults with respect to Designated Senior Indebtedness during such period.
However, if any Blockage Notice within such 360-day period is given by or on
behalf of any holders of Designated Senior Indebtedness (other than the agent
under the Senior Credit Facility), the agent under the Senior Credit Facility
may give another Blockage Notice within such
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period. In no event, however, may the total number of days during which any
Payment Blockage Period or Payment Blockage Periods are in effect exceed 179
days in the aggregate during any 360-consecutive-day period. No nonpayment
default that existed or was continuing on the date of delivery of any Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Blockage
Notice unless such default shall have been cured or waived for a period of not
less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization or bankruptcy of or
similar proceeding relating to the Company or its property, the holders of
Senior Indebtedness will be entitled to receive payment in full, in cash or Cash
Equivalents, of the Senior Indebtedness before the holders of the Notes are
entitled to receive any payment or distribution, and until the Senior
Indebtedness is paid in full, in cash or Cash Equivalents, any payment or
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of the Senior
Indebtedness as their interests may appear. If a distribution is made to the
Trustee or to holders of the Notes that, due to the subordination provisions,
should not have been made to them, the Trustee or such holders are required to
hold it in trust for the holders of Senior Indebtedness and pay it over to them
as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the Representative, if any, of any
issue of Designated Senior Indebtedness which is then outstanding; provided,
however, that the Company and the Trustee shall be obligated to notify such a
Representative (other than with respect to the Senior Credit Facility) only if
such Representative has delivered or caused to be delivered an address for the
service of such a notice to the Company and the Trustee (and the Company and the
Trustee shall be obligated only to deliver the notice to the address so
specified). If a notice is required pursuant to the immediately preceding
sentence, the Company may not pay the Notes (except payment (i) in Qualified
Capital Stock issued by the Company to pay interest on the Notes or issued in
exchange for the Notes, (ii) in securities substantially identical to the Notes
issued by the Company in payment of interest accrued thereon or (iii) in
securities issued by the Company which are subordinated to the Senior
Indebtedness at least to the same extent as the Notes and have a Weighted
Average Life to Maturity at least equal to the remaining Weighted Average Life
to Maturity of the Notes), until five Business Days after the respective
Representative of the Designated Senior Indebtedness receives notice (at the
address specified in the preceding sentence) of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of liquidation or insolvency, creditors of the Company who are holders
of Senior Indebtedness may recover more, ratably, than the holders of the Notes,
and creditors of the Company who are not holders of Senior Indebtedness
(including holders of the Notes) may recover less, ratably, than holders of
Senior Indebtedness. In addition, the Indenture does not prohibit the transfer
or contribution of assets of the Company to its Restricted Subsidiaries. In the
event of any such transfer or contribution, holders of the Notes will be
effectively subordinated to the claims of creditors of such Restricted
Subsidiaries with respect to such assets.
GUARANTEES OF THE NOTES
Each of the Guarantors will unconditionally guarantee on a joint and
several basis (the "Guarantees") all of the Company's obligations under the
Notes, including its obligations to pay principal, premium, if any, and interest
with respect to the Notes. The Guarantees will be unsecured senior subordinated
obligations of the Guarantors. The obligations of each Guarantor under its
Guarantee will be subordinated and junior in right of payment to the prior
payment in full of existing and future Guarantor Senior Indebtedness of such
Guarantor substantially to the same extent as the Notes are subordinated to all
existing and future Senior Indebtedness of the Company. The Guarantors will also
guarantee all obligations under the Senior Credit Facility, and each Guarantor
has granted a security interest in all or substantially all of its assets to
secure the obligations under the Senior Credit Facility. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections or payments from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the
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Indenture, will result in the obligations of such Guarantor under its Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount, based on the net assets of each Guarantor determined in accordance with
GAAP.
The Indenture will provide that the Company shall cause each Restricted
Subsidiary issuing a Guarantee after the Issue Date pursuant to "Certain
Covenants -- Guarantees by Restricted Subsidiaries" to (i) execute and deliver
to the Trustee a supplemental indenture in a form reasonably satisfactory to the
Trustee pursuant to which such Restricted Subsidiary shall become a party to the
Indenture and thereby unconditionally guarantee all of the Company's obligations
under the Notes and the Indenture on the terms set forth therein and (ii)
deliver to the Trustee an Opinion of Counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restricted Subsidiary
and constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary (which opinion may be subject to customary assumptions and
qualifications). Thereafter, such Restricted Subsidiary shall (unless released
in accordance with the terms of the Indenture) be a Guarantor for all purposes
of the Indenture.
Each Guarantee will be a continuing Guarantee and will (i) remain in full
force and effect until payment of all of the obligations covered thereby, except
as provided below, (ii) be binding upon each Guarantor and (iii) inure to the
benefit of and be enforceable by the Trustee, holders of the Notes and their
successors, transferees and assigns.
The Indenture will provide that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, or if all or substantially all of
the assets of any Guarantor or all of the equity interest in any Guarantor are
sold (including through merger, consolidation, by issuance or otherwise) by the
Company in a transaction constituting an Asset Sale, and if (i) the Net Cash
Proceeds from such Asset Sale are used in accordance with the covenant described
under "-- Certain Covenants -- Limitation on Asset Sales" or (ii) the Company
delivers to the Trustee an Officer's Certificate to the effect that the Net Cash
Proceeds from such Asset Sale shall be used in accordance with the covenant
described under "-- Certain Covenants -- Limitation on Asset Sales" and within
the time limits specified by such covenant, then such Guarantor (in the event of
a sale or other disposition of all of the equity interests of such Guarantor) or
the Person acquiring the assets (in the event of a sale or other disposition of
all or substantially all of the assets of such Guarantor) shall be released and
discharged of its Guarantee obligations in respect of the Indenture and the
Notes.
Any Guarantor that is designated an Unrestricted Subsidiary shall upon such
designation be released and discharged of its Guarantee obligations in respect
of the Indenture and the Notes and any Unrestricted Subsidiary that is
redesignated as a Restricted Subsidiary shall upon such redesignation be
required to become a Guarantor.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness and Issuance of Capital
Stock. The Indenture will provide that:
(a) the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness) and the Company will not issue any Disqualified Capital Stock and
its Restricted Subsidiaries will not issue any Preferred Stock (except Preferred
Stock issued to the Company or a Restricted Subsidiary of the Company so long as
it is so held); provided, however, that the Company and its Restricted
Subsidiaries may incur Indebtedness or issue shares of such Capital Stock if, in
either case, the Company's Fixed Charge Coverage Ratio at the time of incurrence
of such Indebtedness or the issuance of such Capital Stock, as the case may be,
after giving pro forma effect to such incurrence or issuance as of such date and
to the use of proceeds therefrom would have been at least 2.0 to 1.
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(b) the Company will not incur or suffer to exist, or permit any of its
Restricted Subsidiaries to incur or suffer to exist, any Obligations with
respect to an Unrestricted Subsidiary that would violate the provisions set
forth in the definition of Unrestricted Subsidiary.
Limitation on Layering. The Indenture will provide that the Company will
not incur any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is contractually subordinated in right of
payment to all Senior Subordinated Indebtedness (including the Notes).
Limitation on Restricted Payments. The Indenture will provide that (a) the
Company will not, and will not cause or permit any of its Restricted
Subsidiaries, to, directly or indirectly, make any Restricted Payment if at the
time of such Restricted Payment and immediately after giving effect thereto:
(i) a Default or Event of Default shall have occurred and be
continuing; or
(ii) the Company is not able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness and Issuance of Capital Stock"
covenant; or
(iii) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (the amount expended for such purposes,
if other than in cash, being the fair market value of such property as
determined by the board of directors of the Company in good faith), exceeds
the sum of (a) 50% of the cumulative Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Issue Date to the most recent
date for which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (b) 100% of the
aggregate net proceeds, including the fair market value of property other
than cash as determined by the board of directors of the Company in good
faith, received subsequent to the Issue Date by the Company from any Person
(other than a Restricted Subsidiary of the Company) from the issuance and
sale subsequent to the Issue Date of Qualified Capital Stock of the Company
(excluding (i) any net proceeds from issuances and sales financed directly
or indirectly using funds borrowed from the Company or any Restricted
Subsidiary of the Company, until and to the extent such borrowing is
repaid, but including the proceeds from the issuance and sale of any
securities convertible into or exchangeable for Qualified Capital Stock to
the extent such securities are so converted or exchanged and including any
additional proceeds received by the Company upon such conversion or
exchange and (ii) any net proceeds received from issuances and sales that
are used to consummate a transaction described in clause (2) of paragraph
(b) below), plus (c) without duplication of any amount included in clause
(iii)(b) above, 100% of the aggregate net proceeds, including the fair
market value of property other than cash (valued as provided in clause
(iii)(b) above), received by the Company as a capital contribution
subsequent to the Issue Date, plus (d) the amount equal to the net
reduction in Investments (other than Permitted Investments) made by the
Company or any of its Restricted Subsidiaries in any Person resulting from,
and without duplication, (i) repurchases or redemptions of such Investments
by such Person, proceeds realized upon the sale of such Investment to an
unaffiliated purchaser and repayments of loans or advances or other
transfers of assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in
the definition of "Investment") not to exceed, in the case of any
Restricted Subsidiary, the amount of Investments previously made by the
Company or any of its Restricted Subsidiaries in such Unrestricted
Subsidiary, which amount was included in the calculation of Restricted
Payments; provided, however, that no amount shall be included under this
clause (d) to the extent it is already included in Consolidated Net Income,
plus (e) the aggregate net cash proceeds received by a Person in
consideration for the issuance of such Person's Capital Stock (other than
Disqualified Capital Stock) that are held by such Person at the time such
Person is merged with and into the Company in accordance with the "Merger,
Consolidation and Sale of Assets" covenant subsequent to the Issue Date;
provided, however, that concurrently with or immediately following such
merger the Company uses an
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amount equal to such net cash proceeds to redeem or repurchase the
Company's Capital Stock, plus (f) $20.0 million.
(b) Notwithstanding the foregoing, these provisions will not prohibit: (1)
the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) the purchase, redemption or other
acquisition or retirement of any Capital Stock of the Company or any warrants,
options or other rights to acquire shares of any class of such Capital Stock
either (x) solely in exchange for shares of Qualified Capital Stock or other
rights to acquire Qualified Capital Stock, (y) through the application of the
net proceeds of a substantially concurrent sale for cash (other than to a
Restricted Subsidiary of the Company) of shares of Qualified Capital Stock or
warrants, options or other rights to acquire Qualified Capital Stock or (z) in
the case of Disqualified Capital Stock, solely in exchange for, or through the
application of the net proceeds of a substantially concurrent sale for cash
(other than to a Restricted Subsidiary of the Company) of, Disqualified Capital
Stock; (3) payments made pursuant to any merger, consolidation or sale of assets
effected in accordance with the "Merger, Consolidation and Sale of Assets"
covenant; provided, however, that no such payment may be made pursuant to this
clause (3) unless, after giving effect to such transaction (and the incurrence
of any Indebtedness in connection therewith and the use of the proceeds
thereof), the Company would be able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant
such that after incurring that $1.00 of additional Indebtedness, the Company
will have a Fixed Charge Coverage Ratio of at least 2.0 to 1; (4) payments to
enable the Company or a Holding Company (as defined) to pay dividends on its
Capital Stock (other than Disqualified Capital Stock) after the first Public
Equity Offering in an annual amount not to exceed 6.0% of the gross proceeds
(before deducting underwriting discounts and commissions and other fees and
expenses of the offering) received from shares of Capital Stock (other than
Disqualified Capital Stock) sold for the account of the issuer thereof (and not
for the account of any stockholder) in such initial Public Equity Offering; (5)
payments by the Company to fund the payment by any company as to which the
Company is, directly or indirectly, a Subsidiary (a "Holding Company") of audit,
accounting, legal or other similar expenses, to pay franchise or other similar
taxes and to pay other corporate overhead expenses, so long as such dividends
are paid as and when needed by its respective direct or indirect Holding Company
and so long as the aggregate amount of payments pursuant to this clause (5) does
not exceed $1.0 million in any calendar year; (6) payments by the Company to
repurchase, or to enable a Holding Company to repurchase, Capital Stock or other
securities from employees or independent contractors of the Company or a Holding
Company in an aggregate amount not to exceed $20.0 million; (7) payments by the
Company to redeem or repurchase, or to enable a Holding Company to redeem or
repurchase, stock purchase or similar rights granted by the Company or a Holding
Company with respect to its Capital Stock in an aggregate amount not to exceed
$500,000; (8) payments, not to exceed $200,000 in the aggregate, to enable the
Company or a Holding Company to make cash payments to holders of its Capital
Stock in lieu of the issuance of fractional shares of its Capital Stock; (9)
payments by the Company to Hicks Muse Partners in accordance with the terms of
the Financial Advisory Agreement and the Monitoring and Oversight Agreement;
provided, however, that in the case of clauses (3), (6), (7) and (8), no Event
of Default shall have occurred or be continuing at the time of such payment or
as a result thereof. In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date, amounts expended pursuant to clauses (1),
(4), (6), (7) and (8) shall be included in such calculation.
Limitation on Liens. The Indenture will provide that the Company will not,
and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur or assume any Lien securing Indebtedness on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, unless contemporaneously therewith
effective provision is made, in the case of the Company, to secure the Notes and
all other amounts due under the Indenture, and in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's
Guarantee of the Notes and all other amounts due under the Indenture, equally
and ratably with such Indebtedness (or, in the event that such Indebtedness is
subordinated in right of payment to the Notes or such Subsidiary's Guarantee,
prior to such Indebtedness) with a Lien on the same properties and assets
securing such Indebtedness for so
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long as such Indebtedness is secured by such Lien, except for (i) Liens securing
Senior Indebtedness and Guarantor Senior Indebtedness, and (ii) Liens securing
Indebtedness described in clause (xi) of the definition of Permitted
Indebtedness; provided that such Liens cover only the property referred to in
such definition.
Merger, Consolidation and Sale of Assets. The Indenture will provide that
the Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the Company's
or any Guarantor's assets determined on a consolidated basis for the Company to
another Person or adopt a plan of liquidation unless (i) either (1) the Company
is the Surviving Person or (2) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person that
acquires by conveyance, transfer or lease the properties and assets of the
Company or such Guarantor substantially as an entirety or in the case of a plan
of liquidation, the Person to which assets of the Company have been transferred,
shall be a corporation, partnership, limited liability company or trust
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such Surviving Person shall assume all of the
obligations of the Company or such Guarantor under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after giving effect to such transaction and the use
of the proceeds therefrom (on a pro forma basis, including giving effect to any
Indebtedness incurred or anticipated to be incurred in connection with such
transaction), (x) no Default or Event of Default shall have occurred and be
continuing and (y) the Company (in the case of clause (1) of the foregoing
clause (i)) or such Person (in the case of clause (2) of the foregoing clause
(i)) shall be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Capital Stock" covenant; and (iv) the
Company has delivered to the Trustee prior to the consummation of the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer complies with the Indenture and that
all conditions precedent in the Indenture relating to such transaction have been
satisfied. For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of related transactions) of
all or substantially all of the properties and assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties or assets of the Company, will be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company and (2) the Company may merge
with an Affiliate thereof organized solely for the purpose of reorganizing the
Company in another jurisdiction in the U.S. to realize tax or other benefits.
Notwithstanding the foregoing, clauses (ii), (iii) and (iv) shall not apply to
the Recapitalization.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company, as the case may be, is not the Surviving Person and the
Surviving Person is to assume all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture, such Surviving Person
shall succeed to, and be substituted for, and may exercise every right and power
of the Company, as the case may be, and the Company shall be discharged from its
Obligations under the Indenture and the Notes.
Limitation on Asset Sales. The Indenture will provide that the Company will
not, and will not permit any of its Restricted Subsidiaries to, consummate an
Asset Sale unless (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 sold or otherwise disposed of (as
determined in good faith by management of the Company or, if such Asset Sale
involves consideration in excess of $10.0 million, by the board of directors of
the Company, as evidenced by a board resolution), (ii) at least 75% of the
consideration received by the Company or such Restricted Subsidiary, as the case
may be, from such Asset Sale is in the form of cash or Cash Equivalents and is
received at the time of such disposition and (iii) upon the consummation of an
Asset Sale, the Company applies, or causes such Restricted Subsidiary to apply,
such Net Cash Proceeds within 180 days of receipt thereof either (A) to repay
any Senior Indebtedness of the Company or any Indebtedness of a Restricted
Subsidiary of the Company (and, to the extent such Senior Indebtedness relates
to principal under a revolving credit or similar facility, to obtain a
corresponding
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reduction in the commitments thereunder, except that the Company may temporarily
repay Senior Indebtedness using the Net Cash Proceeds from such Asset Sale and
thereafter use such funds to reinvest pursuant to clause (B) below within the
period set forth therein without having to obtain a corresponding reduction in
the commitments thereunder), (B) to reinvest, or to be contractually committed
to reinvest pursuant to a binding agreement, in Productive Assets and, in the
latter case, to have so reinvested within 360 days of the date of receipt of
such Net Cash Proceeds or (C) to purchase the Notes and other Senior
Subordinated Indebtedness, pro rata, tendered to the Company for purchase at a
price equal to 100% of the principal amount thereof (or the accreted value of
such other Senior Subordinated Indebtedness, if such other Senior Subordinated
Indebtedness is issued at a discount) plus accrued interest thereon, if any, to
the date of purchase pursuant to an offer to purchase made by the Company as set
forth below (a "Net Proceeds Offer"); provided, however, that the Company may
defer making a Net Proceeds Offer until the aggregate Net Cash Proceeds from
Asset Sales not otherwise applied in accordance with this covenant equal or
exceed $15.0 million.
Subject to the deferral right set forth in the final proviso of the
preceding paragraph, each notice of a Net Proceeds Offer will be mailed, by
first-class mail, to holders of Notes not more than 180 days after the relevant
Asset Sale or, in the event the Company or a Restricted Subsidiary has entered
into a binding agreement as provided in (B) above, within 180 days following the
termination of such agreement but in no event later than 360 days after the
relevant Asset Sale. Such notice will specify, among other things, the purchase
date (which will be no earlier than 30 days nor later than 45 days from the date
such notice is mailed, except as otherwise required by law) and will otherwise
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Net Proceeds Offer, holders of Notes may elect to tender their Notes in
whole or in part in integral multiples of $1,000. To the extent holders properly
tender Notes in an amount which, together with all other Senior Subordinated
Indebtedness so tendered, exceeds the Net Proceeds Offer, the Notes and other
Senior Subordinated Indebtedness of tendering holders will be repurchased on a
pro rata basis (based upon the aggregate principal amount tendered, or, if
applicable, the aggregate accreted value thereof). To the extent that the
aggregate principal amount of Notes tendered pursuant to any Net Proceeds Offer,
which, together with the aggregate principal amount or aggregate accreted value,
as the case may be, of all other Senior Subordinated Indebtedness so tendered,
is less than the amount of Net Cash Proceeds subject to such Net Proceeds Offer,
the Company may use any remaining portion of such Net Cash Proceeds not required
to fund the repurchase of tendered Notes and other Senior Subordinated
Indebtedness for any purposes not otherwise prohibited by the Indenture. Upon
the consummation of any Net Proceeds Offer, the amount of Net Cash Proceeds
subject to any future Net Proceeds Offer from the Asset Sales giving rise to
such Net Cash Proceeds shall be deemed to be zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act to the extent applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause to permit to exist or become effective, by operation of the
charter of such Restricted Subsidiary or by reason of any agreement, instrument,
judgment, decree, rule, order, statute or governmental regulation, any
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock; (b) make
loans or advances or pay any Indebtedness or other obligation owed to the
Company or any of its Restricted Subsidiaries; or (c) transfer any of its
property or assets to the Company, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) the Indenture; (3)
customary non-assignment provisions of any lease governing a leasehold interest
of the Company or any Restricted Subsidiary; (4) any instrument governing
Acquired Indebtedness or Acquired Preferred Stock, 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; (5) agreements existing on the Issue Date (including the Senior Credit
Facility) as such agreements are from time to time in effect; provided, however,
that any amendments or modifications of such agreements that affect the
encumbrances or restrictions of the types subject to this covenant shall not
result in such encumbrances or restrictions being less favorable to the Company
in any material respect, as determined in good faith by the board of directors
of the Company, than the provisions as in effect before giving effect to
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the respective amendment or modification; (6) any restriction with respect to
such a Restricted Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or disposition;
(7) an agreement effecting a refinancing, replacement or substitution of
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above or any other agreement evidencing Indebtedness
permitted under the Indenture; provided, however, that the provisions relating
to such encumbrance or restriction contained in any such refinancing,
replacement or substitution agreement or any such other agreement are no less
favorable to the Company in any material respect as determined in good faith by
the board of directors of the Company than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (4) or (5); (8) restrictions on the transfer of the assets subject to any
Lien imposed by the holder of such Lien; (9) a licensing agreement to the extent
such restrictions or encumbrances limit the transfer of property subject to such
licensing agreement; (10) restrictions relating to Subsidiary Preferred Stock
that require that due and payable dividends thereon to be paid in full prior to
dividends on such Subsidiary's common stock; or (11) any agreement or charter
provision evidencing Indebtedness or Capital Stock permitted under the
Indenture; provided, however, that the provisions relating to such encumbrance
or restriction contained in such agreement or charter provision are not less
favorable to the Company in any material respect as determined in good faith by
the board of directors of the Company than the provisions relating to such
encumbrance or restriction contained in the Indenture.
Limitations on Transactions with Affiliates. The Indenture will provide
that the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease,
contribution or exchange of any property or the rendering of any service) with
or for the benefit of any of its Affiliates (other than transactions between the
Company and a Restricted Subsidiary of the Company or among Restricted
Subsidiaries of the Company) (an "Affiliate Transaction"), other than Affiliate
Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction on an arm's-length
basis from a person that is not an Affiliate; provided, however, that for a
transaction or series of related transactions involving value of $5.0 million or
more, such determination will be made in good faith by a majority of members of
the board of directors of the Company and by a majority of the disinterested
members of the board of directors of the Company, if any; provided, further,
that for a transaction or series of related transactions involving value of
$15.0 million or more, the board of directors of the Company has received an
opinion from an independent investment banking firm of nationally recognized
standing that such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary. The foregoing restrictions
will not apply to (1) reasonable and customary directors' fees, indemnification
and similar arrangements and payments thereunder; (2) any obligations of the
Company under any employment agreement, noncompetition or confidentiality
agreement with any officer of the Company, as in effect on the Issue Date
(provided that each amendment of any of the foregoing agreements shall be
subject to the limitations of this covenant); (3) any Restricted Payment
permitted to be made pursuant to the covenant described under "Limitation on
Restricted Payments"; (4) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
board of directors of the Company; (5) loans or advances to employees in the
ordinary course of business of the Company or any of its Restricted Subsidiaries
consistent with past practices; (6) payments made in connection with the
Recapitalization, including, without limitation, fees to Hicks Muse, as
described in the Prospectus; (7) payments by the Company to Hicks Muse Partners
in accordance with the terms of the Financial Advisory Agreement and the
Monitoring and Oversight Agreement; (8) the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of its obligations under the
terms of, any stockholders agreement (including any registration rights
agreement related thereto) to which it is a party as of the Issue Date or any
amendment thereto (so long as any such amendment, taken as a whole, is not
disadvantageous to the Holders in any material respect); (9) transactions with
suppliers or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of the
Indenture, which are fair to the Company or its Restricted Subsidiaries, in the
reasonable determination of the Board of Directors of the Company or the
management thereof, or are on terms (taken as a whole) at least as favorable as
might reasonably have been obtained at such time from an unaffiliated party;
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and (10) any agreement as in effect as of the Issue Date or any amendment
thereto (so long as any such amendment, taken as a whole, is not disadvantageous
to the Holders in any material respect) or any transaction contemplated thereby.
Guarantees by Restricted Subsidiaries. The Indenture will provide that the
Company will not create or acquire, nor cause or permit any of its Restricted
Subsidiaries, directly or indirectly, to create or acquire, any Subsidiary other
than (A) an Unrestricted Subsidiary in accordance with the other terms of the
Indenture or (B) a Restricted Subsidiary that, simultaneously with such creation
or acquisition, executes and delivers a supplemental indenture to the Indenture
pursuant to which it will become a Guarantor under the Indenture in accordance
with "-- Guarantees of the Notes" above, unless such Restricted Subsidiary is
organized under the laws of the jurisdiction other than the United States, any
State thereof, or the District of Columbia.
Reports. The Indenture will provide that so long as any of the Notes are
outstanding, the Company will provide to the Trustee and the holders of Notes
and file with the Commission, to the extent such submissions are accepted for
filing by the Commission, copies of the annual reports and of the information,
documents and other reports that the Company would have been required to file
with the Commission pursuant to Sections 13 or 15(d) of the Exchange Act,
regardless of whether the Company is then obligated to file such reports.
Payments for Consent. The Indenture will provide that neither the Company
nor any of its Restricted Subsidiaries will, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such consideration is offered to be paid or is paid to all Holders
of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on the Notes when the same becomes due and
payable and the Default continues for a period of 30 days (whether or not such
payment is prohibited by the provisions described under "-- Ranking and
Subordination" above); (ii) the failure to pay principal of or premium, if any,
on any Notes when such principal or premium, if any, becomes due and payable, at
maturity, upon redemption or otherwise (whether or not such payment is
prohibited by the provisions described under "-- Ranking and Subordination"
above); (iii) a default in the observance or performance of any other covenant
or agreement contained in the Notes or the Indenture, which default continues
for a period of 30 days after the Company receives written notice thereof
specifying the default from the Trustee or holders of at least 25% in aggregate
principal amount of outstanding Notes; (iv) the failure to pay at the stated
maturity (giving effect to any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the Company, or the
acceleration of the final stated maturity of any such Indebtedness, if the
aggregate principal amount of such Indebtedness, together with the aggregate
principal amount of any other such Indebtedness in default for failure to pay
principal at the final stated maturity (giving effect to any extensions thereof)
or which has been accelerated, aggregates $10.0 million or more at any time in
each case after a 10-day period during which such default shall not have been
cured or such acceleration rescinded; (v) one or more judgments in an aggregate
amount in excess of $15.0 million (which are not covered by insurance as to
which the insurer has not disclaimed coverage) being rendered against the
Company or any of its Significant Restricted Subsidiaries and such judgment or
judgments remain undischarged or unstayed for a period of 60 days after such
judgment or judgments become final and nonappealable; and (vi) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any of its
Significant Restricted Subsidiaries.
Upon the happening of any Event of Default specified in the Indenture, the
Trustee may, and the Trustee upon the request of holders of 25% in principal
amount of the outstanding Notes shall, or the holders of at least 25% in
principal amount of outstanding Notes may, declare the principal of all the
Notes, together with all accrued and unpaid interest and premium, if any, to be
due and payable by notice in writing to the Company and the Trustee specifying
the respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are
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any amounts outstanding under the Senior Credit Facility, will become due and
payable upon the first to occur of an acceleration under the Senior Credit
Facility or five Business Days after receipt by the Company and the agent under
the Senior Credit Facility of such Acceleration Notice (unless all Events of
Default specified in such Acceleration Notice have been cured or waived). If an
Event of Default with respect to bankruptcy proceedings relating to the Company
or any Significant Restricted Subsidiaries occurs and is continuing, then such
amount will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of the Notes.
At any time after a declaration of acceleration with respect to the Notes
as described in the preceding paragraph, the holders of a majority in principal
amount of the Notes then outstanding (by notice to the Trustee) may rescind and
cancel such declaration and its consequences if (i) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction, (ii)
all existing Defaults and Events of Default have been cured or waived except
nonpayment of principal of or interest on the Notes that has become due solely
by such declaration of acceleration, (iii) to the extent the payment of such
interest is lawful, interest (at the same rate specified in the Notes) on
overdue installments of interest and overdue payments of principal, which has
become due otherwise than by such declaration of acceleration has been paid,
(iv) the Company has paid the Trustee its reasonable compensation and reimbursed
the Trustee for its reasonable expenses, disbursements and advances and (v) in
the event of the cure or waiver of a Default or Event of Default of the type
described in clause (vi) of the first paragraph of "-- Events of Default" above,
the Trustee has received an Officers' Certificate and Opinion of Counsel that
such Default or Event of Default has been cured or waived. The holders of a
majority in principal amount of the Notes may waive any existing Default or
Event of Default under the Indenture, and its consequences, except a default in
the payment of the principal of or interest on any Notes.
The Company is required to deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, a certificate indicating whether the
signing officers know of any Default or Event of Default that occurred during
the previous year and whether the Company has complied with its obligations
under the Indenture. In addition, the Company will be required to notify the
Trustee of the occurrence and continuation of any Default or Event of Default
promptly after the Company becomes aware of the same.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default thereunder should occur and be continuing,
the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Subject to such provision for
security or indemnification and certain limitations contained in the Indenture,
the holders of a majority in principal amount of the outstanding Notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture at any time
by delivering all outstanding Notes to the Trustee for cancellation and paying
all sums payable by it thereunder. The Company, at its option, (i) will be
discharged from any and all obligations with respect to the Notes (except for
certain obligations of the Company to register the transfer or exchange of such
Notes, replace stolen, lost or mutilated Notes, maintain paying agencies and
hold moneys for payment in trust) or (ii) need not comply with certain of the
restrictive covenants with respect to the Indenture, if the Company deposits
with the Trustee, in trust, U.S. legal tender or U.S. Government Obligations or
a combination thereof that, through the payment of interest and premium thereon
and principal in respect thereof in accordance with their terms, will be
sufficient to pay all the principal of and interest and premium on the Notes on
the dates such payments are due or through any date of redemption, if earlier
than the dates such payments are due, in any case in accordance with the terms
of such Notes, as well as the Trustee's fees and expenses. To exercise either
such option, the Company is required to deliver to the Trustee (A) an Opinion of
Counsel or a private letter ruling issued to the Company by the Internal Revenue
Service (the "IRS") to the effect that the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
the deposit and related defeasance
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and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such option had not
been exercised and, in the case of an Opinion of Counsel furnished in connection
with a discharge pursuant to clause (i) above, accompanied by a private letter
ruling issued to the Company by the IRS to such effect, (B) subject to certain
qualifications, an Opinion of Counsel to the effect that funds so deposited will
not be subject to avoidance under applicable bankruptcy law and (C) an Officers'
Certificate and an Opinion of Counsel to the effect that the Company has
complied with all conditions precedent to the defeasance. Notwithstanding the
foregoing, the Opinion of Counsel required by clause (A) above need not be
delivered if all Notes not theretofore delivered to the Trustee for cancellation
(i) have become due and payable, (ii) will become due and payable on the
maturity date within one year or (iii) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, together, without the
consent of the holders of the Notes, may amend or supplement the Indenture for
certain specified purposes, including curing ambiguities, defects or
inconsistencies. Other modifications and amendments of the Indenture may be made
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),
except that, without the consent of each holder of the Notes affected thereby,
no amendment may, directly or indirectly: (i) reduce the amount of Notes whose
holders must consent to an amendment; (ii) reduce the rate of or change the time
for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change the fixed maturity of any Notes, or change the
date on which any Notes may be subject to redemption or repurchase, or reduce
the redemption or repurchase price therefor; (iv) make any Notes payable in
money other than that stated in the Notes and the Indenture; (v) make any change
in provisions of the Indenture protecting the right of each holder of a Note to
receive payment of principal of, premium on and interest on such Note on or
after the due date thereof or to bring suit to enforce such payment or
permitting holders of a majority in principal amount of the Notes to waive a
Default or Event of Default; or (vi) after the Company's obligation to purchase
the Notes arises under the Indenture, amend, modify or change the obligation of
the Company to make or consummate a Change of Control Offer or a Net Proceeds
Offer or waive any default in the performance thereof or modify any of the
provisions or definitions with respect to any such offers.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, 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 person in the
conduct of such person's 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.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indenture and
Registration Rights Agreement without charge by writing to Home Interiors &
Gifts, Inc., 4550 Spring Valley Road, Dallas, Texas 75244-3705, Attention: Vice
President of Legal Affairs.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited on the date of the closing of
the sale of the New Notes (the "Closing Date") with, or on behalf of, the DTC
and registered in the name of Cede & Co., as nominee of the DTC, or will remain
in the custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
The DTC has advised the Company that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a member of the
Federal Reserve System, (iii) a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered
pursuant to Section 17A of the Exchange Act. The DTC was created to hold
securities for its participants (collectively, the "Participants") and
facilitates the clearance and settlement of securities transactions between
Participants through electronic book entry changes to the accounts of its
Participants, thereby eliminating the need for physical transfer and delivery of
certificates. The DTC's Participants include securities brokers and dealers,
banks and trust companies, clearing corporations and certain other
organizations. Access to the DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by the DTC (i)
upon deposit of the Global Notes, the DTC will credit, on its internal system,
the principal amount of New Notes to the respective accounts of Participants
with an interest in such Global Notes and (ii) ownership of the New Notes will
be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the DTC (with respect to the interest of
Participants), the Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own and that security interests in negotiable instruments
can only be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent.
So long as the DTC or its nominee is the registered owner of the Global
Notes, the DTC or such nominee, as the case may be, will be considered the sole
owner or Holder of the New Notes represented by such Global Notes for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have New Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Securities (as defined below), and
will not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the DTC's system or
to otherwise take action with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Accordingly, each holder of a beneficial interest in a Global Note must
rely on the procedures of the DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a Holder under the Indenture
or such Global Note. The Company understands that under existing industry
practice, in the event the Company requests any action of holders or an owner of
a beneficial interest in a Global Note desires to take any action that the DTC,
as the holder of such Global Note, is entitled to take, the DTC would authorize
the Participants to take such action and the Participant would authorize such
holders owning through such Participants to take such action or would otherwise
act upon the instruction of such holders. Neither the Company nor the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of New
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Notes by the DTC, or for maintaining, supervising or reviewing any records of
the DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of the DTC or its nominee in its capacity as the registered
holder of the Global Notes representing such New Notes under the Indenture.
Under the terms of the Indenture, the Company and the Trustee may treat the
persons in whose names the New Notes, including the Global Notes, are registered
as the owners thereof for the purpose of receiving such payment and for any and
all other purposes whatsoever. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of New Notes (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Notes as shown on the
records of the DTC. Payments by the Participants and the Indirect Participants
to the beneficial owners of New Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Participants or the
Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the DTC is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, or (iii) upon the occurrence of certain
other events, then, upon surrender by the DTC of its Global Notes, securities in
registered definitive form without coupons ("Certificated Securities") will be
issued to each person that the DTC identifies as the beneficial owner of the
Notes represented by the Global Notes. In addition, subject to certain
conditions, any person having a beneficial interest in a Global Note may, upon
request to the Trustee, exchange such beneficial interest for Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee of
any thereof) and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
DTC or any Participant or Indirect Participant in identifying the beneficial
owners of the related Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from the DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the New Notes to be issued).
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Acquired Preferred Stock" means the Preferred Stock of any Person at such
time as such Person becomes a Restricted Subsidiary of the Company or at the
time it merges or consolidates with the Company or any of its Restricted
Subsidiaries and not issued by such Person in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management
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and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise; provided that beneficial ownership of 10% or more of the
voting securities of a Person shall be deemed to be control. Bear, Stearns & Co.
Inc., Chase Securities Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC or NationsBank, N.A. and each of their respective
Affiliates shall not be deemed Affiliates of the Company by reason of their
direct or indirect investments in any fund managed by Hicks Muse or any Person
in which any such fund is invested or the Senior Credit Facility, as applicable.
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be
consolidated or merged with the Company or any Restricted Subsidiary of the
Company or (ii) the acquisition by the Company or any Restricted Subsidiary of
the Company of assets of any Person comprising a division or line of business of
such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (excluding any sale and leaseback transaction or any
pledge of assets or stock by the Company or any of its Restricted Subsidiaries)
to any Person other than the Company or a Restricted Subsidiary of the Company
of (i) any Capital Stock of any Restricted Subsidiary of the Company (other than
directors' qualifying shares) or (ii) any other property or assets of the
Company or any Restricted Subsidiary of the Company other than in the ordinary
course of business; provided, however, that for purposes of the "Limitation on
Asset Sales" covenant, Asset Sales shall not include (a) a transaction or series
of related transactions in which the Company or any of its Restricted
Subsidiaries receive aggregate consideration of less than $1.0 million, (b)
transactions covered by the "Merger, Consolidation and Sale of Assets" covenant,
(c) a Restricted Payment that otherwise qualifies under the "Limitation on
Restricted Payments" covenant, (d) any disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Company and its Subsidiaries and that is disposed of, in each case, in
the ordinary course of business and (e) any transaction that constitutes a
Change of Control. Solely for purposes of the second to last paragraph of
"-- Guarantees of the Notes" an Asset Sale is deemed to include a sale,
conveyance or transfer by the Representative following a foreclosure on such
assets.
"Business Day" means any day (other than a day which is a Saturday, Sunday
or legal holiday in the State of New York) on which banks are open for business
in New York, New York.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock of such Person and (ii) with respect to any Person
that is not a corporation, any and all partnership or other equity interests of
such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is a
party that is required to be classified and accounted for as a capital lease
obligation under GAAP, and for purposes of this definition, the amount of such
obligation at any date shall be the capitalized amount of such obligation at
such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than 270 days from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $200.0 million; (v) repurchase obligations with a term of not more
than seven days for underlying
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securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds that invest substantially all of their assets in
securities of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") (whether or not otherwise in compliance with the
provisions of the Indenture), other than to Hicks Muse or any of its Affiliates,
officers or directors, and Donald J. Carter, Jr. or Christina L. Carter Urschel
or any of his or her Affiliates (the "Permitted Holders"); or (ii) a majority of
the board of directors of the Company shall consist of Persons who are not
Continuing Directors; or (iii) the acquisition by any Person or Group (other
than the Permitted Holders or any direct or indirect subsidiary of any Permitted
Holder) of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of the Company.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement.
"Consolidated Cash Flow" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income, (ii) to the extent
Consolidated Net Income has been reduced thereby, (a) all income taxes of such
Person and its Restricted Subsidiaries accrued in accordance with GAAP for such
period (other than income taxes attributable to extraordinary or nonrecurring
gains or losses), (b) Consolidated Interest Expense and (c) Consolidated
Non-Cash Charges, all as determined on a consolidated basis for such Person and
its Restricted Subsidiaries in conformity with GAAP and (iii) the lesser of (x)
dividends or distributions paid in cash to such Person or its Restricted
Subsidiary by another Person whose results are reflected as a minority interest
in the consolidated financial statements of such first Person and (y) such
Person's equity interest in the Consolidated Cash Flow of such other Person (but
in no event less than zero).
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt issuance costs and original issue discount, (b) the net
cost under Interest Swap Agreements (including any amortization of discounts),
(c) the interest portion of any deferred payment obligation, (d) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers' acceptance financing or similar facilities, and (e) all
accrued interest and (ii) the interest component of Capitalized Lease
Obligations paid or accrued by such Person and its Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall be excluded therefrom, without duplication,
(a) gains and losses from Asset Sales (without regard to the $1.0 million
limitation set forth in the definition thereof) or abandonments or reserves
relating thereto and the related tax effects, (b) items classified as
extraordinary or nonrecurring gains and losses, and the related tax effects
according to GAAP, (c) the net income (or loss) of any Person acquired in a
pooling of interests transaction accrued prior to the date it becomes a
Restricted Subsidiary of such first referred to Person or is merged or
consolidated with it or any of its Restricted Subsidiaries, (d) the net income
of any Restricted Subsidiary to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by contract, operation of law or otherwise, (e) the net income or loss of any
Person, other than a Restricted Subsidiary, (f) the cumulative effect of a
change of accounting principles, and (g) any non-cash compensation expense in
connection with the issuance of employee or independent contractor stock
options.
"Consolidated Non-Cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such person and its Restricted Subsidiaries (excluding any such charges
constituting an extraordinary or nonrecurring item) reducing Consolidated Net
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Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Continuing Director" means, as of the date of determination, any Person
who (i) was a member of the board of directors of the Company on the Issue Date,
(ii) was nominated for election or elected to the board of directors of the
Company, as the case may be, with the affirmative vote of a majority of the
Continuing Directors who were members of such board of directors at the time of
such nomination or election or (iii) is a representative of a Permitted Holder.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all obligations under the Senior
Credit Facility and (ii) any other Senior Indebtedness of the Company which, at
the date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to, at least $50.0 million and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, or transfer, lease, conveyance
or other disposition of all or substantially all of such Person's assets.
"Disqualified Capital 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), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control), in whole or in part, on or prior to
the final maturity date of the Notes; provided that only the portion of Capital
Stock which so matures or is mandatorily redeemable or is so redeemable at the
sole option of the holder thereof prior to such date shall be deemed
Disqualified Capital Stock.
"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).
"Equity Offering" means a private sale or public offering of Capital Stock
(other than Disqualified Capital Stock) of the Company or a Holding Company (to
the extent, in the case of a Holding Company, that the net cash proceeds thereof
are contributed to the common or non-redeemable preferred equity capital of the
Company).
"Financial Advisory Agreement" means the Financial Advisory Agreement by
and among the Company and Hicks Muse Partners, as in effect on the Issue Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the Consolidated Interest Expense for such period,
(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period and (iii) the amount of all
cash dividend payments or payments in Disqualified Capital Stock on Preferred
Stock of Restricted Subsidiaries of such Person or on Disqualified Capital Stock
of such Person held by Persons other than the Company or any Restricted
Subsidiaries paid, accrued or scheduled to be paid or accrued during such
period.
"Fixed Charge Coverage Ratio" means with respect to any Person for the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of determination, 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.
For purposes of this definition, "Consolidated Cash Flow" and, except with
respect to clause (iv) below, "Fixed Charges" shall be calculated on a pro forma
basis after giving effect to (i) the Recapitalization,
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(ii) the incurrence of the Indebtedness, and the issuance of Disqualified
Capital Stock and Preferred Stock, of such Person and its Restricted
Subsidiaries (and the application of the proceeds therefrom) giving rise to the
need to make such calculation and any incurrence (and the application of the
proceeds therefrom) or repayment of other Indebtedness, other than the
incurrence or repayment of Indebtedness pursuant to working capital facilities,
and the issuance of other Disqualified Capital Stock or Preferred Stock, at any
time subsequent to the beginning of the Four Quarter Period and on or prior to
the date of determination, as if such incurrence and issuance (and the
application of the proceeds thereof), or the repayment, as the case may be,
occurred on the first day of the Four Quarter Period, (iii) any Asset Sales
(including those excluded from the definition thereof by clauses (b) and (c) of
the definition thereof) or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of such Person or one of its Subsidiaries (including any Person that
becomes a Restricted Subsidiary as a result of such Asset Acquisition)
incurring, assuming or otherwise becoming liable for Indebtedness or issuing
Disqualified Capital Stock or Preferred Stock) at any time on or subsequent to
the first day of the Four Quarter Period and on or prior to the date of
determination, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness or issuance of
such Disqualified Capital Stock or Preferred Stock and also including any
Consolidated Cash Flow associated with such Asset Acquisition) occurred on the
first day of the Four Quarter Period and (iv) cost savings resulting from
employee termination, facilities consolidations and closings, standardization of
employee benefits and compensation practices, consolidation of property,
casualty and other insurance coverage and policies, standardization of sales
representation commissions and other contract rates, and reductions in taxes
other than income taxes (collectively, "Cost Savings Measures"), which cost
savings the Company reasonably believes in good faith could have been achieved
during the Four Quarter Period as a result of such Asset Acquisition (regardless
of whether such cost savings could then be reflected in pro forma financial
statements under GAAP, Regulation S-X promulgated by the Commission or any other
regulation or policy of the Commission), less the amount of any additional
expenses that the Company reasonably estimates would result from anticipated
replacement of any items constituting Cost Savings Measures in connection with
such Asset Acquisitions; provided, however, that both (A) such cost savings and
Cost Savings Measures were identified and such cost savings were quantified in
an officer's certificate delivered to the Trustee at the time of the
consummation of the Asset Acquisition and (B) with respect to each Asset
Acquisition completed prior to the 90th day preceding such date of
determination, actions were commenced or initiated by the Company within 90 days
of such Asset Acquisition to effect the Cost Savings Measures identified in such
officer's certificate (regardless, however, of whether the corresponding cost
savings have been achieved). Furthermore, in calculating "Consolidated Interest
Expense" for purposes of the calculation of "Fixed Charge Coverage Ratio," (i)
interest on Indebtedness determined on a fluctuating basis as of the date of
determination (including Indebtedness actually incurred on the date of the
transaction giving rise to the need to calculate the Fixed Charge Coverage
Ratio) and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness as in effect on the date of determination and (ii) notwithstanding
(i) above, interest determined on a fluctuating basis, to the extent such
interest is covered by Interest Swap Agreements, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or the Commission or
in such other statements by such other entity as approved by a significant
segment of the accounting profession. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP.
"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.
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"Guarantor" means each of the Company's direct and indirect, existing and
future, Restricted Subsidiaries, other than a Subsidiary organized under the
laws of a jurisdiction other than the United States or any State thereof,
provided that such Subsidiary's assets and principal place of business are
located outside the United States.
"Guarantor Senior Indebtedness" means, as to any Guarantor, Senior
Indebtedness of such Guarantor, it being understood that for the purpose of this
definition, all references to the Company in the definition of Senior
Indebtedness shall be deemed references to such Guarantor.
"Indebtedness" means with respect to any Person, without duplication, any
liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property, or pursuant to conditional sale obligations and title retention
agreements (but excluding trade accounts payable arising in the ordinary course
of business), (v) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) for Indebtedness of
others guaranteed by such Person, (vii) for Interest Swap Agreements, Commodity
Agreements and Currency Agreements, (viii) for Indebtedness incurred in
connection with, or in contemplation of, another Person merging with or into or
becoming a Subsidiary of the former Person and (ix) for Indebtedness of any
other Person of the type referred to in clauses (i) through (viii) which is
secured by any Lien on any property or asset of such first referred to Person,
the amount of such Indebtedness being deemed to be the lesser of the value of
such property or asset or the amount of the Indebtedness so secured. The amount
of Indebtedness of any Person at any date shall be (i) the outstanding principal
amount of all unconditional obligations described above, as such amount would be
reflected on a balance sheet prepared in accordance with GAAP, and the maximum
liability at such date of such Person for any contingent obligations described
above, (ii) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount and (iii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Interest Swap Agreements" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (in each case, including by way of Guarantee or
similar arrangement, but excluding (i) any debt or extension of credit
represented by a bank deposit other than a time deposit and (ii) advances to
customers and independent contractors in the ordinary course of business) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the "Limitation on
Restricted Payments" covenant, (A) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to be
designated as an Unrestricted Subsidiary) of the fair market value of the net
assets of such Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Unrestricted Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" (if positive) equal to (1) the Company's "Investment" in
such Unrestricted Subsidiary at the time of such redesignation less (2) the
portion (proportionate to the Company's equity interest in such Unrestricted
Subsidiary) of the fair market value of the net assets of such Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is so redesignated from
an Unrestricted Subsidiary to a Restricted Subsidiary; and (B) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the board of directors of the Company.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means, with respect to any asset, any lien, mortgage, deed of trust,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
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"Monitoring and Oversight Agreement" means the Monitoring and Oversight
Agreement by and among the Company and Hicks Muse Partners, as in effect on the
Issue Date.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Subsidiaries from such Asset Sale net of
(i) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions, recording fees, relocation costs, title insurance
premiums, appraisers fees and costs reasonably incurred in preparation of any
asset or property for sale), (ii) taxes paid or reasonably estimated to be
payable (calculated based on the combined state, federal and foreign statutory
tax rates applicable to the Company or the Restricted Subsidiary engaged in such
Asset Sale), (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in the assets subject to sale or
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Sale, (iv) any reserves established in accordance with GAAP for adjustment
in respect of the sales price of the asset or assets subject to such Asset Sale
or for any liabilities associated with such Asset Sale and (v) repayment of
Indebtedness secured by assets subject to such Asset Sale; provided, however,
that if the instrument or agreement governing such Asset Sale requires the
transferor to maintain a portion of the purchase price in escrow (whether as a
reserve for adjustment of the purchase price or otherwise) or to indemnify the
transferee for specified liabilities in a maximum specified amount, the portion
of the cash or Cash Equivalents that is actually placed in escrow or segregated
and set aside by the transferor for such indemnification obligation shall not be
deemed to be Net Cash Proceeds until the escrow terminates or the transferor
ceases to segregate and set aside such funds, in whole or in part, and then only
to the extent of the proceeds released from escrow to the transferor or that are
no longer segregated and set aside by the transferor.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date; (ii) Indebtedness of the Company and any of its
Restricted Subsidiaries (a) outstanding under the Senior Credit Facility
(including letter of credit obligations) (provided that the aggregate principal
amount at any time outstanding does not exceed $340.0 million) or (b) incurred
under the Senior Credit Facility pursuant to and in compliance with (x) clause
(v) of this definition or (y) the proviso in the covenant described under the
caption "-- Limitation on Incurrence of Additional Indebtedness and Issuance of
Capital Stock" above; (iii) Indebtedness evidenced by or arising under the Notes
and the Indenture; (iv) Interest Swap Agreements, Commodity Agreements and
Currency Agreements; provided, however, that such agreements are entered into
for bona fide hedging purposes and not for speculative purposes; (v) additional
Indebtedness of the Company or any of its Restricted Subsidiaries not to exceed
$50.0 million in principal amount outstanding at any time (which amount may, but
need not, be incurred under the Senior Credit Facility); (vi) Refinancing
Indebtedness; (vii) Indebtedness owed by the Company to any Restricted
Subsidiary of the Company or by any Restricted Subsidiary of the Company to the
Company or any Restricted Subsidiary of the Company; (viii) guarantees by the
Company or Restricted Subsidiaries of any Indebtedness permitted to be incurred
pursuant to the Indenture; (ix) Indebtedness in respect of letters of credit to
support workers compensation obligations, performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business; (x) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in each case incurred in connection with the disposition of any
business assets or Restricted Subsidiaries of the Company (other than guarantees
of Indebtedness or other obligations incurred by any Person acquiring all or any
portion of such business assets or Restricted Subsidiaries of the Company for
the purpose of financing such acquisition) in a principal amount not to exceed
the gross proceeds actually received by the Company or any of its Restricted
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Subsidiaries in connection with such disposition; and (xi) Indebtedness
represented by Capitalized Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of property or
assets used in the direct selling, direct marketing or home furnishings business
or incurred to refinance any such purchase price or cost of construction or
improvement, in each case incurred no later than 365 days after the date of such
acquisition or the date of completion of such construction or improvement;
provided, however, that the principal amount of any Indebtedness incurred
pursuant to this clause (xi) shall not exceed $30.0 million at any time
outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company to acquire the stock or assets of any
Person (or Acquired Indebtedness or Acquired Preferred Stock acquired in
connection with a transaction in which such Person becomes a Restricted
Subsidiary of the Company) engaged in the direct selling, direct marketing or
home furnishings business or businesses reasonably related thereto; provided,
however, that if any such Investment or series of related Investments involves
an Investment by the Company in excess of $5.0 million, the Company is able, at
the time of such Investment and immediately after giving effect thereto, to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness and Issuance of Capital Stock" covenant, (ii) Investments received
by the Company or its Restricted Subsidiaries as consideration for a sale of
assets made in compliance with the other terms of the Indenture, (iii)
Investments by the Company or any Restricted Subsidiary of the Company in any
Restricted Subsidiary of the Company (whether existing on the Issue Date or
created thereafter) or any Person that after such Investments, and as a result
thereof, becomes a Restricted Subsidiary of the Company and Investments in the
Company or any Restricted Subsidiary by any Restricted Subsidiary of the
Company, (iv) Investments in cash and Cash Equivalents, (v) Investments in
securities of trade creditors, wholesalers, suppliers or customers received
pursuant to any plan of reorganization or similar arrangement, (vi) loans or
advances to employees or independent contractors of the Company or any
Restricted Subsidiary thereof for purposes of purchasing the Company's or a
Holding Company's Capital Stock and other loans and advances to employees or
independent contractors made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary, and (vii)
additional Investments in an aggregate amount not to exceed $50.0 million at any
time outstanding.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means assets of a kind used or usable by the Company
and its Restricted Subsidiaries in the direct selling, direct marketing or home
furnishings business or businesses reasonably related, ancillary or
complementary thereto, and specifically includes assets acquired through Asset
Acquisitions (it being understood that "assets" may include Capital Stock of a
Person that owns such Productive Assets, provided that after giving effect to
such transaction, such Person would be a Restricted Subsidiary of the Company).
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Company or a Holding
Company (to the extent, in the case of a Holding Company, that the net cash
proceeds thereof are contributed to the common or non-redeemable preferred
equity capital of the Company), pursuant to an effective registration statement
filed with the Commission in accordance with the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinancing Indebtedness" means any refinancing by the Company of
Indebtedness of the Company or any of its Restricted Subsidiaries incurred in
accordance with the "Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock" covenant (other than pursuant to clause (iii) or (iv)
of the definition of Permitted Indebtedness) that does not (i) result in an
increase in the aggregate principal amount of Indebtedness (such principal
amount to include, for purposes of this definition, any premiums, penalties or
89
<PAGE> 93
accrued interest paid with the proceeds of the Refinancing Indebtedness) of such
Person, or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Senior Indebtedness; provided, however, that
if, and for so long as, any issue of Senior Indebtedness lacks such a
representative, then the Representative for such issue of Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such issue of Senior Indebtedness.
"Restricted Payment" means (i) the declaration or payment of any dividend
or the making of any other distribution (other than dividends or distributions
payable in Qualified Capital Stock or in options, rights or warrants to acquire
Qualified Capital Stock) on shares of the Company's Capital Stock, (ii) the
purchase, redemption, retirement or other acquisition for value of any Capital
Stock of the Company, or any warrants, rights or options to acquire shares of
Capital Stock of the Company, other than through the exchange of such Capital
Stock or any warrants, rights or options to acquire shares of any class of such
Capital Stock for Qualified Capital Stock or warrants, rights or options to
acquire Qualified Capital Stock or (iii) the making of any Investment (other
than a Permitted Investment).
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The board of directors of the Company may
designate any Unrestricted Subsidiary or any person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Company could have incurred at least $1.00 of
additional indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Capital
Stock" covenant.
"Secured Indebtedness" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
"Senior Credit Facility" means the Senior Credit Facility, under that
certain Credit Agreement entered into in connection with the consummation of the
Recapitalization, among the Company, NationsBank, N.A., as administrative agent,
The Chase Manhattan Bank, N.A., as syndication agent and National Westminster
Bank, PLC, as documentation agent, Prudential Insurance Company of America, as a
co-agent, Societe Generale, as a co-agent, Citicorp USA, Inc., as a co-agent,
and the other financial institutions from time to time party thereto, together
with the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including by way
of adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders (or other institutions).
"Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, all Indebtedness of the Company, including interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company or any Restricted
Subsidiary whether or not a claim for post-filing interest is allowed in such
proceeding) and premium, if any, thereon, and other monetary amounts (including
fees, expenses, reimbursement obligations under letters of credit and
indemnities) owing in respect thereof unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that the obligations in respect of such Indebtedness ranks pari passu with the
Notes; provided, however, that Senior Indebtedness will not include (1) any
obligation of the Company to any Restricted Subsidiary, (2) any liability for
federal, state, foreign, local or other taxes owed or owing by the Company, (3)
any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of
the Company that is expressly subordinate or junior in right of payment to any
90
<PAGE> 94
other Indebtedness, Guarantee or obligation of the Company, including any Senior
Subordinated Indebtedness or (5) obligations in respect of any Capital Stock.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Significant Restricted Subsidiary" means, at any date of determination,
any Restricted Subsidiary that would be a "significant subsidiary" as defined in
Article I, Rule 1-03 of Regulation S-X under the Act, as such rule is in effect
on the Issue Date.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly through one or more
intermediaries, by such Person or (ii) any other Person of which at least a
majority of the voting interest under ordinary circumstances is at the time,
directly or indirectly, through one or more intermediaries, owned by such
Person. Notwithstanding anything in the Indenture to the contrary, all
references to the Company and its consolidated Subsidiaries or to financial
information prepared on a consolidated basis in accordance with GAAP shall be
deemed to include the Company and its Subsidiaries as to which financial
statements are prepared on a combined basis in accordance with GAAP and to
financial information prepared on such a combined basis. Notwithstanding
anything in the Indenture to the contrary, an Unrestricted Subsidiary shall not
be deemed to be a Restricted Subsidiary for purposes of the Indenture.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
the Issue Date and so designated by a resolution adopted by the board of
directors of the Company; provided, however, that (a) neither the Company nor
any of its other Restricted Subsidiaries (1) provides any credit support for any
Indebtedness or other Obligations of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness) or (2) is directly or
indirectly liable for any Indebtedness or other Obligations of such Subsidiary
and (b) at the time of designation of such Subsidiary, such Subsidiary has no
property or assets (other than de minimis assets resulting from the initial
capitalization of such Subsidiary). The board of directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness and
Issuance of Disqualified Capital Stock" covenant and (y) no Default or Event of
Default shall have occurred or be continuing. Any designation pursuant to this
definition by the board of directors of the Company shall be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Company's board of directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
91
<PAGE> 95
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New Notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute a sale or an exchange for federal income tax purposes.
Accordingly, such exchange should have no federal income tax consequences to
holders of Old Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes pursuant to the Exchange Offer, where such Old 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 New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Registration Statement is declared effective, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998, all dealers
effecting transactions in the New Notes may be required to deliver a Prospectus.
The Company and the Guarantors will not receive any proceeds from any sale
of New Notes by broker-dealers. New Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Registration Statement is declared
effective, 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 or otherwise. The Company
has agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Notes) other than commissions or
concessions of any broker-dealers and will indemnify holders of the Old
92
<PAGE> 96
Notes (including any broker-dealers) against certain liabilities, including
certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Weil, Gotshal & Manges LLP, Dallas, Texas.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1997 and the consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997,
included in this Prospectus have been included herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
93
<PAGE> 97
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and June 30, 1998 (unaudited)............................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1997 and 1998 (unaudited).................. F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1995, 1996 and 1997 and
for the six months ended June 30, 1998 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1997 and 1998 (unaudited).................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Home Interiors & Gifts, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and cash
flows present fairly, in all material respects, the consolidated financial
position of Home Interiors & Gifts, Inc. and Subsidiaries as of December 31,
1996 and 1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, 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.
PricewaterhouseCoopers LLP
Dallas, Texas
February 20, 1998, except for Notes 3, 11, 14 and 22
as to which the date is June 4, 1998
F-2
<PAGE> 99
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997 AND AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $132,848 $104,262 $ 23,938
Marketable securities.................................. 2,203 2,003 --
Accounts receivable, net............................... 9,097 11,577 9,432
Inventories............................................ 23,134 30,531 38,786
Deferred income tax benefit............................ 2,375 3,031 2,520
Other current assets................................... 408 440 716
-------- -------- --------
Total current assets........................... 170,065 151,844 75,392
Property, plant and equipment, net....................... 15,481 17,353 20,378
Investments.............................................. 2,440 67,681 1,509
Debt issuance costs, net................................. -- -- 11,512
Other assets............................................. 7,788 7,312 7,672
-------- -------- --------
Total assets................................... $195,774 $244,190 $116,463
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 7,473 $ 8,702 $ 13,178
Accrued seminars and incentive awards.................. 11,349 12,398 12,715
Royalties payable...................................... 3,496 6,770 7,989
Hostess prepayments.................................... 6,332 7,812 8,555
Income taxes payable................................... 4,810 3,107 4,984
Dividends payable...................................... 12,680 5,733 --
Current maturities of long-term debt................... -- -- 26,000
Other current liabilities.............................. 8,183 9,058 12,798
-------- -------- --------
Total current liabilities...................... 54,323 53,580 86,219
Long-term debt, net of current portion................... -- -- 474,000
Deferred income tax liability............................ 224 679 401
-------- -------- --------
Total liabilities.............................. 54,547 54,259 560,620
-------- -------- --------
Commitments and contingencies (see Note 14)
Shareholders' equity (deficit):
Common stock, par value $0.10 per share, 75,000,000
shares authorized, 58,704,900, 58,942,500 and
15,231,652 shares issued, respectively.............. 5,870 5,894 1,523
Additional paid-in capital............................. -- 1,120 181,546
Retained earnings (accumulated deficit)................ 209,171 256,121 (627,104)
Less treasury stock 7,985,700 shares as of December 31,
1996 and 1997, at cost.............................. (73,814) (73,814) --
Unrealized gains on investments and other.............. -- 610 (122)
-------- -------- --------
Total shareholders' equity (deficit)........... 141,227 189,931 (444,157)
-------- -------- --------
Total liabilities and shareholders' equity
(deficit).................................... $195,774 $244,190 $116,463
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 100
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $482,950 $434,299 $468,845 $208,520 $236,073
Cost of goods sold..................... 261,806 225,137 239,664 106,524 116,087
-------- -------- -------- -------- --------
Gross profit........................... 221,144 209,162 229,181 101,996 119,986
Selling, general and administrative:
Selling.............................. 72,857 68,489 72,172 30,943 40,456
Freight, warehouse and
distribution...................... 41,041 37,167 41,284 18,672 20,916
General and administrative........... 25,398 22,246 26,319 11,569 11,999
Gains on the sale of assets.......... (14) (2,077) (198) -- (5,179)
Recapitalization expenses............ -- -- -- -- 6,198
-------- -------- -------- -------- --------
Total selling, general and
administrative............. 139,282 125,825 139,577 61,184 74,390
-------- -------- -------- -------- --------
Operating income....................... 81,862 83,337 89,604 40,812 45,596
Other income, net...................... 2,997 5,066 10,507 3,770 1,163
-------- -------- -------- -------- --------
Income before income taxes............. 84,859 88,403 100,111 44,582 46,759
Income taxes........................... 35,315 33,957 37,919 17,373 18,570
-------- -------- -------- -------- --------
Net income............................. $ 49,544 $ 54,446 $ 62,192 $ 27,209 $ 28,189
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 101
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
RETAINED UNREALIZED
ADDITIONAL EARNINGS GAINS ON
COMMON COMMON PAID-IN (ACCUMULATED TREASURY INVESTMENTS
SHARES STOCK CAPITAL DEFICIT) STOCK AND OTHER TOTAL
----------- -------- ---------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. 391,366 $ 391 $ 1,025 $ 126,825 $(63,598) $(2,270) $ 62,373
Net income............................ 49,544 49,544
Purchase of 7,144 treasury shares..... (10,216) (10,216)
Payment received for common stock held
by ESOP............................. 2,270 2,270
Appreciation in common stock released
to ESOP............................. 1,576 1,576
Dividends, $0.12 per share (see Note
3).................................. (6,086) (6,086)
Effect of 150-for-one stock split..... 58,313,534 5,479 (2,601) (2,878) --
----------- -------- -------- --------- -------- ------- ---------
Balance, December 31, 1995.............. 58,704,900 5,870 -- 167,405 (73,814) -- 99,461
Net income............................ 54,446 54,446
Dividends, $0.25 per share............ (12,680) (12,680)
----------- -------- -------- --------- -------- ------- ---------
Balance, December 31, 1996.............. 58,704,900 5,870 -- 209,171 (73,814) -- 141,227
Net income............................ 62,192 62,192
Issuance of common stock.............. 237,600 24 1,120 1,144
Cumulative translation adjustment..... (88) (88)
Unrealized gains on investments....... 698 698
Dividends, $0.30 per share............ (15,242) (15,242)
----------- -------- -------- --------- -------- ------- ---------
Balance, December 31, 1997.............. 58,942,500 5,894 1,120 256,121 (73,814) 610 189,931
Net income (Unaudited)................ 28,189 28,189
Recapitalization adjustments (see Note
3) (Unaudited)...................... (43,710,848) (4,371) 180,426 (907,592) 73,814 (657,723)
Cumulative translation adjustment
(Unaudited)......................... (34) (34)
Unrealized losses on investments
(Unaudited)......................... (698) (698)
Dividends, $0.075 per share
(Unaudited)......................... (3,822) (3,822)
----------- -------- -------- --------- -------- ------- ---------
Balance, June 30, 1998 (Unaudited)...... 15,231,652 $ 1,523 $181,546 $(627,104) $ -- $ (122) $(444,157)
=========== ======== ======== ========= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 102
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 49,544 $ 54,446 $ 62,192 $ 27,209 $ 28,189
-------- -------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 4,096 3,350 2,613 1,169 1,497
Amortization of debt issuance costs and other............ -- -- 146 45 97
Provision for doubtful accounts.......................... 656 461 753 411 306
Gains on the sale of assets.............................. (14) (2,077) (198) -- (5,179)
Realized gains on investments............................ -- -- (1,859) -- (203)
Equity in earnings of affiliate.......................... -- -- (180) -- --
Deferred tax expense (benefit)........................... (3) 367 (577) -- 233
Appreciation in common stock released to the ESOP........ 1,576 -- -- -- --
Provision for inventory obsolescence..................... 1,650 850 1,561 -- --
Changes in assets and liabilities:
Accounts receivable.................................... 3,907 (2,497) (1,754) (82) (130)
Inventories............................................ 5,945 2,385 (8,958) (9,660) (8,255)
Other current assets................................... 188 (91) (32) (124) (276)
Other assets........................................... 18 (59) (491) (2,900) (384)
Accounts payable....................................... (783) 767 1,229 (2,067) 4,476
Income taxes payable................................... (873) 4,810 (989) (3,807) 1,877
Other accrued liabilities.............................. (1,161) (5,205) 6,829 2,735 8,982
-------- -------- --------- --------- ---------
Total adjustments................................. 15,202 3,061 (1,907) (14,280) 3,041
-------- -------- --------- --------- ---------
Net cash provided by operating activities......... 64,746 57,507 60,285 12,929 31,230
-------- -------- --------- --------- ---------
Cash flows from investing activities:
Purchases of investments and other assets................ -- (2,392) (204,315) (132,770) (86,591)
Proceeds from the sale of investments.................... -- 1,000 142,388 69,097 152,765
Purchases of property, plant and equipment............... (1,408) (2,126) (4,617) (1,036) (4,778)
Purchases of notes receivable............................ -- (5,691) -- -- (962)
Issuance of notes receivable............................. -- -- (2,520) (2,521) --
Payments received on notes receivable.................... -- -- 1,812 626 1,361
Proceeds from the sale of property, plant and
equipment.............................................. 14 401 229 -- 5,572
-------- -------- --------- --------- ---------
Net cash (used in) provided by investing
activities...................................... (1,394) (8,808) (67,023) (66,604) 67,367
-------- -------- --------- --------- ---------
Cash flows from financing activities:
Dividends paid........................................... (8,814) (6,086) (22,190) (15,850) (9,554)
Proceeds from issuance of Company Common Stock........... -- -- 430 -- 182,557
Cost of unearned Company Common Stock held by the ESOP... 2,270 -- -- -- --
Purchase of treasury stock............................... (10,216) -- -- -- (827,557)
Proceeds from issuance of the Notes...................... -- -- -- -- 200,000
Proceeds from borrowings under the Senior Credit
Facility............................................... -- -- -- -- 300,000
Debt issuance costs...................................... -- -- -- -- (11,609)
Recapitalization fees and expenses....................... -- -- -- -- (12,724)
-------- -------- --------- --------- ---------
Net cash used in financing activities............. (16,760) (6,086) (21,760) (15,850) (178,887)
-------- -------- --------- --------- ---------
Effect of cumulative translation adjustment................ -- -- (88) (44) (34)
-------- -------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 46,592 42,613 (28,586) (69,569) (80,324)
Cash and cash equivalents at beginning of year............. 43,643 90,235 132,848 132,848 104,262
-------- -------- --------- --------- ---------
Cash and cash equivalents at end of period................. $ 90,235 $132,848 $ 104,262 $ 63,279 $ 23,938
======== ======== ========= ========= =========
Income taxes paid.......................................... $ 40,921 $ 29,396 $ 38,723 $ 16,344 $ 15,787
======== ======== ========= ========= =========
Interest paid.............................................. $ 2 $ -- $ 19 $ 1 $ 495
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 103
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BACKGROUND
Home Interiors & Gifts, Inc. and its wholly-owned subsidiaries (the
"Company") are in the business of direct sales of home decorative accessories
using the "party plan" method whereby members of its non-employee, independent
contractor direct sales force ("Displayers") conduct shows in the homes of
potential customers. The Company's home office is in Dallas, Texas; however,
Displayers conduct shows throughout the United States, in Mexico and in Puerto
Rico. Three of the Company's wholly-owned subsidiaries, Dallas Woodcraft, Inc.
("DWC"), Homco, Inc. ("Homco") and GIA, Inc. ("GIA" and collectively, the
"Manufacturing Companies") sell substantially all of their products to the
Company and are major suppliers of its direct sales business.
The Company expanded its operations internationally with its wholly-owned
subsidiaries Homco de Mexico in 1995 and Homco Puerto Rico ("PR") in 1996. These
subsidiaries provide sales support services to the international Displayers.
Another wholly-owned subsidiary, Spring Valley Scents, Inc., ("SVS") began
selling its products exclusively to the Company in 1998.
Prior to December 31, 1994, the Company owned several companies that were
unrelated to the core business of home decorative accessories. On December 31,
1994, the Company and Carter-Crowley Properties, Inc. ("CCP") entered into a
spin-off agreement whereby the Company disposed of all of its subsidiaries
except for the Manufacturing Companies (collectively referred to as the
"Spin-Off").
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results may, in some instances, differ from previously
estimated amounts.
The consolidated financial information as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998 is unaudited. In the opinion of management,
the accompanying unaudited consolidated financial information and related notes
thereto contain all adjustments consisting only of normal, recurring
adjustments, necessary to present fairly the consolidated financial information
as of June 30, 1998 and the operating results and cash flows for the six months
ended June 30, 1997 and 1998. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The results of operations
for the periods presented are not necessarily indicative of the results to be
expected for the full year.
Principles of Consolidation
These consolidated financial statements include the accounts of the
Company. All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all
certificates of deposit, municipal bonds and short-term highly liquid debt
instruments, such as U.S. Treasury bills and notes with maturities of three
months or less when purchased, to be cash equivalents.
Marketable Securities
Short-term marketable securities, consisting of certificates of deposit
with original maturities in excess of three months, are stated at cost, which
approximates fair market value.
F-7
<PAGE> 104
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at lower of cost or market. Cost is determined by
the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the declining balance and
straight-line methods over estimated useful lives ranging from three to forty
years. Major expenditures for property, plant and equipment and those which
substantially increase useful lives are capitalized. Direct external costs of
developing software, including programming and enhancements, are capitalized and
amortized over the estimated useful lives ranging from three to five years once
the software is placed in service. Software training costs, maintenance, repairs
and minor renewals are expensed as incurred. When assets are retired or
otherwise disposed of, costs and related accumulated depreciation are removed
from the respective accounts and resulting gains or losses are included in
general and administrative expense.
Investments
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires certain debt and
equity securities to be adjusted to market value at the end of each accounting
period. Management determines the proper classification of investments in
obligations with fixed maturities and equity securities at the time of purchase
and reevaluates such designations quarterly. All investments are classified as
available for sale. Accordingly, these investments are stated at fair market
value, based on quoted market prices, with net unrealized gains and losses
reported as a separate component of shareholders' equity, net of tax. Realized
gains and losses are recorded based on the specific identification method and
are included in other income. Accreted discounts and amortized premiums are
included in interest income. Investments in 20% to 50% owned affiliates are
accounted for on the equity method.
Income Taxes
The Company files its federal income tax return on a consolidated basis.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements and tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement 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 be settled or realized.
Revenue Recognition
Revenue is recognized when the Company's products are shipped.
Hostess Prepayments
As a sales incentive, the Company issues certificates to its Displayers in
exchange for cash. These certificates are later redeemed by Displayers as
payment for hostess merchandise. The Company recognizes revenue to the extent
that purchased certificates are not expected to be redeemed.
Foreign Currency Translation
The accounts of the Company's foreign operations are translated into U.S.
dollars at the exchange rate in effect at the end of each period. Revenues and
expenses are translated at the weighted average exchange rate
F-8
<PAGE> 105
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for each period. Gains and losses resulting from translation are accumulated and
reported as a separate component of shareholders' equity.
Environmental Liabilities
The Company records liabilities related to environmental issues at such
time as information becomes available and is sufficient to support a reasonable
estimate or range of probable loss. If the Company is unable to determine that a
single amount in an estimated range of probable loss is more likely, the minimum
amount of the range is recorded.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information." The new standard is effective for financial statements for fiscal
years beginning after December 15, 1997. In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The new
standard is effective for fiscal years beginning after December 15, 1999. The
Company has not yet determined the effects the new standards will have on its
financial statements.
Reclassifications
Certain reclassifications have been made to prior years' balances to
conform with current year presentation.
3. THE RECAPITALIZATION
On June 4, 1998, the Company financed a recapitalization (the
"Recapitalization") through the following simultaneous transactions: (i) HM/RB
Partners, L.P. and other affiliates of Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") contributed $182,557,000 in cash to the equity of the Company in
exchange for 10,111,436 shares of the Company's common stock ("Company Common
Stock"); (ii) the Company borrowed $500,000,000 consisting of $200,000,000 of
senior subordinated notes (the "Notes") and $300,000,000 under a $340,000,000
senior credit facility (the "Senior Credit Facility"); and (iii) the Company
used the proceeds from the contribution of equity, the issuance of the Notes and
borrowings under the Senior Credit Facility, together with approximately
$169,333,000 of cash and cash equivalents held by the Company to pay
approximately $827,557,000 for the redemption of 45,836,584 shares of Company
Common Stock, and to pay fees and expenses of approximately $24,333,000
associated with the Recapitalization. Those fees and expenses included debt
issuance costs of $11,609,000, which are included in debt issuance costs in the
accompanying balance sheet and are amortized using the effective interest method
over the term of the related indebtedness. The remaining fees and expenses of
$12,724,000 consist of a financial advisory fee of $11,250,000 paid to Hicks
Muse and other legal and accounting costs $1,474,000. These remaining fees and
expenses of $12,724,000 have been treated as a treasury stock transaction cost,
and accordingly upon retirement of all treasury stock, existing additional
paid-in capital of $1,120,000 was eliminated and the remaining costs of
$11,604,000 were charged to retained earnings.
In addition to the $24,333,000 of fees and expenses related to the
Recapitalization, the Company paid another financial advisor and attorneys
$6,198,000 in connection with the Recapitalization. These costs were expensed as
incurred and are included in the Company's statement of operations for the six
months ended June 30, 1998.
As a result of the Recapitalization, the issued and outstanding shares of
Company Common Stock decreased to 15,231,652 shares as of June 30, 1998, and all
treasury stock was retired.
F-9
<PAGE> 106
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Recapitalization, the Company (i) adopted a stock
option plan for key employees (the "Stock Option Plan"), (ii) granted options to
be held in trust (the "Stock Option Trust") for the benefit of certain
Displayers and other independent contractors and (iii) converted the Company's
Employee Stock Ownership Plan ("ESOP") into a 401(k) plan. Options for a total
of 1,353,924 shares of Company Common Stock are available for grant under the
Stock Option Plan. In June and July, 1998, options for 965,042 shares were
granted at an exercise price of $18.05451 under the Stock Option Plan. Options
for a total of 338,481 shares of Company Common Stock are available for grant
under the Stock Option Trust. In June and July 1998, options for 246,530 shares
were granted at an exercise price of $18.05451 under the Stock Option Trust.
4. STOCK SPLIT
Effective June 9, 1995, the Company's Board of Directors (the "Board")
declared a 150-for-one split of the Company's common shares. In connection
therewith, the Board increased the Company's authorized capital from 10,000,000
shares of Company Common Stock, with a par value of $1.00 per share, to
75,000,000 shares of Company Common Stock, with a par value of $0.10 per share.
All references in the consolidated financial statements to numbers of shares
outstanding, per share amounts and ESOP data have been adjusted to reflect the
split.
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Accounts receivable, trade.................................. $5,994 $ 6,122
Accounts receivable, other.................................. 1,402 2,296
Notes receivable, current................................... 1,919 3,398
------ -------
9,315 11,816
Allowance for doubtful accounts............................. (218) (239)
------ -------
$9,097 $11,577
====== =======
</TABLE>
6. INVENTORIES
Inventories consist of the following as of December 31, 1996 and 1997 and
June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $ 5,230 $ 5,036 $ 6,882
Work in process.................................... 1,219 1,152 1,508
Finished goods..................................... 16,685 24,343 30,396
------- ------- -------
$23,134 $30,531 $38,786
======= ======= =======
</TABLE>
F-10
<PAGE> 107
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following as of December 31
(in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 3,260 $ 3,260
Buildings................................................... 18,634 18,952
Equipment, furniture and fixtures........................... 31,180 33,195
-------- --------
53,074 55,407
Accumulated depreciation.................................... (37,593) (39,220)
-------- --------
15,481 16,187
Software and hardware implementation in process............. -- 1,166
-------- --------
$ 15,481 $ 17,353
======== ========
</TABLE>
8. INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated market value of available for sale investments by type of security
issue as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
TYPE OF SECURITY COST GAINS LOSSES VALUE
---------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1996
Mutual funds and other.................... $ 2,440 $ -- $ -- $ 2,440
======= ====== ==== =======
1997
Tax exempt bonds.......................... $50,521 $ 895 $(40) $51,376
Corporate bonds........................... 8,955 165 (1) 9,119
Preferred Stock........................... 4,777 75 (15) 4,837
Mutual funds and other.................... 2,349 2,349
------- ------ ---- -------
$66,602 $1,135 $(56) $67,681
======= ====== ==== =======
</TABLE>
The amortized cost and estimated market value of debt securities classified
as available for sale investments as of December 31, 1997 by contractual
maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- -------
<S> <C> <C>
Due in one year............................................. $ -- $ --
Due after one year through five years....................... 43,388 44,048
Due after five years through ten years...................... 3,268 3,300
Due after ten years......................................... 12,820 13,147
------- -------
$59,476 $60,495
======= =======
</TABLE>
9. OTHER ASSETS
In connection with the Spin-Off in 1994, the Company contributed to CCP
approximately $9,969,000 of notes receivable from certain of its suppliers whose
primary customer is the Company. These notes originally arose in connection with
expansion needs of these suppliers. On December 31, 1996, the Company purchased
the remaining principal balance on these notes from CCP for a total of
$5,691,000, of which $4,287,000 is outstanding as of December 31, 1997.
F-11
<PAGE> 108
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 26, 1996, the Company sold one of its aircraft for $3,000,000.
In exchange for its aircraft, the Company received a note receivable for
$2,500,000 and another aircraft valued at $500,000. The transaction resulted in
a gain of $1,676,000.
10. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accrued compensation........................................ $2,527 $3,394
Employee retirement plan contribution....................... 1,961 2,159
Sales taxes payable......................................... 2,312 2,122
Other current liabilities................................... 1,383 1,383
------ ------
$8,183 $9,058
====== ======
</TABLE>
11. LONG-TERM DEBT
In connection with the Recapitalization, the Company issued $200,000,000 of
Notes and entered into a $340,000,000 Senior Credit Facility, which includes a
$40,000,000 revolving credit facility (the "Revolving Loans"). The Revolving
Loans remained undrawn as of June 30, 1998. Prior to the Recapitalization, the
Company had no indebtedness.
Long-term debt consists of the following as of June 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
1998
-----------
(UNAUDITED)
<S> <C>
Tranche A Loan @ 7 3/4% due 2004............................ $200,000
Tranche B Loan @ 8 1/4% due 2006............................ 100,000
Notes @ 10 1/8% due 2008.................................... 200,000
--------
500,000
Less current maturities..................................... (26,000)
--------
$474,000
========
</TABLE>
The Senior Credit Facility provides for (i) a $200,000,000 term loan (the
"Tranche A Loan"), (ii) a $100,000,000 term loan (the "Tranche B Loan"), and
(iii) $40,000,000 of Revolving Loans. The Company may use the Revolving Loans
for letters of credit of up to $15,000,000. As of June 30, 1998, no letters of
credit were issued under the Revolving Loans. The Company may, at its option,
prepay the term loans without premium or penalty. Additionally, the Company may
reduce or eliminate its revolving credit commitment prior to its maturity on
June 30, 2004. The Senior Credit Facility is guaranteed on a senior basis by the
Company's domestic subsidiaries and is collateralized by a lien on substantially
all assets of the Company and its wholly-owned subsidiaries.
The loans under the Senior Credit Facility bear interest, at the Company's
election, at either the LIBOR Rate (3 month rate of 5.72% and 6 month rate of
5.78% in each case as of June 30, 1998) plus an applicable margin or the Base
Rate Basis plus an applicable margin. The applicable LIBOR margin is 2.0% for
the Tranche A Loan and the Revolving Loans and 2.5% for the Tranche B Loan. The
applicable Base Rate Basis margin is 0.75% for the Tranche A Loan and the
Revolving Loans, and 1.25% for the Tranche B Loan. The Base Rate Basis is
defined as the higher of the prime rate of NationsBank, N.A. (8.50% as of June
30, 1998) or the federal funds effective rate (5.69% as of June 30, 1998) plus
0.5%. The applicable margin with respect to the loans will be eligible for
certain performance pricing step-downs.
F-12
<PAGE> 109
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Revolving Loans are subject to a commitment fee based on the undrawn
portion of the Revolving Loans. The commitment fee is eligible for certain
performance pricing step-downs and was 0.5% as of June 30, 1998. The cost of the
commitment fee is included in interest expense.
The Notes bear interest at 10 1/8% per year, payable semi-annually in
arrears on June 1 and December 1 of each year, commencing on December 1, 1998,
and maturing on June 1, 2008. The Notes are guaranteed, jointly and severally,
on an unsecured senior subordinated basis by all of the Company's domestic
subsidiaries. Except as set forth below, the Notes are not redeemable by the
Company prior to June 1, 2003. Thereafter, the Notes are subject to redemption
by the Company, in whole or in part, at specified redemption prices. In
addition, prior to June 1, 2001, the Company may, subject to certain
requirements, redeem up to 35% of the aggregate principal amount of Notes
outstanding at a redemption price equal to 110.125% plus accrued and unpaid
interest. The Notes may be redeemed at any time on or after June 1, 2003, in
whole or in part by the Company.
Current maturities of long-term debt as of June 30, 1998 (unaudited) are as
follows (in thousands):
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B
LOAN LOAN NOTES TOTAL
--------- --------- -------- --------
<S> <C> <C> <C> <C>
1998.......................................... $ 12,500 $ 500 $ -- $ 13,000
1999.......................................... 25,000 1,000 -- 26,000
2000.......................................... 27,500 1,000 -- 28,500
2001.......................................... 32,500 1,000 -- 33,500
2002.......................................... 37,500 1,000 -- 38,500
Thereafter.................................... 65,000 95,500 200,000 360,500
-------- -------- -------- --------
$200,000 $100,000 $200,000 $500,000
======== ======== ======== ========
</TABLE>
The terms of the Notes and the Senior Credit Facility contain a number of
covenants which will, among other things, limit or restrict the ability of the
Company and its subsidiaries to make investments, incur additional indebtedness,
create liens on assets, enter into mergers, consolidations or amalgamations or
liquidate, wind up or dissolve, dispose of assets, pay dividends and redeem
stock, redeem or make prepayments on the Notes, make capital expenditures in
excess of certain amounts and engage in certain transactions with subsidiaries
and affiliates. In addition, under the Senior Credit facility, the Company will
be required to comply with specified financial ratios and tests, including
minimum interest coverage and maximum leverage ratios. Subject to these leverage
ratios, the Company will be required to make certain mandatory prepayments of
the term loans.
Interest Rate Swap Agreement
On July 1, 1998, the Company entered into an interest rate swap agreement
to limit the effect of increases in interest rates on the Senior Credit
Facility. The swap agreement provides the Company with a fixed interest rate
until December 31, 2001, on $75,000,000. Pursuant to the swap agreement and
subject to certain exceptions and limitations, the Company is guaranteed a fixed
3 month LIBOR rate of 5.50% until June 9, 1999. As of June 30, 1998, the 3 month
LIBOR rate was 5.72%.
F-13
<PAGE> 110
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
The components of income tax expense for the years ended December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $31,621 $30,354 $33,144
State............................................... 3,697 3,236 5,352
------- ------- -------
35,318 33,590 38,496
Deferred, net......................................... (3) 367 (577)
------- ------- -------
$35,315 $33,957 $37,919
======= ======= =======
</TABLE>
A reconciliation of income tax expense computed at the federal statutory
rate to income tax expense at the Company's effective tax rate for the years
ended December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate applied to earnings before
income taxes........................................ $29,701 $30,941 $35,039
State income taxes, net of federal benefit............ 2,403 2,103 3,479
Other................................................. 3,211 913 (599)
------- ------- -------
$35,315 $33,957 $37,919
======= ======= =======
</TABLE>
The components of the net deferred tax balances as of December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Tax effect of temporary differences relating to:
Inventories............................................... $ 565 $ 799
Allowance for doubtful accounts........................... 76 83
Accrued employee benefits and displayer incentives........ 1,708 2,148
Other..................................................... 26 1
------ ------
Gross deferred tax assets.............................. 2,375 3,031
Investments............................................... -- (381)
Property, plant and equipment............................. (224) (298)
------ ------
Net deferred tax asset................................. 2,151 2,352
Less current deferred tax asset........................... 2,375 3,031
------ ------
Noncurrent deferred income tax liability............... $ 224 $ 679
====== ======
</TABLE>
13. EMPLOYEE STOCK OWNERSHIP PLAN
In January 1993 the Company established an ESOP for all full-time employees
of the Company who have at least one year of service and are age 18 or older
(see Note 3). The Company makes annual contributions to the ESOP at the
discretion of the Board. Cash contributions, which are paid in the following
year, totaled $1,904,000, $1,961,000 and $2,159,000 for the years ended December
31, 1995, 1996 and 1997, respectively. Shares owned by the ESOP attributable to
employees of the Company totaled 2,106,556 and 2,386,741 as of December 31, 1996
and 1997, respectively.
The Company loaned the ESOP funds to purchase shares of the Company's stock
from an existing shareholder in 1993, and the loan was repaid in full during
1995. Loans to the ESOP and the related Home Interiors common stock shares
pledged as collateral are reported as a deduction from shareholders' equity in
F-14
<PAGE> 111
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the consolidated balance sheets in accordance with Statement of Position 93-6.
As shares are committed-to-be-released from collateral, the Company reports
contribution expense equal to the current estimated market value of the
committed-to-be-released shares, as determined by an independent appraiser, and
records any appreciation in market value over the original purchase price of the
shares as additional paid-in capital. Upon repayment of the loan in 1995, all
shares were released from collateral. The amount credited to additional paid-in
capital in 1995 related to the appreciation in the market price of the released
shares totaled approximately $1,576,000 and is included in total contribution
expense of $3,480,000 for the year ended December 31, 1995.
14. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal proceedings incidental to its
normal business activities. Considering the fact that most of the claims are
covered by insurance, it is management's opinion that the amounts, if any, which
ultimately may be due in connection with such lawsuits and claims would not have
a material effect upon the Company.
State Income Taxes
Various states, in which the Company does not currently file income or
franchise tax returns, have occasionally made inquiries to determine whether the
Company is subject to their income tax laws. To date, only one such state has
made a final assessment, which the Company has settled under protest. The
Company continues to believe that its current activities in such states in which
it is not filing income or franchise tax returns are exempt from state income or
franchise tax under federal law and that no provision for these taxes is
necessary.
Worker's Compensation Requirement
The Company has designated a $1,300,000 certificate of deposit as a
guarantee on a letter of credit in meeting the requirements of the insurance
carrier covering the Company's worker's compensation insurance as of December
31, 1996 and 1997. These amounts are included in short-term marketable
securities in the consolidated balance sheets.
Chemical Recycling, Inc.
In 1989, DWC was named as a Potentially Responsible Party ("PRP") based on
allegedly having sent 2,640 gallons of waste to the Chemical Recycling, Inc.
facility in Wylie, Texas. In the future, DWC and the other PRPs may incur
additional costs related to the cleanup of hazardous substances at the facility.
Management believes such costs will not be material to the Company's financial
statements. DWC has not incurred any cleanup related costs during 1995, 1996 and
1997.
Materials Recovery Enterprises, Inc.
In 1997, Homco was named as a PRP based on allegedly having transported
hazardous waste to the Materials Recovery Enterprises, Inc. facility in Ovalo,
Texas. In the future, Homco and the other PRPs will incur costs related to the
cleanup of hazardous substances at the facility. Homco has not incurred any
cleanup related costs during 1997.
Management Fees
In conjunction with the Recapitalization, the Company entered into an
agreement that requires that the Company pay a minimum annual management fee to
Hicks Muse in an initial amount of $1,000,000, payable quarterly. The management
fee will be adjusted annually, but in no event will the fee be below $1,000,000
or
F-15
<PAGE> 112
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exceed $1,500,000. Management fees paid during the period ended June 30, 1998
totaled $324,000, of which $250,000 represents prepaid fees and are included in
other current assets in the accompanying consolidated balance sheet as of June
30, 1998. In addition, if the Board requests Hicks Muse to perform additional
financial advisory services in the future, Hicks Muse will be entitled to
receive a financial advisory fee.
The management agreements with Hicks Muse will terminate on June 4, 2008 or
earlier under certain circumstances.
Employment and Consulting Agreements
On June 4, 1998, the Company entered into a five-year employment agreement
with its former chief executive officer with annual compensation of $200,000,
plus reimbursement for certain expenses. The agreement generally requires the
Company to pay the former chief executive officer's salary throughout the
five-year term unless he voluntarily terminates his employment during such term.
The agreement, which contains a covenant not to compete with the Company during
the employment term and for three years thereafter, can be voluntarily
terminated only by the employee.
On June 4, 1998, the Company also entered into a one-year consulting
agreement with a former employee and former director, pursuant to which he will
be paid $200,000 for his consulting services. The agreement also contains a
three-year covenant not to compete.
15. RELATED PARTY TRANSACTIONS
A majority of the Company's inventory purchases are from suppliers whose
primary customer is the Company.
A shareholder and former director of the Company is a partner of a law firm
that renders various legal services for the Company. The Company paid the firm
approximately $546,000, $395,000 and $269,000 for legal services during 1995,
1996 and 1997, respectively. The Company paid the firm approximately $263,000
and $709,000 during the six months ended June 30, 1997 and 1998, respectively.
Amounts due to the law firm totaled $285,000, $134,000 and $163,000 as of
December 31, 1996 and 1997 and June 30, 1998, respectively.
Another shareholder and former director of the Company owns a company which
supplies inventory items to the Company and whose primary customer is the
Company. The Company paid the supplier approximately $50,756,000, $46,920,000
and $45,601,000 during 1995, 1996 and 1997, respectively. The Company paid the
supplier approximately $18,446,000 and $18,415,000 during the six months ended
June 30, 1997 and 1998, respectively. Amounts due to this supplier totaled
$107,000, $2,327,000 and $817,000 as of December 31, 1996 and 1997 and June 30,
1998, respectively.
The Company owns an investment in common stock of one of its suppliers
whose primary customer is the Company. The investment was purchased on December
31, 1996 from CCP for $1,281,000 and had a balance of $1,461,000 as of December
31, 1997 and June 30, 1998. The Company paid the supplier approximately
$13,253,000, $10,589,000 and $10,455,000 during 1995, 1996 and 1997,
respectively. The Company paid the supplier approximately $4,580,000 and
$5,186,000 during the six months ended June 30, 1997 and 1998, respectively.
Amounts due to this supplier totaled $40,000, $0 and $300,000 as of December 31,
1996 and 1997 and June 30, 1998, respectively.
In connection with the Recapitalization (see Note 3), CCP acted as a
consultant to the Company from July 1997 through the closing of the transaction
for monthly payments of approximately $11,000. Additionally, the Dallas
Mavericks, an NBA franchise that was controlled by CCP, leased an athletic
facility owned by the Company pursuant to which it paid approximately $37,000
and $40,000 during 1995 and 1996, respectively.
The Company leased improved real estate from a former officer and director
of the Company for $52,000 per year plus reimbursement of expenses during 1995,
1996, 1997 and the three-month period ended
F-16
<PAGE> 113
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998. CCP subleased a portion of the real estate from the Company from
June through December 1997 for monthly payments of $2,000. In April 1998, the
Company purchased the real estate valued at $1,925,000 in exchange for two
airplane hangers with a net book value of $858,000 and cash of approximately
$340,000.
During 1995, 1996, 1997 and the six-month period ended June 30, 1998, the
Company leased a condominium from a related party for approximately $24,000 per
year. The Company also paid a company controlled by former directors of the
Company $43,000, $139,000 and $96,000 during 1995, 1996 and 1997, respectively,
for its services as a common carrier. The Company paid this common carrier
$41,000 and $44,000 during the six months ended June 30, 1997 and 1998,
respectively.
16. CONCENTRATION OF CREDIT RISK
The Company maintains cash and cash equivalents at financial institutions
in excess of federally insured limits.
17. OTHER INCOME AND EXPENSE
Other income, net for the years ended December 31, 1995, 1996 and 1997 and
for the six months ended June 30, 1997 and 1998 consists of the following (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------
1995 1996 1997 1997 1998
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Other income:
Interest income...................... $2,470 $5,113 $ 7,985 $3,377 $4,276
Capital gains........................ -- -- 1,859 -- 203
Other................................ 689 695 1,275 452 380
------ ------ ------- ------ ------
3,159 5,808 11,119 3,829 4,859
------ ------ ------- ------ ------
Other expense:
Interest expense..................... 2 503 362 13 3,491
Other................................ 160 239 250 46 205
------ ------ ------- ------ ------
162 742 612 59 3,696
------ ------ ------- ------ ------
Other income, net...................... $2,997 $5,066 $10,507 $3,770 $1,163
====== ====== ======= ====== ======
</TABLE>
18. ISSUANCE OF COMMON STOCK
In October 1997, a former employee of the Company purchased 237,600 shares
of Company Common Stock for approximately $430,000 pursuant to an exclusive
stock option agreement. The transaction resulted in a tax benefit for the
Company of $714,000, which has been credited to additional paid-in capital.
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, marketable securities,
accounts receivable, accounts payable and other current liabilities approximate
fair market value due to their short maturities. Available for sale investments
are stated at fair market value based on quoted market prices.
F-17
<PAGE> 114
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. COMPREHENSIVE INCOME
Comprehensive income for the years ended December 31, 1995, 1996 and 1997
and for the six months ended June 30, 1997 and 1998 consists of the following
(in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income.................................. $49,544 $54,446 $62,192 $27,209 $28,189
Other comprehensive income (loss), before
tax:
Cumulative translation adjustment......... -- -- (88) (44) (34)
Unrealized gains (losses) on
investments............................ -- -- 1,074 144 (1,074)
------- ------- ------- ------- -------
Other comprehensive income (loss),
before tax........................... -- -- 986 100 (1,108)
Income tax (expense) benefit related to
items of other comprehensive income....... -- -- (376) -- 376
------- ------- ------- ------- -------
Other comprehensive income (loss), net
of tax............................... -- -- 610 100 (732)
------- ------- ------- ------- -------
Comprehensive income........................ $49,544 $54,446 $62,802 $27,309 $27,457
======= ======= ======= ======= =======
</TABLE>
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
For the quarters ended:
1996
Net sales...................... $85,799 $104,221 $105,911 $138,368
Gross profit................... 42,221 51,472 50,416 65,053
Net income..................... 9,287 12,260 14,556 18,343
1997
Net sales...................... $85,784 $122,736 $113,579 $146,746
Gross profit................... 41,779 60,216 53,841 73,345
Net income..................... 9,634 17,575 13,216 21,767
</TABLE>
F-18
<PAGE> 115
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. GUARANTOR FINANCIAL DATA
DWC, GIA, Homco, SVS and PR (the "Guarantors") unconditionally, on a joint
and several basis, guarantee the Notes. The Company's other subsidiary has not
guaranteed the Notes. Financial statements for the nonguarantor subsidiary have
been omitted because the assets, equity, income and cash flows of the
nonguarantor subsidiary are not significant. Guarantor financial statements on
an individual basis are not significant and have been omitted. Accordingly, the
following financial information presents the combined financial statements of
the Guarantors (in thousands):
Combined Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $27,189 $22,734 $ 466
Inventories............................................... 10,132 9,185 11,053
Intercompany receivable, net.............................. 1,130 1,377 13,897
Other current assets...................................... 463 553 594
------- ------- -------
Total current assets.............................. 38,914 33,849 26,010
Property, plant and equipment, net.......................... 7,406 7,600 8,569
Other assets................................................ 1,204 1,525 1,325
------- ------- -------
Total assets...................................... $47,524 $42,974 $35,904
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,086 $ 1,131 $ 2,490
Income taxes payable...................................... 902 1,448 3,611
Other current liabilities................................. 2,472 2,916 3,483
------- ------- -------
Total current liabilities......................... 4,460 5,495 9,584
Deferred income tax liability............................... 269 254 266
------- ------- -------
Total liabilities................................. 4,729 5,749 9,850
------- ------- -------
Commitments and contingencies
Shareholder's equity:
Common stock.............................................. 1,010 1,010 1,010
Additional paid-in capital 9,391 9,592 10,292
Retained earnings......................................... 32,394 26,623 14,752
------- ------- -------
Total shareholder's equity........................ 42,795 37,225 26,054
------- ------- -------
Total liabilities and shareholder's equity........ $47,524 $42,974 $35,904
======= ======= =======
</TABLE>
F-19
<PAGE> 116
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Combined Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $75,161 $66,741 $77,363 $39,768 $43,876
Cost of goods sold............................... 55,359 49,226 55,931 28,530 31,376
------- ------- ------- ------- -------
Gross profit..................................... 19,802 17,515 21,432 11,238 12,500
Selling, general and administrative.............. 4,542 4,000 4,038 1,993 2,071
------- ------- ------- ------- -------
Operating income................................. 15,260 13,515 17,394 9,245 10,429
Other income, net................................ 583 697 1,120 524 451
------- ------- ------- ------- -------
Income before income taxes....................... 15,843 14,212 18,514 9,769 10,880
Income taxes..................................... 6,029 5,329 6,686 3,816 4,079
------- ------- ------- ------- -------
Net income....................................... $ 9,814 $ 8,883 $11,828 $ 5,953 $ 6,801
======= ======= ======= ======= =======
</TABLE>
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -------------------
1995 1996 1997 1997 1998
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 9,814 $ 8,883 $ 11,828 $ 5,953 $ 6,801
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 1,922 1,592 1,619 723 829
Gains on the sale of assets................ (12) (1) (190) -- 58
Deferred tax expense (benefit)............. (63) 28 (135) -- (26)
Appreciation in common stock released to
ESOP.................................... 883 -- -- -- --
Changes in assets and liabilities:
Inventories............................. (1,064) 681 947 584 (1,868)
Intercompany receivable, net............ (693) 519 (245) (2,977) (12,143)
Other current and non-current assets.... (17) (38) (341) 45 (207)
Income taxes payable.................... (330) (509) 545 142 2,163
Other current liabilities............... (177) 390 489 966 1,700
-------- ------- -------- -------- --------
Total adjustments.................. 449 2,662 2,689 (517) (9,494)
-------- ------- -------- -------- --------
Net cash provided by (used in)
operating activities............. 10,263 11,545 14,517 5,436 (2,693)
-------- ------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment,
net..................................... (1,201) (685) (1,573) (414) (1,605)
-------- ------- -------- -------- --------
Net cash used in investing
activities....................... (1,201) (685) (1,573) (414) (1,605)
-------- ------- -------- -------- --------
Cash flows from financing activities:
Dividends paid to Home Interiors........... (14,800) -- (17,600) (17,600) (18,670)
Capital contributions from Home
Interiors............................... -- -- 201 -- 700
-------- ------- -------- -------- --------
Net cash used in financing
activities....................... (14,800) -- (17,399) (17,600) (17,970)
-------- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................ (5,738) 10,860 (4,455) (12,578) (22,268)
Cash and cash equivalents at beginning of
period..................................... 22,067 16,329 27,189 27,189 22,734
-------- ------- -------- -------- --------
Cash and cash equivalents at end of period... $ 16,329 $27,189 $ 22,734 $ 14,611 $ 466
======== ======= ======== ======== ========
</TABLE>
F-20
<PAGE> 117
------------------------------------------------------------
------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR ANY OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... i
Prospectus Summary......................... 1
Risk Factors............................... 14
The Recapitalization....................... 24
Use of Proceeds............................ 25
Capitalization............................. 26
Selected Historical Consolidated Financial 27
Data.....................................
Unaudited Pro Forma Consolidated Financial 29
Data.....................................
Management's Discussion and Analysis of 34
Financial Condition and Results of
Operations...............................
Business................................... 42
Management................................. 49
Certain Relationships and Related 54
Transactions.............................
Securities Ownership of Certain Beneficial 57
Owners and Management....................
Description of Senior Credit Facility...... 58
The Exchange Offer......................... 60
Description of New Notes................... 67
Certain United States Federal Income Tax 92
Considerations...........................
Plan of Distribution....................... 92
Legal Matters.............................. 93
Experts.................................... 93
Index to Consolidated Financial F-1
Statements...............................
</TABLE>
------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2008
FOR
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and the Bylaws of the Company and Dallas
Woodcraft, Inc., a Texas corporation, Homco, Inc., a Texas corporation, and
Spring Valley Scents, Inc., a Texas corporation (collectively, the "Texas
Guarantors"), and GIA, Inc., a Nebraska corporation ("GIA"), and the Certificate
of Incorporation and Bylaws of Homco Puerto Rico, Inc., a Delaware corporation
("Homco PR"), provide for the indemnification of directors and officers to the
fullest extent permitted by the Texas Business Corporation Act ("TBCA"), the
Nebraska Business Corporation Act ("NBCA") and the General Corporation Law of
the State of Delaware ("DGCL"), respectively. Pursuant to the provisions of
Article 2.02-1 of the TBCA, the Company and the Texas Guarantors have the power
to indemnify a person who was, is, or is threatened to be named a defendant in a
proceeding because the person is or was a director only if it is determined that
the director conducted himself in good faith, reasonably believed that his
conduct was in the Company's or the Texas Guarantors' best interests (in the
case of conduct in his official capacity) or not opposed to the Company's or the
Texas Guarantors' best interests (in all other cases) and in the case of a
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Officers may be indemnified to the same extent as directors pursuant
to certain sections of Article 2.02-1. The provisions of Sections 21-20,102 and
21-20,108 of the NBCA provide GIA the authority for substantially similar
indemnification of directors and officers as does the TBCA. Pursuant to the
provisions of Section 145 of the DGCL, Homco PR has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee, or agent of Homco PR
against any and all expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify only applies if such person acted in good
faith and in a manner he reasonably believed to be in the best interest, or not
opposed to the best interest, of Homco PR and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Indemnification is not available if such person has been adjudged to have
been liable to the Company, the Texas Guarantors, GIA or Homco PR, unless and
only to the extent that the court in which such action determines that, despite
the adjudication of liability, but in view of all of the circumstances, the
person is reasonably and fairly entitled to indemnification for such expenses as
the court shall deem proper. The Company, the Texas Guarantors, GIA and Homco PR
have the power to purchase and maintain insurance for directors and officers.
The statutes also expressly provide that the power to indemnify authorized
thereby is not exclusive of any rights granted under any bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise.
The above discussion of the Articles of Incorporation and Bylaws of the
Company, the Texas Guarantors and GIA, the Certificate of Incorporation and
Bylaws of Homco PR, Article 2.02-1 of the TBCA, Sections 20-21,102 and 20-21,108
of the NBCA and Section 145 of the DGCL is not intended to be exhaustive and is
qualified in its entirety by reference thereto.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Texas Guarantors, GIA and Homco PR pursuant to the foregoing provisions, or
otherwise, the Company, the Texas Guarantors, GIA and Homco PR have been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment of
expenses incurred or paid by a director, officer or controlling person thereof
in the successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Company, the Texas Guarantors, GIA and Homco PR 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-1
<PAGE> 119
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated April 13, 1998,
merging Crowley Investments, Inc. into the Company.*
2.2 -- Articles of Merger, dated June 4, 1998.*
3.1 -- Articles of Incorporation of the Company, as amended.*
3.2 -- Bylaws of the Company.*
3.3 -- Articles of Incorporation of Dallas Woodcraft, Inc.
(f/k/a Bo-Mar Manufacturing Co., Inc.)*
3.4 -- Bylaws of Dallas Woodcraft, Inc. (f/k/a Bo-Mar
Manufacturing Co., Inc.)*
3.5 -- Articles of Incorporation of Homco, Inc. (f/k/a Syroco of
Texas, Inc.)*
3.6 -- Bylaws of Homco, Inc. (f/k/a Syroco of Texas, Inc.)*
3.7 -- Articles of Incorporation of Spring Valley Scents, Inc.*
3.8 -- Bylaws of Spring Valley Scents, Inc.*
3.9 -- Articles of Incorporation of GIA, Inc.*
3.10 -- Bylaws of GIA, Inc.*
3.11 -- Certificate of Incorporation of Homco Puerto Rico, Inc.*
3.12 -- Bylaws of Homco Puerto Rico, Inc.*
4.1 -- Indenture, dated as of June 4, 1998, among the Company,
as issuer, the Guarantors named therein and United States
Trust Company of New York, as trustee.*
4.2 -- Purchase Agreement, dated as of May 28, 1998, among the
Company, as issuer, the Guarantors named therein and
Bear, Stearns & Co., Inc., Chase Securities, Inc., Morgan
Stanley Dean Witter and NationsBanc Montgomery Securities
LLC, as initial purchasers.*
4.3 -- Exchange and Registration Rights Agreement, dated as of
June 4, 1998, among the Company, the Guarantors named
therein and Bear, Stearns & Co., Inc., Chase Securities,
Inc., Morgan Stanley Dean Witter and NationsBanc
Montgomery Securities LLC.*
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity
of the securities registered hereby.+
9.1 -- Shareholders Agreement, as of June 4, 1998 between
Company, Adkins Family Partnership, LTD., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family
Partnership, LTD., Donald J. Carter, Jr., Linda J.
Carter, Ronald Lee Carter, Donald J. Carter, William J.
Hendrix, as Independent Special Trustee of the Carter
1997 Charitable Remainder Unit Trust, Howard L. Hammond
and Barbara J. Hammond, Trustees of the Hammond Family
Trust and Christina Lynne Carter Urschel.*
10.1 -- Financial Advisory Agreement, dated June 4, 1998, between
the Company, Dallas Woodcraft, Inc., GIA, Inc., Homco,
Inc., Homco Puerto Rico, Inc., Spring Valley Scents,
Inc., Homco de Mexico, S.A. de C.V., and Hicks, Muse &
Co. Partners, L.P.*
10.2 -- Monitoring and Oversight Agreement, dated June 4, between
the Company, Dallas Woodcraft, Inc., GIA, Inc., Homco,
Inc., Homco Puerto Rico, Inc., Spring Valley Scents,
Inc., Homco de Mexico, S.A. de C.V., and Hicks, Muse &
Co. Partners, L.P.*
10.3 -- Consulting Agreement, dated June 4, 1998, between Company
and Ronald L. Carter.*
</TABLE>
II-2
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.4 -- Home Interiors & Gifts, Inc. 1998 Stock Option Plan for
Key Employees, dated June 4, 1998.*
10.5 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Donald J. Carter.*
10.6 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Donald J. Carter Jr.*
10.7 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Barbara J. Hammond.*
10.8 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Christina L. Carter Urschel.*
10.9 -- Home Interiors & Gifts, Inc., 1998 Stock Option Plan for
Unit Directors, Branch Directors and Certain Other
Independent Contractors.*
10.10 -- Home Interiors & Gifts, Inc. 1998 Stock Option Trust,
dated June 4, 1998.*
10.11 -- Agreement, dated February 26, 1997, by and between the
Company and Distribution Architects International, Inc.*
10.12 -- ISDA Master Agreement, dated as of June 25, 1998, by and
between NationsBank, N.A. and the Company.*
12.1 -- Computation of Ratio of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion to be filed as Exhibit 5.1 to the Registration
Statement).+
23.2 -- Consent of PricewaterhouseCoopers LLP, independent
auditors.*
24.1 -- Powers of Attorney of directors and executive officers of
the Co-Registrants (included on the signature pages
hereto).
25.1 -- Statement of Eligibility and Qualification of the United
States Trust Company of New York, as trustee, under the
Indenture listed as Exhibit 4.1 hereto on Form T-1.+
27.1 -- Financial Data Schedule for the Six Months Ended June 30,
1998.*
27.2 -- Financial Data Schedule for the Year Ended December 31,
1997.*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Exchange Agent Agreement.+
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
(b) Financial Statement Schedules:
All schedules have been omitted since the required information is
either not present or not in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
II-3
<PAGE> 121
ITEM 22. UNDERTAKINGS.
(a) The undersigned Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned Co-Registrants hereby undertake 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 registration statement through the date of responding to the
request.
(5) The undersigned Co-Registrants hereby undertake to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-4
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on August 21, 1998.
HOME INTERIORS & GIFTS, INC.
By: /s/ DONALD J. CARTER, JR.
----------------------------------
Donald J. Carter, Jr.
Chairman of the Board and
Chief Executive Officer
Each person whose signature to this Registration Statement appears below
hereby appoints Donald J. Carter, Jr. and Leonard A. Robertson, and each of
them, any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. CARTER, JR. Director, Chairman of the August 21, 1998
- --------------------------------------------------- Board and Chief Executive
Donald J. Carter, Jr. Officer (principal executive
officer of the Company)
/s/ LEONARD A. ROBERTSON Chief Financial Officer August 21, 1998
- --------------------------------------------------- (principal financial and
Leonard A. Robertson accounting officer of the
Company)
/s/ BARBARA J. HAMMOND Director and President August 21, 1998
- ---------------------------------------------------
Barbara J. Hammond
/s/ CHRISTINA L. CARTER URSCHEL Director and Executive Vice August 21, 1998
- --------------------------------------------------- President
Christina L. Carter Urschel
/s/ THOMAS O. HICKS Director August 21, 1998
- ---------------------------------------------------
Thomas O. Hicks
/s/ JACK D. FURST Director August 21, 1998
- ---------------------------------------------------
Jack D. Furst
/s/ LAWRENCE D. STUART, JR. Director August 21, 1998
- ---------------------------------------------------
Lawrence D. Stuart, Jr.
/s/ DANIEL S. DROSS Director August 21, 1998
- ---------------------------------------------------
Daniel S. Dross
/s/ SHELDON I. STEIN Director August 21, 1998
- ---------------------------------------------------
Sheldon I. Stein
</TABLE>
II-5
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on August 21, 1998.
HOMCO, INC.
By: /s/ DONALD J. CARTER, JR.
----------------------------------
Donald J. Carter, Jr.
President
Each person whose signature to this Registration Statement appears below
hereby appoints Donald J. Carter, Jr. and Leonard A. Robertson, and each of
them, any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. CARTER, JR. Sole Director and President August 21, 1998
- --------------------------------------------------- (principal executive
Donald J. Carter, Jr. officer)
/s/ LEONARD A. ROBERTSON Secretary (principal financial August 21, 1998
- --------------------------------------------------- and accounting officer)
Leonard A. Robertson
</TABLE>
II-6
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on August 21, 1998.
DALLAS WOODCRAFT, INC.
By: /s/ DONALD J. CARTER, JR.
----------------------------------
Donald J. Carter, Jr.
President
Each person whose signature to this Registration Statement appears below
hereby appoints Donald J. Carter, Jr. and Leonard A. Robertson, and each of
them, any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. CARTER, JR. Sole Director and President August 21, 1998
- --------------------------------------------------- (principal executive
Donald J. Carter, Jr. officer)
/s/ LEONARD A. ROBERTSON Secretary (principal financial August 21, 1998
- --------------------------------------------------- and accounting officer)
Leonard A. Robertson
</TABLE>
II-7
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on August 21, 1998.
SPRING VALLEY SCENTS, INC.
By: /s/ DONALD J. CARTER, JR.
----------------------------------
Donald J. Carter, Jr.
President
Each person whose signature to this Registration Statement appears below
hereby appoints Donald J. Carter, Jr. and Leonard A. Robertson, and each of
them, any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. CARTER, JR. Sole Director and President August 21, 1998
- --------------------------------------------------- (principal executive officer)
Donald J. Carter, Jr.
/s/ LEONARD A. ROBERTSON Secretary (principal financial August 21, 1998
- --------------------------------------------------- and accounting officer)
Leonard A. Robertson
</TABLE>
II-8
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on August 21, 1998.
GIA, INC.
By: /s/ DONALD J. CARTER, JR.
----------------------------------
Donald J. Carter, Jr.
President
Each person whose signature to this Registration Statement appears below
hereby appoints Donald J. Carter, Jr. and Leonard A. Robertson, and each of
them, any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. CARTER, JR. Sole Director and President August 21, 1998
- --------------------------------------------------- (principal executive officer)
Donald J. Carter, Jr.
/s/ LEONARD A. ROBERTSON Secretary (principal financial August 21, 1998
- --------------------------------------------------- and accounting officer)
Leonard A. Robertson
</TABLE>
II-9
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on August 21, 1998.
HOMCO PUERTO RICO, INC.
By: /s/ DONALD J. CARTER, JR.
----------------------------------
Donald J. Carter, Jr.
President
Each person whose signature to this Registration Statement appears below
hereby appoints Donald J. Carter, Jr. and Leonard A. Robertson, and each of
them, any one of whom may act without the joinder of any of the others, as his
Attorney-In-Fact to sign on his behalf individually and in the capacity stated
below and to file all pre- and post-effective amendments to this Registration
Statement, which may make such changes in and additions to this Registration
Statement as such Attorney-In-Fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. CARTER, JR. Sole Director, and President August 21, 1998
- --------------------------------------------------- (principal executive officer)
Donald J. Carter, Jr.
/s/ LEONARD A. ROBERTSON Secretary (principal financial August 21, 1998
- --------------------------------------------------- and accounting officer)
Leonard A. Robertson
</TABLE>
II-10
<PAGE> 128
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated April 13, 1998,
merging Crowley Investments, Inc. into the Company.*
2.2 -- Articles of Merger, dated June 4, 1998.*
3.1 -- Articles of Incorporation of the Company, as amended.*
3.2 -- Bylaws of the Company.*
3.3 -- Articles of Incorporation of Dallas Woodcraft, Inc.
(f/k/a Bo-Mar Manufacturing Co., Inc.)*
3.4 -- Bylaws of Dallas Woodcraft, Inc. (f/k/a Bo-Mar
Manufacturing Co., Inc.)*
3.5 -- Articles of Incorporation of Homco, Inc. (f/k/a Syroco of
Texas, Inc.)*
3.6 -- Bylaws of Homco, Inc. (f/k/a Syroco of Texas, Inc.)*
3.7 -- Articles of Incorporation of Spring Valley Scents, Inc.*
3.8 -- Bylaws of Spring Valley Scents, Inc.*
3.9 -- Articles of Incorporation of GIA, Inc.*
3.10 -- Bylaws of GIA, Inc.*
3.11 -- Certificate of Incorporation of Homco Puerto Rico, Inc.*
3.12 -- Bylaws of Homco Puerto Rico, Inc.*
4.1 -- Indenture, dated as of June 4, 1998, among the Company,
as issuer, the Guarantors named therein and United States
Trust Company of New York, as trustee.*
4.2 -- Purchase Agreement, dated as of May 28, 1998, among the
Company, as issuer, the Guarantors named therein and
Bear, Stearns & Co., Inc., Chase Securities, Inc., Morgan
Stanley Dean Witter and NationsBanc Montgomery Securities
LLC, as initial purchasers.*
4.3 -- Exchange and Registration Rights Agreement, dated as of
June 4, 1998, among the Company, the Guarantors named
therein and Bear, Stearns & Co., Inc., Chase Securities,
Inc., Morgan Stanley Dean Witter and NationsBanc
Montgomery Securities LLC.*
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity
of the securities registered hereby.+
9.1 -- Shareholders Agreement, as of June 4, 1998 between
Company, Adkins Family Partnership, LTD., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family
Partnership, LTD., Donald J. Carter, Jr., Linda J.
Carter, Ronald Lee Carter, Donald J. Carter, William J.
Hendrix, as Independent Special Trustee of the Carter
1997 Charitable Remainder Unit Trust, Howard L. Hammond
and Barbara J. Hammond, Trustees of the Hammond Family
Trust and Christina Lynne Carter Urschel.*
10.1 -- Financial Advisory Agreement, dated June 4, 1998, between
the Company, Dallas Woodcraft, Inc., GIA, Inc., Homco,
Inc., Homco Puerto Rico, Inc., Spring Valley Scents,
Inc., Homco de Mexico, S.A. de C.V., and Hicks, Muse &
Co. Partners, L.P.*
10.2 -- Monitoring and Oversight Agreement, dated June 4, between
the Company, Dallas Woodcraft, Inc., GIA, Inc., Homco,
Inc., Homco Puerto Rico, Inc., Spring Valley Scents,
Inc., Homco de Mexico, S.A. de C.V., and Hicks, Muse &
Co. Partners, L.P.*
10.3 -- Consulting Agreement, dated June 4, 1998, between Company
and Ronald L. Carter.*
10.4 -- Home Interiors & Gifts, Inc. 1998 Stock Option Plan for
Key Employees, dated June 4, 1998.*
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.5 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Donald J. Carter.*
10.6 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Donald J. Carter Jr.*
10.7 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Barbara J. Hammond.*
10.8 -- Executive Employment Agreement, dated June 4, 1998,
between Company and Christina L. Carter Urschel.*
10.9 -- Home Interiors & Gifts, Inc., 1998 Stock Option Plan for
Unit Directors, Branch Directors and Certain Other
Independent Contractors.*
10.10 -- Home Interiors & Gifts, Inc. 1998 Stock Option Trust,
dated June 4, 1998.*
10.11 -- Agreement, dated February 26, 1997, by and between the
Company and Distribution Architects International, Inc.*
10.12 -- ISDA Master Agreement, dated as of June 25, 1998, by and
between NationsBank, N.A. and the Company.*
12.1 -- Computation of Ratio of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion to be filed as Exhibit 5.1 to the Registration
Statement).+
23.2 -- Consent of PricewaterhouseCoopers LLP, independent
auditors.*
24.1 -- Powers of Attorney of directors and executive officers of
the Co-Registrants (included on the signature pages
hereto).
25.1 -- Statement of Eligibility and Qualification of the United
States Trust Company of New York, as trustee, under the
Indenture listed as Exhibit 4.1 hereto on Form T-1.+
27.1 -- Financial Data Schedule for the Six Months Ended June 30,
1998.*
27.2 -- Financial Data Schedule for the Year Ended December 31,
1997.*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Exchange Agent Agreement.+
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
----------------------------------------
AGREEMENT AND PLAN OF MERGER
----------------------------------------
DATED AS OF APRIL 13, 1998
BETWEEN
CROWLEY INVESTMENTS, INC.
AND
HOME INTERIORS & GIFTS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05. Articles of Incorporation; Bylaws; Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.06. Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.07. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS . . . . . . . . . . . . . . . . . 3
2.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.02. Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.03. Company Common Stock Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.04. Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.05. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.01. Organization of the Company; Equity
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.02. The Company's Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.03. Authority, No Conflict, Required Filings
and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.04. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.05. No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.06. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.07. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.08. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.09. Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.11. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.12. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.13. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.14. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.15. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.16. Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.17. Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.18. Customers, Suppliers and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.19. Potential Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.20. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.21. Proxy Statement; Offering Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.22. Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.23. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.24. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.25. Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.01. Organization of CII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
4.02. CII's Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.03. Subsidiaries; Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.04. Authority; No-Conflict; Required Filings
and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.05. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.06. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.01. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.02. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.03. Conversion of ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VI ADDITIONAL AGREEMENTS AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.01. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.02. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.03. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.04. Shareholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.05. Legal Conditions to Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.06. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.07. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.08. Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.09. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.10. Protected Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.11. Additional Agreements; Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.12. Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.13. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.14. Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.15. Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.16. Employment and Consulting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.17. Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.18. Copyright Assignment and License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.19. Personal Property Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.20. Company Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.21. Environmental Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.22. Certain Agreements with HMC Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII CONDITIONS TO MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.01. Conditions to Each Party's Obligation To
Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.02. Additional Conditions to Obligations of CII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.03. Additional Conditions to Obligations of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VIII TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.03. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.04. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.05. Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.01. Investigations; Nonsurvival of Representations
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.03. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.04. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.05. Entire Agreement; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.08. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.09. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.10. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
(iii)
<PAGE> 5
Exhibit A ....... Parties to Execute Voting Agreement
Exhibit B ....... Voting Agreement
Exhibit C ....... Amended and Restated Articles of Incorporation
Exhibit D ....... Amended and Restated Bylaws
Exhibit E ....... Shareholders Agreement
Exhibit F ....... Employment Agreement
Exhibit G ....... Consulting Agreement
Exhibit H ....... Employee Stock Option Plan
Exhibit I ....... Manager Stock Option Trust Terms
Exhibit J ....... Copyright Assignment
Exhibit K ....... License Agreement
Exhibit L ....... Personal Property Lease
Exhibit M ....... Form of Opinion of Gardere & Wynne, L.L.P.
Exhibit N ....... Form of Opinion of Weil, Gotshal & Manges, LLP
Exhibit O ....... Financial Advisory Agreement
Exhibit P ....... Monitoring and Oversight Agreement
Schedule 1.06.... List of Directors
Schedule 1.07.... List of Officers
Schedule 2 ...... Management Shareholders
Schedule 6.10 ... Protected Employees
Schedule 6.15 ... Parties to Execute Shareholders Agreement
(iv)
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April
13, 1998, is by and between Crowley Investments, Inc., a Texas corporation
("CII"), and Home Interiors & Gifts, Inc., a Texas corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of the Company and CII
(collectively, the "Constituent Corporations") have determined that the merger
of CII with and into the Company (the "Merger"), upon the terms and subject to
the conditions set forth in this Agreement, would be advisable and in the best
interests of their respective companies and their respective shareholders, and
such Boards of Directors have approved such Merger, pursuant to which (i) each
share of common stock, $0.10 par value, of the Company (the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time (as
hereinafter defined)other than (a) shares of Company Common Stock owned,
directly or indirectly, by the Company or any Subsidiary (as defined in Section
3.02(c)) of the Company and (b) Dissenting Shares (as hereinafter defined)
shall be converted into either (1) the right to retain at the election of the
holder thereof and subject to the terms hereof, Company Common Stock or (2) the
right to receive cash and (ii) each share of common stock, $.01 par value, of
CII ("CII Common Stock")issued and outstanding immediately prior to the
Effective Time shall be converted into shares of Company Common Stock;
WHEREAS, the Merger and this Agreement require the affirmative vote of
holders of two-thirds of the outstanding shares of Company Common Stock for the
approval thereof;
WHEREAS, CII is unwilling to enter into this Agreement unless (a)
contemporaneously with the execution and delivery of this Agreement, the
individuals and entities set forth on Exhibit A shall each enter into a Voting
Agreement with CII in the form of Exhibit B (the "Voting Agreement"), (b) the
shareholders of the Company listed on Schedule 2 agree to retain the shares of
Company Common Stock described therein and (c) the individuals set forth in
Section 6.16 enter into employment and consulting agreements as required by
Section 6.16 hereof;
WHEREAS, CII and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a
recapitalization for financial reporting purposes;
<PAGE> 7
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Texas Business Corporation
Act (the "TBCA"), CII shall be merged with and into the Company at the
Effective Time. At the Effective Time, the separate existence of CII shall
cease, and the Company shall continue as the surviving corporation (sometimes
referred to below as the "Surviving Corporation").
1.02. Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, the closing of the Merger (the "Closing") will take place at
10:00 a.m., Dallas, Texas time, on June 5, 1998 (the "Closing Date"), at the
offices of Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower, 1601 Elm Street,
Dallas, Texas 75201, unless another date, time or place is agreed to in writing
by the parties hereto or except as otherwise provided in Section 8.01(b)
1.03. Effective Time of the Merger. As soon as practicable on or
after the Closing Date, the parties shall file with the Secretary of State of
the State of Texas articles of merger (the "Articles of Merger") executed in
accordance with the relevant provisions of the TBCA and shall make all other
filings or recordings required under the TBCA. The Merger shall become
effective at such time as the Articles of Merger are duly filed with the
Secretary of State of the State of Texas, or at such other time as is
permissible in accordance with the TBCA and as CII and the Company shall agree
shall be specified in the Articles of Merger (the time the Merger becomes
effective being the "Effective Time").
1.04. Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the TBCA.
1.05. Articles of Incorporation; Bylaws; Purposes.
(a) Articles of Incorporation. At the Effective Time, and
without any further action on the part of the Company or CII, the Articles of
Incorporation of the Company shall be the Articles of Incorporation of the
Company following the Merger; provided that the Articles of Incorporation of
the Company shall be amended and restated in the form attached as Exhibit C.
(b) Bylaws. At the Effective Time, and without any
further action on the part of the Company or CII, the Bylaws of the
2
<PAGE> 8
Company shall be the Bylaws of the Company following the Merger until
thereafter changed or amended as provided therein or by applicable law;
provided that the Bylaws of the Company shall be amended and restated in the
form attached as Exhibit D.
1.06. Directors. The persons set forth on Schedule 1.06 shall be the
directors of the Company following the Merger, until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
1.07. Officers. The officers of CII at the Effective Time, who shall
be those persons set forth on Schedule 1.07, shall be the officers of the
Company following the Merger, until the earlier of their resignation or removal
or until their respective successors are duly elected or appointed and
qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.01. Defined Terms. As used in this Article II, the following terms
shall have the following meanings:
(a) "Aggregate Non-Management Non-Cash Election Shares"
shall mean and be equal to 3,046,330 Non- Cash Election Shares.
(b) "Cash Election Price" shall mean $18.05451 per share.
(c) "Cashing Out Share" shall mean each share of Company
Common Stock immediately prior to the Effective Time other than Electing Shares
and Dissenting Shares.
(d) "CII Post-Merger Shares" shall mean the number of
shares of Company Common Stock owned by CII immediately after the Effective
Time which shall be equal to the product of (i) 15,231,652 times (ii) a
quotient (A) the numerator of which is the Total Post-Merger Equity minus the
Retained Equity and (B) the denominator of which is the Total Post-Merger
Equity.
(e) "Dissenting Shares" shall mean shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time
held by a shareholder of the Company who has the right to demand payment for
and appraisal of such shares in accordance with the applicable provisions of
the TBCA, and who has demanded properly in writing appraisal for such shares in
accordance with Section 5.12 of the TBCA and has not withdrawn such demand or
otherwise forfeited his appraisal rights.
3
<PAGE> 9
(f) "Electing Share" shall mean each Pro Rata Electing
Share and each Excess Electing Share.
(g) "Election Date" shall mean 5:00 p.m., Dallas, Texas
time, on May 26, 1998.
(h) "ESOP" shall mean the Company's Employee Stock
Ownership Plan and Trust.
(i) "Excess Electing Share" shall mean, as to any holder
of Company Common Stock, other than the individuals listed in Schedule 2, who
effectively makes, and does not withdraw or revoke, an election to retain
Company Common Stock after the Effective Time in accordance with Section 2.03,
and subject to Section 2.04, each share of Company Common Stock owned by such
holder prior to the Effective Time which such holder has elected to retain in
excess of such holder's Pro Rata Share pursuant to clause (2) of Section
2.03(b)(ii)(B).
(j) "Exchange Agent" shall mean Securities Transfer
Corporation.
(k) "Management Share" shall mean each share of Company
Common Stock owned by the individuals listed in Section A of Schedule 2 which
is to be converted immediately after the Effective Time into a Post-Merger
Management Share pursuant to Section 2.02(c)(ii).
(l) "Non-Cash Election Share" shall mean each share of
Company Common Stock owned immediately after the Effective Time by a
shareholder of the Company pursuant to an election to retain Company Common
Stock which was effectively made and not revoked pursuant to Section 2.03.
(m) "Post-Merger Management Share" shall mean each share
of Company Common Stock owned by the individuals listed in Section A of
Schedule 2 immediately after the Effective Time.
(n) "Pro-Rata Electing Share" shall mean, as to any
holder of Company Common Stock who effectively makes, and does not withdraw or
revoke, an election to retain Company Common Stock after the Effective Time in
accordance with Section 2.03, each share of Company Common Stock owned by such
holder prior to the Effective Time which shall be converted into a Non-Cash
Election Share pursuant to clause (1) of Section 2.03(b)(ii)(B) in a number
equal to such holder's Pro Rata Share.
(o) "Pro Rata Share" shall mean (i) in the case of each
shareholder of the Company other than the ESOP and the individuals listed in
Schedule 2, a number of Non-Cash Election Shares equal to (A) the Aggregate
Non- Management Non-Cash Election Shares times (B) a quotient, (1) the
numerator of which is the number of shares of Company Common Stock owned by
such shareholder immediately prior to the Effective Time and (2) the
denominator of
4
<PAGE> 10
which is the number of shares of Company Common Stock owned by all such
shareholders immediately prior to the Effective Time and (ii) in the case of
each individual listed in Section B of Schedule 2, a number of Non-Cash
Election Shares specified in his Election Form (as hereinafter defined) up to
but not to exceed the number listed in Section B of Schedule 2.
(p) "Retained Equity" shall mean an amount equal to the
product of (i) $18.05451 times (ii) the number of Post-Merger Management Shares
and Non-Cash Election Shares.
(q) "Total Post-Merger Equity" shall mean $275,000,000.
2.02. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, CII or any
holder of any shares of Company Common Stock or CII Common Stock:
(a) CII Common Stock. Each share of CII Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into a number of shares of Company Common Stock following the Merger
equal to the quotient of (i) the number of CII Post-Merger Shares divided by
(ii) the number of shares of CII Common Stock outstanding immediately prior to
the Effective Time.
(b) Cancellation of Treasury Stock. Each share of Company
Common Stock that is owned by the Company or by any Subsidiary of the Company
shall be canceled and retired and shall cease to exist, and no cash, Company
Common Stock or other consideration shall be delivered or deliverable in
exchange therefor.
(c) Conversion (or Retention) of Company Common Stock.
Except as otherwise provided herein, each issued and outstanding share of
Company Common Stock (other than shares canceled pursuant to Section 2.02(b)
and Dissenting Shares) shall be converted into the following (the "Merger
Consideration"):
(i) for each Electing Share, the right to retain
one fully paid and nonassessable Non-Cash Election Share;
(ii) for each Management Share, one fully paid and
nonassessable Post-Merger Management Share; and
(iii) for each Cashing Out Share (other than
Management Shares), the right to receive the Cash Election Price in cash from
the Company following the Merger.
(d) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Dissenting Shares shall not be converted into a
right to receive the Merger Consideration or any cash in lieu of fractional
Non-Cash Election Shares pursuant to Section
5
<PAGE> 11
2.05(e)(but shall have the appraisal rights set forth in such provisions of the
TBCA). If, after the Effective Time, such holder fails to perfect or has
withdrawn or otherwise loses any such appraisal right, each such share of
Company Common Stock owned by such holder shall be converted into the right to
receive, without any interest thereon, the Cash Election Price in accordance
with Section 2.02(c)(iii) upon surrender in accordance with Section 2.05 of the
certificate or certificates that formerly evidenced such shares. The Company
shall give prompt notice to CII of any demands received by the Company for
appraisal of shares of Company Common Stock and CII shall have the right to
participate in and approve all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
CII, make any payment with respect to, or settle or offer to settle, any such
demands.
(e) Cancellation and Retirement of Company Common Stock.
As of the Effective Time, all shares of Company Common Stock (other than
Electing Shares, Management Shares and Dissenting Shares) issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and automatically shall be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Common Stock shall, to the extent such certificate represents such shares,
cease to have any rights with respect thereto, except the right to receive the
Cash Election Price in consideration therefor upon surrender of such
certificate in accordance with Section 2.05.
2.03. Company Common Stock Elections.
(a) Non-Cash Election. Except as otherwise provided in
Section 2.03(b), each person who, on or prior to the Election Date, is a record
holder of shares of Company Common Stock will be entitled to make an
unconditional election (a "Non-Cash Election") on or prior to the Election Date
to retain Non-Cash Election Shares, on the basis hereinafter set forth.
(b) Elections.
(i) The Company shall prepare a form of election,
which form shall be subject to the reasonable approval of CII (the "Election
Form"), to be mailed by the Company with the Proxy Statement(as hereinafter
defined) to the record holders (except as hereinafter set forth) of Company
Common Stock as of the record date for the Company Shareholders' Meeting (as
hereinafter defined). The Election Form shall be used by each record holder of
shares of Company Common Stock who desires and is permitted hereunder to make a
Non-Cash Election. In addition, the Election Form must be completed and
returned by each record holder of shares of Company Common Stock (regardless of
whether or not such holder is making a Non-Cash Election) in order for such
holder to receive such holder's Merger Consideration. Notwithstanding anything
to the contrary contained herein, the Trustee of the ESOP shall not be
6
<PAGE> 12
afforded the opportunity to make a Non-Cash Election with respect to the shares
of Company Common Stock held by the ESOP. In addition, without completion and
delivery of an Election Form, as of the Effective Time each Management Share
shall be converted into the right to retain one fully paid and non-assessable
Post-Merger Management Share and each share of Company Common Stock other than
a Management Share owned by the individuals listed in Section A of Schedule 2
shall be converted into the Cash Election Price, all as provided in Section
2.02(c)(ii) and Schedule 2. Each Holder of Management Shares shall deliver to
the Company or the Exchange Agent, as appropriate, such documents, instruments
and certifications as may reasonably be requested in order to effect the
conversion of such Management Shares into the Merger Consideration as provided
herein.
(ii) Each holder of Company Common Stock receiving
an Election Form shall be entitled to make an election to receive or retain, as
the case may be: (A) the Cash Election Price for each of his Cashing Out Shares
or (B) the Cash Election Price for each of his Cashing Out Shares plus a number
of Non-Cash Election Shares equal to the number of (1) Pro Rata Electing Shares
held by such holder plus (2) Excess Electing Shares, if any, held by such
holder; provided that the number of Non-Cash Election Shares to be received
pursuant to clause (2) shall not exceed in any event the number of shares
specified in such holder's Election Form and shall be subject to reduction in
accordance with Section 2.04 hereof.
(iii) Any election to retain Non-Cash Election
Shares shall have been properly made only if the Company or, if the Company so
determines, the Exchange Agent shall have received by the Election Date, an
Election Form properly completed and signed and accompanied by certificates
representing the shares of Company Common Stock to which such Election Form
relates, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of the Company.
(c) Revoking Election Forms. Any Election Form may be
revoked by the shareholder of the Company submitting it only by written notice
received by the Company or, if the Company so determines, the Exchange Agent
prior to 5:00 p.m, Dallas, Texas time on the Election Date. In addition, all
Election Forms shall automatically be revoked if CII or the Company terminate
this Agreement or CII and the Company notify the Exchange Agent in writing that
the Merger has been abandoned. If the Merger is abandoned, the certificate or
certificates for the shares of Company Common Stock to which such Election Form
relates shall be promptly returned to the shareholder submitting the same.
(d) Exchange Agent Determinations. The determination of
the Company or, if the Company so determines, the Exchange Agent shall be
binding as to whether or not Non-Cash Elections have been properly made or
revoked pursuant to this Section 2.03 and when Non-Cash Elections or
revocations of Non-Cash Elections were
7
<PAGE> 13
received. If the Company or, if the Company so determines, the Exchange Agent
reasonably determines in good faith that any permitted Non-Cash Election was
not timely and properly made, the shares of Company Common Stock relating
thereto (other than Dissenting Shares) shall be treated as Cashing Out Shares.
The Company or, if the Company so determines, Exchange Agent shall also make
all computations as to the allocation and the proration contemplated by Section
2.04, and any such computation shall be conclusive and binding on the
shareholders of the Company.
2.04. Proration.
(a) Aggregate Non-Cash Election Shares. Notwithstanding
anything in this Agreement to the contrary, all shareholders of the Company
other than those individuals listed in Schedule 2 shall not own in the
aggregate Non-Cash Election Shares in excess of the Aggregate Non-Management
Non-Cash Election Shares.
(b) Right to Exceed Pro Rata Share. If less than all of
the shareholders of the Company (other than those individuals listed in Section
B of Schedule 2) who are permitted to make a Non-Cash Election pursuant to
Section 2.03(b) make a Non-Cash Election, then each shareholder of the Company
(other than those individuals listed in Section B of Schedule 2) who has
elected to retain Non-Cash Election Shares in excess of his Pro Rata Share
pursuant to clause (2) of Section 2.03(b)(ii)(B) shall be entitled to retain an
additional number of Non-Cash Election Shares in excess of his Pro-Rata Share
(which together with his Pro Rata Share shall not exceed the maximum number of
Non-Cash Election Shares specified on his Election Form) equal to (i) the total
number of Non-Cash Election Shares to which the shareholders of the Company
(other than those individuals listed in Section B of Schedule 2) who did not
elect to retain their Pro Rata Share were entitled, multiplied by (ii) a
fraction (A) the numerator of which equals the total number of shares of
Company Common Stock owned immediately prior to the Effective Time by him and
(B) the denominator of which equals the total number of shares of Company
Common Stock owned immediately prior to the Effective Time by all shareholders
of the Company (other than those individuals listed in Section B of Schedule 2)
electing to retain Non-Cash Election Shares in excess of their Pro Rata Share.
If any shareholder of the Company (other than those individuals listed in
Section B of Schedule 2) who elects to retain Non-Cash Election Shares in
excess of his Pro Rata Share specifies on his Election Form a maximum number of
additional Non-Cash Election Shares which is less than the total number of
additional Non-Cash Election Shares to which he is entitled pursuant to the
immediately preceding sentence, the other shareholders (other than those
individuals listed in Section B of Schedule 2) electing to retain Non-Cash
Election Shares in excess of their Pro Rata Share shall be entitled to retain
the Non-Cash Election Shares to which such shareholder was entitled on a pro
rata basis computed in a manner consistent with the immediately preceding
sentence.
8
<PAGE> 14
2.05. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, the Company
shall deposit with the Exchange Agent, for the benefit of the holders of shares
of Company Common Stock (other than the Company, CII, any Subsidiary of the
Company or holders of Dissenting Shares), for exchange in accordance with this
Article II, the cash portion of the Merger Consideration, plus an amount equal
to that required to pay in full the amount required by Section 2.05(e). In
addition, if and to the extent Election Forms and stock certificates have been
delivered to the Company pursuant to Section 2.03(b)(iii) or otherwise, the
Company shall deposit the same with the Exchange Agent. To the extent that less
than all of the Election Forms and stock certificates have been delivered to
the Company prior to the Effective Time pursuant to Section 2.03(b)(iii) or
otherwise, the Company shall, from time to time after the Effective Time,
deposit with the Exchange Agent, for the benefit of the holders who delivered
such Election Forms and stock certificates after the Effective Time, such stock
certificates for exchange in accordance with this Article II.
(b) Exchange Procedures. After the Effective Time and the
surrender to the Company of certificate or certificates which immediately prior
to the Effective Time evidenced outstanding shares of Company Common Stock,
together with a duly executed Election Form and such other customary documents
as may be required, and acceptance thereof by the Company, the holder of such
certificate or certificates shall be entitled to a certificate or certificates
representing the number of full Non-Cash Election Shares or Post-Merger
Management Shares, if any, to be retained by the holder thereof pursuant to
this Agreement and the Cash Election Price into which each Cashing Out Share
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to this Agreement (together with cash in lieu of
fractional Non-Cash Election Shares or Post-Merger Management Shares). The
Company shall accept such certificates upon compliance with such reasonable
terms and conditions as it and the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After
the Effective Time, there shall be no further transfer on the records of the
Company or its transfer agent of certificates representing, in whole or in
part, Cashing Out Shares, and if such certificates are presented to the Company
for transfer, together with a duly executed Election Form and such other
customary documents as may be required, they shall be canceled against delivery
of the Cash Election Price. If any certificate for Non-Cash Election Shares or
Post-Merger Management Shares is to be issued in, or if cash is to be remitted
to, a name 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 or
otherwise in proper form for transfer (with the signatures thereon guaranteed),
and that the person requesting such exchange shall pay to the Company or its
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transfer agent any transfer or other taxes required by reason of the issuance
of certificates for such Non-Cash Election Shares or Post-Merger Management
Shares in a name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of the Company or its transfer
agent that such tax has been paid or is not applicable. Until surrendered in
exchange for the Merger Consideration, each certificate for shares of Company
Common Stock shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration as
contemplated by Section 2.02. No interest will be paid or will accrue on any
cash payable as Merger Consideration or in lieu of any fractional Non-Cash
Election Shares or Post-Merger Management Shares.
(c) Distributions With Respect to Non-Cash Election
Shares. No dividends or other distributions with respect to Company Common
Stock with a record date after the Effective Time shall be paid to the holder
of any unsurrendered certificates with respect to the Post-Merger Management
Shares represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.05(e), until the
surrender of such certificate in accordance with this Article II. Subject to
the effect of applicable laws, following surrender of any such certificate,
there shall be paid to the holder of the certificate representing whole shares
of Non-Cash Election Shares or Post-Merger Management Shares issued in
connection therewith, without interest, (i) as soon as practicable after the
later of the Effective Time or such surrender, the amount of any cash payable
in lieu of a fractional share to which such holder is entitled pursuant to
Section 2.05(e) and the proportionate amount of any dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole Post-Merger Management Shares, and (ii) at the
appropriate payment date, the proportionate amount of any dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole Post-Merger Management Shares.
(d) No Further Ownership Rights in Company Common Stock
Exchanged for Cash. All cash paid upon the surrender for exchange of
certificates representing shares of Company Common Stock in accordance with the
terms of this Article II (including any cash paid pursuant to Section 2.05(e))
shall be deemed to have been paid in full satisfaction of all rights pertaining
to such shares of Company Common Stock.
(e) No Fractional Shares.
(i) No certificates or scrip representing
fractional Non-Cash Election Shares or Post-Merger Management Shares shall be
issued in connection with the Merger, and such fractional share interests will
not entitle the owner thereof to vote or to any other rights of a shareholder
of the Company after the Merger.
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(ii) Notwithstanding any other provision of this
Agreement, each holder of Electing Shares exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a Non-Cash Election
Share (after taking into account all Non-Cash Election Shares delivered to such
holder) shall receive, in lieu thereof, a cash payment (without interest) equal
to the product of the Cash Election Price multiplied by the fraction of a Non-
Cash Election Share to which such holder would have been entitled to receive
but for this Section 2.05(e).
(f) Termination of Exchange Fund. Any portion of the
Merger Consideration deposited with the Exchange Agent pursuant to this Section
2.05 (the "Exchange Fund") which remains undistributed to the holders of the
certificates representing shares of Company Common Stock for six months after
the Effective Time shall be delivered to the Company, upon demand, and any
holders of shares of Company Common Stock prior to the Merger who have not
theretofore complied with this Article II shall thereafter look only to the
Company and only as general creditors thereof for payment of their claim for
the Cash Election Price, if any, Non-Cash Election Shares or Post-Merger
Management Shares, if any, any cash in lieu of fractional Non-Cash Election
Shares and any dividends or distributions with respect to Non-Cash Election
Shares or Post-Merger Management Shares to which such holders may be entitled.
(g) No Liability. Neither the Company nor the Exchange
Agent shall be liable to any person in respect of any Non-Cash Election Shares
or Post-Merger Management Shares (or dividends or distributions with respect
thereto) or cash from the Exchange Fund 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 Cash Election Price, Post-Merger Management
Shares, cash in lieu of fractional Non-Cash Election Shares or dividends or
distributions with respect to Non-Cash Election Shares or Post-Merger
Management Shares in respect of such certificate would otherwise escheat to or
become, the property of any Governmental Entity (as hereinafter defined)), any
such cash, Post-Merger Management Shares or dividends or distributions in
respect of such certificate shall, to the extent permitted by applicable law,
become the property of the Company, free and clear of all claims or interest of
any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by the Company,
provided that such investment shall be (i) securities issued or directly and
fully guaranteed or insured by the United
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<PAGE> 17
States government or any agency or instrumentality thereof having maturities of
not more than six months from the Effective Time, (ii) certificates of deposit,
eurodollar time deposits and bankers' acceptances with maturities not exceeding
six months and overnight bank deposits with any commercial bank, depository
institution or trust company incorporated or doing business under the laws of
the United States of America, any state thereof or the District of Columbia,
provided that such commercial bank, depository institution or trust company
has, at the time of investment, (A) capital and surplus exceeding $250 million
and (B) outstanding short-term debt securities which are rated at least A-1 by
Standard & Poor's Rating Group Division of The McGraw-Hill Companies, Inc. or
at least P-1 by Moody's Investors Services, Inc. or carry an equivalent rating
by a nationally recognized rating agency if both of the two named rating
agencies cease to publish ratings of investments, (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clauses (i) and (ii) above entered into with any financial
institution meeting the qualifications specified in clause (ii) above, (iv)
commercial paper having a rating in the highest rating categories from Standard
& Poor's Rating Group Division of The McGraw-Hill Companies, Inc. or Moody's
Investors Services, Inc. or carrying an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease to
publish ratings of investments and in each case maturing within six months of
the Effective Time and (v) money market mutual or similar funds having assets
in excess of $1 billion. Any interest and other income resulting from such
investments shall be paid to the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to CII that the statements
contained in this Article III are true and correct in all material respects.
3.01. Organization of the Company; Equity Investments. Each of the
Company and its Subsidiaries (as hereinafter defined) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted. The Company and each of its Subsidiaries is duly qualified to do
business in each jurisdiction where such qualification is required, except
where the failure to so qualify does not constitute a Material Adverse Effect.
As used herein, "Material Adverse Effect" shall mean any event, circumstance,
condition or fact which has had or could reasonably be expected to have a
material adverse effect on the business, assets, financial condition,
prospects, financial projections or results of operations of the
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<PAGE> 18
Company and its Subsidiaries taken as a whole. For purposes of this Agreement
(except Article IV and Section 7.03), the determination of whether any
particular event, circumstance, condition, fact, event or other matter is
"material" shall be based upon whether a purchaser in a leveraged acquisition
transaction (such as the transaction contemplated by this Agreement) would
reasonably consider such event, circumstance, condition, fact, event or other
matter to be material. Section 3.01 of the disclosure schedule delivered by
the Company to CII as of the date hereof (the "Company Disclosure Schedule")
sets forth with respect to the Company and each of its Subsidiaries, if a
corporation, its jurisdiction of incorporation, the states in which it is
qualified to do business as a foreign corporation, the authorized, issued and
outstanding capital stock and the percentage of each class of capital voting
stock owned by the Company or any of its Subsidiaries, and in the case of
unincorporated entities, the equivalent information as provided with regard to
corporate entities. Except as set forth in Section 3.01 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity, excluding
securities in any publicly traded company held for investment by the Company
and comprising less than one percent of the outstanding stock of such company.
3.02. The Company's Capital Structure.
(a) Capitalization. All of the shares of Company Common
Stock outstanding were duly authorized, and are validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive rights, and no
shares of Company Common Stock are held in the treasury of the Company or by
any Subsidiary of the Company. The Company previously delivered to CII a true
and correct copy of the list of the Company's shareholders as of March 31,1998.
Except as set forth in Section 3.02(a) of the Company Disclosure Schedule,
there are no obligations, contingent or otherwise, of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock of any Subsidiary of the Company or 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. All of the outstanding shares of capital stock of each of the Company's
Subsidiaries were duly authorized, and are validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive rights, and
all such shares are owned by the Company or another Subsidiary of the Company,
free and clear of all security interests, liens, claims, pledges, agreements,
limitations on voting rights, charges or other encumbrances of any nature.
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(b) Convertible Securities. There are no equity
securities of any class of the Company or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth herein or in Section
3.02(b) of the Company Disclosure Schedule, there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character to
which the Company or any of its Subsidiaries is a party or by which any of them
is bound obligating the Company or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of the Company or any of its Subsidiaries or obligating the Company or
any of its Subsidiaries to grant, extend, accelerate the vesting of, or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. Except as set forth in Section 3.02(b) of the Company Disclosure
Schedule, there are no voting trusts, proxies or other agreements or
understandings with respect to the shares of capital stock of the Company to
which the Company or, to the knowledge of the Company, any other person is a
party.
(c) Definition of Subsidiary. As used herein, the term
"Subsidiary" shall mean, with respect to any party, corporation or other
organization, whether incorporated or unincorporated, any other corporation or
other organization, whether incorporated or unincorporated, of which (i) such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
3.03. Authority, No Conflict, Required Filings and Consents.
(a) Power and Authority. The Company has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, subject only to the approval of the Merger by two-thirds
of the outstanding shares of Company Common Stock in accordance with the TBCA
(the "Shareholder Approval"). This Agreement has been duly executed and
delivered by the Company and, assuming this Agreement constitutes a valid and
binding obligation of CII, constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization,
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<PAGE> 20
moratorium or other similar laws affecting the rights of creditors generally
and general principles of equity.
(b) No Conflict. Subject to the Shareholder Approval, the
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of, any provision of the
Articles of Incorporation or Bylaws of the Company, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to right of termination, cancellation or
acceleration of any obligation or loss of any benefit) under, any of the terms,
conditions or provisions of any Company Material Contract (as hereinafter
defined) or (iii) conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of its or their
properties or assets (other than those specifically addressed by the provisions
of Sections 3.07, 3.11 and 3.12), except in the case of (iii) for any such
breaches, conflicts, violations, defaults, terminations, cancellations or
accelerations which would not constitute a Material Adverse Effect.
(c) Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency, commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of a Premerger Notification and Report Form
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the expiration or termination of the waiting period pursuant
thereto, (ii) the filing of the Articles of Merger with the Secretary of State
of the State of Texas, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and (iv) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not
constitute a Material Adverse Effect.
3.04. Financial Statements. The consolidated financial statements of
the Company (including, in each case, any related notes) for the years ended
December 31, 1996 and 1997 (the "Financial Statements") were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements) and fairly present the consolidated
financial position of the Company and its Subsidiaries at the respective dates
and the consolidated results of their operations and cash flows for the periods
indicated. The audited balance sheet of the Company as of December 31, 1997 is
referred to herein as the "Company Balance Sheet."
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3.05. No Undisclosed Liabilities. Except as disclosed herein or in
Section 3.05 of the Company Disclosure Schedule, the Company and its
Subsidiaries do not have any liabilities, either accrued or contingent (whether
or not required to be reflected in the Financial Statements in accordance with
GAAP), and whether due or to become due, other than (i) liabilities reflected
in the Financial Statements, including reserves for Taxes (as hereinafter
defined), and (ii) normal or recurring liabilities incurred since the date of
the Company Balance Sheet in the ordinary course of business consistent with
past practices which, individually or in the aggregate, do not constitute a
Material Adverse Effect.
3.06. Absence of Certain Changes or Events. Since the date of the
Company Balance Sheet, except as disclosed herein or in Section 3.06(a) of the
Company Disclosure Schedule, the Company and its Subsidiaries have conducted
their businesses in the ordinary course and in a manner consistent with past
practice and there has not been (i) any Material Adverse Effect, (ii) any
material change by the Company in its financial or tax accounting methods,
principles or practices, (iii) any revaluation by the Company or its
Subsidiaries of any of their assets, (iv) except for dividends in the amount of
$0.1125 per share of Company Common Stock paid in January 1998 and $0.075 per
share of Company Common Stock to be paid on or about April 10, 1998, any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
the Company or any of its Subsidiaries, (v) any forgiveness, cancellation or
waiver by the Company or any of its Subsidiaries of debts owed to the Company
or any of its Subsidiaries or claims or rights of the Company or any of its
Subsidiaries against others, other than, in the ordinary course of business
consistent with past practice, (vi) (A) any increase in the rate or terms of
compensation (including termination and severance pay) payable or to become
payable by the Company to any of its directors, officers or employees, or any
increase in the rate or terms of any bonus, insurance, pension or other
employee benefit plan, program or arrangement made to, for or with any such
directors, officers or employees, except, in each case, increases occurring in
the ordinary course of business or as required by applicable law, or (B) any
entry by the Company or any of its Subsidiaries into any employment, severance
or termination agreement with any such person, (vii) any damage, destruction or
loss to the properties or assets owned or leased by the Company or any of its
Subsidiaries which constitutes a Material Adverse Effect, whether or not
covered by insurance, (viii) any change made or authorized in the Articles of
Incorporation or Bylaws of the Company or any of its Subsidiaries, (ix) any
purchase, redemption, issue, sale or other acquisition or disposition by the
Company or any of its Subsidiaries of any shares of capital stock or other
equity securities of the Company or any of its Subsidiaries, or the grant of
any options, warrants or other rights to purchase, or convert any obligation
into, shares of capital stock or any evidence of
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indebtedness or other securities of the Company or any of its Subsidiaries, (x)
any split, combination or reclassification of any of its outstanding capital
stock or any issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of the Company's or any
of its Subsidiaries' outstanding capital stock, (xi) any sale, lease, license,
encumbrance or disposition by the Company or any of its Subsidiaries of any of
its material assets not in the ordinary course of business, (xii) any write-off
or write-down of, or any determination to write-off or write-down, any material
assets or properties of the Company or any of its Subsidiaries or any material
portion thereof, (xiii) any expenditure or commitment for additions to
property, plant, equipment or other tangible capital assets or properties of
the Company or any of its Subsidiaries, except as set forth in Section 3.06(a)
of the Company Disclosure Schedule,(xiv) any promotional program implemented
that was intended to affect or has affected the Company's revenues in a manner
inconsistent with the Company's 1998 budget, a copy of which is attached as
Section 3.06(b) to the Company Disclosure Schedule (the "1998 Budget"), (xv)
any agreement to take any of the foregoing actions, or (xvi) any other action
or event that would have required the consent of CII pursuant to Section 5.01
of this Agreement had such action or event occurred after the date of this
Agreement.
3.07. Taxes.
(a) Definition of Taxes. For purposes of this Agreement,
"Tax" or, collectively, "Taxes" means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupations and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed
with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in
Section 3.07(b) of the Company Disclosure Schedule:
(i) Each of the Company and its Subsidiaries has
timely filed or caused to be timely filed all income, franchise and material
other tax returns (each a "Tax Return") required to be filed by or with respect
to it, except where the failure to do so does not constitute a Material Adverse
Effect. All foreign, state and local Tax jurisdictions where the Company and
its Subsidiaries have filed Tax returns for the three full tax periods ending
prior to the date hereof are set forth in Section 3.07(b) of the Company
Disclosure Schedule. Since January 1, 1995, the Company has received no written
notice of any claim made by any taxing
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authority in any jurisdiction not set forth in Section 3.07(b) of the Company
Disclosure Schedule that the Company is or may be subject to taxation by that
jurisdiction.
(ii) The Company and each of its Subsidiaries have
timely paid all Taxes that are due from or with respect to it, except where the
failure to do so does not constitute a Material Adverse Effect. With respect to
any period for which Taxes are not yet due, the Company and each of its
Subsidiaries have established adequate reserves for such Taxes in the Financial
Statements (including the Company Balance Sheet). The Company and each of its
Subsidiaries have made all required estimated Tax payments sufficient to avoid
any underpayment penalties, except where the failure to do so does not
constitute a Material Adverse Effect. The Company and each of its Subsidiaries
have withheld and paid all Taxes required by all applicable laws to be withheld
or paid in connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party, except where the failure to do so
does not constitute a Material Adverse Effect. No material deficiencies for any
Tax, assessment or governmental charge are proposed against the Company, its
Subsidiaries or any of their assets.
(iii) No waiver or extension of time to assess or
collect any Taxes has been given by or requested of the Company or any of its
Subsidiaries. The Tax Returns of the Company and its Subsidiaries have not been
audited by the Internal Revenue Service or comparable state or local agencies
since the dates of the most recent audit set forth in the Company Disclosure
Schedule and no audit or administrative or judicial proceeding in respect of
Taxes due from or with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company, threatened. No closing agreement
pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended (the
"Code") (or any predecessor provision) or any similar provision of any state,
local or foreign law has been entered into by or with respect to the Company or
any of its Subsidiaries.
(iv) No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or filed by
or with respect to the Company or any of its Subsidiaries or any of their
assets. The Company and its Subsidiaries have not agreed (and no agreement has
been made on behalf of the Company or its Subsidiaries) to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by reason
of any change in any accounting method, there is no application pending with
any taxing authority requesting permission for any changes in any accounting
method of the Company or any of its Subsidiaries nor has the Internal Revenue
Service proposed any such changes in accounting method. None of the assets of
the Company or its Subsidiaries is or will be required to be treated as being
owned by any person (other than the Company or its Subsidiaries) pursuant to
the provisions of Section 168(f)(8) of the Code as in effect immediately before
the enactment of the Tax Reform Act of 1986.
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(v) None of the Company or any of its
Subsidiaries is a party to, is bound by or has any obligation under any Tax
sharing agreement, Tax allocation agreement, Tax indemnity agreement or any
other similar contract.
(vi) There are no deferred gains with respect to
intercompany transactions for purposes of Treasury Regulation Section 1.1502-13
(and any predecessor regulation) with respect to the Company or any of its
Subsidiaries; and there are no excess loss accounts with respect to the stock
of any of the Subsidiaries for purposes of Treasury Regulation Section
1.1502-19.
(vii) The Company is not and during the five
preceding years has not been a United States real property holding corporation
(as defined in Section 897(c)(2) of the Code).
(c) Parachute Payments. There is no contract, agreement,
plan or arrangement covering any person that, individually or collectively,
could give rise to the payment by the Company or any of its Subsidiaries of any
amount that would not be deductible by reason of Section 280G of the Code.
3.08. Intellectual Property.
(a) Ownership. The Company owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, software
licenses and knowhow licenses, trademarks, trade names, service marks,
copyrights and any applications for such patents, trademarks, trade names,
services marks and copyrights, or tangible or intangible proprietary
information or materials that are necessary to conduct the business of the
Company and its Subsidiaries as currently conducted, the absence of which would
constitute a Material Adverse Effect (the "Company Intellectual Property
Rights"). Section 3.08 of the Company Disclosure Schedule contains an accurate
and complete list of all federal or state registrations of domestic and foreign
letters patent, patents, trademarks, trade names, service marks, copyrights and
applications for patents, trademarks, trade names, service marks and copyrights
and all material agreements to which the Company or any of its Subsidiaries is
a party relating to Company Intellectual Property Rights. The Company and its
Subsidiaries own the entire right, title and interest in and to the trademarks,
trade names, service marks, copyrights, trade secrets and other confidential
proprietary information used in the operation of their business (including,
without limitation, the right to use and license the same), except where the
failure to own such right, title and interest would not constitute a Material
Adverse Effect.
(b) Default. Neither the Company nor any of its
Subsidiaries is, nor will it be as a result of the execution and
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delivery of this Agreement, or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreements relating to
the Company Intellectual Property Rights, the breach of which would constitute
a Material Adverse Effect.
(c) Valid Rights. To the Company's knowledge, all Company
Intellectual Property Rights are valid and subsisting. Neither the Company nor
any of its Subsidiaries (i) has been sued in any suit, action or proceeding
which involves a claim of infringement of any patents, trademarks, service
marks or copyrights or violation of any trade secret or other proprietary right
of any third party or (ii) has any knowledge that the conduct of its business
as presently conducted infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
such infringement would constitute a Material Adverse Effect.
3.09. Agreements, Contracts and Commitments. Except as disclosed
herein, Section 3.09 of the Company Disclosure Schedule sets forth a list of
all Company Material Contracts. Neither the Company nor any of its Subsidiaries
has breached, or received in writing any claim or threat that it has breached,
any of the terms and conditions of any agreement, contract or commitment (i)
involving or which could reasonably be expected to involve a dollar amount or
dollar value in excess of $500,000 or (ii) containing covenants limiting the
freedom of the Company or any of its Subsidiaries to compete in any line of
business or with any person or in any geographical area (the "Company Material
Contracts") in such a manner as would permit any other party to cancel or
terminate the same or would permit any other party to seek material damages
from the Company or its Subsidiaries under any Company Material Contract. Each
Company Material Contract that has not expired or been terminated is binding
and in full force and effect and, to the Company's knowledge, no party thereto
is subject to any material default thereunder.
3.10. Litigation. Except as described in Section 3.10 of the Company
Disclosure Schedule, there is no action, suit or proceeding, claim, arbitration
or investigation pending or, to the knowledge of the Company, threatened
against the Company, any of its Subsidiaries or any of their respective
properties, assets or rights before any court, arbitrator or administrative or
governmental body which constitutes a Material Adverse Effect, or could prevent
the Company from consummating the transactions contemplated by this Agreement.
Except as set forth in Section 3.10 of the Company Disclosure Schedule, there
is no judgment, decree, injunction or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding with
respect to the Company.
3.11. Environmental Matters. Except as set forth in Sections 3.10
and 3.11 of the Company Disclosure Schedule:
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(a) Hazardous Materials. To the knowledge of the Company,
no underground storage tanks are present under any property that the Company or
any of its Subsidiaries has owned, operated, occupied or leased since January
1, 1995. No material amount of any Hazardous Materials (as hereinafter defined)
is present in, on or under any property owned, operated or leased by the
Company since January 1, 1995 in an amount that constitutes a Material Adverse
Effect.
(b) Hazardous Materials Activities. At no time has the
Company or any of its Subsidiaries transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any Environmental Laws (as hereinafter defined), nor has the
Company or any of its Subsidiaries disposed of, transported, sold or
manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any Environmental Laws,
except for any violation that does not constitute a Material Adverse Effect.
(c) Environmental Liabilities. No action, proceeding,
investigation, revocation proceeding, amendment procedure, lien, writ,
injunction or claim is pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries concerning any Hazardous
Materials Activity of the Company or any of its Subsidiaries. The Company is
not aware of any fact, circumstance or condition that could reasonably be
expected to involve the Company or any of its Subsidiaries or any property
owned, operated or leased by the Company or any of its Subsidiaries in any
environmental litigation or impose upon the Company or any of its Subsidiaries
any environmental liability that constitutes a Material Adverse Effect.
(d) Definitions. The following words shall have the
following meanings for purposes of this Section 3.11:
(i) "Environmental Law" means any applicable
federal, state, local or foreign laws (including common laws), statutes, codes,
ordinances, rules, regulations or other requirements relating to the
environment, natural resources or public or employee health and safety and
includes, but is not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et
seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act,
33 U.S.C. Section 2601 et seq., the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Section 136 et seq., the Oil Pollution Act of 1998, 33 U.S.C. Section
2701 et seq. and the Occupational Safety and Health Act, 29 U.S.C. Section 651
et seq., as such laws have been amended or supplemented, and the regulations
promulgated pursuant thereto, and all analogous state or local statutes.
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(ii) "Hazardous Materials" means any substance,
material or waste to the extent regulated or defined by any governmental
authority as a "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "contaminant,"
"toxic waste" or "toxic substance" or words of similar meaning, and includes,
but is not limited to, petroleum, petroleum products, asbestos, urea
formaldehyde and polychlorinated biphenyls.
(iii) "Subsidiaries" of the Company means all
Subsidiaries of the Company other than any entity that was a Subsidiary of the
Company prior to, but not on or after, January 1, 1995.
3.12. Employee Benefit Plans.
(a) Company Employee Plans. The Company has set forth in
Section 3.12 of the Company Disclosure Schedule all employee benefit plans as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and all bonus, stock option, stock purchase, incentive,
disability, salary continuation, educational assistance, deferred compensation,
supplemental retirement, severance and other similar employee benefit plans and
all unexpired severance agreements, written or otherwise, for the benefit of or
relating to, any current or former employee of the Company or any trade or
business (whether or not incorporated) which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code or
any Subsidiary of the Company (together, the "Company Employee Plans").
(b) ERISA Liability. With respect to the Company Employee
Plans, individually and in the aggregate, no event has occurred, and to the
knowledge of the Company, there exists no condition or set of circumstances, in
connection with which the Company or any of its Subsidiaries could be subject
to any liability that constitutes a Material Adverse Effect under ERISA, the
Code or any other applicable law.
(c) Unfunded Benefits. Except as set forth in Section
3.12 of the Company Disclosure Schedule, with respect to the Company Employee
Plans, individually and in the aggregate, there are no benefit obligations
required to be funded for which contributions have not been made or properly
accrued and there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
generally accepted accounting principles on the financial statements of the
Company, which obligations constitute a Material Adverse Effect.
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(d) Employee Agreements. Except as provided for herein or
in Section 3.12 to the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries is party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
the Company or any of its Subsidiaries, the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the Company or any of its Subsidiaries of the nature
contemplated by this Agreement, (iii) agreement with any officer or employee of
the Company or any of its Subsidiaries providing any term of employment or
compensation guarantee or (iv) agreement or plan, including any stock option
plan, stock appreciation right plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(e) Documents. With respect to each Company Employee
Plan, a complete and correct copy of each of the following documents (if
applicable) has been provided to CII: (i) the most recent plan and related
trust documents, and all amendments thereto; (ii) the most recent summary plan
description, and all related summaries of modifications; (iii) the most recent
Form 5500 (including schedules); (iv) the most recent IRS determination letter;
and (v) the most recent actuarial reports (including for purposes of Financial
Accounting Standards Board report no. 87, 106 and 112).
(f) Claims. There are no pending or, to the knowledge of
Company, threatened actions, claims or proceedings against any Company Employee
Plan or its assets, plan sponsor, plan administrator or fiduciaries with
respect to the operation of such plan (other than routine benefit claims).
3.13. Compliance with Laws. The Company and its Subsidiaries have
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of their businesses, or the ownership or
operation of their businesses (other than those specifically addressed by the
provisions of Sections 3.07, 3.11 and 3.12), except for failures to comply or
violations which would not constitute a Material Adverse Effect.
3.14. Labor Relations.
(a) Organizing Activities. Since April 1, 1995 there have
been no representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the knowledge of the Company,
threatened in writing to be brought or filed with the National Labor Relations
Board or any other labor
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relations tribunal or authority involving the Company or any of its
Subsidiaries. Except as described in Section 3.14 of the Company Disclosure
Schedule, since April 1, 1995, to the knowledge of the Company, there have been
no organizing activities involving the Company and its Subsidiaries with
respect to any group of employees of the Company or any of its Subsidiaries.
(b) Strikes and Grievances. Except as described in
Section 3.10 of the Company Disclosure Schedule, there are no strikes, work
stoppages, slowdowns, lockouts, arbitrations or grievances or other labor
disputes pending or, to the Company's knowledge, threatened against or
involving the Company or any of its Subsidiaries.
3.15. Insurance. The Company has insurance policies in full force
and effect for such amounts as are sufficient for compliance in all material
respects with all requirements of law and of all agreements to which the
Company and its Subsidiaries are parties or by which they are bound. To the
knowledge of the Company, no event relating to the Company or its Subsidiaries
or their business has occurred with respect to which the Company has received
written notice that it will result in a retroactive upward adjustment in
premiums under any such insurance policies. Excluding insurance policies that
have expired and been replaced in the ordinary course of business, no insurance
policy has been canceled since April 1, 1996 and, to the knowledge of the
Company, no threat has been made to cancel any insurance policy of the Company
or its Subsidiaries during such period. To the knowledge of the Company, all
such insurance will remain in full force and effect with respect to periods
before the Closing after giving effect to the Merger and the transactions
contemplated hereby. To the knowledge of the Company, no event has occurred,
including, without limitation, the failure by the Company or its Subsidiaries
to give any notice or information or the Company or its Subsidiaries giving any
inaccurate or erroneous notice or information, which limits or impairs the
rights of the Company or its Subsidiaries under any such insurance policies.
3.16. Real Estate.
(a) Title to Owned Real Property. All real property owned
in fee by the Company or its Subsidiaries is listed and described in Section
3.16(a) of the Company Disclosure Schedule, and title to such property,
together with all appurtenant easements thereunto and all structures, fixtures
and improvements located thereon (the "Owned Real Property"), is good and
indefeasible, fee simple absolute and free and clear of all Liens (as
hereinafter defined), including all boundary disputes, covenants, rights of
way, leases and title objections, excepting only the Permitted Exceptions (as
hereinafter defined) and such other exceptions as do not constitute a Material
Adverse Effect. The Company has heretofore delivered or made available to CII
true, correct and complete copies of all policies of title insurance and any
surveys
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in the Company's or any Subsidiary's possession for the Owned Real Property. As
used herein, (i) "Liens" means title defects, liens, pledges, claims, security
interests, restrictions, mortgages, tenancies and other possessory interests,
conditional sale or other title retention agreements, assessments, easements,
rights of way, covenants, restrictions, rights of first refusal, defects in
title, encroachments and other burdens, options or encumbrances of any kind,
and (ii) "Permitted Exceptions" means all liens for taxes, assessments and
other governmental charges not yet due and payable, non-consensual liens
imposed by operation of law (including without limitation landlord liens for
rent not yet due and payable and materialmen and mechanics liens not yet
delinquent), deposits for workers' compensation and unemployment insurance, all
matters that a current survey would show and all other easements,
encroachments, protrusions, restrictions and reservations that, individually
and in the aggregate, do not materially and adversely affect the current use of
the property or materially diminish the value thereof.
(b) Leased Real Property. Other than as between the
Company and its Subsidiaries, there is only one lease, sublease or other
agreement (the "Real Property Lease") under which the Company or any of its
Subsidiaries uses or occupies or has the right to use or occupy, now or in the
future, any real property, such Real Property Lease being described in Section
3.16(b) of the Company Disclosure Schedule. The Company has previously
delivered to CII a true, correct and complete copy of the Real Property Lease
(including all modifications, amendments and supplements thereto). The Real
Property Lease is valid, binding and in full force and effect with respect to
the Company and, to the knowledge of the Company, the landlord, and no
termination event or condition or uncured default of a material nature on the
part of the Company, or to the Company's knowledge, the landlord, exists under
the Real Property Lease. The Company has a good and valid leasehold interest in
the property that is the subject of the Real Property Lease, free and clear of
all Liens.
3.17. Personal Property. Except as set forth in Section 3.17 of the
Company Disclosure Schedule, the Company or its Subsidiaries own, free and
clear of all Liens (except (a) statutory Liens not yet delinquent or the
validity of which are being contested in good faith by appropriate actions, (b)
purchase money Liens arising in the ordinary course, (c) Liens for taxes not
yet delinquent, (d) Liens reflected in the Financial Statements (which have not
been discharged) and (e) such Liens which, individually or in the aggregate, do
not constitute a Material Adverse Effect), all material machinery, equipment,
furniture, fixtures, inventory, receivables and other tangible or intangible
personal property reflected on the Company Balance Sheet and all such property
acquired since the date thereof, except for sales and other dispositions of
such property made in the ordinary course of business consistent with past
practices since December 31, 1997.
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3.18. Customers, Suppliers and Employees. Except as described in
Section 3.18 of the Company Disclosure Schedule, since December 31, 1997 there
has not been any change in the business relationship of the Company or its
Subsidiaries with its displayers as a whole or any supplier, other than any
changes that do not constitute a Material Adverse Effect. The Company has not
received any oral or written notice that any displayer, supplier or employee of
the Company will terminate his relationship with the Company or its
Subsidiaries as a result of the consummation of the transactions contemplated
hereby.
3.19. Potential Conflicts of Interest. Except as set forth in
Section 3.19 of the Company Disclosure Schedule or otherwise disclosed herein,
none of the shareholders of the Company who own in excess of 1% of the
outstanding shares of Company Common Stock, and none of the officers or
directors of the Company or its Subsidiaries or any entity (other than the
Company's Subsidiaries) controlled by any of the foregoing (other than the
Company), (i) owns, directly or indirectly, any interest in, or is a director,
officer, employee, consultant or agent of, any person who is a competitor,
lessor, lessee or customer of, or supplier of goods or services to, the Company
or its Subsidiaries, (ii) owns, directly or indirectly, in whole or in part,
any real property, leasehold interests or other property with a fair market
value of at least $50,000 in the aggregate the use of which is necessary for
the business of the Company or its Subsidiaries, (iii) has sold to, or
purchased from, the Company or its Subsidiaries any assets or property for
aggregate consideration in excess of $50,000 since January 1, 1997 (except for
transactions specifically permitted hereby or described herein), or (iv) is a
party to any contract or participates in any arrangement, written or oral, with
the Company or any of its Subsidiaries.
3.20. Vote Required. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock is the only vote
of the holders of any class or series of Company capital stock necessary to
approve the Merger.
3.21. Proxy Statement; Offering Memorandum. None of the information
supplied or to be supplied by the Company or any of its affiliates, directors,
officers, employees, agents or representatives for inclusion in, and which is
included in, the Proxy Statement or the Offering Memorandum (as hereinafter
defined) will, in the case of the Proxy Statement, at the time of mailing of
the Proxy Statement to the Company's shareholders or the Company Shareholders'
Meeting, and, in the case of the Offering Memorandum, at the time the
definitive Offering Memorandum is printed, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading or necessary to correct any statement. As used
herein, the "Offering Memorandum" means the offering memorandum relating to the
offer and sale by the Company of debt securities concurrently with the Closing
to finance a portion of the Merger Consideration.
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3.22. Board Recommendation. The Board of Directors of the Company,
at a meeting duly called and held, has by the vote of those directors present
(i) determined that this Agreement and the transactions contemplated hereby are
fair to and in the best interests of the shareholders of the Company and has
approved the same and (ii) resolved to recommend that the shareholders of the
Company approve this Agreement and the transactions contemplated hereby.
3.23. Accounts Receivable. The accounts receivable of the Company
and its Subsidiaries as set forth on the Company Balance Sheet, or arising
since the date thereof, have arisen solely out of bona fide sales, performance
of services and other business transactions in the ordinary course of business
consistent with past practice.
3.24. Inventory. All inventory of the Company and its Subsidiaries
used in the conduct of their respective businesses, including raw materials,
work in progress and finished goods, reflected on the Company Balance Sheet or
acquired since the date thereof, was acquired and has been maintained in the
ordinary course of business and, to the knowledge of the Company, consists
substantially of a quantity, quality and condition useable and salable in the
ordinary course of business.
3.25. Information Supplied. To the knowledge of the Company, neither
this Agreement nor the Company Disclosure Schedule contains any untrue
statement of a material fact or omits to state any material fact required to be
stated herein or therein or necessary to make the statements herein or therein,
in light of the circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CII
CII represents and warrants to the Company that the statements
contained in this Article IV are true and correct in all material respects.
4.01. Organization of CII. CII is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
4.02. CII's Capital Structure.
(a) Capitalization. As of the date hereof, the authorized
capital stock of CII consists of 10,000 shares of CII Common Stock. As of the
date hereof, (i) 1,000 shares of CII
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Common Stock were outstanding, all of which were duly authorized and are
validly issued, fully paid, nonassessable and owned by HM/RB Partners, L.P., a
Delaware limited partnership ("HMRB"), and were not issued in violation of any
preemptive rights, and (ii) no shares of CII Common Stock were held in the
treasury of CII.
(b) Convertible Securities. Except as contemplated by
this Agreement, there are no equity securities of any class of CII, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as contemplated by this Agreement,
there are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which CII is a party or by which it is bound
obligating CII to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of CII or obligating CII to grant,
extend, accelerate the vesting of, or enter into any such option, warrant,
equity security, call, right, commitment or agreement. There are no voting
trusts, proxies or other agreements or understandings with respect to the
shares of CII Common Stock.
4.03. Subsidiaries; Operations. CII was organized on April 7, 1998.
CII has no direct or indirect Subsidiaries. Except for the transactions
contemplated by this Agreement or as set forth in the disclosure schedule
delivered by CII to the Company as of the date hereof (the "CII Disclosure
Schedule"), CII has not had at any time any assets or liabilities or entered
into any agreements of any kind (except for any agreement incident to its
organization). CII has not conducted any business or operations except for
activities incident to its organization and carrying out the transactions
contemplated hereby.
4.04. Authority; No-Conflict; Required Filings and Consents.
(a) Power and Authority. CII has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of CII. This Agreement has been duly executed and delivered by CII and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes the valid and binding obligation of CII, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors generally and general principles of equity.
(b) No Conflict. The execution and delivery of this
Agreement by CII does not, and the consummation of the transactions
contemplated by this Agreement will not, (i) conflict with, or result in any
violation or breach of any provision of, the Articles of Incorporation or
Bylaws of CII, (ii) result in any violation or
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breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit) under, any of the terms, conditions,
or provisions of any material note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which CII is a party or by
which it or its properties or assets may be bound or (iii) conflict with or
violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to CII or any of its
properties or assets.
(c) Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to CII in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of a Premerger Notification and
Report Form under the HSR Act and (ii) the filing of the Articles of Merger
with the Secretary of State of the State of Texas.
4.05. Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against CII pending or, to CII's knowledge,
threatened against CII or any of its properties, assets or rights before any
court, arbitrator or administrative or environmental body, which could prevent
CII from consummating the transactions contemplated by this Agreement.
4.06. Financing. Prior to the date hereof, CII has delivered to the
Company true and correct copies of (i) a commitment letter from HMRB to provide
equity financing in an amount not less than $220,000,000 to provide CII a
portion of the funds necessary to consummate the transactions contemplated
hereby, (ii) a commitment letter from NationsBank, N.A. to provide to an
affiliate of HMRB senior debt financing and (iii) a "highly confident" letter
(together with the NationsBank, N.A. letter referred to in clause (ii), the
"Commitment Letters") from Bear, Stearns & Co., Inc. ("Bear Stearns") to
provide to the Company subordinated debt financing. The aggregate amount of
money to be provided pursuant to the Commitment Letters shall be not less than
$500,000,000 in the aggregate (not more than $250,000,000 of which shall be
subordinated debt financing) and shall provide the Company with all remaining
funds necessary to consummate the transactions contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS
5.01. Covenants of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees as to itself and its
Subsidiaries (except to the extent that
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CII shall otherwise consent in writing), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as previously
conducted, and shall use their reasonable efforts to (a) preserve intact their
present business organization, (b) keep available the services of their present
officers and employees and (c) preserve their relationships with customers,
suppliers, displayers and others having business dealings with them. Without
limiting the generality of the foregoing, prior to the Effective Time, and
except as expressly contemplated or permitted by this Agreement or required by
applicable law, the Company will not, and will not permit any of its
Subsidiaries to, without the prior written consent of CII (which consent shall
not be unreasonably withheld or delayed):
(i) split, combine or reclassify any shares of
its capital stock, declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock (except for a dividend in the
amount of $0.075 per share of Company Common Stock to be paid on or about April
10, 1998) or directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or any securities or obligations convertible into
or exchangeable for any shares of its capital stock, or any options, warrants
or conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations or other securities;
(ii) issue, sell, pledge, dispose of, encumber or deliver
(whether through the issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of any
class of the Company or its Subsidiaries or any securities convertible into or
exercisable or exchangeable for shares of stock of any class of the Company or
its Subsidiaries (other than issuance of stock certificates in replacement of
lost stock certificates);
(iii) intentionally incur any material liability or
obligation (absolute, accrued, contingent or otherwise) other than in the
ordinary course of business consistent with past practices;
(iv) incur any obligation for borrowed money or purchase
money indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, or assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other person;
(v) acquire or agree (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division or significant assets thereof, or acquire, or agree to
acquire, directly or indirectly, any equity interest in any person, or incur or
commit to incur capital expenditures in excess of the amounts reflected in the
1998 Budget;
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(vi) amend or modify its Articles of Incorporation or
Bylaws (except as expressly provided in this Agreement);
(vii) sell, lease, license, encumber (including the
granting of any Liens) or dispose of any of its material assets, other than
sales of inventory in the ordinary course of business consistent with past
practices or as otherwise permitted by this Agreement;
(viii) amend or terminate any agreement listed in Section
3.09 of the Company Disclosure Schedule, other than in the ordinary course of
business consistent with past practices;
(ix) make any change in its financial or tax accounting
methods, principles or practices or make or cause to be made any elections on
tax returns of the Company or any Subsidiary, unless required by GAAP or
applicable law;
(x) extend credit in the sale of products, collection of
receivables or otherwise, other than in the ordinary course of business
consistent with past practices;
(xi) fail to maintain its books, accounts and records in
the usual, regular and ordinary manner on a basis consistent with prior years;
(xii) fail to use reasonable efforts to take any action
where such failure would cause any representation or warranty in Article III
(but excluding any representations or warranties which specifically relate to
an earlier date) to be untrue or incorrect in any material respect as of the
Closing or any of the conditions to the Merger set forth in Article VII not
being satisfied;
(xiii) adopt or amend in any respect any Company Employee
Plan other than as required by law(except for the proposed conversion of the
ESOP into a 401(k) plan);
(xiv) hire or agree to hire any executive officer, grant to
any employee any increase in compensation or in severance or termination pay,
grant any severance or termination pay or enter into any employment agreement
with any executive officer, except as may be required under employment or
termination agreements in effect on the date of this Agreement or consistent
with prior practices;
(xv) implement any promotional program that is intended to
affect the Company's revenues in a manner inconsistent with the 1998 Budget; or
(xvi) agree, in writing or otherwise, to do any of the
foregoing.
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Nothing in this Section 5.01 or otherwise in this Agreement shall prohibit the
Company from selling that certain King Air B200 aircraft or cashing in
certificates of deposit (provided that the Company shall not sell the King Air
B200 for less than $1,300,000 without the prior written consent of CII).
5.02. Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of CII and the Company shall
confer on a regular basis with one or more representatives of the other party
to report material operational matters and the general status of ongoing
operations of the Company and shall promptly provide the other party or its
counsel with copies of all filings made by such party with any Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby.
5.03. Conversion of ESOP. Prior to the Closing Date, the
Company shall amend, effective immediately prior to the Closing Date but
subject to the Closing, the Home Interiors & Gifts, Inc. Employee Stock
Ownership Plan and the Home Interiors & Gifts, Inc. Employee Stock Ownership
Plan Trust Agreement to (i) delete all provisions relating to shares of stock
of the Company, including Sections 4.3(b), 4.4 and 9.9 through 9.13 of the ESOP
and similar provisions, (ii) eliminate after the Closing Date all rights under
the ESOP relating to employer stock, and (iii) change the ESOP from an employee
stock ownership plan to a profit sharing plan. Further, to the extent allowed
by ERISA, the Company shall not pay or agree to pay for any expense incurred by
the ESOP in connection with the transactions contemplated by this Agreement,
including any costs incurred in respect of the assertion of appraisal rights
with respect to Company Common Stock held by the ESOP. CII shall have the right
to review all written communications to ESOP participants relating to the
transactions contemplated by this Agreement, including any materials to be
distributed to the ESOP participants relating to the exercise of their rights
under the the ESOP, prior to such communications or materials being provided to
the ESOP participants.
ARTICLE VI
ADDITIONAL AGREEMENTS AND COVENANTS
6.01. No Solicitation. Neither the Company, nor any of its
Subsidiaries, nor any officer, director, employee, representative, affiliate or
agent of the Company or any of its Subsidiaries (including, without limitation,
any investment banker, attorney or accountant retained by the Company or any of
its Subsidiaries), shall (i) solicit or initiate any inquiries or proposals
that constitute a proposal or offer for a merger, consolidation, business
combination, sale, lease, mortgage, pledge or other disposition of 10% or more
of the assets, sale of shares of capital stock (including without limitation by
way of a tender
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offer or share exchange) or similar transaction involving the Company or any of
its Subsidiaries, other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non- public information to any person or
entity relating to any such inquiries or any such Acquisition Proposal or (iii)
agree to, approve or recommend to the shareholders of the Company any
Acquisition Proposal, and the Company shall notify CII in writing (as promptly
as practicable) of all of the relevant details relating to, and all material
aspects of, all inquiries and proposals which it or any of its Subsidiaries or
any of their respective representatives may receive relating to any of such
matters and, if such inquiry or proposal is in writing, the Company shall
deliver to CII a copy of such inquiry or proposal as promptly as practicable;
provided, however that nothing contained in this Agreement shall prevent the
Company or its Board of Directors from furnishing information to, or entering
into discussions or negotiations with, any person or entity in connection with
an unsolicited bona fide Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
shareholders of the Company, or withdrawing or modifying the recommendation of
the Board of Directors of the Company, if and only to the extent that (1) the
Board of Directors determines in good faith after consultation with and upon
the advice of outside legal counsel that such action is necessary for it to
comply with its fiduciary duties to shareholders under applicable law, (2)
prior to furnishing such information to or entering into discussions or
negotiations with such person or entity, or withdrawing or modifying the
recommendation of the Board of Directors of the Company, the Company (A)
provides reasonable notice to CII to the effect that it is taking such action
and (B) receives from such person or entity an executed confidentiality
agreement with terms no less favorable to such party than those contained in
the that certain letter agreement dated November 10, 1997 between CII's
affiliate and the Company (the "Confidentiality Agreement") and (3) the Company
shall promptly and continuously advise CII as to all relevant details relating
to, and all materials aspects of, any such discussions or negotiations.
6.02. Proxy Statement. As soon as practicable after the date hereof,
the Company shall prepare a proxy statement (the "Proxy Statement") to be sent
to the shareholders of the Company in connection with the meeting of the
Company's shareholders (the "Company Shareholders' Meeting") to be held on or
about May 16, 1998 to consider the Merger. The Proxy Statement shall include
the recommendation of the Board of Directors of the Company in favor of this
Agreement and the Merger, provided that the Board of Directors of the Company
may withdraw such recommendation under the circumstances described in Section
6.01.
6.03. Access to Information. The Company shall (and shall cause its
Subsidiaries to) afford to the officers, employees,
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accountants, counsel and other representatives of CII reasonable access, during
normal business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
the Company shall (and shall cause its Subsidiaries to) furnish promptly to CII
all information concerning its business, properties and personnel as CII may
reasonably request, provided, however, that the Company shall have the right to
impose limitations on such access and to schedule such access so as to minimize
the disruption to the businesses of the Company and its Subsidiaries. Unless
otherwise required by law, CII will hold any such information which is
non-public in confidence in accordance with the Confidentiality Agreement.
6.04. Shareholders Meeting. As promptly as practicable following the
date of this Agreement and in consultation with CII, the Company shall call and
give notice of the Company Shareholders' Meeting to be held on or prior to May
16, 1998 for the purpose of voting upon this Agreement and the Merger, in each
case in accordance with the terms of the TBCA. Subject to Sections 6.01 and
6.02, the Company will, through its Board of Directors, recommend that its
shareholders approve this Agreement and the Merger.
6.05. Legal Conditions to Merger.
(a) Merger Cooperation. Subject to Section 6.01, CII and
the Company will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on it with respect to the Merger
(which actions shall include, without limitation, furnishing all information
and making all filings required under the HSR Act and in connection with
approvals of or filings with any other Governmental Entity) and will promptly
cooperate with and furnish information to each other in connection with any
such requirements imposed upon either of them or any of their Subsidiaries in
connection with the Merger. Each of CII and the Company will, and will cause
its Subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other third party,
required to be obtained or made by CII, the Company or any of their
Subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
(b) Financing Cooperation. The Company shall, and shall
cause its Subsidiaries and its and their respective officers, employees and
advisors to, provide all reasonable cooperation in connection with the
arrangement of any financing to be consummated contemporaneous with or after
the Closing in respect of the transactions contemplated by this Agreement,
including without limitation, (i) participation in meetings, due diligence
sessions and road shows, (ii) the preparation of offering memoranda, private
placement memoranda, prospectuses and similar documents, and (iii)
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the execution and delivery of any commitment letters, underwriting or placement
agreements, pledge and security documents, other definitive financing documents
or other requested certificates or documents, including a certificate of the
chief financial officer of the Company with respect to solvency matters,
comfort letters of accountants and legal opinions as may be reasonably
requested by CII.
6.06. Confidentiality. The parties shall, and shall cause their
affiliates to, keep this Agreement and its terms, and the existence of the
transactions contemplated hereby, confidential, except that after the
distribution of the Proxy Statement either party may make such disclosure as it
reasonably considers is appropriate after receiving the prior written consent
of the other party (which consent shall not be unreasonably withheld or
delayed) and after consulting with the other party concerning the substance of
such disclosure. If the transactions contemplated by this Agreement are not
consummated for any reason whatsoever, CII shall not, from and after such
termination, disclose or use any confidential information it may have
concerning the affairs of the Company, except for information which is required
by law to be disclosed or as may be disclosed in any preliminary Offering
Memorandum distributed prior to such termination (in which case CII shall
notify the Company as promptly as practical of its obligation to make such
disclosure and shall cooperate with all reasonable requests by the Company to
prevent or limit such disclosure). Confidential information includes, but is
not limited to, customer lists and files, prices and costs, business and
financial records, surveys, reports, plans, proposals, financial information,
information relating to personnel and personnel contracts, stock ownership,
liabilities and litigation.
6.07. Consents. Each of CII and the Company shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under any of
CII's or the Company's material agreements, contracts, licenses or leases in
connection with the Merger.
6.08. Brokers or Finders. Each of CII and the Company represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement
except (a) Bear Stearns, whose fees and expenses will be paid by the Company in
accordance with the Company's agreement with such firm (a copy of which has
been delivered by the Company to CII prior to the date of this Agreement) and
(b) Hicks, Muse & Co. Partners, L.P., or another affiliate of HMRB ("HMC
Partners"), which will be paid a fee at the Closing pursuant to the HM
Financial Advisory Agreement (as hereinafter defined). True and complete copies
of all agreements and understandings between the Company or any of its
affiliates and Bear Stearns relating to the transactions contemplated hereby
have been delivered to CII (the "Bear Stearns Agreement").
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6.09. Indemnification. In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any of the present or former officers or
directors (in their capacities as such, and not in any other capacity,
including as a shareholder or former shareholder of the Company) (the
"Managers") of the Company or any of its Subsidiaries is, or is threatened to
be, made a party by reason of the fact that he is or was a director, officer,
employee or agent of the Company or any of its Subsidiaries, or is or was
serving at the request of the Company or any of its Subsidiaries as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, whether before or after the Effective Time, the
Company (prior to the Effective Time) and the Surviving Corporation (from and
after the Effective Time) shall indemnify and hold harmless to the full extent
permitted by applicable law (including by advancing expenses promptly as
statements therefor are received), each such Manager against any losses,
claims, damages, liabilities, costs, expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with any such
claim, action, suit, proceeding or investigation, and in the event of any such
claim, action, suit proceeding or investigation (whether arising before or
after the Effective Time), (i) if the Company (prior to the Effective Time) or
the Surviving Corporation (from and after the Effective Time) has not promptly
assumed the defense of such matter, the Managers may retain counsel
satisfactory to them and the Company (prior to the Effective Time) or the
Surviving Corporation (from and after the Effective Time) shall pay all fees
and expenses of such counsel promptly as statements therefor are received and
(ii) the Company (prior to the Effective Time) or the Surviving Corporation
(from and after the Effective Time) will use reasonable efforts to assist in
the vigorous defense of any such matter; and provided further that the Company
and the Surviving Corporation shall have no obligation under the foregoing
provisions of this Section to any Manager when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, (x) that indemnification of such Manager in
the manner contemplated hereby is prohibited by applicable law or (y) that the
Company has breached a representation or warranty hereunder with respect to the
same matters for which indemnification is being sought by such Manager and that
such Manager had actual knowledge of such breach at the Effective Time. Any
Manager wishing to claim indemnification under this Section, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the
Company (prior to the Effective Time) and the Surviving Corporation (from and
after the Effective Time) thereof in writing (provided that the failure to give
such notice shall not affect any obligations hereunder, except to the extent
that the indemnifying
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party is actually and materially prejudiced thereby). The indemnified parties
as a group may retain only one law firm to represent them with respect to each
matter unless there is, under applicable standards of professional conduct, a
conflict of any significant issues between the positions of two or more
indemnified parties. CII and the Company agree that all rights to
indemnification existing in favor of the Managers as provided in the Company's
Articles of Incorporation or Bylaws as in effect as of the date hereof and as
of the Effective Time, and in any agreement between the Company and any Manager
with respect to matters occurring prior to the Effective Time, shall survive
the Merger for a period of six years after the Effective Time. For a period of
six years after the Effective Time, except as expressly contemplated by Section
1.05 hereof, the Surviving Corporation shall not amend or repeal any provisions
of the Articles of Incorporation or Bylaws of the Company (which shall continue
as the Articles of Incorporation and Bylaws of the Surviving Corporation after
the Effective Time) in any manner which would adversely affect the
indemnification or exculpatory provisions contained therein (as such are
applicable to the indemnified parties).
6.10. Protected Employees. If the employment with the Company of any
individual listed in Schedule 6.10 is terminated by the Board of Directors of
the Surviving Corporation, over the objection of the Chief Executive Officer of
the Surviving Corporation, during the 12-month period from and after the
Effective Time for any reason other than for "Cause," such employee's salary
and benefits shall be continued for the 12-month period commencing as of the
date of termination. As used herein, "Cause" shall mean (a) the failure or
inability for any reason of the employee to devote his full business time to
the Company's business, (b) the failure of the employee to diligently or
effectively perform his duties to the Company, (c) the commission by the
employee of any act involving moral turpitude or the commission by the employee
of any act or the suffering by the employee of any occurrence or state of
facts, which renders the employee incapable of performing his duties to the
Company, or adversely affects or could reasonably by expected to adversely
affect the Company's business reputation, (d) the violation by the employee of
instructions or policies established by the Company with respect to the
operation of its business and affairs or the employee's failure to carry out
the reasonable instructions of the President of the Company, or (e) the
commission by the employee of any action or the existence of any state of facts
which would legally justify an employer in terminating an employee. For the
purpose of this provision, a material change in duties (provided such employee
provides the Company with 30 days prior notice and the Company has not cured
such material change prior to the expiration of such 30 days) or a reduction in
salary of more than 25% after the Effective Time, in either case without the
consent of the employee, shall be considered a termination of employment.
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6.11. Additional Agreements; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the appropriate vote of shareholders
of the Company described in Section 6.04, including cooperating fully with the
other party. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement shall take
all such necessary action.
6.12. Disclosure Statement. From time to time prior to the Effective
Time, the Company will promptly, and in any event within five business days,
supplement and amend the Company Disclosure Schedule delivered in connection
herewith with respect to any matter which, if existing, occurring or known at
the date of this Agreement, would have been required to be set forth or
described in the Company Disclosure Schedule or which is necessary to correct
any information in the Company Disclosure Schedule which has been rendered
inaccurate thereby. No supplement or amendment shall have any effect for the
purpose of determining satisfaction of the conditions set forth in Article VII
or compliance by the Company with the covenants set forth in Articles V and VI.
6.13. Financial Statements. The Company shall deliver to CII
promptly upon their becoming available (in no event later than 30 days from the
end of such month or period, as the case may be), copies of monthly financial
statements for each of the months ended after the date hereof and prior to the
Closing and quarterly financial statements for the quarter ended March 31,
1998. Each of such monthly and quarterly financial statements shall be prepared
in accordance with GAAP (except for the exclusion of notes), applied throughout
the periods involved and present fairly the financial condition of the Company
and its Subsidiaries as at said dates (subject to normal year end adjustments).
6.14. Opinion of Financial Advisor. Prior to the date hereof, Bear
Stearns has given its oral opinion to the Company's Board of Directors that the
Merger Consideration to be received by the Company's shareholders is fair, from
a financial point of view, to the shareholders of the Company. Upon receipt,
the Company will deliver to CII the written opinion of Bear Stearns to the same
effect.
6.15. Shareholders Agreement. The Company shall execute and deliver,
and the Company and CII shall use their reasonable efforts to cause each of the
individuals and entities listed in
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Schedule 6.15 to execute and deliver, a Shareholders Agreement in the form of
Exhibit E simultaneously with the Closing.
6.16. Employment and Consulting Agreements.
(a) The Company shall, and shall use its reasonable
efforts to cause each of Donald J. Carter, Donald J. Carter, Jr., Barbara J.
Hammond and Christina L. Carter Urschel to, execute and deliver an Employment
Agreement in the forms of Exhibit F simultaneously with the Closing.
(b) The Company shall, and shall use its reasonable
efforts to cause Ronald L. Carter to, execute and deliver a Consulting
Agreement in the form of Exhibit G simultaneously with the Closing.
6.17. Stock Option Plans. Prior to or simultaneously with the
Closing, the Company shall adopt Stock Option Plans or other arrangements (a)
for the benefit of the Company's employees, in the form of Exhibit H and (b)
for the benefit of the Company's unit managers and branch managers,
substantially on the terms set forth in Exhibit I. Under the Stock Option Plan
to be adopted for the benefit of the Company's employees, options for 338,481
shares of Company Common Stock shall be granted to each of Donald J. Carter,
Jr. and Christina L. Carter Urschel and options for an aggregate of 338,481
shares of Company Common Stock shall be granted to existing members of
management of the Company.
6.18. Copyright Assignment and License Agreement. Prior to or
simultaneously with the Closing, the Company and Donald J. Carter shall enter
into a Copyright Assignment and a License Agreement substantially in the form
of Exhibit J and Exhibit K, respectively.
6.19. Personal Property Lease. Prior to or simultaneously with the
Closing, the Company and Donald J. Carter shall have the right to enter into a
Personal Property Lease in the form of Exhibit L.
6.20. Company Expenses. The Company has directed each of its
advisors (including its attorneys, accountants, investment bankers, consultants
and other advisors) to bill the Company for all fees and expenses incurred for
or on behalf of the Company by such advisors in connection with the
transactions contemplated hereby (the "Third Party Expenses") no less
frequently than monthly or, in the case of the fees and expenses payable to
Bear Stearns, at the times and in the amounts specified in the Bear Stearns
Agreement, and to provide a final invoice to the Company for all unpaid Third
Party Expenses at least two business days prior to the Closing. The Company
will pay all such invoices promptly following receipt thereof.
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6.21. Environmental Investigation. The Company shall cooperate in
all reasonable respects with CII in identifying and evaluating the
environmental condition of any real property formerly owned, operated or leased
by the Company or any Subsidiary, including any Subsidiary of the Company
divested by the Company on or before January 1, 1995 and which property is
currently not owned, operated or leased by the Company or its Subsidiaries
("Former Properties"). Such cooperation shall include, but shall not be
limited to, to the extent reasonably possible without the expenditure of any
unusual effort or expense, (i) identifying the location of all Former
Properties, which location shall include the appropriate street address and zip
code, (ii) providing information on the historic use of each of the Former
Properties, particularly the use while under the control of the Company or any
of its Subsidiaries, (iii) identifying any environmentally sensitive operations
at each Former Property, including, but not limited to, hazardous materials
usage, waste disposal practices and underground storage tanks, (iv) providing
copies of any indemnification agreements or environmental reports associated
with or prepared in connection with the Former Properties that are in the
Company's possession, and (v) making available employees, consultants and
advisors to the Company who are familiar with the Former Properties.
6.22. Certain Agreements with HMC Partners. Prior to or
simultaneously with the Closing, the Company shall, and shall cause each of its
Subsidiaries to, enter into a Financial Advisory Agreement with HMC Partners in
the form of Exhibit O (the "HM Financial Advisory Agreement") and a Monitoring
and Oversight Agreement with HMC Partners in the form of Exhibit P (the "HM
Monitoring Agreement").
ARTICLE VII
CONDITIONS TO MERGER
7.01. Conditions to Each Party's Obligation To Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger
shall have been approved and adopted by the affirmative vote of the holders of
two-thirds of the outstanding shares of the Company Common Stock.
(b) HSR. The waiting period under the HSR Act shall have
expired or each of the Company and CII shall have received notice of early
termination of such waiting period.
(c) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other
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legal or regulatory restraint or prohibition preventing the consummation of the
Merger shall have been issued, nor shall any proceeding brought by a domestic
administrative agency or commission or other domestic Governmental Entity
seeking any of the foregoing be pending; nor shall there be any action taken,
or any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal.
7.02. Additional Conditions to Obligations of CII. The obligations
of CII to effect the Merger are subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
CII:
(a) Representations and Warranties. The representations
and warranties of the Company set forth in this Agreement shall be true and
correct as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for changes
contemplated by this Agreement or, in the case of representations and
warranties that are not already qualified by materiality or Material Adverse
Effect, changes or inaccuracies that do not constitute a Material Adverse
Effect; and CII shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of the
Company to such effect.
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date; and
CII shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to such
effect.
(c) Opinion of the Company's Counsel. CII shall have
received from Gardere & Wynne, L.L.P., counsel to the Company, an opinion in
the form of Exhibit M, with such changes thereto as may be reasonably requested
by CII and its counsel.
(d) Material Adverse Effect. There shall not have
occurred any change in the business, results of operations or financial
condition of the Company and its Subsidiaries at any time between the date
hereof and the Effective Time which constitute a Material Adverse Effect.
(e) Necessary Funds. The Company and CII shall have
received the funds pursuant to the Commitment Letters or from substitute
sources in the same aggregate amount and on terms not substantially less
favorable than those set forth in the Commitment Letters.
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(f) Cash Assets. After giving effect to the Merger and
payment of the Merger Consideration, the Third Party Expenses and all other
fees and expenses incurred or to be incurred by the Company in connection with
the transactions contemplated hereby (other than those related to the HM
Financial Advisory Agreement, the HM Monitoring Agreement and the financing of
the Merger Consideration), the Company and its Subsidiaries shall have
immediately prior to the Closing (i) "Cash and Cash Equivalents" in an amount
equal to at least $10,000,000, as certified to CII by the Company's Chief
Executive Officer. As used herein, Cash and Cash Equivalents shall include (i)
the items included in the Company Balance Sheet as cash and cash equivalents
and (ii) if as of the Closing Date that certain King Air B200 aircraft has not
been sold or that certain grid promissory note which had a maximum principal
amount outstanding of $820,835.73, payable to the Company by All-Star
Helicopters, Inc., has not been paid in full, an amount equal to $2,086,000
(provided that if such aircraft has been sold or such note has been paid, the
amount otherwise included pursuant to this clause (ii) shall be reduced by the
actual cash received by the Company in connection therewith).
(g) Environmental Investigation of Prior Owned
Properties. CII shall have completed its due diligence investigation of the
Former Properties and based thereon shall not have reasonably concluded that
there are environmental liabilities relating to such properties that constitute
a Material Adverse Effect.
(h) Employment and Consulting Agreements. The Company and
each of the individuals listed in Section 6.16 shall have executed and
delivered to CII the Employment and Consulting Agreements required thereby.
7.03. Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations
and warranties of CII set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date, except for
changes contemplated by this Agreement; and the Company shall have received a
certificate signed on behalf of CII by the chief executive officer and the
chief financial officer of CII to such effect.
(b) Performance of Obligations of CII. CII shall have
performed in all material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of CII by the chief
executive officer and the chief financial officer of CII to such effect.
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(c) Opinion of CII's Counsel. The Company shall have
received from Weil, Gotshal & Manges LLP, counsel to CII, an opinion in the
form of Exhibit N, with such changes thereto as may be reasonably requested by
the Company and its counsel.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, by written notice by the terminating party to the
other party, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company:
(a) by mutual written consent of CII and the Company; or
(b) by either CII or the Company if the Merger shall not
have been consummated by June 5, 1998; provided, however, that (i) if the
condition set forth in Section 7.02(f) has not been satisfied by June 5, 1998,
CII shall have the right to extend the closing date until the third business
day after the earliest date that such condition has been satisfied, but in no
event later than June 30, 1998 and (ii) the right to terminate this Agreement
under this Section 8.01(b) shall not be available to a party whose failure to
fulfill any obligation under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date;
(c) by either CII or the Company if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(d) by either the Company or CII, if, at the Company
Shareholders' Meeting (including any adjournment or postponement thereof), the
requisite vote of the shareholders of the Company in favor of this Agreement
and the Merger shall not have been obtained;
(e) by CII, (i) if the Board of Directors of the Company
shall (A) fail to call, give notice of, convene or hold the Company
Shareholders' Meeting, (B) fail to recommend to the Company's shareholders
approval of the transactions contemplated by this Agreement, or (C) have
withdrawn or modified its recommendation of this Agreement or the Merger in a
manner adverse to CII or shall have resolved to do either of the foregoing or
(ii) an Acquisition Proposal has been recommended by the Board of Directors of
the Company or accepted by the Company or the Company shall have entered into
an agreement with respect to such Acquisition Proposal;
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(f) by the Company if (i) the Board of Directors of the
Company shall have withdrawn or modified its recommendation of this Agreement
in a manner adverse to CII or shall have resolved to do either of the foregoing
in accordance with Section 6.01 or Section 6.02 hereof or (ii) an Acquisition
Proposal has been recommended by the Board of Directors of the Company or
accepted by the Company or the Company shall have entered into an agreement
with respect to such Acquisition Proposal in accordance with Section 6.01;
provided, however, that in either case CII receives at least five business
days' prior written notice and, during such five business day period, the
Company shall, and shall cause its financial and legal advisors to, consider
any adjustment in the terms and conditions of this Agreement that CII may
propose; provided, further, that the Company may not effect such termination
pursuant to this Section 8.01(f) unless the Company has contemporaneously with
such termination tendered payment to CII or CII's designee of the amounts that
are due to CII under Section 8.03(b); or
(g) by CII or the Company, if there has been a breach of
any representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach constitutes a Material Adverse
Effect and shall not have been cured within 10 business days following receipt
by the breaching party of written notice of such breach from the other party
(provided that such right to cure shall not affect either party's right to
terminate this Agreement pursuant to Section 8.01(b)).
8.02. Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and, subject to Section 8.03 and the provisions of this Section 8.02,
there shall be no liability or obligation on the part of CII, the Company or
their respective officers, directors or shareholders (provided that this
Section 8.02 and Sections 6.06, 6.08 and 8.03 shall survive any such
termination in accordance with their respective terms); provided, however, that
the foregoing shall not relieve CII from any liability that it may have to the
Company as a result of the willful breach by CII of any of its covenants,
agreements, representations or warranties contained in this Agreement.
8.03. Fees and Expenses.
(a) Whether or not the Merger is consummated, except as
otherwise provided in Section 8.03(b), all fees and expenses incurred by the
Company in connection with this Agreement and the transactions contemplated
hereby shall be paid by the Company, except that all fees and expenses incurred
by CII or its affiliates shall be paid by CII or its affiliates.
(b) If (i) the Company or CII terminates this Agreement
pursuant to Section 8.01(d) and one or more of the individuals set
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forth on Exhibit A shall have breached any of his, her or its obligations under
the Voting Agreement, (ii) CII terminates this Agreement pursuant to Section
8.01(e), (iii) the Company terminates this Agreement pursuant to Section
8.01(f) or (iv) CII terminates this Agreement pursuant to Section 8.01(g) as a
result of a willful breach of a representation, warranty, covenant or agreement
by the Company, then in any such event the Company shall reimburse CII or its
designee for its and its affiliates' documented reasonable out-of-pocket fees
and expenses incurred in connection with the transactions contemplated hereby,
promptly upon presentment of statements documenting such expenses, in any event
not to exceed an aggregate of $2,000,000. Payment of such amounts shall
constitute complete and full satisfaction of all of the Company's and its
affiliates' obligations and liabilities to CII under this Agreement related to
such termination or otherwise.
8.04. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection
with the Merger by the shareholders of the Company, but, after such approval,
no amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.05. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.01. Investigations; Nonsurvival of Representations and Warranties.
The respective representations and warranties of the Company and CII contained
herein shall not be deemed waived or otherwise affected by any investigation
made by a party hereto. The representations and warranties of the Company and
CII set forth in Articles III and IV of this Agreement shall terminate at, and
shall not survive, the Effective Time. The Confidentiality Agreement shall
survive the execution and delivery of this Agreement.
9.02. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if
45
<PAGE> 51
delivered personally, telecopied (which is confirmed), or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to CII, to:
c/o HMTF Operating, Inc.
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Telecopy Number: 214/740-7313
with a required copy to (which shall not constitute notice):
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attention: Glenn D. West
Telecopy Number: 214/746-7777
(b) if to the Company, to
4550 Spring Valley Road
Dallas, Texas 75244-3705
Attention: Donald J. Carter, Jr.
Telecopy Number: 972/386-1008
with a required copy to (which shall not constitute notice):
Gardere & Wynne, L.L.P.
1601 Elm Street
Suite 3000
Dallas, Texas 75201
Attention: Alan J. Perkins, Esq.
Telecopy Number: 214/999-3683
9.03. Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The term "or" is disjunctive but
not necessarily exclusive. The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
46
<PAGE> 52
date of this Agreement," "the date hereof" and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date set forth
in the first paragraph of this Agreement.
9.04. Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterparts.
9.05. Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) except as provided in Sections 6.09, 6.10 and
9.08(which such Sections are intended to be for the benefit of, and to be
relied upon by, the third parties described therein), are not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
9.06. Governing Law. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS
AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES HEREUNDER SHALL
BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT REGARD TO ANY APPLICABLE CONFLICTS OF LAW.
9.07. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable and this Agreement shall be construed and enforced as
if such illegal, invalid or unenforceable provision never comprised a part
hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision, there shall be added automatically as part
of this Agreement, a provision as similar in its terms to such illegal, invalid
or unenforceable provision as may be possible and be legal, valid and
enforceable.
9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties; provided that CII may make a collateral
assignment of its interests hereunder to any lender to CII without the prior
written consent of the Company. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by
the parties and their respective successors.
47
<PAGE> 53
9.09. Knowledge. As used in this Agreement, the term "to the
knowledge of the Company," or words of similar import, shall mean the actual
current conscious awareness of the Company's Chairman of the Board, Chief
Executive Officer, President, Executive Vice President of Sales and Marketing,
Chief Financial Officer and General Counsel.
9.10. Withholding Taxes. Each of the shareholders of the Company
shall provide to CII at the time of the Merger, to the extent applicable, an
affidavit which complies with Section 1445(b)(2) of the Code and the Treasury
Regulations thereunder.
[THE NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE]
48
<PAGE> 54
IN WITNESS WHEREOF, CII and the Company have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
CROWLEY INVESTMENTS, INC.
By:
--------------------------------
Its:
----------------------------
HOME INTERIORS & GIFTS, INC.
By:
--------------------------------
Donald J. Carter
Chairman of the Board
49
<PAGE> 1
EXHIBIT 2.2
ARTICLES OF MERGER
OF
CROWLEY INVESTMENTS, INC.
A TEXAS CORPORATION
AND
HOME INTERIORS AND GIFTS, INC.
A TEXAS CORPORATION
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act, the undersigned, Crowley Investments, Inc., a Texas
corporation ("Crowley Investments"), and Home Interiors & Gifts, Inc., a Texas
corporation ("Home Interiors"), adopt the following Articles of Merger for the
purpose of effecting a merger in accordance with the provisions of Article 5.01
of the Texas Business Corporation Act.
1. The Agreement and Plan of Merger, dated as of April 13, 1998,
between Crowley Investments and Home Interiors (the "Agreement and Plan of
Merger") set forth as Exhibit A attached hereto, was approved and adopted in
accordance with the provisions of Article 5.04 of the Texas Business
Corporation Act providing for the merger of Crowley Investments with and into
Home Interiors and resulting in Home Interiors being the surviving corporation
in the merger.
2. The name of each of the undersigned corporations and the laws
under which such corporation was organized are:
<TABLE>
<CAPTION>
ORGANIZATIONAL
NAME OF CORPORATION JURISDICTION
------------------- ------------
<S> <C>
Crowley Investments Texas
Home Interiors Texas
</TABLE>
3. As to each of the undersigned domestic corporations, the approval
of whose shareholders is required, the number of outstanding shares of each
class or series of stock of such corporation entitled to vote, with other
shares or as a class, on the Agreement and Plan of Merger are as follows:
<PAGE> 2
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES DESIGNATION OF NUMBER OF SHARES ENTITLED TO
CORPORATION OUTSTANDING CLASS OR SERIES VOTE AS A CLASS OR SERIES
- ----------- ----------- --------------- ------------------------
<S> <C> <C> <C>
Crowley
Investments 1,000 common -0-
Home Interiors 50,956,800 common -0-
</TABLE>
4. As to each of the undersigned domestic corporations, the approval
of whose shareholders is required, the number of shares voted for and against
the Agreement and Plan of Merger, respectively, are as follows:
<TABLE>
<CAPTION>
NAME OF TOTAL VOTED TOTAL VOTED
CORPORATION FOR AGAINST
----------- --- -------
<S> <C> <C>
Crowley Investments 1,000 -0-
Home Interiors 50,029,461 190,070
</TABLE>
5. The Agreement and Plan of Merger and the performance of its terms
were duly authorized by all action required by the laws of the State of Texas
and by the constituent documents of Crowley Investments and Home Interiors.
6. An executed copy of the Agreement and Plan of Merger is on file
at Home Interiors' principal place of business, which is located at 4550 Spring
Valley Road, Dallas, Texas 75244-3705.
7. A copy of the Agreement and Plan of Merger will be furnished by
Home Interiors, on written request and without cost, to any shareholder of Home
Interiors or Crowley Investments.
8. Home Interiors will be responsible for the payment of all fees
and franchise taxes of Crowley Investments.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
2
<PAGE> 3
Dated: June 4, 1998
HOME INTERIORS AND GIFTS, INC. CROWLEY INVESTMENTS, INC.
By:_________________________________ By:_________________________________
Donald J. Carter, Jr. Daniel S. Dross
Chief Executive Officer Secretary and Treasurer
3
<PAGE> 1
EXHIBIT 3.1
(STATE OF TEXAS LOGO)
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF RESTATE ARTICLES
OF INCORPORATION
OF
Home Interiors & Gifts, Inc.
File: 143490-00
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Restated Articles of Incorporation for the above named corporation
have been received in this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Restated Articles of Incorporation.
Dated: June 4,1998
Effective: June 4,1998
(STATE OF TEXAS LOGO)
/s/ ALBERTO R. GONZALES
------------------------------
Alberto R. Gonzales LCS
Secretary of State
<PAGE> 2
RESTATED ARTICLES OF INCORPORATION WITH AMENDMENT
OF
HOME INTERIORS & GIFTS, INC.
ARTICLE ONE
HOME INTERIORS & GIFTS, INC., a Texas corporation (the "Corporation"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts restated articles of incorporation which accurately copy the
articles of incorporation and all amendments thereto that are in effect to date
and as further amended by such restated articles of incorporation as
hereinafter set forth and which contain no other change in any provision
thereof.
ARTICLE TWO
Each article of the articles of incorporation is hereby amended by the
restated articles of incorporation as set forth in Article Five.
ARTICLE THREE
Each such amendment made by the restated articles of incorporation has
been effected in conformity with the provisions of the Texas Business
Corporation Act and such restated articles of incorporation and each such
amendment made by the restated articles of incorporation were duly adopted by
the shareholders of the Corporation on the 16th day of May, 1998.
ARTICLE FOUR
The number of shares outstanding on the date of the shareholders'
meeting was 50,956,800; the number of shares entitled to vote at such meeting
on the restated articles of incorporation as so amended was 50,956,800; the
number of shares voted for such articles as so amended was 50,029,461; and the
number of shares voted against such articles as so amended was 190,070.
<PAGE> 3
ARTICLE FIVE
The articles of incorporation and all amendments and supplements
thereto are hereby superseded by the following restated articles of
incorporation which accurately copy the entire text thereof and as amended as
above set forth:
ARTICLE ONE
The name of the Corporation is HOME INTERIORS & GIFTS, INC.
ARTICLE TWO
The period of duration of the Corporation is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is to
engage in the transaction of any and all lawful businesses for which
corporations may be incorporated under the Texas Business Corporation
Act.
ARTICLE FOUR
The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is Eighty-Five
Million (85,000,000), of which (a) Seventy-Five Million (75,000,000)
shares shall be designated as Common Stock, par value $0.10 per
share, and (b) Ten Million (10,000,000) shares shall be designated as
Preferred Stock, par value $.01 per share.
The following is a statement of the designations, preferences,
limitations, and relative rights, including voting rights, in respect
of the classes of stock of the Corporation and of the authority with
respect thereto expressly vested in the Board of Directors of the
Corporation:
2
<PAGE> 4
COMMON STOCK
(1) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares of
Common Stock shall be entitled to vote upon all matters submitted to a vote of
the shareholders of the Corporation and shall be entitled to one vote for each
share of Common Stock held.
(2) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series thereof, the holders
of shares of the Common Stock shall be entitled to receive such dividends
(payable in cash, stock, or otherwise) as may be declared thereon by the Board
of Directors at any time and from time to time out of any funds of the
Corporation legally available therefor.
(3) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in full of
the preferential amounts, if any, to be distributed to the holders of shares of
the Preferred Stock or any series thereof, the holders of shares of the Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its shareholders, ratably in
proportion to the number of shares of the Common Stock held by them. A
liquidation, dissolution, or winding-up of the Corporation, as such terms are
used in this Paragraph (3), shall not be deemed to be occasioned by or to
include any merger of the Corporation with or into one or more corporations or
other entities, any acquisition or exchange of the outstanding shares of one or
more classes or series of capital stock of the Corporation, or any sale, lease,
exchange, or other disposition of all or a part of the assets of the
Corporation.
PREFERRED STOCK
(4) Shares of the Preferred Stock may be issued from time to time
in one or more series, the shares of each series to have such designations,
preferences, limitations, and relative
3
<PAGE> 5
rights, including voting rights, as shall be stated and expressed herein or in
a resolution or resolutions providing for the issue of such series adopted by
the Board of Directors of the Corporation. Before the issuance of any shares
of a class or series established or increased or decreased by resolution, the
Corporation shall file a statement with the Secretary of State in compliance
with Art. 2.13(D). Each such series of Preferred Stock shall be designated so
as to distinguish the shares thereof from the shares of all other series and
classes. The Board of Directors of the Corporation is hereby expressly
authorized, subject to the limitations provided by law, to establish and
designate series of the Preferred Stock, to fix the number of shares
constituting each series, and to fix the designations and the preferences,
limitations, and relative rights, including voting rights, of the shares of
each series and the variations of the relative rights and preferences as
between series, and to increase and to decrease the number of shares
constituting each series, provided that the Board of Directors may not decrease
the number of shares within a series to less than the number of shares within
such series that are then issued. The relative powers, rights, preferences,
and limitations may vary between and among series of Preferred Stock in any and
all respects so long as all shares of the same series are identical in all
respects, except that shares of any such series issued at different times may
have different dates from which dividends thereon cumulate. The authority of
the Board of Directors of the Corporation with respect to each series shall
include, but shall not be limited to, the authority to determine the following:
(a) The designation of such series;
(b) The number of shares initially constituting such
series;
(c) The rate or rates and the times at which dividends on
the shares of such series shall be paid, the periods in respect of
which dividends are payable, the conditions upon such dividends, the
relationship and preferences, if any, of such dividends to dividends
4
<PAGE> 6
payable on any other class or series of shares, whether or not such
dividends shall be cumulative, partially cumulative, or noncumulative,
if such dividends shall be cumulative or partially cumulative, the
date or dates from and after which, and the amounts in which, they
shall accumulate, whether such dividends shall be share dividends,
cash or other dividends, or any combination thereof, and if such
dividends shall include share dividends, whether such share dividends
shall be payable in shares of the same or any other class or series of
shares of the Corporation (whether now or hereafter authorized), or
any combination thereof and the other terms and conditions, if any,
applicable to dividends on shares of such series;
(d) Whether or not the shares of such series shall be
redeemable or subject to repurchase at the option of the Corporation
or the holder thereof or upon the happening of a specified event, if
such shares shall be redeemable, the terms and conditions of such
redemption, including but not limited to the date or dates upon or
after which such shares shall be redeemable, the amount per share
which shall be payable upon such redemption, which amount may vary
under different conditions and at different redemption dates, and
whether such amount shall be payable in cash, property, or rights,
including securities of the Corporation or another corporation;
(e) The rights of the holders of shares of such series in
the event of the voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation (which may vary depending upon the
circumstances or nature of such liquidation, dissolution, or winding
up) and the relationship or preference, if any, of such rights to
rights of holders of stock of any other class or series. A
liquidation, dissolution, or winding up of the Corporation, as such
terms are used in this subparagraph (e), shall not be deemed to be
occasioned by or to
5
<PAGE> 7
include any merger of the Corporation with or into one or more
corporations or other entities, any acquisition or exchange of the
outstanding shares of one or more classes or series of the
Corporation, or any sale, lease, exchange, or other disposition of all
or a part of the assets of the Corporation;
(f) Whether or not the shares of such series shall have
voting powers and, if such shares shall have such voting powers, the
terms and conditions thereof, including, but not limited to, the right
of the holders of such shares to vote as a separate class either alone
or with the holders of shares of one or more other classes or series
of stock and the right to have more (or less) than one vote per share;
provided, however, that the right to cumulate votes for the election
of directors is expressly denied and prohibited;
(g) Whether or not a sinking fund shall be provided for
the redemption of the shares of such series and, if such a sinking
fund shall be provided, the terms and conditions thereof;
.
(h) Whether or not a purchase fund shall be provided for
the shares of such series and, if such a purchase fund shall be
provided, the terms and conditions thereof;
(i) Whether or not the shares of such series, at the
option of either the Corporation or the holder or upon the happening
of a specified event, shall be convertible into stock of any other
class or series and, if such shares shall be so convertible, the terms
and conditions of conversion, including, but not limited to, any
provision for the adjustment of the conversion rate or the conversion
price;
(j) Whether or not the shares of such series, at the
option of either the Corporation or the holder or
6
<PAGE> 8
upon the happening of a specified event, shall be exchangeable for
securities, indebtedness, or property of the Corporation and, if such
shares shall be so exchangeable, the terms and conditions of exchange,
including, but not limited to, any provision for the adjustment of the
exchange rate or the exchange price; and
(k) Any other preferences, limitations, and relative
rights as shall not be inconsistent with the provisions of this
Article Four or the limitations provided by law.
ARTICLE FIVE
No holder of any shares of capital stock of the Corporation, whether
now or hereafter authorized, shall, as such holder, have any preemptive or
preferential right to receive, purchase, or subscribe to (a) any unissued or
treasury shares of any class of capital stock (whether now or hereafter
authorized) of the Corporation, (b) any obligations, evidences of indebtedness,
or other securities of the Corporation convertible into or exchangeable for, or
carrying or accompanied by any rights to receive, purchase, or subscribe to,
any such unissued or treasury shares, (c) any right of subscription to or to
receive, or any warrant or option for the purchase of, any of the foregoing
securities, or (d) any other securities that may be issued or sold by the
Corporation.
ARTICLE SIX
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of $1,000.00.
7
<PAGE> 9
ARTICLE SEVEN
Cumulative voting for the election of directors is expressly denied
and prohibited.
ARTICLE EIGHT
No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other domestic or
foreign corporation or other entity in which one or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, solely because the director or officer is
present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if any one of the
following is satisfied:
(a) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
shareholders; or
(c) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved, or ratified by
the Board of
8
<PAGE> 10
Directors, a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision or to subject
any director or officer to any liability that he would not be subject to in the
absence of this provision.
ARTICLE NINE
The Corporation shall indemnify any person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding (as
hereinafter defined) by reason of the fact that he or she (i) is or was a
director or officer of the Corporation or (ii) while a director or officer of
the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, employee
benefit plan, other enterprise, or other entity, to the fullest extent
permitted under Article 2.02-1 of the Texas Business Corporation Act, as the
same exists or may hereafter be amended. Such right to indemnification shall
include the right to be paid by the Corporation reasonable expenses incurred in
connection with the proceeding in advance of its final disposition to the
maximum extent permitted under Article 2.02-1 of the Texas Business Corporation
Act, as the same exists or may hereafter be amended.
As used herein, the term "proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding,
9
<PAGE> 11
and any inquiry or investigation that could lead to such an action, suit, or
proceeding.
ARTICLE TEN
Any action of the Corporation which, under the provisions of the Texas
Business Corporation Act or any other applicable law, is required to be
authorized or approved by the holders of any specified fraction which is in
excess of one-half or any specified percentage which is in excess of fifty
percent of the outstanding shares (or of any class or series thereof) of the
Corporation shall, notwithstanding any law, be deemed effectively and properly
authorized or approved if authorized or approved by the vote of the holders of
more than fifty percent of the outstanding shares entitled to vote thereon (or,
if the holders of any class or series of the Corporation's shares shall be
entitled by the Texas Business Corporation Act or any other applicable law to
vote thereon separately as a class, by the vote of the holders of more than
fifty percent of the outstanding shares of each such class or series). Without
limiting the generality of the foregoing, the foregoing provisions of this
Article Ten shall be applicable to any required shareholder authorization or
approval of: (a) any amendment to these Amended and Restated Articles of
Incorporation; (b) any plan of merger, share exchange, or reorganization
involving the Corporation; (c) any sale, lease, exchange, or other disposition
of all, or substantially all, the property and assets of the Corporation; and
(d) any voluntary dissolution of the Corporation.
Directors of the Corporation shall be elected by a plurality of the
votes cast by the holders of shares entitled to vote in the election of
directors of the Corporation at a meeting of shareholders at which a quorum is
present.
Except as otherwise provided in this Article Ten or as otherwise
required by the Texas Business Corporation Act or other applicable law, with
respect to any matter, the affirmative
10
<PAGE> 12
vote of the holders of a majority of the Corporation's shares entitled to vote
on that matter and represented in person or by proxy at a meeting of
shareholders at which a quorum is present shall be the act of the shareholders.
Nothing contained in this Article Ten is intended to require
shareholder authorization or approval of any action of the Corporation
whatsoever unless such approval is specifically required by the other
provisions of these Amended and Restated Articles of Incorporation, the Amended
and Restated Bylaws of the Corporation, or by the Texas Business Corporation
Act or other applicable law.
ARTICLE ELEVEN
The street address of the registered office of the Corporation in the
State of Texas is 4550 Spring Valley Road, Dallas, Texas 75244 (P.O. Box
34750), and the name of its registered agent at such address is Donald J.
Carter, Jr.
ARTICLE TWELVE
The number of directors constituting the Board of Directors shall be
that number of directors set forth in the Amended and Restated Bylaws of the
Corporation and the name and address of each person who is to serve as a
director until the next annual meeting of shareholders and until such
director's successor is elected and qualified or, if earlier, until such
director's death, resignation, or removal as director, is as follows:
Donald J. Carter, Jr. 4550 Spring Valley Road
Dallas, Texas 75244
Daniel S. Dross 200 Crescent Court
Suite 1600
Dallas, Texas 75201
11
<PAGE> 13
Jack D. Furst 200 Crescent Court
Suite 1600
Dallas, Texas 75201
Barbara J. Hammond 4550 Spring Valley Road
Dallas, Texas 75244
Thomas O. Hicks 200 Crescent Court
Suite 1600
Dallas, Texas 75201
Lawrence D. Stuart, Jr. 200 Crescent Court
Suite 1600
Dallas, Texas 75201
Christina L. Carter Urschel 4550 Spring Valley Road
Dallas, Texas 75244
ARTICLE THIRTEEN
To the fullest extent permitted by applicable law, as the same exists
or hereafter may be amended or interpreted, a director of the Corporation shall
not be liable to the Corporation or its shareholders for monetary damages for
an act or omission in the director's capacity as a director, except that this
Article Thirteen does not eliminate or limit the liability of a director of the
Corporation to the extent the director is found liable for:
(i) a breach of the director's duty of loyalty to the Corporation
or its shareholders;
(ii) an act or omission not in good faith that constitutes a breach
of duty of the director to the Corporation or an act or
omission that involves intentional misconduct or a knowing
violation of the law;
12
<PAGE> 14
(iii) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; or
(iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
Any repeal or amendment of this Article Thirteen, or adoption of any
other provision of these Amended and Restated Articles of Incorporation
inconsistent with this Article Thirteen, shall be prospective only and shall
not adversely affect any limitation on the liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal, amendment or adoption of an inconsistent provision. In addition to the
circumstances in which a director of the Corporation is not liable as set forth
in the foregoing provisions of this Article Thirteen, a director shall not be
liable to the Corporation or its shareholders to such further extent as
permitted by any law hereafter enacted, including without limitation any
subsequent amendment to the Texas Miscellaneous Corporation Laws Act or the
Texas Business Corporation Act.
ARTICLE FOURTEEN
Any action which may be taken, or which is required by law or these
Amended and Restated Articles of Incorporation or the Amended and Restated
Bylaws of the Corporation to be taken, at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without
a vote, if a consent or consents in writing, setting forth the action so taken,
shall have been signed by the holder or holders of shares having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which the holders of all shares entitled to vote on the action were
present and voted.
13
<PAGE> 15
Dated this 4th day of June, 1998.
HOME INTERIORS & GIFTS, INC.
By: /s/ CAMILLE R. COMEAU
--------------------------------
Camille R. Comeau,
Secretary
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
HOME INTERIORS & GIFTS, INC.
<PAGE> 2
TABLE OF CONTENTS
PREAMBLE
<TABLE>
<CAPTION>
ARTICLE ONE: OFFICES PAGE
<S> <C>
1.01 Registered Office and Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------------
1.02 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------
2.02 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------------
2.03 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------------
2.04 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------
2.05 Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------
2.06 Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
----------------
2.07 Quorum; Withdrawal of Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
----------------------------
2.08 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------
2.09 Method of Voting; Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-------------------------
2.10 Closing of Transfer Records; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
----------------------------------------
2.11 Officers Duties at Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------------------
2.12 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
----------------------
ARTICLE THREE: DIRECTORS
3.01 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
----------
3.02 Number; Election; Term; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------------------------------
3.03 Changes in Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------------
3.04 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------
3.05 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---------
3.06 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------
3.07 First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------------
3.08 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------
3.09 Special Meetings; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------------
3.10 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---------------------
3.11 Procedure; Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------
3.12 Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------------
3.13 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------
3.14 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------------
ARTICLE FOUR: COMMITTEES
4.01 Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------
4.02 Number; Qualification; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------------------
4.03 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------
4.04 Committee Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-----------------
4.05 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
4.06 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------
4.07 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------
4.08 Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------
4.09 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------
4.10 Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
<S> <C>
5.01 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------
5.02 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------
5.03 Telephone and Similar Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------------------
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------------------------------------------
6.02 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-------
6.03 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------
6.04 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------
6.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------
6.06 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------------------
6.07 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------
6.08 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------
6.09 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
6.10 Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------------
6.11 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
6.12 Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------------
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------------------------------------
7.02 Certificates for Certificated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------------------------
7.03 Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
--------
7.04 Consideration for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------------
7.05 Lost, Stolen, or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------------------------------
7.06 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------------
7.07 Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------------
7.08 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-------
7.09 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------
8.02 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------
8.03 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
8.04 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----
8.05 Attestation by the Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------------
8.06 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
8.07 Securities of Other Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------------------
8.08 Amendment of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------
8.09 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------
8.10 Headings; Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------------------
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
HOME INTERIORS & GIFTS, INC.
A Texas Corporation
PREAMBLE
These bylaws have been amended and restated as of June 4, 1998. These
bylaws are subject to, and governed by, the Texas Business Corporation Act and
the articles of incorporation, as amended from time to time (the "articles of
incorporation"), of Home Interiors & Gifts, Inc., a Texas corporation (the
"Corporation"). In the event of a direct conflict between the provisions of
these bylaws and the mandatory provisions of the Texas Business Corporation Act
or the provisions of the articles of incorporation of the Corporation, such
provisions of the Texas Business Corporation Act or the articles of
incorporation of the Corporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.01 Registered Office and Agent. The registered office and
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation in the office of the Secretary of
State of Texas.
1.02 Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Texas, as the board of
directors may from time to time determine or the business of the Corporation
may require.
ARTICLE TWO: SHAREHOLDERS
2.01 Annual Meetings. An annual meeting of shareholders of the
Corporation shall be held during each calendar year on such date and at such
time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. At such meeting, the shareholders shall
elect directors and transact such other business as may properly be brought
before the meeting.
2.02 Special Meetings. A special meeting of the shareholders may
be called at any time by the president, the board of directors, or the
secretary at the request of the holders of not less than ten percent of all
shares entitled to vote at such meeting. Only business within the purpose or
purposes described in the notice of special meeting may be conducted at such
special meeting.
2.03 Place of Meetings. The annual meeting of shareholders may be
held at any place within or without the State of Texas designated by the board
of directors. Special meetings of shareholders may be held at any place within
or without the State of Texas designated by the person or persons
1
<PAGE> 5
calling such special meeting as provided in Section 2.02 above. Meetings of
shareholders shall be held at the principal office of the Corporation unless
another place is designated for meetings in the manner provided herein.
2.04 Notice. Except as otherwise provided by law, written or
printed notice stating the place, day, and hour of each meeting of the
shareholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting, either personally or by mail, by or
at the direction of the president, the secretary, or the person calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at his address as it appears on
the share transfer records of the corporation, with postage thereon prepaid.
2.05 Voting List. At least ten days before each meeting of
shareholders, the secretary shall prepare a complete list of shareholders
entitled to vote at such meeting, arranged in alphabetical order, including the
address of each shareholder and the number of voting shares held by each
shareholder. For a period of ten days prior to such meeting, such list shall
be kept on file at the registered office or principal place of business of the
Corporation and shall be subject to inspection by any shareholder during usual
business hours. Such list shall be produced and kept open at such meeting, and
at all times during such meeting shall be subject to inspection by any
shareholder. The original share transfer records shall be prima facie evidence
as to who are the shareholders entitled to examine such list or transfer
records or to vote at any meeting of shareholders.
2.06 Voting of Shares. Treasury shares, shares of the
Corporation's own stock owned by another corporation the majority of the voting
stock of which is owned or controlled by the Corporation, and shares of the
Corporation's own stock held by the Corporation in a fiduciary capacity shall
not be shares entitled to vote or to be counted in determining the total number
of outstanding shares. Shares standing in the name of another domestic or
foreign corporation of any type or kind may be voted by such officer, agent, or
proxy as the bylaws of such corporation may authorize or, in the absence of
such authorization, as the board of directors of such corporation may
determine. Shares held by an administrator, executor, guardian, or conservator
may be voted by him, either in person or by proxy, without transfer of such
shares into his name so long as such shares form a part of the estate served by
him and are in the possession of such estate. Shares held by a trustee may be
voted by him, either in person or by proxy, only after the shares have been
transferred into his name as trustee. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without transfer of such shares
into his name if authority to do so is contained in the court order by which
such receiver was appointed. A shareholder whose shares are pledged shall be
entitled to vote such shares until they have been transferred into the name of
the pledgee, and thereafter, the pledgee shall be entitled to vote such shares.
2.07 Quorum; Withdrawal of Quorum. A quorum shall be present at a
meeting of shareholders if the holders of a majority of the shares entitled to
vote are represented at the meeting in person or by proxy, except as otherwise
provided by law or the articles of incorporation. If a quorum shall not be
present at any meeting of shareholders, the shareholders represented in person
or by proxy at such meeting may adjourn the meeting until such time and to such
place as may be determined by a vote of the holders of a majority of the shares
represented in person or by proxy at that meeting. Once a quorum is present at
a meeting of shareholders, the shareholders represented in person or by proxy
at the meeting may conduct such business as may be properly brought before the
meeting until it is
2
<PAGE> 6
adjourned, and the subsequent withdrawal from the meeting of any shareholder or
the refusal of any shareholder represented in person or by proxy to vote shall
not affect the presence of a quorum at the meeting.
2.08 Voting. Directors of the Corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors of the Corporation at a meeting of shareholders at which
a quorum is present. Except as otherwise provided by law, the articles of
incorporation, or these bylaws, with respect to any matter, the affirmative
vote of the holders of a majority of the Corporation's shares entitled to vote
on that matter and represented in person or by proxy at a meeting at which a
quorum is present shall be the act of the shareholders.
2.09 Method of Voting; Proxies. Every shareholder of record shall
be entitled at every meeting of shareholders to one vote on each matter
submitted to a vote, for every share standing in his name on the original share
transfer records of the Corporation except to the extent that the voting rights
of the shares of any class or classes are increased, limited, or denied by the
articles of incorporation. Such share transfer records shall be prima facie
evidence as to the identity of shareholders entitled to vote. At any meeting
of shareholders, every shareholder having the right to vote may vote either in
person or by a proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Each such proxy shall be filed with the secretary
of the Corporation before, or at the time of, the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy. If no date is stated on a proxy, such proxy shall be
presumed to have been executed on the date of the meeting at which it is to be
voted. Each proxy shall be revocable unless the proxy form conspicuously
states that the proxy is irrevocable and the proxy is coupled with an interest.
2.10 Closing of Transfer Records; Record Date. For the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the
Corporation of any of its own shares) or a share dividend, or in order to make
a determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the board of directors may
provide that the share transfer records of the Corporation shall be closed for
a stated period but not to exceed in any event sixty days. If the share
transfer records are closed for the purpose of determining shareholders
entitled to notice of, or to vote at, a meeting of shareholders, such records
shall be closed for at least ten days immediately preceding such meeting. In
lieu of closing the share transfer records, the board of directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the share transfer records are not closed and if no record date is fixed for
the determination of shareholders entitled to notice of, or to vote at, a
meeting of shareholders or entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of
its own shares) or a share dividend, the date on which the notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such distribution or share dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section 2.10, such determination shall apply
to any adjournment thereof except where the determination has been made through
the closing of the share transfer records and the stated period of closing has
expired.
3
<PAGE> 7
2.11 Officers Duties at Meetings. The president shall preside at,
and the secretary shall prepare minutes of, each meeting of shareholders, and
in the absence of either such officer, such duties shall be performed by some
person or persons chosen by the board of directors from among the directors
present.
2.12 Action Without Meeting. Any action which may be taken, or
which is required by law or the articles of incorporation or bylaws of the
Corporation to be taken, at any annual or special meeting of shareholders, may
be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall have
been signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted. The signed consent or consents of shareholders shall be placed in the
minute books of the Corporation. The record date for the purpose of
determining shareholders entitled to consent to any action pursuant to this
Section 2.12 shall be determined in accordance with Article 2.26.C of the Texas
Business Corporation Act.
ARTICLE THREE: DIRECTORS
3.01 Management. The powers of the Corporation shall be exercised
by or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the board of directors.
3.02 Number; Election; Term; Qualification. The number of
directors which shall constitute the board of directors shall be not less than
one. The first board of directors shall consist of the number of directors
named in the articles of incorporation. Thereafter, the number of directors
which shall constitute the entire board of directors shall be determined by
resolution of the board of directors at any meeting thereof or by the
shareholders at any meeting thereof, but shall never be less than one. At each
annual meeting of shareholders, directors shall be elected to hold office until
the next annual meeting of shareholders and until their successors are elected
and qualified. No director need be a shareholder, a resident of the State of
Texas, or a citizen of the United States.
3.03 Changes in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director. Any directorship to be filled by reason of
an increase in the number of directors may be filled by (i) the shareholders at
any annual or special meeting of shareholders called for that purpose or (ii)
the board of directors for a term of office continuing only until the next
election of one or more directors by the shareholders; provided that the board
of directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders. Notwithstanding
the foregoing, whenever the holders of any class or series of shares are
entitled to elect one or more directors by the provisions of the articles of
incorporation, any newly created directorship(s) of such class or series to be
filled by reason of an increase in the number of such directors may be filled
by the affirmative vote of a majority of the directors elected by such class or
series then in office or by a sole remaining director so elected or by the vote
of the holders of the outstanding shares of such class or series, and such
directorship(s) shall not in any case be filled by the vote of the remaining
directors or by the holders of the outstanding shares of the Corporation as a
whole unless otherwise provided in the articles of incorporation.
4
<PAGE> 8
3.04 Removal. At any meeting of shareholders called expressly for
that purpose, any director or the entire board of directors may be removed,
with or without cause, by a vote of the holders of a majority of the shares
then entitled to vote on the election of directors. Notwithstanding the
foregoing, whenever the holders of any class or series of shares are entitled
to elect one or more directors by the provisions of the articles of
incorporation, only the holders of shares of that class or series shall be
entitled to vote for or against the removal of any director elected by the
holders of shares of that class or series.
3.05 Vacancies. Any vacancy occurring in the board of directors
may be filled by (i) the shareholders at any annual or special meeting of
shareholders called for that purpose or (ii) the affirmative vote of a majority
of the remaining directors though less than a quorum of the board of directors.
A director elected to fill a vacancy shall be elected to serve for the
unexpired term of his predecessor in office. Notwithstanding the foregoing,
whenever the holders of any class or series of shares are entitled to elect one
or more directors by the provisions of the articles of incorporation, any
vacancies in such directorship(s) may be filled by the affirmative vote of a
majority of the directors elected by such class or series then in office or by
a sole remaining director so elected or by the vote of the holders of the
outstanding shares of such class or series, and such directorship(s) shall not
in any case be filled by the vote of the remaining directors or the holders of
the outstanding shares of the Corporation as a whole unless otherwise provided
in the articles of incorporation.
3.06 Place of Meetings. The board of directors may hold its
meetings in such place or places within or without the State of Texas as the
board of directors may from time to time determine.
3.07 First Meeting. Each newly elected board of directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of shareholders, and notice of such meeting shall not be
necessary.
3.08 Regular Meetings. Regular meetings of the board of directors
may be held without notice at such times and places as may be designated from
time to time by resolution of the board of directors and communicated to all
directors.
3.09 Special Meetings; Notice. Special meetings of the board of
directors shall be held whenever called by the president or by any director.
The person calling any special meeting shall cause notice of such special
meeting, including therein the time and place of such special meeting, to be
given to each director at least two days before such special meeting. Neither
the business to be transacted at, nor the purpose of, any special meeting of
the board of directors need be specified in the notice or waiver of notice of
any special meeting.
3.10 Quorum; Majority Vote. At all meetings of the board of
directors, a majority of the number of directors fixed in the manner provided
in these bylaws shall constitute a quorum for the transaction of business. If
a quorum is not present at a meeting, a majority of the directors present may
adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum is present. The act of a majority
of the directors present at a meeting at which a quorum is in attendance shall
be the act of the board of directors, unless the act of a greater number is
required by law, the articles of incorporation, or these bylaws.
5
<PAGE> 9
3.11 Procedure; Minutes. At meetings of the board of directors,
business shall be transacted in such order as the board of directors may
determine from time to time. The board of directors shall appoint at each
meeting a person to preside at the meeting and a person to act as secretary of
the meeting. The secretary of the meeting shall prepare minutes of the meeting
which shall be delivered to the secretary of the Corporation for placement in
the minute books of the Corporation.
3.12 Presumption of Assent. A director of the Corporation who is
present at any meeting of the board of directors at which action on any matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by
certified or registered mail to the secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
3.13 Compensation. Directors, in their capacity as directors, may
receive, by resolution of the board of directors, a fixed sum and expenses of
attendance, if any, for attending meetings of the board of directors or a
stated salary. No director shall be precluded from serving the Corporation in
any other capacity or receiving compensation therefor.
3.14 Action Without Meeting. Any action which may be taken, or
which is required by law, the articles of incorporation, or these bylaws to be
taken, at a meeting of the board of directors or any committee may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall have been signed by all of the members of the board of directors or
committee, as the case may be, and such consent shall have the same force and
effect, as of the date stated therein, as a unanimous vote of such members of
the board of directors or committee, as the case may be, and may be stated as
such in any document or instrument filed with the Secretary of State of Texas
or in any certificate or other document delivered to any person. The consent
may be in one or more counterparts so long as each director or committee member
signs one of the counterparts. The signed consent shall be placed in the
minute books of the Corporation.
ARTICLE FOUR: COMMITTEES
4.01 Designation. The board of directors may, by resolution
adopted by a majority of the entire board of directors, designate one or more
committees.
4.02 Number; Qualification; Term. The board of directors, by
resolution adopted by a majority of the entire board of directors, shall
designate one or more of its members as members of any committee and may
designate one or more of its members as alternate members of any committee, who
may, subject to any limitations imposed by the board of directors, replace
absent or disqualified members at any meeting of that committee. The number of
committee members may be increased or decreased from time to time by resolution
adopted by a majority of the entire board of directors. Each committee member
shall serve as such until the earliest of (i) the expiration of his term as
director, (ii) his resignation as a committee member or as a director, or (iii)
his removal, as a committee member or as a director.
4.03 Authority. Each committee, to the extent expressly provided
in the resolution establishing such committee, shall have and may exercise all
of the authority of the board of directors,
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<PAGE> 10
including, without limitation, the authority to authorize a distribution and to
authorize the issuance of shares of the Corporation. Notwithstanding the
foregoing, however, no committee shall have the authority of the board of
directors in reference to:
(a) amending the articles of incorporation, except that
a committee may, to the extent provided in the
resolution designating that committee, exercise the
authority of the board of directors vested in it in
accordance with Article 2.13 of the Texas Business
Corporation Act;
(b) proposing a reduction of the stated capital of the
Corporation in the manner permitted by Article 4.12
of the Texas Business Corporation Act;
(c) approving a plan of merger, share exchange or
conversion of the Corporation;
(d) recommending to the shareholders the sale, lease, or
exchange of all or substantially all of the property
and assets of the Corporation otherwise than in the
usual and regular course of its business;
(e) recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation
thereof;
(f) amending, altering, or repealing these bylaws or
adopting new bylaws of the Corporation;
(g) filling vacancies in the board of directors;
(h) filling vacancies in, or designating alternate
members of, any committee;
(i) filling any directorship to be filled by reason of
an increase in the number of directors;
(j) electing or removing officers of the Corporation or
members or alternate members of any committee;
(k) fixing the compensation of any member or alternate
member of any committee; or
(l) altering or repealing any resolution of the board of
directors that by its terms provides that it shall
not be amendable or repealable.
4.04 Committee Changes. The board of directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
4.05 Regular Meetings. Regular meetings of any committee may be
held without notice at such time and place as may be designated from time to
time by the committee and communicated to all members thereof.
7
<PAGE> 11
4.06 Special Meetings. Special meetings of any committee may be
held whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two days before such special meeting. Neither the business to
be transacted at, nor the purpose of, any special meeting of any committee need
be specified in the notice or waiver of notice of any special meeting.
4.07 Quorum; Majority Vote. At meetings of any committee, a
majority of the number of members designated by the board of directors shall
constitute a quorum for the transaction of business. If a quorum is not
present at a meeting of any committee, a majority of the members present may
adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum is present. The act of a majority
of the members present at any meeting at which a quorum is in attendance shall
be the act of a committee, unless the act of a greater number is required by
law, the articles of incorporation, or these bylaws.
4.08 Minutes. Each committee shall cause minutes of its
proceedings to be prepared and shall report the same to the board of directors
upon the request of the board of directors. The minutes of the proceedings of
each committee shall be delivered to the secretary of the Corporation for
placement in the minute books of the Corporation.
4.09 Compensation. Committee members may, by resolution of the
board of directors, be allowed a fixed sum and expenses of attendance, if any,
for attending any committee meetings or a stated salary.
4.10 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such
director by law.
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.01 Notice. Whenever by law, the articles of incorporation, or
these bylaws, notice is required to be given to any committee member, director,
or shareholder and no provision is made as to how such notice shall be given,
it shall be construed to mean that any such notice may be given (a) in person,
(b) in writing, by mail, postage prepaid, addressed to such committee member,
director, or shareholder at his address as it appears on the books of the
Corporation or, in the case of a shareholder, the share transfer records of the
Corporation, or (c) by any other method permitted by law. Any notice required
or permitted to be given by mail shall be deemed to be delivered and given at
the time when the same is deposited in the United States mail, postage prepaid,
and addressed as aforesaid.
5.02 Waiver of Notice. Whenever by law, the articles of
incorporation, or these bylaws, any notice is required to be given to any
committee member, shareholder, or director of the Corporation, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the time notice should have been given, shall be equivalent to
the giving of such notice. Attendance of a committee member, shareholder, or
director at a meeting shall constitute a waiver of notice of such meeting,
except where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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5.03 Telephone and Similar Meetings. Shareholders, directors, or
committee members may participate in and hold a meeting by means of a
conference telephone or similar communications equipment by means of which
persons participating in the meeting can hear each other. Participation in
such a meeting shall constitute presence in person at such meeting, except
where a person participates in the meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
ARTICLE SIX: OFFICERS AND OTHER AGENTS
6.01 Number; Titles; Election; Term; Qualification. The officers
of the Corporation shall be a president, one or more vice presidents (and, in
the case of each vice president, with such descriptive title, if any, as the
board of directors shall determine), a secretary, and a treasurer. The
Corporation may also have a chairman of the board, one or more assistant
treasurers, one or more assistant secretaries, and such other officers and such
agents as the board of directors may from time to time elect or appoint. The
board of directors shall elect a president, vice president, treasurer, and
secretary at its first meeting at which a quorum shall be present after the
annual meeting of shareholders or whenever a vacancy exists. The board of
directors then, or from time to time, may also elect or appoint one or more
other officers or agents as it shall deem advisable. Each officer and agent
shall hold office for the term for which he is elected or appointed and until
his successor has been elected or appointed and qualified. Any person may hold
any number of offices. No officer or agent need be a shareholder, a director,
a resident of the State of Texas, or a citizen of the United States.
6.02 Removal. Any officer, agent or member of a committee elected
or appointed by the board of directors may be removed by the board of directors
whenever in its judgment the best interest of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer, agent or
member of a committee shall not of itself create contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the board of directors.
6.04 Authority. Officers shall have such authority and perform
such duties in the management of the Corporation as are provided in these
bylaws or as may be determined by resolution of the board of directors not
inconsistent with these bylaws.
6.05 Compensation. The compensation, if any, of officers and
agents shall be fixed from time to time by the board of directors; provided,
that the board of directors may by resolution delegate to any one or more
officers of the Corporation the authority to fix such compensation.
6.06 Chairman of the Board. The chairman of the board shall have
such powers and duties as may be prescribed by the board of directors.
6.07 President. Unless and to the extent that such powers and
duties are expressly delegated to a chairman of the board by the board of
directors, the president shall be the chief executive officer of the
Corporation and, subject to the supervision of the board of directors, shall
have general management and control of the business and property of the
Corporation in the ordinary course of its business with all such powers with
respect to such general management and control as may be
9
<PAGE> 13
reasonably incident to such responsibilities, including, but not limited to,
the power to employ, discharge, or suspend employees and agents of the
Corporation, to fix the compensation of employees and agents, and to suspend,
with or without cause, any officer of the Corporation pending final action by
the board of directors with respect to continued suspension, removal, or
reinstatement of such officer. The president may, without limitation, agree
upon and execute all division and transfer orders, bonds, contracts, and other
obligations in the name of the Corporation.
6.08 Vice Presidents. Each vice president shall have such powers
and duties as may be prescribed by the board of directors or as may be
delegated from time to time by the president and (in the order as designated by
the board of directors, or in the absence of such designation, as determined by
the length of time each has held the office of vice president continuously)
shall exercise the powers of the president during that officer's absence or
inability to act. As between the Corporation and third parties, any action
taken by a vice president in the performance of the duties of the president
shall be conclusive evidence of the absence or inability to act of the
president at the time such action was taken.
6.09 Treasurer. The treasurer shall have custody of the
Corporation's funds and securities, shall keep full and accurate accounts of
receipts and disbursements, and shall deposit all moneys and valuable effects
in the name and to the credit of the Corporation in such depository or
depositories as may be designated by the board of directors. The treasurer
shall audit all payrolls and vouchers of the Corporation, receive, audit, and
consolidate all operating and financial statements of the Corporation and its
various departments, shall supervise the accounting and auditing practices of
the Corporation, and shall have charge of matters relating to taxation.
Additionally, the treasurer shall have the power to endorse for deposit,
collection, or otherwise all checks, drafts, notes, bills of exchange, and
other commercial paper payable to the Corporation and to give proper receipts
and discharges for all payments to the Corporation. The treasurer shall
perform such other duties as may be prescribed by the board of directors or as
may be delegated from time to time by the president.
6.10 Assistant Treasurers. Each assistant treasurer shall have
such powers and duties as may be prescribed by the board of directors or as may
be delegated from time to time by the president. The assistant treasurers (in
the order as designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant treasurer continuously) shall exercise the powers of the treasurer
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an assistant treasurer in the
performance of the duties of the treasurer shall be conclusive evidence of the
absence or inability to act of the treasurer at the time such action was taken.
6.11 Secretary. The secretary shall maintain minutes of all
meetings of the board of directors, of any committee, and of the shareholders
or consents in lieu of such minutes in the Corporation's minute books, and
shall cause notice of such meetings to be given when requested by any person
authorized to call such meetings. The secretary may sign with the president,
in the name of the Corporation, all contracts of the Corporation and affix the
seal of the Corporation thereto. The secretary shall have charge of the
certificate books, share transfer records, stock ledgers, and such other stock
books and papers as the board of directors may direct, all of which shall at
all reasonable times be open to inspection by any director at the office of the
Corporation during business hours. The secretary shall perform such other
duties as may be prescribed by the board of directors or as may be delegated
from time to time by the president.
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<PAGE> 14
6.12 Assistant Secretaries. Each assistant secretary shall have
such powers and duties as may be prescribed by the board of directors or as may
be delegated from time to time by the president. The assistant secretaries (in
the order designated by the board of directors or, in the absence of such
designation, as determined by the length of time each has held the office of
assistant secretary continuously) shall exercise the powers of the secretary
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an assistant secretary in the
performance of the duties of the secretary shall be conclusive evidence of the
absence or inability to act of the secretary at the time such action was taken.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.01 Certificated and Uncertificated Shares. The shares of the
Corporation may be either certificated shares or uncertificated shares. As
used herein, the term "certificated shares" means shares represented by
instruments in bearer or registered form, and the term "uncertificated shares"
means shares not represented by instruments and the transfers of which are
registered upon books maintained for that purpose by or on behalf of the
Corporation.
7.02 Certificates for Certificated Shares. The certificates
representing certificated shares of stock of the Corporation shall be in such
form as shall be approved by the board of directors in conformity with law.
The certificates shall be consecutively numbered, shall be entered as they are
issued in the books of the Corporation or in the records of the Corporation's
designated transfer agent, if any, and shall state upon the face thereof: (a)
that the Corporation is organized under the laws of the State of Texas; (b) the
name of the person to whom issued; (c) the number and class of shares and the
designation of the series, if any, which such certificate represents; (d) the
par value of each share represented by such certificate, or a statement that
the shares are without par value; and (e) such other matters as may be required
by law. The certificates shall be signed by the chairman of the board, chief
executive officer (if so elected or appointed by the board of directors),
president or any vice president and also by the secretary, an assistant
secretary, or any other officer; however, the signatures of any of such
officers may be facsimiles. The certificates may be sealed with the seal of
the Corporation or a facsimile thereof.
7.03 Issuance. Shares with or without par value may be issued for
such consideration and to such persons as the board of directors may from time
to time determine, except in the case of shares with par value the
consideration must be at least equal to the par value of such shares. Shares
may not be issued until the full amount of the consideration has been paid.
After the issuance of uncertificated shares, the Corporation or the transfer
agent of the Corporation shall send to the registered owner of such
uncertificated shares a written notice containing the information required to
be stated on certificates representing shares of stock as set forth in Section
7.02 above and such additional information as may be required by Section 8.408
of the Texas Uniform Commercial Code as currently in effect and as the same may
be amended from time to time hereafter.
7.04 Consideration for Shares. The consideration for the issuance
of shares shall be sufficient if paid in accordance with the provisions of
Article 2.15 of the Texas Business Corporation Act, as the same exists or may
hereafter be amended or interpreted.
7.05 Lost, Stolen, or Destroyed Certificates. The Corporation
shall issue a new certificate or certificates in place of any certificate
representing shares previously issued if the registered owner of the
certificate:
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<PAGE> 15
(a) Claim. Makes proof by affidavit, in form and
substance satisfactory to the board of directors or
any proper officer, that a previously issued
certificate representing shares has been lost,
destroyed, or stolen;
(b) Timely Request. Requests the issuance of a new
certificate before the Corporation has notice that
the certificate has been acquired by a purchaser for
value in good faith and without notice of an adverse
claim;
(c) Bond. If required by the board of directors or any
proper officer, in its or such officer's discretion,
delivers to the Corporation a bond or indemnity
agreement in such form, with such surety or
sureties, and with such fixed or open penalty, as
the board of directors or such officer may direct,
in its or such officer's discretion, to indemnify
the Corporation (and its transfer agent and
registrar, if any) against any claim that may be
made on account of the alleged loss, destruction, or
theft of the certificate; and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the board of directors.
7.06 Transfer of Shares. Shares of stock of the Corporation shall
be transferable only on the books of the Corporation by the shareholders
thereof in person or by their duly authorized attorneys or legal
representatives. With respect to certificated shares, upon surrender to the
Corporation or the transfer agent of the Corporation for transfer of a
certificate representing shares duly endorsed and accompanied by any reasonable
assurances that such endorsements are genuine and effective as the Corporation
may require and after compliance with any applicable law relating to the
collection of taxes, the Corporation or its transfer agent shall, if it has no
notice of an adverse claim or if it has discharged any duty with respect to any
adverse claim, issue one or more new certificates to the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
With respect to uncertificated shares, upon delivery to the Corporation or the
transfer agent of the Corporation of an instruction originated by an
appropriate person (as prescribed by Section 8.308 of the Texas Uniform
Commercial Code as currently in effect and as the same may be amended from time
to time hereafter) and accompanied by any reasonable assurances that such
instruction is genuine and effective as the Corporation may require and after
compliance with any applicable law relating to the collection of taxes, the
Corporation or its transfer agent shall, if it has no notice of an adverse
claim or has discharged any duty with respect to any adverse claim, record the
transaction upon its books, and shall send to the new registered owner of such
uncertificated shares, and, if the shares have been transferred subject to a
registered pledge, to the registered pledgee, a written notice containing the
information required to be stated on certificates representing shares of stock
set forth in Section 7.02 above and such additional information as may be
required by Section 8.408 of the Texas Uniform Commercial Code as currently in
effect and as the same may be amended from time to time hereafter.
7.07 Registered Shareholders. The Corporation shall be entitled to
treat the shareholder of record as the shareholder in fact of any shares and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it
shall have actual or other notice thereof, except as otherwise provided by law.
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7.08 Legends. The board of directors shall cause an appropriate
legend to be placed on certificates representing shares of stock as may be
deemed necessary or desirable by the board of directors in order for the
Corporation to comply with applicable federal or state securities or other
laws.
7.09 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
representing shares of stock of the Corporation.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.01 Dividends. Subject to provisions of applicable statutes and
the articles of incorporation, dividends may be declared by and at the
discretion of the board of directors at any meeting and may be paid in cash, in
property, or in shares of stock of the Corporation.
8.02 Books and Records. The Corporation shall keep books and
records of account and shall keep minutes of the proceedings of its
shareholders, the board of directors, and each committee of the board of
directors. The Corporation shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a
record of the original issuance of shares issued by the Corporation and a
record of each transfer of those shares that have been presented to the
Corporation for registration of transfer, giving the names and addresses of all
past and current shareholders and the number and class of the shares held by
each of such shareholders.
8.03 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the board of directors; provided, that if such fiscal year is not
fixed by the board of directors and the board of directors does not defer its
determination of the fiscal year, the fiscal year shall be the calendar year.
8.04 Seal. The seal, if any, of the Corporation shall be in such
form as may be approved from time to time by the board of directors. If the
board of directors approves a seal, the affixation of such seal shall not be
required to create a valid and binding obligation against the Corporation.
8.05 Attestation by the Secretary. With respect to any deed, deed
of trust, mortgage, or other instrument executed by the Corporation through its
duly authorized officer or officers, the attestation to such execution by the
secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.06 Resignation. Any director, committee member, officer, or
agent may resign by so stating at any meeting of the board of directors or by
giving written notice to the board of directors, the president, or the
secretary. Such resignation shall take effect at the time specified in the
statement made at the board of directors' meeting or in the written notice, but
in no event may the effective time of such resignation be prior to the time
such statement is made or such notice is given. If no effective time is
specified in the resignation, the resignation shall be effective immediately.
Unless a resignation specifies otherwise, it shall be effective without being
accepted.
8.07 Securities of Other Corporations. The president or any vice
president of the Corporation shall have the power and authority to transfer,
endorse for transfer, vote, consent, or take
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any other action with respect to any securities of another issuer which may be
held or owned by the Corporation and to make, execute, and deliver any waiver,
proxy, or consent with respect to any such securities.
8.08 Amendment of Bylaws. The power to amend or repeal these
bylaws or to adopt new bylaws is vested in the board of directors, but is
subject to the right of the shareholders to amend or repeal these bylaws or to
adopt new bylaws.
8.09 Invalid Provisions. If any part of these bylaws is held
invalid or inoperative for any reason, the remaining parts, so far as is
possible and reasonable, shall remain valid and operative.
8.10 Headings; Table of Contents. The headings and table of
contents used in these bylaws are for convenience only and do not constitute
matter to be construed in the interpretation of these bylaws.
The undersigned, the secretary of the Corporation, hereby certifies
that the foregoing bylaws were adopted by the board of directors of the
Corporation as of April 11, 1998, effective as of June 4, 1998.
----------------------------
Camille R. Comeau, Secretary
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<PAGE> 1
EXHIBIT 3.3
[SEAL]
THE STATE OF TEXAS
SECRETARY OF STATE
IT IS HEREBY CERTIFIED THAT THE ATTACHED IS/ARE TRUE AND CORRECT COPIES OF
THE FOLLOWING DESCRIBED DOCUMENT(S) ON FILE IN THIS OFFICE:
DALLAS WOODCRAFT, INC.
CHARTER #237806-00
<TABLE>
<S> <C>
ARTICLES OF INCORPORATION AUGUST 1, 1967
ARTICLES OF MERGER SEPTEMBER 20, 1973
CHANGE OF REGISTERED OFFICE AND/OR AGENT NOVEMBER 2, 1978
ARTICLES OF AMENDMENT MARCH 8, 1984
CHANGE OF REGISTERED OFFICE AND/OR AGENT OCTOBER 1, 1986
CHANGE OF REGISTERED OFFICE AND/OR AGENT JULY 3, 1987
CHANGE OF REGISTERED OFFICE AND/OR AGENT AUGUST 3, 1988
CHANGE OF REGISTERED OFFICE AND/OR AGENT NOVEMBER 1, 1995
</TABLE>
IN TESTIMONY WHEREOF, I HAVE HEREUNTO
SIGNED MY NAME OFFICIALLY AND CAUSED
TO BE IMPRESSED HEREON THE SEAL OF STATE
AT MY OFFICE IN THE CITY OF AUSTIN, ON
MAY 20, 1998
[SEAL OF THE STATE OF TEXAS] /s/ ALBERTO R. GONZALES
-------------------------------------
Alberto R. Gonzales PH
Secretary of State
<PAGE> 2
ARTICLES OF INCORPORATION
STATE OF TEXAS ) Filed in the Office of the
Secretary of State of Texas
COUNTY OF DALLAS ) This 1 day of August, 1967
/s/ ILLEGIBLE
---------------------------
Director, Corporation Division
KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned
incorporators, all natural persons over the age of twenty-one years old, all
citizens of the State of Texas, acting as incorporators of a corporation under
the Texas Business Corporation Act, do hereby adopt the following articles of
incorporation for such corporation:
I
The name of the corporation is, "BO-MAR MANUFACTURING CO., INC."
II
The period of duration of this corporation shall be perpetual.
III
The aggregate number of shares for which this corporation shall have
authority to issue and the par value of each of said shares is as follows:
Number of shares 100,000
Par value of each of said shares $ 1.00
The consideration received or to be received from the issuance of the above
mentioned shares will give this corporation a stated capital of $100,000.00.
IV
The purposes for which this corporation is organized are to buy,
sell, fabricate and manufacture goods, wares and materials and to perform
services in connection therewith.
<PAGE> 3
V
The corporation will not commence business until it has received for the
issuance of its shares a consideration consisting of money, labor done,
property actually received of a value of $1,000.00.
VI
The Post Office address of this corporation's initial registered office
is 1342 Motor Circle, Dallas, Texas and the name of this corporation's initial
registered agent at said address is Martin Donald.
VII
The number of Directors constituting the initial Board of Directors of
this corporation is four (4) and the names and addresses of the persons who are
to serve as Directors until the first annual meeting of the Shareholders or
until their successors qualify are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
- ---- -------
<S> <C>
MARTIN DONALD 7431 Northhaven, Dallas, Tex.
ANN DONALD 7431 Northhaven, Dallas, Tex.
ROBERT STADTMAN 11508 Royalshire, Dallas, Tex.
MYRNA STADTMAN 11508 Royalshire, Dallas, Tex.
</TABLE>
VIII
The name and address of each incorporator is as follows:
<TABLE>
<S> <C>
MARTIN DONALD 7431 Northhaven, Dallas, Tex.
ANN DONALD 7431 Northhaven, Dallas, Tex.
ROBERT STADTMAN 11508 Royalshire, Dallas, Tex.
MYRNA STADTMAN 11508 Royalshire, Dallas, Tex.
</TABLE>
IN WITNESS WHEREOF we have hereto set our hands at
Dallas, Texas this 31st day of July, 1967.
/s/ MARTIN DONALD /s/ ROBERT STADTMAN
- --------------------------- ---------------------------
MARTIN DONALD ROBERT STADTMAN
/s/ ANN DONALD /s/ MYRNA STADTMAN
- --------------------------- ---------------------------
ANN DONALD MYRNA STADTMAN
<PAGE> 4
STATE OF TEXAS )
COUNTY OF DALLAS )
BEFORE ME, the undersigned Notary Public in and for Dallas County,
Texas, personally appeared, Martin Donald, Ann Donald, Robert Stadtman and
Myrna Stadtman, who, being duly sworn, upon oath, acknowledged that they are
the persons whose name is signed to the foregoing instrument as incorporators
and they severally declare that the statements contained therein are true and
correct.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 31st day of July, 1967.
/s/ ILLEGIBLE
--------------------------------
Notary Public in and for
Dallas County, Texas
<PAGE> 5
ARTICLES OF MERGER
OF
BO-MAR CORPORATION
INTO
BO-MAR MANUFACTURING CO., INC. [STAMP]
Pursuant to the provisions of Article 5 [ILLEGIBLE] of the Texas Business
Corporation Act, the undersigned corporations adopt the following Articles of
Merger for the purpose of merging them into one of such corporations:
1. The following Plan of Merger was approved by the shareholders of each
of the undersigned corporations in the manner prescribed by the Texas Business
Corporation Act:
Attached hereto as Exhibit "A" is the Plan of Merger.
The Articles of Incorporation of the BO-MAR MANUFACTURING CO., INC. are
amended to (a) renumber Articles III and IV of the Articles of Incorporation as
now in effect as Articles IV and III, respectively, (b) enlarge the purposes for
which the corporation is organized (Article III), (c) increase from One Hundred
Thousand (100,000) to Five Hundred Thousand (500,000) the number of shares of
common stock, par value One Dollar ($1.00) per share, which the corporation is
authorized to issue (Article IV), (d) deny to shareholders or other persons, the
preemptive right to acquire any additional or treasury shares
<PAGE> 6
of any class of stock or other securities of the corporation (Article VI), (e)
vest the power to adopt, alter, amend, or repeal the bylaws of the corporation
in the board of directors (Article VII), (f) prohibit cumulative voting (Article
VII), (g) clarify certain of the circumstances under which directors, officers
or employees of the corporation are expressly permitted to have an interest in
contracts or other transactions involving the corporation (Article IX), (h)
provide specifically for indemnification of directors, officers and employees of
the corporation or of certain other corporations (Article X), (i) renumber
Articles VI and VII of the Articles of Incorporation as now in effect as
Articles XI and XII, respectively, and (j) state the present registered office
and registered agent of the corporation (Article XI).
The Articles of Incorporation of BO-MAR MANUFACTURING CO., INC. are amended
in their entirety by the Articles of Merger to read as hereinafter set forth in
full:
ARTICLES OF INCORPORATION
OF
BO-MAR MANUFACTURING CO., INC.
ARTICLE I
The name of the corporation is BO-MAR MANUFACTURING CO., INC.
ARTICLES OF MERGER -2-
<PAGE> 7
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose or purposes for which the corporation is organized are:
To buy, sell and deal in personal property, real property, and
services subject to Part Four of the Texas Miscellaneous
Corporation Laws Act.
To do everything necessary, proper, advisable or convenient for the
accomplishment or furtherance of such purpose, provided the same be not
prohibited by the laws of the State of Texas.
ARTICLE IV
The aggregate number of shares which the corporation shall have authority
to issue is Five Hundred Thousand (500,000) with a par value of One Dollar
($1.00) each. Each share of stock shall have identical rights and privileges in
every respect.
ARTICLE V
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of ONE THOUSAND DOLLARS
($1,000.00), consisting of money, labor done, or property actually received.
ARTICLES OF MERGER -3-
<PAGE> 8
ARTICLE VI
No shareholder or other person shall have any preemptive right whatsoever.
ARTICLE VII
Except to the extent such power may be modified or divested by an action of
the shareholders representing the majority of the issued and outstanding shares
of the capital stock of the corporation taken at any regular or special meeting
of the shareholders, the power to adopt, alter, amend or repeal the bylaws of
the corporation shall be vested in the board of directors.
ARTICLE VIII
Cumulative voting is expressly prohibited.
ARTICLE IX
No contract or other transaction between the corporation and any person or
other corporation or entity shall be affected or invalidated by the fact that
any one or more of the directors, officers or employees of the corporation are
such person or are directors or officers of, or are otherwise interested in,
such other corporation or entity, and any one or more directors, officers or
employees, individually or jointly, may be a party or parties to or may be
otherwise
ARTICLES OF MERGER -4-
<PAGE> 9
interested in any contract or transaction of the corporation or in which the
corporation is interested; and no contract, act or transaction of the
corporation with any person or other corporation or entity shall be affected or
invalidated by the fact that any one or more directors, officers or employees of
the corporation are parties to, or are otherwise interested in, such contract,
act or transaction, or in any way connected with such person or other
corporation or entity. Each and every person who is or may become a director,
officer or employee of the corporation is hereby relieved from any disability or
liability that might otherwise exist from contracting with the corporation for
the benefit of himself or any other corporation or entity in which he may be in
any way interested; provided that the fact of such interest shall have been
disclosed to or shall be known by the directors not so interested or the
shareholders of the corporation, as the case may be, acting upon or with
reference to such contract, act or transaction, even though the presence at a
meeting or the vote or votes of an interested director or directors might have
been necessary to obligate the Corporation upon such contract, act or
transaction.
ARTICLES OF MERGER -5-
<PAGE> 10
ARTICLE X
Any person made a party to, or involved in, any criminal, civil or
administrative action, suit or proceeding by reason of the fact that he, or his
testator or intestate, is or was a director, officer, employee or agent of the
corporation, or of any corporation which he, or his testator or intestate,
served as such at the request of the corporation, shall be indemnified by the
corporation against expenses reasonably incurred by him or imposed on him in
connection with, or resulting from the defense of such action, suit or
proceeding, or in connection with, or resulting from any appeal therein, except
with respect to matters as to which it is adjudged in such action, suit or
proceeding that such director, officer or employee is liable to the corporation
or to such other corporation for negligence or misconduct in the performance of
his duties. As used herein, the term "expenses" shall include all obligations
incurred by any such person for the payment of money including, without
limitation, attorney's fees, awards, judgments, fines, penalties and amounts
paid in satisfaction of judgment or in settlement of any such action, suit or
proceeding, except amounts paid to the corporation or such other corporation by
him. A judgment or conviction (whether
ARTICLES OF MERGER -6-
<PAGE> 11
based on a plea of guilty or nolo contendere or its equivalent, or after trial)
shall not of itself be deemed to be an adjudication that such officer, director,
or employee is liable to the corporation or such other corporation for
negligence or misconduct in the performance of his duties. Determination of the
right to such indemnification and the amount thereof may be made, at the option
of the person to be indemnified, pursuant to any procedure set forth in the
bylaws or by any of the following procedures: (a) order of the court or
administrative body or agency having jurisdiction of the action, suit or
proceeding, (b) resolution adopted by a majority of a quorum of the board of
directors of the corporation without counting in such majority or quorum any
directors who have incurred expenses in connection with such action, suit or
proceeding, (c) if there is no quorum of directors who have not incurred
expenses in connection with such action, suit, or proceeding, then by resolution
adopted by a majority of a committee of shareholders or directors who have not
incurred such expenses, appointed by the board of directors of the corporation,
(d) resolution adopted by the holders of a majority of the shares entitled to
vote and present in person or represented in proxy at any meeting of
shareholders of the corporation at which a quorum is so present
ARTICLES OF MERGER -7-
<PAGE> 12
or represented, such holders voting together and not by class, or (e) order of
any court having jurisdiction over the corporation. Any such determination that
a payment by way of indemnity should be made shall be binding upon the
corporation. Such right of indemnification shall not be exclusive of any other
right which such directors, officers and employees of the corporation, and the
other persons above mentioned, may have or hereafter acquire, and without
limiting the generality of such statement, they shall be entitled to their
respective rights of indemnification under any bylaw, agreement, vote of
shareholders, provisions of law or otherwise, as well as their rights under this
article. The provisions of this article shall apply to any member of any
committee appointed by the board of directors as fully as though such person had
been a director, officer, or employee of the corporation.
ARTICLE XI
The post office address of the initial registered office of the corporation
is 9101 Chancellor Row, Dallas, Texas 75247, and the name of its initial
registered agent at such address is MARTIN DONALD.
ARTICLE XII
The number of directors constituting the board of directors is four (4),
and the names and addresses of the
ARTICLES OF MERGER -8-
<PAGE> 13
persons who are to serve as directors until the first annual meeting of the
shareholders, or until their successors are elected and qualified are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
MARTIN DONALD 7727 Joyce Way
Dallas, Texas 75225
ANN DONALD 7727 Joyce Way
Dallas, Texas 75225
ROBERT STADTMAN 6806 Yorkwood Circle
Dallas, Texas 75230
MYRNA STADTMAN 6806 Yorkwood Circle
Dallas, Texas 75230
</TABLE>
ARTICLES OF MERGER -9-
<PAGE> 14
2. As to each of the undersigned Corporations, the number of shares
outstanding and the designation and number of outstanding shares of each class
entitled to vote as a class of such Plan, are as follows:
<TABLE>
<CAPTION>
Number of Shares Number of Shares Entitled
Name of Corporation Outstanding to Vote as a Class
- ------------------- ---------------- -------------------------
<S> <C> <C>
Bo-Mar Manufacturing
Co., Inc. 1,000 1,000
Bo-Mar Corporation 100 100
</TABLE>
3. As to each of the undersigned Corporations, the total number of shares
voted for and against such Plan, respectively, and, as to each class entitled to
vote thereon as a class, the number of shares of such class voted for and
against such Plan, respectively, are as follows:
<TABLE>
<CAPTION>
Total Shares Total Shares Entitled
Name of Corporation Voted For to Vote
- ------------------- ------------ ---------------------
<S> <C> <C>
Bo-Mar Manufacturing
Co., Inc. 1,000 1,000
Bo-Mar Corporation 100 100
</TABLE>
Dated July 23, 1973.
BO-MAR MANUFACTURING CO., INC.
and /s/ ROBERT STADTMAN BY /s/ MARTIN DONALD
---------------------------------- ----------------------------------
Its Secretary Its President
BO-MAR CORPORATION BO-MAR CORPORATION
and /s/ ROBERT STADTMAN BY /s/ MARTIN DONALD
---------------------------------- ----------------------------------
Its Secretary Its President
<PAGE> 15
STATE OF TEXAS )
)
COUNTY OF DALLAS )
I, Edwin Lax, a notary public, do hereby certify that on this 28th day of
July, 1973, personally appeared before me Martin Donald, who, being by me first
duly sworn, declared that he is the President of BO-MAR MANUFACTURING CO., INC.,
that he signed the foregoing document as President of the Corporation, and that
the statements therein contained are true.
/s/ EDWIN LAX
-----------------------------------
Notary Public
STATE OF TEXAS )
)
COUNTY OF DALLAS )
I, Edwin Lax, a notary public, do hereby certify that on this 28th day of
July, 1973, personally appeared before me Martin Donald, who, being by me
first duly sworn, declared that he is the President of BO-MAR CORPORATION, that
he signed the foregoing document as President of the Corporation, and that the
statements therein contained are true.
/s/ EDWIN LAX
-----------------------------------
Notary Public
<PAGE> 16
AGREEMENT OF MERGER
Agreement of Merger, dated July 23, 1973, between BO-MAR MANUFACTURING CO.,
INC., a Texas corporation (the "Surviving Corporation"), and BO-MAR CORPORATION,
a Texas corporation (the "Constituent Corporation").
WHEREAS, BO-MAR MANUFACTURING CO., INC. is a corporation organized and
existing under and by virtue of the laws of the State of Texas and having as of
the date of this Agreement One Hundred Thousand (100,000) shares of authorized
common stock, with par value of One Dollar ($1.00), of which One Thousand
(1,000) shares are issued and outstanding; and
WHEREAS, BO-MAR CORPORATION is a corporation organized and existing under
and by virtue of the laws of the State of Texas and having as of the date of
this Agreement Ten Thousand (10,000) shares of authorized common stock, with par
value of Ten Dollars ($10.00) each, of which One Hundred (100) shares are issued
and outstanding; and
WHEREAS, THE BOARD of Directors of BO-MAR MANUFACTURING CO., INC. and
BO-MAR CORPORATION, the parties hereto, deem it desirable and in the best
interests of the Corporations and their shareholders that BO-MAR CORPORATION be
merged into BO-MAR MANUFACTURING CO., INC.;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants, and subject to the condition herein set forth, the Corporations
agree as follows:
<PAGE> 17
1. The Constituent Corporation shall be merged into and with BO-MAR
MANUFACTURING CO., INC., the Surviving Corporation, which shall survive the
merger, pursuant to the provisions of the Business Corporation Act of Texas.
Upon such merger the separate corporate existence of BO-MAR CORPORATION shall
cease and the Surviving Corporation shall become the owner, without other
transfer, of all the rights and property of the Constituent Corporation, and
the Surviving Corporation shall become subject to all the debts and liabilities
of the Constituent Corporation in the same manner as if the Surviving
Corporation had itself incurred them.
2. The name of the Surviving Corporation shall be BO-MAR MANUFACTURING CO.,
INC. The purposes, county where the principal office for the transaction of
business shall be located, number of directors, and the capital stock of the
Surviving Corporation shall be as appears in the Articles of Incorporation of
the Surviving Corporation as amended and as hereinafter set forth.
3. The Articles of Incorporation of BO-MAR MANUFACTURING CO., INC. on the
Effective Date of the merger shall be amended in its entirety to read as
herein set forth in full:
AGREEMENT OF MERGER -2-
<PAGE> 18
ARTICLES OF INCORPORATION
OF
BO-MAR MANUFACTURING CO., INC.
ARTICLE I
The name of the corporation is BO-MAR MANUFACTURING CO., INC.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose or purposes for which the corporation is organized are:
To buy, sell and deal in personal property, real property, and
services subject to Part Four of the Texas Miscellaneous
Corporation Laws Act.
To do everything necessary, proper, advisable or convenient
for the accomplishment or furtherance of such purpose,
provided the same be not prohibited by the laws of the State
of Texas.
ARTICLE IV
The aggregate number of shares which the corporation shall have authority
to issue is Five Hundred Thousand
AGREEMENT OF MERGER -3-
<PAGE> 19
(500,000) with a par value of One Dollar ($1.00) each. Each share of stock shall
have identical rights and privileges in every respect.
ARTICLE V
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done, or property actually received.
ARTICLE VI
No shareholder or other person shall have any preemptive right whatsoever.
ARTICLE VII
Except to the extent such power may be modified or divested by an action of
the shareholders representing the majority of the issued and outstanding shares
of the capital stock of the corporation taken at any regular or special meeting
of the shareholders, the power to adopt, alter, amend or repeal the bylaws of
the corporation shall be vested in the board of directors.
ARTICLE VIII
Cumulative voting is expressly prohibited.
AGREEMENT OF MERGER -4-
<PAGE> 20
ARTICLE IX
No contract or other transaction between the corporation and any person or
other corporation or entity shall be affected or invalidated by the fact that
any one or more of the directors, officers or employees of the corporation are
such person or are directors or officers of, or are otherwise interested in,
such other corporation or entity, and any one or more directors, officers or
employees, individually or jointly, may be a party or parties to or may be
otherwise interested in any contract or transaction of the corporation or in
which the corporation is interested; and no contract, act or transaction of the
corporation with any person or other corporation or entity shall be affected or
invalidated by the fact that any one or more directors, officers or employees of
the corporation are parties to, or are otherwise interested in, such contract,
act or transaction, or in any way connected with such person or other
corporation or entity. Each and every person who is or may become a director,
officer or employee of the corporation is hereby relieved from any disability or
liability that might otherwise exist from contracting with the corporation for
the benefit of himself or any other corporation or entity in which he may be in
any way interested; provided
AGREEMENT OF MERGER -5-
<PAGE> 21
that the fact of such interest shall have been disclosed to or shall be known by
the directors not so interested or the shareholders of the corporation, as the
case may be, acting upon or with reference to such contract, act or transaction,
even though the presence at a meeting or the vote or votes of an interested
director or directors might have been necessary to obligate the Corporation upon
such contract, act or transaction.
ARTICLE X
Any person made a party to, or involved in, any criminal, civil or
administrative action, suit or proceeding by reason of the fact that he, or his
testator or intestate, is or was a director, officer, employee or agent of the
corporation, or of any corporation which he, or his testator or intestate,
served as such at the request of the corporation, shall be indemnified by the
corporation against expenses reasonably incurred by him or imposed on him in
connection with, or resulting from the defense of such action, suit or
proceeding, or in connection with, or resulting from any appeal therein, except
with respect to matters as to which it is adjudged in such action, suit or
proceeding that such director, officer or employee is liable to the corporation
or to such other corporation for negligence or misconduct in the performance of
his duties. As used herein, the term "expenses" shall
AGREEMENT OF MERGER -6-
<PAGE> 22
include all obligations incurred by any such person for the payment of money
including, without limitation, attorney's fees, awards, judgments, fines,
penalties and amounts paid in satisfaction of judgment or in settlement of any
such action, suit or proceeding, except amounts paid to the corporation or such
other corporation by him. A judgment or conviction (whether based on a plea of
guilty or nolo contendere or its equivalent, or after trial) shall not of itself
be deemed to be an adjudication that such officer, director, or employee is
liable to the corporation or such other corporation for negligence or misconduct
in the performance of his duties. Determination of the right to such
indemnification and the amount thereof may be made, at the option of the person
to be indemnified, pursuant to any procedure set forth in the bylaws or by any
of the following procedures: (a) order of the court or administrative body or
agency having jurisdiction of the action, suit or proceeding, (b) resolution
adopted by a majority of a quorum of the board of directors of the corporation
without counting in such majority or quorum any directors who have incurred
expenses in connection with such action, suit or proceeding, (c) if there is no
quorum of directors who have not incurred expenses in connection with such
action, suit, or proceeding, then by resolution adopted by a majority of a
committee of shareholders or
AGREEMENT OF MERGER -7-
<PAGE> 23
directors who have not incurred such expenses, appointed by the board of
directors of the corporation, (d) resolution adopted by the holders of a
majority of the shares entitled to vote and present in person or represented in
proxy at any meeting of shareholders of the corporation at which a quorum is so
present or represented, such holders voting together and not by class, or (e)
order of any court having jurisdiction over the corporation. Any such
determination that a payment by way of indemnity should be made shall be binding
upon the corporation. Such right of indemnification shall not be exclusive of
any other right which such directors, officers and employees of the corporation,
and the other persons above mentioned, may have or hereafter acquire, and
without limiting the generality of such statement, they shall be entitled to
their respective rights of indemnification under any bylaw, agreement, vote of
shareholders, provisions of law or otherwise, as well as their rights under this
article. The provisions of this article shall apply to any member of any
committee appointed by the board of directors as fully as though such person had
been a director, officer, or employee of the corporation.
ARTICLE XI
The post office address of the initial registered office of the corporation
is 9101 Chancellor Row, Dallas,
AGREEMENT OF MERGER -8-
<PAGE> 24
Texas 75247, and the name of its initial registered agent at such address is
MARTIN DONALD.
ARTICLE XII
The number of directors constituting the board of directors is four (4),
and the names and addresses of the persons who are to serve as directors until
the first annual meeting of the shareholders, or until their successors are
elected and qualified are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
MARTIN DONALD 7727 Joyce Way
Dallas, Texas 75225
ANN DONALD 7727 Joyce Way
Dallas, Texas 75225
ROBERT STADTMAN 6806 Yorkwood Circle
Dallas, Texas 75230
MYRNA STADTMAN 6806 Yorkwood Circle
Dallas, Texas 75230
</TABLE>
AGREEMENT OF MERGER -9-
<PAGE> 25
4. The By-laws of BO-MAR MANUFACTURING CO., INC. shall remain and be the
By-laws of the Surviving Corporation until the same shall be altered, or amended
according to the provisions of, and in the manner permitted by, the Articles of
Incorporation of BO-MAR MANUFACTURING CO., INC.
5. The first annual meeting of the shareholders of the Surviving
Corporation, to be held after the Effective Date of the merger, shall be the
annual meeting provided by the By-laws of the Surviving Corporation for the
fiscal year 1973-74.
6. The names and addresses of the persons who shall constitute the Board of
Directors of the Surviving Corporation at the Effective Date of the merger, and
who shall hold office until the first annual meeting of the shareholders of the
Surviving Corporation are as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Martin Donald 7727 Joyce Way, Dallas, Texas 75225
Ann Donald 7727 Joyce Way, Dallas, Texas 75225
Robert Stadtman 6806 Yorkwood Circle, Dallas, Texas 75230
Myrna Stadtman 6806 Yorkwood Circle, Dallas, Texas 75230
</TABLE>
7. The following named individuals shall serve as Officers of the Surviving
Corporation upon the Effective Date of the merger:
President Martin Donald
Secretary-Treasurer Robert Stadtman
AGREEMENT OF MERGER -10-
<PAGE> 26
8. The method of converting the shares of BO-MAR CORPORATION into shares of
the Surviving Corporation shall be as follows:
(a) Each share of common stock of the par value of Ten Dollars ($10.00)
per share of BO-MAR CORPORATION, issued and outstanding on the Effective date of
the merger shall be changed and converted into One Hundred Eighty (180) shares
of common stock, of the par value of One Dollar ($1.00) per share of the
Surviving Corporation, which shares of common stock of the Surviving Corporation
shall thereupon be issued and outstanding, provided, however, that no fractional
shares of the Surviving Corporation shall be issued, and in lieu of the issuance
of fractional shares to which any holder of the common stock of BO-MAR
CORPORATION would otherwise be entitled as a result of the conversion, a payment
in cash shall be made equal to the value of such fraction, based on the market
value of such common stock on the Effective Date.
(b) After the Effective Date of the merger holders of certificates for
shares of common stock in BO-MAR CORPORATION shall surrender them to the
Surviving Corporation, or its duly appointed agent, in such manner as the
Surviving Corporation shall legally require. On receipt of said share
certificates, the
AGREEMENT OF MERGER -11-
<PAGE> 27
Surviving Corporation shall issue in exchange therefor a certificate of
shares of common stock in Surviving Corporation representing the number of
shares of such stock to which such holder shall be entitled as hereinabove
set forth.
9. This Agreement of Merger shall be duly adopted by the Board of
Directors of each of the Corporations which are merging hereunder and upon
approval by the Board of Directors of each Corporation, this Agreement of Merger
shall be submitted to a vote of the shareholders of each of the Corporations.
10. Upon appropriate shareholder approval of each Corporation as provided
in Article 5.03 of the Texas Business Corporation Act, the Officers of the
Corporations merging hereunder shall be authorized to execute Articles of
Merger, pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act, and file such Articles of Merger with the Secretary of State of
Texas for the purpose of effecting the merger described herein.
11. The Surviving Corporation shall pay all expenses, to the extent not
previously paid by the Constituent Corporation, of effecting this merger
according to the terms and conditions hereof.
Upon the Effective Date of the merger:
(a) The separate existence of BO-MAR CORPORATION shall cease and
BO-MAR MANUFACTURING CO., INC. shall be the only Surviving Corporation.
AGREEMENT OF MERGER -12-
<PAGE> 28
(b) The Surviving Corporation shall have all the rights, privileges,
immunities and powers and shall be subject to all the duties and
liabilities of a corporation organized under the Texas Business Corporation
Act.
(c) The Surviving Corporation shall thereupon and thereafter possess,
all the rights, privileges, immunities and franchises, as well of a public
as of a private nature, of BO-MAR CORPORATION; and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every
other interest, of or belonging to or due to BO-MAR CORPORATION, shall be
taken and deemed to be transferred to and vested in such Surviving
Corporation without further act or deed.
(d) The Surviving Corporation shall thenceforth be responsible and
liable for all liabilities and obligations of BO-MAR CORPORATION; and any
claim existing or action or proceeding pending by or against BO-MAR
CORPORATION may be prosecuted as if such merger had not taken place, or
such Surviving Corporation may be substituted in its place. Neither the
rights of creditors, nor any liens upon the property of BO-MAR CORPORATION
shall be impaired by the merger.
AGREEMENT OF MERGER -13-
<PAGE> 29
12. Neither BO-MAR CORPORATION nor BO-MAR MANUFACTURING CO., INC., the
Surviving Corporation, shall, prior to the Effective Date of the merger, engage
in any activity or transaction other than in the ordinary course of business,
except as contemplated by this Agreement.
13. This Agreement of Merger shall be submitted to the shareholders of the
Corporations for their approval in the manner provided by the applicable laws of
the State of Texas, at a meeting to be held on or before July 23, 1973, or at
such other time as the Boards of Directors of the Corporations shall agree.
14. The Directors of either Corporation may, in their discretion, abandon
this merger, subject to the rights of third parties under and contracts relating
thereto, without further action or approval by the shareholders of the
Corporations, at any time before the merger has been completed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of Merger
to be executed by their respective officers and directors and have caused their
respective corporate seals to be impressed hereon on this 23rd day of June,
1973.
BO-MAR CORPORATION
Seal BY /s/ MARTIN DONALD
---------------------------------
President
BO-MAR MANUFACTURING CO., INC.
Seal BY /s/ MARTIN DONALD
---------------------------------
President
<PAGE> 30
BO-MAR CORPORATION
CONSENT OF DIRECTORS
July 23, 1973
The undersigned, being all of the Directors constituting the Board of
Directors of BO-MAR CORPORATION, a Texas corporation (the "Corporation"), do
hereby, jointly and severally, pursuant to Article 9.10 of the Texas Business
Corporation Act, consent to and approve in all respects the adoption of the
following resolutions by the Board of Directors of the Corporation and each and
every action effected thereby:
1. Approval of Plan of Merger.
WHEREAS this Board of Directors deem it to be in the best interests of
this Corporation and its shareholders that this Corporation enter into an
agreement providing for the merger of this Corporation with BO-MAR
MANUFACTURING CO., INC., which agreement is annexed hereto as Exhibit "A",
it is
RESOLVED that the merger of this Corporation and the terms and
conditions of the merger agreement are approved; and
RESOLVED FURTHER that the President and the Secretary of this
Corporation are hereby authorized and directed to execute and deliver in
the name of this Corporation an Agreement of Merger, a copy of which is
attached hereto, marked Exhibit "A" and incorporated herein by reference;
and
RESOLVED FURTHER that the officers of this Corporation be, and they
hereby are, authorized and directed to take such steps as they may deem
necessary or proper to obtain the approval of the agreement by the vote of
the holders of not less than two-thirds of the issued and outstanding
shares of this Corporation, at a special meeting hereby called for such
purpose or by written consent of shareholders.
<PAGE> 31
RESOLVED FURTHER that the officers of this Corporation are directed to
prepare and execute Articles of Merger, as required by the Business
Corporation Act.
2. Authorization of Officers.
RESOLVED, that the officers of the Corporation are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accept, file and record any and all instruments and documents and (b)
take, or cause to be taken, any and all such action, in the name and on
behalf of the Corporation or otherwise, as (in any such officer's judgment)
shall be necessary, desirable or appropriate in order to effect the
purposes of the foregoing resolution.
3. Filing in Minute Book.
RESOLVED, that the Secretary of the Corporation be and hereby is
directed to retain an executed copy of this Consent adopting these
resolutions and to file the same in the permanent Minute Book of the
Corporation.
IN WITNESS WHEREOF, we have executed this Consent in several original
counterparts, each of which shall be deemed an original, on the respective dates
set opposite our names.
Directors
/s/ MARTIN DONALD 7/28 1973
- ------------------------------------------ --------------,
/s/ ROBERT STADTMAN 7/28 1973
- ------------------------------------------ --------------,
/s/ [ILLEGIBLE] 7/28 1973
- ------------------------------------------ --------------,
/s/ [ILLEGIBLE] 7/28 1973
- ------------------------------------------ --------------,
<PAGE> 32
BO-MAR CORPORATION
CONSENT OF SHAREHOLDERS
July 23, 1973
The undersigned, being all of the shareholders of BO-MAR CORPORATION, a
Texas corporation (the "Corporation"), do hereby, jointly and severally,
pursuant to Article 9.10 of the Texas Business Corporation Act, consent to and
approve in all respects the adoption of the following resolutions by the
shareholders of the Corporation and each and every action effected thereby:
1.Approval of Plan of Merger.
WHEREAS, by a Consent of Directors of this Corporation dated July 23,
1973, the Board of Directors of this Corporation authorized and approved
the execution and delivery of an Agreement of Merger, a copy of which is
annexed hereto as Exhibit "A."
NOW, THEREFORE, be it resolved that the shareholders of this Corporation
do hereby ratify and approve the Agreement of Merger annexed hereto as
Exhibit "A."
2. Authorization of Officers.
RESOLVED, that the officers of the Corporation are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accept, file and record any and all instruments and documents and (b) take,
or cause to be taken, any and all such action, in the name and on behalf of
the Corporation or otherwise, as (in any such officer's judgment) shall be
necessary, desirable or appropriate in order to effect the purposes of the
foregoing resolution.
3. Filing in Minute Book.
RESOLVED, that the Secretary of the Corporation be and hereby is
directed to retain an executed copy of this Consent adopting these
resolutions and to file the same in the permanent Minute Book of the
Corporation.
<PAGE> 33
IN WITNESS WHEREOF, we have executed this Consent in several original
counterparts, each of which shall be deemed an original, on the respective dates
set opposite our names.
<TABLE>
<CAPTION>
Shareholders Number of Shares Date
- ------------ ---------------- ----
<S> <C> <C>
/s/ MARTIN DONALD 50 7/28, 1973
- -------------------------- ------
Martin Donald
/s/ ROBERT STADTMAN 50 7/28, 1973
- -------------------------- ------
Robert Stadtman
</TABLE>
<PAGE> 34
BO-MAR MANUFACTURING CO., INC.
CONSENT OF DIRECTORS
July 23, 1973
The undersigned, being all of the Directors constituting the Board of
Directors of BO-MAR MANUFACTURING CO., INC., a Texas corporation (the
"Corporation"), do hereby, jointly and severally, pursuant to Article 9.10 of
the Texas Business Corporation Act, consent to and approve in all respects the
adoption of the following resolutions by the Board of Directors of the
Corporation and each and every action effected thereby:
1. Approval of Plan of Merger.
WHEREAS this Board of Directors deem it to be in the best interests of
this Corporation in that this Corporation enter into an agreement providing
for the merger of this Corporation with BO-MAR CORPORATION, which agreement
is annexed hereto as Exhibit "A", it is
RESOLVED that the merger of this Corporation and the terms and
conditions of the merger agreement are approved; and
RESOLVED FURTHER that the President and the Secretary of this
Corporation are hereby authorized and directed to execute and deliver in
the name of this Corporation an Agreement of Merger, a copy of which is
attached hereto, marked Exhibit "A" and incorporated herein by reference;
and
RESOLVED FURTHER that the officers of this Corporation be, and they
hereby are, authorized and directed to take such steps as they may deem
necessary or proper to obtain the approval of the agreement by the vote of
the holders of not less than two-thirds of the issued and outstanding
shares of this Corporation, at a special meeting hereby called for such
purpose or by written consent of shareholders.
<PAGE> 35
RESOLVED FURTHER that the officers of this Corporation are directed to
prepare and execute Articles of Merger, as required by the Business
Corporation Act.
2. Authorization of Officers.
RESOLVED, that the officers of the Corporation are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accepts, file and record any and all instruments and documents and (b)
take, or cause to be taken, any and all such action, in the name and on
behalf of the Corporation or otherwise, as (in any such officer's
judgment) shall be necessary, desirable or appropriate in order to effect
the purposes of the foregoing resolution.
3. Filing in Minute Book.
RESOLVED, that the Secretary of the Corporation be and hereby is
directed to retain an executed copy of this Consent adopting these
resolutions and to file the same in the permanent Minute Book of the
Corporation.
IN WITNESS WHEREOF, we have executed this Consent in several
original counterparts, each of which shall be deemed an original, on the
respective dates set opposite our names.
/s/ MARTIN DONALD 7/28
- ------------------------------------------ --------------, 1973
/s/ ROBERT STADTMAN 7/28
- ------------------------------------------ --------------, 1973
/s/ [ILLEGIBLE] 7/28
- ------------------------------------------ --------------, 1973
/s/ [ILLEGIBLE] 7/28
- ------------------------------------------ --------------, 1973
<PAGE> 36
BO-MAR MANUFACTURING CO., INC.
CONSENT OF SHAREHOLDERS
July 23, 1973
The undersigned, being all of the shareholders of BO-MAR MANUFACTURING CO.,
INC., a Texas corporation (the "Corporation"), do hereby, jointly and severally,
pursuant to Article 9.10 of the Texas Business Corporation Act, consent to and
approve in all respects the adoption of the following resolutions by the
shareholders of the Corporation and each and every action effected thereby:
1. Approval of Plan of Merger.
WHEREAS, by a Consent of Directors of this Corporation dated July 23,
1973, the Board of Directors of this Corporation authorized and approved
the execution and delivery of an Agreement of Merger, a copy of which is
annexed hereto as Exhibit "A."
NOW, THEREFORE, be it resolved that the shareholders of this Corporation
do hereby ratify and approve the Agreement of Merger annexed hereto as
Exhibit "A."
2. Authorization of Officers.
RESOLVED, that the officers of the Corporation are hereby severally
authorized to (a) sign, execute, certify to, verify, acknowledge, deliver,
accept, file and record any and all instruments and documents and (b) take,
or cause to be taken, any and all such action, in the name and on behalf of
the Corporation or otherwise, as (in any such officer's judgment) shall be
necessary, desirable or appropriate in order to effect the purposes of the
foregoing resolution.
3. Filing in Minute Book.
RESOLVED, that the Secretary of the Corporation be and hereby is
directed to retain an executed copy of this Consent adopting these
resolutions and to file the same in the permanent Minute Book of the
Corporation.
<PAGE> 37
IN WITNESS WHEREOF, we have executed this Consent in several original
counterparts, each of which shall be deemed an original, on the respective dates
set opposite our names.
<TABLE>
<CAPTION>
Shareholders Number of Shares Date
- ------------ ---------------- ----
<S> <C> <C>
/s/ MARTIN DONALD 500 7/28, 1973
- -------------------------- ------
Martin Donald
/s/ ROBERT STADTMAN 500 7/28, 1973
- -------------------------- ------
Robert Stadtman
</TABLE>
<PAGE> 38
FILED
IN THE OFFICE OF THE
SECRETARY Of STATE OF TEXAS
OCT 01 1986
CLERK II-G
CORPORATIONS SECTION
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH
BY
DALLAS WOODCRAFT, INC.
1. The name of the corporation is Dallas Woodcraft, Inc.
2. The address, including street and number, of the corporation's present
registered office as shown in the records of the Secretary of State of Texas
prior to the filing of this statement is 2829 Sea Harbor, Dallas, Texas 75225.
3. The address, including street and number, of the corporation's new
registered office is 1500 Diamond Shamrock Tower, 717 N. Harwood, Dallas, Texas
75201.
4. The name of the corporation's present registered agent, as shown in the
record of the Secretary of State of Texas prior to the filing of this statement,
is Martin Donald.
5. The name of the corporation's registered agent shall be M. Douglas
Adkins.
6. The address of the corporation's registered office and the address of
the business office of its registered agent, as changed, will be identical.
7. Such change was authorized by the corporation's Board of Directors.
8. The counties where business is being conducted are ALL.
DALLAS WOODCRAFT, INC.
BY: /s/ M. DOUGLAS ADKINS
-------------------------------
M. Douglas Adkins, Secretary
SWORN TO BEFORE ME this 23rd day of September, 1986.
/s/ CONNIE J. JOINER
-----------------------------------
Notary Public of Texas
[SEAL]
Connie J. Joiner
-----------------------------------
My Commission Expires: Print Notary Name Here
2-8-88
<PAGE> 39
FILED
In the Secretary Office of the
Secretary of State of Texas
July 03, 1987
Clerk II-G
Corporations Section
STATEMENT OF CHANGE OF REGISTERED
OFFICE OR REGISTERED AGENT OR BOTH
BY A TEXAS DOMESTIC CORPORATION
1 The name of the corporation Dallas Woodcraft, Inc.
2. The address, including street and number, of its present registered
office as shown in the records of the Secretary of State of the State
of Texas prior to filing this statement is 1500 Diamond Shamrock
Tower, 717 N. Harwood, Dallas, Texas
3. The address, including street and number, to which its registered
office is to be changed is 2829 Sea Harbor Dallas, Texas 75212-4228
(Give new address of state "no change")
4. The name of its present registered agent, as shown in the records of
the Secretary of State of the State of Texas, prior to filing this
statement is Martin Donald
5. The name of its new registered agent is M. Douglas Adkins
(Give new name or state "no change")
6. The address of its registered office and the address of the business
office of its registered agent, as changed, will be identical.
7. Such change was authorized by its board of directors.
/s/ WILLIAM J. HENDRIX
-----------------------------------
Vice President of Finance
Sworn to June 9, 1987
----------------
(date)
/s/ FREDA BERGAN
-----------------------------------
NOTARY PUBLIC
Dallas County, Texas
FREDA BERGAN
[SEAL] NOTARY PUBLIC STATE OF TEXAS
COMMISSION EXPIRES 3-28-91
<PAGE> 40
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH
BY
DALLAS WOODCRAFT, INC.
1. The name of the corporation is Dallas Woodcraft, Inc.
2. The address, including street and number, of the corporation's present
registered office as shown in the records of the Secretary of State of Texas
prior to the filing of this statement is 2829 Sea Harbor, Dallas, Texas 75212.
3. The address, including street and number, of the corporation's new
registered office is 4550 Spring Valley Road, Dallas, Texas 75244.
4. The name of the corporation's present registered agent, as shown in the
record of the Secretary of State of Texas prior to the filing of this statement,
is M. Douglas Adkins.
5. The name of the corporation's registered agent shall be William J.
Hendrix.
6. The address of the corporation's registered office and the address of
the business office of its registered agent, as changed, will be identical.
7. Such change was authorized by the corporation's Board of Directors.
DALLAS WOODCRAFT, INC.
By:/s/ WILLIAM J. HENDRIX
-------------------------------------
William J. Hendrix
Vice President of Finance
SWORN TO BEFORE ME this 11th day of July, 1988.
/s/ FREDA L.BERGAN
-----------------------------------
Notary Public of Texas
[SEAL]
FREDA L.BERGAN
-----------------------------------
My Commission Expires: Print Notary Name Here
3-28-91
- ---------------------
<PAGE> 41
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A PROFIT CORPORATION
1 The name of the corporation is Dallas Woodcraft, Inc.
----------------------------------------
The corporation's charter number is 0023780650
-------------------------------------------
2. The address of the CURRENT registered office as shown in the records
of the Texas secretary of state is:
STREET ADDRESS 4550 Spring Valley Road
---------------------------------------------------------
CITY Dallas , TEXAS ZIP 75244
------------------ ---------------------------------------
(it is recommended that you verify item 2 by calling 512-463-5555
before filing this form.)
3. A. The address of the NEW registered office is:
---
STREET ADDRESS
---------------------------------------------------------
CITY , TEXAS ZIP
--------------------------- -----------------------------
OR
B. X The registered office address will not change.
---
4. The name of the CURRENT registered agent as shown in the records of the
Texas secretary of state is William Hendrix.
--------------------------------------------
(it is recommended that you verify item 4 by calling 512-463-5555
before filing this form.)
5. A. X The name of the NEW registered agent is Camille Comeau.
--- --------------------------
OR
B. The registered agent will not change.
---
6. Following the changes shown above, the address of the registered office
and the address of the office of the registered agent will continue to
be identical, as required by law.
7. The changes shown above were authorized by: (check one)
A. The Board of Directors.
---
B. X An officer of the corporation so authorized by the Board of
--- Directors.
/s/ DONALD J. CARTER
-----------------------------------
An Authorized Officer
<PAGE> 42
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE OR
REGISTERED AGENT, OR BOTH, BY A TEXAS
DOMESTIC CORPORATION
1. The name of the corporation is Bo-Mar Manufacturing Co., Inc.
2. The address, including street and number, of its present registered
office as shown in the records of the Secretary of the State of Texas
prior to filing this statement is 9101 Chancellor Row, Dallas, Texas
75247.
3. The address, including street and number, to which its registered
office is to be changed is 2829 Sea Harbor, Dallas, Texas 75225.
4. The name of its present registered agent, as shown in the records of
the Secretary of the State of Texas, prior to filing this statement is
Martin Donald.
5. The name of its new registered agent is no change.
6. The address of its registered office and the address of the business
office of its registered agent, as changed, will be identical.
7. Such change was authorized by its board of directors.
/s/ MARTIN DONALD
------------------------------
President
Sworn to 10/6/78 /s/ [ILLEGIBLE]
---------------- ------------------------------
(date) Notary Public
Dallas County, Texas
<PAGE> 43
[STAMP]
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
PURSUANT to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation for the purpose of changing its
corporate name:
ARTICLE I
The name of the corporation is Bo-Mar Manufacturing Co., Inc.
ARTICLE II
The following amendment to the Articles of Incorporation was adopted by the
Shareholders of the corporation on the 1st day of February, 1984.
1. Article I of the original Articles of Incorporation is hereby amended to
read in its entirety as follows:
"ARTICLE I
The name of the corporation is Dallas Woodcraft, Inc."
ARTICLE III
The number of shares outstanding of the single class of voting stock, $1.00
par value, of the corporation at the time of such adoption was 10,300; and the
number of shares entitled to vote thereon was 10,300.
<PAGE> 44
ARTICLE IV
The holders of all of the shares outstanding and entitled to vote on said
amendment have signed a consent in writing adopting said amendment.
ARTICLE V
The amendment neither provides for the exchange, reclassification nor
cancellation of issued shares, nor does it effect a change in the stated capital
of the corporation.
Dated: February 24, 1984
BO-MAR MANUFACTURING CO., INC.
By: /s/ DONALD J. CARTER
-------------------------------------
Donald J. Carter, President
By: /s/ M. DOUGLAS ADKINS
-------------------------------------
M. Douglas Adkins, Secretary
<PAGE> 45
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, a notary public, on this day personally appeared DONALD J.
CARTER, known to me to be the person whose name is subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
GIVEN UNDER MY HAND AND SEAL of office this 24 day of February, A.D., 1984.
/s/ FREDA RICHARDS BERGAN
----------------------------------------
Notary Public in and for the
[SEAL] State of Texas
Freda Richards Bergan
----------------------------------------
Typed or Printed Name of Notary
My Commission Expires:
March 28, 1987
- ---------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, a notary public, on this day personally appeared M. DOUGLAS
ADKINS, known to me to be the person whose name is subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
GIVEN UNDER MY HAND AND SEAL of office this 24th day of February, A.D.,
1984.
/s/ SALLY J. LUNDAY
----------------------------------------
Notary Public in and for the
[SEAL] State of Texas
SALLY J. LUNDAY
----------------------------------------
Typed or Printed Name of Notary
My Commission Expires:
8/9/89
- ----------------------
<PAGE> 46
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH
BY
DALLAS WOODCRAFT, INC.
1. The name of the corporation is Dallas Woodcraft, Inc.
2. The address, including street and number, of the corporation's present
registered office as shown in the records of the Secretary of State of Texas
prior to the filing of this statement is 2829 Sea Harbor, Dallas, Texas 75225.
3. The address, including street and number, of the corporation's new
registered office is 1500 Diamond Shamrock Tower, 717 N. Harwood, Dallas, Texas
75201.
4. The name of the corporation's present registered agent, as shown in the
record of the Secretary of State of Texas prior to the filing of this statement,
is Martin Donald.
5. The name of the corporation's registered agent shall be M. Douglas
Adkins.
6. The address of the corporation's registered office and the address of
the business office of its registered agent, as changed, will be identical.
7. Such change was authorized by the corporation's Board of Directors.
8. The counties where business is being conducted are ALL.
DALLAS WOODCRAFT, INC.
BY: /s/ M. DOUGLAS ADKINS
-------------------------------
M. Douglas Adkins, Secretary
SWORN TO BEFORE ME this 23rd day of September, 1986.
/s/ CONNIE J. JOINER
-----------------------------------
Notary Public of Texas
[SEAL]
Connie J. Joiner
-----------------------------------
My Commission Expires: Print Notary Name Here
2-8-88
- ---------------------
<PAGE> 47
[STAMP]
STATEMENT OF CHANGE OF REGISTERED
OFFICE OR REGISTERED AGENT OR BOTH
BY A TEXAS DOMESTIC CORPORATION
1 The name of the corporation Dallas Woodcraft, Inc.
2. The address, including street and number, of its present registered
office as shown in the records of the Secretary of State of the State
of Texas prior to filing this statement is 1500 Diamond Shamrock
Tower, 717 N. Harwood Dallas, Texas
3. The address, including street and number, to which its registered
office is to be changed is 2829 Sea Harbor Dallas, Texas 75212-4228
(Give new address of state "no change")
4. The name of its present registered agent, as shown in the records of
the Secretary of State of the State of Texas, prior to filing this
statement is Martin Donald
5. The name of its new registered agent is M. Douglas Adkins
(Give new name or state "no change ")
6. The address of its registered office and the address of the business
office of its registered agent, as changed, will be identical.
7. Such change was authorized by its board of directors.
/s/ WILLIAM J. HENDRIX
-----------------------------------
Vice President of Finance
Sworn to June 9, 1987
----------------
(date)
/s/ FREDA BERGAN
-----------------------------------
NOTARY PUBLIC
Dallas County, Texas
-------
FREDA BERGAN
[SEAL] NOTARY PUBLIC STATE OF TEXAS
COMMISSION EXPIRES 3-28-91
<PAGE> 48
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH
BY
DALLAS WOODCRAFT, INC.
1. The name of the corporation is Dallas Woodcraft, Inc.
2. The address, including street and number, of the corporation's present
registered office as shown in the records of the Secretary of State of Texas
prior to the filing of this statement is 2829 Sea Harbor, Dallas, Texas 75212.
3. The address, including street and number, of the corporation's new
registered office is 4550 Spring Valley Road, Dallas, Texas 75244.
4. The name of the corporation's present registered agent, as shown in the
record of the Secretary of State of Texas prior to the filing of this statement,
is M. Douglas Adkins.
5. The name of the corporation's registered agent shall be William J.
Hendrix.
6. The address of the corporation's registered office and the address of
the business office of its registered agent, as changed, will be identical.
7. Such change was authorized by the corporation's Board of Directors.
DALLAS WOODCRAFT, INC.
By: /s/ WILLIAM J. HENDRIX
--------------------------------
William J. Hendrix
Vice President of Finance
SWORN TO BEFORE ME this 11th day of July, 1988.
/s/ FREDA L. BERGAN
-----------------------------------
[SEAL] Notary Public, State of Texas
My Commission Expires: FREDA L. BERGAN
-----------------------------------
3/28/91 Print Name of Notary
- ---------------------
<PAGE> 49
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A PROFIT CORPORATION
1. The name of the corporation is Dallas Woodcraft, Inc.
The corporation's charter number is 0023780650.
2. The address of the CURRENT registered office as shown in the records of
the Texas secretary of state is:
STREET ADDRESS, 4550 Spring Valley Road
CITY Dallas, TEXAS ZIP 75244
(It is recommended that you verify item 2 by calling 512-463-5555
before filing this form.)
3. A. The address of the NEW registered office is:
--
STREET ADDRESS
--------------------------------------------------------
City TEXAS ZIP
-------------------------------- -------------------------
OR
B. X The registered office address will not change.
---
The name of the CURRENT registered agent as shown in the records of the
Texas secretary of state is William Hendrix
(It is recommended that you verify item 4 by calling 512-463-5555
before filing this form.)
A. X The name of the NEW registered agent is Camille Comeau.
---
OR
B. The registered agent will not change.
---
6. Following the changes shown above, the address of the registered office
and the address of the office of the registered agent will continue to
be identical, as required by law.
7. The changes shown above were authorized by: (check one)
A. The Board of Directors.
---
B. X An officer of the corporation so authorized by the Board of
--- Directors.
/s/ DONALD CARTER
-----------------------------------
An Authorized Officer
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
DALLAS WOODCRAFT, INC.
The undersigned, being the duly elected, qualified, and acting
Secretary of Dallas Woodcraft, Inc., a Texas corporation (the "Corporation"),
and the keeper of the minutes and records of the Corporation, certifies that the
following is a true and accurate copy of the Amendment to the Bylaws of the
Corporation as adopted by the Board of Directors and executed on April 25, 1988.
RESOLVED, that Article II, Section 2.01, Annual Meeting, of the
Corporation's bylaws hereby be amended to read as follows:
An annual meeting of shareholders shall be held each year on
the fourth Tuesday in May, or at such time as shall be
designated from time to time by the Board of Directors and
stated in the notice of the meeting, if not a legal holiday,
and if a legal holiday, then on the next full business day
following, at the time specified in the notice of the
meeting. At such meeting, the shareholders shall elect by
plurality vote a board of directors and transact such other
business as may properly be brought before the meeting.
TO CERTIFY WHICH, witness my hand this 25th day of April, 1988.
/s/ M. DOUGLAS ADKINS
-----------------------------
M. Douglas Adkins, Secretary
<PAGE> 2
BYLAWS OF
BO-MAR MANUFACTURING CO., INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1: Offices
1.01 Registered Office and Agent 1
1.02 Other Offices 1
Article 2: Shareholders
2.01 Annual Meeting 1
2.02 Special Meeting 1
2.03 Place of Meetings 1
2.04 Notice 2
2.05 Voting List 2
2.06 Quorum 2
2.07 Majority Vote; Withdrawal of Quorum 2
2.08 Method of Voting; Proxies 2
2.09 Closing of Transfer Books; Record Date 3
2.10 Officers 3
Article 3: Directors
3.01 Management 3
3.02 Number; Qualification; Election; Term 3
3.03 Change in Number 4
3.04 Removal 4
3.05 Vacancies 4
3.06 Method of Election 4
3.07 Meetings of Directors 4
3.08 First Meeting 4
3.09 Election of Officers 4
3.10 Regular Meetings 4
3.11 Special Meetings 5
3.12 Notice 5
3.13 Quorum; Majority Vote 5
3.14 Procedure 5
3.15 Presumption of Assent 5
3.16 Compensation 5
3.17 Interested Directors 6
</TABLE>
(i)
<PAGE> 3
Article 4: Executive Committee
4.01 Designation 6
4.02 Authority 6
4.03 Procedure 6
4.04 Removal 7
Article 5: Notice
5.01 Method 7
5.02 Waiver 7
Article 6: Officers
6.01 Number; Titles; Term of Office 7
6.02 Removal 8
6.03 Vacancies 8
6.04 Authority 8
6.05 Compensation 8
6.06 President 8
6.07 Vice Presidents 8
6.08 Treasurer 9
6.09 Assistant Treasurer 9
6.10 Secretary 9
6.11 Assistant Secretaries 9
Article 7: Certificates and Shareholders
7.01 Certificates for Shares 9
7.02 Replacement of Lost or Destroyed Certificates 9
7.03 Transfer of Shares 10
7.04 Registered Shareholders 10
7.05 Regulations 10
Article 8: Miscellaneous Provisions
8.01 Dividends 10
8.02 Reserves 10
8.03 Books and Records 11
8.04 Fiscal Year 11
8.05 Seal 11
8.06 Other Committees 11
8.07 Resignation 11
8.08 Securities of Other Corporations 11
8.09 Amendment of Bylaws 11
8.10 Telephone Meetings 11
8.11 Action Without a Meeting 12
8.12 Invalid Provision 12
8.13 Table of Contents; Headings 12
(ii)
<PAGE> 4
BYLAWS OF
BO-MAR MANUFACTURING CO., INC.
------------------------------
Article 1: Offices
1.01 Principal Offices. The principal office of the Corporation shall
be as designated with the Secretary of State of the State of Texas, as it may be
changed from time to time.
1.02 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Texas, as the Board of Directors
may from time to time determine or the business of the Corporation may require.
Article 2: Shareholders
2.01 Annual Meeting. An annual meeting of shareholders, shall be held
each year on the second Tuesday during the month of October, or at such
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, if not a legal holiday in the place where
the meeting is to be held, and if a legal holiday in such place, then on the
next full business day following, at the time specified in the notice of the
meeting. At such meeting, the shareholders shall elect by plurality vote
directors and transact such other business as may properly be brought before the
meeting.
2.02 Special Meeting. A special meeting of the shareholders may be
called at any time by the President, the Board of Directors or the holders of
not less than ten per cent (10%) of all shares entitled to vote at such meeting.
Only such business shall be transacted at a special meeting as may be stated or
indicated in the notice of such meeting.
2.03 Place of Meetings. The annual meeting of shareholders may be
held at any place within or without the State of Texas designated by the Board
of Directors. Special meetings of shareholders may be held at any place within
or without the State of Texas designated by the President, if he shall call the
meeting, or the Board of Directors, if they shall call the meeting. Any meeting
may be held at any place within or without the State of Texas designated in a
waiver of notice of such meeting signed by all shareholders. Meetings of
shareholders shall be held at the principal office of the Corporation unless
another place is designated for meetings in the manner provided herein.
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<PAGE> 5
2.04 Notice. Written or printed notice stating the place, day and hour
of each meeting of shareholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) days nor more than fifty (50) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary or the officer or person calling the meeting, to each shareholder of
record entitled to vote at such meeting.
2.05 Voting List. At least ten (10) days before each meeting of
shareholders, the Secretary shall prepare a complete list of shareholders
entitled to vote thereat, arranged in alphabetical order, with the address of
and number of voting shares held by each. For a period of ten (10) days prior to
such meeting, such list shall be kept on file at the registered office of the
Corporation and shall be subject to inspection by any shareholder during usual
business hours. Such list shall be produced at such meeting, and at all times
during such meeting shall be subject to inspection by any shareholder.
2.06 Quorum. The holders of a majority of the outstanding shares
entitled to vote, present in person or by proxy, shall constitute a quorum at
any meeting of shareholders, except as otherwise provided by law, the articles
of incorporation or these bylaws. If a quorum shall not be present or
represented at any meeting of shareholders, the shareholders entitled to vote
thereat, present in person or by proxy, may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At an adjourned meeting at which a quorum
shall be present in person or represented by proxy, any business may be
transacted which could have been transacted at the original meeting.
2.07 Majority Vote; Withdrawal of Quorum. When a quorum is present at
any meeting, the vote of the holders of a majority of the outstanding shares
entitled to vote, present in person or represented by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, of the articles of incorporation or of these
bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such question. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
2.08 Method of Voting; Proxies. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are
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limited or denied by the articles of incorporation voting for directors shall
be in accordance with Section 3.06 of these bylaws. At any meeting of
shareholders, every shareholder having the right to vote may vote either in
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Each such proxy shall be filed with the Secretary
of the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution unless otherwise
provided in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable or unless otherwise made irrevocable by law.
2.09 Closing of Transfer Books; Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
of the Corporation shall be closed for a stated period but not to exceed in any
case fifty (50) days. If the stock transfer books are closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders such date in any case to be not more than fifty
(50) days and, in case of a meeting of shareholders, not less than ten (10) days
prior to the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which the notice of the meeting is mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders.
2.10 Officers. The President shall preside at and the Secretary shall
keep the records of each meeting of shareholders, and in the absence of either
such officer, his duties shall be performed by some person appointed by the
meeting.
Article 3: Directors
3.01 Management. The business and property of the Corporation shall be
managed by the Board of Directors, and subject to the restrictions imposed by
law, the articles of incorporation or these bylaws, they may exercise all the
powers of the Corporation.
3.02 Number; Qualification; Election; Term. The number of directors
which shall constitute the entire Board shall be not less than one (1) nor more
than ten (10). The first Board shall consist of the number of directors named in
the articles of incorporation.
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Thereafter, within the limits above specified, the number of Directors which
shall constitute the entire Board shall be determined by resolution of the Board
of Directors at any meeting thereof or by the stockholders at the annual meeting
of stockholders. None of the directors need be a stockholder or a resident of
the State of Texas.
3.03 Change in Number. No decrease in the number of directors
constituting the entire Board shall have the effect of shortening the term of
any incumbent director. In case of any increase in the number of directors, the
additional directors shall be elected at an annual meeting or at a special
meeting of shareholders called for that purpose.
3.04 Removal. At any meeting of shareholders called expressly for that
purpose any director or the entire Board of Directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors.
3.05 Vacancies. Any vacancy occurring in the Board of Directors (by
death, resignation, removal, or otherwise) may be filled by the affirmative vote
of a majority of the remaining directors though less than a quorum of the Board
of Directors. A director elected to fill a vacancy shall be elected to serve for
the unexpired term of his predecessor in office.
3.06 Method of Election. Directors shall be elected by plurality vote.
Cumulative voting shall not be permitted.
3.07 Meetings of Directors. The directors may hold their meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Texas as the Board of Directors may from time to time determine.
3.08 First Meeting. Each newly elected Board of Directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of shareholders, and no notice of such meeting shall be necessary.
3.09 Election of Officers. At the first meeting of the Board of
Directors in each year at which a quorum shall be present, held next after the
annual meeting of shareholders, the Board of Directors shall proceed to the
election of the officers of the Corporation.
3.10 Regular Meetings. Regular meetings of the Board of Directors
shall be Red at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
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3.11 Special Meetings. Special meetings of the Board of Directors shall
be held whenever called by the President or by a majority of the directors for
the time being in office.
3.12 Notice. The Secretary shall give notice of each special meeting in
person, or by mail or telegraph, at least two (2) days before the meeting to
each director. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.13 Quorum; Majority Vote. At all meetings of the Board of Directors,
a majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board of Directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. The act of a majority of the directors present at a
meeting at which a quorum is in attendance shall be the act of the Board of
Directors, unless the act of a greater number is required by law or the articles
of incorporation or by these bylaws.
3.14 Procedure. At meetings of the Board of Directors, business shall
be transacted in such order as from time to time the Board of Directors may
determine. The President shall preside at all meetings, and in his absence a
chairman shall be chosen by the Board of Directors from among the directors
present. The Secretary of the Corporation shall act as the secretary of the
meetings of the Board of Directors, and in his absence, the presiding officer
may appoint any person to act as secretary of the meeting. The Board of
Directors shall keep regular minutes of its proceedings which shall be placed in
the minute book of the Corporation.
3.15 Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.16 Compensation. Directors as such shall not receive any stated
salary for their services, but by resolution of the Board of Directors a fixed
sum and expense of attendance, if any, may be allowed for attendance at regular
or special meetings of the Board of Directors; provided, that nothing contained
herein shall be construed to preclude any director from serving the Corporation
in any other capacity or receiving compensation therefor.
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3.17 Interested Directors. No contract or other transaction between the
Corporation and any other person (as used herein the term "person" means an
individual, firm, trust, partnership, association, corporation or other entity)
shall be affected or invalidated by the fact that any director or the
Corporation is interested in, or is a member, director or officer of such other
person, and any director may be a party to or may be interested in any contract
or transaction of the Corporation or in which the Corporation is interested; and
no contract, act or transaction of the Corporation with any person shall be
affected or invalidated by the fact that any director of the Corporation is a
party to, or interested in, such contract, act or transaction, or in any way
connected with such person, and each and every person who may become a director
of the Corporation is hereby relieved from any liability that might otherwise
exist from contracting with the Corporation for the benefit of himself or any
person in which he may be in any way interest provided, that the fact of such
interest shall have been disclosed to or shall be known by the other directors
or the shareholders of the Corporation, as the case may be, acting upon or with
reference such contract, act or transaction. The foregoing shall be so even
though the presence at a meeting or vote of such interested director might have
been necessary to obligate the Corporation upon any such contract, act or
transaction.
Article 4: Executive Committee
4.01 Designation. The Board of Directors may, by resolution passed by a
majority of the entire Board, designate an executive committee, to consist of
two (2) or more of the directors of the Corporation, one of whom shall be the
President of the Corporation.
4.02 Authority. The executive committee, unless expressly restricted by
such resolution, shall have and may exercise all of the authority of the Board
of Directors in the management of the business and affairs of the Corporation,
including but not limited to the power and authority to declare a dividend or to
authorize the issuance of shares of the Corporation, except that no such
committee shall have the authority of the Board of Directors in reference to
amending the articles of incorporation, approving a plan or merger or
consolidation, recommending to the shareholders the sale, lease, or exchange of
all or substantially all the property and assets of the Corporation otherwise
than in the usual and regular course of its business, recommending to the
shareholders a voluntary dissolution of the Corporation or a revocation thereof,
amending, altering, or repealing these bylaws or adopting new bylaws for the
Corporation, filling vacancies in or removing members of the Board of Directors
or any such committee, fixing the compensation of any member of such committee,
or altering or repealing any resolution of the Board of Directors which by its
terms provides that it shall not be so amendable or repealable.
4.03 Procedure. The executive committee shall keep minutes of its
proceedings and report the same to the Board of Directors when
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required. The minutes of the proceedings of the executive committee shall be
placed in the minute book of the Corporation.
4.04 Removal. Any member of the executive committee may be removed by
the Board of Directors by the affirmative vote of a majority of the number of
directors fixed in the manner provided in these bylaws whenever in the judgment
of the Board of Directors the best interests of the Corporation will be served
thereby.
Article 5: Notice
5.01 Method. Whenever by statute, by the articles of incorporation or
by these bylaws, notice is required to be given to any committee member,
director or shareholders, and no provision is made as to how such notice shall
be given, it shall not be construed to mean personal notice, but any such notice
may be given (a) in writing, by mail, postage prepaid, addressed to such member,
director or shareholder at his address as it appears on the books or (in the
case of a stockholder) the stock transfer records of the Corporation, or (b) by
any other method permitted by law. Any notice required or permitted to be given
by mail shall be deemed to be delivered and given at the time when the same is
deposited in the United States mail as aforesaid. Any notice required or
permitted to be given by telegram shall be deemed to be delivered and given at
the time transmitted with all charges prepaid and addressed as aforesaid.
5.02 Waiver. Whenever any notice is required to be given to any
committee member, shareholder or director of the Corporation by statute, by the
articles of incorporation or by these bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be equivalent to the giving of such notice.
Attendance of a committee member, shareholder or director at a meeting shall
constitute a waiver of notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Article 6: Officers
6.01 Number; Titles; Term of Office. The officers of the Corporation
shall be a President, one or more Vice Presidents, a Secretary, a Treasurer and
such other officers as the Board of Directors may from time to time elect or
appoint. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified, until his death, or until he shall resign or
shall have been removed in the manner hereinafter provided. Any two or more
offices may be held by the same person, except that the President and the
Secretary shall not be the same person. None of the officers need be a
shareholder, a director or a resident of the State of Texas.
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6.02 ??????? the Board of Directors may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
6.03 Vacancies. Any vacancy occurring in any office of the Corporation
(by death, resignation, removal or otherwise) may be filled by the Board of
Directors.
6.04 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws
or as may be determined by resolution of the Board of Directors not inconsistent
with these bylaws.
6.05 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the Board of Directors.
6.06 President. The President shall be the chief executive officer of
the Corporation and, subject to the Board of Directors, he shall have general
executive charge, management and control of the properties and operations of the
Corporation in the ordinary course of its business with all such powers with
respect to such properties and operations as may be reasonable incident to such
responsibilities. He shall preside at all meetings of the shareholders and of
the Board of Directors. He may agree upon and execute all division and transfer
orders, bonds, contracts and other obligations in the name of the Corporation,
and he may sign all certificates, for shares of stock of the Corporation.
6.07 Vice Presidents. Each Vice President shall have such powers and
duties as may be assigned to him by the President or the Board of Directors and
(in order of their seniority) shall exercise the powers of the President during
that officer's absence or inability to act. As between the Corporation and third
parties any action taken by a Vice President in the performance of the duties of
the President shall be conclusive evidence of the absence or inability to act of
the President at the time such action was taken.
6.08 Treasurer. The Treasurer shall be the chief accounting and
financial officer of the Corporation and shall have custody of all the funds
and securities of the Corporation which come into his hands. When necessary or
proper, he may endorse, on behalf of the Corporation, for collection checks,
notes and other obligations and shall deposit the same to the credit of the
Corporation in such banks or depositaries designated by the Board of Directors.
He may sign all receipts and vouchers for payments made to the Corporation,
either alone or jointly with such other officers designated by the Board of
Directors. Whenever required by the Board of Directors, he shall render a
statement of his cash account, and he shall enter or cause to be entered
regularly in the books of the Corporation to be kept by him for that purpose
full and accurate accounts of all monies received and paid out on account of
the Corporation.
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He shall perform all acts incident to the position of Treasurer subject to the
control of the Board of Directors, and he shall give such bond for the
faithful discharge of his duties in such form as the Board of Directors may
require.
6.09 Assistant Treasurer. Each Assistant Treasurer shall have the usual
powers and duties pertaining to his office, together with such other powers and
duties as may be assigned to him by the Board of Directors. The Assistant
Treasurers shall exercise the powers of the Treasurer during that officer's
absence or inability to act.
6.10 Secretary. The Secretary shall keep the minutes of all meetings of
the Board of Directors and of the shareholders in books provided for that
purpose, and he shall attend to the giving and serving of all notices. He may
sign with the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
President all certificates for shares of stock of the Corporation, and he shall
have charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which shall
at all reasonable times be open to inspection by any director upon application
at the office of the Corporation during business hours. He shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the Board of Directors.
6.11 Assistant Secretaries. Each Assistant Secretary shall have the
usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors or the
Secretary. The Assistant Secretaries shall exercise the powers of the Secretary
during that officer's absence or inability to act.
Article 7: Certificates and Shareholders
7.01 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the Board of
Directors. The certificates shall be signed by the President or a Vice
President, and also by the Secretary or an Assistant Secretary or by the
Treasurer or an Assistant Treasurer, and may be sealed with the seal of the
Corporation or a facsimile thereof. If any such certificate is countersigned by
a transfer agent, or registered by a registrar, either of which is other than
the Corporation itself or an employee of the Corporation, the signatures of any
of the foregoing officers may be facsimiles. The certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and the number of shares.
7.02 Replacement of Lost or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an a affidavit of that fact
by the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a con-
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<PAGE> 13
dition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond with a surety or sureties satisfactory to the Corporation in such sum as it
may direct as indemnity against any claim, or expense resulting from a claim,
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost or destroyed.
7.03 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
7.04 Registered Shareholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.05 Regulations. The Board of Directors shall have power and authority
to make all such rules and regulations as they may deem expedient concerning the
issue, transfer and registration or the replacement of certificates for shares
of stock of the Corporation.
Article 8: Miscellaneous Provisions
8.01 Dividends. Subject to provisions of statutes and the articles of
incorporation, dividends may be declared by the Board of Directors at any
regular or special meeting and may be paid in cash, in property or in shares of
stock of the Corporation. Such declaration and payment shall be at the
discretion of the Board of Directors.
8.02 Reserves. There may be created by the Board of Directors out of
the funds of the Corporation legally available therefor such reserve or reserves
as the directors from time to time, in their discretion, consider proper to
provide for contingencies, to equalize dividends, or to repair or maintain any
property of the Corporation, or for such other purpose as the Board of Directors
shall consider beneficial to the Corporation, and the Board of
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Directors may modify or abolish any such reserve in the manner in which it was
created.
8.03 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
shareholders, Board of Directors, and any committee thereof, and shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held by
each.
8.04 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the Board of Directors.
8.05 Seal. The seal of the Corporation shall be such as from time to
time may be approved by the Board of Directors.
8.06 Other Committees. The Board of Directors may, by resolution
adopted by affirmative vote of a majority of the number of directors
constituting the entire Board, designate two or more directors (with such
alternates, if any, as may be deemed desirable to constitute a committee or
committees (in addition to the Executive Committee) for any purpose; provided,
that any such committee or committees shall have and may exercise only the power
of recommending action to the Board of Directors and of carrying out and
implementing any instructions or any policies, plans and programs theretofore
approved, authorized and adopted by the Board of Directors.
8.07 Resignation. Any committee member, director or officer may resign
by so stating at any meeting of the Board of Directors or by giving written
notice to the President or the Secretary. Such resignation shall take effect at
the time specified therein, or immediately if no time is specified therein.
Unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
8.08 Securities of Other Corporations. The President or any Vice
President of the Corporation shall have power and authority to transfer, endorse
for transfer, vote, consent or take any other action with respect to any
securities of another issuer which may be held or owned by the Corporation and
to make, execute and deliver any waiver, proxy or consent with respect to any
such securities.
8.09 Amendment of Bylaws. These bylaws may be altered, amended or
repealed by the affirmative vote of a majority of the number of directors
constituting the entire Board and not otherwise.
8.10 Telephone Meetings. Shareholders, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in and hold a meeting of such shareholders, Board, or committee by
means of a conference telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.11 Action Without a Meeting. Any action required by law, by the
articles of incorporation, or by these bylaws to be taken at a meeting of the
shareholders, the Board of Directors, or any committee of the Corporation, or
any action which may be taken at a meeting of such shareholders, Board, or
Committee, may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the shareholders, Board members,
or committee members, as the case may be, entitled to vote with respect to the
subject matter hereof, and such consent shall have the same force and effect as
a unanimous vote of such shareholders, Board members, or committee members, as
the case may be, and may be stated as such in any articles or document filed
with the Secretary of State.
8.12 Invalid Provision. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it
possible and reasonable, shall be valid and operative.
8.13 Table of Contents; Headings. The table of contents and headings
used in these bylaws have been inserted for administrative convenience only and
do not constitute matter to be construed in interpretation.
Bylaws adopted as of November 28, 1973.
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<PAGE> 1
EXHIBIT 3.5
[LOGO]
THE STATE OF TEXAS
SECRETARY OF STATE
IT IS HEREBY CERTIFIED THAT THE ATTACHED IS/ARE TRUE AND CORRECT COPIES
OF THE FOLLOWING DESCRIBED DOCUMENT(S) ON FILE IN THIS OFFICE:
HOMCO, INC.
CHARTER #522514-00
ARTICLES OF INCORPORATION JUNE 20,1980
ARTICLES OF AMENDMENT MARCH 16,1981
CHANGE OF REGISTERED OFFICE AND/OR AGENT OCTOBER 1, 1986
CHANGE OF REGISTERED OFFICE AND/OR AGENT AUGUST 3, 1988
CHANGE OF REGISTERED OFFICE AND/OR AGENT NOVEMBER 1, 1995
IN TESTIMONY WHEREOF, I HAVE HEREUNTO
SIGNED MY NAME OFFICIALLY AND CAUSED
TO BE IMPRESSED HEREON THE SEAL OF
STATE AT MY OFFICE IN THE CITY OF
AUSTIN, ON MAY 20, 1998.
/s/ ALBERTO R. GONZALES
-------------------------------------
Alberto R. Gonzales PH
Secretary of State
[SEAL]
<PAGE> 2
ARTICLES OF INCORPORATION
OF
SYROCO OF TEXAS, INC.
The undersigned natural person, of the age of twenty-one years or more,
citizen of the State of Texas, acting as incorporator of a corporation under the
Texas Business Corporation Act, does hereby adopt the following Articles of
Incorporation for such corporation:
ARTICLE ONE
The name of the corporation is SYROCO OF TEXAS, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized are:
1. To transact any and all lawful business for which corporations may
be incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares of common stock which the corporation
shall have authority to issue is One Million (1,000,000) having a par value of
One Dollar ($1.00) per share, consisting of an authorized capital of One Million
Dollars ($1,000,000.00)
ARTICLE FIVE
The holders of any class of shares of the corporation shall have a
preemptive right to subscribe for or purchase any shares of stock of any class,
whether now or hereafter authorized, or any notes, bonds, debentures, warrants,
options, rights or evidences of indebtedness, whether or not convertible into or
exchangeable for any such security.
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<PAGE> 3
ARTICLE SIX
Shareholders of the corporation shall not have the right of cumulative
voting for the election of directors or for any other purpose.
ARTICLE SEVEN
The corporation will not commence business until it has received for
the issuance of shares consideration of the value of at least one thousand
dollars ($1,000.00), consisting of money, labor done, or property actually
received.
ARTICLE EIGHT
The post office address of its initial registered office is 4300 First
National Bank Building, Dallas, Texas 75202 and the name of its initial
registered agent at such address is M. Douglas Adkins.
ARTICLE NINE
The Corporation may indemnify any person (and the heirs, executors and
administrators of such person) who is or was a director, officer, employee or
agent of the Corporation, or of any other corporation, foreign or domestic, or
any partnership, proprietorship, trust, association or other enterprise, whether
engaged in business for profit or being a nonprofit enterprise, against any and
all liabilities and reasonable expenses incurred by him in connection with or
resulting from any claim, action, suit or proceeding, whether brought by or in
the right of the Corporation or otherwise and whether civil, criminal,
administrative or investigative in nature, or in connection with an appeal
relating thereto, in which he has become involved as a party or is threatened to
be made a party or otherwise, by reason of being or having been such a director,
officer, employee or agent (whether or not a director, officer, employee or
agent at the time such liability and expense may be incurred) to the full extent
not prohibited by the laws of Texas, these Articles of Incorporation, or the
bylaws of this Corporation as the same shall exist at the time of such
indemnification.
ARTICLE TEN
The Board of Directors of the Corporation is expressly authorized and
empowered to make, alter, amend or repeal the bylaws of the Corporation or to
adopt new Bylaws.
ARTICLE ELEVEN
The number of directors constituting the initial Board of Directors is
three (3), and the name and address of each person who is to serve as a director
until the first annual meeting of the shareholders or until his successor is
elected and qualified is:
-2-
<PAGE> 4
ARTICLES OF AMENDMENT BY THE SHAREHOLDERS TO
ARTICLES OF INCORPORATION OF SYROCO OF TEXAS, INC.
Pursuant to the provisions of Art. 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is currently SYROCO OF TEXAS, INC.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by
the shareholders of the corporation on March 16, 1981:
Article One of the Articles of Incorporation is hereby amended to
read in full as follows:
ARTICLE ONE
"The name of the corporation is HOMCO, INC."
ARTICLE THREE
The number of shares of the corporation outstanding at the time of such
adoption was 1,000; and the number of shares entitled to vote thereon was 1,000.
ARTICLE FOUR
The number of shares voted for such amendment was 1,000; and the number
of shares voted against such amendment was none.
ARTICLE FIVE
The holder of all of the shares entitled to vote on said amendment has
signed a consent in writing adopting said amendment.
<PAGE> 5
Dated: March __, 1981
SYROCO OF TEXAS, INC.
By: /s/ DONALD J. CARTER
-------------------------------
Donald J. Carter
Its President
And: /s/ M. DOUGLAS ADKINS
-------------------------------
M. Douglas Adkins
Its Secretary
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
I, Jane Louise Melton a Notary Public, do hereby certify that on this
16th day of March, 1981, personally appeared before me Donald J. Carter, who
declared he is a President of the corporation executing the foregoing document,
and being duly sworn, acknowledged that he signed the foregoing document in the
capacity therein set forth and declared that the statements therein contained
are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
/s/ JANE LOUISE MELTON
------------------------------
Notary Public in and for
Dallas County, TEXAS
My Commission Expires:
1-8-85
- -------------------
<PAGE> 6
Kenneth Stohner, Jr. 4300 First National Bank Building
Dallas, Texas 75202
Laurence M. Hamric 4300 First National Bank Building
Dallas, Texas 75202
M. Douglas Adkins 4300 First National Bank Building
Dallas, Texas 75202
ARTICLE TWELVE
The name and address of the incorporator is:
Laurence M. Hamric 4300 First National Bank Building
Dallas, Texas 75202
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of June,
1980.
/s/ LAURENCE M. HAMRIC
----------------------------
Laurence M. Hamric
STATE OF TEXAS )
)
COUNTY OF DALLAS )
I Deborah C. Racol, a Notary Public in and for said County and State,
do hereby certify that on this 19th day of June, 1980, personally appeared
before me Laurence M. Hamric, who being by me first duly sworn, declared that he
is the person who signed the foregoing document as incorporator, and that the
statements therein contained are true.
/s/ DEBORAH C. RACOL
----------------------------
Notary Public in and for
Dallas County, Texas
<PAGE> 7
STATEMENT OF CHANGE OF REGISTERED OFFICE [STAMP]
OR REGISTERED AGENT OR BOTH
BY
HOMCO, INC.
1. The name of the corporation is Homco, Inc.
2. The address, including street and number, of the corporation's
present registered office as shown in the records of the Secretary of State of
Texas prior to the filing of this statement is 4300 First National Bank
Building, Dallas, Texas 75202.
3. The address, including street and number, of the corporation's new
registered office is 1500 Diamond Shamrock Tower, 717 N. Harwood, Dallas, Texas
75201.
4. The name of the corporation's present registered agent, as shown in
the record of the Secretary of State of Texas prior to the filing of this
statement, is M. Douglas Adkins.
5. The name of the corporation's registered agent shall be M. Douglas
Adkins.
6. The address of the corporation's registered office and the address
of the business office of its registered agent, as changed, will be identical.
7. Such change was authorized by the corporation's Board of Directors.
HOMCO, INC.
BY: /s/ M. DOUGLAS ADKINS
--------------------------------
M. Douglas Adkins, Secretary
SWORN TO BEFORE ME this 23rd day of September, 1986.
/s/ CONNIE J. JOINEN
-----------------------------------
Notary Public, State of Texas
[SEAL]
Connie J. Joinen
-----------------------------------
My Commission Expires: Print Notary Name Here
2/8/88
- ------------------
<PAGE> 8
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH [STAMP]
BY
HOMCO, INC.
1. The name of the corporation is HOMCO, Inc.
2. The address, including street and number, of the corporation's
present registered office as shown in the records of the Secretary of State of
Texas prior to the filing of this statement is 1500 Diamond Shamrock Tower,
Dallas, Texas 75201.
3. The address, including street and number, of the corporation's new
registered office is 4550 Spring Valley Road, Dallas, Texas 75244.
4. The name of the corporation's present registered agent, as shown in
the record of the Secretary of State of Texas prior to the filing of this
statement, is M. Douglas Adkins.
5. The name of the corporation's registered agent shall be William J.
Hendrix.
6. The address of the corporation's registered office and the address
of the business office of its registered agent, as changed, will be identical.
7. Such change was authorized by the corporation's Board of Directors.
HOMCO, INC.
By: /s/ WILLIAM J. HENDRIX
------------------------------
William J. Hendrix
Vice President of Finance
SWORN TO BEFORE ME this llth day of July, 1988.
/s/ FREDA L. BERGAN
---------------------------------
Notary Public, State of Texas
[SEAL]
My Commission Expires: FREDA L. BERGAN
---------------------------------
3/28/91 Print Name of Notary
- ------------------------
<PAGE> 9
Page 1
[STAMP]
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A PROFIT CORPORATION
1. The name of the corporation is Homco, Inc.
The corporation's charter number is 0052251490.
2. The address of the CURRENT registered office as shown in the
records of the Texas secretary of state is:
STREET ADDRESS 4550 Spring Valley Road
CITY Dallas, TEXAS ZIP 75244.
(It is recommended that you verify item 2 by calling 512-463-5555
before filing this form.)
3. A. __ The address of the NEW registered office is:
STREET ADDRESS
------------------------------------
CITY TEXAS ZIP
----------------------, ------------.
OR
B. x The registered office address will not change.
The name of the CURRENT registered agent as shown in the records
of the Texas secretary of state is William Hendrix.
(It is recommended that you verify item 4 by calling 512-463-5555
before filing this form.)
5. A. x The name of the NEW registered agent is Camille Comeau.
OR
B.__ The registered agent will not change.
6. Following the changes shown above, the address of the registered
office and the address of the office of the registered agent will
continue to be identical, as required by law.
7. The changes shown above were authorized by: (check one)
A. __ The Board of Directors.
B. x An officer of the corporation so authorized by the Board of
Directors.
/s/ DONALD J. CARTER
------------------------------
An Authorized Officer
<PAGE> 1
EXHIBIT 3.6
BY-LAWS
OF
SYROCO OF TEXAS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The initial registered office of the
corporation shall be at such place as is designated in the Articles of
Incorporation, or thereafter the registered office may be at such other place as
the Board of Directors may from time to time designate by resolution.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Meetings. All meetings of the shareholders for the election
of Directors shall be held in the City of Dallas, State of Texas, or at such
other place, within or without the State of Texas, as may be fixed from time to
time by the Board of Directors. Meetings of shareholders for any other purpose
may be held at such time and place, within or without the State of Texas, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual Meeting. An annual meeting of the shareholders,
commencing in the year 1980, shall be held on the fourth Tuesday in May of each
fiscal year if not a legal holiday, and if a legal holiday, then on the next
secular day following, at 10:00 a.m., at which meeting the shareholders shall
elect a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 3. List of Shareholders. At least ten days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at said
meeting, arranged in alphabetical order, with the address of and the number of
voting shares held by each, shall be prepared by the officer or agent having
charge of the stock transfer books. Such list shall be kept on file at the
registered office of the corporation for a period of ten days prior to such
meeting, and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall be produced and kept open at the
time and place of the meeting during the whole time thereof, and shall be
subject to the inspection of any shareholder who may be present. The Board of
Directors may fix in advance a record date for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
record date to be not less than ten nor more than fifty days prior to such
meeting, or the Board of Directors may close the stock transfer books
-1-
<PAGE> 2
for such purpose for a period of not less than ten nor more than fifty days
prior to such meeting. In the absence of any action by the Board of Directors,
the date upon which the notice of the meeting is mailed shall be the record
date.
Section 4. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by the Texas Business
Corporation Act (herein called "the Act"), or by the Articles of Incorporation,
or by these By-Laws, may be called by the Chairman of the Board, the President
or the Board of Directors, or shall be called by the Chairman of the Board, the
President or Secretary at the request in writing of the holders of not less than
one-tenth of all the shares issued, outstanding and entitled to vote at such
meetings. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at all special meetings shall be confined to the
purposes stated in the notice of the meeting.
Section 5. Notice. Written or printed notice stating the place, day and
hour of any meeting of the shareholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
President, the Secretary, or the officer or person calling the meeting, to each
shareholder of record entitled to vote at the meeting.
Section 6. Quorum. At all meetings of the shareholders, the presence in
person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote shall be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by the
Act, by the Articles of Incorporation or by these By-Laws. If, however, such
quorum shall not be present or represented at any meeting of the shareholders,
the shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 7. Voting. When a quorum is present at any meeting, the vote of
the holders of a majority of the shares having voting power present in person or
represented by proxy at such meeting shall decide any questions brought before
such meeting, unless the question is one upon which, by express provision of the
Act or of the Articles of Incorporation or by these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. The shareholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 8. Proxy. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation, as
amended from time to time. At any meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an
<PAGE> 3
instrument in writing subscribed by such shareholder, or by his duly authorized
attorney in fact, and bearing a date not more than eleven months prior to said
meeting, unless said instrument provides for a longer period. Such proxy shall
be filed with the Secretary of the corporation prior to or at the time of the
meeting.
Section 9. Action by Consent. Any action required or permitted to be
taken at a meeting of the shareholders of the corporation by the Act, the
Articles of Incorporation or these By-Laws may be taken without such a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Board of Directors. The business and affairs of the
corporation shall be managed by its Board of Directors who may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
the Act or by the Articles of Incorporation or by these By-Laws (directed or
required to be exercised or done by the shareholders.
Section 2. Number of Directors. The Board of Directors shall consist of
not less than three Directors, nor more than seven, none of whom need be
shareholders of the corporation or residents of the State of Texas. The exact
number of Directors constituting the Board of Directors shall be fixed from time
to time by the Board of Directors. The Directors shall be elected at the annual
meeting of the shareholders, except as hereinafter provided, and each Director
elected shall hold office until his successor shall be elected and shall
qualify.
Section 3. Vacancies Removal. Any Director may be removed either for or
without cause, at any special meeting of shareholders by the affirmative vote of
a majority in number of shares of the shareholders present in person or by proxy
at such meeting and entitled to vote for the election of such Director, provided
notice of the intention to act upon such matter shall have been given in the
notice calling such meeting. If any vacancies occur in the Board of Directors
caused by death, resignation, retirement, disqualification or removal from
office of any Directors or otherwise, a majority of the Directors then in
office, though less than a quorum, may choose a successor or successors, or a
successor or successors may be chosen at a special meeting of the shareholders
called for that purpose, and each successor Director so chosen shall be elected
for the unexpired term of his predecessor in office. Any Directorship to be
filled by reason of an increase in the number of Directors shall be filled by
election at an annual meeting of shareholders or at a special meeting of
shareholders called for that purpose.
ARTICLE IV
MEETINGS OF THE BOARD
Section 1. Meetings. The Directors of the corporation may hold their
meetings, both regular and special, either within or without the State of Texas.
<PAGE> 4
Section 2. Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held without further notice immediately following
the annual meeting of shareholders, and at the same place, unless by unanimous
consent of the Directors then elected and serving such time or place shall be
changed.
Section 3. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by resolution of the Board.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on six hours' notice
to each Director, given personally or by mail or by telegram; special meetings
shall be called by the President or Secretary in like manner and on like notice
on the written request of two or more Directors. The purpose of any special
meeting shall be specified in the notice or any waiver of notice.
Section 5. Quorum. At all meetings of the Board of Directors the
presence of a majority of the number of Directors fixed by these By-Laws shall
be necessary and sufficient to constitute a quorum for the transaction of
business, and the affirmative vote of at least a majority of the Directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by the Act or by
the Articles of Incorporation or by these By-Laws. If a quorum shall not be
present at any meeting of Directors, the Directors present thereat may adjourn
the meeting from time to time without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate an Executive
Committee, to consist of two or more Directors of the corporation, one of whom
shall be designated as chairman, who shall preside at all meetings of such
Committee. To the extent provided in the resolution of the Board of Directors,
the Executive Committee shall have and may exercise all of the authority of the
Board of Directors in the management of the business and affairs of the
corporation, except where action of the Board of Directors is expressly required
by the Act or by the Articles of Incorporation, and shall have power to
authorize the seal of the corporation to be affixed to all papers which may
require it. The Executive Committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required. Any
member of the Executive Committee may be removed, for or without cause, by the
affirmative vote of a majority of the whole Board of Directors. If any vacancy
or vacancies occur in the Executive Committee caused by death, resignation,
retirement, disqualification, removal from office or otherwise, the vacancy
shall be filled by the affirmative vote of a majority of the whole Board of
Directors.
Section 7. Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate other committees, each
committee to consist of two or more Directors of the corporation, which
committees shall have such power and authority and shall perform such functions
as may be provided in such resolution. Such committee or committees shall have
such name or names as may be designated by the Board and shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required. Any member of any such committee may be removed, for or without
-4-
<PAGE> 5
cause, by the affirmative vote of the majority of the whole Board of Directors.
If any vacancy or vacancies occur in any such committee, the vacancy shall be
filled by the affirmative vote of a majority of the whole Board of Directors.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors, the Executive Committee or any
other committee of the Board of Directors, may be taken without such a meeting
if a consent in writing, setting forth the action so taken, is signed by all the
members of the Board of Directors or the Executive Committee or such other
committee, as the case may be.
Section 9. Compensation of Directors. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of the Executive Committee or any other committee created by the Board may, by
resolution of the Board of Directors, be allowed like compensation for attending
meetings of such committees.
ARTICLE V
NOTICE OF MEETINGS
Section 1. Form of Notice. Whenever under the provisions of the Act or
of the Articles of Incorporation these By-Laws, notice is required to be given
to any Director or shareholder, or of and no provision is made as to how such
notice shall be given, it shall not be construed to mean personal notice, but
any such notice may be given in writing, by mail, postage prepaid, addressed to
such Director or shareholder at such address as appears on the books of the
corporation. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same be thus deposited in the United
States mails as aforesaid.
Section 2. Waiver. Whenever any notice is required to be given to any
shareholder or Director of the corporation, under the provisions of the Act or
of the Articles of Incorporation or of these By-Laws, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated in such notice, shall be deemed equivalent to the
giving of such notice.
Section 3. Telephone Meetings. Shareholders, members of the Board of
Directors or members of any committee created by the Board of Directors may
participate in and hold a meeting of such shareholders, board or committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
-5-
<PAGE> 6
ARTICLE VI
OFFICERS
Section 1. In General. The officers of the corporation shall be elected
by the Board of Directors and shall be a Chairman of the Board, a President, a
Vice-President, a Secretary and a Treasurer. The Board of Directors may also
elect a Vice-Chairman of the Board, additional Vice-Presidents, Assistant
Vice-Presidents, a Controller, and one or more Assistant Secretaries and
Assistant Treasurers. Any two or more offices may be held by the same person,
except that the offices of the President and Secretary shall not be held by the
same person.
Section 2. Election. The Board of Directors, at its first meeting after
each annual meeting of shareholders, shall elect a Chairman of the Board and a
President from its members and shall, by resolution, designate one of such
officers to be the Chief Executive Officer of the corporation. At such meeting
the Board of Directors shall also elect one or more Vice-Presidents, a
Secretary and a Treasurer, none of whom need be a member of the Board of
Directors.
Section 3. Other Officers and Agents. The Board of Directors may also
elect and appoint such other officers and agents as it shall deem necessary, who
shall be elected and appointed for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board.
Section 4. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or by the Executive
Committee, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the corporation
shall hold office until his death, or his resignation or removal from office, or
the election and qualification of his successor, whichever shall first occur.
Any officer or agent elected or appointed by the Board of Directors may be
removed at any time, for or without cause, by the affirmative vote of a majority
of the whole Board of Directors, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
Section 6. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board at which he may be present and shall be ex
officio a member of all standing committees and shall perform such other
duties as may be assigned to him by the Board of Directors.
Section 7. The Vice-Chairman of the Board, if any, shall have
such powers and perform such duties as the Board of Directors or the Executive
Committee may from time to time prescribe or as the Chairman of the Board or
the Chief Executive Officer may from time to time delegate to him. In the
absence or disability of the Chairman of the Board, the Vice-Chairman of the
Board shall perform the duties and exercise the powers of the Chairman of the
Board.
Section 8. President. The President shall be the chief administrative
officer of the corporation and shall preside at all meetings of the
shareholders. In the absence of the Chairman of the Board or the Vice-Chairman
of the Board, if any, he shall preside at all meetings of the Board of
Directors. He shall be ex officio a member of all standing committees and shall
execute bonds, mortgages, and all other
-6-
<PAGE> 7
contracts or instruments requiring a seal, under the seal of the corporation,
except where required or permitted by law to be otherwise signed and executed,
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the corporation. The
President shall perform such other duties as from time to time may be assigned
to him by the Board of Directors and by the Chief Executive Officer of the
corporation.
Section 9. Chief Executive Officer. The Chief Executive Officer of the
corporation shall have, subject only to the Board of Directors and the Executive
Committee, general and active management and supervision of the business and
affairs of the corporation and shall see that all orders and resolutions
of the Board of Directors and the Executive Committee are carried into effect.
He shall have all powers and duties of supervision and management usually vested
in the general manager of a corporation, including the supervision and direction
of all other officers of the corporation and the power to appoint and discharge
agents and employees.
Section 10. Vice Presidents. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the Executive Committee may
from time to time prescribe, or as the Chief Executive Officer may from time to
time delegate to him. In the absence or disability of the President, a
Vice-President designated by the Board of Directors shall perform the duties and
exercise the powers of the President.
Section 11. Secretary. The Secretary shall attend all meetings of the
shareholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary shall perform like duties for the
Board of Directors and the Executive Committee when required. He shall give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors and shall perform such other duties as may be
prescribed by the Board of Directors or the Chief Executive Officer, under whose
supervision he shall be. He shall keep in safe custody the seal of the
corporation.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have
such powers and perform such duties as the Board of Directors may from time to
time prescribe or as the Chief Executive Officer may from time to time delegate
to him.
Section 13. Treasurer. The Treasurer shall have the custody of all
corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements of the corporation, and shall deposit all moneys and
other valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, shall render to the Chief Executive
Officer and Directors, at the regular meetings of the Board, or whenever they
may require it, an account of all his transactions as Treasurer and of the
financial condition of the corporation, and shall perform such other duties as
the Board of Directors may prescribe.
Section 14. Assistant Treasurers. Each Assistant Treasurer shall have
such powers and perform such duties as the Board of Directors may from time to
time prescribe.
Section 15. Controller. The Controller shall share with the Treasurer
responsibility for the financial and accounting books and records of the
corporation, shall report to the Treasurer, and shall perform such other duties
as the Board of
-7-
<PAGE> 8
Directors or the Executive Committee or the Chief Executive Officer may from
time to time prescribe.
Section 16. Bonding. If required by the Board of Directors, all or
certain of the officers shall give the corporation a bond, in such form, in such
sum, and with such surety or sureties as shall be satisfactory to the Board, for
the faithful performance of the duties of their office and for the restoration
to the corporation, in case of their death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in their possession or under their control belonging to the
corporation.
ARTICLE VII
CERTIFICATES OF SHARES
Section 1. Form of Certificates. Certificates, in such form as may be
determined by the Board of Directors, representing shares to which shareholders
are entitled shall be delivered to each shareholder. Such certificates shall be
consecutively numbered and shall be entered in the stock book of the corporation
as they are issued. Each certificate shall state on the face thereof the
holder's name, the number, class of shares, and the par value of such shares or
a statement that such shares are without par value. They shall be signed by the
President or a Vice-President and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the corporation or a facsimile thereof. If any
certificate is countersigned by a transfer agent, or an assistant transfer agent
or registered by a registrar, either of which is other than the corporation or
an employee of the corporation, the signatures of the corporation's officers may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificate or
certificates, shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation or its agents, such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
Section 2. Lost Certificates. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 3. Transfer of Shares. Shares of stock shall be transferable
only on the books of the corporation by the holder thereof in person or by his
duly authorized attorney. Upon surrender to the corporation or the transfer
agent of the corporation
-8-
<PAGE> 9
of a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation or the transfer agent of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Registered Shareholders. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of the
corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
corporation, subject to the provisions of the Act and the Articles of
Incorporation. The Board of Directors may fix in advance a record date for the
purpose of determining shareholders entitled to receive payment of any dividend,
such record date to be not more than fifty days prior to the payment date of
such dividend, or the Board of Directors may close the stock transfer books for
such purpose for a period of not more than fifty days prior to the payment date
of such dividend. In the absence of any action by the Board of Directors, the
date upon which the Board of Directors adopts the resolution declaring such
dividend shall be the record date.
Section 2. Reserves. There may be created by resolution of the Board of
Directors out of the earned surplus of the corporation such reserve or reserves
as the Directors from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends, or to repair or maintain any
property of the corporation, or for such other purpose as the Directors shall
think beneficial to the corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 3. Corporate Records. The corporation shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders giving the names and
addresses of all shareholders and the number and class of shares held by each.
All other books and records of the corporation may be kept at such place or
places within or without the State of Texas as the Board of Directors may from
time to time determine.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Seal. The corporation shall have seal, and said seal may
be used by causing it or a facsimile thereof to be. impressed or affixed or
reproduced or otherwise. Any officer of the corporation shall have authority to
affix the seal to any document requiring it.
-9-
<PAGE> 10
Section 6. Annual Statement. The Board of Directors shall present at
each annual meeting of the shareholders, and when called for by vote of the
shareholders at any special meeting of the shareholders, a full and clear
statement of the business and condition of the corporation.
Section 7. Checks. All checks or demands for money and notes of the
corporation shall be signed by such of officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
ARTICLE IX
INDEMNITY
Section 1. Indemnification. The corporation may indemnify any person
(and the heirs, executors and administrators of such person) who is or was a
Director, officer or employee of the corporation, or of any other corporation
which he served as such at the request of the corporation and of which the
corporation directly or indirectly is a shareholder or creditor or in which it
is any way interested, against any and all liability and reasonable expense that
may be incurred by him in connection with or resulting from any claim, action,
suit or proceeding (whether brought by or in the right of the corporation or
otherwise), civil or criminal, or in connection with an appeal relating thereto,
in which he may become involved as a party or otherwise by reason of being or
having been such a Director, officer or employee (whether or not a Director,
officer or employee at the time such liability and expense may be incurred)
provided such person acted in good faith and in what he reasonably believed to
be the best interests of the corporation or such other corporation, as the case
may be, and, in addition, in any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any claim, action, suit or proceeding, civil or criminal, by judgment,
settlement (whether with or without court approval) or conviction or upon a plea
of guilty or of nolo contendere, or its equivalent, shall not create a
presumption that a Director, officer or employee did not meet the standards of
conduct set forth in this Section 1.
Section 2. Liabilities and Expenses Covered by Indemnification. The
terms "liability" and "reasonable expense" referred to in Section 1 of this
Article IX shall include, but shall not be limited to, legal fees and
disbursements and amounts of judgments, fines or penalties against, and amounts
paid in settlement by, a Director, officer or employee. Any reasonable expenses
incurred by a Director, officer or employee with respect to any claim, action,
suit or proceeding of the character described in Section 1 of this Article IX
may be advanced prior to the final disposition thereof upon receipt of an
agreement by or on behalf of the recipient to repay such amount unless it shall
ultimately be determined that he is entitled to indemnification under the
provisions of this Article IX.
Section 3. Right to Indemnification. Every person (and the heirs,
executors and administrators of such person) referred to in Section 1 of this
Article IX who has been wholly successful, on the merits or otherwise, with
respect to any claim, action, suit or proceeding of the character described in
said Section 1 shall be entitled to indemnification as a matter of right. Except
as provided in the preceding sentence, any indemnification under the provisions
of this Article IX shall be made at the discretion of the corporation, but only
if (i) the Board of Directors, acting by a
-10-
<PAGE> 11
quorum consisting of Directors who are not parties to (or who have been wholly
successful with respect to) such claim, action, suit or proceeding, shall find
that the Director, officer or employee has met the standards of conduct set
forth in Section 1 of this Article IX, or (ii) independent legal counsel (who
may be the regular counsel of the corporation) shall deliver to the corporation
their written advice that, in their opinion, such Director, officer or employee
has met such standards.
Section 4. Indemnification Additional to Other Rights. The rights of
indemnification provided for in this Article IX shall be in addition to any
rights to which any such Director, officer or employee may be entitled under
any agreement, vote of shareholders, the Articles of Incorporation, or as a
matter of law or otherwise.
ARTICLE X
AMENDMENT OF BY-LAWS
Section 1. Amendments. Except for this Article X, Section 1, these
By-Laws may be altered, amended, or repealed at any meeting of the Board of
Directors at which a quorum is present, by the affirmative vote of a majority
of the Directors present at such meeting, provided notice of the proposed
alteration, amendment, or repeal be contained in the notice of such meeting.
Adopted
-----------------------------
/s/ M. DOUGLAS ADKINS, Secretary
------------------------------------
M. Douglas Adkins, Secretary
-11-
<PAGE> 1
EXHIBIT 3.7
[STATE EMBLEM]
THE STATE OF TEXAS
SECRETARY OF STATE
IT IS HEREBY CERTIFIED that the attached is/are true and correct copies
of the following described document(s) on file in this office:
SPRING VALLEY SCENTS, INC.
CHARTER #1458700-00
ARTICLES OF INCORPORATION AUGUST 29, 1997
ARTICLES OF CORRECTION MARCH 12, 1998
IN TESTIMONY WHEREOF, I have hereunto
signed my name officially and caused
to be impressed hereon the Seal of
State at my office in the City of
Austin, on May 20, 1998.
/s/ ALBERTO R. GONZALES
-------------------------------------
Alberto R. Gonzales PH
[STATE SEAL] Secretary of State
<PAGE> 2
ARTICLES OF INCORPORATION
OF
SPRING VALLEY SCENTS, INC.
The undersigned, being a natural person of the age of eighteen (18)
years or more, acting as the incorporator of a corporation under the Texas
Business Corporation Act, hereby adopts the following Articles of Incorporation
for such corporation:
ARTICLE I
The name of the corporation is Spring Valley Scents, Inc.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized is to transact any
and all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE IV
The street address of the initial registered office of the corporation
is 4550 Spring Valley Road, Dallas, Texas 75244, and the name of the initial
registered agent of the corporation at such address is Camille R. Comeau.
ARTICLE V
The corporation is authorized to issue one class of capital stock to be
designated Common Stock. The aggregate number of shares which the corporation
shall have authority to issue is One Million (1,000,000) shares of Common Stock,
one cent ($.01) par value.
ARTICLE VI
Cumulative voting in the election of directors is expressly prohibited.
ARTICLE VII
No shareholder of the corporation will by reason of holding shares of
stock of the corporation have any preemptive or preferential rights to purchase
or subscribe to any shares of any class of stock of the corporation, or any
notes, debentures, bonds, warrants, options or other securities of the
corporation, now or hereafter to be authorized.
<PAGE> 3
ARTICLE VIII
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money paid, labor done or property actually received,
which property actually received shall have a value of not less than One
Thousand Dollars ($1,000.00).
ARTICLE IX
The number of directors shall be fixed in the manner provided in the
Bylaws of the corporation. The initial Board of Directors will consist of three
directors, and the names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders or until their
successors are elected and qualified are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Donald J. Carter 4550 Spring Valley Road
Dallas, Texas 45244
Donald J. Carter, Jr. 4550 Spring Valley Road
Dallas, Texas 75244
M. Douglas Adkins 1601 Elm Street, Suite 3000
Dallas, Texas 75201
</TABLE>
ARTICLE X
To the fullest extent permitted by Texas statutory or decisional law,
as the same exists or may hereafter be amended or interpreted, a director of the
corporation shall not be liable to the corporation or its shareholders for any
act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the shareholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the corporation or its shareholders of a director
of the corporation existing at the time of such repeal, amendment or adoption of
91 inconsistent provision.
ARTICLE XI
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote, if a written consent or consents, setting forth the action so taken, is
signed by the holders of shares having not less than the minimum number of votes
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
2
<PAGE> 4
ARTICLE XII
The name and address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
M. Douglas Adkins 1601 Elm Street
Suite 3000
Dallas, Texas 75201
</TABLE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th
day of August, 1997.
/s/ M. DOUGLAS ADKINS
----------------------------------
M. Douglas Adkins
3
<PAGE> 5
ARTICLES OF CORRECTION
OF
SPRING VALLEY SCENTS, INC.
Pursuant to the Texas Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Correction:
ARTICLE I
The name of the corporation is Spring Valley Scents, Inc. (the
"Corporation").
ARTICLE II
The name of the instrument to be corrected is the Articles of
Incorporation for the Corporation filed with the Texas Secretary of State on
August 29, 1997.
ARTICLE III
Article IX of the Articles of Incorporation incorrectly provided that
the address of Donald J. Carter was 4550 Spring Valley Road, Dallas, Texas
45244.
ARTICLE IV
The correct address for Mr. Carter is 4761-2 Frank Luke Drive, Dallas,
Texas 75248.
IN WITNESS WHEREOF, executed as of the 5th day of March, 1998.
SPRING VALLEY SCENTS, INC.
By: /s/ M. Douglas Adkins
-----------------------------------
M. Douglas Adkins, Director
<PAGE> 1
EXHIBIT 3.8
BYLAWS
OF
SPRING VALLEY SCENTS, INC.
(A Texas Corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
OFFICES
Section 1. Principal Office ........................................... 1
Section 2. Other Offices .............................................. 1
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings ................................. 1
Section 2. Annual Meetings ............................................ 1
Section 3. Special Meetings ........................................... 1
Section 4. Notice ..................................................... 1
Section 5. Closing of Share Transfer Records and Fixing Record
Dates for Matters Other than Consents to Action ............ 2
Section 6. Fixing Record Dates for Consents to Action ................. 2
Section 7. List of Shareholders ....................................... 3
Section 8. Quorum ..................................................... 3
Section 9. Voting ..................................................... 3
Section 10. Action by Consent .......................................... 5
Section 11. Presence at Meetings by Means of Communications
Equipment .................................................. 5
Section 12. Cumulative Voting .......................................... 6
ARTICLE III
DIRECTORS
Section 1. Number of Directors ........................................ 6
Section 2. Vacancies .................................................. 6
Section 3. General Powers ............................................. 7
Section 4. Place of Meetings .......................................... 7
Section 5. Annual Meetings ............................................ 7
Section 6. Regular Meetings ........................................... 7
Section 7. Special Meetings ........................................... 7
Section 8. Quorum and Voting .......................................... 7
Section 9. Committees of the Board of Directors ....................... 8
Section 10. Compensation of Directors .................................. 8
Section 11. Action by Unanimous Consent ................................ 9
Section 12. Presence at Meetings by Means of Communications
Equipment .................................................. 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
NOTICES
Section 1. Form of Notice ............................................ 9
Section 2. Waiver .................................................... 9
Section 3. When Notice Unnecessary ................................... 9
ARTICLE V
OFFICERS
Section 1. General ................................................... 10
Section 2. Election .................................................. 10
Section 3. Chairman of the Board ..................................... 10
Section 4. President ................................................. 11
Section 5. Vice President ............................................ 11
Section 6. Assistant Vice Presidents ................................. 11
Section 7. Secretary ................................................. 11
Section 8. Assistant Secretaries ..................................... 12
Section 9. Treasurer ................................................. 12
Section 10. Assistant Treasurers ...................................... 12
Section 11. Bonding ................................................... 12
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates ...................................... 13
Section 2. Lost Certificates ......................................... 13
Section 3. Restrictions to Stock Transfers ........................... 13
Section 4. Transfer of Shares ........................................ 14
Section 5. Registered Shareholders ................................... 14
ARTICLE VII
INDEMNIFICATION
Section 1. General ................................................... 15
Section 2. Insurance ................................................. 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends .......................... 16
Section 2. Reserves ................................................... 16
Section 3. Fiscal Year ................................................ 16
Section 4. Seal ....................................................... 16
Section 5. Resignation ................................................ 16
ARTICLE IX
AMENDMENTS TO BYLAWS .................................................. 17
</TABLE>
iii
<PAGE> 5
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation
shall be in Dallas County, Texas, or such other county as the Board of Directors
may from time to time designate.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings. Meetings of the shareholders
shall be held at such time and at such place, within or without the State of
Texas, as shall be determined by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of shareholders shall be
held on such date and at such time as shall be determined by the Board of
Directors. At each annual meeting the shareholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
be called at any time by the Chief Executive Officer, the President or the Board
of Directors, and shall be called by the Chief Executive Officer, the President
or the Secretary at the request in writing of the holders of not less than ten
percent (10%) of the voting power represented by all the shares issued,
outstanding and entitled to be voted at the proposed special meeting, unless the
Articles of Incorporation provide for a different percentage, in which event
such provision of the Articles of Incorporation shall govern. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
special meetings shall be confined to the purposes stated in the notice of the
meeting.
Section 4. Notice. Written or printed notice stating the place, day and
hour of any shareholders' meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive Officer, President,
Secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the shareholder at his address as it appears on the share transfer records of
the Corporation, with postage thereupon prepaid.
1
<PAGE> 6
Section 5. Closing Of Share Transfer Records and Fixing Record Dates
for Matters Other than Consents to Action. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any distribution or
share dividend, or in order to make a determination of shareholders for any
other proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors of the Corporation may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case, 60
days. If the share transfer records shall be closed for the purpose of
determining shareholders, such records shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 60 days and, in the case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the share transfer records are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares)
or share dividend, the date on which notice of the meeting is mailed or the date
on which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of share transfer records and
the stated period of closing has expired.
Section 6. Fixing Record Dates for Consents to Action. Unless a record
date shall have previously been fixed or determined pursuant to this Section 6,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors
and the prior action of the Board of Directors is not required by the Texas
Business Corporation Act (herein called the "Act"), the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation as
provided in Section 10 of this Article II. Delivery shall be by hand or by
certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President or
the Chief Executive Officer of the Corporation. If no record date shall have
been fixed by the Board of Directors and prior action of the Board of Directors
is required by the Act, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts a resolution taking such
prior action.
2
<PAGE> 7
Section 7. List of Shareholders. The officer or agent of the
Corporation having charge of the share transfer records for shares of the
Corporation shall make, at least ten days before each meeting of the
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, which list, for a
period of ten days prior to such meeting, shall be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share transfer
records shall be prima facie evidence as to who are the shareholders entitled
to examine such list or transfer records or to vote at any meeting of
shareholders. Failure to comply with the requirements of this Section 7 shall
not affect the validity of any action taken at such meeting.
Section 8. Quorum. With respect to any matter, a quorum shall be
present at a meeting of shareholders if the holders of shares having a majority
of the voting power represented by all issued and outstanding shares entitled to
vote on that matter are present in person or represented by proxy, unless
otherwise provided by the Articles of Incorporation in accordance with the Act.
Once a quorum is present at a meeting of shareholders, the shareholders
represented in person or by proxy at the meeting may conduct such business as
may properly be brought before the meeting until it is adjourned, and the
subsequent withdrawal from the meeting of any shareholder or the refusal of any
shareholder represented in person or by proxy to vote shall not affect the
presence of a quorum at the meeting. If, however, a quorum shall not be present
at any meeting of shareholders, the shareholders entitled to vote, present in
person or represented by proxy, shall have power to adjourn the meeting, without
notice (other than announcement at the meeting at which the adjournment is taken
of the time and place of the adjourned meeting), until such time and to such
place as may be determined by a vote of the holders of a majority of the shares
represented in person or by proxy at such meeting until a quorum shall be
present. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed.
Section 9. Voting. When it quorum is present at any meeting, the
vote of the holders of a majority of the shares entitled to vote on a matter,
present in person or represented by proxy at such meeting, shall decide such
matter brought before such meeting, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the Act, and shall be the act of the
shareholders, unless otherwise provided by the Articles of Incorporation or
these Bylaws in accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these
Bylaws in accordance with the Act, directors of the Corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present.
At every meeting of the shareholders, each shareholder shall be
entitled to such number of votes, in person or by proxy, for each share having
voting power held by such shareholder, as is specified in the Articles of
Incorporation (including the resolution of the
3
<PAGE> 8
Board of Directors (or a committee thereof) creating such shares), except to the
extent that the voting rights of the shares of any class or series are limited
or denied by the Articles of Incorporation. At each election of directors, every
shareholder shall be entitled (a) to cast, in person or by proxy, the number of
votes to which the shares owned by him are entitled for as many persons as
there are directors to be elected and for whose election he has a right to vote
or (b) unless prohibited by the Articles of Incorporation and subject to the
immediately succeeding sentence of this paragraph, to cumulate the votes to
which the shares owned by him are entitled by giving one candidate as many
votes as the number of such directors multiplied by the shares owned by him
shall equal or by distributing such votes on the same principle among any
number of such candidates. Cumulative voting shall not be allowed in an
election of directors unless a shareholder who intends to cumulate his votes
shall have given written notice of such intention to the Secretary of the
Corporation on or before the day preceding the election at which such
shareholder intends to cumulate his votes; all shareholders entitled to vote
cumulatively may cumulate their votes if any shareholder gives such written
notice. Every proxy shall be in writing and be executed by the shareholder. A
telegram, telex, cablegram, or similar transmission by the shareholder, or a
photographic, photostatic, facsimile, or similar reproduction of a writing
executed by the shareholder, shall be treated as an execution in writing for
the purposes of this Section 9. No proxy shall be valid after 11 months from
the date of its execution unless otherwise provided therein. Each proxy shall
be revocable unless (i) the proxy form conspicuously states that the proxy is
irrevocable, and (ii) the proxy is coupled with an interest, as defined in the
Act and other Texas law.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of the Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or
4
<PAGE> 9
indirectly, at any meeting. and shall not be counted in determining the total
number of outstanding shares at any given time.
Section 10. Action by Consent. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the action that is the subject of the consent.
In addition, if the Articles of Incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
Every written consent signed by the holders of less than all the shares
entitled to vote with respect to the action that is the subject of the consent
shall bear the date of signature of each shareholder who signs the consent. No
written consent signed by the holders of less than all the shares entitled to
vote with respect to the action that is the subject of the consent shall be
effective to take the action that is the subject of the consent unless, within
60 days after the date of the earliest dated consent delivered to the
Corporation as set forth below in this Section 10, the consent or consents
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take the action that is the subject
of the consent are delivered to the Corporation by delivery to its registered
office, registered agent, principal place of business, transfer agent,
registrar, exchange agent, or an officer or agent of the Corporation having
custody of the records in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or certified or registered mail, return
receipt requested. Delivery to the Corporation's principal place of business
shall be addressed to the President or the Chief Executive Officer of the
Corporation.
A telegram, telex, cablegram, or similar transmission by a shareholder,
or a photographic, photostatic, facsimile, or similar reproduction of a writing
signed by a shareholder, shall be regarded as signed by the shareholder for the
purposes of this Section 10.
Section 11. Presence at Meetings by Means of Communications Equipment.
Shareholders may participate in and hold a meeting of the shareholders by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section 11 shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
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Section 12. Cumulative Voting. Unless otherwise provided by law, at
each election for Directors every shareholder entitled to vote at such election
shall have the right to vote, in person or by proxy, the number of shares owned
by him for as many persons as there are Directors to be elected and for whose
election he has a right to vote, or to cumulate his votes by giving one
candidate as many votes as the number of such Directors multiplied by the number
of his shares shall equal, or by distributing such votes on the same principle
among any number of candidates.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors of the
Corporation shall be fixed from time to time by resolution of the Board of
Directors, but in no case shall the number of directors be less than three.
Until otherwise fixed by resolution of the Board of Directors, the number of
directors shall be the number stated in the Articles of Incorporation. No
decrease in the number of directors shall have the effect of reducing the term
of any incumbent director. Directors shall be elected at each annual meeting of
the shareholders by the holders of shares entitled to vote in the election of
directors, except as provided in Section 2 of this Article III, and each
director shall hold office until the annual meeting of shareholders following
his election or until his successor is elected and qualified. Directors need not
be residents of the State of Texas or shareholders of the Corporation.
Section 2. Vacancies. Subject to other provisions of this Section 2,
any vacancy occurring in the Board of Directors may be filled by election at an
annual or special meeting of the shareholders called for that purpose or by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by Section 8 of this Article III. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship to
be filled by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special meeting of shareholders called for
that purpose or may be filled by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the Board of Directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders. Shareholders holding a majority of shares then entitled to vote
at an election of directors may, at any time and with or without cause,
terminate the term of office of all or any of the directors by a vote at any
annual or special meeting called for that purpose. Such removal shall be
effective immediately upon such shareholder action even if successors are not
elected simultaneously, and the vacancies on the Board of Directors caused by
such action shall be filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class or
series of shares or group of classes or series of shares are entitled to elect
one or more directors by the provisions of the Articles of Incorporation, only
the holders of shares of that class or series or group shall be entitled to vote
for or against the removal of any director elected by the holders of shares of
that class or series or group; and any vacancies in such directorships and
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any newly created directorships of such class or series or group to be filled by
reason of an increase in the number of such directors may be filled by the
affirmative vote of a majority of the directors elected by such class or series
or group then in office or by a sole remaining director so elected, or by the
vote of the holders of the outstanding shares of such class or series or group,
and such directorships shall not in any case be filled by the vote of the
remaining directors or the holders of the outstanding shares as a whole unless
otherwise provided in the Articles of Incorporation.
Section 3. General Powers. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, its Board of Directors,
which may do or cause to be done all such lawful acts and things, as are not by
the Act, the Articles of Incorporation or these Bylaws directed or required to
be exercised or done by the shareholders.
Section 4. Place of Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Texas.
Section 5. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held, without further notice, immediately following
the annual meeting of shareholders at the same place, unless by the majority
vote or unanimous consent of the directors then elected and serving, such time
or place shall be changed.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held with or without notice at such time and place as the Board of
Directors may determine by resolution.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chief Executive Officer and shall be
called by the Secretary on the written request of a majority of the incumbent
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by such person or persons. Notice of any special
meeting shall be given at least 24 hours previous thereto if given either
personally (including written notice delivered personally or telephone notice)
or by telex, telecopy, telegram or other means of immediate communication, and
at least 72 hours previous thereto if given by written notice mailed or
otherwise transmitted to each director at the address of his business or
residence. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting. Any director may waive notice of any
meeting, as provided in Section 2 of Article IV of these Bylaws. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
Section 8. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the number of directors fixed in the
manner provided in Section 1 of this Article III shall constitute a quorum for
the transaction of business, unless a different
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number or portion is required by law, the Articles of Incorporation, or these
Bylaws. At all meetings of committees of the Board of Directors (if one or more
be designated in the manner described in Section 9 of this Article III), the
presence of a majority of the number of directors fixed from time to time by
resolution of the Board of Directors to serve as members of such committees
shall constitute a quorum for the transaction of business. The affirmative vote
of at least a majority of the directors present and entitled to vote at any
meeting of the Board of Directors or a committee of the Board of Directors at
which there is a quorum shall be the act of the Board of Directors or the
committee, except as may be otherwise specifically provided by the Act, the
Articles of Incorporation or these Bylaws. Directors may not vote by proxy at
any meeting of the Board of Directors. Directors with an interest in a business
transaction of the Corporation and directors who are directors or officers or
have a financial interest in any other corporation, partnership, association or
other organization with which the Corporation is transacting business may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee of the Board of Directors to authorize such business
transaction. If a quorum shall not be present at any meeting of the Board of
Directors or a committee thereof, a majority of the directors present thereat
may adjourn the meeting, without notice other than announcement at the meeting,
until such time and to such place as may be determined by such majority of
directors, until a quorum shall be present.
Section 9. Committees of the Board of Directors. The Board of Directors
may, by resolution passed by a majority of the whole Board of Directors,
designate from among its members one or more committees, each of which shall be
composed of one or more of its members, and may designate one or more of its
members as alternate members of any committee, who may, subject to any
limitations imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. Any such committee, to the extent
provided in the resolution of the Board of Directors designating the committee
or in the Articles of Incorporation or these Bylaws, shall have and may exercise
all of the authority of the Board of Directors of the Corporation, except where
action of the Board of Directors is required by the Act or by the Articles of
Incorporation. Any member of a committee of the Board of Directors may be
removed, for or without cause, by the affirmative vote of a majority of the
whole Board of Directors. If any vacancy or vacancies occur in a committee of
the Board of Directors caused by death, resignation, retirement,
disqualification, removal from office or otherwise, the vacancy or vacancies
shall be filled by the affirmative vote of a majority of the whole Board of
Directors. Such committee or committees shall have such name or names as may be
designated by the Board of Directors and shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 10. Compensation of Directors. Unless otherwise provided by
resolution of the Board of Directors, directors, as members of the Board of
Directors or of any committee thereof, shall not be entitled to receive any
stated salary for their services. Nothing herein contained, however, shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
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Section 11. Action by Unanimous Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent, setting
forth the action so taken, is signed by all the members of the Board of
Directors or the committee, as the case may be, and such written consent shall
have the same force and effect as a unanimous vote at a meeting of the Board of
Directors.
Section 12. Presence at Meetings by Means of Communications Equipment.
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 12 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
Section 1. Form of Notice. Whenever under the provisions of the Act,
the Articles of Incorporation or these Bylaws, notice is required to be given to
any director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean personal notice exclusively,
but any such notice may be given in writing, by mail, postage prepaid, or by
telex, telecopy, or telegram, or other means of immediate communication,
addressed or transmitted to such director or shareholder at such address as
appears on the books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be given at the time when the same be thus
deposited, postage prepaid, in the United States mail as aforesaid. Any notice
required or permitted to be given by telex, telecopy, telegram, or other means
of immediate communication shall be deemed to be given at the time of actual
delivery.
Section 2. Waiver. Whenever under the provisions of the Act, the
Articles of Incorporation or these Bylaws, any notice is required to be given to
any director or shareholder of the Corporation, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated in such notice, shall be equivalent to the giving of such
notice.
Section 3. When Notice Unnecessary. Whenever, under the provisions of
the Act, the Articles of Incorporation or these Bylaws, any notice is required
to be given to any shareholder, such notice need not be given to the shareholder
if:
(a) notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if
any, or
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(b) all (but in no event less than two) payments (if sent by first
class mail) of distributions or interest on securities during a
12-month period,
have been mailed to that person, addressed at his address as shown on the
records of the Corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such a person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. General. The elected officers of the Corporation shall be a
President and a Secretary. The Board of Directors may also elect or appoint a
Chairman of the Board, one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer, one or more
Assistant Treasurers, and such other officers as may be deemed necessary, all
of whom shall also be officers. Two or more offices may be held by the same
person.
Section 2. Election. The Board of Directors shall elect the officers of
the Corporation at each annual meeting of the Board of Directors. The Board of
Directors may appoint such other officers and agents as it shall deem necessary
and shall determine the salaries of all officers and agents from time to time.
The officers shall hold office until their successors are chosen and qualified.
No officer need be a member of the Board of Directors except the Chairman of the
Board, if one be elected. Any officer elected or appointed by the Board of
Directors may be removed, with or without cause, at any time by a majority vote
of the whole Board. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 3. Chairman of the Board. The Chairman of the Board, if any,
shall be the Chief Executive Officer of the Corporation and, subject to the
provisions of these Bylaws, shall have general supervision of the affairs of the
Corporation and shall have general and active control of all its business. He
shall preside, when present, at all meetings of shareholders and at all meetings
of the Board of Directors. He shall see that all orders and resolutions of the
Board of Directors and the shareholders are carried into effect. He shall have
general authority to execute bonds, deeds and contracts in the name of the
Corporation and affix the corporate seal thereto; to sign stock certificates; to
cause the employment or appointment of such employees and agents of the
Corporation as the proper conduct of operations may require, and to fix their
compensation, subject to the provisions of the Bylaws; to remove or suspend any
employee or agent who shall have been employed or appointed under his authority
or under authority of an officer subordinate to him; to suspend for cause,
pending final action by the authority which shall have elected or appointed him,
any officer subordinate to the Chairman of the Board; and, in general, to
exercise all the powers and authority usually appertaining to the chief
executive officer of a corporation, except as otherwise provided in these
Bylaws.
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Section 4. President. In the absence of a Chairman of the, Board, the
President shall be the ranking and Chief Executive Officer of the Corporation,
and shall have the duties and responsibilities, and the authority and power, of
the Chairman of the Board. The President shall be the Chief Operating Officer of
the Corporation and as such shall have, subject to review and approval of the
Chairman of the Board, if one be elected, the responsibility for the operation
of the Corporation and the authority of the Chairman of the Board.
Section 5. Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated or, in
the absence of any designation, then in the order of their election), shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Chief Operating Officer
may from time to time prescribe. The Vice President in charge of finance, if
any, shall also perform the duties and assume the responsibilities described in
Section 9 of this Article for the Treasurer, and shall report directly to the
Chief Executive Officer of the Corporation.
Section 6. Assistant Vice Presidents. In the absence of a Vice
President or in the event of his inability or refusal to act, the Assistant Vice
President, if any (or, if there be more than one, the Assistant Vice Presidents
in the order designated or, in the absence of any designation, then in the order
of their election), shall perform the duties and exercise the powers of that
Vice President, and shall perform such other duties and have such other powers
as the Board of Directors, the Chief Executive Officer, the Chief Operating
Officer or the Vice President under whose supervision he is appointed may from
time to time prescribe.
Section 7. Secretary. The Secretary shall attend and record minutes of
the proceedings of all 4 meetings of the Board of Directors and any committees
thereof and all meetings of the shareholders. He shall file the records of such
meetings in one or more books to be kept by him for that purpose. Unless the
Corporation has appointed a transfer agent or other agent to keep such a record,
the Secretary shall also keep at the Corporation's registered office or
principal place of business a record of the original issuance of shares issued
by the Corporation and a record of each transfer of those shares that have been
presented to the Corporation for registration of transfer. Such records shall
contain the names and addresses of all past and current shareholders of the
Corporation and the number and class of shares issued by the Corporation held by
each of them. He shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or the Chief
Executive Officer, under whose supervision he shall be. He shall have custody of
the corporate seal of the Corporation and he, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and when so
affixed, it may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is
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properly accountable. He shall have authority to sign stock certificates and
shall generally perform all the duties usually appertaining to the office of the
secretary of a corporation
Section 8. Assistant Secretaries. In the absence of the Secretary or
in the event of his inability or refusal to act, the Assistant Secretary, if any
(or, if there be more than one, the Assistant Secretaries in the order
designated or, in the absence of any designation, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time
prescribe.
Section 9. Treasurer. The Treasurer, if any (or the Vice President
in charge of finance, if one be elected), shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chief Executive Officer and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration of the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation. The Treasurer shall be under the
supervision of the Vice President in charge of finance, if any, and he shall
perform such other duties as may be prescribed by the Board of Directors, the
Chief Executive Officer or any such Vice President in charge of finance.
Section 10. Assistant Treasurers. In the absence of the Treasurer or
in the event of his inability or refusal to act, the Assistant Treasurer, if one
be elected (or, if there shall be more than one, the Assistant Treasurer in the
order designated or, in the absence of any designation, then in the order of
their election), shall perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Treasurer may from time
to time prescribe.
Section 11. Bonding. If required by the Board of Directors, all or
certain of the officers shall give the Corporation a bond, in such form, in such
sum and with such surety or sureties as shall be satisfactory to the Board, for
the faithful performance of the duties of their office and for the restoration
to the Corporation, in case of their death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in their possession or under their control belonging to the
Corporation.
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ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled.
Certificates representing shares of the Corporation shall be in such form as
shall be approved and adopted by the Board of Directors and shall be numbered
consecutively and entered in the share transfer records of the Corporation as
they are issued. Each certificate shall state on the face thereof that the
Corporation is organized under the laws of the State of Texas, the name of the
registered holder, the number and class of shares, and the designation of the
series, if any, which said certificate represents, and either the par value of
the shares or a statement that the shares are without par value. Each
certificate shall also set forth on the back thereof a full or summary statement
of matters required by the Act or the Articles of Incorporation to be described
on certificates representing shares, and shall contain a conspicuous statement
on the face thereof referring to the matters set forth on the back thereof.
Certificates shall be signed by the Chairman of the Board, President or any Vice
President and the Secretary or any Assistant Secretary, and may be sealed with
the seal of the Corporation. Either the seal of the Corporation or the
signatures of the Corporation's officers or both may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on such certificate or certificates, shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
Corporation or its agents, such certificate or certificates may nevertheless be
issued and delivered as though the person or persons who signed the certificate
or certificates or whose facsimile signature or signatures have been used
thereon had not ceased to be such officer or officers of the Corporation.
Section 2. Lost Certificates. The Corporation may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 3. Restrictions to Stock Transfers. All of the corporation's
issued stock shall be made subject to restrictions on the transferability as the
same may from time to time by agreement between the holders of said stock as the
same may be regulated by these Bylaws.
No shareholder shall have the right to sell, assign, pledge,
transfer or otherwise dispose of any share or shares of capital stock of this
Corporation without first offering such shares for sale to the corporation at
book value per share. Such offer shall be made in writing, signed
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by the shareholder and sent by registered or certified mail to the corporation
at its principal place of business. Such offer shall remain open for acceptance
by the corporation for a period of thirty (30) days from the date of mailing. If
the corporation fails within said period to accept the offer, the shareholder
shall have the right to dispose of such shares or any portion thereof to any of
the remaining person or persons who are presently shareholders in said
corporation. Said offer shall be made according to the same procedure set out
for making said offer to the corporation.
If more than one shareholder in said corporation desires to purchase
said shares, the shareholders desiring to so purchase may purchase in the same
ratio as their shareholding in said corporation.
If the corporation fails or the shareholders fail within the period
above mentioned to accept the offer of the selling shareholder, then such
shareholder has the right to dispose of such shares of stock or any part thereof
to any other person or persons and on the terms and conditions as he sees fit.
The death of any shareholder shall automatically be considered a
proposed sale or transfer of any stock owned by said shareholder and be subject
to all provisions herein set forth. This provision shall be binding upon any
executor, administrator or other legal representative of any shareholder. This
provision shall be embodied in writing, printed or stamped upon each certificate
of stock and shall be a part thereof, binding on each and every, present or
future, owner regardless of how such stock was acquired.
Section 4. Transfer of Shares. Shares of stock shall be transferable
only on the share transfer records of the Corporation by the holder thereof in
person or by his duly authorized attorney. Subject to any restrictions on
transfer set forth in the Articles of Incorporation, these Bylaws or any
agreement among shareholders to which this Corporation is a party or has notice,
upon surrender to the Corporation or to the transfer agent of the Corporation of
a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation or the transfer agent of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 5. Registered Shareholders. Except as otherwise provided in
the Act or other Texas law, the Corporation shall be entitled to regard the
person in whose name any shares issued by the Corporation are registered in the
share transfer records of the Corporation at any particular time (including,
without limitation, as of the record date fixed pursuant to Section 5 or Section
6 of Article II hereof) as the owner of those shares and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof.
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ARTICLE VII
INDEMNIFICATION
Section 1. General. The Corporation shall indemnify persons who are
or were a director or officer of the Corporation both in their capacities as
directors and officers of the Corporation and, if serving at the request of the
Corporation as a director, officer, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise,
in each of those capacities, against any and all liability and reasonable
expense that may be incurred by them in connection with or resulting from (a)
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative (collectively, a
"Proceeding"), (b) an appeal in such a Proceeding, or (c) any inquiry or
investigation that could lead to such a Proceeding, all to the full extent
permitted by Article 2.02-1 of the Act. The Corporation shall pay or reimburse,
in advance of the final disposition of the Proceeding, to all persons who are or
were a director or officer of the Corporation all reasonable expenses incurred
by such person who was, is or is threatened to be made a named defendant or
respondent in a Proceeding to the full extent permitted by Article 2.02-1 of the
Act. The Corporation shall indemnify persons who are or were an employee or
agent (other than a director or officer) of the Corporation, or persons who are
not or were not employees or agents of the Corporation but who are or were
serving at the request of the Corporation as a director, officer, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, trust, partnership, joint venture, sole proprietorship, employee
benefit plan or other enterprise (collectively, along with the directors and
officers of the Corporation, such persons are referred to herein as "Corporate
Functionaries") against any and all liability and reasonable expense that may be
incurred by them in connection with or resulting from (a) any Proceeding, (b) an
appeal in such a Proceeding, or (c) any inquiry or investigation that could lead
to such a Proceeding, all to the full extent permitted by Article 2.02-1 of the
Act. The rights of indemnification provided for in this Article VII shall be in
addition to all rights to which any Corporate Functionary may be entitled under
any agreement or vote of shareholders or as a matter of law or otherwise.
Section 2. Insurance. The Corporation may purchase or maintain
insurance on behalf of any Corporate Functionary against any liability asserted
against him and incurred by him in such a capacity or arising out of his status
as a Corporate Functionary, whether or not the Corporation would have the power
to indemnify him or her against the liability under the Act or these Bylaws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for payment of a liability
with respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been approved
by the shareholders of the Corporation. Without limiting the power of the
Corporation to procure or maintain any kind of insurance or arrangement, the
Corporation may, for the benefit of persons indemnified by the Corporation, (i)
create a trust fund, (ii) establish any form of self-insurance, (iii) secure its
indemnification obligation by grant of any security interest or other lien on
the assets of the Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement. Any such insurance or other
15
<PAGE> 20
arrangement may be procured, maintained or established within the Corporation
or its affiliates or with any insurer or other person deemed appropriate by the
Board of Directors of the Corporation regardless of whether all or part of the
stock or other securities thereof are owned in whole or in part by the
Corporation. In the absence of fraud, the judgment of the Board of Directors of
the Corporation as to the terms and conditions of such insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive, and the insurance or arrangement shall not be
voidable and shall not subject the directors approving the insurance or
arrangement to liability, on any ground, regardless of whether directors
participating in approving such insurance or other arrangement shall be
beneficiaries thereof.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends. Distributions or share
dividends to the shareholders of the Corporation, subject to the provisions of
the Act and the Articles of Incorporation and any agreements or obligations of
the Corporation, if any, may be declared by the Board of Directors at any
regular or special meeting. Distributions may be declared and paid in cash or in
property (other than shares or rights to acquire shares of the Corporation),
provided that all such declarations and payments of distributions, and all
declarations and issuances of share dividends, shall be in strict compliance
with all applicable laws and the Articles of Incorporation.
Section 2. Reserves. There may be created by resolution of the Board
of Directors out of the surplus of the Corporation such reserve or reserves as
the Board of Directors from time to time, in its discretion, deems proper to
provide for contingencies, or to equalize distributions or share dividends, or
to repair or maintain any property of the Corporation, or for such other proper
purpose as the Board shall deem beneficial to the Corporation, and the Board may
increase, decrease or abolish any reserve in the same manner in which it was
created.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 4. Seal. The Corporation shall have a seal which may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced. Any officer of the Corporation shall have authority to affix
the seal to any document requiring it.
Section 5. Resignation. Any director, officer or agent of the
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
16
<PAGE> 21
ARTICLE IX
AMENDMENTS TO BYLAWS
Unless otherwise provided by the Articles of Incorporation or a
bylaw adopted by the shareholders of the Corporation, these Bylaws may be
amended or repealed, or new Bylaws may be adopted, at any meeting of the
shareholders of the Corporation or of the Board of Directors at which a quorum
is present, by the affirmative vote of the holders of a majority of the shares
or the directors, as the case may be, present at such meeting.
17
<PAGE> 22
CERTIFICATION
I, Camille R. Comeau, Asst. Secretary of Spring Valley Scents, Inc.,
hereby certify that the foregoing is a true, accurate and complete copy of the
Bylaws of Spring Valley Scents, Inc. (the "Corporation"), adopted by the
Corporation's Board of Directors as of October 3, 1997.
/s/ CAMILLE R. COMEAU
---------------------------------------
Asst. Secretary
18
<PAGE> 1
EXHIBIT 3.9
STATE OF NEBRASKA
[FLAG]
UNITED STATES OF AMERICA, ) SS. DEPARTMENT OF STATE
STATE OF NEBRASKA ) LINCOLN, NEBRASKA
I, Scott Moore, Secretary of State of the State of Nebraska do hereby
certify;
The attached is a true and correct copy of the Articles of Incorporation as
filed in this office on January 22, 1991, and all amendments thereto of
GIA, INC.
with its registered office located in GRAND ISLAND, Nebraska.
I further certify that said corporation is in good standing as of this
date.
In Testimony Whereof, I have hereunto set my hand and affixed
the Great Seal of the State of Nebraska
on May 21 in the year of our Lord,
one thousand nine hundred and
ninety-eight.
/s/ SCOTT MOORE
SECRETARY OF STATE
[SEAL]
<PAGE> 2
ARTICLES OF INCORPORATION
OF
GIA ACQUISITION COMPANY
The undersigned, being a natural person of the age of majority, acting as
the incorporator of a corporation under the Nebraska Business Corporation Act,
as amended, hereby adopts the following Articles of Incorporation for such
corporation:
ARTICLE I
The name of the corporation is GIA Acquisition Company
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized is to transact any and
all lawful business for which corporations may be incorporated under the
Nebraska Business Corporation Act.
ARTICLE IV
The street address of the initial registered office of the corporation is
1900 First National Bank Building, 233 South 13th Street, Lincoln, Nebraska
68508, and the name of the initial registered agent of the corporation at such
address is United States Corporation Company.
ARTICLE V
The corporation is authorized to issue one class of capital stock to be
designated Common Stock. The aggregate number of shares which the corporation
shall have authority to issue is Twenty-Four Thousand (24,000) shares of Common
Stock, One Cent ($0.01) par value.
ARTICLE VI
Cumulative voting in the election of directors is expressly prohibited.
ARTICLE VII
No shareholder of the corporation shall by reason of his holding shares of
stock of the corporation have a preemptive or preferential right to acquire
additional, unissued or treasury shares of any class or series of stock of the
corporation, or securities of the corporation convertible into or carrying a
right to subscribe to or acquire shares, whether such shares be now or
hereafter authorized.
<PAGE> 3
ARTICLE VIII
To the fullest extent permitted by Nebraska statutory or decisional law,
as the same exists or may hereafter be amended or interpreted, a director of the
corporation shall not be liable to the corporation or its shareholders for any
act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the shareholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the corporation or its shareholders of a
director of the corporation existing at the time of such repeal, amendment or
adoption of any inconsistent provision.
ARTICLE IX
The name and address of the incorporator is as follows:
Name Address
---- -------
M. Douglas Adkins 1601 Elm Street
3000 Thanksgiving Tower
Dallas, Texas 75201
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 14th
day of January, 1991.
/S/ M. DOUGLAS ADKINS
--------------------------
M. Douglas Adkins
-2-
<PAGE> 4
[STAMP]
ARTICLES OF MERGER OF FOREIGN AND
DOMESTIC BUSINESS CORPORATIONS
Pursuant to Section 21-2076 of the Nebraska Business Corporation Act, as
amended, and Section 252 of the Delaware General Corporation Law, as amended,
the undersigned domestic and foreign corporations hereby adopt the following
Articles of Merger for the purpose of merging them into one of such
corporations:
1. The names of the undersigned corporations are as follows:
Name of Corporation
Grand Island Accessories, Inc., a Delaware corporation
("Grand Island")
GIA Acquisition Company, a Nebraska corporation
("GIA Acquisition")
2. The Agreement and Plan of Merger dated as of January 22, 1991, the
"Plan"), a copy of which is attached as Exhibit A hereto, was approved by the
shareholders of each of the undersigned corporations in the manner prescribed
by Section 21-2072 of the Nebraska Business Corporation Act, as amended, and
Section 252 of the Delaware General Corporation Law, as amended. A copy of the
Plan is on file at the principal place of business of GIA Acquisition located
at 916 North Shady Bend Road, Grand Island, Nebraska 68801, and a copy of the
Plan will be furnished on demand and without cost to any stockholder of Grand
Island or GIA Acquisition.
3. The name of the surviving corporation after the merger shall be GIA
Acquisition Company, whose name shall be changed to GIA, Inc. as part of the
merger, and such surviving corporation shall be governed by the laws of the
State of Nebraska. The registered agent of the surviving corporation after the
merger shall be United States Corporation Company, and the registered office of
the surviving corporation after the merger shall be 1900 First National Bank
Building, 233 South 13th Street, Lincoln, Nebraska 68508.
4. The certificate of incorporation, as amended, of GIA Acquisition
shall be the certificate of incorporation of the surviving corporation.
<PAGE> 5
5. As to each of the undersigned corporations, the numbers of shares
outstanding and entitled to vote on the Plan are:
<TABLE>
<CAPTION>
No. of Shares
No. of Shares Entitled
Outstanding to Vote
------------- -------------
<S> <C> <C>
Grand Island 18,140.4293 18,140.4293
GIA Acquisition 18,140.0000 18,140.0000
</TABLE>
Each of the undersigned corporations has only one class of capital stock
outstanding.
6. As to each the undersigned corporations, the numbers of shares voted
for and against the Plan, respectively, are:
<TABLE>
<CAPTION>
Voted For Voted Against
------------- -------------
<S> <C> <C>
Grand Island 18,140.4293 0
GIA Acquisition 18,140.0000 0
</TABLE>
No shares of either of the undersigned corporations were entitled to vote as a
class or a series with respects to the Plan.
7. The surviving corporation, GIA Acquisition, agrees that it may be
served with process in Delaware in any proceeding for enforcement of any
obligation of Grand Island, as well as for enforcement of any obligation of GIA
Acquisition arising from the merger, including any suit or other proceeding to
enforce the right of any stockholders as determined in appraisal proceedings
pursuant to Section 262 of the Delaware General Corporation Law, as amended.
Furthermore, the surviving corporation irrevocably appoints the Secretary of
State of Delaware as its agent to accept service of process in any such suit or
other proceedings. The address to which the Secretary of State shall mail any
such process is 1900 First National Bank Building, 233 South 13th Street,
Lincoln, Nebraska 68508.
-2-
<PAGE> 6
IN WITNESS WHEREOF, each of the undersigned corporations has caused these
Articles of Merger to be executed by and on its behalf and in its corporate name
as of January 22, 1991.
GRAND ISLAND ACCESSORIES, INC.,
(f/k/a GIA, INC.)
a Delaware corporation
ATTEST:
/s/ M. DOUGLAS ADKINS By: /s/ DONALD J. CARTER
- -------------------------------- -------------------------------
M. Douglas Adkins, Secretary Donald J. Carter, President
GIA ACQUISITION COMPANY,
a Nebraska corporation
ATTEST:
/s/ M. DOUGLAS ADKINS By: /s/ DONALD J. CARTER
- -------------------------------- -------------------------------
M. Douglas Adkins, Secretary Donald J. Carter, President
-3-
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
January 22, 1991, is entered into by and between GIA Acquisition Company, a
Nebraska corporation "GIA Acquisition", and Grand Island Accessories, Inc., a
Delaware corporation ("Grand Island").
WHEREAS, GIA Acquisition is a corporation duly organized and validly
existing under the laws of the State of Nebraska pursuant to Articles of
Incorporation filed in the office of the Secretary of State of Nebraska on
January 22, 1991;
WHEREAS, the name and address of the registered agent and office of GIA
Acquisition is United States Corporation Company, 1000 First National Bank
Building, 833 South 13th Street, Lincoln, Nebraska 68508;
WHEREAS, GIA Acquisition is authorized to issue 24,000 shares of Common
Stock, $0.01 par value ("GIA Acquisition Common Stock"), of which 18,140 shares
are issued and outstanding as of the date of this Agreement and entitled to
vote on the Merger (as hereinafter defined), all of which are owned by Grand
Island;
WHEREAS, Grand Island, originally incorporated under the name GIA, Inc.,
is a corporation duly organized and validly existing under the laws of the State
of Delaware pursuant to a Certificate of Incorporation filed in the office of
the Secretary of State of Delaware on February 10, 1975 and revived on November
5, 1990;
WHEREAS, Grand Island is authorized to issue 24,000 shares of Common
Stock, $0,01 par value ("Grand Island Common Stock"), of which 18,140.4293
shares are issued and outstanding as of the date of this Agreement and entitled
to vote on the Merger;
WHEREAS, the Boards of Directors of GIA Acquisition and Grand Island
deem it advisable, and for the benefit and in the best interest of their
respective corporations and shareholders, that such corporations (sometimes
collectively referred to herein as the "Constituent Corporations") effect a
tax-free reorganization meeting the requirements of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, by merging the Constituent
Corporations into a single corporation (the "Merger"), with GIA Acquisition
being the surviving corporation (GIA Acquisition, in its capacity as the
surviving corporation, sometimes being referred to herein as the "Surviving
Corporation"), upon the terms and conditions set forth in this Agreement and
pursuant to the applicable laws of the States of Nebraska and Delaware under
which the Constituent Corporations are organized; and
WHEREAS, the Boards of Directors and the shareholders of the Constituent
Corporations have approved this Agreement by unanimous written consent;
<PAGE> 8
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, and for the purpose of prescribing the terms and
conditions of the Merger, and such other details and provisions as are deemed
necessary or desirable, the parties hereto agree as follows:
ARTICLE ONE
1.01. In accordance with the provisions of the applicable laws of the
States of Nebraska and Delaware under which the Constituent Corporations are
organized, at the Effective Time of the Merger (as hereinafter defined), the
Constituent Corporations shall be merged into a single corporation, GIA
Acquisition which shall be the Surviving Corporation, and GIA Acquisition, as
the Surviving Corporation, shall continue to exist under and be governed by the
laws of the State of Nebraska.
1.02. Except as may otherwise be set forth herein, the corporate existence
and identity of GIA Acquisition, as the Surviving Corporation, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Grand Island, with all of its purposes, powers, franchises,
privileges, rights and immunities, at the Effective Time of the Merger, shall
be merged with and into GIA Acquisition, as the Surviving Corporation, and the
Surviving Corporation shall be vested fully therewith, and the separate
corporate existence and identity of Grand Island shall thereafter cease except
to the extent continued by statute.
ARTICLE TWO
2.01. The Merger shall become effective (hereinbefore and hereinafter
called the "Effective Time of the Merger") upon the filing with the Secretaries
of State of the States of Nebraska and Delaware Articles of Merger with respect
to the Merger and the issuance by the Secretaries of State of the States of
Nebraska and Delaware of Certificates of Merger pursuant to Section 21-2076 of
the Nebraska Business Corporation Act, as amended, and Section 252 of the
Delaware General Corporation Law, as amended.
2.02. All expenses incident to the Merger shall be paid by the Surviving
Corporation.
-2-
<PAGE> 9
ARTICLE THREE
3.01. From and after the Effective Time of the Merger, until further
amended in the manner provided by law, the Articles of Incorporation of GIA
Acquisition in effect at the Effective Time of the Merger, as amended herein,
shall be the Articles of Incorporation of the Surviving Corporation.
3.02. Article I of the Articles of Incorporation of GIA Acquisition
shall be amended to read as follows:
"Article I
The name of the corporation is GIA, Inc."
3.03. The Bylaws of GIA Acquisition in effect immediately before the
Effective Time of the Merger shall be the Bylaws of the Surviving Corporation
until amended or repealed in the manner provided therein or by law.
3.04. The directors of GIA Acquisition in office immediately before
the Effective Time of the Merger, including all committees thereof as
constituted at such time, shall be the directors and committees thereof of the
Surviving Corporation until their successors are elected and qualified in
accordance with the Bylaws of the Surviving Corporation.
3.05. The name and address of the registered agent of GIA Acquisition
in the State of Nebraska immediately before the Effective Time of the merger
shall be the name and address of the registered agent of the Surviving
Corporation in the State of Nebraska until changed by law.
3.06. The officers of GIA Acquisition in office immediately before the
Effective Time of the Merger shall be of officers of the Surviving Corporation,
holding the same offices in the Surviving Corporation which they hold in GIA
Acquisition, until their successors are elected and qualified in accordance
with the Bylaws of the Surviving Corporation.
3.07. All corporate acts, plans, policies, applications, agreements,
orders, registrations, licenses, approvals and authorizations of the
Constituent Corporations, their respective shareholders, Board of Directors,
Committees elected or appointed by their Boards of Directors, officers and
agents, which were valid and effective immediately before the Effective Time of
the Merger, shall be taken for all purposes on and after the Effective Time of
the Merger as the acts, plans, policies, applications, agreements, orders,
registrations, licenses, approvals and authorizations of the Surviving
Corporation and shall be effective and binding thereon as the same were with
respect to the Constituent Corporations immediately before the Effective Time
of the Merger.
-3-
<PAGE> 10
3.08. The Surviving Corporation hereby agrees that is may be served
with process in Delaware on any proceeding for enforcement of any obligation of
Grand Island, as well as for enforcement of any obligation of the Surviving
Corporation arising from the merger, including any suit or other proceeding to
enforce the right of any stockholders as determined in appraisal proceedings
pursuant to Section 262 of the Delaware General Corporation Law, as amended.
Furthermore, the Surviving Corporation irrevocably appoints the Secretary of
State of Delaware as its agent to accept service of process in any such suit or
other proceedings. The address to which the Secretary of State shall mail any
such process is 1900 First National Bank Building, 233 South 13th Street,
Lincoln, Nebraska 68508.
ARTICLE FOUR
4.01. Each of the issued and outstanding whole shares of Grand Island
Common Stock held by its sole shareholder immediately prior to the Effective
Time of the Merger shall at the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the shareholder of Grand Island,
be converted into one whole share of GIA Acquisition Common Stock, as the
common stock of the Surviving Corporation, and each issued and outstanding
fractional share of Grand Island Common Stock held by its sole shareholder
immediately prior to the Effective Time of the Merger, shall at the Effective
Time of the Merger by virtue of the Merger and without any action on the part of
the shareholder of Grand Island, be exchanged for cash equal to the fair market
value of such fractional share of Grand Island Common Stock immediately prior to
the Effective Time of the Merger.
4.02. Each of the issued and outstanding shares of GIA Acquisition
Common Stock held by Grand Island, its sole shareholder, immediately prior to
the Effective Time of the Merger shall at the Effective Time of the Merger,
without any action on the part of the sole shareholder of GIA Acquisition, be
cancelled and cease to exist.
4.03. No fractional shares of stock shall be issued in the Merger.
ARTICLE FIVE
5.01. At the Effective Time of the Merger, the Surviving Corporation
shall possess all of the rights, privileges, powers, franchises and licenses of
a public as well as of a private nature; and all property, real, personal and
mixed, and all debts due on whatever account, and all other chooses in action,
and all and every other interest, or belonging to each of the Constituent
Corporations shall be taken and be deemed to be transferred to and vested in
the Surviving Corporation without further act or deed.
-4-
<PAGE> 11
5.02. Title to any real or personal property, whether by deed or
otherwise, vested in either of the Constituent Corporations shall not revert or
be in any way impaired by reason hereof; provides that all rights of creditors
and all liens upon any property of the Constituent Corporations shall be
preserved unimpaired by the Merger. The Surviving Corporation shall, at the
Effective Time of Merger and thereafter, be responsible and liable for all
debts, liabilities and duties of the Constituent Corporations, and any claim
existing or action or proceeding pending by or against any Constituent
Corporation may be prosecuted by or against the Surviving Corporation.
5.03. I at any time the Surviving Corporation shall deem or be advised
that additional grants, assignments, confirmations or assurances are necessary
or desirable to vest or to perfect or confirm of record or otherwise in the
Surviving Corporation the title to any property of either Constituent
Corporation, the officers, or any of them, or the directors of such Constituent
Corporation may execute and deliver any and all such deeds, assignments,
confirmations and assurances and do all things necessary or proper so as best
to prove, confirm and ratify title to such property in the Surviving
Corporation or otherwise to carry out the purposes of the Merger and the terms
of this Agreement. The Surviving Corporation shall have the same power and
authority to act in respect to any debt, liabilities and duties of the
Constituent Corporations as the Constituent Corporations would have had if they
had continued in existence.
ARTICLE SIX
6.01. The Boards of Directors of the Constituent Corporations may, in
their sole discretion, agree to abandon the Merger, subject to the right of
third parties under any contracts relating thereto, without any action or
approval from the shareholders of their respective corporations, at any time
before the Effective Time of the Merger, as provided by the laws of the States
of Nebraska and Delaware.
ARTICLE SEVEN
7.01. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be original, but all of which together shall
constitute one and the same instrument.
7.02. This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, oral and
written, between the parties with respect to its subject matter.
7.03. This Agreement shall constitute the agreement/plan of merger
required to be adopted by Section 21-2070 of the Nebraska
-5-
<PAGE> 12
Business Corporation Act, as amended and Section 252 of the Delaware General
Corporation Law, as amended.
IN WITNESS WHEREOF, each of the Constituent Corporations has caused this
Agreement to be executed by and on its behalf and in its corporate name as of
the date first above written.
GIA ACQUISITION COMPANY,
a Nebraska corporation
ATTEST:
/s/ M. DOUGLAS ADKINS By: /s/ DONALD J. CARTER
- -------------------------------- -------------------------------
M. Douglas Adkins, Secretary Donald J. Carter, President
GRAND ISLAND ACCESSORIES, INC.,
(f/k/a GIA, INC.)
a Delaware corporation
ATTEST:
/s/ M. DOUGLAS ADKINS By: /s/ DONALD J. CARTE
- -------------------------------- -------------------------------
M. Douglas Adkins, Secretary Donald J. Carter, President
-6-
<PAGE> 1
EXHIBIT 3.10
BY-LAWS
OF
GIA ACQUISITION COMPANY
(A Nebraska Corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
OFFICES
Section 1. Principal Office .............................................................. 1
Section 2. Other offices ................................................................. 1
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings .................................................... 1
Section 2. Annual Meetings ............................................................... 1
Section 3. Special Meetings .............................................................. 1
Section 4. Notice ........................................................................ 1
Section 5. Closing of Share Transfer Records and
Fixing Record Date for Matters Other
than Consents to Action ....................................................... 2
Section 6. Fixing Record Dates for Consents
to Action ..................................................................... 2
Section 7. List of Shareholders .......................................................... 3
Section 8. Quorum ........................................................................ 3
Section 9. Voting ........................................................................ 4
Section 10. Action by Consent ............................................................. 5
Section 11. Presence at Meetings by Means of
Communications Equipment ...................................................... 6
ARTICLE III
DIRECTORS
Section 1. Number of Directors ........................................................... 6
Section 2. vacancies ..................................................................... 6
Section 3. General Powers ................................................................ 7
Section 4. Place of Meetings ............................................................. 7
section 5. Annual Meetings ............................................................... 7
Section 6. Regular Meetings .............................................................. 8
Section 7. Special Meetings .............................................................. 8
Section 8. Quorum and Voting ............................................................. 8
Section 9. Committees of the Board of Directors .......................................... 9
Section 10. Compensation of Directors ..................................................... 9
Section 11. Action by Unanimous Consent ................................................... 9
Section 12. Presence at Meetings by Means of
Communications Equipment ...................................................... 9
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE I
NOTICES
Section 1. Form of Notice ................................................................. 10
Section 2. Waiver ......................................................................... 10
Section 3. When Notice Unnecessary ........................................................ 10
ARTICLE V
OFFICERS
Section 1. General ........................................................................ 11
Section 2. Election ....................................................................... 11
Section 3. Chairman of the Board .......................................................... 11
Section 4. President ...................................................................... 11
Section 5. Vice Presidents ................................................................ 12
Section 6. Assistant Vice Presidents ...................................................... 12
Section 7. Secretary ...................................................................... 12
Section 8. Assistant Secretaries .......................................................... 13
Section 9. Treasurer ...................................................................... 13
Section 10. Assistant Treasurers ........................................................... 13
Section 11. Bonding ........................................................................ 14
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates ........................................................... 14
Section 2. Lost Certificates .............................................................. 15
Section 3. Transfer of Shares ............................................................. 15
Section 4. Registered Shareholders ........................................................ 15
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General ........................................................................ 15
Section 2. Insurance ...................................................................... 16
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends .............................................. 17
Section 2. Reserves ....................................................................... 17
Section 3. Fiscal Year .................................................................... 17
Section 4. Seal ........................................................................... 17
Section 5. Resignation .................................................................... 17
ARTICLE IX
AMENDMENTS TO BY-LAWS ...................................................................... 17
</TABLE>
(ii)
<PAGE> 4
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation
shall be in Grand Island, Nebraska.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Nebraska as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings. Meetings of the shareholders
shall be held at such time and at such place, within or without the State of
Nebraska, as shall be determined by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of shareholders shall be
held on such date and at such time as shall be determined by the Board of
Directors. At each annual meeting the shareholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
be called at any time by the Chief Executive Officer or the Board of Directors,
and shall be called by the Chief Executive Officer or the Secretary at the
request in writing of the holders of not less than ten percent (10%) of the
voting power represented by all the shares issued, outstanding and entitled to
be voted at the proposed special meeting, unless the Articles of Incorporation
provide for a different percentage, in which event such provision of the
Articles of Incorporation shall govern. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at special meetings shall
be confined to the purposes stated in the notice of the meeting.
Section 4. Notice. Written or printed notice stating the place, day and
hour of any shareholders' meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than 50 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive officer, the Secretary
or the officer or person calling the meeting, to each shareholder entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the share transfer records of the
corporation.
<PAGE> 5
Section 5. Closing of Share Transfer Records and Fixing Record Dates
for Matters Other than Consents to Action. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any distribution or
share dividend, or in order to make a determination of shareholders for any
other proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors of the Corporation may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case, 60
days. If the share transfer records shall be closed for the purpose of
determining shareholders, such records shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 60 days and, in the case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the share transfer records are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares)
or share dividend, the date on which notice of the meeting is mailed or the date
on which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of share transfer records and
the stated period of closing has expired.
Section 6. Fixing Record Dates for Consents to Action. Unless a record
date shall have previously been fixed or determined pursuant to this Section 6,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors
and the prior action of the Board of Directors is not required by the Nebraska
Business Corporation Act (herein called the "Act"), the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office,
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its principal place of business, or an officer or agent of the Corporation
having custody of the records in which proceedings of meetings of shareholders
are recorded. Delivery shall be by hand or by certified or registered mail,
return receipt requested. Delivery to the Corporation's principal place of
business shall be addressed to the President or the Chief Executive Officer of
the Corporation. If no record date shall have been fixed by the Board of
Directors and prior action of the Board of Directors is required by the Act, the
record date for determining shareholders entitled to consent to action in
writing without a meeting shall be at the close of business on the date on which
the Board of Directors adopts a resolution taking such prior action.
Section 7. List of Shareholders. The officer or agent of the
Corporation having charge of the share transfer records for shares of the
Corporation shall make, at least ten days before each meeting of the
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the
registered office or principal place of business of the Corporation and shall be
subject to inspection by any shareholder at any time during the usual business
hours of the Corporation. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share transfer
records shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer records or to vote at any meeting of shareholders.
Failure to comply with the requirements of this Section shall not affect the
validity of any action taken at such meeting.
Section 8. Quorum. A quorum shall be present at a meeting of
shareholders if the holders of shares having a majority of the voting power
represented by all issued and outstanding shares entitled to vote at the meeting
are present in person or represented by proxy at such meeting, unless otherwise
provided by the Articles of Incorporation in accordance with the Act. Once a
quorum is present at a meeting of shareholders, the shareholders represented in
person or by proxy at the meeting may conduct such business as may properly be
brought before the meeting until it is adjourned, and the subsequent withdrawal
from the meeting of any shareholder or the refusal of any shareholder
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting. If, however, a quorum shall not be present at any meeting
of shareholders, the shareholders entitled to vote, present in person or
represented by proxy, shall have power to adjourn the meeting, without notice
other than announcement at the meeting, until such time and to such place as may
be determined by a vote of the holders of a majority of the shares represented
in person or by proxy at such meeting until a quorum shall be present. At such
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adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed.
Section 9. Voting. When a quorum is present at any meeting, the vote of
the holders of a majority of the shares entitled to vote, present in person or
represented by proxy at such meeting, shall decide any matter brought before
such meeting, other than the election of directors or a matter for which the
affirmative vote of the holders of a specified portion of the shares entitled to
vote is required by the Act, and shall be the act of the shareholders, unless
otherwise provided by the Articles of Incorporation or these By-laws in
accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these
By-laws in accordance with the Act, directors of the Corporation shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a quorum
is present.
At every meeting of the shareholders, each shareholder shall be
entitled to such number of votes, in person or by proxy, for each share having
voting power held by such shareholder, as is specified in the Articles of
Incorporation (including the resolution of the Board of Directors (or a
committee thereof) creating such shares), except to the extent that the voting
rights of the shares of any class or series are limited or denied by the
Articles of Incorporation. At each election of directors, every shareholder
shall be entitled to cast, in person or by proxy, the number of votes to which
the shares owned by him are entitled for as many persons as there are directors
to be elected and for whose election he has a right to vote. Cumulative voting
is prohibited by the Articles of Incorporation. Every proxy must be executed in
writing by the shareholder. A telegram, telex, cablegram, or similar
transmission by the shareholder, or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for the purposes of this Section 9. No proxy shall be
valid after 11 months from the date of its execution unless otherwise provided
therein. Each proxy shall be revocable unless (i) the proxy form conspicuously
states that the proxy is irrevocable, and (ii) the proxy is coupled with an
interest, as defined in the Act and other Nebraska law.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the by-laws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing
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in the name of a trustee may be voted by him, either in person or by proxy, but
no trustee shall be entitled to vote shares held by him without a transfer of
such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of the Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 10. Action by Consent. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the action that is the subject of the consent.
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to take
the action that is the subject of the consent unless, within 60 days after the
date of the earliest dated consent delivered to the Corporation as set forth
below in this Section 10, the consent or consents are delivered to the
Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the Corporation having custody of the
records in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or certified or registered mail, return receipt requested.
Delivery to the Corporation's principal place of business shall be addressed to
the President or the Chief Executive Officer of the Corporation. A telegram,
telex, cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing signed by a
shareholder, shall be regarded as signed by the shareholder for the purposes of
this Section 10.
Section 11. Presence at Meetings by Means of Communications Equipment.
Shareholders may participate in and hold a meeting of the shareholders by means
of conference telephone or similar communications equipment by means of which
all persons
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participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 11 shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors of the
Corporation shall be fixed from time to time by resolution of the Board of
Directors, but in no case shall the number of directors be less than one. Until
otherwise fixed by resolution of the Board of Directors, the number of directors
shall be the number stated in the Articles of Incorporation. No decrease in the
number of directors shall have the effect of reducing the term of any incumbent
director. Directors shall be elected at each annual meeting of the shareholders
by the holders of shares entitled to vote in the election of directors, except
as provided in Section 2 of this Article III, and each director shall hold
office until the annual meeting of shareholders following his election or until
his successor is elected and qualified. Directors need not be residents of the
State of Nebraska or shareholders of the Corporation.
Section 2. Vacancies. Subject to other provisions of this Section 2,
any vacancy occurring in the Board of Directors may be filled by election at an
annual or special meeting of the shareholders called for that purpose or by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board Directors as fixed by
Section 8 of this Article III. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship
to be filled by reason of an increase in the number of directors shall be
filled by election at an annual meeting or at a special meeting of shareholders
called for that purpose or may be filled by the Board of Directors for a term
of office continuing only until the next election of one or more directors by
the shareholders; provided that the Board of Directors may not fill more than
two such directorships during the period between any two successive annual
meetings of shareholders. Shareholders holding a majority of shares then
entitled to vote at an election of directors may, at any time and with or
without cause, terminate the term of office of all or any of the directors by a
vote at any annual or special meeting called for that purpose. Such removal
shall be effective immediately upon such shareholder action even if successors
are not elected simultaneously, and the vacancies on the Board of Directors
caused by such action shall be filled only by election by the shareholders.
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Notwithstanding the foregoing, whenever the holders of any class or
series of shares are entitled to elect one or more directors by the provisions
of the Articles of Incorporation, only the holders of shares of that class or
series shall be entitled to vote for or against the removal of any director
elected by the holders of shares of that class or series; and any vacancies in
such directorships and any newly created directorships of such class or series
to be filled by reason of an increase in the number of such directors may be
filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected, or by
the vote of the holders of the outstanding shares of such class or series, and
such directorships shall not in any case be filled by the vote of the remaining
directors or the holders of the outstanding shares as a whole unless otherwise
provided in the Articles of Incorporation.
Section 3. General Powers. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, its Board of Directors,
which may do or cause to be done all such lawful acts and things, as are not by
the Act, the Articles of Incorporation or these By-laws directed or required to
be exercised or done by the shareholders.
Section 4. Place of Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Nebraska.
Section 5. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held, without further notice, immediately following
the annual meeting of shareholders at the same place, unless by the majority
vote or unanimous consent of the directors then elected and serving, such time
or place shall be changed.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held with or without notice at such time and place as the Board of
Directors may determine by resolution.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chief Executive Officer and shall be
called by the Secretary on the written request of a majority of the incumbent
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by such person or persons. Notice of any special
meeting shall be given at least 24 hours previous thereto if given either
personally (including written notice delivered personally or telephone notice)
or by telex, telecopy, telegram or other means of immediate communication, and
at least 72 hours previous thereto if given by written notice mailed or
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otherwise transmitted to each director at the address of his business or
residence. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting. Any director may waive notice of any
meeting, as provided in Section 2 of Article IV of these By-laws. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
Section 8. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the number of directors fixed in the
manner provided in Section 1 of this Article III shall constitute a quorum for
the transaction of business. At all meetings of committees of the Board of
Directors (if one or more be designated in the manner described in Section 9 of
this Article III), the presence of a majority of the number of directors fixed
from time to time by resolution of the Board of Directors to serve as members of
such committees shall constitute a quorum for the transaction of business. The
affirmative vote of at least a majority of the directors present and entitled to
vote at any meeting of the Board of Directors or a committee of the Board of
Directors at which there is a quorum shall be the act of the Board of Directors
or the committee, except as may be otherwise specifically provided by the Act,
the Articles of Incorporation or these By-laws. Directors with an interest in a
business transaction of the Corporation and directors who are directors or
officers or have a financial interest in any other corporation, partnership,
association or other organization with which the Corporation is transacting
business may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee of the Board of Directors to authorize
such business transaction. If a quorum shall not be present at any meeting of
the Board of Directors or a committee thereof, a majority of the directors
present thereat may adjourn the meeting, without notice other than announcement
at the meeting, until such time and to such place as may be determined by such
majority of directors, until a quorum shall be present.
Section 9. Committees of the Board of Directors. The Board of Directors
may, by resolution passed by a majority of the whole Board of Directors,
designate from among its members one or more committees, each of which shall be
composed of one or more of its members, and may designate one or more of its
members as alternate members of any committee, who may, subject to any
limitations imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. Any such committee, to the extent
provided in the resolution of the Board of Directors designating the committee
or in the Articles of Incorporation or these By-laws, shall have and may
exercise all of the authority of
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the Board of Directors of the Corporation, except where action of the Board of
Directors is required by the Act or by the Articles of Incorporation. Any member
of a committee of the Board of Directors may be removed, for or without cause,
by the affirmative vote of a majority of the whole Board of Directors. If any
vacancy or vacancies occur in a committee of the Board of Directors caused by
death, resignation, retirement, disqualification, removal from office or
otherwise, the vacancy or vacancies shall be filled by the affirmative vote of a
majority of the whole Board of Directors. Such committee or committees shall
have such name or names as may be designated by the Board of Directors and shall
keep regular minutes of their proceedings and report the same to the Board of
Directors when required.
Section 10. Compensation of Directors. Unless otherwise provided by
resolution of the Board of Directors, directors, as members of the Board of
Directors or of any committee thereof, shall not be entitled to receive any
stated salary for their services. Nothing herein contained, however, shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 11. Action by Unanimous Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent, setting
forth the action so taken, is signed by all the members of the Board of
Directors or the committee, as the case may be, and such written consent shall
have the same force and effect as a unanimous vote at a meeting of the Board of
Directors.
Section 12. Presence at Meetings by Means of Communications Equipment.
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 12 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
Section 1. Form of Notice. Whenever under the provisions of the Act,
the Articles of Incorporation or these By-laws, notice is required to be given
to any director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean personal notice exclusively,
but any such notice may be given in writing, by mail, postage prepaid, or by
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telex, telecopy, or telegram, or other means of immediate communication,
addressed or transmitted to such director or shareholder at such address as
appears on the books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be given at the time when the same be thus
deposited, postage prepaid, in the United States mail as aforesaid. Any notice
required or permitted to be given by telex, telecopy, telegram, or other means
of immediate communication shall be deemed to be given at the time of actual
delivery.
Section 2. Waiver. Whenever under the provisions of the Act, the
Articles of Incorporation or these By-laws, any notice is required to be given
to any director or shareholder of the Corporation, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or
after the time stated in such notice, shall be equivalent to the giving of such
notice.
Section 3. When Notice Unnecessary. Whenever under the provisions of
the Act, the Articles of Incorporation or these By-laws, any notice is required
to be given to any shareholder, such notice need not be given to the
shareholder if (1) notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if any, or (2)
all (but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a 12-month period have been
mailed to that person, addressed at his address as shown on the records of the
Corporation, and have been returned undeliverable. Any action or meeting taken
or held without notice to such a person shall have the same force and effect as
if the notice had been duly given. If such a person delivers to the Corporation
a written notice setting forth his then current address, the requirement that
notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. General. The elected officers of the Corporation shall be a
President, Vice President, Treasurer and a Secretary. The Board of Directors
may also elect or appoint a Chairman of the Board, more Vice Presidents, one or
more Assistant Vice Presidents, one or more Assistant Secretaries, and one or
more Assistant Treasurers, all of whom shall also be officers. Two or more
offices may be held by the same person.
Section 2. Election. The Board of Directors shall elect the officers of
the Corporation at each annual meeting of the Board of Directors. The Board of
Directors may appoint such other officers and agents as it shall deem necessary
and shall determine the salaries of all officers and agents from time to time.
The
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officers shall hold office until their successors are chosen and qualified. No
officer need be a member of the Board of Directors except the Chairman of the
Board, if one be elected. Any officer elected or appointed by the Board of
Directors may be removed, with or without cause, at any time by a majority vote
of the whole Board. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 3. Chairman of the Board. The Chairman of the Board, if any,
shall be the Chief Executive Officer of the Corporation and, subject to the
provisions of these By-laws, shall have general supervision of the affairs of
the Corporation and shall have general and active control of all its business.
He shall preside, when present, at all meetings of shareholders and at all
meetings of the Board of Directors. He shall see that all orders and resolutions
of the Board of Directors and the shareholders are carried into effect. He shall
have general authority to execute bonds, deeds and contracts in the name of the
Corporation and affix the corporate seal thereto; to sign stock certificates; to
cause the employment or appointment of such employees and agents of the
Corporation as the proper conduct of operations may require, and to fix their
compensation, subject to the provisions of these By-laws; to remove or suspend
any employee or agent who shall have been employed or appointed under his
authority or under authority of an officer subordinate to him; to suspend for
cause, pending final action by the authority which shall have elected or
appointed him, any officer subordinate to the Chairman of the Board; and, in
general, to exercise all the powers and authority usually appertaining to the
chief executive officer of a corporation, except as otherwise provided in these
By-laws.
Section 4. President. In the absence of a Chairman of the Board, the
President shall be the ranking and Chief Executive Officer of the Corporation,
and shall have the duties and responsibilities, and the authority and power, of
the Chairman of the Board. The President shall be the Chief Operating officer of
the Corporation and as such shall have, subject to review and approval of the
Chairman of the Board, if one be elected, the responsibility for the operation
of the Corporation and the authority of the Chairman of the Board.
Section 5. Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one, the Vice Presidents in the order designated or, in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. The Vice President
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Chief Operating officer may from
time to time prescribe. The Vice President in charge of finance, if any,
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shall also perform the duties and assume the responsibilities described in
Section 9 of this Article for the Treasurer, and shall report directly to the
Chief Executive Officer of the Corporation.
Section 6. Assistant Vice Presidents. In the absence of a Vice
President or in the event of his inability or refusal to act, the Assistant Vice
President, if any (or, if there be more than one, the Assistant Vice Presidents
in the order designated or, in the absence of any designation, then in the order
of their election), shall perform the duties and exercise the powers of that
Vice President, and shall perform such other duties and have such other powers
as the Board of Directors, the Chief Executive officer, the Chief Operating
Officer or the Vice President under whose supervision he is appointed may from
time to time prescribe.
Section 7. Secretary. The Secretary shall attend and record minutes of
the proceedings of all meetings of the Board of Directors and any committees
thereof and all meetings of the shareholders. He shall file the records of such
meetings in one or more books to be kept by him for that purpose. Unless the
Corporation has appointed a transfer agent or other agent to keep such a record,
the Secretary shall also keep at the Corporation's registered office or
principal place of business a record of the original issuance of shares issued
by the Corporation and a record of each transfer of those shares that have been
presented to the Corporation for registration or transfer. He shall give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or the Chief Executive officer, under
whose supervision he shall be. He shall have custody of the corporate seal of
the Corporation and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it, and when so affixed, it may be attested
by his signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary shall
keep and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent is properly accountable. He
shall have authority to sign stock certificates and shall generally perform all
the duties usually appertaining to the office of the secretary of a corporation.
Section 8. Assistant Secretaries. In the absence of the Secretary or in
the event of his inability or refusal to act, the Assistant Secretary, if any
(or, if there be more than one, the Assistant Secretaries in the order
designated or, in the absence of any designation, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive officer or the Secretary may from time to time
prescribe.
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Section 9. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chief Executive Officer and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration of the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation. The Treasurer shall be under the
supervision of the Vice President in charge of finance, if any, and he shall
perform such other duties as may be prescribed by the Board of Directors, the
Chief Executive Officer or any such Vice President in charge of finance.
Section 10. Assistant Treasurers. In the absence of the Treasurer or in
the event of his inability or refusal to act, the Assistant Treasurer, if one be
elected (or, if there shall be more than one, the Assistant Treasurer in the
order designated or, in the absence of any designation, then in the order of
their election), shall perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Treasurer may from time
to time prescribe.
Section 11. Bonding. If required by the Board of Directors, all or
certain of the officers shall give the Corporation a bond, in such form, in such
sum and with such surety or sureties as shall be satisfactory to the Board, for
the faithful performance of the duties of their office and for the restoration
to the Corporation, in case of their death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in their possession or under their control belonging to the
Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. The Corporation shall deliver
certificates representing all shares to which shareholders
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are entitled. Certificates representing shares of the Corporation shall be in
such form as shall be approved and adopted by the Board of Directors and shall
be numbered consecutively and entered in the share transfer records of the
Corporation as they are issued. Each certificate shall state on the face thereof
that the Corporation is organized under the laws of the State of Nebraska, the
name of the registered holder, the number and class of shares, and the
designation of the series, if any, which said certificate represents, and either
the par value of the shares or a statement that the shares are without par
value. Each certificate shall also set forth on the back thereof a full or
summary statement of matters required by the Act or the Articles of
Incorporation to be described on certificates representing shares, and shall
contain a conspicuous statement on the face thereof referring to the matters set
forth on the back thereof. Certificates shall be signed by the Chairman of the
Board, President or any Vice President and the Secretary or any Assistant
Secretary, and may be sealed with the seal of the Corporation. Either the seal
of the Corporation or the signatures of the Corporation's officers or both may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificate or
certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed the certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
Section 2. Lost Certificates. The Corporation may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 3. Transfer of Shares. Shares of stock shall be transferable
only on the share transfer records of the Corporation by the holder thereof in
person or by his duly authorized attorney. Subject to any restrictions on
transfer set forth in the Articles of Incorporation, these By-laws or any
agreement among shareholders to which this Corporation is a party or has notice,
upon surrender to the Corporation or to the transfer agent of the Corporation of
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a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation or the transfer agent of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Registered Shareholders. Except as otherwise provided in the
Act or other Nebraska law, the Corporation shall be entitled to regard the
person in whose name any shares issued by the Corporation are registered in the
share transfer records of the Corporation at any particular time (including,
without limitation, as of the record date fixed pursuant to Section 5 or Section
6 of Article II hereof) as the owner of those shares and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General. The Corporation may indemnify persons who are or
were a director, officer, employee or agent of the Corporation, or persons who
are not or were not directors, officers, employees or agents of the Corporation
but who are or were serving at the request of the Corporation as a director,
officer, trustee, employee, agent or similar functionary of another foreign or
domestic corporation, trust, partnership, joint venture, sole proprietorship,
employee benefit plan or other enterprise (such persons collectively referred to
herein as "Corporate Functionaries") against any and all liability and
reasonable expense that may be incurred by them in connection with or resulting
from (a) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, (b) an
appeal in such an action, suit or proceeding, or (c) any inquiry or
investigation that could lead to such an action, suit or proceeding, all to the
full extent permitted by the Act. The rights of indemnification provided for in
this Article VII shall be in addition to all rights to which any Corporate
Functionary may be entitled under any agreement or vote of shareholders or as a
matter of law or otherwise.
Section 2. Insurance. The Corporation may purchase or maintain
insurance on behalf of any Corporate Functionary against any liability asserted
against him and incurred by him in such a capacity or arising out of his status
as a Corporate Functionary, whether or not the Corporation would have the power
to indemnify him or her against the liability under the Act or these By-laws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or
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<PAGE> 19
arrangement may provide for payment of a liability with respect to which the
Corporation would not have the power to indemnify the person only if including
coverage for the additional liability has been approved by the shareholders of
the Corporation. Without limiting the power of the Corporation to procure or
maintain any kind of insurance or arrangement, the Corporation may, for the
benefit of persons indemnified by the Corporation, (i) create a trust fund, (ii)
establish any form of self-insurance, (iii) secure its indemnification
obligation by grant of any security interest or other lien on the assets of the
Corporation, or (iv) establish a letter of credit, guaranty or surety
arrangement. Any such insurance or other arrangement may be procured, maintained
or established within the Corporation or its affiliates or with any insurer or
other person deemed appropriate by the Board of Directors of the Corporation
regardless of whether all or part of the stock or other securities thereof are
owned in whole or in part by the Corporation. In the absence of fraud, the
judgment of the Board of Directors of the Corporation as to the terms and
conditions of such insurance or other arrangement and the identity of the
insurer or other person participating in an arrangement shall be conclusive, and
the insurance or arrangement shall not be voidable and shall not subject the
directors approving the insurance or arrangement to liability, on any ground,
regardless of whether directors participating in approving such insurance or
other arrangement shall be beneficiaries thereof.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends. Distributions or share
dividends to the shareholders of the Corporation, subject to the provisions of
the Act and the Articles of Incorporation and any agreements or obligations of
the Corporation, if any, may be declared by the Board of Directors at any
regular or special meeting. Distributions may be declared and paid in cash or in
property (other than shares or rights to acquire shares of the Corporation),
provided that all such declarations and payments of distributions, and all
declarations and issuances of share dividends, shall be in strict compliance
with all applicable laws and the Articles of Incorporation.
Section 2. Reserves. There may be created by resolution of the Board of
Directors out of the surplus of the Corporation such reserve or reserves as the
Board of Directors from time to time, in its discretion, deems proper to provide
for contingencies, or to equalize distributions or share dividends, or to repair
or maintain any property of the Corporation, or for such other proper purpose as
the Board shall deem beneficial to the Corporation, and the Board may increase,
decrease or abolish any reserve in the same manner in which it was created.
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Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 4. Seal. The Corporation shall have a seal which may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced. Any officer of the Corporation shall have authority to affix the
seal to any document requiring it.
Section 5. Resignation. Any director, officer or agent of the
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BY-LAWS
Unless otherwise provided by the Articles of Incorporation or a by-law
adopted by the shareholders of the Corporation, and except as otherwise
restricted by the Act, these By-laws may be amended or repealed, or new By-laws
may be adopted, at any meeting of the shareholders of the Corporation or of the
Board of Directors at which a quorum is present, by the affirmative vote of the
holders of a majority of the shares or the directors, as the case may be,
present at such meeting.
CERTIFICATION
I, M. Douglas Adkins, Secretary of the corporation, hereby certify that
the foregoing is a true, accurate and complete copy of the By-laws of the
Corporation adopted by its sole shareholder as of January 22, 1991.
/s/ M. DOUGLAS ADKINS
-----------------------------------
M. Douglas Adkins, Secretary
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<PAGE> 1
EXHIBIT 3.11
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 10/24/1996
960310479 - 2676811
CERTIFICATE OF INCORPORATION
OF
HOMCO PUERTO RICO, INC.
I, the undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the General Corporation Law
of the State of Delaware, do hereby adopt the following Certificate of
Incorporation for such corporation.
I
The name of the corporation is HOMCO PUERTO RICO, INC. (the "Corporation").
II
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801, and the name of its registered agent at such address is The Corporation
Trust Company.
III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
IV
The Corporation is authorized to issue one class of capital stock to be
designated "Common Stock." The number of shares of Common Stock which the
Corporation shall have authority to issue is 3,000 shares, at $.01 par value per
share. Each share of Common Stock of the Corporation shall have identical rights
and privileges in every respect.
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<PAGE> 2
V
The number of directors constituting the initial board of directors is two (2)
and the names and addresses of the persons who are to serve as directors until
the first annual meeting of the stockholders, or until their successors are
elected and qualified are:
NAME ADDRESS
---- -------
Donald J. Carter 4550 Spring Valley Road
Dallas, Texas 75244-3705
Donald J. Carter, Jr. 4550 Spring Valley Road
Dallas, Texas 75244-3705
M. Douglas Adkins 1601 Elm Street, Suite 3000
Dallas, Texas 75201
VI
The period of duration of the Corporation is perpetual.
VII
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
adopt, alter, amend or repeal the Bylaws of the Corporation except as otherwise
provided in the Bylaws.
VIII
Elections of directors need not be by written ballot.
IX
To the fullest extent permitted by Delaware law, no director of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages for an act or omission in such director's capacity as a director of the
Corporation. Specifically, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except that this provision shall not eliminate or
limit liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
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<PAGE> 3
Section 174 of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit. The foregoing elimination of liability to the Corporation or its
stockholders for monetary damages is not exclusive of any other rights or
limitations of liability or indemnity to which a director may be entitled under
any other provision of the Certificate of Incorporation or Bylaws of the
Corporation, contract or agreement, vote of stockholders and/or disinterested
directors, or otherwise.
X
Meetings of the stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. Unless otherwise
required by applicable law, the books and records of the Corporation may be kept
either within or outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to such reservation.
XII
The name and address of the incorporator is:
NAME ADDRESS
---- -------
Daniel L. Butcher 901 Main Street, Suite 4300
Dallas, Texas 75202
The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate hereby declaring and certifying
that this is my act and deed and the facts stated herein are true, and
accordingly I have hereunto set my hand this 24th day of October, 1996.
/s/ DANIEL L. BUTCHER
-------------------------------
Daniel L. Butcher
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<PAGE> 1
EXHIBIT 3.12
BYLAWS
OF
HOMCO PUERTO RICO, INC.
TABLE OF CONTENTS
* * * * * * *
<TABLE>
<CAPTION>
<S> <C>
I. OFFICES
1.1 Registered Office and Agent
1.2 Other Offices
II. STOCKHOLDERS
2.1 Place and Manner of Meetings
2.2 Annual Meeting
2.3 Voting List
2.4 Special Meetings
2.5 Notice
2.6 Quorum
2.7 Majority Vote; Withdrawal of Quorum
2.8 Method of Voting
2.9 Fixing Record Dates for Matters Other than Consents to
Action; Closing Transfer Books
2.10 Fixing Record Dates for Consents to Action
2.11 Action Without Meeting
III DIRECTORS
3.1 Management
3.2 Number; Qualification; Election; Term
3.3 Change in Number
3.4 Removal
3.5 Vacancies
3.6 Election of Directors
3.7 Place and Manner of Meetings
3.8 First Meetings
3.9 Regular Meetings
3.10 Special Meetings
3.11 Action Without Meeting
3.12 Quorum; Majority Vote
3.13 Compensation
3.14 Procedure
3.15 Interested Directors, Officers and Stockholders
</TABLE>
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<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
IV COMMITTEES OF THE BOARD OF DIRECTORS
4.1 Designation
4.2 Authority
4.3 Procedure
4.4 Removal
4.5 Responsibility
V OFFICERS
5.1 Number
5.2 Election
5.3 Other Officers
5.4 Term
5.5 Removal
5.6 Vacancies
5.7 Compensation
5.8 President
5.9 Vice-President
5.10 Secretary
5.11 Assistant Secretary
5.12 Treasurer
5.13 Assistant Treasurer
5.14 Filling of Offices
VI INDEMNIFICATION
6.1 Policy of Indemnification and Advancement of
Expenses
6.2 Definitions
6.3 Non-Exclusive; Continuation
6.4 Indemnification of Employees or
Agents
6.5 Insurance or Other Arrangement
VII CERTIFICATES AND STOCKHOLDERS
7.1 Certificates
7.2 Replacement of Lost or Destroyed
Certificates
7.3 Transfer of Shares
7.4 Registered Stockholders
7.5 Preemptive Rights
7.6 Restriction on Transfer of Shares
VIII NOTICE
8.1 Method
8.2 Waiver
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
IX GENERAL PROVISIONS
9.1 Distributions, Share Dividends and
Reserves
9.2 Books and Records
9.3 Checks and Notes
9.4 Fiscal Year
9.5 Seal
9.6 Resignation
9.7 Amendment of Bylaws
9.8 Table of Contents; Headings
9.9 Construction
</TABLE>
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<PAGE> 4
EXHIBIT B
BYLAWS
OF
HOMCO PUERTO RICO, INC.
ARTICLE I
OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the corporation shall be as designated with the Secretary of State of
the State of Delaware and the office of the Recorder of the County of such
county, as they may be changed from time to time.
1.2 Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware, as the board of
directors may from time to time determine, or as the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
2.1 Place and Manner of Meetings. All meetings of the stockholders
shall be held at such time and place, within or without the State of Delaware,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof. Stockholders may participate in such meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting as provided herein shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
2.2 Annual Meeting. An annual meeting of the stockholders, commencing
with the year following the adoption of these Bylaws, shall be held on the
third Monday during the month of April, if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which time the
stockholders shall elect a board of directors, and transact such other business
as may properly be brought before the meeting.
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<PAGE> 5
2.3 Voting List. At least ten days before each meeting of
stockholders a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, with the residence of each and the
number of voting shares held by each, shall be prepared by the officer or agent
having charge of the stock transfer books. Such list, for a period of ten days
prior to the meeting, shall be kept on file at a place within the city where
the meeting is to be held and shall be subject to inspection by any stockholder
for any purpose germane to the meeting, at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting during the whole time thereof, and shall be subject to the
inspection of any stockholder who may be present.
2.4 Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, or by these Bylaws, may be called by the
president, the board of directors, or the holders of not less than one-tenth of
all the shares entitled to vote at the meetings. Business transacted at all
special meetings shall be confined to the objects stated in the notice of the
meeting.
2.5 Notice. Written or printed notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which, the meeting is called, shall be delivered not less than ten nor more
than sixty days before the date of the meeting either personally or by mail, by
or at the direction of the president, the secretary or the officer or person
calling the meeting, to each stockholder of record entitled to vote at the
meeting, provided that such notice may be waived as provided in Section 8.2 of
these Bylaws. If mailed, such notice shall be deemed to be delivered when
deposited in the mail addressed to the stockholder at his address as it appears
on the stock transfer books of the corporation, with postage thereon prepaid.
Any notice required to be given to any stockholder hereunder or under the
Certificate of Incorporation need not be given to the stockholder if (A) notice
of two consecutive annual meetings of the corporation and all notices of
meetings held during the period between those annual meetings, if any, or (B)
all (but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a twelve-month period have been
mailed to that person, addressed at his address as shown on the share transfer
records of the corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such person shall have the same force
and effect as if the notice had been duly given.
2.6 Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, by the
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<PAGE> 6
Certificate of Incorporation or by these Bylaws. If a quorum is not present or
represented at a meeting of the stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to adjourn
the meeting from time to time, until a quorum is present or represented. At
such adjourned meeting at which a quorum is present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
2.7 Majority Vote; Withdrawal of Quorum. When a quorum is present at
any meeting, the vote of the holders of a majority of the shares having voting
power, present in person or represented by proxy, shall decide any matter
brought before such meeting, unless the matter is one upon which, by express
provision of the statutes or of the Certificate of Incorporation, or of these
Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of such matter. The stockholders present
at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
2.8 Method of Voting. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting
of stockholders, except to the extent that the voting rights of the shares of
any class or classes are limited or denied by the Certificate of Incorporation.
At any meeting of the stockholders each stockholder having the right to vote
may vote either in person or by proxy executed in writing by the stockholder or
by his duly authorized attorney-in-fact, and being dated not more than three
years prior to said meeting, unless said proxy shall provide for a longer
period. A telegram, telex, cablegram, or similar transmission by the
stockholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing executed by the stockholder, shall be treated as an execution in
writing for purposes of the immediately preceding sentence. Each proxy shall be
filed with the secretary of the corporation prior to or at the time of the
meeting. Voting for directors shall be in accordance with Section 3.6 of these
Bylaws. Any vote may be taken viva voce or by show of hands unless someone
entitled to vote objects, in which case written ballots shall be used.
2.9 Fixing Record Dates for Matters Other than Consents to Action;
Closing Transfer Books. The board of directors may fix in advance a record date
for the purpose of determining stockholders entitled to notice of or to vote at
a meeting of the stockholders, the record date to be not less than ten nor more
than sixty days prior to said meeting; or the board of directors may close the
stock transfer books for such purpose for a period of not less than ten nor
more than sixty days prior to such meeting. In the absence of any action by the
board of directors, the date upon which the notice of the meeting is mailed
shall be the record date.
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<PAGE> 7
2.10 Fixing Record Dates for Consents to Action. Unless a record date
shall have previously been fixed or determined pursuant to Section 2.9 hereof,
whenever action by stockholders is proposed to be taken by consent in writing
without a meeting of stockholders, if provided for by the Certificate of
Incorporation, the board of directors may fix a record date for purposes of
determining stockholders entitled to consent to that action, which record date
shall not precede, and shall not be more than ten days after, the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors and the
prior action of the board of directors is not required by statute, the record
date for determining stockholders entitled to consent to action in writing
without a meeting shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office, its principal place of
business, or an officer of the corporation having custody of the books in which
proceedings of meetings of stockholders are recorded. Delivery shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the board of directors and prior action of the board of
directors is required by statute, the record date for determining stockholders
entitled to consent to action in writing without a meeting shall be at the
close of business on the date on which the board of directors adopts a
resolution taking such prior action.
2.11 Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation of the corporation, any action required by statute
to be taken at any annual or special meeting of stockholders, or any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice, and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holder or holders of 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 the holders of all shares entitled to vote on the action were present and
voted, and shall be delivered to the corporation by delivery to its registered
office in Delaware, its principal place of business, or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent pursuant to this Section shall
be signed, dated and delivered in the manner required by, and shall become
effective at the time and remain effective for the period specified by the
statutes. A telegram, telex, cablegram, or similar transmission by a
stockholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing signed by a stockholder, shall be regarded as signed by the
stockholder for purposes of this Section. Prompt notice of the taking of any
action by stockholders without a meeting by less than unanimous written consent
shall be given to those stockholders who did not consent in writing to the
action.
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<PAGE> 8
ARTICLE III
DIRECTORS
3.1 Management. The powers of the corporation shall be exercised by
or under authority of, and the business and affairs of the corporation shall be
managed by, the board of directors who may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
3.2 Number; Qualification Election; Term. The number of directors
which shall constitute the whole board shall be not less than one (1) nor more
than seven (7). The number of directors which shall constitute the initial
board of directors shall be the number fixed by the Certificate of
Incorporation. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the board of directors.
3.2 Number; Qualification; Election; Term. The board of directors
shall consist of nine (9) directors, none of whom need to be stockholders or
residents of the State of Delaware. The directors shall be classified with
respect to the time for which they shall severally hold office by dividing them
into three classes, each consisting of three directors, and each director of
the corporation shall hold office until his successor shall be elected and
shall qualify. At the first annual meeting of stockholders, the directors of
the first class shall be elected for a term of one year; the directors of the
second class shall be elected for a term of two years, the directors of the
third class shall be elected for a term of three years; and at each annual
election thereafter the successors to the class of directors whose terms shall
expire that year shall be elected to hold office for the term of three years,
so that the term of office of one class of directors shall expire in each year.
3.3 Change in Number. The number of directors provided for in
Section 3.2 may be increased or decreased from time to time, but no decrease
shall have the effect of shortening the term of any incumbent director. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled (A) by election at an annual meeting or at a special meeting of
stockholders called for that purpose, or (B) by the board of directors for a
term of office continuing only until the next election of one or more directors
by the stockholders; provided, however, that the board of directors may not
fill more than two such directorships during the period between any two
successive annual meetings of stockholders.
3.4 Removal. Any director or the entire board of directors may be
removed either for or without cause at any special or annual meeting of
stockholders, by the affirmative vote of the holders of
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<PAGE> 9
a majority of the shares present in person or by proxy at such meeting and
entitled to vote for the election of such director if notice of intention to
act upon such matter shall have been given in the notice calling such meeting.
3.5 Vacancies. Any vacancy occurring in the board of directors (by an
increase in the authorized number of directors, death, resignation, retirement,
removal or otherwise) may be filled (A) by election at an annual or special
meeting of stockholders called for that purpose, or (B) by an affirmative vote
of a majority of the remaining directors, though less than a quorum of the
board of directors. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office.
3.6 Election of Directors. Unless otherwise provided by the
Certificate of Incorporation, directors shall be elected by plurality of the
votes cast by the holders of shares entitled to vote in the election of
directors at a meeting of stockholders at which a quorum is present.
Cumulative voting shall not be permitted.
3.7 Place and Manner of Meetings. Meetings of the board of directors,
regular or special, may be held either within or without the State of Delaware.
Members of the board of directors may participate in such meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting as provided herein shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
3.8 First Meetings. The first meeting of each newly elected board
shall be held without further notice immediately following the annual meeting
of stockholders, and at the same place, unless by unanimous consent of the
directors then elected and serving such time or place shall be changed.
3.9 Regular Meetings. Regular meetings of the board of directors may
be held without notice at such time and place as shall from time to time be
determined by the board.
3.10 Special Meetings. Special meetings of the board of directors may
be called by the president on three days' notice to each director, either
personally or by mail or by telegram. Special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors. Except as otherwise expressly provided by statute, or by the
Certificate of Incorporation, or by these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
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<PAGE> 10
3.11 Action Without Meeting. Any action required by statute to be
taken at a meeting of the board of directors, or any action which may be taken
at a meeting of the board of directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the board of directors, and the writing or writings are filed
with the minutes of the proceedings of the board of directors. Such consent
shall have the same force and effect as a unanimous vote at a meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors
a majority of the number of directors fixed by these Bylaws shall constitute a
quorum for the transaction of business unless a greater number is required by
law or by the Certificate of Incorporation. The act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the board of directors unless the act of a greater number is required by
statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum is present.
3.13 Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of the executive
committee or of special or standing committees may, by resolution of the board
of directors, be allowed like compensation for attending committee meetings.
3.14 Procedure. The board of directors shall keep regular minutes of
its proceedings. The minutes shall be placed in the minute book of the
corporation.
3.15 Interested Directors, Officers and Stockholders.
(A) Validity. Any contract or other transaction between the
corporation and any of its directors, officers or stockholders (or any
corporation or firm in which any of them are directly or indirectly interested)
shall be valid for all purposes notwithstanding the presence of such director,
officer or stockholder at the meeting authorizing such contract or transaction
or his participation in such meeting or authorization.
(B) Disclosure, Approval. The foregoing shall, however, apply only
if:
1. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or
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<PAGE> 11
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
2. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
3. The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors, a
committee or the stockholders.
(C) Determination of Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
(D) Non-Exclusive. This provision shall not be construed to
invalidate any contract or transaction which would be valid in the absence of
this provision.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
4.1 Designation. The board of directors may, by resolution adopted by
a majority of the whole board, designate from its members one or more
committees, each of which shall be comprised of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the board of directors, replace
absent or disqualified members at any meeting of that committee.
4.2 Authority. Any such committee, to the extent provided in such
resolution or the Certificate of Incorporation, shall have and may exercise all
of the authority of the board of directors in the management of the business
and affairs of the corporation, subject to the limitations set forth in the
Delaware General Corporation Law, and shall have power to authorize the seal of
the corporation to be affixed to all papers which may require it.
4.3 Procedure. Each such committee shall keep regular minutes of its
proceedings and report the same to the board of directors when required.
4.4 Removal. Any member of any such committee may be removed by the
board of directors by the affirmative vote of a majority of the whole board,
whenever in its judgment the best interests of the corporation will be served
thereby.
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<PAGE> 12
4.5 Responsibility. The designation of one or more committees and the
delegation of authority to any such committee shall not operate to relieve the
board of directors, or any member thereof, of any responsibility imposed upon
it or him by law.
ARTICLE V
OFFICERS
5.1 Number. The officers of the corporation shall consist of a
president and a secretary, each of whom shall be elected by the board of
directors. Such offices may be held by the same person.
5.2 Election. The board of directors, at its first meeting after each
annual meeting of stockholders, shall elect officers for the ensuing year or
until their successors are elected, none of whom need be a member of the board,
a stockholder, or a resident of Delaware.
5.3 Other Officers. The board of directors may elect or appoint such
other officers and agents as it shall deem necessary, who shall be appointed
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the board. Any two or more offices may be
held by the same person.
5.4 Term. Each officer of the corporation shall hold office until his
successor is chosen and qualified in his stead or until his death or until his
resignation or removal from office.
5.5 Removal. Any officer or agent or member of a committee elected or
appointed by the board of directors may be removed by the board of directors
whenever in its judgment the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
or member of a committee shall not of itself create contract rights.
5.6 Vacancies. Any vacancy in any office because of death,
resignation, removal or otherwise, may be filled by the board of directors for
the unexpired portion of the term.
5.7 Compensation. The compensation of all officers and agents shall
be fixed by the board of directors.
5.8 President. The president shall be the chief executive officer of
the corporation, and subject to the control of the board of directors,
shall in general supervise and control all of the business and affairs of
the corporation and shall see that all orders and resolutions of the board
are carried into effect. He
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<PAGE> 13
shall, when present, preside at all meetings of the stockholders and of the
board of directors. The president may execute, with the secretary or any other
proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts or other instruments which the board of directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
Bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed, and in general shall perform all
duties incident to the office of president, and such other duties as may be
prescribed by the board of directors from time to time.
5.9 Vice-President. The vice-presidents in the order of their
seniority, unless otherwise determined by the board of directors shall, in the
absence or disability of the president, perform the duties and have the
authority and exercise the powers of the president. They shall perform such
other duties and have such other authority and powers as the board of directors
may from time to time prescribe or as the president may from time to time
delegate.
5.10 Secretary. The secretary shall attend all sessions of the board
of directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the executive committee when required, or any other
committee, if requested. He shall give, or cause to be given, notice of the
meetings of the board of directors and stockholders where such notices are
required by these Bylaws to be given. He shall keep in safe custody the seal of
the corporation, and when authorized by the board or the executive committee,
affix the same to any instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of the treasurer or an assistant
secretary.
The secretary shall be under the supervision of the president. He
shall perform such other duties and have such other authority and powers as the
board of directors may from time to time prescribe or as the president may from
time to time delegate.
5.11 Assistant Secretary. The assistant secretaries in the order of
their seniority unless otherwise determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe, or as the president may from time to time delegate.
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<PAGE> 14
5.12 Treasurer.
(A) The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation, and shall deposit all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors.
(B) He shall disburse the funds of the corporation as may be ordered
by the board of directors, taking proper vouchers for such disbursements, and
shall render to the president and directors, at the regular meetings of the
board, or whenever they may require it, an account of all his transactions as
treasurer and of the financial condition of the corporation.
(C) If required by the board of directors, he shall give the
corporation a bond in such form, in such sum and with such surety or sureties
as shall be satisfactory to the board for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money, or other property of whatever kind in his possession or under
his control belonging to the corporation.
(D) He shall perform such other duties and have such other authority
and powers as the board of directors may from time to time prescribe, or as the
president may from time to time delegate.
5.13 Assistant Treasurer. The assistant treasurers in the order of
their seniority, unless otherwise determined by the board of directors, shall,
in the absence or disability of the treasurer, perform the duties and have the
authority and exercise the powers of the treasurer. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe or the president may from time to time delegate.
5.14 Filling of Offices. The board of directors of the corporation
shall not be required to fill the offices of vice-president, assistant
secretary, and assistant treasurer, or to name an executive committee or any
other committee until, in the opinion of the board, there is a need for such
offices, committees, or any of them, to be filled.
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<PAGE> 15
ARTICLE VI
INDEMNIFICATION
6.1 Policy of Indemnification and Advancement of Expenses. To the
full extent permitted by Delaware law, the corporation shall indemnify any
director or officer of the corporation against judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses
(including court costs and attorneys' fees) actually incurred by any such
person who was, is or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director or officer of the
corporation and shall advance to such person such reasonable expenses as are
incurred by such person in connection therewith.
6.2 Definitions. For purposes of this Article VI:
(i) "Director" means any person who is or was a director of the
corporation and any person who, while a director of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of the
corporation or of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise.
(ii) "Officer" means any person who is or was an officer of the
corporation and any person who, while an officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of the
corporation or of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise.
(iii) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
6.3 Non-Exclusive: Continuation. The indemnification provided by this
Article VI shall not be deemed exclusive of any other rights to which the
person claiming indemnification may be entitled under any agreement, any vote
of stockholders or disinterested directors of the corporation or otherwise both
as to any action in his or her official capacity and as to any action in
another capacity while holding such office, and shall continue as to a person
who shall have ceased to be a director, officer or employee of the corporation
engaged in any other enterprise at the request of the corporation and shall
inure to the benefit of the heirs, executors and administrators of such person.
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<PAGE> 16
6.4 Indemnification of Employees or Agents. The corporation may
indemnify and advance expenses to an employee or agent who is not a director or
officer to such further extent, consistent with law and upon the satisfaction
of any requirements imposed by such law, as may be provided by general or
specific action of the board of directors, or contract or as permitted or
required by common law.
6.5 Insurance or Other Arrangement. The corporation shall have the
power to purchase and maintain insurance or another arrangement on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer, employee or agent or any other capacity in another
corporation, or a partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in such
capacity, arising out of such person's status as such, whether or not such
person is indemnified against such liability by the provisions of this Article
VI.
ARTICLE VII
CERTIFICATES AND STOCKHOLDERS
7.1 Certificates. Certificates in the form determined by the board of
directors shall be delivered representing all shares to which stockholders are
entitled. Such certificates shall be consecutively numbered, and shall be
entered in the books of the corporation as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, the par value of shares or a statement that such shares are without par
value, and such other matters as may be required by the laws of the State of
Delaware. They shall be signed by the president or a vice-president and the
secretary or assistant secretary, and may be sealed with the seal of the
corporation or a facsimile thereof. If any certificate is countersigned by a
transfer agent or registered by a registrar other than the corporation or an
employee of the corporation, the signature of such officer may be a facsimile.
In the event any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
7.2 Replacement of Lost or Destroyed Certificates. The board of
directors may direct a new certificate representing shares to be issued in
place of any certificate theretofore issued by the corporation alleged to have
been lost or destroyed upon the making of an affidavit of that fact by the
person claiming the certificate to be lost or destroyed. When authorizing such
issue of a new
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<PAGE> 17
certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as
it deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock shall be transferable only on
the books of the corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender, to the corporation or its transfer agent,
of a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the corporation or
its transfer agent shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
7.4 Registered Stockholders. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it has express or other notice thereof, except as
otherwise provided by law.
7.5 Preemptive Rights. No stockholder or any other person shall have
any preemptive right whatsoever.
7.6 Restriction on Transfer of Shares. No stockholder (including the
heirs, assigns, executors, or administrators of a deceased stockholder) shall
voluntarily or involuntarily sell or assign shares of the corporation to any
person or persons, firms, or other corporations not a stockholder, or pledge
the same or any part thereof by endorsement resulting in delivery to a
transferee who is not a stockholder, without first offering such stock for sale
to the corporation in the following manner:
(A) Such stockholder shall give written notice by certified or
registered mail to the secretary of the corporation of his intention to sell
such shares. Said notice shall specify the number of shares to be sold, the
price per share, and the terms upon which the sale is to be made. The
corporation shall have thirty (30) days from the receipt of such notice within
which to exercise its option to purchase all or any full number of the shares
so offered. Such purchase may be authorized by the board of directors without
any action by the stockholders of the corporation. If none or only a part of
the shares offered for sale are purchased by the corporation, then the
stockholder who offered the same for sale shall thereafter have the right at
any time during the period of six (6) months after the expiration of the thirty
(30) day period referred to above, to sell said shares not so purchased to such
person or persons as he desires; PROVIDED, HOWEVER, that he shall not sell such
shares at a lower price or on
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<PAGE> 18
terms more favorable to the purchaser than those specified in the written
notice he gave to the corporation, nor shall he sell such shares after the
expiration of the said six month period without again giving written notice as
hereinabove required.
(B) No shares of stock shall be sold or transferred on the books of
the corporation until these provisions have been complied with, but the board
of directors may, in any particular instance, waive the requirement.
ARTICLE VIII
NOTICE
8.1 Method. Whenever by statute or the Certificate of Incorporation
or these Bylaws, notice is required to be given to any stockholder or director,
and no provision is made as to how the notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing,
postage prepaid, addressed to the director or stockholder at the address
appearing on the books of the corporation, or by any other method permitted by
law. Any notice required or permitted to be given by mail shall be deemed given
at the time when the same is thus deposited in the United States mails. Notice
to directors may also be given by telegram, with such notice being deemed to
have been given when the telegram is delivered to the telegraph company.
8.2 Waiver. Whenever, by statute or the Certificate of Incorporation
or these Bylaws, notice is required to be given to any stockholder or director,
a waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business on the grounds that the meeting is
not lawfully called or convened.
ARTICLE IX
GENERAL PROVISIONS
9.1 Distributions, Share Dividends and Reserves.
(A) Declaration and Payment. Subject to statute and the Certificate
of Incorporation, distributions and share dividends may be authorized by the
board of directors at any regular or special meeting and made by the
corporation. Distributions may be paid in cash or in property of the
corporation, and share dividends may be paid in authorized but unissued shares
or in treasury shares of the
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corporation. The authorization and payment of distributions and share dividends
shall be at the discretion of the board of directors.
(B) Record Date. The board of directors may fix in advance a record
date for the purpose of determining stockholders entitled to receive any
distribution or share dividend by the corporation, such record date to be not
more than sixty days prior to the payment of such distribution or share
dividend. In the absence of any action by the board of directors, the date upon
which the board of directors adopts the resolution authorizing the distribution
or share dividend shall be the record date.
(C) Reserves. By resolution the board of directors may create such
reserve or reserves out of the surplus of the corporation or designate or
allocate any part or all of the surplus of the corporation in any manner for
any proper purpose or purposes, and may increase, decrease or abolish any such
reserve, designation or allocation in the same manner.
9.2 Books and Records. The corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of its
stockholders, its board of directors, and each committee of its board of
directors, and shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of the
original issuance of shares issued by the corporation and a record of each
transfer of those shares that have been presented to the corporation for
registration of transfer. Such records shall contain the names and addresses of
all past and current stockholders and the number and class of the shares issued
by the corporation held by each of them.
9.3 Checks and Notes. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the board of directors may from time to time designate.
9.4 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
9.5 Seal. The corporate seal shall have inscribed thereon the name of
the corporation and shall be in such form as the board of directors may
prescribe. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced otherwise.
9.6 Resignation. Any director, officer or agent may resign by giving
written notice to the president or the secretary. The resignation shall take
effect at the time specified therein. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
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9.7 Amendment of Bylaws. These Bylaws may be repealed, altered or
amended at any meeting of the board of directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting,
provided notice of the proposed repeal, alteration or amendment is contained in
the notice of such meeting, unless (A) the power to repeal, alter or amend the
Bylaws is exclusively reserved to the stockholders in whole or part by the
Certificate of Incorporation or by statute, or (B) the stockholders in
amending, repealing or adopting a particular bylaw expressly provide that the
board of directors may not amend or repeal that bylaw.
9.8 Table of Contents; Headings. The table of contents and headings
used in these Bylaws have been inserted for convenience only and do not
constitute matter to be construed in interpretation.
9.9 Construction. Whenever the context so requires, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely. If any portion of these Bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(A) The remainder of these Bylaws shall be considered valid and
operative; and
(B) Effect shall be given to the intent manifested by the portion
held invalid or inoperative.
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<PAGE> 1
EXHIBIT 4.1
Execution Copy
================================================================================
INDENTURE
Dated as of June 4, 1998
among
HOME INTERIORS & GIFTS, INC., as Issuer,
and
The Guarantors Named Herein
and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
------------------------------------
$200,000,000
10 1/8% Series A Senior Subordinated Notes due
2008 10 1/8% Series B Senior Subordinated Notes
due 2008
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
----------- -------
<S> <C>
Section 310(a)(1)....................................... 8.10
(a)(2).......................................... 8.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 8.08, 8.10
(b)............................................. 8.08; 8.10; 13.02
(c)............................................. N.A.
Section 311(a).......................................... 8.11
(b)............................................. 8.11
(c)............................................. N.A.
Section 312(a).......................................... 2.05
(b)............................................. 13.03
(c)............................................. 13.03
Section 313(a).......................................... 8.06
(b)(1).......................................... N.A.
(b)(2).......................................... 8.06
(c)............................................. 8.06; 13.02
(d)............................................. 8.06
Section 314(a).......................................... 4.11; 4.12, 13.02
(b)............................................. N.A.
(c)(1).......................................... 13.04
(c)(2).......................................... 13.04
(c)(3).......................................... N.A.
(d)............................................. N.A.
(e)............................................. 13.05
(f)............................................. N.A.
Section 315(a).......................................... 8.01(b)
(b)............................................. 8.05; 13.02
(c)............................................. 8.01(a)
(d)............................................. 8.01(c)
(e)............................................. 6.11
Section 316(a)(last sentence)........................... 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... N.A.
(b)............................................. 6.07
(c)............................................. 10.04
Section 317(a)(1)....................................... 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
Section 318(a).......................................... 13.01
</TABLE>
- ----------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
Section 1.01 Definitions...............................................1
Section 1.02 Incorporation by Reference of Trust Indenture Act........13
Section 1.03 Rules of Construction....................................13
ARTICLE 2
THE SECURITIES
Section 2.01 Form and Dating..........................................13
Section 2.02 Execution and Authentication.............................14
Section 2.03 Registrar and Paying Agent...............................14
Section 2.04 Paying Agent To Hold Assets in Trust.....................15
Section 2.05 Holder Lists.............................................15
Section 2.06 Transfer and Exchange....................................15
Section 2.07 Replacement Securities...................................16
Section 2.08 Outstanding Securities...................................16
Section 2.09 Treasury Securities......................................16
Section 2.10 Temporary Securities.....................................16
Section 2.11 Cancellation.............................................17
Section 2.12 Defaulted Interest.......................................17
Section 2.13 CUSIP Number.............................................17
Section 2.14 Deposit of Moneys........................................17
Section 2.15 Book-Entry Provisions for Global Securities..............17
Section 2.16 Registration of Transfers and Exchanges..................18
ARTICLE 3
REDEMPTION
Section 3.01 Notices to Trustee.......................................21
Section 3.02 Selection of Securities To Be Redeemed...................21
Section 3.03 Notice of Redemption.....................................22
Section 3.04 Effect of Notice of Redemption...........................22
Section 3.05 Deposit of Redemption Price..............................22
Section 3.06 Securities Redeemed in Part..............................23
ARTICLE 4
COVENANTS
Section 4.01 Payment of Securities....................................23
Section 4.02 Maintenance of Office or Agency..........................23
Section 4.03 Limitation on Transactions with Affiliates...............23
Section 4.04 Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock................................24
Section 4.05 Limitation on Layering...................................24
Section 4.06 Payments for Consents....................................24
Section 4.07 Limitation on Investment Company Status..................24
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 4.08 Limitation on Asset Sales................................24
Section 4.09 Limitation on Restricted Payments........................25
Section 4.10 Notice of Defaults.......................................27
Section 4.11 Reports..................................................27
Section 4.12 Limitations on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................27
Section 4.13 Subsidiary Guarantees by Restricted Subsidiaries.........28
Section 4.14 Change of Control........................................28
Section 4.15 Limitation on Liens......................................29
Section 4.16 Compliance Certificate...................................30
Section 4.17 Corporate Existence......................................30
Section 4.18 Maintenance of Properties and Insurance..................30
Section 4.19 Payment of Taxes and Other Claims........................30
Section 4.20 Waiver of Stay, Extension or Usury Laws..................30
ARTICLE 5
MERGERS; SUCCESSOR CORPORATION
Section 5.01 Merger, Consolidation and Sale of Assets.................31
Section 5.02 Successor Corporation Substituted........................31
ARTICLE 6
DEFAULT AND REMEDIES
Section 6.01 Events of Default........................................31
Section 6.02 Acceleration.............................................32
Section 6.03 Other Remedies...........................................33
Section 6.04 Waiver of Past Default...................................33
Section 6.05 Control by Majority......................................33
Section 6.06 Limitation on Suits......................................34
Section 6.07 Rights of Holders To Receive Payment.....................34
Section 6.08 Collection Suit by Trustee...............................34
Section 6.09 Trustee May File Proofs of Claim.........................34
Section 6.10 Priorities...............................................35
Section 6.11 Undertaking for Costs....................................35
ARTICLE 7
SUBORDINATION OF SECURITIES
Section 7.01 Agreement To Subordinate.................................35
Section 7.02 Liquidation, Dissolution, Bankruptcy.....................35
Section 7.03 Default on Senior Indebtedness...........................36
Section 7.04 Acceleration of Payment of Securities....................36
Section 7.05 When Distribution Must Be Paid Over......................36
Section 7.06 Subrogation..............................................37
Section 7.07 Relative Rights..........................................37
Section 7.08 Subordination May Not Be Impaired by Company.............37
Section 7.09 Rights of Trustee and Paying Agent.......................37
Section 7.10 Distribution or Notice to Representative.................37
Section 7.11 Article 7 Not To Prevent Events of Default or Limit
Right To Accelerate......................................37
Section 7.12 Trust Moneys Not Subordinated............................37
Section 7.13 Trustee Entitled To Rely.................................38
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 7.14 Trustee To Effectuate Subordination......................38
Section 7.15 Trustee Not Fiduciary for Holders of Senior Indebtedness.38
Section 7.16 Reliance by Holders of Senior Indebtedness on
Subordination Provisions.................................38
ARTICLE 8
TRUSTEE
Section 8.01 Duties of Trustee........................................38
Section 8.02 Rights of Trustee........................................39
Section 8.03 Individual Rights of Trustee.............................40
Section 8.04 Trustee's Disclaimer.....................................40
Section 8.05 Notice of Defaults.......................................40
Section 8.06 Reports by Trustee to Holders............................40
Section 8.07 Compensation and Indemnity...............................40
Section 8.08 Replacement of Trustee...................................41
Section 8.09 Successor Trustee by Merger, etc.........................42
Section 8.10 Eligibility; Disqualification............................42
Section 8.11 Preferential Collection of Claims Against the Company....42
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01 Termination of the Company's Obligations.................43
Section 9.02 Legal Defeasance and Covenant Defeasance.................43
Section 9.03 Conditions to Legal Defeasance or Covenant Defeasance....44
Section 9.04 Application of Trust Money; Trustee Acknowledgment and
Indemnity................................................45
Section 9.05 Repayment to Company.....................................45
Section 9.06 Reinstatement............................................45
ARTICLE 10
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 10.01 Without Consent of Holders...............................45
Section 10.02 With Consent of Holders..................................46
Section 10.03 Compliance with Trust Indenture Act......................47
Section 10.04 Record Date for Consents and Effect of Consents..........47
Section 10.05 Notation on or Exchange of Securities....................47
Section 10.06 Trustee To Sign Amendments, etc..........................47
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01 Unconditional Guarantee..................................47
Section 11.02 Severability.............................................48
Section 11.03 Release of a Guarantor...................................48
Section 11.04 Limitation of Guarantor's Liability......................48
Section 11.05 Contribution.............................................49
Section 11.06 Execution of Subsidiary Guarantee........................49
Section 11.07 Subordination of Subrogation and Other Rights............49
</TABLE>
v
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
<S> <C> <C>
Section 12.01 Agreement To Subordinate.................................49
Section 12.02 Liquidation, Dissolution, Bankruptcy.....................49
Section 12.03 Default on Guarantor Senior Indebtedness.................50
Section 12.04 Acceleration of Payment of Securities....................50
Section 12.05 When Distribution Must Be Paid Over......................51
Section 12.06 Subrogation..............................................51
Section 12.07 Relative Rights..........................................51
Section 12.08 Subordination May Not Be Impaired by Guarantor...........51
Section 12.09 Rights of Trustee and Paying Agent.......................51
Section 12.10 Distribution or Notice to Representative.................51
Section 12.11 Article 12 Not To Prevent Events of Default or Limit
Right To Accelerate......................................51
Section 12.12 Trust Moneys Not Subordinated............................52
Section 12.13 Trustee Entitled To Rely.................................52
Section 12.14 Trustee To Effectuate Subordination......................52
Section 12.15 Trustee Not Fiduciary for Holders of Guarantor Senior
Indebtedness.............................................52
Section 12.16 Reliance by Holders of Guarantor Senior Indebtedness on
Subordination Provisions.................................52
ARTICLE 13
MISCELLANEOUS
Section 13.01 Trust Indenture Act Controls.............................52
Section 13.02 Notices..................................................53
Section 13.03 Communications by Holders with Other Holders.............54
Section 13.04 Certificate and Opinion as to Conditions Precedent.......54
Section 13.05 Statements Required in Certificate.......................54
Section 13.06 Rules by Trustee, Paying Agent, Registrar................54
Section 13.07 Governing Law............................................54
Section 13.08 No Recourse Against Others...............................54
Section 13.09 Successors...............................................55
Section 13.10 Counterpart Originals....................................55
Section 13.11 Severability.............................................55
Section 13.12 No Adverse Interpretation of Other Agreements............55
Section 13.13 Legal Holidays...........................................55
EXHIBIT A Form of Series A Security................................A-1
EXHIBIT B Form of Series B Security................................B-1
EXHIBIT C Form of Legend for Global Securities.....................C-1
EXHIBIT D Form of Transfer Certificate.............................D-1
EXHIBIT E Form of Transfer Certificate for Institutional
Accredited Investors.....................................E-1
EXHIBIT F Form of Transfer Certificate for Regulation S Transfers..F-1
</TABLE>
- -------------------------
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of this Indenture.
vi
<PAGE> 7
INDENTURE dated as of June 4, 1998, among HOME INTERIORS & GIFTS, INC.,
a Texas corporation (the "Company"), the Guarantors named herein, and UNITED
STATES TRUST COMPANY OF NEW YORK, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other party
and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions.
"144A Global Security" means a permanent global security in
registered form representing the aggregate principal amount of Initial
Securities sold in reliance on Rule 144A.
"Acquired Indebtedness" means Indebtedness of a Person or any
of its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Acquired Preferred Stock" means the Preferred Stock of any
Person at such time as such Person becomes a Restricted Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Restricted Subsidiaries and not issued by such Person in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. Bear, Stearns & Co. Inc., Chase Securities Inc., Morgan
Stanley & Co. Incorporated and NationsBanc Montgomery Securities LLC or
NationsBank, N.A. and each of their respective Affiliates shall not be deemed
Affiliates of the Company by reason of their direct or indirect investments in
any fund managed by Hicks Muse or any Person in which any such fund is invested
or the Senior Credit Facility, as applicable.
"Affiliate Transaction" has the meaning provided in Section
4.03.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Acquisition" means (i) an Investment by the Company or
any Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or shall be
consolidated or merged with the Company or any Restricted Subsidiary of the
Company or (ii) the acquisition by the Company or any Restricted Subsidiary of
the Company of assets of any Person comprising a division or line of business of
such Person.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (excluding any sale and leaseback
transaction or any pledge of assets or stock by the Company or any of its
Restricted Subsidiaries) to any Person other than the Company or a Restricted
Subsidiary of the Company of (i) any Capital Stock of any Restricted Subsidiary
of the Company (other than directors' qualifying shares) or (ii) any other
property or assets of the Company or any Restricted Subsidiary of the Company
other than in the ordinary course of business; provided, however, that for
purposes of Section 4.08, Asset Sales shall not include (a) a transaction or
series of related transactions in which the Company or any of its Restricted
Subsidiaries receive aggregate consideration of less than
<PAGE> 8
$1,000,000, (b) transactions covered by Section 5.01, (c) a Restricted Payment
that otherwise qualifies under Section 4.09, (d) any disposition of obsolete or
worn out equipment or equipment that is no longer useful in the conduct of the
business of the Company and its Subsidiaries and that is disposed of, in each
case, in the ordinary course of business and (e) any transaction that
constitutes a Change of Control. Solely for purposes of Section 11.03, an Asset
Sale is deemed to include a sale, conveyance or transfer by the Representative
following a foreclosure on such assets.
"Bankruptcy Law" means Title 11, United States Code or any
similar federal, state or foreign law for the relief of debtors.
"Board of Directors" means the Board of Directors or other
governing body charged with the ultimate management of any Person, or any duly
authorized committee thereof.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person or a duly authorized
committee of such Board of Directors.
"Business Day" means any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York, New York.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated) of capital stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligation of such Person to pay rent or other amounts under a lease to which
such Person is a party that is required to be classified and accounted for as a
capital lease obligation under GAAP, and for purposes of this definition, the
amount of such obligation at any date shall be the capitalized amount of such
obligation at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc.; (iii) commercial paper maturing no more than 270 days
from the date of creation thereof and, at the time of acquisition, having a
rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from
Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any commercial bank organized under the laws of the United States of America
or any state thereof or the District of Columbia or any U.S. branch of a foreign
bank having at the date of acquisition thereof combined capital and surplus of
not less than $200,000,000; (v) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(iv) above; and (vi) investments in money market funds that invest substantially
all of their assets in securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of the Indenture), other than to Hicks Muse or
any of its Affiliates, officers or directors, and Donald J. Carter, Jr. or
Christina L. Carter Urschel or any of his or her Affiliates (the "Permitted
Holders"); or (ii) a majority of the board of directors of the Company shall
consist of Persons who are not Continuing Directors; or (iii) the acquisition by
any Person or Group (other than the Permitted Holders or any direct or indirect
subsidiary of any Permitted Holder) of the power, directly or indirectly, to
vote or direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors of the Company.
"Change of Control Offer" has the meaning provided in Section
4.14.
2
<PAGE> 9
"Change of Control Payment Date" has the meaning provided in
Section 4.14.
"Commodity Agreement" means any commodity futures contract,
commodity option or other similar agreement or arrangement.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Chief Executive Officer, its Vice Chairman of the Board, its President, a Vice
President or its Treasurer, and by its Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Consolidated Cash Flow" means, with respect to any Person,
for any period, the sum (without duplication) of (i) Consolidated Net Income,
(ii) to the extent Consolidated Net Income has been reduced thereby, (a) all
income taxes of such Person and its Restricted Subsidiaries accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary or nonrecurring gains or losses), (b) Consolidated Interest
Expense and (c) Consolidated Non-Cash Charges, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in conformity
with GAAP and (iii) the lesser of (x) dividends or distributions paid in cash to
such Person or its Restricted Subsidiary by another Person whose results are
reflected as a minority interest in the consolidated financial statements of
such first Person and (y) such Person's equity interest in the Consolidated Cash
Flow of such other Person (but in no event less than zero).
"Consolidated Interest Expense" means, with respect to any
Person for any period, without duplication, the sum of (i) the interest expense
of such Person and its Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt issuance costs and original issue discount, (b) the net
cost under Interest Swap Agreements (including any amortization of discounts),
(c) the interest portion of any deferred payment obligation, (d) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers' acceptance financing or similar facilities, and (e) all
accrued interest and (ii) the interest component of Capitalized Lease
Obligations paid or accrued by such Person and its Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom, without
duplication, (a) gains and losses from Asset Sales (without regard to the $1
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects, (b) items classified as
extraordinary or nonrecurring gains and losses, and the related tax effects
according to GAAP, (c) the net income (or loss) of any Person acquired in a
pooling of interests transaction accrued prior to the date it becomes a
Restricted Subsidiary of such first referred to Person or is merged or
consolidated with it or any of its Restricted Subsidiaries, (d) the net income
of any Restricted Subsidiary to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by contract, operation of law or otherwise, (e) the net income or loss of any
Person, other than a Restricted Subsidiary, (f) the cumulative effect of a
change of accounting principles, and (g) any non-cash compensation expense in
connection with the issuance of employee or independent contractor stock
options.
"Consolidated Non-Cash Charges" means, with respect to any
Person for any period, the aggregate depreciation, amortization and other
non-cash expenses of such person and its Restricted Subsidiaries (excluding any
such charges constituting an extraordinary or nonrecurring item) reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"Continuing Director" means, as of the date of determination,
any Person who (i) was a member of the board of directors of the Company on the
Issue Date, (ii) was nominated for election or elected to the board of directors
of the Company, as the case may be, with the affirmative vote of a majority of
the Continuing Directors who were members of such board of directors at the time
of such nomination or election or (iii) is a representative of a Permitted
Holder.
3
<PAGE> 10
"Corporate Trust Office of the Trustee" means the principal
office of the Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of original execution
of this Indenture is located at 114 West 47th Street, New York, New York 10036,
Attention: Corporate Trust Department.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which
is, or with the lapse of time or the giving of notice or both would be, an Event
of Default.
"Depository" means, with respect to the Securities issued in
the form of one or more Global Securities, The Depository Trust Company or
another Person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"Designated Senior Indebtedness" means (i) all obligations
under the Senior Credit Facility and (ii) any other Senior Indebtedness of the
Company which, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $50,000,000 and is specifically
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture,
written notice of which the Trustee has received in the form of an Officers'
Certificate.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, or transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Capital 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), or upon the happening of any event, matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof (except, in
each case, upon the occurrence of a Change of Control), in whole or in part, on
or prior to the final maturity date of the Securities; provided that only the
portion of Capital Stock which so matures or is mandatorily redeemable or is so
redeemable at the sole option of the holder thereof prior to such date shall be
deemed Disqualified Capital Stock.
"Equity Offering" means a private sale or public offering of
Capital Stock (other than Disqualified Capital Stock) of the Company or a
Holding Company (to the extent, in the case of a Holding Company, that the net
cash proceeds thereof are contributed to the common or non-redeemable preferred
equity capital of the Company).
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means the 10 1/8% Series B Senior
Subordinated Notes due 2008 to be issued in exchange for the Initial Securities
pursuant to the Registration Rights Agreement.
"Final Maturity Date" means June 1, 2008.
"Financial Advisory Agreement" means the Financial Advisory
Agreement by and among the Company and Hicks Muse Partners, as in effect on the
Issue Date.
4
<PAGE> 11
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the Consolidated Interest Expense
for such period, (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, (iii) the
amount of all cash dividend payments or payments in Disqualified Capital Stock
on Preferred Stock of Restricted Subsidiaries of such Person or on Disqualified
Capital Stock of such Person held by Persons other than the Company or any
Restricted Subsidiaries paid, accrued or scheduled to be paid or accrued during
such period.
"Fixed Charge Coverage Ratio" means with respect to any Person
for the four full fiscal quarters (the "Four Quarter Period") ending on or prior
to the date of determination, 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.
For purposes of this definition, "Consolidated Cash Flow" and,
except with respect to clause (iv) below, "Fixed Charges" shall be calculated on
a pro forma basis after giving effect to (i) the Recapitalization, (ii) the
incurrence of the Indebtedness, and the issuance of Disqualified Capital Stock
and Preferred Stock, of such Person and its Restricted Subsidiaries (and the
application of the proceeds therefrom) giving rise to the need to make such
calculation and any incurrence (and the application of the proceeds therefrom)
or repayment of other Indebtedness, other than the incurrence or repayment of
Indebtedness pursuant to working capital facilities, and the issuance of other
Disqualified Capital Stock or Preferred Stock, at any time subsequent to the
beginning of the Four Quarter Period and on or prior to the date of
determination, as if such incurrence and issuance (and the application of the
proceeds thereof), or the repayment, as the case may be, occurred on the first
day of the Four Quarter Period, (iii) any Asset Sales (including those excluded
from the definition thereof by clauses (b) and (c) of the definition thereof) or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Subsidiaries (including any Person that becomes a Restricted Subsidiary as a
result of such Asset Acquisition) incurring, assuming or otherwise becoming
liable for Indebtedness or issuing Disqualified Capital Stock or Preferred
Stock) at any time on or subsequent to the first day of the Four Quarter Period
and on or prior to the date of determination, as if such Asset Sale or Asset
Acquisition (including the incurrence, assumption or liability for any such
Indebtedness or issuance of such Disqualified Capital Stock or Preferred Stock
and also including any Consolidated Cash Flow associated with such Asset
Acquisition) occurred on the first day of the Four Quarter Period and (iv) cost
savings resulting from employee termination, facilities consolidations and
closings, standardization of employee benefits and compensation practices,
consolidation of property, casualty and other insurance coverage and policies,
standardization of sales representation commissions and other contract rates,
and reductions in taxes other than income taxes (collectively, "Cost Savings
Measures"), which cost savings the Company reasonably believes in good faith
could have been achieved during the Four Quarter Period as a result of such
Asset Acquisition (regardless of whether such cost savings could then be
reflected in pro forma financial statements under GAAP, Regulation S-X
promulgated by the Commission or any other regulation or policy of the
Commission), less the amount of any additional expenses that the Company
reasonably estimates would result from anticipated replacement of any items
constituting Cost Savings Measures in connection with such Asset Acquisitions;
provided, however, that both (A) such cost savings and Cost Savings Measures
were identified and such cost savings were quantified in an officer's
certificate delivered to the Trustee at the time of the consummation of the
Asset Acquisition and (B) with respect to each Asset Acquisition completed prior
to the 90th day preceding such date of determination, actions were commenced or
initiated by the Company within 90 days of such Asset Acquisition to effect the
Cost Savings Measures identified in such officer's certificate (regardless,
however, of whether the corresponding cost savings have been achieved).
Furthermore, in calculating "Consolidated Interest Expense" for purposes of the
calculation of "Fixed Charge Coverage Ratio," (i) interest on Indebtedness
determined on a fluctuating basis as of the date of determination (including
Indebtedness actually incurred on the date of the transaction giving rise to the
need to calculate the Fixed Charge Coverage Ratio) and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness as in effect on the
date of determination and (ii) notwithstanding (i) above, interest determined on
a fluctuating basis, to the extent such interest is covered by Interest Swap
Agreements, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Funding Guarantor" has the meaning provided in Section 11.05.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture, including
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting
5
<PAGE> 12
Standards Board or the Commission or in such other statements by such other
entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Global Securities"means one or more 144A Global Securities,
Regulation S Global Securities or IAI Global Securities.
"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 each of the Company's direct and indirect,
existing and future, Restricted Subsidiaries, other than a Subsidiary organized
under the laws of a jurisdiction other than the United States or any State
thereof, provided that such Subsidiary's assets and principal place of business
are located outside the United States.
"Guarantor Senior Indebtedness" means, as to any Guarantor,
Senior Indebtedness of such Guarantor, it being understood that for the purpose
of this definition, all references to the Company in the definition of Senior
Indebtedness shall be deemed references to such Guarantor.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated, a
Delaware corporation.
"Hicks Muse Partners" means Hicks, Muse & Co. Partners, L.P.,
an affiliate of Hicks Muse.
"Holders" means the registered holders of the Securities.
"IAI Global Security" means a permanent global security in
registered form representing the aggregate principal amount of Securities
transferred after the Issue Date to Institutional Accredited Investors.
"incur" has the meaning set forth in Section 4.04.
"Indebtedness" means with respect to any Person, without
duplication, any liability of such Person (i) for borrowed money, (ii) evidenced
by bonds, debentures, notes or other similar instruments, (iii) constituting
Capitalized Lease Obligations, (iv) incurred or assumed as the deferred purchase
price of property, or pursuant to conditional sale obligations and title
retention agreements (but excluding trade accounts payable arising in the
ordinary course of business), (v) for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi) for
Indebtedness of others guaranteed by such Person, (vii) for Interest Swap
Agreements, Commodity Agreements and Currency Agreements, (viii) for
Indebtedness incurred in connection with, or in contemplation of, another Person
merging with or into or becoming a Subsidiary of the former Person and (ix) for
Indebtedness of any other Person of the type referred to in clauses (i) through
(viii) which is secured by any Lien on any property or asset of such first
referred to Person, the amount of such Indebtedness being deemed to be the
lesser of the value of such property or asset or the amount of the Indebtedness
so secured. The amount of Indebtedness of any Person at any date shall be (i)
the outstanding principal amount of all unconditional obligations described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability at such date of such Person for
any contingent obligations described above, (ii) the accreted value thereof, in
the case of any Indebtedness issued with original issue discount and (iii) 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.
"Initial Purchasers" means Bear, Stearns & Co. Inc., Chase
Securities Inc., Morgan Stanley & Co. Incorporated, NationsBanc Montgomery
Securities LLC.
"Initial Securities" means the 101/8% Series A Senior
Subordinated Notes due 2008 of the Company.
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<PAGE> 13
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"interest" means, with respect to the Securities, the sum of
any cash interest and any Liquidated Damages (as defined in the Registration
Rights Agreement) on the Securities.
"Interest Payment Date" means June 1 and December 1 of each
year, commencing on December 1, 1998.
"Interest Record Date" for the interest payable on any
Interest Payment Date (except a date for payment of defaulted interest) means
May 15 or November 15 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"Interest Swap Agreements" means any interest rate protection
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge or arrangement.
"Investment" in any Person means any direct or indirect
advance, loan or other extension of credit (in each case, including by way of
Guarantee or similar arrangement, but excluding (i) any debt or extension of
credit represented by a bank deposit other than a time deposit and (ii) advances
to customers and independent contractors in the ordinary course of business) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of Section 4.09, (A)
"Investment" shall include the portion (proportionate to the Company's equity
interest in a Restricted Subsidiary to be designated as an Unrestricted
Subsidiary) of the fair market value of the net assets of such Restricted
Subsidiary of the Company at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" (if
positive) equal to (1) the Company's "Investment" in such Unrestricted
Subsidiary at the time of such redesignation less (2) the portion (proportionate
to the Company's equity interest in such Unrestricted Subsidiary) of the fair
market value of the net assets of such Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is so redesignated from an Unrestricted Subsidiary
to a Restricted Subsidiary; and (B) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the board of
directors of the Company.
"Issue Date" means the date of original issuance of the
Securities.
"Lien" means, with respect to any asset, any lien, mortgage,
deed of trust, pledge, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement, any lease in
the nature thereof and any agreement to give any security interest).
"Monitoring and Oversight Agreement" means the Monitoring and
Oversight Agreement by and among the Company and Hicks Muse Partners, as in
effect on the Issue Date.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents (including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any of its Subsidiaries from such Asset
Sale net of (i) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions, recording fees, relocation costs, title
insurance premiums, appraisers fees and costs reasonably incurred in preparation
of any asset or property for sale), (ii) taxes paid or reasonably estimated to
be payable (calculated based on the combined state, federal and foreign
statutory tax rates applicable to the Company or the Restricted Subsidiary
engaged in such Asset Sale), (iii) all distributions and other payments required
to be made to any Person owning a beneficial interest in the assets subject to
sale or minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Sale, (iv) any reserves established in accordance with GAAP for
adjustment in respect of the sales price of the asset or assets subject to such
Asset Sale or for any liabilities associated with such Asset Sale and (v)
repayment of Indebtedness secured by assets subject to such Asset Sale;
provided, however, that if the instrument or agreement governing such Asset Sale
requires the transferor to maintain a portion of the purchase price in escrow
(whether as a reserve for adjustment of the
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<PAGE> 14
purchase price or otherwise) or to indemnify the transferee for specified
liabilities in a maximum specified amount, the portion of the cash or Cash
Equivalents that is actually placed in escrow or segregated and set aside by the
transferor for such indemnification obligation shall not be deemed to be Net
Cash Proceeds until the escrow terminates or the transferor ceases to segregate
and set aside such funds, in whole or in part, and then only to the extent of
the proceeds released from escrow to the transferor or that are no longer
segregated and set aside by the transferor.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing, or otherwise relating to,
any Indebtedness.
"Offering" means the initial offering of the Securities.
"Offering Memorandum" means the final offering memorandum
dated May 28, 1998 setting forth information concerning the Company and the
Securities.
"Officer" means the Chairman, the Chief Executive Officer, any
Vice Chairman, the President, any Vice President, the Chief Financial Officer,
the Treasurer or the Secretary of the Company or any other officer designated by
the Board of Directors serving in a similar capacity.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Company complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Participants" has the meaning provided in Section 2.15.
"Paying Agent" has the meaning provided in Section 2.03.
"Permitted Holders" has the meaning provided in the definition
of "Change of Control."
"Permitted Indebtedness" means, without duplication, (i)
Indebtedness outstanding on the Issue Date; (ii) Indebtedness of the Company and
any of its Restricted Subsidiaries (a) outstanding under the Senior Credit
Facility (including letter of credit obligations) (provided that the aggregate
principal amount at any time outstanding does not exceed $340.0 million) or (b)
incurred under the Senior Credit Facility pursuant to and in compliance with (x)
clause (v) of this definition or (y) the proviso in Section 4.04, (iii)
Indebtedness evidenced by or arising under the Securities and the Indenture;
(iv) Interest Swap Agreements, Commodity Agreements and Currency Agreements;
provided, however, that such agreements are entered into for bona fide hedging
purposes and not for speculative purposes; (v) additional Indebtedness of the
Company or any of its Restricted Subsidiaries not to exceed $50 million in
principal amount outstanding at any time (which amount may, but need not, be
incurred under the Senior Credit Facility); (vi) Refinancing Indebtedness; (vii)
Indebtedness owed by the Company to any Restricted Subsidiary of the Company or
by any Restricted Subsidiary of the Company to the Company or any Restricted
Subsidiary of the Company; (viii) guarantees by the Company or Restricted
Subsidiaries of any Indebtedness permitted to be incurred pursuant to the
Indenture; (ix) Indebtedness in respect of letters of credit to support workers
compensation obligations, performance bonds, bankers' acceptances and surety or
appeal bonds provided by the Company or any of its Restricted Subsidiaries to
their customers in the ordinary course of their business; (x) Indebtedness
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each case incurred in
connection with the disposition of any business assets or Restricted
Subsidiaries of the Company (other than guarantees of Indebtedness or other
obligations incurred by any Person acquiring all or any portion of such business
assets or Restricted Subsidiaries of the Company for the purpose of financing
such acquisition) in a principal amount not to exceed the gross proceeds
actually received by the Company or any of its Restricted Subsidiaries in
connection with such disposition; and (xi) Indebtedness represented by
Capitalized Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of financing all or any part
of the purchase price or cost of construction or improvement of property or
assets used in the direct selling, direct
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<PAGE> 15
marketing or home furnishings business or incurred to refinance any such
purchase price or cost of construction or improvement, in each case incurred no
later than 365 days after the date of such acquisition or the date of completion
of such construction or improvement; provided, however, that the principal
amount of any Indebtedness incurred pursuant to this clause (xi) shall not
exceed $30 million at any time outstanding.
"Permitted Investments" means (i) Investments by the Company
or any Restricted Subsidiary of the Company to acquire the stock or assets of
any Person (or Acquired Indebtedness or Acquired Preferred Stock acquired in
connection with a transaction in which such Person becomes a Restricted
Subsidiary of the Company) engaged in the direct selling, direct marketing or
home furnishings business or businesses reasonably related thereto; provided,
however, that if any such Investment or series of related Investments involves
an Investment by the Company in excess of $5.0 million, the Company is able, at
the time of such Investment and immediately after giving effect thereto, to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.04, (ii) Investments received by the
Company or its Restricted Subsidiaries as consideration for a sale of assets
made in compliance with the other terms of the Indenture, (iii) Investments by
the Company or any Restricted Subsidiary of the Company in any Restricted
Subsidiary of the Company (whether existing on the Issue Date or created
thereafter) or any Person that after such Investments, and as a result thereof,
becomes a Restricted Subsidiary of the Company and Investments in the Company or
any Restricted Subsidiary by any Restricted Subsidiary of the Company, (iv)
Investments in cash and Cash Equivalents, (v) Investments in securities of trade
creditors, wholesalers, suppliers or customers received pursuant to any plan of
reorganization or similar arrangement, (vi) loans or advances to employees or
independent contractors of the Company or any Restricted Subsidiary thereof for
purposes of purchasing the Company's or a Holding Company's Capital Stock and
other loans and advances to employees or independent contractors made in the
ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary, and (vii) additional Investments in an aggregate
amount not to exceed $50.0 million at any time outstanding.
"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or joint venture,
or a governmental agency or political subdivision thereof.
"Physical Securities" means one or more certificated
Securities in registered form.
"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
"Private Placement Legend" means the legend initially set
forth on the Initial Securities in the form set forth on Exhibit A hereto.
"Productive Assets" means assets of a kind used or usable by
the Company and its Restricted Subsidiaries in the direct selling, direct
marketing or home furnishings business or businesses reasonably related,
ancillary or complementary thereto, and specifically includes assets acquired
through Asset Acquisitions (it being understood that "assets" may include
Capital Stock of a Person that owns such Productive Assets, provided that after
giving effect to such transaction, such Person would be a Restricted Subsidiary
of the Company).
"Public Equity Offering" means an underwritten public offering
of Capital Stock (other than Disqualified Capital Stock) of the Company or a
Holding Company (to the extent, in the case of a Holding Company, that the net
cash proceeds thereof are contributed to the common or non-redeemable preferred
equity capital of the Company), pursuant to an effective registration statement
filed with the Commission in accordance with the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Redemption Date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption pursuant to this
Indenture.
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<PAGE> 16
"redemption price," when used with respect to any Security to
be redeemed, means the price fixed for such redemption pursuant to this
Indenture as set forth in the form of Security annexed hereto as Exhibit A.
"Refinancing Indebtedness" means any refinancing by the
Company of Indebtedness of the Company or any of its Restricted Subsidiaries
incurred in accordance with Section 4.04 (other than pursuant to clause (iii) or
(iv) of the definition of Permitted Indebtedness) that does not (i) result in an
increase in the aggregate principal amount of Indebtedness (such principal
amount to include, for purposes of this definition, any premiums, penalties or
accrued interest paid with the proceeds of the Refinancing Indebtedness) of such
Person, or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being refinanced.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date by and among the Company, the Guarantors
and the Initial Purchasers.
"Registration" means a registered exchange offer for the
Securities by the Company or other registration of the Securities under the
Securities Act pursuant to and in accordance with the terms of the Registration
Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Security" means a permanent global
security in registered form representing the aggregate principal amount of
Securities sold in reliance on Regulation S under the Securities Act.
"Representative" means the indenture trustee or other trustee,
agent or representative in respect of any Senior Indebtedness; provided,
however, that if, and for so long as, any issue of Senior Indebtedness lacks
such a representative, then the Representative for such issue of Senior
Indebtedness shall at all times constitute the holders of a majority in
outstanding principal amount of such issue of Senior Indebtedness.
"Restricted Payment" means (i) the declaration or payment of
any dividend or the making of any other distribution (other than dividends or
distributions payable in Qualified Capital Stock or in options, rights or
warrants to acquire Qualified Capital Stock) on shares of the Company's Capital
Stock, (ii) the purchase, redemption, retirement or other acquisition for value
of any Capital Stock of the Company, or any warrants, rights or options to
acquire shares of Capital Stock of the Company, other than through the exchange
of such Capital Stock or any warrants, rights or options to acquire shares of
any class of such Capital Stock for Qualified Capital Stock or warrants, rights
or options to acquire Qualified Capital Stock or (iii) the making of any
Investment (other than a Permitted Investment).
"Restricted Security" means a Security that is a "restricted
security" within the meaning set forth in Rule 144(a)(3) under the Securities
Act; provided, however, that the Trustee shall be entitled to request and
conclusively rely upon an Opinion of Counsel with respect to whether any
Security is a Restricted Security.
"Restricted Subsidiary" means a Subsidiary of the Company
other than an Unrestricted Subsidiary and includes all of the Subsidiaries of
the Company existing as of the Issue Date. The board of directors of the Company
may designate any Unrestricted Subsidiary or any person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Company could have incurred at least $1.00 of
additional indebtedness (other than Permitted Indebtedness) pursuant to Section
4.04.
"Rule 144A" means Rule 144A under the Securities Act.
"Secured Indebtedness" means any Indebtedness of the Company
or a Restricted Subsidiary secured by a Lien.
"SEC" or "Commission" means the Securities and Exchange
Commission.
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<PAGE> 17
"Securities" means, collectively, the Initial Securities and
the Unrestricted Securities treated as a single class of securities, as amended
or supplemented from time to time in accordance with the terms of this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Senior Credit Facility" means the Senior Credit Facility,
under that certain Credit Agreement dated as of June 4, 1998, among the Company,
NationsBank, N.A., as administrative agent, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as documentation agent,
Prudential Insurance Company of America, as a co-agent, Societe Generale, as a
co-agent, Citicorp USA, Inc., as a co-agent, and the other financial
institutions from time to time party thereto, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including by way of adding Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of lenders
(or other institutions).
"Senior Indebtedness" means, whether outstanding on the Issue
Date or thereafter issued, all Indebtedness of the Company, including interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company or any Restricted
Subsidiary whether or not a claim for post-filing interest is allowed in such
proceeding) and premium, if any, thereon, and other monetary amounts (including
fees, expenses, reimbursement obligations under letters of credit and
indemnities) owing in respect thereof unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that the obligations in respect of such Indebtedness ranks pari passu with the
Securities; provided, however, that Senior Indebtedness will not include (1) any
obligation of the Company to any Restricted Subsidiary, (2) any liability for
federal, state, foreign, local or other taxes owed or owing by the Company, (3)
any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of
the Company that is expressly subordinate or junior in right of payment to any
other Indebtedness, Guarantee or obligation of the Company, including any Senior
Subordinated Indebtedness or (5) obligations in respect of any Capital Stock.
"Senior Subordinated Indebtedness" means the Securities and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness.
"Significant Restricted Subsidiary" means, at any date of
determination, any Restricted Subsidiary that would be a "significant
subsidiary" as defined in Article I, Rule 1-03 of Regulation S-X under the Act,
as such rule is in effect on the Issue Date.
"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," with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly through one or
more intermediaries, by such Person or (ii) any other Person of which at least a
majority of the voting interest under ordinary circumstances is at the time,
directly or indirectly, through one or more intermediaries, owned by such
Person. Notwithstanding anything in the Indenture to the contrary, all
references to the Company and its consolidated Subsidiaries or to financial
information prepared on a consolidated basis in accordance with GAAP shall be
deemed to include the Company and its Subsidiaries as to which financial
statements are prepared on a combined basis in accordance with GAAP and to
financial information prepared on such a combined basis.
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<PAGE> 18
Notwithstanding anything in the Indenture to the contrary, an Unrestricted
Subsidiary shall not be deemed to be a Restricted Subsidiary for purposes of the
Indenture.
"Subsidiary Guarantees" means the Form of Subsidiary Guarantee
of each Guarantor to be endorsed on each of the Securities in the form of
Exhibit A (in the case of an Initial Security) or Exhibit B (in the case of an
Exchange Security) hereto.
"Surviving Person" means, with respect to any Person involved
in or that makes any Disposition, the Person formed by or surviving such
Disposition or the Person to which such Disposition is made.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb), as amended, as in effect on the date of this Indenture
(except as provided in Section 10.03) until such time as this Indenture is
qualified under the TIA, and thereafter as in effect on the date on which this
Indenture is qualified under the TIA.
"Trust Officer" means any officer within the corporate trust
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"Trustee" means the party named as such in the first paragraph
of this Indenture until a successor replaces it in accordance with the
provisions of this Indenture and thereafter means such successor.
"Unrestricted Securities" means one or more Securities that do
not and are not required to bear the Private Placement Legend in the form set
forth in Exhibit A hereto, including, without limitation, the Exchange
Securities and any Securities registered under the Securities Act pursuant to
and in accordance with the Registration Rights Agreement.
"Unrestricted Subsidiary" means a Subsidiary of the Company
created after the Issue Date and so designated by a resolution adopted by the
board of directors of the Company; provided, however, that (a) neither the
Company nor any of its other Restricted Subsidiaries (1) provides any credit
support for any Indebtedness or other Obligations of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (2) is
directly or indirectly liable for any Indebtedness or other Obligations of such
Subsidiary and (b) at the time of designation of such Subsidiary, such
Subsidiary has no property or assets (other than de minimis assets resulting
from the initial capitalization of such Subsidiary). The board of directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.04 and (y) no Default or Event of
Default shall have occurred or be continuing. Any designation pursuant to this
definition by the board of directors of the Company shall be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Company's board of directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
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Section 1.02 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" means the Company or any other obligor on the
Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.03 Rules of Construction. Unless the context otherwise
requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles in
effect from time to time, and any other reference in this Indenture to
"generally accepted accounting principles" refers to GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in
the plural include the singular;
(e) provisions apply to successive events and
transactions; and
(f) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE 2
THE SECURITIES
Section 2.01 Form and Dating. The Initial Securities and the Trustee's
certificate of authentication thereof shall be substantially in the form of
Exhibit A hereto, which is hereby incorporated in and expressly made a part of
this Indenture. The Exchange Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit B hereto,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements (including the Subsidiary
Guarantee) required by law, stock exchange rule or usage or agreements to which
the Company is subject. The Company and the Trustee shall approve the form of
the Securities and any notation, legend or endorsement (including the Subsidiary
Guarantee) on them. Each Security shall be dated the date of its issuance and
shall show the date of its authentication.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more Global Securities, substantially in
the form set forth in Exhibit A hereto, deposited with the Trustee, as custodian
for the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided and shall bear the legend
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<PAGE> 20
set forth in Exhibit C hereto. The aggregate principal amount of the Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Section 2.02 Execution and Authentication. Two Officers or an Officer
and an Assistant Secretary shall sign, or one Officer shall sign and one Officer
and an Officer and an Assistant Secretary (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall attest to,
the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security or a Subsidiary
Guarantee, as the case may be, was an Officer at the time of such execution but
no longer holds that office at the time the Trustee authenticates the Security
or Subsidiary Guarantee, as the case may be, the Security or Subsidiary
Guarantee, as the case may be, shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate (a) Initial Securities for
original issue in an aggregate principal amount not to exceed $200,000,000, and
(b) Unrestricted Securities from time to time only in exchange for a like
principal amount of Initial Securities upon a written order of the Company in
the form of an Officers' Certificate. Each such written order shall specify the
amount of Securities to be authenticated and the date on which the Securities
are to be authenticated, whether the Securities are to be Initial Securities or
Unrestricted Securities and whether the Securities are to be issued as Physical
Securities or Global Securities and such other information as the Trustee may
reasonably request. The aggregate principal amount of Securities outstanding at
any time may not exceed $200,000,000, except as provided in Sections 2.07 and
2.08.
Notwithstanding the foregoing, all Securities issued under
this Indenture shall vote and consent together on all matters (as to which any
of such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent shall
have the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Securities shall be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
Section 2.03 Registrar and Paying Agent. The Company shall maintain an
office or agency, which may be in the Borough of Manhattan, The City of New
York, where (a) Securities may be presented or surrendered for registration of
transfer or for exchange (the "Registrar"), (b) Securities may be presented or
surrendered for payment (the "Paying Agent") and (c) notices and demands in
respect of the Securities and this Indenture may be served. The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company, upon notice to the Trustee, may appoint one or more co-Registrars and
one or more additional Paying Agents. The term "Paying Agent" includes any
additional Paying Agent. Except as provided herein, the Company may act as
Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 8.07.
The Company initially appoints the Trustee as Registrar and
Paying Agent until such time as the Trustee has resigned or a successor has been
appointed.
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The Trustee is authorized to enter into a letter of
representation with the Depository in the form provided to the Trustee by the
Company and to act in accordance with such letter.
Section 2.04 Paying Agent To Hold Assets in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that each
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
assets held by the Paying Agent for the payment of principal of, or interest on,
the Securities, and shall notify the Trustee of any Default by the Company in
making any such payment. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have been
delivered by the Company to the Paying Agent (if other than the Company), the
Paying Agent shall have no further liability for such assets. If the Company or
any of their Affiliates acts as Paying Agent, it shall, on or before each due
date of the principal of or interest on the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Section 2.05 Holder Lists. The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee before each Interest Record Date and at such other
times as the Trustee may request in writing a list as of such date and in such
form as the Trustee may reasonably require of the names and addresses of
Holders, which list may be conclusively relied upon by the Trustee.
Section 2.06 Transfer and Exchange. Subject to the provisions of
Sections 2.15 and 2.16, when Securities are presented to the Registrar or a
co-Registrar with a request to register the transfer of such Securities or to
exchange such Securities for an equal principal amount of Securities of other
authorized denominations of the same series, the Registrar or co-Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transaction are met; provided, however, that the Securities surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing. To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Securities at the
Registrar's or co-Registrar's written request. No service charge shall be made
for any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
other governmental charge payable upon exchanges or transfers pursuant to
Section 2.02, 2.10, 3.06, or 10.05). The Registrar or co-Registrar shall not be
required to register the transfer or exchange of any Security (a) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing and (b) selected for redemption in whole or in part pursuant
to Article 3 hereof, except the unredeemed portion of any Security being
redeemed in part.
Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee and any Agent of the Company shall
treat the person in whose name the Security is registered as the owner thereof
for all purposes whether or not the Security shall be overdue, and none of the
Company, the Trustee nor any such Agent shall be affected by notice to the
contrary. Any consent, waiver or actions of a Holder shall be binding upon any
subsequent Holders of such Security or a Security received upon transfer. Any
Holder of a beneficial interest in a Global Security shall, by acceptance of
such beneficial interest in a Global Security, agree that transfers of
beneficial interests in such Global Security may be effected only through a
book-entry system maintained by the Depository (or its agent), and that
ownership of a beneficial interest in a Global Security shall be required to be
reflected in a book entry.
Section 2.07 Replacement Securities. If a mutilated Security is
surrendered to the Trustee or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the Trustee's
requirements for replacement of Securities are met. If required by the Company
or the Trustee, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of the Company and the Trustee, to protect the
Company, the Trustee and any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may charge such Holder for their reasonable
out-of-pocket expenses in replacing a Security, including reasonable fees and
expenses of counsel.
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Every replacement Security is an additional obligation of the
Company.
Section 2.08 Outstanding Securities. Securities outstanding at any time
are all the Securities that have been authenticated by the Trustee except those
canceled by it, those delivered to it for cancellation and those described in
this Section 2.08 as not outstanding. Subject to Section 2.09, a Security does
not cease to be outstanding because the Company or any Affiliates of the Company
holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser or protected purchaser. A mutilated Security
ceases to be outstanding upon surrender of such Security and replacement thereof
pursuant to Section 2.07.
If on a Redemption Date or the Final Maturity Date the Paying
Agent holds money sufficient to pay all of the principal and interest due on the
Securities payable on that date, and is not prohibited from paying such money to
the Holders pursuant to the terms of this Indenture, then on and after that date
such Securities cease to be outstanding and interest on them ceases to accrue.
Section 2.09 Treasury Securities. In determining whether the Holders of
the required principal amount of Securities have concurred in any direction,
waiver or consent, Securities owned by the Company, the Guarantors or any of
their respective Affiliates shall be disregarded, except that, for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities that a Trust Officer of the
Trustee actually knows are so owned shall be disregarded.
The Company shall notify the Trustee, in writing, when the
Company or any of its respective Affiliates repurchases or otherwise acquires
Securities, of the aggregate principal amount of such Securities so repurchased
or otherwise acquired.
Section 2.10 Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities upon receipt of a written order of the Company in the form
of an Officers' Certificate. The Officers' Certificate shall specify the amount
of temporary Securities to be authenticated and the date on which the temporary
Securities are to be authenticated.
Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
Section 2.11 Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee, or at the direction of the Trustee, the
Registrar or the Paying Agent, and no one else, shall cancel, and at the written
direction of the Company, dispose of and deliver evidence of such disposal of
all Securities surrendered for transfer, exchange, payment or cancellation.
Subject to Section 2.07, the Company may not issue new Securities to replace
Securities that they have paid or delivered to the Trustee for cancellation. If
the Company shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Securities unless and until the same are surrendered to the Trustee for
cancellation pursuant to this Section 2.11.
Section 2.12 Defaulted Interest. The Company shall pay interest on
overdue principal from time to time on demand at the rate of interest then borne
by the Securities. The Company shall, to the extent lawful, pay interest on
overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the rate of interest then borne by the
Securities.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest to the Persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day preceding
the date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent
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special record date, the Company shall mail to each Holder, with a copy to the
Trustee, a notice that states the subsequent special record date, the payment
date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid
prior to the expiration of the 30-day period set forth in Section 6.01(a) shall
be paid to Holders as of the Interest Record Date for the Interest Payment Date
for which interest has not been paid.
Section 2.13 CUSIP Number. The Company in issuing the Securities will
use a "CUSIP" number and the Trustee shall use the CUSIP number in notices of
redemption or exchange as a convenience to Holders; provided, however, that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company shall promptly notify the Trustee of any changes in
CUSIP numbers.
Section 2.14 Deposit of Moneys. Prior to 11:00 a.m. New York City time
on each Interest Payment Date, Redemption Date, and the Final Maturity Date, the
Company shall deposit with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date,
Redemption Date or Final Maturity Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Redemption Date or Final Maturity Date, as the case may be.
Section 2.15 Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit C.
Members of, or participants in, the Depository
("Participants") shall have no rights under this Indenture with respect to any
Global Security held on their behalf by the Depository, or the Trustee as its
custodian, or under the Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of the Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and Participants, the operation of
customary practices governing the exercise of the rights of a Holder of any
Security.
(b) Transfers of Global Securities shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in the Global Securities may
be transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depository to issue Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver or mail, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Securities, an equal aggregate principal amount of
Physical Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(c) of this Section 2.15 shall, except as otherwise provided by paragraph (f) of
Section 2.16, bear the Private Placement Legend.
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(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
Section 2.16 Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When
Physical Securities are presented to the Registrar or co-Registrar with a
request:
(i) to register the transfer of the Physical
Securities; or
(ii) to exchange such Physical Securities for an
equal principal amount of Physical Securities of other authorized
denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
(A) shall be duly endorsed or accompanied by
a written instrument of transfer in form satisfactory to the
Registrar or co-Registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing; and
(B) in the case of Physical Securities the
offer and sale of which have not been registered under the
Securities Act, such Physical Securities shall be accompanied,
in the sole discretion of the Company, by the following
additional information and documents, as applicable:
(1) if such Physical Security is
being delivered to the Registrar or co-Registrar by a
Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to
that effect (substantially in the form of Exhibit D
hereto); or
(2) if such Physical Security is
being transferred to a QIB in accordance with Rule
144A, a certification to that effect (substantially
in the form of Exhibit D hereto); or
(3) if such Physical Security is
being transferred to an Institutional Accredited
Investor, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
transferee letter of representation (substantially in
the form of Exhibit E hereto) and, at the option of
the Company, an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(4) if such Physical Security is
being transferred in reliance on Rule 144 under the
Securities Act, delivery of a certification to that
effect (substantially in the form of Exhibit D
hereto) and, at the option of the Company, an Opinion
of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with
the Securities Act; or
(5) if such Physical Security is
being transferred in reliance on Regulation S,
delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
transferor certificate for Regulation S transfers
(substantially in the form of Exhibit F hereto) and,
at the option of the Company, an Opinion of Counsel
reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the
Securities Act; or
(6) if such Physical Security is
being transferred in reliance on another exemption
from the registration requirements of the Securities
Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and, at the option of
the Company, an Opinion
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of Counsel reasonably acceptable to the Company to
the effect that such transfer is in compliance with
the Securities Act.
(b) Restrictions on Transfer of a Physical Security for a
Beneficial Interest in a Global Security. A Physical Security the offer and sale
of which has not been registered under the Securities Act may not be exchanged
for a beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of a
Physical Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(i) certification, substantially in the form of
Exhibit D hereto, that such Physical Security is being transferred (A)
to a QIB, (B) to an Institutional Accredited Investor or (C) in an
offshore transaction in reliance on Regulation S and, with respect to
(B) or (C), at the option of the Company, an Opinion of Counsel
reasonably acceptable to the Company to the effect that such transfer
is in compliance with the Securities Act; and
(ii) written instructions directing the Registrar or
co-Registrar to make, or to direct the Depository to make, an
endorsement on the applicable Global Security to reflect an increase in
the aggregate amount of the Securities represented by the Global
Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Securities represented by the applicable
Global Security to be increased accordingly. If no 144A Global Security, IAI
Global Security or Regulation S Global Security, as the case may be, is then
outstanding, the Company shall, unless either of the events in the proviso to
Section 2.15(b) have occurred and are continuing, issue and the Trustee shall,
upon written instructions from the Company in accordance with Section 2.02,
authenticate such a Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or co-Registrar of written instructions,
or such other instruction as is customary for the Depository, from the
Depository or its nominee, requesting the registration of transfer of an
interest in a 144A Global Security, an IAI Global Security or a Regulation S
Global Security, as the case may be, to another type of Global Security,
together with the applicable Global Securities (or, if the applicable type of
Global Security required to represent the interest as requested to be obtained
is not then outstanding, only the Global Security representing the interest
being transferred), the Registrar or co-Registrar shall reflect on its books and
records (and the applicable Global Security) the applicable increase and
decrease of the principal amount of Securities represented by such types of
Global Securities, giving effect to such transfer. If the applicable type of
Global Security required to represent the interest as requested to be obtained
is not outstanding at the time of such request, the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate a new Global Security of such type in principal
amount equal to the principal amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security for
a Physical Security.
(i) Any Person having a beneficial interest in a
Global Security may upon request exchange such beneficial interest for
a Physical Security; provided, however, that prior to the Registration,
a transferee that is a QIB or Institutional Accredited Investor may not
exchange a beneficial interest in Global Security for a Physical
Security. Upon receipt by the Registrar or co-Registrar of written
instructions, or such other form of instructions as is customary for
the Depository, from the Depository or its nominee on behalf of any
Person having a beneficial interest in a Global Security and upon
receipt by the Trustee of a written order or such other form of
instructions as is customary for the Depository or the Person
designated by the Depository as having such a beneficial interest
containing registration instructions and, in the case of any such
transfer or exchange of a beneficial interest in Securities the offer
and sale of which have not been registered under the Securities Act,
the following additional information and documents:
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(A) if such beneficial interest is being
transferred in reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect (substantially in
the form of Exhibit D hereto) and, at the option of the
Company, an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with
the Securities Act; or
(B) if such beneficial interest is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect (substantially in the form of
Exhibit D hereto) and, at the option of the Company, an
Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository
and the Registrar or co-Registrar, the aggregate principal amount of
the applicable Global Security to be reduced and, following such
reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate in
accordance with Section 2.02, the Trustee will authenticate and deliver
or mail to the transferee a Physical Security in the appropriate
principal amount.
(ii) Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.16(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Registrar or co-Registrar
in writing. The Registrar or co-Registrar shall deliver or mail such
Physical Securities to the Persons in whose names such Physical
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture, a Global
Security may not be transferred as a whole except by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver or mail Securities that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar or co-Registrar
shall deliver or mail only Securities that bear the Private Placement Legend
unless, and the Trustee is hereby authorized to deliver or mail Securities
without the Private Placement Legend if, (i) there is delivered to the Trustee
an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act, (ii) such Security has been sold pursuant to an effective registration
statement under the Securities Act (including pursuant to a Registration) or
(iii) the date of such transfer, exchange or replacement is two years after the
later of (x) the Issue Date and (y) the last date that the Company or any
affiliate (as defined in Rule 144 under the Securities Act) of the Company was
the owner of such Securities (or any predecessor thereto).
(g) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Participants
or beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.15 or this Section
2.16. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
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ARTICLE 3
REDEMPTION
Section 3.01 Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities at the applicable
redemption price set forth thereon, it shall notify the Trustee in writing of
the Redemption Date and the principal amount of Securities to be redeemed. The
Company shall give such notice to the Trustee at least 45 days before the
Redemption Date (unless a shorter notice shall be agreed to by the Trustee in
writing), together with an Officers' Certificate stating that such redemption
will comply with the conditions contained herein.
Section 3.02 Selection of Securities To Be Redeemed. If less than all
of the Securities are to be redeemed pursuant to paragraph 5 of the Securities,
the Trustee shall select the Securities to be redeemed in compliance with the
requirements of the national securities exchange, if any, on which the
Securities are listed or, in the absence of such requirements or if the
Securities are not then listed on a national securities exchange, on a pro rata
basis, by lot or in such other manner as may be required pursuant to this
Indenture or otherwise as the Trustee shall deem fair and appropriate. Selection
of the Securities to be redeemed pursuant to paragraph 5(b) of the Securities
shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata
basis as is practicable (subject to the procedures of the Depository) based on
the aggregate principal amount of Securities held by each Holder. The Trustee
shall make the selection from the Securities then outstanding, subject to
redemption and not previously called for redemption.
The Trustee may select for redemption pursuant to paragraph 5
of the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
Section 3.03 Notice of Redemption. At least 30 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first-class mail to each Holder whose Securities are to be redeemed at such
Holder's registered address; provided, however, that notice of a redemption
pursuant to paragraph 5(b) of the Securities shall be mailed to each Holder
whose Securities are to be redeemed no later than 60 days after the date of the
closing of the relevant Equity Offering of the Company.
Each notice of redemption shall identify the Securities to be
redeemed (including the CUSIP number thereon) and shall state:
(a) the Redemption Date;
(b) the redemption price;
(c) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(d) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(e) that, as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price pursuant
to this Indenture, interest on Securities called for redemption ceases to accrue
on and after the Redemption Date and the only remaining right of the Holders is
to receive payment of the redemption price upon surrender to the Paying Agent;
(f) in the case of any redemption pursuant to paragraph
5 of the Securities, if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after the
Redemption Date, upon surrender of such Security, a new Security or Securities
in principal amount equal to the unredeemed portion thereof will be issued;
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(g) the subparagraph of the Securities pursuant to which
such redemption is being made; and
(h) that no representation is made as to the accuracy
of the CUSIP number listed in such notice or printed on such Security.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
Section 3.04 Effect of Notice of Redemption. Once a notice of
redemption is mailed, Securities called for redemption become due and payable on
the Redemption Date and at the redemption price. Upon surrender to the Paying
Agent, such Securities shall be paid at the redemption price, plus accrued
interest thereon, if any, to the Redemption Date, but interest installments
whose maturity is on or prior to such Redemption Date shall be payable to the
Holders of record at the close of business on the relevant Interest Record Date.
Section 3.05 Deposit of Redemption Price. At least one Business Day
before the Redemption Date, the Company shall deposit with the Paying Agent (or
if the Company is its own Paying Agent, it shall, on or before the Redemption
Date, segregate and hold in trust) money sufficient to pay the redemption price
of and accrued interest, if any, on all Securities to be redeemed on that date
other than Securities or portions thereof called for redemption on that date
which have been delivered by the Company to the Trustee for cancellation.
If any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid on the Redemption Date due to
the failure of the Company to deposit with the Paying Agent money sufficient to
pay the redemption price thereof, the principal and accrued and unpaid interest,
if any, thereon shall, until paid or duly provided for, bear interest as
provided in Sections 2.12 and 4.01 with respect to any payment default.
Section 3.06 Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Trustee shall authenticate for the Holder a new
Security equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE 4
COVENANTS
Section 4.01 Payment of Securities. The Company shall pay the principal
of and interest on the Securities in the manner provided in the Securities and
the Registration Rights Agreement. An installment of principal or interest shall
be considered paid on the date due if the Trustee or Paying Agent (other than
the Company or any Affiliates of the Company) holds on that date money
designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders of the Securities pursuant to
the terms of this Indenture.
The Company shall pay cash interest on overdue principal at
the same rate per annum borne by the Securities. The Company shall pay cash
interest on overdue installments of interest at the same rate per annum borne by
the Securities, to the extent lawful, as provided in Section 2.12.
Section 4.02 Maintenance of Office or Agency. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of any office or agency required by Section 2.03. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 13.02. The Company hereby initially designates the Trustee at
its address set forth in Section 13.02 as its office or agency in The Borough of
Manhattan, The City of New York, for such purposes.
Section 4.03 Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, enter into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease, contribution or exchange of any property
or the rendering of any service) with or for the benefit of any of its
Affiliates (other than transactions between the Company and a Restricted
Subsidiary of the Company or among
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Restricted Subsidiaries of the Company) (an "Affiliate Transaction"), other than
Affiliate Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction on an arm's-length
basis from a person that is not an Affiliate; provided, however, that for a
transaction or series of related transactions involving value of $5,000,000 or
more, such determination shall be made in good faith by a majority of members of
the board of directors of the Company and by a majority of the disinterested
members of the board of directors of the Company, if any; provided, further,
that for a transaction or series of related transactions involving value of
$15,000,000 or more, the Board of Directors of the Company has received an
opinion from an independent investment banking firm of nationally recognized
standing that such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary. The foregoing restrictions
shall not apply to (a) reasonable and customary directors' fees, indemnification
and similar arrangements and payments thereunder; (b) any obligations of the
Company under any employment agreement, noncompetition or confidentiality
agreement with any officer of the Company, as in effect on the Issue Date
(provided that each amendment of any of the foregoing agreements shall be
subject to the limitations of this covenant); (c) any Restricted Payment
permitted to be made pursuant to Section 4.09; (d) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the board of directors of the Company; (e) loans or
advances to employees in the ordinary course of business of the Company or any
of its Restricted Subsidiaries consistent with past practices; (f) payments made
in connection with the Recapitalization, including, without limitation, fees to
Hicks Muse, as described in the Offering Memorandum; (g) payments by the Company
to Hicks Muse Partners in accordance with the terms of the Financial Advisory
Agreement and the Monitoring and Oversight Agreement; (h) the existence of, or
the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement related thereto) to which it is a party as of the
Issue Date or any amendment thereto (so long as any such amendment, taken as a
whole, is not disadvantageous to the Holders in any material respect); (i)
transactions with suppliers or purchasers or sellers of goods or services, in
each case in the ordinary course of business and otherwise in compliance with
the terms of this Indenture, which are fair to the Company or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors of the
Company or the management thereof, or are on terms (taken as a whole) at least
as favorable as might reasonably have been obtained at such time from an
unaffiliated party; and (j) any agreement as in effect as of the Issue Date or
any amendment thereto (so long as any such amendment, taken as a whole, is not
disadvantageous to the Holders in any material respect) or any transaction
contemplated thereby.
Section 4.04 Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (other than
Permitted Indebtedness) and the Company shall not issue any Disqualified Capital
Stock and its Restricted Subsidiaries shall not issue any Preferred Stock
(except Preferred Stock issued to the Company or a Restricted Subsidiary of the
Company so long as it is so held); provided, however, that the Company and its
Restricted Subsidiaries may incur Indebtedness or issue shares of such Capital
Stock if, in either case, the Company's Fixed Charge Coverage Ratio at the time
of incurrence of such Indebtedness or the issuance of such Capital Stock, as the
case may be, after giving pro forma effect to such incurrence or issuance as of
such date and to the use of proceeds therefrom would have been at least 2.0 to
1.
(b) The Company shall not incur or suffer to exist, or permit
any of its Restricted Subsidiaries to incur or suffer to exist, any Obligations
with respect to an Unrestricted Subsidiary that would violate the provisions set
forth in the definition of Unrestricted Subsidiary.
Section 4.05 Limitation on Layering. The Company shall not incur any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to all Senior Subordinated Indebtedness (including the Securities).
Section 4.06 Payments for Consents. Neither the Company nor any of its
Restricted Subsidiaries shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Securities for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of this Indenture
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<PAGE> 30
or the Securities unless such consideration is offered to be paid or is paid to
all Holders of the Securities that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
Section 4.07 Limitation on Investment Company Status. The Company and
its Subsidiaries shall not take any action, or otherwise permit to exist any
circumstance, that would require the Company to register as an "investment
company" under the Investment Company Act of 1940, as amended.
Section 4.08 Limitation on Asset Sales. The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless (a) 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 sold or otherwise disposed of (as determined in
good faith by management of the Company or, if such Asset Sale involves
consideration in excess of $10,000,000, by the board of directors of the
Company, as evidenced by a board resolution), (b) at least 75% of the
consideration received by the Company or such Restricted Subsidiary, as the case
may be, from such Asset Sale is in the form of cash or Cash Equivalents and is
received at the time of such disposition and (c) upon the consummation of an
Asset Sale, the Company applies, or causes such Restricted Subsidiary to apply,
such Net Cash Proceeds within 180 days of receipt thereof either (i) to repay
any Senior Indebtedness of the Company or any Indebtedness of a Restricted
Subsidiary of the Company (and, to the extent such Senior Indebtedness relates
to principal under a revolving credit or similar facility, to obtain a
corresponding reduction in the commitments thereunder, except that the Company
may temporarily repay Senior Indebtedness using the Net Cash Proceeds from such
Asset Sale and thereafter use such funds to reinvest pursuant to clause (ii)
below within the period set forth therein without having to obtain a
corresponding reduction in the commitments thereunder), (ii) to reinvest, or to
be contractually committed to reinvest pursuant to a binding agreement, in
Productive Assets and, in the latter case, to have so reinvested within 360 days
of the date of receipt of such Net Cash Proceeds or (iii) to purchase the
Securities and other Senior Subordinated Indebtedness, pro rata, tendered to the
Company for purchase at a price equal to 100% of the principal amount thereof
(or the accreted value of such other Senior Subordinated Indebtedness, if such
other Senior Subordinated Indebtedness is issued at a discount) plus accrued
interest thereon, if any, to the date of purchase pursuant to an offer to
purchase made by the Company as set forth below (a "Net Proceeds Offer");
provided, however, that the Company may defer making a Net Proceeds Offer until
the aggregate Net Cash Proceeds from Asset Sales not otherwise applied in
accordance with this covenant equal or exceed $15,000,000.
Subject to the deferral right set forth in the final proviso
of the preceding paragraph, each notice of a Net Proceeds Offer shall be mailed,
by first-class mail, to Holders not more than 180 days after the relevant Asset
Sale or, in the event the Company or a Restricted Subsidiary has entered into a
binding agreement as provided in (B) above, within 180 days following the
termination of such agreement but in no event later than 360 days after the
relevant Asset Sale. Such notice shall specify, among other things, the purchase
date (which shall be no earlier than 30 days nor later than 45 days from the
date such notice is mailed, except as otherwise required by law) and shall
otherwise comply with the procedures set forth in this Indenture. Upon receiving
notice of the Net Proceeds Offer, Holders may elect to tender their Securities
in whole or in part in integral multiples of $1,000. To the extent Holders
properly tender Securities in an amount which, together with all other Senior
Subordinated Indebtedness so tendered, exceeds the Net Proceeds Offer, the
Securities and other Senior Subordinated Indebtedness of tendering Holders shall
be repurchased on a pro rata basis (based upon the aggregate principal amount
tendered, or, if applicable, the aggregate accreted value thereof). To the
extent that the aggregate principal amount of Securities tendered pursuant to
any Net Proceeds Offer, which, together with the aggregate principal amount or
aggregate accreted value, as the case may be, of all other Senior Subordinated
Indebtedness so tendered, is less than the amount of Net Cash Proceeds subject
to such Net Proceeds Offer, the Company may use any remaining portion of such
Net Cash Proceeds not required to fund the repurchase of tendered Securities and
other Senior Subordinated Indebtedness for any purposes not otherwise prohibited
by this Indenture. Upon the consummation of any Net Proceeds Offer, the amount
of Net Cash Proceeds subject to any future Net Proceeds Offer from the Asset
Sales giving rise to such Net Cash Proceeds shall be deemed to be zero.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act to the extent applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer.
Section 4.09 Limitation on Restricted Payments.
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(a) The Company shall not, and shall not cause or permit any
of its Restricted Subsidiaries, to, directly or indirectly, make any Restricted
Payment if at the time of such Restricted Payment and immediately after giving
effect thereto:
(i) a Default or Event of Default shall have
occurred and be continuing; or
(ii) the Company is not able to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 4.04; or
(iii) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Company
and its Restricted Subsidiaries after the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair
market value of such property as determined by the board of directors
of the Company in good faith), exceeds the sum of (A) 50% of the
cumulative Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter commencing after the Issue Date to the most recent date for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (B) 100% of the
aggregate net proceeds, including the fair market value of property
other than cash as determined by the board of directors of the Company
in good faith, received subsequent to the Issue Date by the Company
from any Person (other than a Restricted Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date of Qualified
Capital Stock of the Company (excluding (1) any net proceeds from
issuances and sales financed directly or indirectly using funds
borrowed from the Company or any Restricted Subsidiary of the Company,
until and to the extent such borrowing is repaid, but including the
proceeds from the issuance and sale of any securities convertible into
or exchangeable for Qualified Capital Stock to the extent such
securities are so converted or exchanged and including any additional
proceeds received by the Company upon such conversion or exchange and
(2) any net proceeds received from issuances and sales that are used to
consummate a transaction described in clause (ii) of paragraph (b)
below), plus (C) without duplication of any amount included in clause
(iii)(B) above, 100% of the aggregate net proceeds, including the fair
market value of property other than cash (valued as provided in clause
(iii)(B) above), received by the Company as a capital contribution
subsequent to the Issue Date, plus (D) the amount equal to the net
reduction in Investments (other than Permitted Investments) made by the
Company or any of its Restricted Subsidiaries in any Person resulting
from, and without duplication, (1) repurchases or redemptions of such
Investments by such Person, proceeds realized upon the sale of such
Investment to an unaffiliated purchaser and repayments of loans or
advances or other transfers of assets by such Person to the Company or
any Restricted Subsidiary of the Company or (2) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in
the case of any Restricted Subsidiary, the amount of Investments
previously made by the Company or any of its Restricted Subsidiaries in
such Unrestricted Subsidiary, which amount was included in the
calculation of Restricted Payments; provided, however, that no amount
shall be included under this clause (D) to the extent it is already
included in Consolidated Net Income, plus (E) the aggregate net cash
proceeds received by a Person in consideration for the issuance of such
Person's Capital Stock (other than Disqualified Capital Stock) that are
held by such Person at the time such Person is merged with and into the
Company in accordance with Section 5.01 subsequent to the Issue Date;
provided, however, that concurrently with or immediately following such
merger the Company uses an amount equal to such net cash proceeds to
redeem or repurchase the Company's Capital Stock, plus (F) $20,000,000.
(b) Notwithstanding the foregoing, these provisions shall not
prohibit: (i) the payment of any dividend or the making of any distribution
within 60 days after the date of its declaration if such dividend or
distribution would have been permitted on the date of declaration; (ii) the
purchase, redemption or other acquisition or retirement of any Capital Stock of
the Company or any warrants, options or other rights to acquire shares of any
class of such Capital Stock either (x) solely in exchange for shares of
Qualified Capital Stock or other rights to acquire Qualified Capital Stock or
(y) through the application of the net proceeds of a substantially concurrent
sale for cash (other than to a Restricted Subsidiary of the Company) of shares
of Qualified Capital Stock or warrants, options or other rights to acquire
Qualified Capital Stock or (z) in the case of Disqualified Capital Stock, solely
in exchange for, or through the application of the net proceeds of a
substantially concurrent sale for cash (other than to a Restricted Subsidiary of
the Company) of, Disqualified Capital Stock; (iii) payments made pursuant to any
merger, consolidation or sale of assets effected in accordance with Section
5.01;
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provided, however, that no such payment may be made pursuant to this clause (3)
unless, after giving effect to such transaction (and the incurrence of any
Indebtedness in connection therewith and the use of the proceeds thereof), the
Company would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.04 such that after
incurring that $1.00 of additional Indebtedness, the Company shall have a Fixed
Charge Coverage Ratio of at least 2.0 to 1; (iv) payments to enable the Company
or a Holding Company (as defined) to pay dividends on its Capital Stock (other
than Disqualified Capital Stock) after the first Public Equity Offering in an
annual amount not to exceed 6.0% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of the
offering) received from shares of Capital Stock (other than Disqualified Capital
Stock) sold for the account of the issuer thereof (and not for the account of
any stockholder) in such initial Public Equity Offering; (v) payments by the
Company to fund the payment by any company as to which the Company is, directly
or indirectly, a Subsidiary (a "Holding Company") of audit, accounting, legal or
other similar expenses, to pay franchise or other similar taxes and to pay other
corporate overhead expenses, so long as such dividends are paid as and when
needed by its respective direct or indirect Holding Company and so long as the
aggregate amount of payments pursuant to this clause (v) does not exceed
$1,000,000 in any calendar year; (vi) payments by the Company to repurchase, or
to enable a Holding Company to repurchase, Capital Stock or other securities
from employees or independent contractors of the Company or a Holding Company in
an aggregate amount not to exceed $20,000,000; (vii) payments by the Company to
redeem or repurchase, or to enable a Holding Company to redeem or repurchase,
stock purchase or similar rights granted by the Company or a Holding Company
with respect to its Capital Stock in an aggregate amount not to exceed $500,000;
(viii) payments, not to exceed $200,000 in the aggregate, to enable the Company
or a Holding Company to make cash payments to holders of its Capital Stock in
lieu of the issuance of fractional shares of its Capital Stock; (ix) payments by
the Company to Hicks Muse Partners in accordance with the terms of the Financial
Advisory Agreement and the Monitoring and Oversight Agreement; provided,
however, that in the case of clauses (iii), (vi), (vii) and (viii), no Event of
Default shall have occurred or be continuing at the time of such payment or as a
result thereof. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date, amounts expended pursuant to clauses (i), (iv),
(vi), (vii) and (viii) shall be included in such calculation.
Section 4.10 Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any
of its Subsidiaries is declared due and payable before its maturity because of
the occurrence of any default (or any event which, with notice or lapse of time,
or both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of the occurrence and continuation of
any Default or Event of Default, the Company shall promptly deliver an Officers'
Certificate to the Trustee specifying the Default or Event of Default.
Section 4.11 Reports. So long as any of the Securities are outstanding,
the Company shall provide to the Trustee and the Holders of Securities and file
with the Commission, to the extent such submissions are accepted for filing by
the Commission, copies of the annual reports and of the information, documents
and other reports that the Company would have been required to file with the
Commission pursuant to Sections 13 or 15(d) of the Exchange Act, regardless of
whether the Company is then obligated to file such reports.
Section 4.12 Limitations on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause to permit to exist or become effective, by operation of the
charter of such Restricted Subsidiary or by reason of any agreement, instrument,
judgment, decree, rule, order, statute or governmental regulation, any
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock, (b) make
loans or advances or pay any Indebtedness or other obligation owed to the
Company or any of its Restricted Subsidiaries or (c) transfer any of its
property or assets to the Company, except for such encumbrances or restrictions
existing under or by reason of: (i) applicable law; (ii) this Indenture; (iii)
customary non- assignment provisions of any lease governing a leasehold interest
of the Company or any Restricted Subsidiary; (iv) any instrument governing
Acquired Indebtedness or Acquired Preferred Stock, 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; (v) agreements existing on the Issue
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<PAGE> 33
Date (including the Senior Credit Facility) as such agreements are from time to
time in effect; provided, however, that any amendments or modifications of such
agreements that affect the encumbrances or restrictions of the types subject to
this covenant shall not result in such encumbrances or restrictions being less
favorable to the Company in any material respect, as determined in good faith by
the board of directors of the Company, than the provisions as in effect before
giving effect to the respective amendment or modification; (vi) any restriction
with respect to such a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary pending the closing of such sale
or disposition; (vii) an agreement effecting a refinancing, replacement or
substitution of Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (ii), (iv) or (v) above or any other agreement
evidencing Indebtedness permitted under this Indenture; provided, however, that
the provisions relating to such encumbrance or restriction contained in any such
refinancing, replacement or substitution agreement or any such other agreement
are no less favorable to the Company in any material respect as determined in
good faith by the board of directors of the Company than the provisions relating
to such encumbrance or restriction contained in agreements referred to in such
clause (ii), (iv) or (v); (viii) restrictions on the transfer of the assets
subject to any Lien imposed by the holder of such Lien; (ix) a licensing
agreement to the extent such restrictions or encumbrances limit the transfer of
property subject to such licensing agreement; (x) restrictions relating to
Subsidiary Preferred Stock that require that due and payable dividends thereon
to be paid in full prior to dividends on such Subsidiary's common stock; or (xi)
any agreement or charter provision evidencing Indebtedness or Capital Stock
permitted under this Indenture; provided, however, that the provisions relating
to such encumbrance or restriction contained in such agreement or charter
provision are not less favorable to the Company in any material respect as
determined in good faith by the board of directors of the Company than the
provisions relating to such encumbrance or restriction contained in this
Indenture.
Section 4.13 Subsidiary Guarantees by Restricted Subsidiaries.
(a) The Company shall not create or acquire, nor cause or
permit any of its Restricted Subsidiaries, directly or indirectly, to create or
acquire, any Subsidiary other than (i) an Unrestricted Subsidiary in accordance
with the other terms of this Indenture or (ii) a Restricted Subsidiary that,
simultaneously with such creation or acquisition, (A) executes and delivers to
the Trustee a supplemental indenture to this Indenture pursuant to which it will
become a Guarantor in accordance with Article 11 hereof unless such Restricted
Subsidiary is organized under the laws of a jurisdiction other than the United
States or any State thereof and (B) delivers to the Trustee an Opinion of
Counsel that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a valid, binding and
enforceable obligation of such Restricted Subsidiary (which opinion may be
subject to customary assumptions and qualifications).
(b) Any Guarantor that is designated an Unrestricted
Subsidiary shall upon such designation be released and discharged of its
Subsidiary Guarantee obligations in respect of this Indenture and the Securities
and any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary
shall upon such redesignation be required to become a Guarantor in accordance
with the requirements of Section 4.13(a)(ii).
Section 4.14 Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder
shall have the right to require that the Company purchase all or a portion of
such Holder's Securities in cash pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase.
(b) Prior to the mailing of the notice referred to below, but
in any event within 30 days following the date on which the Company becomes
aware that a Change of Control has occurred, if the purchase of the Securities
would violate or constitute a default under any other Indebtedness of the
Company, then the Company shall, to the extent needed to permit such purchase of
Securities, either (i) repay all such Indebtedness and terminate all commitments
outstanding thereunder or (ii) obtain the requisite consents, if any, under such
Indebtedness to permit the purchase of the Securities as provided below. The
Company shall first comply with the covenant in the preceding sentence before it
will be required to make the Change of Control Offer or purchase the Securities
pursuant to the provisions described below.
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<PAGE> 34
(c) Within 30 days following the date on which the Company
becomes aware that a Change of Control has occurred, the Company shall send, by
first-class mail postage prepaid, a notice to each Holder of Securities, which
notice shall govern the terms of the Change of Control Offer. The notice to the
Holders shall contain all instructions and materials necessary to enable such
Holders to tender Securities pursuant to the Change of Control Offer. Such
notice shall state:
(i) that the Change of Control Offer is being made
pursuant to this Section 4.14 and that all Securities validly tendered
and not withdrawn will be accepted for payment;
(ii) the purchase price (including the amount of
accrued interest, if any) and the purchase date (which shall be no
earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law) (the "Change of
Control Payment Date");
(iii) that any Note not tendered will continue to
accrue interest;
(iv) that, unless the Company defaults in making
payment therefor, any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change
of Control Payment Date;
(v) that Holders electing to have a Security
purchased pursuant to a Change of Control Offer will be required to
surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the Paying
Agent and Registrar for the Securities at the address specified in the
notice prior to the close of business on the Business Day prior to the
Change of Control Payment Date;
(vi) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than five Business
Days prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing his election
to have such Security purchased;
(vii) that Holders whose Securities are purchased
only in part shall be issued new Securities in a principal amount equal
to the unpurchased portion of the Securities surrendered; provided,
however, that each Security purchased and each new Security issued
shall be in a principal amount of $1,000 or integral multiples thereof;
and
(viii) the circumstances and relevant facts regarding
such Change of Control.
(d) On or before the Change of Control Payment Date, the
Company shall (i) accept for payment Securities or portions thereof (in integral
multiples of $1,000) validly tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent in accordance with Section 2.14 cash in U.S.
dollars or United States Government Obligations sufficient to pay the purchase
price plus accrued and unpaid interest, if any, of all Securities so tendered
and (iii) deliver to the Trustee Securities so accepted together with an
Officers' Certificate stating the Securities or portions thereof being purchased
by the Company. Upon receipt by the Paying Agent of the monies specified in
clause (ii) above and a copy of the Officers' Certificate specified in clause
(iii) above, the Paying Agent shall promptly mail to the Holders of Securities
so accepted payment in an amount equal to the purchase price plus accrued and
unpaid interest, if any, out of the funds deposited with the Paying Agent in
accordance with the preceding sentence. The Trustee shall promptly authenticate
and mail to such Holders new Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Upon the payment of the
purchase price for the Securities accepted for purchase, the Trustee shall
return the Securities purchased to the Company for cancellation. Any monies
remaining after the purchase of Securities pursuant to a Change of Control Offer
shall be returned within three Business Days by the Trustee to the Company
except with respect to monies owed as obligations to the Trustee pursuant to
Article 7. For purposes of this Section 4.14, the Trustee shall, except with
respect to monies owed as obligations to the Trustee pursuant to Article 7, act
as the Paying Agent.
(e) The Company shall comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with
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the purchase of the Securities pursuant to a Change of Control Offer. To the
extent the provisions of any such rule conflict with the provisions of this
Indenture relating to a Change of Control Offer, the Company shall comply with
the provisions of such rule and be deemed not to have breached its obligations
relating to such Change of Control Offer by virtue thereof.
(f) Paragraphs (a)-(e) notwithstanding, the Company shall not
be required to make a Change of Control Offer in the event of (i) changes in a
majority of the board of directors of the Company so long as a majority of such
board of directors continues to consist of Continuing Directors and (ii) certain
transactions with Permitted Holders (including Hicks Muse, its officers and
directors, and their respective Affiliates).
Section 4.15 Limitation on Liens. The Company shall not, and shall not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur or assume any Lien securing Indebtedness on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, unless contemporaneously therewith effective
provision is made, in the case of the Company, to secure the Securities and all
other amounts due under this Indenture, and in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's
Subsidiary Guarantee of the Securities and all other amounts due under this
Indenture, equally and ratably with such Indebtedness (or, in the event that
such Indebtedness is subordinated in right of payment to the Securities or such
Subsidiary's Subsidiary Guarantee, prior to such Indebtedness) with a Lien on
the same properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (a) Liens securing Senior
Indebtedness and Guarantor Senior Indebtedness, and (b) Liens securing
Indebtedness described in clause (xi) of the definition of "Permitted
Indebtedness"; provided that such Liens cover only the property referred to in
such definition.
Section 4.16 Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the close of each fiscal year a certificate signed
by the principal executive officer, principal financial officer or principal
accounting officer stating that a review of the activities of the Company has
been made under the supervision of the signing officer with a view to
determining whether a Default or Event of Default has occurred and whether or
not the signers know of any Default or Event of Default by the Company that
occurred during such fiscal year. If they do know of such a Default or Event of
Default, their status and the action the Company is taking or proposes to take
with respect thereto. The first certificate to be delivered by the Company
pursuant to this Section 4.16 shall be for the fiscal year ending December 31,
1998.
Section 4.17 Corporate Existence. Subject to Article 5, the Company
shall do or shall cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and the corporate, partnership or
other existence of each Subsidiary in accordance with the respective
organizational documents of each such Subsidiary and the rights (charter and
statutory) and material franchises of the Company and the Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise, or the corporate existence of any Subsidiary, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Subsidiaries, taken as a whole; provided, further, however, that a determination
of the Board of Directors of the Company shall not be required in the event of a
merger of one or more Restricted Subsidiaries of the Company with or into
another Restricted Subsidiary of the Company or another Person, if the surviving
Person is a Restricted Subsidiary of the Company organized under the laws of the
United States or a State thereof or of the District of Columbia. This Section
4.17 shall not prohibit the Company from taking any other action otherwise
permitted by, and made in accordance with, the provisions of this Indenture.
Section 4.18 Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, maintain its material properties in normal condition (subject
to ordinary wear and tear) and make all reasonably necessary repairs, renewals
or replacements thereto as in the judgment of the Company may be reasonably
necessary to the conduct of the business of the Company and its Restricted
Subsidiaries; provided, however, that nothing in this Section 4.18 shall prevent
the Company or any of its Restricted Subsidiaries from discontinuing the
operation and maintenance of any of its properties, if such properties are, in
the reasonable and good faith judgment of the Board of Directors of the Company
or the Restricted Subsidiary, as the case may be, no longer reasonably necessary
in the conduct of their respective businesses.
(b) The Company shall provide or cause to be provided, for
itself and each of its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
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good faith opinion of the Company, are reasonably adequate and appropriate for
the conduct of the business of the Company and such Restricted Subsidiaries.
Section 4.19 Payment of Taxes and Other Claims. The Company shall pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes)
levied or imposed upon it or any of its Restricted Subsidiaries or properties of
it or any of its Restricted Subsidiaries and (b) all material lawful claims for
labor, materials, supplies and services that, if unpaid, might by law become a
Lien upon the property of it or any of its Restricted Subsidiaries; provided,
however, that there shall not be required to be paid or discharged any such tax,
assessment or charge, the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
provision has been made or where the failure to effect such payment or discharge
is not adverse in any material respect to the Holders.
Section 4.20 Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other law that
would prohibit or forgive the Company from paying all or any portion of the
principal of, premium or interest on the Securities as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
obligations or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution 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.
ARTICLE 5
MERGERS; SUCCESSOR CORPORATION
Section 5.01 Merger, Consolidation and Sale of Assets. The Company
shall not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of the Company's or any
Guarantor's assets determined on a consolidated basis for the Company to another
Person or adopt a plan of liquidation unless (a) either (i) the Company is the
Surviving Person or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person that acquires by
conveyance, transfer or lease the properties and assets of the Company or such
Guarantor substantially as an entirety or in the case of a plan of liquidation,
the Person to which assets of the Company have been transferred, shall be a
corporation, partnership, limited liability company or trust organized and
existing under the laws of the United States or any State thereof or the
District of Columbia; (b) such Surviving Person shall assume all of the
obligations of the Company or such Guarantor under the Securities and this
Indenture pursuant to a supplemental indenture in a form and substance
reasonably satisfactory to the Trustee; (c) immediately after giving effect to
such transaction and the use of the proceeds therefrom (on a pro forma basis,
including giving effect to any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), (x) no Default or Event of
Default shall have occurred and be continuing and (y) the Company (in the case
of clause (i) of the foregoing clause (a)) or such Person (in the case of clause
(ii) of the foregoing clause (a)) shall be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section
4.04; and (d) the Company has delivered to the Trustee prior to the consummation
of the proposed transaction an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer complies with this
Indenture and that all conditions precedent in this Indenture relating to such
transaction have been satisfied. For purposes of the foregoing, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties and assets
of one or more Restricted Subsidiaries, the Capital Stock of which constitutes
all or substantially all of the properties or assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company. Notwithstanding the foregoing clauses (b) and (c), (A)
any Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and (B) the
Company may merge with an Affiliate thereof organized solely for the purpose of
reorganizing the Company in another jurisdiction in the U.S. to realize tax or
other benefits. Notwithstanding the foregoing, clauses (b), (c) and (d) shall
not apply to the Recapitalization.
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Section 5.02 Successor Corporation Substituted. In the event of any
transaction (other than a lease) described in and complying with the conditions
listed in Section 5.01 in which the Company is not the surviving person and the
surviving person is to assume all the Obligations of the Company under the
Securities, this Indenture and the Registration Rights Agreement pursuant to a
supplemental indenture, such surviving person shall succeed to, and be
substituted for, and may exercise every right and power of the Company, and the
Company shall be discharged from its Obligations under this Indenture, the
Securities and the Registration Rights Agreement.
ARTICLE 6
DEFAULT AND REMEDIES
Section 6.01 Events of Default. Each of the following shall be an
"Event of Default" for purposes of this Indenture:
(a) the failure to pay interest on any Security when the same
becomes due and payable and the Default continues for a period of 30 days
(whether or not such payment is prohibited by Article 7);
(b) the failure to pay principal of or premium, if any, on any
Security when such principal or premium, if any, becomes due and payable, at
maturity, upon redemption or otherwise (whether or not such payment is
prohibited by Article 7);
(c) a default in the observance or performance of any other
covenant or agreement contained in the Securities or this Indenture, which
default continues for a period of 30 days after the Company receives written
notice thereof specifying the default from the Trustee or Holders of at least
25% in aggregate principal amount of outstanding Securities;
(d) the failure to pay at the final stated maturity (giving
effect to any extensions thereof) the principal amount of any Indebtedness of
the Company or any Restricted Subsidiary of the Company, or the acceleration of
the final stated maturity of any such Indebtedness, if the aggregate principal
amount of such Indebtedness, together with the aggregate principal amount of any
other such Indebtedness in default for failure to pay principal at the final
stated maturity (giving effect to any extensions thereof) or which has been
accelerated, aggregates $10,000,000 or more at any time in each case after a
10-day period during which such default shall not have been cured or such
acceleration rescinded;
(e) one or more judgments in an aggregate amount in excess of
$15,000,000 (which are not covered by insurance as to which the insurer has not
disclaimed coverage) being rendered against the Company or any of its
Significant Restricted Subsidiaries and such judgment or judgments remain
undischarged or unstayed for a period of 60 days after such judgment or
judgments become final and nonappealable;
(f) the Company or any of its Significant Restricted
Subsidiaries (or one or more Restricted Subsidiaries that, taken together would
constitute a Significant Restricted Subsidiary) pursuant to or within the
meaning of any Bankruptcy Law: (i) admits in writing its inability to pay its
debts generally as they become due; (ii) commences a voluntary case or
proceeding; (iii) consents to the entry of an order for relief against it in an
involuntary case or proceeding; (iv) consents or acquiesces in the institution
of a bankruptcy or insolvency proceeding against it; (v) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; or (vi) makes a general assignment for the benefit of its creditors,
or any of them takes any action to authorize or effect any of the foregoing;
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against the Company or
any Significant Restricted Subsidiary (or one or more Restricted Subsidiaries
that, taken together would constitute a Significant Restricted Subsidiary) of
the Company in an involuntary case or proceeding; (ii) appoints a Custodian of
the Company or any Significant Restricted Subsidiary (or one or more Restricted
Subsidiaries that, taken together would constitute a Significant Restricted
Subsidiary) of the Company for all or substantially all of its property; or
(iii) orders the liquidation of the Company or any Significant Restricted
Subsidiary (or one or more Restricted Subsidiaries that, taken together would
constitute a Significant Restricted Subsidiary) of the Company; and in each case
the order or decree remains unstayed and in effect for 60 days; provided,
however, that if the entry of such order or decree is
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appealed and dismissed on appeal, then the Event of Default hereunder by reason
of the entry of such order or decree shall be deemed to have been cured; or
(h) except as permitted by this Indenture, any Subsidiary
Guarantee shall be held in a judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect or any Guarantor,
or any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee.
Section 6.02 Acceleration. If an Event of Default with respect to the
Securities (other than an Event of Default specified in clause (f) or (g) of
Section 6.01) occurs and is continuing, the Trustee may, or the Trustee upon the
request of Holders of 25% in principal amount of the outstanding Securities
shall, or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities may declare the principal of all the Securities, together
with all accrued and unpaid interest and premium, if any, to be due and payable
by notice in writing to the Company and the Trustee specifying the respective
Event of Default and that it is a "notice of acceleration" (the "Acceleration
Notice"), and the same (i) shall become immediately due and payable or (ii) if
there are any amounts outstanding under the Senior Credit Facilities, will
become due and payable upon the first to occur of an acceleration under the
Senior Credit Facilities or five Business Days after receipt by the Company and
the agent under the Senior Credit Facilities of such Acceleration Notice (unless
all Events of Default specified in such Acceleration Notice have been cured or
waived).
If an Event of Default specified in clause (f) or (g) of
Section 6.01 occurs, all unpaid principal of and accrued interest on all
outstanding Securities shall ipso facto become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after such declaration with respect to the
Securities, the Holders of a majority in principal amount of Securities then
outstanding (by notice to the Trustee) may rescind and cancel such declaration
and its consequences if (i) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction, (ii) all existing Defaults and
Events of Default have been cured or waived except nonpayment of principal of or
interest on the Securities that has become due solely by such declaration of
acceleration, (iii) to the extent the payment of such interest is lawful,
interest (at the same rate specified in the Securities) on overdue installments
of interest and overdue payments of principal, which has become due otherwise
than by such declaration of acceleration has been paid, (iv) the Company has
paid the Trustee its reasonable compensation and reimbursed the Trustee for its
reasonable expenses, disbursements and advances and (v) in the event of the cure
or waiver of a Default or Event of Default of the type described in clause (f)
or (g) of Section 6.01, the Trustee has received an Officers' Certificate and
Opinion of Counsel that such Default or Event of Default has been cured or
waived. The Holders of a majority in principal amount of the Securities may
waive any existing Default or Event of Default under this Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Securities. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
Section 6.03 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on the Securities
or to enforce the performance of any provision of the Securities or this
Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder in exercising any right or
remedy maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.04 Waiver of Past Default. Subject to Sections 2.09, 6.07 and
10.02, prior to the declaration of acceleration of the Securities, the Holders
of not less than a majority in aggregate principal amount of the outstanding
Securities by written notice to the Trustee may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of or interest on any Security as specified in clauses (a), (b), (c)
and (d) of Section 6.01 or a Default in respect of any term or provision of this
Indenture that may not be amended or modified without the consent of each Holder
affected as provided in Section 10.02. The Company shall deliver to the Trustee
an Officers' Certificate stating that the requisite percentage of Holders have
consented to such waiver and attaching copies of such consents. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to their
former positions and rights hereunder
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and under the Securities, respectively. This paragraph of this Section 6.04
shall be in lieu of ss. 316(a)(1)(B) of the TIA and such ss. 316(a)(1)(B) of the
TIA is hereby expressly excluded from this Indenture and the Securities, as
permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
Section 6.05 Control by Majority. Subject to Section 2.09, the Holders
of a majority in principal amount of the outstanding Securities may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on 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
another Holder, it being understood that the Trustee shall have no duty (subject
to Section 8.01) to ascertain whether or not such actions or forebearances are
unduly prejudicial to such Holders, or that may involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. In the
event the Trustee takes any action or follows any direction pursuant to this
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against any loss or expense caused by taking such action
or following such direction. This Section 6.05 shall be in lieu of ss.
316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Section 6.06 Limitation on Suits. A Holder may not pursue any remedy
with respect to this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount
of the outstanding Securities make a written request to the Trustee to pursue a
remedy;
(c) such Holder or Holders 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 outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
Section 6.07 Rights of Holders To Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of or interest on a Security, on or after the respective due dates
expressed in the Security, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
Section 6.08 Collection Suit by Trustee. If an Event of Default in
payment of principal or interest specified in Section 6.01(a), (b), (c) or (d)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company or any other obligor on the
Securities for the whole amount of principal and accrued interest remaining
unpaid, together with interest overdue on principal and to the extent that
payment of such interest is lawful, interest on overdue installments of
interest, in each case at the rate per annum borne by the Securities and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the
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reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel) and the Holders allowed in any judicial proceedings
relative to the Company (or any other obligor upon the Securities), its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 8.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and may be a member of the creditors'
committee.
Section 6.10 Priorities. If the Trustee collects any money or property
pursuant to this Article 6, it shall pay out the money or property in the
following order:
First: to the Trustee for amounts due under Section 8.07;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to the Holders pursuant to this
Section 6.10.
Section 6.11 Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 shall not apply
to a suit by the Trustee, a suit by a Holder or group of Holders of more than
10% in aggregate principal amount of the outstanding Securities, or to any suit
instituted by any Holder for the enforcement or the payment of the principal or
interest on any Securities on or after the respective due dates expressed in the
Security.
ARTICLE 7
SUBORDINATION OF SECURITIES
Section 7.01 Agreement To Subordinate. The Company agrees, and each
Holder by accepting any Security agrees, that the Indebtedness evidenced by the
Securities is subordinated in right of payment, to the extent and in the manner
provided in this Article 7, to the payment when due of all Senior Indebtedness
of the Company and that such subordination is for the benefit of and enforceable
by the holders of Senior Indebtedness. The Securities shall in all respects rank
pari passu with all other Senior Subordinated Indebtedness of the Company, and
only Indebtedness of the Company which is Senior Indebtedness will rank senior
to the Securities in accordance with the provisions set forth herein. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured, nor is any Indebtedness deemed to be subordinate
or junior to other Indebtedness merely because it matures after such other
Indebtedness. Secured Indebtedness is not deemed to be Senior Indebtedness
merely because it is secured. All provisions of this Article 7 shall be subject
to Section 7.12.
Section 7.02 Liquidation, Dissolution, Bankruptcy. Upon any payment or
distribution of the assets of the Company upon a total or partial liquidation or
dissolution or reorganization or bankruptcy of or similar proceeding relating to
the Company or its property:
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(a) holders of Senior Indebtedness of the Company shall be
entitled to receive payment in full in cash or Cash Equivalents of all Senior
Indebtedness of the Company before holders of Securities shall be entitled to
receive any payment of principal of or interest on or other amounts with respect
to the Securities from the Company; and
(b) until the Senior Indebtedness of the Company is paid in
full, in cash or Cash Equivalents, any payment or distribution to which Holders
would be entitled but for the provisions of this Article 7 shall be made to
holders of Senior Indebtedness as their interests may appear.
Section 7.03 Default on Senior Indebtedness. The Company may not pay
the principal of, premium (if any), or interest on, and other obligations with
respect to, the Securities or make any deposit pursuant to Section 9.03 or
repurchase, redeem or otherwise retire any Securities (collectively, "pay the
Securities") if (a) any Senior Indebtedness is not paid when due or (b) any
other default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(i) the default has been cured or waived or is no longer continuing and/or any
such acceleration has been rescinded or (ii) such Senior Indebtedness has been
paid in full; provided, however, that the Company may pay the Securities,
subject to the provisions of Section 7.02, without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representatives of the Senior Indebtedness with respect to which either of
the events set forth in clause (a) or (b) of this sentence has occurred or is
continuing. During the continuance of any default (other than a default
described in clause (a) or (b) of the preceding sentence) with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Securities (except (A) in Qualified Capital
Stock issued by the Company to pay interest on the Securities or issued in
exchange for the Securities, (B) in securities substantially identical to the
Securities issued by the Company in payment of interest accrued thereon or (C)
in securities issued by the Company which are subordinated to the Senior
Indebtedness at least to the same extent as the Securities and having a Weighted
Average Life to Maturity at least equal to the remaining Weighted Average Life
to Maturity of the Securities) for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (1) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (2)
because the default giving rise to such Blockage Notice has been cured, waived
or is no longer continuing or (3) because such Designated Senior Indebtedness
has been repaid in full). Notwithstanding the provisions of the immediately
preceding sentence, but subject to the provisions of the first sentence of this
Section 7.03 and the provisions of Section 7.02, the Company may resume payments
on the Securities after the end of such Payment Blockage Period. Not more than
one Blockage Notice may be given, and not more than one Payment Blockage Period
may occur, in any consecutive 360-day period, irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period.
However, if any Blockage Notice within such 360-day period is given by or on
behalf of any holders of Designated Senior Indebtedness (other than the agent
under the Senior Credit Facilities), the agent under the Senior Credit
Facilities may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Payment Blockage Periods are in effect exceed 179 days in the aggregate
during any 360 consecutive day period. No nonpayment default that existed or was
continuing on the date of delivery of any Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 consecutive
days.
Section 7.04 Acceleration of Payment of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of Designated Senior Indebtedness or
the Representative (if any) of any issue of Designated Senior Indebtedness which
is then outstanding; provided, however, that the Company and the Trustee shall
be obligated to notify such a Representative (other than with respect to the
Senior Credit Facilities) only if such Representative has delivered or caused to
be delivered an address for the service of such a notice to the Company and the
Trustee (and the Company and the Trustee shall be obligated only to deliver the
notice to the address so specified). If a notice is required pursuant to the
immediately preceding sentence, the Company may not pay the Securities (except
payment (a) in Qualified Capital Stock issued by the Company to pay interest on
the Securities or issued in exchange for the Securities, (b) in securities
substantially identical to the Securities issued by the Company in payment of
interest accrued thereon or (c) securities issued by the Company which are
subordinated to the Senior Indebtedness at least to the same extent as the
Securities and have a Weighted Average Life to Maturity at least equal to the
remaining Weighted Average Life to Maturity of the Securities), until five
Business Days after the respective Representative of the Designated
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Senior Indebtedness receives notice (at the address specified in the preceding
sentence) of such acceleration and thereafter may pay the Securities only if the
provisions of this Article 7 otherwise permit payment at that time.
Section 7.05 When Distribution Must Be Paid Over. If a distribution is
made to the Trustee or to Holders that because of this Article 7 should not have
been made to them, the Trustee or the Holders who receive such distribution
shall hold it for holders of Senior Indebtedness and promptly pay it over to
them as their respective interests may appear; provided, however, that the
liabilities of the Trustee under this Section 7.05 are limited by Section 7.15.
Section 7.06 Subrogation. After all Senior Indebtedness is paid in full
and until the Securities are paid in full, Holders shall be subrogated to the
rights of holders of Senior Indebtedness to receive distributions applicable to
Senior Indebtedness. A distribution made under this Article 7 to holders of
Senior Indebtedness which otherwise would have been made to Holders is not, as
between the Company and the Holders, a payment by the Company of Senior
Indebtedness.
Section 7.07 Relative Rights. This Article 7 defines the relative
rights of Holders of the Securities on the one hand and holders of Senior
Indebtedness on the other hand. Nothing in this Indenture shall:
(a) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay principal
of and interest on the Securities in accordance with their terms; or
(b) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders of Senior Indebtedness to receive distributions otherwise payable to
Holders.
Section 7.08 Subordination May Not Be Impaired by Company. No right of
any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by the failure of the Company to comply with this
Indenture.
Section 7.09 Rights of Trustee and Paying Agent. Notwithstanding
Section 7.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 7. The Company, the Registrar or co-Registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; provided,
however, that if an issue of Senior Indebtedness has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
The Registrar and co-Registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 7 with respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 7 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.07.
Section 7.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
Section 7.11 Article 7 Not To Prevent Events of Default or Limit Right
To Accelerate. The failure to make a payment in respect of the Securities by
reason of any provision in this Article 7 shall not be construed as preventing
the occurrence of a Default or Event of Default. Nothing in this Article 7 shall
have any effect on the right of the Holders or the Trustee to accelerate the
maturity of the Securities.
Section 7.12 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 9 by the Trustee for the
payment of principal of and interest on the Securities shall not be subordinated
to the prior payment of any Senior Indebtedness or subject to the restrictions
set forth in this Article 7, and none of the Holders shall be obligated to pay
over any such amount to the Company, any holder of Senior Indebtedness of the
Company, or any other creditor of the Company.
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Section 7.13 Trustee Entitled To Rely. Upon any payment or distribution
pursuant to this Article 7, the Trustee and the Holders shall be entitled to
rely (a) upon any order or decree of a court of competent jurisdiction in which
any proceedings of the nature referred to in Section 7.02 are pending, (b) upon
a certificate of the liquidating trustee or agent or other Person making such
payment or distribution to the Trustee or to the Holders or (c) upon the
Representatives for the holders of Senior Indebtedness for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 7.
In the event that the Trustee determines, in good faith, that evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article 7, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and other facts pertinent to the rights of such
Person under this Article 7, and, if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment. The Trustee shall have the right
to seek a declaratory judgment as to any right of such Person to receive such
payment. The provisions of Sections 8.01 and 8.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 7.
Section 7.14 Trustee To Effectuate Subordination. Each Holder by
accepting a Security authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination between the Holder and the holders of Senior Indebtedness as
provided in this Article 7 and appoints the Trustee as attorney-in-fact for any
and all such purposes.
Section 7.15 Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Holders or the Company, or any other
Person, money or assets to which any holders of Senior Indebtedness shall be
entitled by virtue of this Article 7 or otherwise.
Section 7.16 Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Holder by accepting a Security acknowledges and
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Indebtedness.
ARTICLE 8
TRUSTEE
Section 8.01 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 their exercise as a
prudent person 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 Trustee shall not be liable except for the
performance of such duties as are specifically set forth herein and no
covenants or obligations shall be implied under 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 conforming to the requirements of this Indenture; provided,
however, that in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine such certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture (but need
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not confirm or investigate the accuracy of mathematical calculations or
other facts stated therein or otherwise verify the contents thereof).
(c) The Trustee shall not be relieved from liability 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 8.01;
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(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 Sections 6.02, 6.04 and 6.05.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of such
funds is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
8.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 8.02 Rights of Trustee. Subject to Section 8.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and/or an Opinion of Counsel, which shall
conform to the provisions of Section 13.05. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of any
agent or attorney (other than an agent who is an employee of the Trustee)
appointed with due care and appointed with the consent of the Company.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) Before the Trustee acts or refrains from acting, it may
consult with counsel and the advice or opinion of such counsel as to matters of
law shall be full and complete authorization and protection from liability in
respect of any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution.
(g) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have
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offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
(h) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney.
(i) The Trustee shall not be deemed to have notice of any
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the Securities
and this Indenture.
(j) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties hereunder.
(k) The permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its gross negligence or willful
misconduct.
Section 8.03 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or their Affiliates with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to Sections 8.10 and 8.11.
Section 8.04 Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Company or any Guarantor in this Indenture or any document issued in
connection with the sale of Securities or any statement in the Securities other
than the Trustee's certificate of authentication.
Section 8.05 Notice of Defaults. If a Default or an Event of Default
occurs and is continuing and the Trustee has actual knowledge of such Defaults
or Events of Default, the Trustee shall mail to each Holder notice of the
Default or Event of Default within 30 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of or
interest on any Security or a Default or Event of Default in complying with
Section 5.01, the Trustee may withhold the notice if and so long as a committee
of its Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders. This Section 8.05 shall be in lieu of the proviso
to ss. 315(b) of the TIA and such proviso to ss. 315(b) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Section 8.06 Reports by Trustee to Holders. If required by TIA ss.
313(a), within 60 days after each June 1 beginning with June 1, 1999, the
Trustee shall mail to each Holder a report dated as of such June 1 that complies
with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to
Holders shall be filed with the Commission and each stock exchange, if any, on
which the Securities are listed.
The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or of any delisting thereof.
Section 8.07 Compensation and Indemnity. The Company and the Guarantors
shall pay to the Trustee and the Agents from time to time, and the Trustee and
the Agents shall be entitled to, such compensation as the Company and the
Trustee and the Agents shall from time to time agree in writing for their
respective services. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Company and the Guarantors
shall reimburse the Trustee and the Agents upon request for all reasonable
disbursements, expenses and advances, including all costs and expenses of
collection and reasonable fees, disbursements and expenses of its agents and
outside counsel incurred
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or made by any of them in addition to the compensation for their respective
services except any such disbursements, expenses and advances as may be
attributable to negligence or willful misconduct of the party to be reimbursed.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents, accountants, experts and outside counsel and
any taxes or other expenses incurred by a trust created pursuant to Section 9.01
hereof.
The Company and the Guarantors shall indemnify the Trustee and
the Agents for, and hold them harmless against any and all loss, damage, claims,
liability or expense, including taxes (other than franchise taxes imposed on the
indemnified party and taxes based upon, measured by or determined by the income
of the indemnified party), arising out of or in connection with the acceptance
or administration of the trust or trusts hereunder, including the costs and
expenses of enforcing this Indenture against the Company and the Guarantors
(including this Section 8.07) and the costs and expenses of defending themselves
against or investigating any claim (whether asserted by the Company, any Holder
or any other Person) or liability in connection with the exercise or performance
of any of their powers or duties hereunder, except to the extent that such loss,
damage, claim, liability or expense is due to negligence or willful misconduct
of the indemnified party. The indemnified party shall notify the Company
promptly of any claim asserted against the indemnified party for which it may
seek indemnity. However, the failure by the indemnified party to so notify the
Company shall not relieve the Company and the Guarantors of their obligations
hereunder unless the Company and the Guarantors have been prejudiced thereby.
The Company and the Guarantors shall defend the claim and the indemnified party
shall cooperate in the defense at the expense of the Company and the Guarantors;
provided that the Company and the Guarantors shall not be liable in any action
or for which they have assumed the defense for the expenses of separate counsel
to the indemnified party unless (1) the employment of separate counsel has been
authorized by the Company and the Guarantors, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to the indemnified party that are
different from or in addition to those available to the Company and the
Guarantors or (3) a conflict or potential conflict exists (based upon advice of
counsel to the indemnified party) between the indemnified party, the Company and
the Guarantors; provided further, however, that in any such event the
reimbursement obligation of the Company and the Guarantors with respect to
separate counsel of the indemnified party will be limited to the reasonable fees
and expenses of such counsel.
The Company and the Guarantors need not pay for any settlement
made without their written consent, which consent shall not be unreasonably
withheld or delayed. The Company and the Guarantors need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee or an
Agent as a result of its own negligence or willful misconduct.
The Trustee's rights to receive payment of any amount due
under this Section 8.07 shall not be subordinated to any other liability or
indebtedness of the Company or the Guarantors (even though the Securities may be
so subordinated). To secure the payment obligations of the Company and the
Guarantors in this Section 8.07, the Trustee shall have a Lien prior to the
Securities against all money or property held or collected by the Trustee, in
its capacity as Trustee, except money or property held in trust to pay principal
of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(f) or (g) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law.
Section 8.08 Replacement of Trustee. The Trustee may resign at any time
by so notifying the Company in writing. The Holders of a majority in principal
amount of the outstanding Securities may remove the Trustee by so notifying the
Trustee and the Company in writing and may appoint a successor Trustee with the
Company's consent. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 8.10;
(b) the Trustee is adjudged bankrupt or insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or other public officer takes charge of the
Trustee or its property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 8.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 8.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
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 at least 10% in principal amount of the outstanding
Securities may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 8.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 8.08, the Company's obligations under Section 8.07 shall continue for
the benefit of the retiring Trustee.
Section 8.09 Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or banking
corporation, the resulting, surviving or transferee corporation or banking
corporation without any further act shall be the successor Trustee; provided,
however, that such corporation shall be otherwise qualified and eligible under
this Article 8.
Section 8.10 Eligibility; Disqualification. This Indenture shall always
have a Trustee which shall be eligible to act as Trustee under TIA ss.ss.
310(a)(1) and 310(a)(2). The Trustee shall have a combined capital and surplus
of at least $50,000,000 as set forth in its most recent published annual report
of condition. If the Trustee has or shall acquire any "conflicting interest"
within the meaning of TIA ss. 310(b), the Trustee and the Company shall comply
with the provisions of TIA ss. 310(b); provided, however, that there shall be
excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures
under which other securities or certificates of interest or participation in
other securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA ss. 310(b)(1) are met. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
8.10, the Trustee shall resign immediately in the manner and with the effect
hereinbefore specified in this Article 8. The provisions of TIA ss. 310 shall
apply to the Company and any other obligor of the Securities.
Section 8.11 Preferential Collection of Claims Against the Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01 Termination of the Company's Obligations. The Company may
terminate its obligations under the Securities and this Indenture as well as the
obligations of the Guarantors under their respective Subsidiary Guarantees,
except those obligations referred to in the penultimate paragraph of this
Section 9.01, if:
(a) either (i) all the Securities theretofore authenticated
and delivered (except lost, stolen or destroyed Securities which have been
replaced or paid and Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from
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such trust) have been delivered to the Trustee for cancellation or (ii) all
Securities not theretofore delivered to the Trustee for cancellation have become
due and payable or have been called for redemption and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Securities
not theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Securities to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may be;
(b) the Company has paid all other sums payable under this
Indenture by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions precedent
under this Indenture relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the first paragraph of this Section 9.01, the
Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 8.07, 8.08, 9.05
and 9.06 shall survive until the Securities are no longer outstanding pursuant
to Section 2.08. After the Securities are no longer outstanding, the Company's
obligations in Sections 8.07, 8.08, 9.05 and 9.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the Company's and
Guarantors' obligations under the Securities, the Subsidiary Guarantees and this
Indenture except for those surviving obligations specified above.
Section 9.02 Legal Defeasance and Covenant Defeasance.
(a) The Company may terminate its obligations in respect of
the Securities by delivering all outstanding Securities to the Trustee for
cancellation and paying all sums payable by it on account of principal of and
interest on all Securities or otherwise. In addition to the foregoing, the
Company may, at its option, at any time elect to have either paragraph (b) or
(c) below be applied to all outstanding Securities, subject in either case to
compliance with the conditions set forth in Section 9.03.
(b) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be deemed to have paid
and discharged the entire indebtedness represented by the outstanding
Securities, except for (i) the rights of Holders to receive payments in respect
of the principal of, premium, if any, and interest on the Securities when such
payments are due, (ii) the Company's obligations with respect to the Securities
under Sections 2.03 through 2.07, inclusive, and 4.02, (iii) the rights, powers,
trust, duties and immunities of the Trustee under this Indenture and the
Company's obligations in connection therewith and (iv) Article 9 of this
Indenture (hereinafter, "Legal Defeasance"). Subject to compliance with this
Article 9, the Company may exercise its option under this paragraph (b)
notwithstanding the prior exercise of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be released from its
obligations under Sections 4.03 through 4.15, inclusive, 4.18 and Article 5 with
respect to the outstanding Securities (hereinafter, "Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Securities.
Section 9.03 Conditions to Legal Defeasance or Covenant Defeasance. In
order to exercise either Legal Defeasance pursuant to Section 9.02(b) or
Covenant Defeasance pursuant to Section 9.02(c):
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in U.S. dollars or United States
Government Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Securities on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
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(b) in the case of an election under Section 9.02(b), the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 9.02(c), 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
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing 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 Sections 6.01(f) and 6.01(g) are concerned, at any time in the period ending
on the 91st day after the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of or constitute a Default under this Indenture
or any other material agreement or instrument to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(f) the Company 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 over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(g) 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; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that assuming no intervening bankruptcy or insolvency
of the Company between the date of deposit and the 91st day following the
deposit and that no Holder is an insider of the Company, 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 law affecting
creditors' rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (b) above need not be delivered if all Securities not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable on the Final Maturity Date within one year or (z)
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company.
Section 9.04 Application of Trust Money; Trustee Acknowledgment and
Indemnity. The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.03, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of, premium,
if any, and interest on the Securities.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations specified
above.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the United States
Government Obligations deposited pursuant to Section 9.03 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 outstanding Securities.
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Section 9.05 Repayment to Company. Subject to Sections 8.07 and 9.04,
the Trustee shall promptly pay to the Company upon written request any excess
money held by it at any time. The Trustee shall pay to the Company upon written
request any money held by it for the payment of principal or interest that
remains unclaimed for two years; provided, however, that the Trustee before
being required to make any payment may at the expense of the Company cause to be
published once in a newspaper of general circulation in The City of New York or
mail to each Holder entitled to such money notice that such money remains
unclaimed and that, after a date specified therein which shall be at least 30
days from the date of such publication or mailing, any unclaimed balance of such
money then remaining shall be repaid to the Company. After payment to the
Company, Holders entitled to money must look solely to the Company for payment
as general creditors unless an applicable abandoned property law designates
another person and all liability of the Trustee or Paying Agent with respect to
such money shall thereupon cease.
Section 9.06 Reinstatement. If the Trustee is unable to apply any money
or United States Government Obligations in accordance with Section 9.02 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.02 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.02; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE 10
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 10.01 Without Consent of Holders. The Company and the
Guarantors, when authorized by a resolution of the Board of Directors, and the
Trustee may amend or supplement this Indenture or the Securities without notice
to or consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the rights
of any Holder in any material respect;
(b) to effect the assumption by a successor Person of all
obligations of the Company under the Securities and this Indenture in connection
with any transaction complying with Article 5 of this Indenture;
(c) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(d) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(e) to make any change that would provide any additional
benefit or rights to the Holders;
(f) to make any other change that does not adversely affect
the rights of any Holder under this Indenture;
(g) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company;
(h) to reflect the release of a Guarantor from its obligations
with respect to its Guarantee in accordance with the provisions of Section 11.03
and to add a Guarantor pursuant to the requirements of Section 4.13; or
(i) to secure the Securities pursuant to the requirements of
Section 4.15 or otherwise;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
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Section 10.02 With Consent of Holders. Subject to Section 6.07, the
Company and the Guarantors, when authorized by a Board Resolution, and the
Trustee may modify, amend or supplement, or waive compliance by the Company with
any provision of, this Indenture or the Securities with the written consent of
the Holders of at least a majority in principal amount of the outstanding
Securities. However, without the consent of each Holder affected, no such
modification, amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, may:
(a) [reserved];
(b) reduce the principal amount of or change the Stated
Maturity of any Security or alter the provisions with respect to the repurchase
or redemption of the Securities (other than provisions relating to Section 4.08
or 4.14);
(c) reduce the rate of or change the time for payment of
interest on any Security;
(d) make any Security payable in money other than that stated
in the Securities;
(e) make any change in the provisions of this Indenture
relating to the rights of Holders of Securities to receive payments of principal
of or premium, if any, or interest on the Securities;
(f) modify any provisions of Section 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07 or this
Section 10.02 (other than to add sections of this Indenture or the Securities
which may not be modified, amended, supplemented or waived without the consent
of each Holder affected);
(g) reduce the percentage of the principal amount of
outstanding Securities necessary for amendment to or waiver of compliance with
any provision of this Indenture or the Securities or for waiver of any Default
in respect thereof;
(h) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Securities (except a
rescission of acceleration of the Securities by the Holders thereof as provided
in Section 6.02 and a waiver of the payment default that resulted from such
acceleration);
(i) waive a mandatory repurchase or redemption payment with
respect to any Security required by Section 4.08 or 4.14; or
(j) modify the ranking or priority of any Security or the
Subsidiary Guarantee in respect thereof of any Guarantor in any manner adverse
to the Holders of the Securities.
It shall not be necessary for the consent of the Holders under
this Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
10.02 becomes effective, the Company shall mail to the Holders affected thereby
a notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
Section 10.03 Compliance with Trust Indenture Act. Every amendment to
or supplement of this Indenture or the Securities shall comply with the TIA as
then in effect.
Section 10.04 Record Date for Consents and Effect of Consents. The
Company may, but shall not be obligated to, fix a record date for the purpose of
determining the Holders of Securities entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then those persons who were
Holders of Securities at such record date (or their duly designated proxies),
and only those persons, shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such persons continue to be Holders of such Securities after such
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record date. No such consent shall be valid or effective for more than 90 days
after such record date. The Trustee is entitled to rely upon any electronic
instruction from beneficial owners to the Holders of any Global Security.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(a) through (j) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
Section 10.05 Notation on or Exchange of Securities. If an amendment,
supplement or waiver changes the terms of a Security, the Trustee may require
the Holder of the Security to deliver it to the Trustee. The Trustee may place
an appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determine, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate notation or issue a new Security shall not affect the validity and
effect of such amendment, supplement or waiver.
Section 10.06 Trustee To Sign Amendments, etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article 10 is authorized or permitted by this
Indenture, complies with Section 10.03 and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to customary exceptions). The
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01 Unconditional Guarantee. Each Guarantor hereby
unconditionally, jointly and severally, guarantees (each, a "Subsidiary
Guarantee") to each Holder of a Security authenticated by the Trustee and to the
Trustee and its successors and assigns that: the principal of and interest on
the Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise, and interest on
the overdue principal and interest on any overdue interest on the Securities and
all other obligations of the Company to the Holders or the Trustee hereunder or
under the Securities will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; subject, however, to the
limitations set forth in Section 11.04. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Subsidiary Guarantee will not be discharged except by complete performance of
the obligations contained in the Securities, this Indenture and this Subsidiary
Guarantee. If any Holder or the Trustee is required by any court or otherwise to
return to the Company, any Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Guarantor, any
amount paid by the Company or any Guarantor to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Guarantor further agrees that, as between each
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(a) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 for the purpose of this Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (b) in the
event of any acceleration of such obligations as provided in Article 6, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Subsidiary Guarantee.
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Section 11.02 Severability. In case any provision of this Subsidiary
Guarantee shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 11.03 Release of a Guarantor.
(a) If the Securities are defeased in accordance with the
terms of this Indenture, or if Section 5.01(b) is complied with, or if, subject
to the requirements of Section 5.01(a), all or substantially all of the assets
of any Guarantor or all of the equity interest in any Guarantor are sold
(including through merger, consolidation, by issuance or otherwise) by the
Company in a transaction constituting an Asset Sale, and if (i) the Net Cash
Proceeds from such Asset Sale are used in accordance with Section 4.08 or (ii)
the Company delivers to the Trustee an Officers' Certificate to the effect that
the Net Cash Proceeds from such Asset Sale shall be used in accordance with
Section 4.08 and within the time limits specified by Section 4.08, then each
Guarantor (in the case of defeasance) or such Guarantor (in the case of
compliance with Section 5.01(b) or in the event of a sale or other disposition
of all of the equity interests of such Guarantor) or the Person acquiring such
assets (in the event of a sale or other disposition of all or substantially all
of the assets of such Guarantor) shall be released and discharged from all
obligations under this Article 11 without any further action required on the
part of the Trustee or any Holder. The Trustee shall, at the sole cost and
expense of the Company and upon receipt at the reasonable request of the Trustee
of an Opinion of Counsel that the provisions of this Section 11.03 have been
complied with, deliver an appropriate instrument evidencing such release upon
receipt of a request by the Company accompanied by an Officers' Certificate
certifying as to the compliance with this Section 11.03. Any Guarantor not so
released remains liable for the full amount of principal of and interest on the
Securities and the other obligations of the Company hereunder as provided in
this Article 11.
(b) Any Guarantor that is designated an Unrestricted
Subsidiary shall upon such designation be released and discharged of all
obligations under this Article 11 without any further action required on the
part of the Trustee or any Holder.
Section 11.04 Limitation of Guarantor's Liability. Each Guarantor, and
by its acceptance hereof each Holder and the Trustee, hereby confirms that it is
the intention of all such parties that the Guarantee by such Guarantor pursuant
to its Subsidiary Guarantee not constitute a fraudulent transfer or conveyance
for purposes of title 11 of the United States Code, as amended, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
U.S. Federal or state or other applicable law. To effectuate the foregoing
intention, the Holders and each Guarantor hereby irrevocably agree that the
obligations of each Guarantor under its Subsidiary Guarantee shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Subsidiary Guarantee or pursuant
to Section 11.05, result in the obligations of such Guarantor under its
Subsidiary Guarantee not constituting such a fraudulent transfer or conveyance.
Section 11.05 Contribution. In order to provide for just and equitable
contribution among the Guarantors, the Guarantors agree, inter se, that in the
event any payment or distribution is made by any Guarantor (a "Funding
Guarantor") under the Subsidiary Guarantee, such Funding Guarantor shall be
entitled to a contribution from all other Guarantors in a pro rata amount, based
on the net assets of each Guarantor (including the Funding Guarantor),
determined in accordance with GAAP, subject to Section 11.04, for all payments,
damages and expenses incurred by such Funding Guarantor in discharging the
Company's obligations with respect to the Securities or any other Guarantor's
obligations with respect to the Subsidiary Guarantee.
Section 11.06 Execution of Subsidiary Guarantee. To further evidence
their Guarantee to the Holders, each of the Guarantors hereby agree to execute a
Subsidiary Guarantee to be endorsed on each Security ordered to be authenticated
and delivered by the Trustee. Each Guarantor hereby agrees that its Subsidiary
Guarantee set forth in Section 11.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Security a Subsidiary Guarantee.
Each such Subsidiary Guarantee shall be signed on behalf of each Guarantor by
its Chairman of the Board, its President or one of its Vice Presidents prior to
the authentication of the Security on which it is endorsed, and the delivery of
such Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Subsidiary Guarantee on behalf of such
Guarantor. Such signature upon the Subsidiary Guarantee may be manual or
facsimile signature of such
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officer and may be imprinted or otherwise reproduced on the Subsidiary
Guarantee, and in case such officer who shall have signed the Subsidiary
Guarantee shall cease to be such officer before the Security on which such
Subsidiary Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the Person who signed the
Subsidiary Guarantee had not ceased to be such officer of such Guarantor.
Section 11.07 Subordination of Subrogation and Other Rights. Each
Guarantor hereby agrees that any claim against the Company that arises from the
payment, performance or enforcement of such Guarantor's obligations under its
Subsidiary Guarantee or this Indenture, including, without limitation, any right
of subrogation, shall be subject and subordinate to, and no payment with respect
to any such claim of such Guarantor shall be made before, the payment in full in
cash of all outstanding Securities in accordance with the provisions provided
therefor in this Indenture.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
Section 12.01 Agreement To Subordinate. Each Guarantor agrees, and each
Holder by accepting a Subsidiary Guarantee agrees, that the Indebtedness of such
Guarantor evidenced by the Subsidiary Guarantee is subordinated in right of
payment, to the extent and in the manner provided in this Article 12, to the
payment when due of all Guarantor Senior Indebtedness of such Guarantor and that
such subordination is for the benefit of and enforceable by the holders of
Guarantor Senior Indebtedness. The Subsidiary Guarantee shall in all respects
rank pari passu with all other Guarantor Senior Subordinated Indebtedness of a
Guarantor, and only Indebtedness of a Guarantor which is Guarantor Senior
Indebtedness will rank senior to the Subsidiary Guarantee in accordance with the
provisions set forth herein. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured,
nor is any Indebtedness deemed to be subordinate or junior to other Indebtedness
merely because it matures after such other Indebtedness. Secured Indebtedness is
not deemed to be Senior Indebtedness merely because it is secured. All
provisions of this Article 12 shall be subject to Section 12.12.
Section 12.02 Liquidation, Dissolution, Bankruptcy. Upon any payment or
distribution of the assets of a Guarantor upon a total or partial liquidation or
dissolution or reorganization or bankruptcy of or similar proceeding relating to
a Guarantor or its property:
(a) holders of Guarantor Senior Indebtedness of such Guarantor
shall be entitled to receive payment in full in cash or Cash Equivalents of all
Guarantor Senior Indebtedness of such Guarantor before Holders shall be entitled
to receive any payment of principal of or interest on or other amounts with
respect to the Securities from such Guarantor; and
(b) until the Guarantor Senior Indebtedness of such Guarantor
is paid in full, any payment or distribution to which Holders would be entitled
but for the provisions of this Article 12 shall be made to holders of Guarantor
Senior Indebtedness as their interests may appear.
Section 12.03 Default on Guarantor Senior Indebtedness. No Guarantor
may pay the principal of, premium (if any), or interest on, and other
obligations with respect to, the Securities or make any deposit pursuant to
Section 9.03 or repurchase, redeem or otherwise retire any Securities
(collectively, "pay the Securities") if (a) any Guarantor Senior Indebtedness is
not paid in cash or Cash Equivalents when due or (b) any other default on
Guarantor Senior Indebtedness occurs and the maturity of such Guarantor Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(i) the default has been cured or waived or is no longer continuing and/or any
such acceleration has been rescinded or (ii) such Guarantor Senior Indebtedness
has been paid in full; provided, however, that the Guarantor may pay the
Securities subject to the provisions of Section 12.02, without regard to the
foregoing if the Guarantor and the Trustee receive written notice approving such
payment from the Representatives of the Senior Indebtedness with respect to
which either of the events set forth in clause (a) or (b) of this sentence has
occurred or is continuing. During the continuance of any default (other than a
default described in clause (a) or (b) of the preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, a Guarantor may not
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pay the Securities (except (A) in Qualified Capital Stock issued by such
Guarantor to pay interest on the Securities or issued in exchange for the
Securities, (B) in securities substantially identical to the Securities issued
by such Guarantor in payment of interest accrued thereon or (C) in securities
issued by such Guarantor which are subordinated to the Guarantor Senior
Indebtedness at least to the same extent as the Securities and having a Weighted
Average Life to Maturity at least equal to the remaining Weighted Average Life
to Maturity of the Securities) for a period (a "Guarantor Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the
Guarantor) of written notice (a "Guarantor Blockage Notice") of such default
from the Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Guarantor Payment Blockage Period and ending
179 days thereafter (or earlier if such Guarantor Payment Blockage Period is
terminated (1) by written notice to the Trustee and the Guarantor from the
Person or Persons who gave such Guarantor Blockage Notice, (2) because the
default giving rise to such Guarantor Blockage Notice is no longer continuing)
or (3) because such Designated Senior Indebtedness has been repaid in full.
Notwithstanding the provisions of the immediately preceding sentence, but
subject to the provisions of the first sentence of this Section 12.03 and the
provisions of Section 12.02, the Guarantor may resume payments on the Securities
after the end of such Payment Blockage Period. Not more than one Blockage Notice
may be given, and not more than one Payment Blockage Period may occur, in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness (other than the agent under the Senior Credit
Facilities), the agent under the Senior Credit Facilities may give another
Blockage Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Payment Blockage Periods are
in effect exceed 179 days in the aggregate during any 360 consecutive day
period. No nonpayment default that existed or was continuing on the date of
delivery of any Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 consecutive days.
Section 12.04 Acceleration of Payment of Securities. If a notice is
required pursuant to the first sentence of Section 7.04, no Guarantor may pay
the Securities (except payment (a) in Qualified Capital Stock issued by the
Guarantor to pay interest on the Securities or issued in exchange for the
Securities, (b) in securities substantially identical to the Securities issued
by the Guarantor in payment of interest accrued thereon or (c) securities issued
by the Guarantor which are subordinated to the Guarantor Senior Indebtedness at
least to the same extent as the Securities and have a Weighted Average Life to
Maturity at least equal to the remaining Weighted Average Life to Maturity of
the Securities), until five Business Days after the respective Representative of
the Designated Senior Indebtedness receives notice (at the address specified in
the preceding sentence) of such acceleration and thereafter, may pay the
Securities only if the provisions of this Article 12 otherwise permit payment at
that time.
Section 12.05 When Distribution Must Be Paid Over. If a distribution is
made to the Trustee or to Holders that because of this Article 12 should not
have been made to them, the Trustee or the Holders who receive such distribution
shall hold it for holders of Guarantor Senior Indebtedness and promptly pay it
over to them as their respective interests may appear; provided, however, that
the liabilities of the Trustee under this Section 12.05 are limited by Section
12.15.
Section 12.06 Subrogation. After all Guarantor Senior Indebtedness is
paid in full and until the Securities are paid in full, Holders shall be
subrogated to the rights of holders of Guarantor Senior Indebtedness to receive
distributions applicable to Guarantor Senior Indebtedness. A distribution made
under this Article 12 to holders of Guarantor Senior Indebtedness which
otherwise would have been made to Holders is not, as between the Guarantor and
the Holders, a payment by any Guarantor of Guarantor Senior Indebtedness.
Section 12.07 Relative Rights. This Article 12 defines the relative
rights of Holders of the Securities on the one hand and holders of Guarantor
Senior Indebtedness on the other hand. Nothing in this Indenture shall:
(a) impair, as between the Guarantor and the Holders, the
obligations of any Guarantor, which are absolute and unconditional, in respect
of its Subsidiary Guarantee; or
(b) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders of Guarantor Senior Indebtedness to receive distributions otherwise
payable to Holders.
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Section 12.08 Subordination May Not Be Impaired by Guarantor. No right
of any holder of Guarantor Senior Indebtedness to enforce the subordination of
the obligations under any Subsidiary Guarantee evidenced by the Securities shall
be impaired by any act or failure to act by any Guarantor or by the failure of
any Guarantor to comply with this Indenture.
Section 12.09 Rights of Trustee and Paying Agent. Notwithstanding
Section 12.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 12. A Guarantor, the Registrar or co-Registrar, the Paying Agent, a
Representative or a holder of Guarantor Senior Indebtedness may give the notice;
provided, however, that if an issue of Guarantor Senior Indebtedness has a
Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Guarantor Senior Indebtedness with the same rights it would have if it were not
Trustee. The Registrar and co-Registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article 12 with respect to any Guarantor Senior Indebtedness which may at
any time be held by it, to the same extent as any other holder of Guarantor
Senior Indebtedness; and nothing in Article 12 shall deprive the Trustee of any
of its rights as such holder. Nothing in this Article 12 shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 8.07.
Section 12.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Guarantor Senior
Indebtedness, the distribution may be made and the notice given to their
Representative, if any.
Section 12.11 Article 12 Not To Prevent Events of Default or Limit
Right To Accelerate. The failure to make a payment in respect of the Securities
by reason of any provision in this Article 12 shall not be construed as
preventing the occurrence of a Default or Event of Default. Nothing in this
Article 12 shall have any effect on the right of the Holders or the Trustee to
enforce any Subsidiary Guarantee or to accelerate the maturity of the
Securities.
Section 12.12 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 8 by the Trustee for payment
in respect of the Subsidiary Guarantees shall not be subordinated to the prior
payment of any Guarantor Senior Indebtedness or subject to the restrictions set
forth in this Article 12, and none of the Holders shall be obligated to pay over
any such amount to such Guarantor, any holder of Guarantor Senior Indebtedness
of such Guarantor, or any other creditor of such Guarantor.
Section 12.13 Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 12, the Trustee and the Holders shall be
entitled to rely (a) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (b) upon a certificate of the liquidating trustee or agent or other
Person making such payment or distribution to the Trustee or to the Holders or
(c) upon the Representatives for the holders of Guarantor Senior Indebtedness
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of Guarantor Senior Indebtedness and other
Indebtedness of any Guarantor, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 12. In the event that the Trustee determines, in good faith,
that evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 12, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article 12, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The Trustee shall have the right to seek a declaratory judgment as to
any right of such Person to receive such payment. The provisions of Sections
8.01 and 8.02 shall be applicable to all actions or omissions of actions by the
Trustee pursuant to this Article 12.
Section 12.14 Trustee To Effectuate Subordination. Each Holder by
accepting a Subsidiary Guarantee authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
50
<PAGE> 57
effectuate the subordination between the Holder and the holders of Guarantor
Senior Indebtedness as provided in this Article 12 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
Section 12.15 Trustee Not Fiduciary for Holders of Guarantor Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness and shall not be liable to any such
holders if it shall mistakenly pay over or distribute to Holders or the
Guarantor, or any other Person, money or assets to which any holders of
Guarantor Senior Indebtedness shall be entitled by virtue of this Article 12 or
otherwise.
Section 12.16 Reliance by Holders of Guarantor Senior Indebtedness on
Subordination Provisions. Each Holder by accepting a Subsidiary Guarantee
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any
Guarantor Senior Indebtedness, whether such Guarantor Senior Indebtedness was
created or acquired before or after the issuance of the Subsidiary Guarantee, to
acquire and continue to hold, or to continue to hold, such Guarantor Senior
Indebtedness and such holder of Guarantor Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Guarantor Senior
Indebtedness.
ARTICLE 13
MISCELLANEOUS
Section 13.01 Trust Indenture Act Controls. This Indenture is subject
to the provisions of the TIA that are required to be a part of this Indenture,
and shall, to the extent applicable, be governed by such provisions. If any
provision of this Indenture modifies any TIA provision that may be so modified,
such TIA provision shall be deemed to apply to this Indenture as so modified. If
any provision of this Indenture excludes any TIA provision that may be so
excluded, such TIA provision shall be excluded from this Indenture.
The provisions of TIA ss.ss. 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
Section 13.02 Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person, by facsimile and
confirmed by overnight courier, or mailed by first-class mail addressed as
follows:
if to the Company:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244-3705
Attention: Camille R. Comeau
Facsimile: (972) 386-1106
Telephone: (972) 386-1000
Copy to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 740-7313
Telephone: (214) 740-7300
if to the Trustee:
51
<PAGE> 58
(a) for payment, registration, transfer, exchange and tender
of the Securities:
By Hand:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Corporate Trust Window Lower Level
By Mail:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Telephone No.: (800) 548-6565
(b) for all other communications relating to the Securities:
United States Trust Company of New York
Attention: Corporate Trust Administration - Home Interiors
114 West 47th Street, 25th Floor
New York, New York 10036
Telephone No.: (212) 852-1662
Telecopy No.: (212) 852-1626
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed, first-class, postage
prepaid, to a Holder including any notice delivered in connection with TIA ss.
310(b), TIA ss. 313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be mailed to
him at his address as set forth on the Security register and shall be
sufficiently given to him if so mailed within the time prescribed. To the extent
required by the TIA, any notice or communication shall also be mailed to any
Person described in TIA ss. 313(c).
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
Except for a notice to the Trustee, which is deemed given only when received, if
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 13.03 Communications by Holders with Other Holders. Holders may
communicate pursuant to TIA ss. 312(b) with other Holders with respect to their
rights under this Indenture or the Securities. The Company, the Trustee, the
Registrar and any other person shall have the protection of TIA ss. 312(c).
Section 13.04 Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the Trustee
at the request of the Trustee:
(a) an Officers' Certificate in form and substance
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance satisfactory
to the Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with; provided, however, that with respect to
matters of fact an Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
52
<PAGE> 59
Section 13.05 Statements Required in Certificate. Each certificate with
respect to compliance with a condition or covenant provided for in this
Indenture shall include:
(a) a statement that the person making such certificate 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 contained in such
certificate are based;
(c) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 13.06 Rules by Trustee, Paying Agent, Registrar. The Trustee
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.
Section 13.07 Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 13.08 No Recourse Against Others. No director, officer,
employee, incorporator or stockholder of the Company or any Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Securities or the Subsidiary Guarantees, as the case may be, or this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Security and the
Subsidiary Guarantees waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and the
Subsidiary Guarantees.
Section 13.09 Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successor. All agreements of each
Guarantor in this Indenture shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
Section 13.10 Counterpart Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
Section 13.11 Severability. In case any provision in this Indenture, in
the Securities or in the Subsidiary Guarantees shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and a Holder
shall have no claim therefor against any party hereto.
Section 13.12 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or a Subsidiary of the Company. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 13.13 Legal Holidays. If a payment date is not a Business Day
at a place of payment, payment may be made at that place on the next succeeding
Business Day.
[Remainder of page intentionally left blank]
53
<PAGE> 60
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
HOME INTERIORS & GIFTS, INC.
By:
-------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
GUARANTORS:
DALLAS WOODCRAFT, INC.
By:
-------------------------------
Donald J. Carter, Jr.
Executive Vice President
GIA, INC.
By:
-------------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO, INC.
By:
-------------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO PUERTO RICO, INC.
By:
-------------------------------
Donald J. Carter, Jr.
President
SPRING VALLEY SCENTS, INC.
By:
-------------------------------
Donald J. Carter, Jr.
President
Signature Page 1 of 2
<PAGE> 61
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
Signature Page 2 of 2
<PAGE> 62
EXHIBIT A
[FORM OF SERIES A SECURITY]
THIS SECURITY AND THE GUARANTEES HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A)
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (1) TO THE COMPANY, (2)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (3) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501
UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, OR (6) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT IN EACH OF THE
FOREGOING CASES TO APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THAT IT WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
A-1
<PAGE> 63
HOME INTERIORS & GIFTS, INC.
10 1/8% Series A Senior Subordinated Note due 2008
CUSIP No.:[ ]
No. [ ] $[ ]
HOME INTERIORS & GIFTS, INC., a Texas corporation (the "Company," which
term includes any successor corporation), for value received, promise to pay to
[ ] or registered assigns the principal sum of [ ] Dollars, on June 1, 2008.
Interest Payment Dates: June 1 and December 1, commencing on December
1, 1998.
Interest Record Dates: May 15 and November 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
HOME INTERIORS & GIFTS, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
Dated: June 4, 1998
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 1/8% Series A Senior Subordinated Notes due 2008
described in the within-mentioned Indenture.
Dated: June 4, 1998
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
----------------------------------
Authorized Signatory
A-2
<PAGE> 64
(REVERSE OF SECURITY)
HOME INTERIORS & GIFTS, INC.
10 1/8% Series A Senior Subordinated Note due 2008
1. Interest.
HOME INTERIORS & GIFTS, INC. promises to pay interest on the principal
amount of this Security at the rate per annum shown above. Cash interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from June 4, 1998. The Company will pay
interest semi-annually in arrears on each Interest Payment Date, commencing on
December 1, 1998. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders. The Company may, subject to certain
exceptions, act as Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of June
4, 1998 (the "Indenture"), by and among the Company, the Guarantors named
therein and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. This Security is one of a duly
authorized issue of Securities of the Company designated as its 10 1/8% Series A
Senior Subordinated Notes due 2008 (the "Initial Securities"), limited in
aggregate principal amount to $200,000,000, which may be issued under the
Indenture. The Securities include the Initial Securities and the Unrestricted
Securities (as defined in the Indenture). All Securities issued under the
Indenture are treated as a single class of securities under the Indenture. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture
(except as otherwise indicated in the Indenture) until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders are
referred to the Indenture and the TIA for a statement of them. The Securities
are general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company to the extent and in the manner provided in the Indenture. Each
Holder of a Security, by accepting a Security, agrees to such subordination,
authorizes the Trustee to give effect to such subordination and appoints the
Trustee as attorney-in-fact for such purpose.
A-3
<PAGE> 65
5. Optional Redemption.
(a) The Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after June 1, 2003, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Interest Record Date to receive
interest due on the relevant Interest Payment Date) if redeemed during the
12-month period commencing on June 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 105.063%
2004 103.375%
2005 101.688%
2006 and thereafter 100.000%
</TABLE>
(b) Prior to June 1, 2001, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings to redeem up to 35% of the
principal amount of the Securities at a redemption price equal to 110.125% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
redemption date; provided, however, that after any such redemption, at least 65%
of the aggregate principal amount of the Securities originally issued would
remain outstanding immediately after giving effect to such redemption. Any such
redemption will be required to occur on or prior to the date that is one year
after the receipt by the Company of the proceeds of each such Equity Offering.
The Company shall effect such redemption on a pro rata basis.
6. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to the
Holders pursuant to the terms of the Indenture.
7. Change of Control Offer.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 30
days after the Change of Control Date, be required to offer to purchase all
Securities then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of such purchase (subject to the right of Holders of record on
the relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date).
8. Limitation on Disposition of Assets.
The Company is, subject to certain conditions and certain exceptions,
obligated to offer to purchase the Securities at a purchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of such purchase (subject to the right of Holders of record on
the relevant Interest Record Date to receive interest due on the relevant
Interest Record Date) with the proceeds of certain asset dispositions.
9. Denominations; Transfer; Exchange.
A-4
<PAGE> 66
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
11. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at their written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
12. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their obligations
under the Indenture, the Securities and the Subsidiary Guarantees, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Subsidiary Guarantees, in each case upon satisfaction of certain conditions
specified in the Indenture.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the Securities
(including the Subsidiary Guarantees) may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the Securities then outstanding, and any existing Default or Event of
Default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto may
amend or supplement the Indenture, the Securities and the Subsidiary Guarantees
to, among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated Securities
or comply with any requirements of the SEC in connection with the qualification
of the Indenture under the TIA, or make any other change that does not
materially adversely affect the rights of any Holder.
14. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to sell assets, to permit
restrictions on dividends and other payments by Subsidiaries to the Company, to
consolidate, merge or sell all or substantially all of its assets and to engage
in transactions with affiliates. The limitations are subject to a number of
important qualifications and exceptions.
The Company must report annually to the Trustee on compliance with such
limitations.
15. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Subsidiary Guarantees
except as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Subsidiary Guarantees unless it has received
indemnity satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Securities then outstanding to direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of Securities
notice of certain continuing Defaults or Events of Default if it determines that
withholding notice is in their interest.
A-5
<PAGE> 67
16. Trustee Dealings with Company and Guarantors.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, the Guarantors, their respective Subsidiaries or their
respective Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Securities or the Subsidiary
Guarantees, as the case may be, 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 Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and the
Subsidiary Guarantees.
18. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
21. Registration Rights.
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors will be obligated to consummate an exchange offer pursuant to which
the Holder of this Security shall have the right to exchange this Security for a
101/8% Series B Senior Subordinated Note due 2008 of the Company which has been
registered under the Securities Act, in like principal amount and having terms
identical in all material respects to the Initial Securities. The Holders shall
be entitled to receive certain liquidated damages payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
22. Governing Law.
The laws of the State of New York shall govern the Indenture, this
Security and any Guarantee hereof without regard to principles of conflicts of
laws to the extent that the application of the laws of another jurisdiction
would be required thereby.
A-6
<PAGE> 68
[FORM OF SUBSIDIARY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
Each undersigned Guarantor (as defined in the Indenture referred to in
the Security upon which this notation is endorsed) hereby unconditionally
guarantees on a senior subordinated basis (such guaranty by such Guarantor being
referred to herein as the "Subsidiary Guarantee"), jointly and severally, the
due and punctual payment of the principal of, premium, if any, and interest on
the Securities, whether at maturity, by acceleration or otherwise, the due and
punctual payment of interest on the overdue principal, premium and interest on
the Securities, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms set
forth in Article 11 of the Indenture.
The obligations of each undersigned Guarantor to the Holders of
Securities and to the Trustee pursuant to its Guarantee and the Indenture are
expressly set forth in, and are expressly subordinated and subject in right of
payment to, the prior payment in full of all Guarantor Senior Indebtedness (as
defined in the Indenture) of such Guarantor, to the extent and in the manner
provided in Article 11 and Article 12 of the Indenture, and reference is hereby
made to such Indenture for the precise terms of such Guarantee therein made.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Subsidiary Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
This Subsidiary Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
This Subsidiary Guarantee is subject to release upon the terms set
forth in the Indenture.
DALLAS WOODCRAFT, INC.
By:
----------------------------------
Donald J. Carter, Jr.
Executive Vice President
GIA, INC.
By:
----------------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO, INC.
By:
----------------------------------
Donald J. Carter, Jr.
Executive Vice President
A-7
<PAGE> 69
HOMCO PUERTO RICO, INC.
By:
----------------------------------
Donald J. Carter, Jr.
President
SPRING VALLEY SCENTS, INC.
By:
----------------------------------
Donald J. Carter, Jr.
President
A-8
<PAGE> 70
ASSIGNMENT FORM
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- -------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
-------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
-------------------- ----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
---------------------------------------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-9
<PAGE> 71
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.08 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.08 [ ] Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.08 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated: Your Signature:
-------------------- ----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
---------------------------------------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-10
<PAGE> 72
EXHIBIT B
[FORM OF SERIES B SECURITY]
HOME INTERIORS & GIFTS, INC.
10 1/8% SERIES B SENIOR SUBORDINATED NOTE DUE 2008
CUSIP No.:[ ]
No. [ ] $[ ]
HOME INTERIORS & GIFTS, INC., a Texas corporation (the "Company," which
term includes any successor corporation), for value received, promise to pay to
[ ] or registered assigns the principal sum of [ ] Dollars, on June 1, 2008.
Interest Payment Dates: June 1 and December 1, commencing on December
1, 1998.
Interest Record Dates: May 15 and November 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
HOME INTERIORS & GIFTS, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
Dated:
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 1/8% Series B Senior Subordinated Notes due 2008
described in the within-mentioned Indenture.
Dated:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
------------------------------------
Authorized Signatory
B-1
<PAGE> 73
(REVERSE OF SECURITY)
HOME INTERIORS & GIFTS, INC.
10 1/8% SERIES B SENIOR SUBORDINATED NOTE DUE 2008
1. Interest.
HOME INTERIORS & GIFTS, INC. promises to pay interest on the principal
amount of this Security at the rate per annum shown above. Cash interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from June 4, 1998. The Company will pay
interest semi-annually in arrears on each Interest Payment Date, commencing on
December 1, 1998. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders. The Company may, subject to certain
exceptions, act as Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of June
4, 1998 (the "Indenture"), by and among the Company, the Guarantors named
therein and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. This Security is one of a duly
authorized issue of Securities of the Company designated as its 101/8% Series B
Senior Subordinated Notes due 2008 limited in aggregate principal amount to
$200,000,000, which may be issued under the Indenture. The Securities include
the Initial Securities (as defined in the Indenture) and the Unrestricted
Securities (as defined in the Indenture). All Securities issued under the
Indenture are treated as a single class of securities under the Indenture. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture
(except as otherwise indicated in the Indenture) until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders are
referred to the Indenture and the TIA for a statement of them. The Securities
are general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company to the extent and in the manner provided in the Indenture. Each
Holder, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
B-2
<PAGE> 74
5. Optional Redemption.
(a) The Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after June 1, 2003, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Interest Record Date to receive
interest due on the relevant Interest Payment Date) if redeemed during the
12-month period commencing on June 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 105.063%
2004 103.375%
2005 101.688%
2006 and thereafter 100.000%
</TABLE>
(b) Prior to June 1, 2001, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings to redeem up to 35% of the
principal amount of the Securities at a redemption price equal to 110.125% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
redemption date; provided, however, that after any such redemption, at least 65%
of the aggregate principal amount of the Securities originally issued would
remain outstanding immediately after giving effect to such redemption. Any such
redemption will be required to occur on or prior to the date that is one year
after the receipt by the Company of the proceeds of each such Equity Offering.
The Company shall effect such redemption on a pro rata basis.
6. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to the
Holders pursuant to the terms of the Indenture.
7. Change of Control Offer.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall, within 30
days after the Change of Control Date, offer to purchase all Securities then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the date of
such purchase (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date).
8. Limitation on Disposition of Assets.
The Company is, subject to certain conditions and certain exceptions,
obligated to offer to purchase the Securities at a purchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of such purchase (subject to the right of Holders of record on
the relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date) with the proceeds of certain asset dispositions.
9. Denominations; Transfer; Exchange.
B-3
<PAGE> 75
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
11. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at their written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
12. Legal Defeasance and Covenant Defeasance.
The Company and the Guarantors may be discharged from their obligations
under the Indenture, the Securities and the Subsidiary Guarantees, except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Subsidiary Guarantees, in each case upon satisfaction of certain conditions
specified in the Indenture.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the Securities
(including the Subsidiary Guarantees) may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the Securities then outstanding, and any existing Default or Event of
Default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto may
amend or supplement the Indenture, the Securities and the Subsidiary Guarantees
to, among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated Securities
or comply with any requirements of the SEC in connection with the qualification
of the Indenture under the TIA, or make any other change that does not
materially adversely affect the rights of any Holder.
14. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to sell assets, to permit
restrictions on dividends and other payments by Subsidiaries to the Company, to
consolidate, merge or sell all or substantially all of its assets and to engage
in transactions with affiliates. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to the
Trustee on compliance with such limitations.
15. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Subsidiary Guarantees
except as provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Subsidiary Guarantees unless it has received
indemnity satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Securities then outstanding to direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of Securities
notice of certain continuing Defaults or Events of Default if it determines that
withholding notice is in their interest.
B-4
<PAGE> 76
16. Trustee Dealings with Company and Guarantors.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, the Guarantors, their respective Subsidiaries or their
respective Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Securities or the Subsidiary
Guarantees, as the case may be, 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 Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and the
Subsidiary Guarantees.
18. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
21. Governing Law.
The laws of the State of New York shall govern the Indenture, this
Security and any Guarantee hereof without regard to principles of conflicts of
laws to the extent that the application of the laws of another jurisdiction
would be required thereby.
B-5
<PAGE> 77
[FORM OF SUBSIDIARY GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
Each undersigned Guarantor (as defined in the Indenture referred to in
the Security upon which this notation is endorsed) hereby unconditionally
guarantees on a senior subordinated basis (such guaranty by such Guarantor being
referred to herein as the "Subsidiary Guarantee"), jointly and severally, the
due and punctual payment of the principal of, premium, if any, and interest on
the Securities, whether at maturity, by acceleration or otherwise, the due and
punctual payment of interest on the overdue principal, premium and interest on
the Securities, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms set
forth in Article 11 of the Indenture.
The obligations of each undersigned Guarantor to the Holders of
Securities and to the Trustee pursuant to its Guarantee and the Indenture are
expressly set forth in, and are expressly subordinated and subject in right of
payment to, the prior payment in full of all Guarantor Senior Indebtedness (as
defined in the Indenture) of such Guarantor, to the extent and in the manner
provided in Article 11 and Article 12 of the Indenture, and reference is hereby
made to such Indenture for the precise terms of such Guarantee therein made.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Subsidiary Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
This Subsidiary Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
This Subsidiary Guarantee is subject to release upon the terms set
forth in the Indenture.
DALLAS WOODCRAFT, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
GIA, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
HOMCO, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
B-6
<PAGE> 78
HOMCO PUERTO RICO, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
SPRING VALLEY SCENTS, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
---------------------------------
B-7
<PAGE> 79
ASSIGNMENT FORM
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- -------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
-------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
-------------------- ----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
---------------------------------------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
B-8
<PAGE> 80
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.08 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.08 [ ] Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.08 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated: Your Signature:
-------------------- ----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
---------------------------------------------------------
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
B-9
<PAGE> 81
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUERS OR
THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.16 OF THE INDENTURE.
C-1
<PAGE> 82
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 10 1/8% Series A Senior Subordinated Notes due 2008
(the "Securities") of Home Interiors & Gifts, Inc.
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or* _______
Physical Securities by ______ (the "Transferor").
The Transferor:*
[ ] has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Physical Security or Physical Securities in definitive, registered
form of authorized denominations and an aggregate number equal to its
beneficial interest in such Global Security (or the portion thereof indicated
above); or
[ ] has requested that the Registrar by written order exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.16 of such Indenture, and that the
transfer of the Securities does not require registration under the Securities
Act of 1933, as amended (the "Act"), because*:
[ ] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.16 of the Indenture).
[ ] Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
[ ] Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act) which delivers a certificate to the Trustee in the form of
Exhibit E to the Indenture.
[ ] Such Security is being transferred in reliance on Rule 144 under
the Act.
[ ] Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 under the Act to a person other than an institutional
"accredited investor." [An Opinion of Counsel to the effect that such transfer
does not require registration under the Securities Act accompanies this
certification.]
[INSERT NAME OF TRANSFEROR]
By:
------------------------------
[Authorized Signatory]
Date: ---------------------
*Check applicable box.
D-1
<PAGE> 83
EXHIBIT E
FORM OF TRANSFEREE LETTER OF REPRESENTATION
HOME INTERIORS & GIFTS, INC.
4550 Spring Valley Road
Dallas, Texas 75244-3705
UNITED STATES TRUST COMPANY OF NEW YORK
114 West 47th Street, 25th Floor
New York, New York 10036
Attn: Corporate Trust Administration/Home Interiors
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $________
principal amount of the 10 1/8% Senior Subordinated Notes due 2008 (the "Notes")
of HOME INTERIORS & GIFTS, INC. (the "Company"). Upon transfer, the Notes would
be registered in the name of the new beneficial owner as follows:
Name:
-----------------------------
Address:
--------------------------
Taxpayer ID Number:
--------------
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities
Act")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risk of our investment in the Notes and we invest
in or purchase securities similar to the Notes in the normal course of our
business. We and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) in a transaction complying with the requirements of Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) to an institutional "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
purchasing for its own account or for the account of such an institutional
"accredited investor," in each case in a minimum principal amount of Notes of
$250,000, (e) pursuant to offers and sales that occur outside the United States
within the meaning of Regulation S under the Securities Act or (f) pursuant to
any other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement of law
that the disposition of our property or the property of such investor account or
accounts be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Notes is proposed to be made pursuant to clause (d) above
prior to the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
Company and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring
such Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the Resale
Restriction Termination Date of the Notes pursuant to clause (d), (e) or (f)
above to require the delivery of an opinion of counsel, certificates and/or
other information satisfactory to the Company and the Trustee.
E-1
<PAGE> 84
Dated: TRANSFEREE:
------------------- ----------------------------
By:
-------------------------------
E-2
<PAGE> 85
EXHIBIT F
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION
WITH REGULATION S TRANSFERS
---------------, ----
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Administration/Home Interiors
Re: HOME INTERIORS & GIFTS, INC. (the "Company")
10 1/8% Series A Senior Subordinated Notes due 2008 and
10 1/8% Series B Senior Subordinated Notes due 2008 (collectively, the
"Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or (b)
the transaction was executed in, on or through the facilities of a designated
offshore securities market and neither we nor any person acting on our behalf
knows that the transaction has been prearranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
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. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
--------------------------------
[Authorized Signatory]
F-1
<PAGE> 1
EXHIBIT 4.2
================================================================================
HOME INTERIORS & GIFTS, INC.
$200,000,000
10 1/8% Series A Senior Subordinated Notes due 2008
Purchase Agreement
May 28, 1998
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
================================================================================
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Page 1
HOME INTERIORS & GIFTS, INC.
$200,000,000
10 1/8% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
May 28, 1998
New York, New York
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY
SECURITIES LLC
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
Home Interiors & Gifts, Inc., a Texas corporation (the "Company"),
proposes to issue and sell to Bear, Stearns & Co. Inc., Chase Securities Inc.,
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery Securities LLC
(collectively, the "Initial Purchasers") $200,000,000 aggregate principal amount
of 10 1/8% Series A Senior Subordinated Notes due 2008 (the "Series A Notes"),
subject to the terms and conditions set forth herein. The Series A Notes will be
issued pursuant to an indenture (the "Indenture"), to be dated the Closing Date
(as defined below), among the Company, the Guarantors (as defined below) and
United States Trust Company of New York, as trustee (the "Trustee"). The Notes
will be fully and unconditionally guaranteed (the "Guarantees"), upon the terms
and subject to the conditions of the Indenture, as to payment of principal,
interest, liquidated damages and premium, if any, jointly and severally, by each
of the Company's subsidiaries listed on Exhibit A hereto (collectively, the
"Guarantors"). Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the Indenture.
1. Issuance of Securities. The Company proposes, upon the terms and
subject to the conditions set forth herein, to issue and sell to the Initial
Purchasers an aggregate of $200,000,000 principal amount of Series A Notes. The
Series A Notes and the Series B Notes (as defined below) issuable in exchange
therefor are collectively referred to herein as the "Notes."
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act of 1933,
as amended (the "Act"), the Series A
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Notes (and all securities issued in exchange therefor or in substitution
thereof) shall bear the following legend:
THIS SECURITY (ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A)
OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY (1) TO THE
COMPANY, (2) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (3) TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (4)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501
UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT OR (5) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT (AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THAT IT WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
2. Offering. The Series A Notes will be offered and sold to the Initial
Purchasers pursuant to an exemption from the registration requirements under the
Act. The Company has prepared a preliminary offering memorandum, dated May 11,
1998 (the "Preliminary Offering Memorandum"), and a final offering memorandum,
dated May 28, 1998 (the "Offering Memorandum"), relating to the Company, the
Guarantors and the Series A Notes.
The Initial Purchasers have advised the Company that the Initial
Purchasers will make offers (the "Exempt Resales") of the Series A Notes on the
terms set forth in the Offering Memorandum, as amended or supplemented, solely
to persons whom the Initial Purchasers reasonably believe to be "qualified
institutional buyers," as defined in Rule 144A under the Act ("QIBs"). The QIBs
are sometimes referred to herein as the "Eligible Purchasers." The Initial
Purchasers will offer the Series A Notes to such Eligible Purchasers initially
at a price equal to
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100% of the principal amount thereof. Such price may be changed at any time
without notice.
Holders (including subsequent transferees) of the Series A Notes will
have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration Rights Agreement"), to be dated the Closing
Date, for so long as such Series A Notes constitute "Transfer Restricted
Securities" (as defined in the Registration Rights Agreement). Pursuant to the
Registration Rights Agreement, the Company and the Guarantors will agree to file
with the Securities and Exchange Commission (the "Commission"), under the
circumstances set forth therein, (a) a registration statement under the Act (the
"Exchange Offer Registration Statement") relating to the 101/8% Series B Senior
Subordinated Notes due 2008 (the "Series B Notes") to be offered in exchange for
the Series A Notes (the "Exchange Offer") and (b) a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration Statement") relating
to the resale by certain holders of the Series A Notes, and to use their
reasonable best efforts to cause such Registration Statements to be declared
effective and to consummate the Exchange Offer. This Agreement, the Notes, the
Indenture, the Registration Rights Agreement, the Merger Agreement and the
Senior Credit Agreement are hereinafter sometimes referred to collectively as
the "Operative Documents."
3. Purchase, Sale and Delivery. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell to the
Initial Purchasers, and the Initial Purchasers agree to purchase from the
Company, $200,000,000 aggregate principal amount of Series A Notes. The purchase
price for the Series A Notes will be $970.00 per $1,000 principal amount of
Series A Notes.
(b) Delivery of the Series A Notes shall be made, against
payment of the purchase price therefor, at the offices of Vinson & Elkins
L.L.P., 2001 Ross Avenue, Suite 3700, Dallas, Texas 75201, or such other
location as may be mutually acceptable to the Initial Purchasers and the
Company. Such delivery and payment shall be made at 10:00 a.m. New York City
time, on June 4, 1998 or at such other time as shall be agreed upon by the
Initial Purchasers and the Company. The time and date of such delivery and
payment are herein called the "Closing Date."
(c) One or more Series A Notes in definitive form, registered
in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"),
having an aggregate amount corresponding to the aggregate amount of the Series A
Notes sold pursuant to Exempt Resales to the Eligible Purchasers (the "Global
Notes") shall be delivered by the Company to Bear, Stearns & Co. Inc. for the
account of the Initial Purchasers (or as Bear, Stearns & Co. Inc. directs),
against payment by the Initial Purchasers of the purchase price therefor, by
wire transfer in same-day funds, to an account designated by the Company,
provided that the Company shall give at least two business days' prior written
notice to the Initial Purchasers of the information required to effect such wire
transfer. The Global Notes shall be made available to the Initial Purchasers for
inspection not later than 9:30 a.m. on the business day immediately preceding
the Closing Date.
4. Agreements of the Company and the Guarantors. The Company and the
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Guarantors, jointly and severally, covenant and agree with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Notes for offering or sale
in any jurisdiction, or the initiation of any proceeding for such purpose by any
state securities commission or other regulatory authority and (ii) of the
happening of any event that makes any statement of a material fact made in the
Preliminary Offering Memorandum or the Offering Memorandum untrue or that
requires the making of any additions to or changes in the Preliminary Offering
Memorandum or the Offering Memorandum in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading. The
Company and the Guarantors shall use their reasonable best efforts to prevent
the issuance of any stop order or order suspending the qualification or
exemption of any Notes under any state securities or Blue Sky laws and, if at
any time any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption of any Notes under any
state securities or Blue Sky laws, the Company and the Guarantors shall use
their reasonable best efforts to obtain the withdrawal or lifting of such order
at the earliest possible time.
(b) To furnish the Initial Purchasers and counsel to the
Initial Purchasers, without charge, as many copies of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments or supplements
thereto, as the Initial Purchasers may reasonably request. The Company and the
Guarantors consent to the use of the Preliminary Offering Memorandum and the
Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchasers in connection with Exempt Resales.
(c) Prior to making any amendment or supplement to the
Offering Memorandum, to furnish a copy thereof to the Initial Purchasers and
counsel for the Initial Purchasers and not to effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by notice to
the Company after a reasonable period of review, which shall not in any case be
longer than five business days after receipt of such copy. The Company and the
Guarantors shall promptly prepare, upon the Initial Purchasers' request, any
amendment or supplement to the Preliminary Offering Memorandum or the Offering
Memorandum that may be necessary or advisable in connection with Exempt Resales.
(d) If, after the date hereof and prior to consummation of any
Exempt Resale, any event shall occur as a result of which, in the judgment of
the Company and the Guarantors or in the reasonable opinion of counsel for the
Company and the Guarantors or counsel for the Initial Purchasers, it becomes
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser which is a prospective purchaser, not misleading, or if it is
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or Offering Memorandum to comply with applicable law, (i) to notify
the Initial Purchasers and (ii) forthwith to prepare, at its own expense, an
appropriate amendment or supplement to such Preliminary Offering Memorandum or
Offering Memorandum so that the statements therein as so amended or supplemented
will not, in the light of the
<PAGE> 6
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circumstances when it is so delivered, be misleading, or so that such
Preliminary Offering Memorandum or Offering Memorandum will comply with
applicable law.
(e) To cooperate with the Initial Purchasers and counsel for
the Initial Purchasers in connection with the qualification or registration of
the Series A Notes under the securities or Blue Sky laws of such jurisdictions
of the United States as the Initial Purchasers may reasonably request and to
continue such qualification in effect so long as required for the Exempt
Resales; provided, however, that neither the Company nor any Guarantor shall be
required in connection therewith to register or qualify as a foreign corporation
where it is not now so qualified as a foreign corporation or to take any action
that would subject it to service of process in suits or taxation, in each case,
other than as to matters and transactions relating to the Preliminary Offering
Memorandum, the Offering Memorandum or Exempt Resales, in any jurisdiction where
it is not now so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
to pay all costs, expenses, fees and taxes incident to the performance of the
obligations of the Company and the Guarantors hereunder, including in connection
with: (i) the preparation, printing, filing and distribution of the Preliminary
Offering Memorandum and the Offering Memorandum (including, without limitation,
financial statements) and all amendments and supplements thereto required
pursuant hereto and delivery of all other agreements, memoranda, correspondence
and all other documents prepared and delivered in connection herewith and with
the Exempt Resales, (ii) the issuance, transfer and delivery by the Company of
the Notes to the Initial Purchasers, (iii) the qualification or registration of
the Notes for offer and sale under the securities or Blue Sky laws of the
several states (including, without limitation, Blue Sky filing fees, the cost of
printing and mailing a Blue Sky Memorandum and the reasonable fees and
disbursements of counsel for the Initial Purchasers relating thereto in an
amount up to $5,000.00), (iv) furnishing such copies of the Preliminary Offering
Memorandum and the Offering Memorandum, and all amendments and supplements
thereto, as may be reasonably requested for use in connection with Exempt
Resales, (v) the preparation of certificates for the Notes (including, without
limitation, printing and engraving thereof), (vi) the fees, disbursements and
expenses of the Company's and the Guarantors' counsel and accountants, (vii) all
expenses and listing fees in connection with the application for quotation of
the Notes in the National Association of Securities Dealers, Inc. (the "NASD")
Private Offering, Resales and Trading through Automated Linkages ("PORTAL")
market, (viii) all fees and expenses (including fees and expenses of counsel) of
the Company and the Guarantors in connection with the approval of the Notes by
DTC for "book-entry" transfer, (ix) rating the Notes by rating agencies, (x) the
reasonable fees and expenses of the Trustee and its counsel, (xi) the
performance by the Company and the Guarantors of their other obligations under
this Agreement and the other Operative Documents and (xii) "roadshow" travel and
other expenses incurred by or on behalf of the Company in connection with the
marketing and sale of the Notes; provided, however, that except as provided in
this Section 4(f), the Initial Purchasers shall pay their own costs and expenses
(including the costs and expenses of their legal counsel).
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(g) To use the proceeds from the sale of the Series A Notes in
the manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(h) Not to voluntarily claim, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders of any
Notes.
(i) To do and perform all things required to be done and
performed under this Agreement by them prior to or after the Closing Date and to
satisfy all conditions precedent on their part to the delivery of the Series A
Notes.
(j) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Series A Notes in a manner that would
require the registration under the Act of the sale to the Initial Purchasers or
the QIBs of the Series A Notes or to take any other action that would result in
the Exempt Resales not being exempt from registration under the Act.
(k) For so long as any of the Notes remain outstanding and
during any period in which neither the Company nor any Guarantor is subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder or beneficial owner of Series A
Notes, upon request therefor, in connection with any sale thereof and any
prospective purchaser of such Notes from such holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act.
(l) To use its reasonable best efforts to cause the Exchange
Offer to be made in the appropriate form to permit registered Series B Notes to
be offered in exchange for the Series A Notes and to comply with all applicable
federal and state securities laws in connection with the Exchange Offer.
(m) To comply with all of its agreements set forth in the
Registration Rights Agreement and all agreements set forth in the representation
letters of the Company to DTC relating to the approval of the Notes by DTC for
"book-entry" transfer.
(n) To use its reasonable best efforts to effect the inclusion
of the Notes in PORTAL and to obtain approval of the Series A Notes by DTC for
"book-entry" transfer.
(o) During a period of three years following the Closing Date,
to deliver without charge to the Initial Purchasers, as they may reasonably
request, promptly upon their becoming available, copies of (i) all reports or
other publicly available information that the Company or any Guarantor shall
mail or otherwise make available to holders of its security holders and (ii) all
reports, financial statements and proxy or information statements filed by the
Company or any Guarantor with the Commission or any national securities exchange
and such other publicly available information concerning the Company or any
Guarantor, including without limitation, press releases.
(p) Prior to the Closing Date, to furnish to the Initial
Purchasers, as soon as
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they have been prepared in the ordinary course by the Company or any Guarantor,
as the case may be, copies of any unaudited interim financial statements for any
period subsequent to the periods covered by the financial statements appearing
in the Offering Memorandum.
(q) Not to take, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or any Guarantor to
facilitate the sale or resale of the Notes. Except as permitted by the Act,
neither the Company nor any Guarantor will distribute any (i) preliminary
offering memorandum, including, without limitation, the Preliminary Offering
Memorandum, (ii) offering memorandum, including, without limitation, the
Offering Memorandum or (iii) other offering material in connection with the
offering and sale of the Notes.
(r) To comply with the requirements of the Connecticut Uniform
Fraudulent Transfer Act.
(s) To comply with the agreements in this Agreement, the
Indenture, the Registration Rights Agreement and the other Operative Documents
to which it is a party.
5. Representations and Warranties.
(a) The Company and the Guarantors, jointly and severally,
represent and warrant to the Initial Purchasers that:
(i) The Preliminary Offering Memorandum and the
Offering Memorandum have been prepared in connection with the Exempt
Resales. The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not,
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, except that the representations
and warranties contained in this paragraph shall not apply to
statements in or omissions from the Preliminary Offering Memorandum and
the Offering Memorandum (or any supplement or amendment thereto) made
in reliance upon and in conformity with information relating to the
Initial Purchasers furnished to the Company in writing by the Initial
Purchasers expressly for use therein. No stop order preventing the use
of the Preliminary Offering Memorandum or the Offering Memorandum, or
any amendment or supplement thereto, or any order asserting that any of
the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(ii) Each of the Company and its subsidiaries (A) has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, (B) has
all corporate power and authority to carry on its business as it is
currently being conducted and as described in the Offering Memorandum
and to own, lease and operate its properties and (C) is duly qualified
and in good standing as a foreign corporation, authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification
except,
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for the purposes of this clause (C), where the foregoing could not
reasonably be expected, singularly or in the aggregate, to have a
Material Adverse Effect (as defined herein).
(iii) All of the outstanding capital stock of the
Company has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of any preemptive or
similar rights. On March 31, 1998, after giving pro forma effect to the
issuance and sale of the Series A Notes pursuant hereto and the other
transactions (the "Transactions") constituting the Recapitalization (as
defined in the Offering Memorandum), the Company would have had an
authorized and outstanding capitalization as set forth in the Offering
Memorandum under the caption "Capitalization."
(iv) All of the outstanding capital stock of each of
the Company's subsidiaries is owned by the Company, free and clear of
any security interest, claim, lien, limitation on voting rights or
encumbrance except as set forth in the Offering Memorandum; and all
such securities have been duly authorized and validly issued, are fully
paid and nonassessable and were not issued in violation of any
preemptive or similar rights.
(v) Except as set forth in the Offering Memorandum,
there are not currently any outstanding subscriptions, rights,
warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, any capital stock or
other equity interest of the Company or any of the Company's
subsidiaries.
(vi) When the Series A Notes and the Guarantees are
issued and delivered pursuant to this Agreement, neither the Series A
Notes nor the Guarantees will be of the same class (within the meaning
of Rule 144A under the Act) as securities of the Company or any
Guarantor that are listed on a national securities exchange registered
under Section 6 of the Exchange Act or that are quoted in a United
States automated inter-dealer quotation system.
(vii) Each of the Company and the Guarantors has all
requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Operative
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby, including, without limitation, (a) in
the case of the Company, the corporate power and authority to issue,
sell and deliver the Notes and (b) in the case of the Guarantors, the
corporate power and authority to issue and deliver the Guarantees as
provided herein and therein.
(viii) This Agreement has been duly and validly
authorized, executed and delivered by each of the Company and the
Guarantors and (assuming the due authorization, execution and delivery
of this Agreement by the Initial Purchasers) is the legal, valid and
binding agreement of each of the Company and the Guarantors,
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enforceable against each of them in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity and public
policy.
(ix) The Indenture has been duly and validly
authorized by the Company and each Guarantor and, when duly executed
and delivered by the Company and each Guarantor, will (assuming the due
authorization, execution and delivery of the Indenture by the Trustee)
be the legal, valid and binding obligation of the Company and each
Guarantor, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity and
public policy. The Offering Memorandum contains an accurate summary of
the terms of the Indenture.
(x) The Registration Rights Agreement has been duly
and validly authorized by the Company and each Guarantor and, when duly
executed and delivered by the Company and each Guarantor, will
(assuming the due authorization, execution and delivery of the
Registration Rights Agreement by the Initial Purchasers) be the legal,
valid and binding obligation of the Company and each Guarantor,
enforceable against each of them in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Offering
Memorandum contains an accurate summary of the terms of the
Registration Rights Agreement.
(xi) The Senior Credit Agreement has been duly and
validly authorized by the Company and, when duly executed and delivered
by the Company, will (assuming the due authorization, execution and
delivery of the Senior Credit Agreement by the other partes thereto) be
the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains an
accurate summary of the terms of the Senior Credit Agreement.
(xii) The Merger Agreement has been duly and validly
authorized by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(xiii) The Series A Notes have been duly and validly
authorized by the Company for issuance and sale to the Initial
Purchasers pursuant to this Agreement and, when issued and
authenticated in accordance with the terms of the Indenture and
delivered against payment therefor in accordance with the terms hereof
and thereof, will (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) be the legal,
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valid and binding obligations of the Company, enforceable against it in
accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The
Offering Memorandum contains an accurate summary of the terms of the
Series A Notes.
(xiv) The Series B Notes have been duly and validly
authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Exchange Offer and
the Indenture, will (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) be the legal, valid and
binding obligations of the Company, enforceable against it in
accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The
Offering Memorandum contains an accurate summary of the terms of the
Series B Notes.
(xv) The Guarantees of the Series A Notes have been
duly and validly authorized by each of the Guarantors and, when
executed and delivered in accordance with the terms of the Indenture
and when the Series A Notes have been issued and authenticated in
accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms hereof and thereof, will
(assuming the due authorization, execution and delivery of the
Indenture by the Trustee) be the legal, valid and binding obligations
of each of the Guarantors, enforceable against each of them in
accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The
Offering Memorandum contains an accurate summary of the terms of the
Guarantees of the Series A Notes.
(xvi) None of the Company or any of its subsidiaries
is, nor, after giving effect to the Offering and the other
Transactions, will it be, (A) in violation of its charter or bylaws,
(B) in default in the performance of any material bond, debenture,
note, indenture, mortgage, deed of trust or other agreement or
instrument to which it is a party or by which it is bound or to which
any of its properties is subject, or (C) in violation of any local,
state, federal or foreign law, statute, ordinance, rule, regulation,
requirement, judgment or court decree (including, without limitation,
environmental laws, statutes, ordinances, rules, regulations, judgments
or court decrees) applicable to it or any of its subsidiaries or any of
its or their assets or properties (whether owned or leased) except, for
the purposes of this clause (C), for any such violation that could not,
singularly or in the aggregate, reasonably be expected to have a
Material Adverse Effect. To the best knowledge of the Company and the
Guarantors, there exists no condition that, with notice, the passage of
time or otherwise, would constitute a default under any document or
instrument described in clauses (B) and (C) above except, with respect
to clause (C) above, for any such violation that could not, singularly
or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
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(xvii) None of (A) the execution, delivery or
performance by the Company or any of the Guarantors of this Agreement
or any of the other Operative Documents to which it is a party, (B) the
consummation of the Transactions, (C) the issuance and sale of the
Notes or the Guarantees and (D) consummation by the Company and the
Guarantors of the transactions described in the Offering Memorandum
under the caption "Use of Proceeds," violates, conflicts with or
constitutes a breach of any of the terms or provisions of, or, after
giving effect to the Transactions, will violate, conflict with or
constitute a breach of any of the terms or provisions of, or a default
under (or an event that with notice or the lapse of time, or both,
would constitute a default), or require consent under, or result in the
imposition of a lien or encumbrance on any properties of the Company or
any of its subsidiaries, or an acceleration of any indebtedness of the
Company or any of its subsidiaries pursuant to, (1) the charter or
bylaws of the Company or any of its subsidiaries, (2) any material
bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which any of them or their property is or may be
bound, (3) any statute, rule or regulation applicable to the Company,
its subsidiaries or any of their assets or properties except, for the
purposes of this clause (3), for any such violation, conflict or
default that could not, singularly or in the aggregate, reasonably be
expected to have a Material Adverse Effect or (4) any judgment, order
or decree of any court or governmental agency or authority having
jurisdiction over the Company, its subsidiaries or any of their assets
or properties. No consent, approval, authorization or order of, or
filing, registration, qualification, license or permit of or with, (A)
any court or governmental agency, body or administrative agency or (B)
any other person is required for (1) the execution, delivery and
performance by the Company or any Guarantor of this Agreement or any of
the other Operative Documents to which the Company or such Guarantor is
a party, (2) the Transactions or (3) the issuance and sale of the Notes
and the transactions contemplated hereby and thereby, except such as
have been obtained and made (or, in the case of the Registration Rights
Agreement, will be obtained and made) under the Act, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and
state securities or Blue Sky laws and regulations or such as may be
required by the NASD.
(xviii) There is (A) no action, suit, investigation
or proceeding before or by any court, arbitrator or governmental
agency, body or official, domestic or foreign, now pending or, to the
best knowledge of the Company and the Guarantors, threatened or
contemplated to which the Company or any of its subsidiaries is or may
be a party or to which the business or property of the Company or any
of its subsidiaries is (B) no statute, rule, regulation or order that
has been enacted, adopted or issued by any governmental agency or that
has been proposed by any governmental body and (C) no injunction,
restraining order or order of any nature by a federal or state court or
foreign court of competent jurisdiction to which the Company or any of
its subsidiaries is or may be subject or to which the business, assets,
or property of the Company or any of its subsidiaries is or may be
subject, that, in the case of clauses (A), (B) and (C) above, (1) is
required to be disclosed in the Preliminary Offering Memorandum and the
Offering
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Memorandum and that is not so disclosed, or (2) could reasonably be
expected to (x) result, individually or in the aggregate, in a material
adverse effect on the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company
and its subsidiaries, taken as a whole, (y) interfere with or adversely
affect the issuance or marketability of the Notes pursuant hereto or
(z) in any manner draw into question the validity of this Agreement or
any other Operative Document or the transactions described in the
Offering Memorandum under the captions "The Recapitalization" or "Use
of Proceeds" (any of the events set forth in clauses (x), (y) or (z), a
"Material Adverse Effect").
(xix) No formal action has been taken and no statute,
rule, regulation or order has been enacted, adopted or issued by any
governmental agency that prevents the issuance of the Notes or the
Guarantees or prevents or suspends the use of the Offering Memorandum;
no injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued that prevents the
issuance of the Notes or the Guarantees or prevents or suspends the
sale of the Notes in any jurisdiction referred to in Section 4(e)
hereof; and every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
(xx) The Company and the Guarantors have delivered to
the Initial Purchasers true and correct copies of all documents and
agreements related to the Transactions, including all amendments,
alterations, modifications or waivers thereto and all exhibits or
schedules thereto.
(xxi) Neither the Company nor any of its subsidiaries
is a party to any union or collective bargaining agreement and there is
(A) no significant strike, labor dispute, slowdown or stoppage pending
against either of the Company or any of its subsidiaries nor, to the
best knowledge of the Company and the Guarantors, threatened against
the Company or any of its subsidiaries and (B) to the best knowledge of
the Company and the Guarantors, no union representation question
existing with respect to the employees of the Company or any of its
subsidiaries. To the best knowledge of the Company and the Guarantors,
no collective bargaining organizing activities are taking place with
respect to the Company or any of its subsidiaries. Except as disclosed
in the Offering Memorandum, neither the Company nor any of its
subsidiaries has violated (1) any federal, state or local law or
foreign law relating to discrimination in hiring, promotion or pay of
employees, (2) any applicable wage or hour laws or (3) any provision of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules and regulations thereunder except where the
foregoing, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(xxii) Neither the Company nor any of its
subsidiaries has violated any foreign, federal, state or local law or
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws") which violation could reasonably be
expected to
<PAGE> 14
Page 13
have a Material Adverse Effect.
(xxiii) There is no alleged liability, or to the best
knowledge of the Company and the Guarantors, potential liability
(including, without limitation, alleged or potential liability or
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damages, personal injuries or
penalties) of the Company or any of its subsidiaries arising out of,
based on or resulting from (A) the presence or release into the
environment of any Hazardous Material (as defined below) at any
location, whether or not owned by the Company or such subsidiary, as
the case may be, or (B) any violation or alleged violation of any
Environmental Law, which alleged or potential liability is required to
be disclosed in the Offering Memorandum, other than as disclosed
therein, or could reasonably be expected to have a Material Adverse
Effect. The term "Hazardous Material" means (1) any "hazardous
substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (2) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act, as
amended, (3) any petroleum or petroleum product, (4) any
polychlorinated biphenyl and (5) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other law relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical material, waste or
substance.
(xxiv) Each of the Company and its subsidiaries has
such permits, licenses, franchises and authorizations of governmental
or regulatory authorities ("permits"), including, without limitation,
under any applicable Environmental Laws, as are necessary to own, lease
and operate their respective properties and to conduct their
businesses; the Company and each of its subsidiaries have fulfilled and
performed all of its obligations with respect to such permits and no
event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or could result in any other
material impairment of the rights of the holder of any such permit;
and, such permits contain no restrictions that are or will be
materially burdensome to the Company or such subsidiary, as the case
may be except in the case of each of the foregoing clauses as described
in the Offering Memorandum or except where the failure to have such
permits, licenses, franchise and authorizations or the failure to
fulfill or perform such obligations or the occurrence of such events,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect,.
(xxv) Each of the Company and its subsidiaries has
(A) good and marketable title to all of the material properties and
assets described in the Offering Memorandum as owned by it, free and
clear of all liens, charges, encumbrances and restrictions (except for
(1) liens, charges, encumbrances and restrictions related to the Senior
Credit Facility, (2) liens for taxes not delinquent or the validity of
which is being contested in good faith by appropriate proceedings and
as to which adequate reserves have been established on the balance
sheet of the Company in accordance with GAAP consistently applied
throughout the periods indicated therein and (3) statutory landlord's,
mechanics, carrier's, workmen's, repairmen's or other similar liens
arising or incurred in
<PAGE> 15
Page 14
the ordinary course of business and which are for amounts that are not
yet overdue), (B) peaceful and undisturbed possession under all
material leases to which any of them is a party as lessee and each of
which lease is valid and binding and no default exists thereunder, (C)
all licenses, certificates, permits, authorizations, approvals,
franchises and other rights from, and has made all declarations and
filings with, all federal, state and local authorities, all
self-regulatory authorities and all courts and other tribunals (each,
an "Authorization") necessary to engage in the business conducted by
any of them in the manner described in the Offering Memorandum and (D)
no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Authorization
except, for the purposes of the preceding clauses (C) and (D), where
the foregoing, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect. All such Authorizations
are, and after giving effect to the Transactions will be, valid and in
full force and effect and the Company and each of its subsidiaries is
in compliance in all material respects with the terms and conditions of
all such Authorizations and with the rules and regulations of the
regulatory authorities having jurisdiction with respect thereto. All
leases to which the Company or any of its subsidiaries is a party are
valid and binding and no default by the Company or such subsidiary, as
the case may be, has occurred and is continuing thereunder and, to the
best knowledge of the Company and the Guarantors, no material defaults
by the landlord are existing under any such lease, except in each case
as could not reasonably be expected to have a Material Adverse Effect.
(xxvi) The properties of the Company and its
subsidiaries are in good repair (reasonable wear and tear excepted),
are insured and are suitable for their uses except where the foregoing,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(xxvii) Each of the Company and its subsidiaries
owns, possesses or has the right to employ all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, software, systems or procedures), trademarks, service
marks and trade names, inventions, computer programs, technical data
and information (collectively, the "Intellectual Property") employed by
it in connection with the businesses now operated by it or that are
proposed to be operated by it free and clear of and without violating
any right, claimed right, charge, encumbrance, pledge, security
interest, restriction or lien of any kind of any other person, and,
except as disclosed in the Offering Memorandum, neither the Company nor
any of its subsidiaries has received any notice of infringement of or
conflict with asserted rights of others with respect to any of the
foregoing except where the foregoing, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. The
use of the Intellectual Property in connection with the business and
operations of the Company or its subsidiaries does not infringe on the
rights of any person, except as could not reasonably be expected to
have a Material Adverse Effect.
(xxviii) All tax returns required to be filed by the
Company or its
<PAGE> 16
Page 15
subsidiaries in all jurisdictions have been so filed, and all taxes,
including withholding taxes, penalties and interest, assessments, fees
and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided or those
currently payable without penalty or interest except where the failure
to file or pay, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect. To the knowledge of the
Company and the Guarantors, there are no proposed additional tax
assessments against the Company or its subsidiaries, or the assets or
property of the Company or its subsidiaries except where the foregoing,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(xxix) Neither the Company nor any of its
subsidiaries is or, after giving effect to the Transactions, will be an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(xxx) Except as set forth in the Offering Memorandum,
there are no holders of securities of either of the Company or the
Guarantors who, by reason of the execution by the Company and the
Guarantors of this Agreement or any other Operative Document or the
consummation by the Company and the Guarantors of the transactions
contemplated hereby and thereby, have the right to request or demand
that the Company or its subsidiaries register under the Act securities
held by them.
(xxxi) Each of the Company and its subsidiaries
maintains a system of internal accounting controls sufficient to
provide reasonable assurance that: (A) transactions are executed in
accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to
assets is permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
(xxxii) Each of the Company and its subsidiaries
maintains insurance covering its properties, operations, personnel and
businesses. Such insurance insures against such losses and risks as are
adequate to protect the Company, its subsidiaries and their respective
businesses. Neither the Company nor any of its subsidiaries has
received notice from any insurer or agent of such insurer that
substantial capital improvements or other expenditures will have to be
made in order to continue such insurance.
(xxxiii) Neither the Company nor any of its
subsidiaries has (A) taken, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the
Company or any of its subsidiaries to facilitate the sale or resale of
the Notes or (B) since the date of the Preliminary Offering Memorandum
(1) sold, bid for, purchased or paid any person any
<PAGE> 17
Page 16
compensation for soliciting purchases of the Notes or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company or any of its
subsidiaries.
(xxxiv) No registration under the Act of the Series A
Notes is required for the sale of the Series A Notes to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming
(A) that the purchasers who buy the Series A Notes in the Exempt
Resales are QIBs and (B) the accuracy of the Initial Purchasers'
representations regarding the absence of general solicitation in
connection with the sale of Series A Notes to the Initial Purchasers
and the Exempt Resales contained herein. No form of general
solicitation or general advertising was used by the Company, the
Guarantors or any of their respective representatives (other than the
Initial Purchasers, as to which the Company and the Guarantors make no
representation or warranty) in connection with the offer and sale of
any of the Notes in connection with Exempt Resales, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by
any general solicitation or general advertising. No securities of the
same class as the Notes have been issued and sold by the Company or any
of its subsidiaries within the six-month period immediately prior to
the date hereof.
(xxxv) The execution and delivery of this Agreement,
the other Operative Documents and the sale of the Series A Notes to be
purchased by the Eligible Purchasers will not involve any prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975
of the Internal Revenue Code of 1986. The representation made by the
Company and the Guarantors in the preceding sentence is made in
reliance upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by the Eligible
Purchasers as set forth in the Offering Memorandum under the caption
"Notice to Investors."
(xxxvi) Each of the Preliminary Offering Memorandum
and the Offering Memorandum, as of its date, and as of the Closing
Date, and each amendment or supplement thereto, as of its date, and as
of the Closing Date, contains the information specified in, and meets
the requirements of, Rule 144A(d)(4) under the Act.
(xxxvii) Subsequent to the respective dates as of
which information is given in the Offering Memorandum and up to the
Closing Date, except as set forth in the Offering Memorandum, (A)
neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations, direct or contingent, which are or, after
giving effect to the Transactions, will be material, individually or in
the aggregate, to the Company and its subsidiaries, taken as a whole,
nor entered into any transaction not in the ordinary course of
business, (B) there has not been, singly or in the aggregate, any
change or development
<PAGE> 18
Page 17
which could reasonably be expected to result in a Material Adverse
Effect and (C) there has been no dividend or distribution of any kind
declared, paid or made by either of the Company on any class of their
capital stock.
(xxxviii) None of the execution, delivery and
performance of this Agreement, the issuance and sale of the Notes and
the issuance of the Guarantees, the application of the proceeds from
the issuance and sale of the Notes and the consummation of the
transactions contemplated thereby as set forth in the Offering
Memorandum, will violate Regulations G, T, U or X promulgated by the
Board of Governors of the Federal Reserve System.
(xxxix) The accountants who have certified or will
certify the financial statements included or to be included as part of
the Offering Memorandum are independent accountants within the meaning
of Rule 101 of the Code of Professional Conduct of the American
Institute of Certified Public Accountants and the interpretations and
rulings thereunder. The historical consolidated financial statements,
together with the related schedules and notes thereto of the Company
and its subsidiaries, comply as to form in all material respects with
the requirements applicable to registration statements on Form S-1
under the Act and present fairly in all material respects the
consolidated financial position and results of operations of the
Company and its subsidiaries at the dates and for the periods
indicated. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis throughout the periods presented. The pro forma financial
statements included in the Offering Memorandum have been prepared on a
basis consistent with such historical statements, except for the pro
forma adjustments specified therein, and give effect to assumptions
made on a reasonable basis and present fairly in all material respects
the historical and proposed transactions contemplated by this Agreement
and the other Operative Documents; and such pro forma financial
statements comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other financial
and statistical information and data included in the Offering
Memorandum, historical and pro forma, are accurately presented in all
material respects and prepared on a basis consistent with the financial
statements, historical and pro forma, included in the Offering
Memorandum and the books and records of the Company and its
subsidiaries.
(xl) Neither the Company nor any of its subsidiaries
intends to, nor does it believe that it will, incur debts beyond its
ability to pay such debts as they mature. The present fair saleable
value of the assets of the Company and its subsidiaries, taken as a
whole, exceeds the amount that will be required to be paid on or in
respect of its existing debts and other liabilities (including
contingent liabilities) as they become absolute and matured. The assets
of the Company and its subsidiaries, taken as a whole, do not
constitute unreasonably small capital to carry out the business of the
Company and its subsidiaries, taken as a whole, as conducted or as
proposed to be conducted. Upon the issuance of the Notes and the
Guarantees and the consummation of the other Transactions, the present
fair saleable value of the assets of the Company and its subsidiaries,
taken as a whole, will exceed the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company and its subsidiaries,
taken as a whole, as they become absolute and matured. Upon the
issuance of the Notes and the Guarantees and the consummation of the
other Transactions, the assets of the Company and its
<PAGE> 19
Page 18
subsidiaries, taken as a whole, will not constitute unreasonably small
capital to carry out their businesses as now conducted, including the
capital needs of the Company and its subsidiaries, taking into account
projected capital requirements and capital availability.
(xli) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between the Company or any of
its subsidiaries and any other person that would give rise to a valid
claim against the Company or any of its subsidiaries or the Initial
Purchasers for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Notes or in
connection with the issuance of the Guarantees.
(xlii) There exist no conditions that would
constitute a default (or an event which with notice or the lapse of
time, or both, would constitute a default) under any of the Operative
Documents.
(xliii) Each of the Company and its subsidiaries has
complied with all of the provisions of Florida H.B. 1771, codified as
Section 517.075 of the Florida statutes, and all regulations
promulgated thereunder relating to doing business with the Government
of Cuba or with any person or any affiliate located in Cuba.
(xliv) Each certificate signed by any officer of the
Company or any Guarantor and delivered to the Initial Purchasers or
counsel for the Initial Purchasers shall be deemed to be a
representation and warranty by the Company or such Guarantor, as the
case may be, to the Initial Purchasers as to the matters covered
thereby.
The Company and the Guarantors acknowledge that the Initial
Purchasers and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Section 8 hereof, counsel for the Company and the
Guarantors and counsel for the Initial Purchasers, will rely upon the accuracy
and truth of the foregoing representations and hereby consent to such reliance.
(b) The Initial Purchasers represent, warrant and covenant to
the Company and the Guarantors and agree that:
(i) Each Initial Purchaser is a QIB, with such
knowledge and experience in financial and business matters as are
necessary in order to evaluate the merits and risks of an investment in
the Series A Notes.
(ii) The Initial Purchasers (A) are not acquiring the
Series A Notes with a view to any distribution thereof that would
violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering
<PAGE> 20
Page 19
and reselling the Series A Notes only to QIBs in reliance on the
exemption from the registration requirements of the Act provided by
Rule 144A.
(iii) No form of general solicitation or general
advertising has been or will be used by the Initial Purchasers or any
of its representatives (within the meaning of Rule 501(c) of Regulation
D of the Securities Act) in connection with the offer and sale of any
of the Series A Notes, including, but not limited to, articles, notices
or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting
whose attendees have been invited by any general solicitation or
general advertising.
(iv) In connection with the Exempt Resales, they will
solicit offers to buy the Series A Notes only from, and will offer to
sell the Series A Notes only to, the Eligible Purchasers. Each Initial
Purchaser further agrees (A) that it will offer to sell the Series A
Notes only to, and will solicit offers to buy the Series A Notes only
from, QIBs who in purchasing such Series A Notes will be deemed to have
represented and agreed that they are purchasing the Series A Notes for
their own accounts or accounts with respect to which they exercise sole
investment discretion and that they or such accounts are QIBs and (B)
that such Series A Notes will not have been registered under the Act
and may be resold, pledged or otherwise transferred only (x)(I) to a
person who the seller reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A, (II) in a transaction meeting
the requirements of Rule 144, (III) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904
under the Act or (IV) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of
counsel if the Company so requests), (y) to the Company, (z) pursuant
to an effective registration statement under the Act and, in each case,
in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction and (C) that the
holder will, and each subsequent holder is required to, notify any
purchaser of the security evidenced thereby of the resale restrictions
set forth in (B) above.
Each Initial Purchaser understands that the Company and the
Guarantors and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Section 8 hereof, counsel for the Company and the
Guarantors and counsel for the Initial Purchasers, will rely upon the accuracy
and truth of the foregoing representations and hereby consents to such reliance.
6. Indemnification.
(a) The Company and the Guarantors, jointly and severally,
agree to indemnify and hold harmless (i) the Initial Purchasers, (ii) each
person, if any, who controls each of the Initial Purchasers within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and agents
of
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the Initial Purchasers or any controlling person to the fullest extent lawful,
from and against any and all losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses incurred in investigating, preparing or defending
against any investigation or litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the Company and the Guarantors will not be liable in any
such case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Initial Purchasers expressly for use therein,
provided, further that with respect to any such untrue statement in or omission
from the Preliminary Offering Memorandum, the indemnity agreement contained in
this Section 6(a) shall not inure to the benefit of the Initial Purchasers or
other persons indemnified hereby to the extent that the sale to the person
asserting any such loss, liability, claim, damage or expense was an initial
resale by an Initial Purchaser and any such loss, liability, claim, damage or
expense of or with respect to such Initial Purchaser or other person indemnified
hereby results from the fact that both (A) a copy of the Offering Memorandum was
not sent or given to such person at or prior to the written confirmation of the
sale of the Notes to such person and (B) the untrue statement in or omission
from the Preliminary Offering Memorandum was corrected in the Offering
Memorandum. This indemnity agreement will be in addition to any liability which
the Company and the Guarantors may otherwise have, including under this
Agreement.
(b) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company and each of the Guarantors and each
person, if any, who controls the Company or any Guarantor within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever (including but not limited
to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any investigation or litigation,
commenced or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum or
the Offering Memorandum, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is based
upon any untrue statement or alleged
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Page 21
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Initial Purchaser expressly for use therein; provided, however,
that in no case shall an Initial Purchaser be liable or responsible for any
amount in excess of the total proceeds received by the Company under the
Offering, as set forth on the cover page of the Offering Memorandum. This
indemnity will be in addition to any liability which the Initial Purchasers may
otherwise have, including under this Agreement.
(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 each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 6 or otherwise except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may otherwise have). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such reasonable fees and expenses of counsel shall be borne by the
indemnifying parties; provided, however, that the indemnifying party under
subsection (a) or (b) above shall only be liable for the reasonable legal
expenses of one counsel for all indemnified parties (in addition to any local
counsel in each jurisdiction in which any claim or action is brought). Anything
in this subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected without its
prior written consent, provided, that such consent was not unreasonably
withheld.
7. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 6 is for any reason held to
be unavailable from the Company and the Guarantors or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Guarantors, on the
one hand, and the Initial Purchasers (severally, and not jointly), on the other
hand, shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision (including
any investigation, legal and other reasonable expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting in
<PAGE> 23
Page 22
the case of losses, claims, damages, liabilities and expenses suffered by the
Company and the Guarantors, any contribution received by the Company and the
Guarantors from persons, other than the Initial Purchasers, who may also be
liable for contribution, including persons who control the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) to which the Company, the Guarantors and the Initial Purchasers
may be subject, in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Guarantors, on one hand, and the
Initial Purchasers, on the other hand, from the offering of the Series A Notes
or, if such allocation is not permitted by applicable law or indemnification is
not available as a result of the indemnifying party not having received notice
as provided in Section 6, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company and the Guarantors, on one hand, and the Initial Purchasers, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Guarantors, on one hand, and the Initial Purchasers, on the other hand,
shall be deemed to be in the same proportion as (a) the total proceeds from the
offering of Series A Notes (net of discounts but before deducting expenses)
received by the Company and (b) the discounts and commissions received by the
Initial Purchasers, respectively, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Company and the
Guarantors, on one hand, and of the Initial Purchasers, on the other hand, shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Guarantors
or the Initial Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Guarantors and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7, (i) in no case shall an Initial Purchaser be
required to contribute any amount in excess of the amount by which the discounts
and commissions applicable to the Series A Notes purchased by such Initial
Purchaser pursuant to this Agreement exceeds the amount of any damages which
such Initial Purchaser has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) 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. For purposes of this Section 7, (A)
each person, if any, who controls the Initial Purchasers within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (B) the
respective officers, directors, partners, employees, representatives and agents
of the Initial Purchasers or any controlling person shall have the same rights
to contribution as the Initial Purchasers, and each person, if any, who controls
the Company and the Guarantors within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
the Company and the Guarantors, subject in each case to clauses (i) and (ii) of
this Section 7. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this Section 7, notify such party or parties from whom
contribution may be sought, but the failure to so notify such
<PAGE> 24
Page 23
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 7 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its prior written consent, provided, that such written
consent was not unreasonably withheld.
8. Conditions of Initial Purchasers' Obligations. The obligations of
the Initial Purchasers to purchase and pay for the Series A Notes, as provided
herein, shall be subject to the satisfaction of the following conditions:
(a) All of the representations and warranties of the Company
and the Guarantors contained in this Agreement shall be true and correct on the
date hereof and on the Closing Date with the same force and effect as if made on
and as of the date hereof and the Closing Date, respectively. Each of the
Company and the Guarantors shall have performed or complied with all of the
agreements herein contained and required to be performed or complied with by it
at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers not later than 12:00 noon, New York City
time, on the day following the date of this Agreement or at such later date and
time as to which the Initial Purchasers may agree, and no stop order suspending
the qualification or exemption from qualification of the Series A Notes in any
jurisdiction referred to in Section 4(e) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the issuance of
the Series A Notes or consummation of the other Transactions; no action, suit or
proceeding shall have been commenced and be pending against or affecting or, to
the best knowledge of the Company and the Guarantors, threatened against, the
Company or the Guarantors before any court or arbitrator or any governmental
body, agency or official that, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect; and no stop order shall have
been issued preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or which could reasonably be expected to have a Material
Adverse Effect.
(d) Since the dates as of which information is given in the
Offering Memorandum, (i) there shall not have been any material adverse change,
or any development that is reasonably likely to result in a material adverse
change, in the capital stock or the long-term debt, or material increase in the
short-term debt, of the Company or any Guarantor from that set forth in the
Offering Memorandum, (ii) no dividend or distribution of any kind shall have
been declared, paid or made by the Company on any class of its or capital stock
and (iii) neither the Company nor any Guarantor shall have incurred any
liabilities or obligations, direct or contingent, that are or, after giving
effect to the Transactions, will be material, individually or in the
<PAGE> 25
Page 24
aggregate, to the Company or any Guarantor, taken as a whole, and that are
required to be disclosed on a balance sheet or notes thereto in accordance with
generally accepted accounting principles and are not disclosed on the latest
balance sheet or notes thereto included in the Offering Memorandum. Since the
date hereof and since the dates as of which information is given in the Offering
Memorandum, there shall not have occurred any material adverse change in the
business, prospects, financial condition or results of operation of the Company
and the Guarantors, taken as a whole.
(e) The Initial Purchasers shall have received a certificate,
dated the Closing Date, signed on behalf of the Company, in form and substance
reasonably satisfactory to the Initial Purchasers, confirming, as of the Closing
Date, the matters set forth in paragraphs (a), (b), (c) and (d) of this Section
8 and that, as of the Closing Date, the obligations of the Company and the
Guarantors to be performed hereunder on or prior thereto have been duly
performed.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, of Weil, Gotshal & Manges LLP, counsel
for the Company and the Guarantors, substantially to the effect set forth in
Exhibit B hereto.
(g) At the time this Agreement is executed and at the Closing
Date, the Initial Purchasers shall have received from Coopers & Lybrand L.L.P.,
independent public accountants, dated as of the date of this Agreement and as of
the Closing Date, customary comfort letters addressed to the Initial Purchasers
and in form and substance reasonably satisfactory to the Initial Purchasers and
counsel for the Initial Purchasers with respect to the financial statements and
certain financial information of the Company and its subsidiaries contained in
the Offering Memorandum.
(h) The Initial Purchasers shall have received an opinion,
dated the Closing Date, in form and substance reasonably satisfactory to the
Initial Purchasers, of Vinson & Elkins L.L.P., counsel for the Initial
Purchasers, covering such matters as are customarily covered in such opinions.
(i) The Initial Purchasers shall have received a certificate
of the Company, dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchasers and counsel for the Initial Purchasers,
as to the solvency of the Company following consummation of the Transactions.
(j) Prior to the Closing Date, the Company and the Guarantors
shall have furnished to the Initial Purchasers such further information,
certificates and documents as the Initial Purchasers may reasonably request.
(k) The Company, the Guarantors and the Trustee shall have
entered into the Indenture and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(l) The Company shall have entered into the Registration
Rights Agreement
<PAGE> 26
Page 25
and the Initial Purchasers shall have received counterparts, conformed as
executed, thereof.
(m) The Transactions shall be consummated prior to, or
simultaneously with, the Closing of the Offering on substantially the terms
described in the Offering Memorandum and the Initial Purchasers shall have
received counterparts, conformed as executed, of the Merger Agreement, the
Senior Credit Agreement and such other documentation as they deem necessary to
evidence the consummation thereof.
(n) The Notes shall have been included in PORTAL and the DTC
shall have approved the Series A Notes for "book-entry" transfer
All opinions, certificates, letters and other documents
required by this Section 8 to be delivered by the Company and the Guarantors
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Initial Purchasers. The Company and
the Guarantors will furnish the Initial Purchasers with such conformed copies of
such opinions, certificates, letters and other documents as they shall
reasonably request.
9. Initial Purchasers' Information. The Company and the Guarantors
acknowledge that the statements with respect to the offering of the Series A
Notes set forth in the last paragraph of the cover page and the third and fourth
paragraphs under the caption "Plan of Distribution" in the Offering Memorandum
constitute the only information furnished in writing by the Initial Purchasers
expressly for use in the Offering Memorandum.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Initial Purchasers, the Company and
the Guarantors contained in this Agreement, including the agreements contained
in Sections 4(f) and 11(d), the indemnity agreements contained in Section 6 and
the contribution agreements contained in Section 7, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Initial Purchasers, any controlling person thereof, or by or on behalf of
the Company, the Guarantors or any controlling person thereof, and shall survive
delivery of and payment for the Series A Notes to and by the Initial Purchasers.
The representations contained in Section 5 and the agreements contained in
Sections 4(f), 6, 7 and 11(d) shall survive the termination of this Agreement,
including any termination pursuant to Section 11.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchasers shall have the right to terminate
this Agreement at any time prior to the Closing Date by notice to the Company
from the Initial Purchasers, without liability (other than with respect to
Sections 6 and 7) on the Initial Purchasers' part to the Company or any of the
Guarantors if, on or prior to such date, (i) in the reasonable judgment of the
Initial Purchasers, any material adverse change shall have occurred since the
respective dates as of which information is given in the Offering Memorandum in
the condition (financial or otherwise), business, properties, assets,
liabilities, prospects, net worth, results of operations or
<PAGE> 27
Page 26
cash flows of the Company, the Guarantors and their respective subsidiaries,
taken as a whole, other than as set forth in the Offering Memorandum, or (ii)
(A) any domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Initial Purchasers will in the immediate
future materially disrupt, the market for the Company's securities or for
securities in general, (B) trading in securities generally on the New York Stock
Exchange or American Stock Exchange shall have been suspended or materially
limited, or minimum or maximum prices for trading shall have been established,
or maximum ranges for prices for securities shall have been required, on such
exchange, or by such exchange or other regulatory body or governmental authority
having jurisdiction, (C) a banking moratorium shall have been declared by
federal or New York state authorities, (D) there is an outbreak or escalation of
armed hostilities involving the United States on or after the date hereof, or if
there has been a declaration by the United States of a national emergency or
war, the effect of which shall be, in the Initial Purchasers' judgment, to make
it inadvisable or impracticable to proceed with the offering or delivery of the
Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum or (E) there shall have been such a material adverse change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States shall be
such as, in the Initial Purchasers' judgment, makes it inadvisable or
impracticable to proceed with the delivery of the Series A Notes as contemplated
hereby.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, telephonic facsimile, or telegraph, confirmed in
writing by letter.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchasers shall be mailed, delivered, or telexed, telegraphed or telecopied and
confirmed in writing to Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167, Attention: Corporate Finance Department, telecopy number: (212)
272-3092, with a copy to Vinson & Elkins L.L.P., 2001 Ross Avenue, Suite 3700,
Dallas, Texas 75201, Attention: Jeffrey A. Chapman, Esq., telecopy number (214)
999-7797; and if sent to the Company or the Guarantors, shall be mailed,
delivered or telexed, telegraphed or telecopied and confirmed in writing to Home
Interiors & Gifts, Inc., at 200 Crescent Court, Suite 1600, Dallas, Texas,
Attention: Lawrence D. Stuart, Jr., telecopy number: (214) 740-7355, and at 4550
Spring Valley Road, Dallas, Texas 75244-3705, Attention: Camille R. Comeau,
telecopy number: (972) 386-1106, with a copy to Weil, Gotshal & Manges LLP, 100
Crescent Court, Suite 1300, Dallas, Texas 75201, Attention: Jeffrey B. Hitt,
telecopy number (214) 746-7777; provided, however, that any notice pursuant to
Section 7 shall be mailed, delivered or telexed, telegraphed or telecopied and
confirmed in writing.
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Initial Purchasers, the Company, the Guarantors and
the controlling persons and agents referred to in Sections 6 and 7, and their
respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
term "successors and assigns" shall not include a purchaser, in its capacity as
such, of Notes from the Initial Purchasers.
14. Construction. This Agreement shall be construed in accordance with
the internal
<PAGE> 28
Page 27
laws of the State of New York. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
15. Captions. The captions included in this Agreement are included
solely for convenience of reference and are not to be considered a part of this
Agreement.
16. Counterparts. This Agreement may be executed in various
counterparts which together shall constitute one and the same instrument.
[signature pages follow]
<PAGE> 1
EXHIBIT 4.3
================================================================================
HOME INTERIORS & GIFTS, INC.
AND
THE GUARANTORS NAMED ON THE SIGNATURE PAGES HERETO
$200,000,000
10 1/8% Series A Senior Subordinated Notes due 2008
REGISTRATION RIGHTS AGREEMENT
Dated as of June 4, 1998
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
================================================================================
<PAGE> 2
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 4, 1998 by and among Home Interiors & Gifts, Inc., a
Texas corporation (the "Company"), the Guarantors named on the signature pages
hereto (each a "Guarantor" and, collectively, the "Guarantors"), and Bear,
Stearns & Co. Inc., Chase Securities Inc., Morgan Stanley & Co. Incorporated
and NationsBanc Montgomery Securities LLC (the "Initial Purchasers"), who have
agreed to purchase $200,000,000 aggregate principal amount of the Company's 10
1/8% Series A Senior Subordinated Notes due 2008 (the "Series A Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated May
28, 1998 (the "Purchase Agreement"), by and among the Company, the Guarantors
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Series A Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the obligations of the Initial Purchasers set forth
in Section 3 of the Purchase Agreement.
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.
Broker-Dealer: Any broker or dealer registered under the
Exchange Act.
Closing Date: The date on which the Series A Notes are
originally issued under the Indenture.
Commission: The Securities and Exchange Commission.
Consummate: The 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 Series B Notes to be issued in the Exchange
Offer, (ii) the maintenance of such Registration Statement
continuously effective and the keeping of the Exchange Offer open for
a period not less than the minimum period required pursuant to Section
3(b) hereof and (iii) the delivery by the Company to the Registrar
under the Indenture of Series B Notes in the same aggregate principal
amount as the aggregate principal amount of Series A Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
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<PAGE> 3
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act
of the Series B Notes pursuant to a Registration Statement pursuant to
which the Company offers the Holders of all outstanding Transfer
Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities held by such Holders for Series B Notes
in an aggregate principal amount equal to the aggregate principal
amount of the Transfer Restricted Securities tendered in such exchange
offer by such Holders.
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the related
Prospectus.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Series A Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the
Act.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of June 4, 1998, among the
Company, United States Trust Company of New York, as trustee (the
"Trustee"), and the Guarantors, 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.
Initial Purchasers: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the
Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, trust,
limited liability company or unincorporated organization, or a
government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement, 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.
Record Holder: With respect to any Damages Payment Date
relating to Notes, each Person who is a Holder of Notes on the record
date with respect to the Interest Payment Date on which such Damages
Payment Date shall occur.
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<PAGE> 4
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the
Company relating to (i) an offering of Series B Notes and the
Subsidiary Guarantees pursuant to an Exchange Offer or (ii) the
registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the
provisions of this Agreement, in each case, including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated
by reference therein.
Series A Notes. As defined in the preamble hereto.
Series B Notes: The Company's 10 1/8% Series B Senior
Subordinated Notes due 2008 to be issued pursuant to the Indenture (i)
in the Exchange Offer or (ii) pursuant to a Shelf Registration
Statement, in each case in exchange for Series A Notes.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Subsidiary Guarantees: The joint and several guarantees of the
Company's payment obligations under the Notes by the Guarantors.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Series A Note until (i)
the date on which such Series A Note has been exchanged by a person
other than a Broker-Dealer for a Series B Note in the Exchange Offer,
(ii) following the exchange by a Broker-Dealer in the Exchange Offer
of a Series A Note for a Series B Note, the date on which such Series
B 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 Series A Note has been effectively registered under the Act and
disposed of in accordance with the Shelf Registration Statement or
(iv) the date on which such Series A Note is distributed to the public
pursuant to Rule 144 under the Act or may be distributed to the public
pursuant to Rule 144(k) under the Act.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
-4-
<PAGE> 5
(b) Holders of Transfer Restricted Securities. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
such Person owns Transfer Restricted Securities of record.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company and the Guarantors shall (i)
cause to be filed with the Commission on or before the 90th day after the
Closing Date, a Registration Statement under the Act relating to the Series B
Notes, the Subsidiary Guarantees and the Exchange Offer, (ii) use their
reasonable best efforts to cause such Registration Statement to become
effective on or before the 180th day after the Closing Date, (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Registration Statement as may be necessary in order to cause such Registration
Statement to become effective, (B) file, if applicable, a post-effective
amendment to such Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings in connection with the registration and
qualification of the Series B Notes and the Subsidiary Guarantees 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
Registration Statement, commence the Exchange Offer. The Exchange Offer
Registration Statement shall be on the appropriate form under the Act
permitting registration of the Series B Notes to be offered in exchange for the
Transfer Restricted Securities and to permit resales of the Series B Notes held
by Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall 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 30 days. The
Company and the Guarantors shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Series B Notes and the Subsidiary Guarantees shall be included in the Exchange
Offer Registration Statement. The Company and the Guarantors shall use their
reasonable 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 45 business days thereafter.
(c) The Company and the Guarantors shall indicate in a "Plan of
Distribution" section contained in the Prospectus contained in the Exchange
Offer Registration Statement that any Broker-Dealer who holds Notes that are
Transfer Restricted Securities and that were acquired for its own account as a
result of market-making activities or other trading activities (other than
Transfer Restricted Securities acquired directly from the Company) may exchange
such Series A Notes 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
-5-
<PAGE> 6
requirements of the Act in connection with any resales of the Series B Notes
received by such Broker-Dealer in the Exchange Offer, which prospectus delivery
requirement may be satisfied by the delivery by such Broker-Dealer of the
Prospectus contained in the Exchange Offer Registration Statement. Such "Plan
of Distribution" section shall also contain all other information with respect
to such resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company and the Guarantors shall use their reasonable best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) below to the extent necessary to ensure that it is available for resales
of Notes acquired by Broker-Dealers for their own accounts as a result of
market-making activities or other trading activities, 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 90 days from the date on which the Exchange Offer Registration
Statement is declared effective.
The Company and the Guarantors shall provide sufficient copies
of the latest version of such Prospectus to Broker-Dealers promptly upon
request at any time during such 90-day period in order to facilitate such
resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and the Guarantors are
not required to file an Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), or (ii) any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following the
Consummation of the Exchange Offer (A) that such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer,
(B) that such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, or (C) that such
Holder is a Broker-Dealer and owns Series A Notes acquired directly from the
Company or one of its affiliates, then the Company and the Guarantors shall use
their reasonable best efforts to:
(x) file a shelf registration statement with the
Commission pursuant to Rule 415 under the Act, which may be an
amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement") on or prior to the earliest
to occur of (1) the 45th day after the date on which the Company
determines that it is not required to file the Exchange Offer
Registration Statement and (2) the 45th day after the date on which
the Company receives notice from a Holder of Transfer Restricted
Securities as contemplated by clause (ii) above (such earliest date
being the "Shelf Filing
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<PAGE> 7
Deadline"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities the Holders of which
shall have provided the information required pursuant to Section 4(b)
hereof; and
(y) cause such Shelf Registration Statement to be
declared effective by the Commission on or before the 120th day after
the Shelf Filing Deadline.
The Company and the Guarantors shall use their reasonable best efforts to keep
such Shelf Registration Statement continuously effective, supplemented and
amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for resales of Notes by the
Holders of Transfer Restricted Securities 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
Closing Date or, if earlier, until the Shelf Registration Statement terminates
when all Transfer Restricted Securities covered by such Shelf Registration
Statement have been sold.
(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 (i) such Holder furnishes
to the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein and (ii) such Holder agrees in writing to be bound
by all of the provisions of this Agreement applicable to such Holder. No Holder
of Transfer Restricted Securities shall be entitled to liquidated damages
pursuant to Section 5 hereof unless and until such Holder shall have used its
best efforts to provide all such reasonably requested information. Each Holder
as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all 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 of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), whether or
not the Company and the Guarantors have breached any obligations to use their
reasonable best efforts to cause any such Registration Statement to be declared
effective, (iii) the Exchange Offer has not been Consummated within 45 business
days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement 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
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<PAGE> 8
effective on or prior to the Effectiveness Target Date (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
and the Guarantors hereby jointly and severally agree to pay liquidated damages
to each Holder of Transfer Restricted Securities in an amount equal to one-half
of one percentage point (0.5%) per annum of the principal amount of Transfer
Restricted Securities held by such Holder. All accrued liquidated damages shall
be paid to Record Holders by the Company by wire transfer of immediately
available funds or by federal funds check on each payment date for liquidated
damages, as provided in the Indenture. Following the cure of all Registration
Defaults relating to any particular Transfer Restricted Securities, the accrual
of liquidated damages with respect to such Transfer Restricted Securities will
cease.
All obligations of the Company and the Guarantors 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 and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their reasonable best efforts to
effect such exchange to permit the sale of Transfer Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof,
and shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the
Company there is a question as to whether the Exchange Offer is
permitted by applicable law, the Company and the Guarantors hereby
agree to seek a no-action letter or other favorable decision from the
Commission allowing the Company and the Guarantors to Consummate an
Exchange Offer for such Series A Notes. The Company and the Guarantors
hereby agree to pursue the issuance of such a decision to the
Commission staff level but shall not be required to take commercially
unreasonable action to effect a change of Commission policy. The
Company and the Guarantors hereby agree, however, to (A) participate
in telephonic conferences with the Commission staff, (B) deliver 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 pursue a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, 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
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<PAGE> 9
Company or any Guarantor, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Series B Notes to be
issued in the Exchange Offer and (C) it is acquiring the Series B
Notes in its ordinary course of business. In addition, all such
Holders of Transfer Restricted Securities shall otherwise cooperate in
the Company's preparations for the Exchange Offer. The Initial
Purchasers, for themselves and on behalf of the Holders, hereby
acknowledge and agree, and each Holder by its purchase of Transfer
Restricted Securities shall be deemed to have acknowledged and agreed,
that any Broker-Dealer and any such Holder using the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange Offer (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 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 should 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 if the resales are of Series B Notes obtained by such Holder in
exchange for Series A Notes acquired by such Holder directly from the
Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.,
(available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above and (B) including a
representation that neither the Company nor any Guarantor has entered
into any arrangement or understanding with any Person to distribute
the Series B Notes to be received in the Exchange Offer and that, to
the best of the Company's and the Guarantors' information and belief,
each Holder participating in the Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, if required, the Company and the Guarantors shall
comply with all the provisions of Section 6(c) below and shall use their
reasonable 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 and, pursuant thereto, the Company
and the Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of distribution
thereof.
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<PAGE> 10
(c) General Provisions. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Notes by Broker-Dealers), the Company and the Guarantors shall:
(i) use their reasonable best efforts to keep such
Registration Statement continuously effective and provide all
requisite financial statements (including, if required by the Act or
any regulation thereunder, financial statements of the Guarantors) for
the period specified in Section 3(b) 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 the resale of Transfer Restricted Securities during the
period required by this Agreement, the Company and the Guarantors
shall file promptly an appropriate amendment to such Registration
Statement, in the case of clause (A), correcting any such misstatement
or omission, and, in the case of either clause (A) or (B), use their
reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus
to become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3(b) or 4 hereof, as
applicable, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been
sold; 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 the applicable
provisions of Rules 424 and 430A 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 underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, to 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 Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments
or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any
of the preceding purposes, (D) of the existence of any fact or the
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<PAGE> 11
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 or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company and the
Guarantors shall use their reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of
the underwriter(s), 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 and
underwriter(s), if any, for a period of at least five business days,
and neither the Company nor any Guarantors shall 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 a selling Holder of
Transfer Restricted Securities covered by such Registration Statement
or the underwriter(s), if any, shall reasonably object within five
business days after the receipt thereof. A selling Holder or
underwriter, if any, 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;
(v) prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s), 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 or underwriter(s), if any,
reasonably may request;
(vi) make available at reasonable times for inspection by
the Special Counsel on behalf of the selling Holders and any
underwriter participating in any disposition pursuant to such
Registration Statement, all financial and other records, pertinent
corporate documents and properties of the Company and the Guarantors
and cause the Company's and the Guarantors' officers, directors and
employees to supply all information reasonably requested by such
Special Counsel or any such underwriter in connection with such
Registration Statement subsequent to the filing thereof and prior to
its effectiveness;
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<PAGE> 12
(vii) if requested by any selling Holders or the
underwriter(s), if any, promptly incorporate in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the purchase
price being paid therefor and any other terms of the offering of the
Transfer Restricted Securities to be sold in such offering; 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 incorporated in such Prospectus supplement or
post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by
the Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate
principal amount of Notes covered thereby or the underwriter(s), if
any;
(ix) furnish to each selling Holder who so requests and
each of the underwriter(s), 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 upon request therefor all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the
Company and the Guarantors hereby consent to the use of the Prospectus
and any amendment or supplement thereto by each of the selling Holders
and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto;
(xi) enter into such customary agreements (including an
underwriting agreement), and make such customary representations and
warranties, and take all such other customary actions in connection
therewith in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, all to such extent as may be
reasonably requested by any Holder of Transfer Restricted Securities
or underwriter in connection with any sale or resale pursuant to any
Registration Statement contemplated by this Agreement; and whether or
not an underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, the Company and the
Guarantors shall:
(A) furnish to each underwriter, if any, in such
substance and scope as they may reasonably request and as are
customarily made by issuers to underwriters in primary
underwritten offerings, upon the effectiveness of the Shelf
Registration Statement:
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<PAGE> 13
(1) a certificate, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement
signed by (x) the President or any Vice President and
(y) a principal financial or accounting officer of
each of the Company and the Guarantors, confirming,
as of the date thereof, the matters set forth in
paragraphs (a), (b), (c) and (d) of Section 8 of the
Purchase Agreement and such other matters as such
parties may reasonably request;
(2) an opinion, dated the date of
effectiveness of the Shelf Registration Statement, of
counsel for the Company and the Guarantors, covering
the matters set forth in paragraphs 1 through 18 of
Exhibit C to the Purchase Agreement and such other
matters as such parties may reasonably request, and
in any event including a statement to the effect that
such counsel has participated in conferences with
officers and other representatives of the Company and
the Guarantors, representatives of the independent
public accountants for the Company and the Guarantors
and the Initial Purchasers' representatives in
connection with the preparation of such Registration
Statement and the related Prospectus and have
considered the matters required to be stated therein
and the statements therein, although such counsel has
not independently verified the accuracy, completeness
or fairness of such statements (except as indicated
in such opinion); and that such counsel advises that,
on the basis of the foregoing (relying as to
materiality to a large extent upon facts provided to
such counsel by officers and other representatives of
the Company and the Guarantors 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, 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 light of the
circumstances under which they were made, not
misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes
no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and
other financial data included, or required to be
included, in any Registration Statement contemplated
by this Agreement or the related Prospectus; and
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<PAGE> 14
(3) a customary comfort letter, dated
the date of effectiveness of the Shelf Registration
Statement from the Company's independent accountants,
in the customary form and covering matters of the
type customarily covered in comfort letters by
underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 8 of
the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference
in the underwriting agreement, if any, the indemnification
provisions and procedures of Section 8 hereof with respect to
all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates
as may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this clause
(xi), if any;
If at any time the representations and warranties of the Company and
the Guarantors contemplated in clause (A)(1) above cease to be true
and correct, the Company shall so advise the Initial Purchasers and
the underwriter(s), if any, and each selling Holder promptly and, if
requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective 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 or underwriter(s) may request and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by
the Shelf Registration Statement; provided, however, that neither the
Company nor the Guarantors shall be required to register or qualify as
a foreign corporation where it is not now so qualified or to take any
action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) issue, upon the request of any Holder of Series A
Notes covered by the Shelf Registration Statement, Series B Notes,
having an aggregate principal amount equal to the aggregate principal
amount of Series A Notes surrendered to the Company by such Holder in
exchange therefor or being sold by such Holder; such Series B Notes to
be registered in the name of such Holder or in the name of the
purchaser(s) of such Notes, as the case may be; in return, the Series
A Notes held by such Holder shall be surrendered to the Company for
cancellation;
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<PAGE> 15
(xiv) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities
to be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any,
may reasonably request at least two business days prior to any sale of
Transfer Restricted Securities made by such underwriter(s);
(xv) use their reasonable best efforts to cause 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 or the underwriter(s), if any, to consummate the disposition
of such Transfer Restricted Securities;
(xvi) if any fact or event contemplated by clause
(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 light of
the circumstances under which they were made, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement 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;
(xviii) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD, and use its reasonable best efforts
to cause such Registration Statement to become effective and approved
by such governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Securities to
consummate the disposition of such Transfer Restricted Securities;
(xix) otherwise use their reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) for the twelve-month period (A) commencing
at the end of any fiscal quarter in which Transfer Restricted
Securities are sold to underwriters in a firm or best efforts
Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration
Statement;
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<PAGE> 16
(xx) 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 of Notes to effect such changes to
the Indenture as may be required for such Indenture to be so qualified
in accordance with the terms of the TIA; and execute, and use their
reasonable best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by
the Registration Statement to be listed on each securities exchange on
which the Notes are then listed if requested by the Holders of a
majority in aggregate principal amount of Series A Notes or the
managing underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted
Security that, upon receipt of any notice from the Company of the existence of
any fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder will
keep such notice confidential and forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing
(the "Advice") by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by the Company,
each Holder will 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 such notice. In the event the Company shall give any such
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 the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantors'
performance of or compliance with this Agreement will be borne by the Company
and the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses; (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing
(including printing certificates for the Series B Notes to be issued in the
Exchange Offer and printing of
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<PAGE> 17
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company and the Guarantors and, subject to
Section 7(b) below, the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing Notes on a national
securities exchange or automated quotation system, if any, pursuant to the
requirements hereof; (vi) the fees and expenses of the Trustee and any exchange
agent as well as the fees and disbursements of their counsel and (vii) all fees
and disbursements of independent public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company and the Guarantors will, in any event, bear their
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal or accounting duties), the
expenses of any annual audit and the fees and expenses of any Person, including
special experts, retained by the Company or any Guarantor.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement
or registered pursuant to the Shelf Registration Statement, as applicable, for
the reasonable fees and disbursements of not more than one counsel, who shall
be Vinson & Elkins L.L.P. or such other counsel as may be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit such Registration Statement is being prepared (the "Special
Counsel").
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree
to indemnify and hold harmless (i) each Holder, (ii) each Initial Purchaser,
(iii) each person, if any, who controls any Holder or Initial Purchaser within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
(iii) the respective officers, directors, partners, employees, representatives
and agents of any Holder or Initial Purchaser or any controlling person (any
person referred to in clauses (i), (ii) or (iii) may hereinafter be referred to
as an "Indemnified Holder"), to the fullest extent lawful, from and against any
and all losses, liabilities, claims, damages and expenses whatsoever (including
but not limited to reasonable attorneys' fees and any and all reasonable
expenses incurred in investigating, preparing or defending against any
investigation or litigation, commenced or threatened, or any claim whatsoever,
and any and all amounts paid in settlement of any claim or litigation), joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
-17-
<PAGE> 18
necessary to make the statements therein not misleading; provided, however,
that the Company and the Guarantors will not be liable in any such case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of the any of the Holders expressly for use therein, provided, further
that with respect to any such untrue statement in or omission from the
Registration Statement or Prospectus, the indemnity agreement contained in this
Section 8(a) shall not inure to the benefit of the Indemnified Holder or other
persons indemnified hereby to the extent that the sale to the person asserting
any such loss, liability, claim, damage or expense arose from the fact that
both (A) a copy of the final Prospectus (together with any correcting
amendments or supplements) was not sent or given to such person at or prior to
the written confirmation of the sale of the Notes to such person and (B) any
untrue statement in and omission from any related preliminary Prospectus was
corrected in the final Prospectus. This indemnity agreement will be in addition
to any liability which the Company and the Guarantors may otherwise have,
including under this Agreement.
(b) Each Holder agrees, severally and not jointly, to indemnify
and hold harmless (i) the Company and the Guarantors, (ii) each person, if any,
who controls the Company or any Guarantor within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (iii) the respective officers,
directors, employers, partners, representatives and agents of the Company and
the Guarantors, against any and all losses, liabilities, claims, damages and
expenses whatsoever (including but not limited to reasonable attorneys' fees
and any and all reasonable expenses whatsoever incurred in investigating,
preparing or defending against any investigation or litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with information
relating to any Holder furnished to the Company in writing by or on behalf of
such Holder expressly for use therein; provided, however, that in no case shall
any Holder be liable or responsible for any amount in excess of proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. This indemnity will be in addition to any
liability which the Holders may otherwise have, including under this Agreement.
(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 each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
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<PAGE> 19
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 or otherwise except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may otherwise have). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume and control the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such reasonable fees and expenses of
counsel shall be borne by the indemnifying parties; provided, however, that the
indemnifying party under subsection (a) or (b) above shall only be liable for
the legal expenses of one counsel for all indemnified parties (in addition to
any local counsel in each jurisdiction in which any claim or action is
brought). Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its prior written consent, provided that such consent
was not unreasonably withheld.
SECTION 9. CONTRIBUTION
In order to provide for contribution in circumstances in which the
indemnification provided for in Section 8 is for any reason held to be
unavailable from the Company and the Guarantors or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Guarantors, on the
one hand, and each Holder on the other hand, shall contribute to the aggregate
losses, claims, damages, liabilities and expenses of the nature contemplated by
such indemnification provision (including any investigation, legal and other
reasonable expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company and the Guarantors, any contribution received by the
Company and the Guarantors from persons, other than a Holder, who may also be
liable for contribution, including persons who control the Company and the
Guarantors within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act) to which the Company, the Guarantors or such Holder may be
subject, (i) in such proportion as is appropriate to reflect the relative fault
of the Company and the Guarantors, on one hand, and such Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative fault referred to in clause
(i) above but
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<PAGE> 20
also other relevant equitable considerations. The relative benefits received by
the Company and the Guarantors, on one hand, and each Holder, on the other
hand, shall be deemed to be in the same proportion as (a) the total proceeds
from the offering of the Notes (net of discounts but before deducting expenses)
received by the Company and the Guarantors and (b) the total proceeds received
by such Holder upon the sale of the Notes giving rise to such indemnification
obligation. The relative fault of the Company and the Guarantors, on one hand,
and of each Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Guarantors or such Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Guarantors and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 9, (A) in no case shall any Holder be required to contribute any
amount in excess of the dollar amount by which the proceeds received by such
Holder upon the sale of the Notes exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission and (B) 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. For purposes of this Section 9, (x) each person,
if any, who controls any of the Holders within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and (y) the respective officers,
directors, partners, employees, representatives and agents of such Holder or
any controlling person shall have the same rights to contribution as the
Holders, and each person, if any, who controls the Company or any Guarantor
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as the Company and the
Guarantors, subject in each case to clauses (A) and (B) of this Section 9. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 9, notify such party or parties from whom contribution may
be sought, but the failure to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation
it or they may have under this Section 9 or otherwise. No party shall be liable
for contribution with respect to any action or claim settled without its prior
written consent; provided that such written consent was not unreasonably
withheld.
SECTION 10. RULE 144A
The Company and the Guarantors hereby agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding, to make
available 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 from 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.
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<PAGE> 21
SECTION 11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements, and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 12. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Company, subject to consent by
the Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities included in such offering which consent will not be
unreasonably withheld or delayed. Each Holder selling in an Underwritten
Offering shall be responsible for all underwriting commissions and discounts in
connection therewith.
SECTION 13. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors agree that monetary
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by the
Company and the Guarantors of the provisions of this Agreement and hereby agree
to waive the defense in any action for specific performance that a remedy at
law would be adequate.
(b) No Inconsistent Agreements. The Company and the Guarantors
shall not, on or after the date of this Agreement, enter into any agreement
with respect to their respective securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as set forth in the Offering Memorandum (as defined
in the Purchase Agreement), neither of the Company nor any of the Guarantors
has previously entered into any agreement granting 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 or any of the Guarantor's
securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company and the
Guarantors shall not take any action with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
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<PAGE> 22
(d) 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 the Company has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. 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 being
tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or any Guarantor:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244-3705
Telecopy No.: (972) 386-1106
Attention: Camille R. Comeau
with a copies to:
Home Interiors & Gifts, Inc.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telecopy No.: (214) 740-7355
Attention: Lawrence D. Stuart, Jr.
and
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Telecopy No.: (214) 740-7777
Attention: Jeffrey B. Hitt
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
answered back, if telexed; when receipt acknowledged, if
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<PAGE> 23
telecopied; and on the next business day, if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(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, together with the other
Operative Documents (as defined in the Purchase 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 by the
Company with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
[signature pages follow]
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HOME INTERIORS & GIFTS, INC.
By:
----------------------------
Donald J. Carter, Jr.
Chief Executive Officer
GUARANTORS:
DALLAS WOODCRAFT, INC.
By:
----------------------------
Donald J. Carter, Jr.
Executive Vice President
GIA, INC.
By:
----------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO, INC.
By:
----------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO DE PUERTO RICO, INC.
By:
----------------------------
Donald J. Carter, Jr.
Executive Vice President
SPRING VALLEY SCENTS, INC.
By:
----------------------------
Donald J. Carter, Jr.
Executive Vice President
Signature Page 1 of 2
<PAGE> 25
Accepted and agreed to as of
the date first above written:
BEAR, STEARNS & CO. INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
CHASE SECURITIES INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
MORGAN STANLEY & CO. INCORPORATED
By:
---------------------------
Name:
-------------------------
Title:
------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Signature Page 2 of 2
<PAGE> 1
EXHIBIT 9.1
================================================================================
SHAREHOLDERS AGREEMENT
HOME INTERIORS & GIFTS, INC.
____________________
Dated as of June 4, 1998
____________________
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2
MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES . . . . . . . . . . . . . . . . 6
Section 2.1 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1.1 Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1.2 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1.3 Termination of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.5 Initial HMTF Designees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.6 Initial Carter Designees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.7 Calculation of Share Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2 Other Activities of the Holders; Fiduciary Duties . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3
REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1.1 Request for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1.2 Effective Registration and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1.3 Selection of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.4 Priority on Demand Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.5 Rights of Nonrequesting Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.6 Deferral of Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.2 Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.1 Right to Piggyback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2.2 Priority on Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3 Holdback Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.4 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.5 Suspension of Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.6 Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 4
TRANSFERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.1 Tag Along Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.1 Significant Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.2 Threshold Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.3 Terms of Participation Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2 Certain Events Not Deemed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.4 Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 5
LIMITATION ON TRANSFERS . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.2 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2.1 Securities Act Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2.2 Other Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.3 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.4 Termination of Certain Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 6
AFFILIATE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 8
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.4 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.6 No Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.7 Actions of Carter Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.9 Certain Actions by HMC Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Shareholders Agreement"), dated as
of June 4, 1998, is entered into by and among Home Interiors & Gifts, Inc., a
Texas corporation (including its successors, the "Company"), and the
securityholders listed on the signature pages hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS.
"ACCREDITED INVESTOR" means an "Accredited Investor," as
defined in Regulation D, or any successor rule then in effect.
"ADVICE" shall have the meaning provided in Section 3.5
hereof.
"AFFILIATE" means, with respect to any Person, any Person who,
directly or indirectly, controls, is controlled by or is under common
control with that Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise.
"BENEFICIAL OWNERSHIP" with respect to any securities shall
mean having "beneficial ownership" (as determined pursuant to Rule
13d-3 under the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same Holder,
securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons who are Affiliates of such
Person (excluding officers and directors of the Company, the Company
and their controlled Affiliates) who together with such Person would
constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
"CARTER BOARD SHARE" shall have the meaning set forth in
Section 2.1.1(c) hereof.
"CARTER DESIGNEE" shall have the meaning set forth in Section
2.1.1.
<PAGE> 5
"CARTER SHAREHOLDERS" means, collectively, those shareholders
of the Company listed on Exhibit A attached hereto and any direct or
indirect transferee of any such shareholder who shall become a party
hereto in accordance with Section 5.1 hereof; provided, however, that
for purposes of Section 2.1 of this Shareholders Agreement, "Carter
Shareholders" shall mean, collectively, those shareholders of the
Company listed on Exhibit A attached hereto and any direct or indirect
transferee of any such shareholder who shall become a party hereto in
accordance with Section 5.1 hereof and who is an Affiliate of such
shareholder or an officer, director, or employee of such shareholder
or its Affiliates (and any of their respective Family Members, their
estates or trusts for the primary benefit of such Family Members).
"CLOSING" shall mean the date on which the transactions
contemplated by the Merger Agreement are consummated.
"COMMON STOCK" means shares of the Common Stock, par value
$0.10 per share, of the Company, and any capital stock into which such
Common Stock thereafter may be changed.
"COMMON STOCK EQUIVALENTS" means, without duplication with any
other Common Stock or Common Stock Equivalents, any rights, warrants,
options, convertible securities or indebtedness, exchangeable
securities or indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock
of the Company and securities convertible or exchangeable into Common
Stock of the Company, whether at the time of issuance or upon the
passage of time or the occurrence of some future event.
"COMPANY" shall have the meaning set forth in the introductory
paragraph hereof.
"CO-SELLER" shall have the meaning set forth in Section 4.1.1
hereof.
"DEMAND REGISTRATION" shall have the meaning set forth in
Section 3.1.1 hereof.
"DEMAND REQUEST" shall have the meaning set forth in Section
3.1.1 hereof.
"DESIGNEES" shall have the meaning provided in Section 2.1.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC
thereunder.
"EXCLUDED REGISTRATION" means a registration under the
Securities Act of (i) securities pursuant to one or more Demand
Registrations pursuant to Section 3.1 hereof, (ii) securities
registered on Form S-8 under the Securities Act or any similar
successor form and (iii) securities registered to effect the
acquisition of or combination with another Person.
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<PAGE> 6
"FAMILY MEMBER" means, as to any natural Person, such Person's
spouse, grandparent or descendant of that grandparent, children
(natural and adopted), natural or adopted siblings, mothers and
fathers-in-law, sons and daughters-in-law, and brothers and
sisters-in-law.
"FULLY-DILUTED COMMON STOCK" means, at any time, the then
outstanding Common Stock plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of
time or the occurrence of future events, upon the exercise,
conversion, or exchange of all then outstanding Common Stock
Equivalents.
"HMC BOARD SHARE" shall have the meaning set forth in Section
2.1.1(b) hereof.
"HMC SHAREHOLDERS" means, collectively, HM/RB Partners, L.P.
and any direct or indirect transferee of such shareholder who shall
become a party hereto in accordance with Section 5.1 hereof; provided,
however, that for purposes of Section 2.1, Section 4.1, and Section
4.2 of this Shareholders Agreement, "HMC Shareholders" shall mean,
collectively, HM/RB Partners, L.P. and any direct or indirect
transferee of such shareholder who shall become a party hereto in
accordance with Section 5.1 hereof and who is an Affiliate of such
shareholder or an officer, director, or employee of such shareholder
or its Affiliates (and any of their respective Family Members or
trusts for the primary benefit of such Family Members).
"HMTF DESIGNEE" shall have the meaning set forth in Section
2.1.1.
"HMTF" means Hicks, Muse, Tate & Furst Incorporated, a Texas
corporation, an affiliate of HM/RB Partners, L.P.
"HOLDER" means (i) a securityholder listed on a signature page
hereof and (ii) any direct or indirect transferee of any such
securityholder who shall become a party to this Shareholders Agreement
in accordance with Section 5.1 hereof.
"INDEPENDENT DIRECTOR" means a Person who is not (i) an HMC
Shareholder, (ii) a Carter Shareholder or (iii) an employee of the
Company or any of its Subsidiaries or a Family Member of any such
employee.
"MATERIAL ADVERSE EFFECT" shall have the meaning provided in
Section 3.1.4 hereof.
"MERGER AGREEMENT" shall mean the Agreement and Plan of
Merger, dated as of April 13, 1998, among the Company, Crowley
Investments, Inc. and the shareholders of the Company party thereto.
"NASD" shall have the meaning provided in Section 3.4(xiv)
hereof.
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<PAGE> 7
"PARTICIPATION OFFER" shall have the meaning provided in
Section 4.1.1 hereof.
"PERSON" or "PERSON" means any individual, corporation,
partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization or government
or other agency or political subdivision thereof.
"PREFERRED STOCK" means shares of stock of the Company which
have a preference as to dividends or distribution upon liquidation or
dissolution of the Company, and any capital stock into which such
Preferred Stock thereafter may be changed.
"QUALIFIED IPO" means a firm commitment underwritten public
offering of Common Stock pursuant to a registration statement under
the Securities Act where both (i) the proceeds to the Company (prior
to deducting any underwriters' discounts and commissions) equal or
exceed Twenty-Five Million Dollars ($25,000,000) and (ii) upon
consummation of such offering, the Common Stock is listed on the New
York Stock Exchange or authorized to be quoted and/or listed on the
Nasdaq National Market.
"REGISTRABLE SHARES" means at any time the Common Stock owned
by the Holders, whether owned on the date hereof or acquired
hereafter; provided, however, that Registrable Shares shall not
include any shares of Common Stock (i) the sale of which has been
registered pursuant to the Securities Act and which shares have been
sold pursuant to such registration or (ii) which have been sold
pursuant to Rule 144 or 144A of the SEC under the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning provided in
Section 3.6 hereof.
"REGULATION D" means Regulation D promulgated under the
Securities Act by the SEC.
"REQUIRED FILING DATE" shall have the meaning provided in
Section 3.1.1(b) hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"SELLER AFFILIATES" shall have the meaning provided in Section
3.7.1 hereof.
"SHAREHOLDERS AGREEMENT" means this Shareholders Agreement, as
the same may be amended from time to time.
"SIGNIFICANT SALE" shall have the meaning provided in Section
4.1.1 hereof.
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<PAGE> 8
"SUBSIDIARY" of any Person means (i) a corporation a majority
of whose outstanding shares of capital stock or other equity interests
with voting power, under ordinary circumstances, to elect directors,
is at the time, directly or indirectly, owned by such Person, by one
or more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, and (ii) any other Person (other than a
corporation) in which such Person, a subsidiary of such Person or such
Person and one or more subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, has (x) at least a
majority ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
"SUSPENSION EVENT" shall have the meaning provided in Section
3.5 hereof.
"SUSPENSION NOTICE" shall have the meaning provided in Section
3.5 hereof.
"THRESHOLD TRANSACTION" shall have the meaning provided in
Section 4.1.2 hereof.
"TRANSFER" means any disposition of any Common Stock or any
interest therein that would constitute a "sale" thereof within the
meaning of the Securities Act.
"TRANSFER NOTICE" shall have the meaning provided in Section
5.3 hereof.
SECTION 1.2 RULES OF CONSTRUCTION. Unless the context otherwise
requires
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and words
in the plural include the singular;
(4) words used herein, regardless of the gender, will be
deemed and construed to include any other gender, masculine, feminine
or neuter;
(5) provisions apply to successive events and
transactions; and
(6) "herein," "hereof" and other words of similar import
refer to this Shareholders Agreement as a whole and not to any
particular Article, Section or other subdivision hereof.
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<PAGE> 9
ARTICLE 2
MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES
SECTION 2.1 BOARD OF DIRECTORS.
2.1.1 Board Representation. (a) At all times during the
term hereof, subject to Section 2.1.3, the Board of Directors of the Company
shall consist of eleven (11) members (plus such number of directors as may be
elected from time to time pursuant to the terms of any Preferred Stock that may
be issued and outstanding from time to time).
(b) HMTF Designees. Subject to Section 2.1.3, for so
long as the HMC Shareholders own, in the aggregate, at least 50% of the number
of shares of Common Stock owned by the HMC Shareholders at the Closing (the
"Initial HMC Shares"), HMTF shall be entitled to designate to the Board of
Directors of the Company six (6) individuals. Subject to Section 2.1.3, at
such time as the HMC Shareholders own a number of shares of Common Stock equal
to less than 50% of the Initial HMC Shares, HMTF shall be entitled to designate
to the Board of Directors a number of individuals (rounded to the nearest whole
number) equal to the product of (i) nine (9) directors times (ii) the HMC Board
Share; provided, however, that notwithstanding the foregoing, the Carter
Shareholders shall be entitled to designate at least three (3) of such nine (9)
directors for so long as they are otherwise entitled to do so pursuant to the
first sentence of Section 2.1.1(c) below. The individuals designated by HMTF
pursuant to the first two sentences of this Section 2.1.1(b) are referred to
herein individually as an "HMTF Designee" and collectively as the "HMTF
Designees." As used herein, the term "HMC Board Share" shall mean a fraction,
the numerator of which is the aggregate number of shares of Common Stock owned
by the HMC Shareholders, and the denominator of which is the aggregate number
of shares of Common Stock owned by the HMC Shareholders and the Carter
Shareholders collectively.
(c) Carter Designees. Subject to Section 2.1.3,
for so long as the Carter Shareholders own, in the aggregate, at least 50% of
the number of shares of Common Stock owned by the Carter Shareholders at the
Closing (the "Initial Carter Shares") or, if earlier, until the fifth
anniversary of the date of this Agreement, the Carter Shareholders, shall be
entitled to designate to the Board of Directors of the Company three (3)
individuals. Subject to Section 2.1.3, at such time as the Carter Shareholders
own a number of shares of Common Stock equal to less than 50% of the Initial
Carter Shares or, if earlier, from and after the fifth anniversary of the date
of this Agreement, the Carter Shareholders, shall be entitled to designate to
the Board of Directors a number of individuals (rounded to the nearest whole
number) equal to the product of (i) the total number of directors to be
designated by the Carter Shareholders and the HMC Shareholders pursuant hereto
times (ii) the Carter Board Share. The individuals designated by the Carter
Shareholders pursuant to the first two sentences of this Section 2.1.1(c) are
referred to herein individually as a "Carter Designee" and collectively as the
"Carter Designees." As used herein, the term "Carter Board Share" shall mean a
fraction, the numerator of which is the aggregate number of shares of Common
Stock owned by the Carter Shareholders, and the
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<PAGE> 10
denominator of which is the aggregate number of shares of Common Stock owned by
the Carter Shareholders and the HMC Shareholders collectively.
(d) Independent Directors. Subject to Section 2.1.3,
HMTF and the Carter Designees shall mutually agree (acting reasonably) upon and
designate to the Board of Directors of the Company two (2) Independent
Directors.
(e) Voting of Holders. Each Holder shall vote his or its
shares of Common Stock at any regular or special meeting of shareholders of the
Company or in any written consent executed in lieu of such a meeting of
shareholders and shall take all other actions (including using his or her best
efforts to cause the Board of Directors of the Company to take all actions)
necessary to give effect to the agreements contained in this Shareholders
Agreement (including, without limitation, the election of the Designees) and to
ensure that the articles of incorporation and bylaws of the Company as in
effect at any time hereafter do not conflict in any respect with the provisions
of this Shareholders Agreement. In order to effectuate the provisions of this
Article 2, each Holder hereby agrees that when any action or vote is required
to be taken by such Holder pursuant to this Shareholders Agreement, such Holder
shall use his or its best efforts to call, or cause the appropriate officers
and directors of the Company to call, a special or annual meeting of
shareholders of the Company, as the case may be, or execute or cause to be
executed a consent in writing in lieu of any such meetings pursuant to Article
9.10.A of the Texas Business Corporation Act, as amended from time to time, or
any successor statutes.
2.1.2 Vacancies. If, prior to election to the Board of
Directors of the Company pursuant to Section 2.1.1 hereof, any Designee shall
be unable or unwilling to serve as a director of the Company, the Person or
Persons who designated such Designee shall be entitled to designate a
replacement who shall then be a Designee for purposes of this Article 2. If,
following an election to the Board of Directors of the Company pursuant to
Section 2.1.1 hereof, any Designee shall resign or be removed (which may only
be done by the Person or Persons who designated such Designee) or be unable to
serve for any reason prior to the expiration of his term as a director of the
Company, the Person who designated such Designee pursuant to Section 2.1.1
shall, within thirty (30) days of notice from the Company of such event, notify
the Board of Directors of the Company in writing of a replacement Designee, and
either (i) the Holders shall comply with the provisions of Section 2.1.1(e) to
ensure the election to the Board of Directors of the Company of such
replacement Designee to fill the unexpired term of the Designee who such
replacement Designee is replacing or (ii) the Board of Directors shall elect or
appoint such replacement Designee to fill the unexpired term of the Designee
who such replacement Designee is replacing. If HMTF requests that any HMTF
Designee, or the Carter Shareholders request that any Carter Designee, be
removed as a director (with or without cause) by written notice thereof to the
Company, then the Company shall take all actions necessary to effect, and each
of the Holders shall vote all his or its capital stock in favor of, such
removal upon such request.
2.1.3 Termination of Rights. The rights and obligations of
HMTF under Section 2.1, shall terminate upon the first to occur of (i) the
termination or expiration of this
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Shareholders Agreement or this Section 2.1, (ii) such time as HMTF elects in
writing to terminate its rights (but not obligations) under this Section 2.1,
or (iii) such time as the HMC Shareholders cease to own, in the aggregate, at
least ten percent (10%) of the number of shares of Common Stock then
outstanding. The rights and obligations of the Carter Shareholders under this
Section 2.1 shall terminate upon the first to occur of (i) the termination or
expiration of this Shareholders Agreement or this Section 2.1, (ii) such time
as the Carter Shareholders elect in writing to terminate their rights (but not
obligations) under this Section 2.1, or (iii) such time as the Carter
Shareholders cease to own, in the aggregate, at least ten percent (10%) of the
number of shares of Common Stock then outstanding (provided that this clause
(iii) shall have no force or effect during the first five years of the term of
this Agreement if and only to the extent the Carter Shareholders own, in the
aggregate, at least 50% of the Initial Carter Shares).
2.1.4 Costs and Expenses. The Company will pay all
reasonable out-of-pocket expenses incurred by the Designees in connection with
their participation in meetings of the Board of Directors (and committees
thereof) of the Company and the Boards of Directors (and committees thereof) of
the Subsidiaries of the Company.
2.1.5 Initial HMTF Designees. The HMC Shareholders and the
Carter Shareholders hereby consent to the election, as of the date hereof, of
the following four (4) individuals to serve as the initial HMTF Designees to
the Board of Directors of the Company: Daniel S. Dross, Jack D. Furst, Thomas
O. Hicks and Lawrence D. Stuart, Jr.
2.1.6 Initial Carter Designees. The HMC Shareholders and
the Carter Shareholders hereby consent to the election, as of the date hereof,
of the following three (3) individuals to serve as the initial Carter Designees
to the Board of Directors of the Company: Donald J. Carter, Jr., Barbara J.
Hammond and Christina L. Carter Urschel.
2.1.7 Calculation of Share Numbers. For purposes of this
Section 2.1 only, any calculation of the number of shares of Common Stock owned
by an HMC Shareholder or a Carter Shareholder at any date shall be determined
as follows: (i) "owned" shall mean Beneficial Ownership and (ii) each
calculation shall be equitably adjusted for subsequent stock splits, reverse
stock splits, stock combinations, recapitalizations, stock dividends and the
like.
SECTION 2.2 OTHER ACTIVITIES OF THE HOLDERS; FIDUCIARY DUTIES.
It is understood and accepted that the Holders and their Affiliates have
interests in other business ventures which may be in conflict with the
activities of the Company and its Subsidiaries and that, subject to applicable
law, nothing in this Shareholders Agreement shall limit the current or future
business activities of the Holders, whether or not such activities are
competitive with those of the Company and its Subsidiaries. Nothing in this
Shareholders Agreement, express or implied, shall relieve any officer or
director of the Company or any of its Subsidiaries, or any Holder, of any
fiduciary or other duties or obligations they may have to the Company's
shareholders.
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<PAGE> 12
ARTICLE 3
REGISTRATION RIGHTS
SECTION 3.1 DEMAND REGISTRATION.
3.1.1 Request for Registration.
(a) At any time after one hundred eighty (180)
days after the consummation of a Qualified IPO, (i) HMC Shareholders
owning 35% or more of the aggregate number of Registrable Shares then
owned by the HMC Shareholders or (ii) Carter Shareholders owning 35%
or more of the aggregate number of Registrable Shares then owned by
the Carter Shareholders, may request the Company, in writing (a
"Demand Request"), to effect the registration under the Securities Act
of all or part of its or their Registrable Shares (a "Demand
Registration"); provided, however, that the Company shall not be
required to effect a Demand Registration pursuant to a Demand Request
unless the proceeds to the Holders of Registrable Shares requested to
be registered thereunder (collectively, the "Requesting Holders")
(prior to deducting any underwriters' discounts and commissions) equal
or exceed ten million dollars ($10,000,000).
(b) Each Demand Request shall specify the number
of Registrable Shares proposed to be sold. Subject to Section 3.1.6,
the Company shall file the Demand Registration within ninety (90) days
after receiving a Demand Request (the "Required Filing Date") and
shall use all commercially reasonable efforts to cause the same to be
declared effective by the SEC as promptly as practicable after such
filing; provided, that the Company need effect only (i) an aggregate
of three (3) Demand Registrations pursuant to Demand Requests made by
the HMC Shareholders and (ii) an aggregate of three (3) Demand
Registrations pursuant to Demand Requests made by the Carter
Shareholders; provided, further, that if any Registrable Shares
requested to be registered pursuant to a Demand Request are excluded
from the applicable Demand Registration pursuant to Section 3.1.4
below, the Holders making such Demand Request shall have the right,
with respect to each such exclusion, to request one (1) additional
Demand Registration.
3.1.2 Effective Registration and Expenses. A registration
will not count as a Demand Registration until it has become effective (unless
the Requesting Holders withdraw all their Registrable Shares and the Company
has performed its obligations hereunder in all material respects, in which case
such demand will count as a Demand Registration unless the Requesting Holders
pay all Registration Expenses in connection with such withdrawn registration);
provided, that if, after it has become effective, an offering of Registrable
Shares pursuant to a registration is interfered with by any stop order,
injunction, or other order or requirement of the SEC or other governmental
agency or court, such registration will be deemed not to have been effected and
will not count as a Demand Registration.
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3.1.3 Selection of Underwriters. The offering of
Registrable Shares pursuant to a Demand Registration shall be in the form of a
"firm commitment" underwritten offering. The Requesting Holders of a majority
of the Registrable Shares to be registered in a Demand Registration shall
select the investment banking firm or firms to manage the underwritten
offering; provided, that such selection shall be subject to the consent of the
Company, which consent shall not be unreasonably withheld or delayed.
3.1.4 Priority on Demand Registrations. No securities to
be sold for the account of any Person (including the Company) other than a
Requesting Holder shall be included in a Demand Registration unless the
managing underwriter or underwriters shall advise the Company or the Requesting
Holders in writing that the inclusion of such securities will not materially
and adversely affect the price or success of the offering (a "Material Adverse
Effect"). Furthermore, in the event the managing underwriter or underwriters
shall advise the Company or the Requesting Holders that even after exclusion of
all securities of other Persons pursuant to the immediately preceding sentence,
the amount of Registrable Shares proposed to be included in such Demand
Registration by Requesting Holders is sufficiently large to cause a Material
Adverse Effect, the Registrable Shares of the Requesting Holders to be included
in such Demand Registration shall equal the number of shares which the Company
is so advised can be sold in such offering without a Material Adverse Effect
and such shares shall be allocated pro rata among the Requesting Holders on the
basis of the number of Registrable Shares requested to be included in such
registration by each such Requesting Holder.
3.1.5 Rights of Nonrequesting Holders. Upon receipt of any
Demand Request, the Company shall promptly (but in any event within ten (10)
days) give written notice of such proposed Demand Registration to all other
Holders, who shall have the right, exercisable by written notice to the Company
within twenty (20) days of their receipt of the Company's notice, to elect to
include in such Demand Registration such portion of their Registrable Shares as
they may request. All Holders requesting to have their Registrable Shares
included in a Demand Registration in accordance with the preceding sentence
shall be deemed to be "Requesting Holders" for purposes of this Section 3.1
(although such Holders shall not be considered to have effected a Demand
Request pursuant to such Section 3.1).
3.1.6 Deferral of Filing. The Company may defer the filing
(but not the preparation) of a registration statement required by this Section
3.1 until a date not later than one hundred eighty (180) days after the
Required Filing Date (or, if longer, one hundred eighty (180) days after the
effective date of the registration statement contemplated by clause (ii) below)
if (i) at the time the Company receives the Demand Request, the Company or any
of its Subsidiaries is engaged in confidential negotiations or other
confidential business activities, disclosure of which would be required in such
registration statement (but would not be required if such registration
statement were not filed), and the Board of Directors of the Company determines
in good faith that such disclosure would be materially detrimental to the
Company and its shareholders or would have a material adverse effect on any
such confidential negotiations or other confidential business activities, or
(ii) prior to receiving the Demand Request, the Board of Directors of the
Company had determined to effect a registered
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<PAGE> 14
underwritten public offering of the Company's securities for the Company's
account and the Company had taken substantial steps (including, but not limited
to, selecting a managing underwriter for such offering) and is proceeding with
reasonable diligence to effect such offering. A deferral of the filing of a
registration statement pursuant to this Section 3.1.6 shall be lifted, and the
requested registration statement shall be filed forthwith, if, in the case of a
deferral pursuant to clause (i) of the preceding sentence, the negotiations or
other activities are disclosed or terminated, or, in the case of a deferral
pursuant to clause (ii) of the preceding sentence, the proposed registration
for the Company's account is abandoned. In order to defer the filing of a
registration statement pursuant to this Section 3.1.6, the Company shall
promptly (but in any event within ten (10) days), upon determining to seek such
deferral, deliver to each Requesting Holder a certificate signed by an
executive officer of the Company stating that the Company is deferring such
filing pursuant to this Section 3.1.6 and a general statement of the reason for
such deferral and an approximation of the anticipated delay. Within twenty
(20) days after receiving such certificate, the holders of a majority of the
Registrable Shares held by the Requesting Holders and for which registration
was previously requested may withdraw such Demand Request by giving notice to
the Company; and if withdrawn, the Demand Request shall be deemed not to have
been made for all purposes of this Shareholders Agreement. The Company may
defer the filing of a particular registration statement pursuant to this
Section 3.1.6 only once.
SECTION 3.2 PIGGYBACK REGISTRATIONS.
3.2.1 Right to Piggyback. Each time the Company proposes
to register any of its equity securities (other than pursuant to an Excluded
Registration) under the Securities Act for sale to the public (whether for the
account of the Company or the account of any securityholder of the Company) and
the form of registration statement to be used permits the registration of
Registrable Shares, the Company shall give prompt written notice to each Holder
of Registrable Shares (which notice shall be given not less than thirty (30)
days prior to the effective date of the Company's registration statement),
which notice shall offer each such Holder the opportunity to include any or all
of his or its Registrable Shares in such registration statement, subject to the
limitations contained in Section 3.2.2 hereof. Each Holder who desires to have
his or its Registrable Shares included in such registration statement shall so
advise the Company in writing (stating the number of Registrable Shares desired
to be registered) within twenty (20) days after the date of such notice from
the Company. Any Holder shall have the right to withdraw such Holder's request
for inclusion of such Holder's Registrable Shares in any registration statement
pursuant to this Section 3.2.1 by giving written notice to the Company of such
withdrawal. Subject to Section 3.2.2 below, the Company shall include in such
registration statement all such Registrable Shares so requested to be included
therein; provided, however, that the Company may at any time withdraw or cease
proceeding with any such registration if it shall at the same time withdraw or
cease proceeding with the registration of all other equity securities
originally proposed to be registered.
3.2.2 Priority on Registrations. If the managing
underwriter advises the Company that the inclusion of any Registrable Shares
pursuant to Section 3.2.1 would cause a
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Material Adverse Effect, then (i) the number of such Holder's or Holders'
Registrable Shares to be included in the registration statement shall be
reduced to an amount which, in the judgment of the managing underwriter, would
eliminate such Material Adverse Effect or (ii) if no such reduction would, in
the judgment of the managing underwriter, eliminate such Material Adverse
Effect, then the Company shall have the right to exclude all such Registrable
Shares from such registration statement. Any partial reduction in the number
of Registrable Shares to be included in the registration statement pursuant to
clause (i) of the immediately preceding sentence shall be effected pro rata
based on the ratio which such Holder's requested Registrable Shares bears to
the total number of Registrable Shares requested to be included in such
registration statement by all Persons (including Requesting Holders) who have
requested (pursuant to contractual registration rights) that their Registrable
Shares be included in such registration statement. If as a result of the
provisions of this Section 3.2.2 any Holder shall not be entitled to include
all Registrable Shares in a registration that such Holder has requested to be
so included, such Holder may withdraw such Holder's request to include
Registrable Shares in such registration statement. No Person may participate
in any registration statement hereunder unless such Person (x) agrees to sell
such Person's Registrable Shares on the basis provided in any underwriting
arrangements approved by the Company and (y) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting
arrangements; provided, however, that no such Person shall be required to make
any representations or warranties in connection with any such registration
other than representations and warranties as to (i) such Person's ownership of
his or its Registrable Shares to be Transferred free and clear of all liens,
claims, and encumbrances, (ii) such Person's power and authority to effect such
Transfer, and (iii) such matters pertaining to compliance with securities laws
as may be reasonably requested; provided further, however, that the obligation
of such Person to indemnify pursuant to any such underwriting arrangements
shall be several, not joint and several, among such Persons selling Registrable
Shares, and the liability of each such Person will be in proportion thereto,
and provided further that such liability will be limited to, the net amount
received by such Person from the sale of his or its Registrable Shares pursuant
to such registration.
SECTION 3.3 HOLDBACK AGREEMENT. Unless the managing underwriter
otherwise agrees, each of the Company and the Holders agrees (and the Company
agrees, in connection with any underwritten registration, to use its
commercially reasonable efforts to cause its Affiliates to agree) not to effect
any public sale or private offer or distribution of any Common Stock or Common
Stock Equivalents (except, if applicable, as part of such underwritten
registration) during the ten (10) business days prior to the effectiveness
under the Securities Act of any underwritten registration and during such time
period after the effectiveness under the Securities Act of any underwritten
registration (not to exceed one hundred eighty (180) days) as the Company and
the managing underwriter may agree.
SECTION 3.4 REGISTRATION PROCEDURES. Whenever any Holder has
requested that any Registrable Shares be registered pursuant to this
Shareholders Agreement, the Company will use its commercially reasonable
efforts to effect the registration and the sale of such Registrable
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Shares in accordance with the intended method of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible:
(i) prepare and file with the SEC a registration
statement on any appropriate form under the Securities Act with
respect to such Registrable Shares and use its commercially reasonable
efforts to cause such registration statement to become effective;
(ii) prepare and file with the SEC such
amendments, post-effective amendments, and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for
a period of not less than one hundred eighty (180) days (or such
lesser period as is necessary for the underwriters in an underwritten
offering to sell unsold allotments) and comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Shares
and the underwriters of the securities being registered such number of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement
(including each preliminary prospectus), any documents incorporated by
reference therein and such other documents as such seller or
underwriters may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller or the sale
of such securities by such underwriters (it being understood that,
subject to Section 3.5 and the requirements of the Securities Act and
applicable state securities laws, the Company consents to the use of
the prospectus and any amendment or supplement thereto by each seller
of Registrable Shares and the underwriters in connection with the
offering and sale of the Registrable Shares covered by the
registration statement of which such prospectus, amendment or
supplement is a part);
(iv) use its commercially reasonable efforts to
register or qualify such Registrable Shares under such other
securities or blue sky laws of such jurisdictions as the managing
underwriter reasonably requests; use its commercially reasonable
efforts to keep each such registration or qualification (or exemption
therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other
acts and things which may be reasonably necessary or advisable to
enable each seller of Registrable Shares to consummate the disposition
of the Registrable Shares owned by such seller in such jurisdictions
(provided, however, that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this subparagraph or (B)
consent to general service of process in any such jurisdiction);
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(v) promptly notify each seller of Registrable
Shares and each underwriter and (if requested by any such Person)
confirm such notice in writing (A) when a prospectus or any prospectus
supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment,
when the same has become effective, (B) of the issuance by any state
securities or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the
Registrable Shares under state securities or "blue sky" laws or the
initiation of any proceedings for that purpose, and (C) of the
happening of any event which makes any statement made in a
registration statement or related prospectus untrue or which requires
the making of any changes in such registration statement, prospectus
or documents so that they will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
and, as promptly as practicable thereafter, prepare and file with the
SEC and furnish a supplement or amendment to such prospectus so that,
as thereafter deliverable to the purchasers of such Registrable
Shares, such prospectus will not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(vi) make generally available to the Company's
securityholders an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act no later than thirty (30) days
after the end of the twelve (12) month period beginning with the first
day of the Company's first fiscal quarter commencing after the
effective date of a registration statement, which earnings statement
shall cover said twelve (12) month period, and which requirement will
be deemed to be satisfied if the Company timely files complete and
accurate information on Forms 10-Q, 10-K and 8-K under the Exchange
Act and otherwise complies with Rule 158 under the Securities Act;
(vii) if requested by the managing underwriter or
any seller of Registrable Shares, promptly incorporate in a prospectus
supplement or post-effective amendment such information as the
managing underwriter or any seller of Registrable Shares reasonably
requests to be included therein, including, without limitation, with
respect to the Registrable Shares being sold by such seller, the
purchase price being paid therefor by the underwriters and with
respect to any other terms of the underwritten offering of the
Registrable Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective
amendment;
(viii) as promptly as practicable after filing with
the SEC of any document which is incorporated by reference into a
registration statement (in the form in which it was incorporated),
deliver a copy of each such document to each seller of Registrable
Shares who so requests;
(ix) cooperate with the sellers of Registrable
Shares and the managing underwriter to facilitate the timely
preparation and delivery of certificates (which shall
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not bear any restrictive legends unless required under applicable law)
representing securities sold under any registration statement, and
enable such securities to be in such denominations and registered in
such names as the managing underwriter or such sellers of Registrable
Shares may request and keep available and make available to the
Company's transfer agent prior to the effectiveness of such
registration statement a supply of such certificates;
(x) promptly make available for inspection by any
seller of Registrable Shares, any underwriter participating in any
disposition pursuant to any registration statement, and any attorney,
accountant or other agent or representative retained by any such
seller of Registrable Shares or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"),
as shall be reasonably necessary to enable them to exercise their due
diligence responsibilities, and cause the Company's officers,
directors and employees to supply all information requested by any
such Inspector in connection with such registration statement;
provided, that, unless the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in the registration
statement or the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, the
Company shall not be required to provide any information under this
subparagraph (x) if (A) the Company believes, after consultation with
counsel for the Company, that to do so would cause the Company to
forfeit an attorney-client privilege that was applicable to such
information or (B) if either (1) the Company has requested and been
granted from the SEC confidential treatment of such information
contained in any filing with the SEC or documents provided
supplementally or otherwise or (2) the Company reasonably determines
in good faith that such Records are confidential and so notifies the
Inspectors in writing unless prior to furnishing any such information
with respect to (A) or (B) such Holder of Registrable Shares
requesting such information agrees to enter into a confidentiality
agreement in customary form and subject to customary exceptions; and,
provided, further, that each Holder of Registrable Shares agrees that
it will, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company and allow
the Company, at its expense, to undertake appropriate action and to
prevent disclosure of the Records deemed confidential;
(xi) furnish to each seller of Registrable Shares
and underwriter a signed counterpart of (A) an opinion or opinions of
counsel to the Company, and (B) a comfort letter or comfort letters
from the Company's independent public accountants, each in customary
form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the sellers of
Registrable Shares or managing underwriter reasonably requests;
(xii) cause the Registrable Shares included in any
registration statement to be (A) listed on the New York Stock Exchange
or (B) authorized to be quoted and/or listed on the Nasdaq National
Market;
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(xiii) provide a CUSIP number for the Registrable
Shares included in any registration statement not later than the
effective date of such registration statement;
(xiv) cooperate with each seller of Registrable
Shares and each underwriter participating in the disposition of such
Registrable Shares and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD");
(xv) during the period when the prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act;
(xvi) notify each seller of Registrable Shares
promptly of any request by the SEC for the amending or supplementing of
such registration statement or prospectus or for additional
information;
(xvii) prepare and file with the SEC promptly any
amendments or supplements to such registration statement or prospectus
which, in the opinion of counsel for the Company or the managing
underwriter, are required in connection with the distribution of the
Registrable Shares;
(xviii) enter into agreements (including
underwriting agreements in the managing underwriter's customary form)
as are customary in connection with an underwritten registration; and
(xix) advise each seller of Registrable Shares,
promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the SEC suspending the effectiveness
of such registration statement or the initiation or threatening of any
proceeding for such purpose and promptly use its commercially
reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop
order should be issued.
SECTION 3.5 SUSPENSION OF DISPOSITIONS. Upon receipt of any
notice (a "Suspension Notice") from the Company of the happening of any event
of the kind described in Section 3.4(v)(C) or Section 3.4(xix) (a "Suspension
Event"), each Holder will forthwith discontinue disposition of Registrable
Shares until such Holder's receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing (the "Advice") by the Company
that the use of the prospectus may be resumed, and receipt of copies of any
additional or supplemental filings which are incorporated by reference in the
prospectus, and, if so directed by the Company, such Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Shares current at the
time of receipt of the Suspension Notice. In the event the Company shall give
any Suspension Notice, the time period regarding the effectiveness of
registration statements set forth in Section 3.4(ii) hereof shall be extended
by the number of days during the period from and
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including the date of the giving of the Suspension Notice to and including the
date when each seller of Registrable Shares covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus or the Advice. The Company shall use its commercially reasonable
efforts and take such actions as are reasonably necessary to render the Advice
as promptly as practicable following the conclusion of the Suspension Event.
SECTION 3.6 REGISTRATION EXPENSES. All expenses incident to the
Company's performance of or compliance with this Article 3 including, without
limitation, all registration and filing fees, all fees and expenses associated
with filings required to be made with the NASD (including, if applicable, the
fees and expenses of any "qualified independent underwriter" as such term is
defined in Rule 2720(b)(15) of the NASD Conduct Rules, and of its counsel), as
may be required by the rules and regulations of the NASD, fees and expenses of
compliance with securities or "blue sky" laws (including reasonable fees and
disbursements of counsel in connection with "blue sky" qualifications of the
Registrable Shares), rating agency fees, printing expenses (including expenses
of printing certificates for the Registrable Shares in a form eligible for
deposit with The Depository Trust Company and of printing prospectuses if the
printing of prospectuses is requested by a holder of Registrable Shares),
messenger and delivery expenses, the Company's internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the fees and expenses incurred in
connection with any listing of the Registrable Shares, fees and expenses of
counsel for the Company and its independent certified public accountants
(including the expenses of any special audit or "cold comfort" letters required
by or incident to such performance), Securities Act liability insurance (if the
Company elects to obtain such insurance), the fees and expenses of any special
experts retained by the Company in connection with such registration, and the
fees and expenses of other persons retained by the Company and reasonable fees
and expenses of one firm of counsel for the sellers of Registrable Shares
(which shall be selected by the Holders of a majority of the Registrable Shares
being included in any particular registration statement) (all such expenses
being herein called "Registration Expenses"), will be borne by the Company
whether or not any registration statement becomes effective; provided, that in
no event shall Registration Expenses include any underwriting discounts,
commissions, or fees attributable to the sale of the Registrable Shares or any
counsel, accountants, or other persons separately retained or employed by the
Holders.
SECTION 3.7 INDEMNIFICATION.
3.7.1 The Company agrees to indemnify and reimburse, to the
fullest extent permitted by law, each seller of Registrable Shares, and each of
its employees, advisors, agents, representatives, partners, officers, and
directors and each Person who controls such seller of Registrable Shares
(within the meaning of the Securities Act or the Exchange Act) and any agent or
investment advisor thereof (collectively, the "Seller Affiliates") (A) against
any and all losses, claims, damages, liabilities, and expenses, joint or
several (including, without limitation, reasonable attorneys' fees and
disbursements except as limited by Section 3.7.3) based upon, arising out of,
related to or resulting from any untrue or alleged untrue statement of a
material fact contained in any registration statement, prospectus, or
preliminary prospectus or any
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amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) against any and all loss, liability,
claim, damage, and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation or investigation or
proceeding by any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon, arising out of, related to or resulting from
any such untrue statement or omission or alleged untrue statement or omission,
and (C) against any and all costs and expenses (including reasonable fees and
disbursements of counsel) as may be reasonably incurred in investigating,
preparing, or defending against any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon, arising out of, related to or resulting from any such
untrue statement or omission or alleged untrue statement or omission, to the
extent that any such expense or cost is not paid under subparagraph (A) or (B)
above; except insofar as the same are made in reliance upon and in strict
conformity with information furnished in writing to the Company by such seller
of Registrable Shares or any Seller Affiliate for use therein or arise from
such seller's or any Seller Affiliate's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such seller of Registrable Shares or Seller
Affiliate with a sufficient number of copies of the same. The reimbursements
required by this Section 3.7.1 will be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
3.7.2 In connection with any registration statement in
which a seller of Registrable Shares is participating, each such seller of
Registrable Shares will furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the fullest extent permitted
by law, each such seller of Registrable Shares will indemnify the Company and
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act or the Exchange Act) against any and all losses,
claims, damages, liabilities, and expenses (including, without limitation,
reasonable attorneys' fees and disbursements except as limited by Section
3.7.3) resulting from any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus, or any
preliminary prospectus or any amendment thereof or supplement thereto, or any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission is contained in any information or affidavit so furnished in
writing by such seller of Registrable Shares or any of its Seller Affiliates
specifically for inclusion in the registration statement; provided, that the
obligation to indemnify will be several, not joint and several, among such
sellers of Registrable Shares, and the liability of each such seller of
Registrable Shares will be in proportion to, and provided further that such
liability will be limited to, the net amount received by such seller of
Registrable Shares from the sale of Registrable Shares pursuant to such
registration statement; provided, however, that such seller of Registrable
Shares shall not be liable in any such case to the extent that, prior to the
filing of any such registration statement or prospectus or amendment thereof or
supplement thereto, such seller of Registrable Shares has furnished in writing
to the Company information expressly
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for use in such registration statement or prospectus or any amendment thereof
or supplement thereto which corrected or made not misleading information
previously furnished to the Company.
3.7.3 Any Person entitled to indemnification hereunder will
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give such
notice shall not limit the rights of such Person except to the extent such
failure prejudiced the indemnifying party) and permit such indemnifying party
to assume the defense of such claim; provided, however, that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (X) the
indemnifying party has agreed to pay such fees or expenses, (Y) the
indemnifying party shall have failed to assume the defense of such claim or (Z)
in the reasonable opinion of counsel to such indemnified party, a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim. If such defense is not assumed by the indemnifying
party as permitted hereunder, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld or delayed). If such
defense is assumed by the indemnifying party pursuant to the provisions hereof,
such indemnifying party shall not settle or otherwise compromise the applicable
claim unless (1) such settlement or compromise contains a full and
unconditional release of the indemnified party or (2) the indemnified party
otherwise consents in writing. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated to pay
the reasonable fees and disbursements of such additional counsel or counsels.
3.7.4 Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 3.7.1 or Section 3.7.2 are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, liabilities, or expenses (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the actions
which resulted in the losses, claims, damages, liabilities or expenses as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The parties hereto agree
that it would not be just and equitable if contribution pursuant to this
Section 3.7.4 were determined by pro rata allocation (even if the
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Holders or any underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in this Section 3.7.4. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities, or expenses (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or, except
as provided in Section 3.7.3, defending any such action or claim.
Notwithstanding the provisions of this Section 3.7.4, no Holder shall be
required to contribute an amount greater than the dollar amount by which the
net proceeds received by such Holder with respect to the sale of any
Registrable Shares exceeds the amount of damages which such Holder has
otherwise been required to pay by reason of such statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 3.7.4 to contribute shall be several in proportion
to the amount of Registrable Shares registered by them and not joint.
If indemnification is available under this Section 3.7, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Section 3.7.1 and Section 3.7.2 without regard to the relative
fault of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 3.7.4 subject, in the case of the
Holders, to the limited dollar amounts set forth in Section 3.7.2.
3.7.5 The indemnification and contribution provided for
under this Shareholders Agreement will remain in full force and effect
regardless of any investigation made by or on behalf of the indemnified party
or any officer, director, or controlling Person of such indemnified party and
will survive the Transfer of the Common Stock and the termination of this
Shareholders Agreement.
ARTICLE 4
TRANSFERS OF SECURITIES
SECTION 4.1 TAG ALONG RIGHTS.
4.1.1 Significant Sales. In the event any HMC Shareholder
desires to Transfer (in one transaction or a series of related transactions)
shares of Common Stock representing more than twenty percent (20%) of the
shares of Common Stock then held by the HMC Shareholders (a "Significant
Sale"), then at least thirty (30) days prior to the closing of such Significant
Sale, the HMC Shareholders shall make an offer (the "Participation Offer") to
each Carter Shareholder (each, a "Co-Seller") to include in the proposed
Significant Sale a portion of such Co-Seller's Common Stock which represents
the same percentage of such Co-Seller's Fully-Diluted Common Stock as the
shares being sold by the HMC Shareholders represent of the HMC Shareholders'
aggregate Fully-Diluted Common Stock; provided, that, if the consideration to
be received by the HMC Shareholders includes any securities, only Co-Sellers
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who have certified to the reasonable satisfaction of HMTF that they are
Accredited Investors shall be entitled to participate in such Transfer, unless
the transferee consents otherwise (which consent shall not be unreasonably
withheld or delayed).
4.1.2 Threshold Transactions. In the event any HMC
Shareholder desires to Transfer shares of Common Stock in a transaction the
result of which would cause the HMC Shareholders to cease to own, in the
aggregate, at least fifty percent (50%) of the Initial HMC Shares (a "Threshold
Transaction"), then at least thirty (30) days prior to the closing of such
Threshold Transaction, the HMC Shareholders shall deliver a Participation Offer
to each Co-Seller to include in the proposed Threshold Transaction a percentage
of such Co-Seller's Common Stock equal to the sum of (A) that percentage of
shares of such Co-Seller's Common Stock which represents the same percentage of
such Co-Seller's Initial Carter Shares as the aggregate percentage of shares of
Common Stock sold by the HMC Shareholders in all transactions not constituting
Significant Sales prior to the date of the Participation Offer with respect to
the Threshold Transaction represented of the Initial HMC Shares plus (B) that
percentage of shares of such Co-Seller's Common Stock which represents the same
percentage of such Co-Seller's Fully-Diluted Common Stock as the shares being
sold by the HMC Shareholders in the proposed Threshold Transaction represent of
the HMC Shareholders' Fully-Diluted Common Stock; provided, that in no event
shall the Co-Sellers be entitled to sell in the aggregate more shares of Common
Stock than the number of shares proposed to be sold in the Threshold
Transaction; provided, further, that, if the consideration to be received by
the HMC Shareholders includes any securities, only Co-Sellers who have
certified to the reasonable satisfaction of HMTF that they are Accredited
Investors shall be entitled to participate in such Transfer, unless the
transferee consents otherwise. For purposes of this Section 4.1.2, "a
transaction not constituting a Significant Sale" shall not include any Transfer
by an HMC Shareholder that would not constitute a Significant Sale pursuant to
Section 4.2 hereof.
4.1.3 Terms of Participation Offer. The Participation Offer shall
describe the terms and conditions of the proposed Significant Sale or Threshold
Transaction and shall be conditioned upon (i) the consummation of the
transactions contemplated in the Participation Offer with the transferee named
therein, and (ii) each Co-Seller's execution and delivery of all agreements and
other documents as the HMC Shareholders are required to execute and deliver in
connection with such Significant Sale or Threshold Transaction (provided that
the Co-Seller shall not be required to make any representations or warranties
other than representations and warranties as to (A) such Co-Seller's ownership
of his or its Common Stock to be Transferred free and clear of all liens,
claims, and encumbrances, (B) such Co-Seller's power and authority to effect
such Transfer and (C) such matters pertaining to compliance with securities
laws as the transferee may reasonably require). If any Co-Seller shall accept
the Participation Offer, the HMC Shareholders shall reduce, to the extent
necessary, the number of shares of Common Stock they otherwise would have sold
in the proposed Transfer so as to permit those Co-Sellers who have accepted the
Participation Offer to sell the number of shares of Common Stock that they are
entitled to sell under this Section 4.1, and the HMC Shareholders and such
Co-Sellers shall Transfer the number of shares of Common Stock specified in the
Participation Offer to the proposed transferee in accordance with the terms of
such Transfer as set forth in the
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Participation Offer. If any Co-Seller elects not to Transfer all or any
portion of his Common Stock pursuant to a Significant Sale, the other
Co-Sellers shall have the right, on a pro rata basis, to sell additional shares
of Common Stock such that the Co-Sellers, in the aggregate, sell all shares of
Common Stock permitted pursuant to this Section 4.1 (provided that the HMC
Shareholders shall have no obligation to provide any notice to such other
Co-Sellers other than the original Participation Offer).
SECTION 4.2 CERTAIN EVENTS NOT DEEMED TRANSFERS. In no event
shall any (i) exchange, reclassification, or other conversion of shares into
any cash, securities, or other property pursuant to a merger or consolidation
of the Company or any of its Subsidiaries with, or any sale or transfer by the
Company or any of its Subsidiaries of all or substantially all its assets to,
any Person, in each case in which holders of Common Stock are treated
substantially the same, (ii) statutory share exchange involving, or
recapitalization of, the Company or any of its Subsidiaries in which holders of
Common Stock are treated substantially the same, (iii) Transfer by a HMC
Shareholder pursuant to an effective registration statement under the
Securities Act in compliance with Section 3 or (iv) transfer by a HMC
Shareholder pursuant to Rule 144 under the Securities Act, constitute a
Significant Sale for purposes of Section 4.1. In addition, Section 4.1 hereof
shall not apply to any Transfer by any HMC Shareholder to any Person who will
become an HMC Shareholder as a result of and after giving effect to such
Transfer.
SECTION 4.3 TRANSFER AND EXCHANGE. When shares of Common Stock
are presented to the Company with a request to register the Transfer of such
shares of Common Stock or to exchange such shares of Common Stock for
securities of other authorized denominations, the Company shall register the
Transfer or make the exchange as requested if the requirements of this
Shareholders Agreement for such transaction are met; provided, however, that
the shares of Common Stock surrendered for Transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Company, duly executed by the Holder thereof or his or its
attorney and duly authorized in writing. No service charge shall be made for
any registration of Transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith.
SECTION 4.4 REPLACEMENT SECURITIES. If a mutilated certificate
evidencing shares of Common Stock is surrendered to the Company or if the
Holder of a certificate evidencing shares of Common Stock claims and submits an
affidavit or other evidence, satisfactory to the Company, to the effect that
the certificate evidencing shares of Common Stock has been lost, destroyed or
wrongfully taken, the Company shall issue a replacement certificate if the
Company's requirements are met. If required by the Company, such
securityholder must provide an indemnity bond, or other form of indemnity,
sufficient in the judgment of the Company to protect the Company against any
loss which may be suffered. The Company may charge such securityholder for its
reasonable out-of-pocket expenses in replacing a certificate evidencing shares
of Common Stock which has been mutilated, lost, destroyed, or wrongfully taken.
22
<PAGE> 26
ARTICLE 5
LIMITATION ON TRANSFERS
SECTION 5.1 RESTRICTIONS ON TRANSFER. The Common Stock shall not
be Transferred or otherwise conveyed, assigned or hypothecated before
satisfaction of (i) the conditions specified in this Section 5.1, and in
Section 5.2 and Section 5.3, which conditions are intended to ensure compliance
with the provisions of the Securities Act with respect to the Transfer of any
Common Stock and (ii) if applicable, Article 4 hereof. Any purported Transfer
in violation of this Article 5 and/or, if applicable, Article 4 hereof shall be
void ab initio and of no force or effect. Other than Transfers subject to
Section 4.1 hereof and other than Transfers to the public pursuant to an
effective registration statement or sales to the public pursuant to Rule 144
under the Securities Act otherwise permitted hereunder, each Holder will cause
any proposed transferee of any Common Stock or any interest therein held by him
or it to agree to take and hold such Common Stock subject to the provisions and
upon the conditions specified in this Shareholders Agreement.
SECTION 5.2 RESTRICTIVE LEGENDS.
5.2.1 Securities Act Legend. Except as otherwise provided
in Section 5.4 hereof, each certificate evidencing shares of Common Stock held
by a Holder, and each certificate evidencing shares of Common Stock issued to
any subsequent transferee of such Common Stock, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE
SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
5.2.2 Other Legends. Except as otherwise permitted by the
last sentence of Section 5.1, each certificate evidencing shares of Common
Stock issued to each Holder or a subsequent transferee shall include a legend
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS AND CONDITIONS SET FORTH IN
THE SHAREHOLDERS AGREEMENT DATED AS OF JUNE 4, 1998, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.
23
<PAGE> 27
SECTION 5.3 NOTICE OF PROPOSED TRANSFERS. Prior to any Transfer
or attempted Transfer of any Common Stock, the Holder of such Common Stock
shall (i) give ten (10) days' prior written notice (a "Transfer Notice") to the
Company of such Holder's intention to effect such Transfer, describing the
manner and circumstances of the proposed Transfer, and (ii) either (A) provide
to the Company an opinion reasonably satisfactory to the Company from counsel
who shall be reasonably satisfactory to the Company (or supply such other
evidence reasonably satisfactory to the Company) that the proposed Transfer of
such Common Stock may be effected without registration under the Securities
Act, or (B) certify to the Company that the Holder reasonably believes the
proposed transferee is a "qualified institutional buyer" and that such Holder
has taken reasonable steps to make the proposed transferee aware that such
Holder may rely on Rule 144A under the Securities Act in effecting such
Transfer. After receipt of the Transfer Notice and opinion (if required), the
Company shall, within five (5) days thereof, so notify the Holder of such
Common Stock and such Holder shall thereupon be entitled to Transfer such
Common Stock in accordance with the terms of the Transfer Notice. Each
certificate evidencing shares of Common Stock issued upon such Transfer shall
bear the restrictive legend set forth in Section 5.2.1, unless in the opinion
of such counsel such legend is not required in order to ensure compliance with
the Securities Act, and Section 5.2.2, if applicable. The Holder of the Common
Stock giving the Transfer Notice shall not be entitled to Transfer such Common
Stock until receipt of the notice from the Company under this Section 5.3.
SECTION 5.4 TERMINATION OF CERTAIN RESTRICTIONS. Notwithstanding
the foregoing provisions of this Article 5, the restrictions imposed by Section
5.2.1 upon the transferability of the Common Stock and the legend requirements
of Section 5.2.1 shall terminate as to any Common Stock (i) when and so long as
such Common Stock shall have been effectively registered under the Securities
Act and disposed of pursuant thereto or (ii) when the Company shall have
received an opinion of counsel reasonably satisfactory to it that such Common
Stock may be transferred without registration thereof under the Securities Act
and that such legend may be removed. Whenever the restrictions imposed by
Section 5.2.1 shall terminate as to any Common Stock, the Holder thereof shall
be entitled to receive from the Company, at the Company's expense, a new
certificate evidencing such shares of Common Stock not bearing the restrictive
legend set forth in Section 5.2.1.
ARTICLE 6
AFFILIATE TRANSACTIONS
The Company and the HMC Shareholders agree that neither the Company
nor any Subsidiary of the Company shall enter into any material transaction
with any HMTF Designee or HMC Shareholder or their respective Affiliates unless
such transaction has been approved by the Carter Designees. Notwithstanding
the foregoing, this Article 6 shall not apply to the execution and delivery by
the Company of the Monitoring and Oversight Agreement and the Financial
Advisory Agreement (as each such term is defined in the Merger Agreement).
24
<PAGE> 28
ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION. The provisions of this Shareholders
Agreement shall terminate on the earlier of (i) June 4, 2008 and (ii) the
mutual written consent of a majority in interest of the HMC Shareholders (based
on the number of shares of Common Stock then owned) and a majority in interest
of the Carter Shareholders (based on the number of shares of Common Stock then
owned); provided, however, that Section 4.1 and Article 5 (other than Sections
5.2 and 5.4) of this Shareholders Agreement shall terminate upon the
consummation prior to the expiration of such ten (10) year period of a
Qualified IPO.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 NOTICES. Any notices or other communications
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as follows
(or at such other address as may be substituted by notice given as herein
provided):
If to the Company:
4550 Spring Valley Road
Dallas, Texas 75244-3705
Attention: Chief Executive Officer
With copies to (which shall not constitute notice):
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Glenn D. West, Esq.
If to any Holder, at its address listed on the signature pages hereof.
Any notice or communication hereunder shall be deemed to have been
given or made as of the date so delivered if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and
five (5) calendar days after mailing if sent by registered or
25
<PAGE> 29
certified mail (except that a notice of change of address shall not be deemed
to have been given until actually received by the addressee).
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 8.2 GOVERNING LAW. THIS SHAREHOLDERS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 8.3 SUCCESSORS AND ASSIGNS. Whether or not an express
assignment has been made pursuant to the provisions of this Shareholders
Agreement, provisions of this Shareholders Agreement that are for the Holders'
benefit as the holders of any Common Stock are, except as otherwise expressly
provided herein, also for the benefit of, and enforceable by, all subsequent
holders of such Common Stock, except as otherwise expressly provided herein.
This Shareholders Agreement shall be binding upon the Company, each Holder,
and, except as otherwise expressly provided herein, their respective heirs,
devisees, successors and assigns.
SECTION 8.4 DUPLICATE ORIGINALS. All parties may sign any number
of copies of this Shareholders Agreement. Each signed copy shall be an
original, but all of them together shall represent the same agreement.
SECTION 8.5 SEVERABILITY. In case any provision in this
Shareholders Agreement shall be held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions shall not in any
way be affected or impaired thereby
SECTION 8.6 NO WAIVERS; AMENDMENTS.
8.6.1 No failure or delay on the part of the Company or any
Holder in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or any Holder at law or in equity or otherwise.
8.6.2 Any provision of this Shareholders Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed by the Company, a majority in interest of the HMC Shareholders (based
on the number of shares of Common Stock then owned) and a majority in interest
of the Carter Shareholders (based on the number of shares of Common Stock then
owned); provided, however, that (i) any amendment to the provisions of Section
2.1 (and any definition used therein) shall be required to be in writing and be
signed by the Company and a majority in interest of the HMC Shareholders, as
such term is defined
26
<PAGE> 30
for the purposes of such Section (based on the number of shares of Common Stock
owned), and a majority in interest of the Carter Shareholders, as such term is
defined for the purposes of such Section, (ii) any amendment to the provisions
of Section 4.1 and Section 4.2 (and any definition used therein) shall be
required to be in writing and signed by a majority in interest of the HMC
Shareholders, as such term is defined for the purposes of such Section (based
on the number of shares of Common Stock owned), and a majority in interest of
the Carter Shareholders, and (iii) any amendment to (A) the provisions of this
Section 8.6.2 or (B) any amendment which would change the number of Holders
which shall be required for the Holders or any of them to take any action under
this Section 8.6.2 or any other provision of this Shareholders Agreement shall
be required to be in writing and signed by all of the Holders affected and, if
applicable, the Company.
SECTION 8.7 ACTIONS OF CARTER SHAREHOLDERS. Except as otherwise
provided herein, any action required to be taken or right which is exercisable
by the Carter Shareholders hereunder may be taken by the Carter Shareholders
acting pursuant to the affirmative vote of the holders of a majority of the
shares of Common Stock owned by them, and they shall have no liability to any
other Person with respect to any such action or any such right exercised.
SECTION 8.8 COUNTERPARTS. This Shareholders Agreement may be
executed in counterparts, each of which shall be deemed to be an original, but
all of which, when taken together, shall constitute one and the same agreement.
SECTION 8.9 CERTAIN ACTIONS BY HMC SHAREHOLDERS. Except as
otherwise provided or permitted herein, the HMC Shareholders shall not take or
omit to take any action or enter into any transaction that would result in the
shares of Common Stock owned by the Carter Shareholders being treated
differently, on a per share Common Stock basis, than the shares of Common Stock
owned by the HMC Shareholders.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE> 31
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
HOME INTERIORS & GIFTS, INC.
By:
----------------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 32
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
HI EQUITY PARTNERS, L.P.
By: TOH/HOME INTERIORS, LLC,
its General Partner
By:
----------------------------------------
Daniel S. Dross
Vice President and Secretary
ADDRESS FOR NOTICES:
200 Crescent Court
Suite 1600
Dallas, Texas 75201
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 33
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
ADKINS FAMILY PARTNERSHIP, LTD.
By:
------------------------------------------
Name: M. Douglas Adkins
Title: General Partner
ADDRESS FOR NOTICES:
c/o M. Douglas Adkins
#10 Rue de Lac
Dallas, Texas 75230
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 34
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
------------------------------------------------
M. Douglas Adkins
ADDRESS FOR NOTICES:
#10 Rue de Lac
Dallas, Texas 75230
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 35
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
ESTATE OF FERN ARDINGER
By:
--------------------------------------
Name: Horace T. Ardinger, Jr.
Title: Executor
ADDRESS FOR NOTICES:
9040 Governors Row
Dallas, Texas 75247
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 36
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
ARDINGER FAMILY PARTNERSHIP, LTD.
By:
-------------------------------------------
Name: Horace T. Ardinger, Jr.
Title: General Partner
ADDRESS FOR NOTICES:
c/o Horace T. Ardinger, Jr.
9040 Governors Row
Dallas, Texas 75247
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 37
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
---------------------------------------------
Donald J. Carter, Jr.
ADDRESS FOR NOTICES:
5608 Glenbrook Circle
Plano, Texas 75093
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
-----------------------------------
Linda J. Carter
ADDRESS FOR NOTICES:
8024 FM 428
Denton, Texas 76028
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 39
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
-----------------------------------------------
Ronald L. Carter
ADDRESS FOR NOTICES:
1001 Flower Mound Road
Flower Mound, Texas 75028
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 40
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
----------------------------------------------
Donald J. Carter
ADDRESS FOR NOTICES:
8024 FM 428
Denton, Texas 76028
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 41
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
CARTER 1997 CHARITABLE REMAINDER UNIT TRUST
By:
-------------------------------------------
William J. Hendrix,
Independent Special Trustee
ADDRESS FOR NOTICES:
4761 Frank Luke Drive
Dallas, Texas 75248
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 42
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
HAMMOND FAMILY TRUST
By:
--------------------------------------------
Howard L. Hammond,
Trustee
By:
--------------------------------------------
Barbara J. Hammond,
Trustee
ADDRESS FOR NOTICES:
806 N. Leonard
Fresno, California 73727
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 43
IN WITNESS WHEREOF, the parties have caused this Shareholders
Agreement to be duly executed as of the date first above written.
SHAREHOLDER:
----------------------------------------------
Christina L. Carter Urschel
ADDRESS FOR NOTICES:
3637 Maplewood
Dallas, Texas 75205
SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT
<PAGE> 1
EXHIBIT 10.1
FINANCIAL ADVISORY AGREEMENT
THIS FINANCIAL ADVISORY AGREEMENT (this "Agreement") is made and
entered into effective as of June 4, 1998 among Home Interiors & Gifts, Inc., a
Texas corporation (together with its successors, the "Company"), Dallas
Woodcraft, Inc., a Texas corporation (together with its successors,
"Woodcraft"), GIA, Inc., a Nebraska corporation (together with its successors,
"GIA"), Homco, Inc., a Texas corporation (together with its successors,
"Homco"), Homco Puerto Rico, Inc., a Delaware corporation (together with its
successors, "HPR"), Spring Valley Scents, Inc., a Texas corporation ("SVS"),
Homco de Mexico, S.A. de C.V., a Mexico corporation ("HDM" and, together with
the Company, Woodcraft, GIA, Homco, HPR and SVS, the "Clients"), and Hicks,
Muse & Co. Partners, L.P., a Texas limited partnership (together with its
successors, "HMCo").
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
April 13, 1998 (the "Merger Agreement"), between the Company and Crowley
Investments, Inc., a Texas corporation ("Merger Sub"), Merger Sub is being
merged (the "Merger") with and into the Company, with the Company being the
surviving corporation;
WHEREAS, the Clients have requested that HMCo render, and HMCo has
rendered, financial advisory services to them in connection with the
negotiation of the Merger and the debt and equity financing transactions and
certain other transactions related thereto (collectively with the Merger, the
"Transaction"); and
WHEREAS, it is the intention of the board of directors of each Client
to retain HMCo to provide financial advisory and other services in areas where
HMCo has expertise and, accordingly, the Clients have requested that HMCo
render such financial advisory, investment banking, and other similar services
with respect to future proposals for a tender offer, acquisition, sale, merger,
exchange offer, recapitalization, restructuring, or other similar transaction
directly or indirectly involving any of the Clients or any of their respective
subsidiaries and any other person or entity (collectively, "Subsequent
Transactions") as the board of directors of the Company may from time to time
request;
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by HMCo to the Clients, and to evidence the obligations of the Clients
to HMCo and the mutual
NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS
IN PARAGRAPH 5 THAT APPLY TO CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES
THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR
PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE OR HMCO OR ANY
OTHER INDEMNIFIED PERSON IDENTIFIED THEREIN.
<PAGE> 2
covenants herein contained, the Clients hereby jointly and severally agree with
HMCo as follows:
1. Retention.
(a) The Clients hereby acknowledge that they have
retained HMCo, and HMCo acknowledges that it has acted, as financial advisor to
the Clients in connection with the Transaction.
(b) HMCo agrees that it shall provide financial advisory,
investment banking and other similar services in connection with any Subsequent
Transaction as may be requested from time to time by the board of directors of
the Company for the benefit of any Client. Each of the Clients acknowledges
and agrees that it will not retain any other person or entity to provide such
services in connection with any such Subsequent Transaction without the prior
written consent of HMCo.
2. Term. The term of this Agreement shall continue until the
date on which Hicks, Muse, Tate & Furst Incorporated ("HMTF") or its affiliated
successors and their respective affiliates (including, without limitation, any
equity fund sponsored by HMTF or its affiliated successors) shall cease to (i)
at any time prior to a Qualified IPO (as hereinafter defined), own
beneficially, directly or indirectly, at least 25% of the then outstanding
shares of Common Stock (as hereinafter defined) of the Company and be
contractually entitled to designate, or shall have otherwise designated, at
least one director to the board of directors of the Company or (ii) at any time
after a Qualified IPO, own beneficially, directly or indirectly, at least 10%
of the then outstanding shares of Common Stock of the Company and be
contractually entitled to designate, or shall have otherwise designated, at
least one director to the board of directors of the Company; provided, however,
that notwithstanding the foregoing, this Agreement shall terminate on the tenth
anniversary of the date hereof. As used herein, "Qualified IPO" means a firm
commitment underwritten public offering of common stock, par value $0.10 per
share ("Common Stock"), of the Company pursuant to a registration statement
under the Securities Act of 1933, as amended, where both (i) the proceeds to
the Company (prior to deducting any underwriters' discounts and commissions)
equal or exceed Twenty-Five Million Dollars ($25,000,000) and (ii) upon
consummation of such offering, the Common Stock is listed on the New York Stock
Exchange or authorized to be quoted and/or listed on the Nasdaq National
Market.
2
<PAGE> 3
3. Compensation.
(a) As compensation for HMCo's services as financial
advisor to the Clients in connection with the Transaction, the Clients hereby
irrevocably agree, jointly and severally, to pay to HMCo an aggregate cash fee
of $11,250,000, which will occur substantially simultaneously with the
execution of this Agreement. The parties hereto agree that the compensation
due pursuant to this Section 3(a) shall be allocated among the segments of the
financing for the Transaction in proportion to the dollar amount of each such
segment.
(b) In connection with any Subsequent Transaction
consummated during the term of this Agreement in which HMCo has rendered
financial advisory, investment banking or other similar services to the Clients
at the request of the board of directors of the Company for the benefit of any
Client, the applicable Client shall, and the other Clients shall cause such
Client to, pay to HMCo, at the closing of any such Subsequent Transaction, a
cash fee equal to 1.5% of the Transaction Value of such Subsequent Transaction.
As used herein, the term "Transaction Value" means the total value of the
Subsequent Transaction, including, without limitation, the aggregate amount of
the funds required to complete the Subsequent Transaction (excluding any fees
payable pursuant to this Section 3(b)), including, without limitation, the
amount of any indebtedness, preferred stock or similar items assumed (or
remaining outstanding).
4. Reimbursement of Expenses. In addition to the compensation to
be paid pursuant to Section 3 hereof, the Clients agree, jointly and severally,
to reimburse HMCo, promptly following demand therefor, together with invoices
or reasonably detailed descriptions thereof, for all reasonable disbursements
and out-of-pocket expenses (including, without limitation, reasonable fees and
disbursements of counsel) incurred by HMCo (i) as financial advisor to the
Clients in connection with the Transaction or (ii) in connection with the
performance by it of the services contemplated by Section 1(b) hereof.
5. Indemnification. The Clients jointly and severally shall
indemnify and hold harmless each of HMCo, its affiliates and their respective
directors, officers, controlling persons (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20(a) of the Securities
Exchange Act of 1934, as amended), if any, agents and employees (HMCo, its
affiliates and such other specified persons being collectively referred to as
"Indemnified Persons" and individually as an "Indemnified Person") from and
against any and all claims, liabilities, losses, damages and expenses incurred
by an Indemnified Person (including, without limitation, those arising out of
an Indemnified Person's negligence and reasonable fees and disbursements of the
respective Indemnified Person's counsel) which (A) are related to or arise out
of (i) actions taken or omitted to be taken (including, without
3
<PAGE> 4
limitation, any untrue statements made or any statements omitted to be made) by
any of the Clients or (ii) actions taken or omitted to be taken by an
Indemnified Person with any Client's consent or in conformity with any Client's
instructions or any Client's actions or omissions or (B) are otherwise related
to or arise out of HMCo's engagement, and will reimburse each Indemnified
Person for all costs and expenses, including, without limitation, reasonable
fees and disbursements of any Indemnified Person's counsel, as they are
incurred, in connection with investigating, preparing for, defending or
appealing any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with HMCo's acting pursuant to
HMCo's engagement, whether or not any Indemnified Person is named as a party
thereto and whether or not any liability results therefrom. None of the
Clients will, however, be responsible for any claims, liabilities, losses,
damages or expenses pursuant to clause (B) of the preceding sentence that have
resulted primarily from HMCo's bad faith, gross negligence or willful
misconduct. The Clients also agree that neither HMCo nor any other Indemnified
Person shall have any liability to any Client for or in connection with such
engagement except for any such liability for claims, liabilities, losses,
damages or expenses incurred by any Client that have resulted primarily from
HMCo's bad faith, gross negligence or willful misconduct. The Clients further
agree that none of them will, without the prior written consent of HMCo, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Indemnified Person
is an actual or potential party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of HMCo and each other Indemnified Person hereunder from all liability arising
out of such claim, action, suit or proceeding. EACH CLIENT HEREBY ACKNOWLEDGES
THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO ALL CLAIMS, LIABILITIES,
LOSSES, DAMAGES OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE
RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY
NEGLIGENCE OF HMCO OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that HMCo and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against HMCo or any other Indemnified
Person.
It is understood that, in connection with HMCo's engagement, HMCo may
also be engaged to act for a Client or Clients in one or more additional
capacities, and that the terms
4
<PAGE> 5
of any such additional engagements may be embodied in one or more separate
written agreements. This indemnification shall apply to any such additional
engagement(s) (whether written or oral) and any modification of such additional
engagement(s) and shall remain in full force and effect following the
completion or termination of such additional engagement(s).
Each of the Clients further understands and agrees that if HMCo is
asked to furnish any Client a financial opinion letter or act for any Client in
any other formal capacity, such further action may be subject to a separate
agreement containing provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance
of the services hereunder, HMCo agrees not to divulge any confidential
information, secret processes or trade secrets disclosed by any Client or any
of its subsidiaries to it solely in its capacity as a financial advisor, unless
such Client consents to the divulging thereof or such information, secret
processes or trade secrets are publicly available or otherwise available to
HMCo without restriction or breach of any confidentiality agreement or unless
required by any governmental authority or in response to any valid legal
process.
7. Governing Law. This Agreement shall be construed,
interpreted, and enforced in accordance with the laws of the State of Texas,
excluding any choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided, however, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned (other than with respect to the rights and obligations of HMCo,
which may be assigned to any one or more of its principals or affiliates) by
any of the parties without the prior written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
10. Other Understandings. All discussions, understandings and
agreements heretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the agreement of the parties hereto.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC.,
its General Partner
By:
---------------------------------------------------
Lawrence D. Stuart, Jr.
Managing Director and Principal, Executive
Vice President
HOME INTERIORS & GIFTS, INC.
By:
---------------------------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
DALLAS WOODCRAFT, INC.
By:
---------------------------------------------------
Donald J. Carter, Jr.
Executive Vice President
GIA, INC.
By:
---------------------------------------------------
Donald J. Carter, Jr.
Executive Vice President
<PAGE> 7
HOMCO, INC.
By:
---------------------------------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO PUERTO RICO, INC.
By:
---------------------------------------------------
Donald J. Carter, Jr.
President
SPRING VALLEY SCENTS, INC.
By:
---------------------------------------------------
Donald J. Carter, Jr.
President
HOMCO DE MEXICO, S.A. DE C.V.
By:
---------------------------------------------------
Donald J. Carter, Jr.
President
<PAGE> 1
EXHIBIT 10.2
MONITORING AND OVERSIGHT AGREEMENT
THIS MONITORING AND OVERSIGHT AGREEMENT (this "Agreement") is made and
entered into effective as of June 4, 1998, among Home Interiors & Gifts, Inc.,
a Texas corporation (together with its successors, the "Company"), Dallas
Woodcraft, Inc., a Texas corporation (together with its successors,
"Woodcraft"), GIA, Inc., a Nebraska corporation (together with its successors,
"GIA"), Homco, Inc., a Texas corporation (together with its successors,
"Homco"), Homco Puerto Rico, Inc., a Delaware corporation (together with its
successors, "HPR"), Spring Valley Scents, Inc., a Texas corporation ("SVS"),
Homco de Mexico, S.A. de C.V., a Mexico corporation ("HDM" and, together with
the Company, Woodcraft, GIA, Homco, HPR and SVS, the "Clients"), and Hicks,
Muse & Co. Partners, L.P., a Texas limited partnership (together with its
successors, "HMCo").
1. Retention. The Clients hereby acknowledge that they have
retained HMCo to, and HMCo acknowledges that, subject to reasonable advance
notice in order to accommodate scheduling, HMCo will, provide financial
oversight and monitoring services to the Clients as requested by the board of
directors of the Company during the term of this Agreement.
2. Term. The term of this Agreement shall continue until the
date on which Hicks, Muse, Tate & Furst Incorporated ("HMTF") or its affiliated
successors and their respective affiliates (including, without limitation, any
equity fund sponsored by HMTF or its affiliated successors) shall cease to (i)
at any time prior to a Qualified IPO (as hereinafter defined), own
beneficially, directly or indirectly, at least 25% of the then outstanding
shares of Common Stock (as hereinafter defined) of the Company and be
contractually entitled to designate, or shall have otherwise designated, at
least one director to the board of directors of the Company or (ii) at any time
after a Qualified IPO, own beneficially, directly or indirectly, at least 10%
of the then outstanding shares of Common Stock of the Company and be
contractually entitled to designate, or shall have otherwise designated, at
least one director to the board of directors of the Company; provided, however,
that notwithstanding the foregoing, this Agreement shall in any event terminate
on the tenth anniversary of the date hereof. As used herein, "Qualified IPO"
means a firm commitment underwritten public offering of common stock, par value
$0.10 per share ("Common Stock"), of the Company pursuant to a registration
statement under the Securities Act of 1933, as amended, where both (i) the
proceeds to the Company (prior to deducting any underwriters' discounts and
NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS
IN PARAGRAPH 5 THAT APPLY TO CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES
THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR
PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE OF HMCO OR ANY
OTHER INDEMNIFIED PERSON IDENTIFIED THEREIN.
<PAGE> 2
commissions) equal or exceed Twenty-Five Million Dollars ($25,000,000) and (ii)
upon consummation of such offering, the Common Stock is listed on the New York
Stock Exchange or authorized to be quoted and/or listed on the Nasdaq National
Market.
3. Compensation.
(a) As compensation for HMCo's services to the Clients
under this Agreement, the Clients hereby irrevocably agree, jointly and
severally, to pay to HMCo an aggregate annual fee (the "Monitoring Fee") of
$1,000,000 (the "Base Fee"), subject to adjustment pursuant to paragraphs (b)
and (c) below and prorated on a daily basis for any partial calendar year
during the term of this Agreement. The Monitoring Fee shall be payable in
equal quarterly installments on each January 1, April 1, July 1 and October 1
during the term of this Agreement (each a "Payment Date"), beginning with the
first Payment Date following the date hereof; provided, however, that for so
long as an Event of Default (as hereinafter defined) has occurred and is
continuing under the Credit Agreement (as hereinafter defined) or the Indenture
(as hereinafter defined), the Monitoring Fee shall continue to accrue but shall
not be payable until such time as such Event of Default has been cured, at
which time all accrued and unpaid installments of the Monitoring Fee shall be
due and payable immediately (provided that to do so would not constitute an
Event of Default). All payments shall be made by wire transfer of immediately
available funds to the account described on Exhibit A hereto (or such other
account as HMCo may hereafter designate in writing). As used herein, (i)
"Credit Agreement" means that certain Credit Agreement, dated as of the date
hereof, among the Company, the lenders from time to time party thereto, The
Chase Manhattan Bank, as syndication agent, National Westminster Bank, PLC, as
documentation agent, Prudential Insurance Company of America, as a co-agent,
Societe Generale, as a co-agent, Citicorp USA, Inc., as a co-agent, and
NationsBank, N.A., as administrative agent (as amended, waived, supplemented or
otherwise modified from time to time, together with any substitution or
replacement therefor), (ii) "Indenture" means that certain Indenture, dated as
of the date hereof, among the Company, Woodcraft, GIA, Homco, HPR, SVS and the
United States Trust Company of New York (as amended, waived, supplemented or
otherwise modified from time to time, together with any substitution or
replacement therefor) and (iii) "Event of Default" shall have the meaning given
such term in the Credit Agreement or the Indenture, as applicable.
(b) On January 1 of each calendar year during the term of
this Agreement, the Monitoring Fee shall be adjusted to an amount equal to (i)
the consolidated annual EBITDA of the Company and its subsidiaries for the then
current fiscal year, multiplied by (ii) 1.0% (the "Percentage"); provided,
however, that in no event shall the annual Monitoring Fee exceed $1,500,000;
provided, further, that in no event shall the annual Monitoring Fee be less
than the Base Fee.
2
<PAGE> 3
(c) On each occasion that the Company or any of its
subsidiaries shall acquire another entity or business during the term of this
Agreement, the annual Monitoring Fee for the calendar year in which such
acquisition occurs shall be adjusted prospectively (i.e., for periods
subsequent to such acquisition until the next adjustment pursuant to clause (b)
above), as of the closing of such acquisition, to an annual amount equal to (i)
the pro forma combined budgeted consolidated annual EBITDA of the Company and
its subsidiaries for the entire then-current fiscal year of the Company
(including the EBITDA of the acquired entity or business for such entire fiscal
year, on a pro forma basis), multiplied by (ii) the Percentage; provided,
however, that in no event shall the annual Monitoring Fee be less than the Base
Fee.
(d) All past due payments in respect of the Monitoring
Fee shall bear interest at the lesser of the highest rate of interest which may
be charged under applicable law or the prime commercial lending rate per annum
of The Chase Manhattan Bank or its successors (which rate is a reference rate
and is not necessarily its lowest or best rate of interest actually charged to
any customer) (the "Prime Rate") as in effect from time to time, plus five
percent (5.0%), from the due date of such payment to and including the date on
which payment is made to HMCo in full, including such interest accrued thereon.
4. Reimbursement of Expenses. In addition to the compensation to
be paid pursuant to Section 3 hereof, the Clients agree, jointly and severally,
to pay or reimburse HMCo for all "Reimbursable Expenses," which shall consist
of all reasonable disbursements and out-of-pocket expenses (including, without
limitation, reasonable fees and expenses of counsel to HMCo and costs of
travel, postage, deliveries, communications, etc.) incurred by HMCo or its
affiliates for the account of any Client or in connection with the performance
by HMCo of the services contemplated by Section 1 hereof. Promptly (but not
more than 10 days) after request by or notice from HMCo, the applicable Client
shall pay HMCo, by wire transfer of immediately available funds to the account
described on Exhibit A hereto (or such other account as HMCo may hereafter
designate in writing), the Reimbursable Expenses for which HMCo has provided
such Client invoices or reasonably detailed descriptions. All past due
payments in respect of the Reimbursable Expenses shall bear interest at the
lesser of the highest rate of interest which may be charged under applicable
law or the Prime Rate plus 5.0% from the Payment Date to and including the date
on which such Reimbursable Expenses plus accrued interest thereon are fully
paid to HMCo.
5. Indemnification. The Clients jointly and severally shall
indemnify and hold harmless each of HMCo, its affiliates, and their respective
directors, officers, controlling persons (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20(a) of the Securities
Exchange Act of 1934, as amended), if any, agents and employees (HMCo, its
affiliates, and such other specified persons being collectively referred
3
<PAGE> 4
to as "Indemnified Persons," and individually as an "Indemnified Person") from
and against any and all claims, liabilities, losses, damages and expenses
incurred by any Indemnified Person (including those arising out of an
Indemnified Person's negligence and reasonable fees and disbursements of the
respective Indemnified Person's counsel) which (A) are related to or arise out
of (i) actions taken or omitted to be taken (including, without limitation, any
untrue statements made or any statements omitted to be made) by any of the
Clients or (ii) actions taken or omitted to be taken by an Indemnified Person
with any Client's consent or in conformity with any Client's instructions or
any Client's actions or omissions or (B) are otherwise related to or arise out
of HMCo's engagement, and will reimburse each Indemnified Person for all costs
and expenses, including, without limitation, reasonable fees and disbursements
of any Indemnified Person's counsel, as they are incurred, in connection with
investigating, preparing for, defending or appealing any action, formal or
informal claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, caused by or arising out of
or in connection with HMCo's acting pursuant to HMCo's engagement, whether or
not any Indemnified Person is named as a party thereto and whether or not any
liability results therefrom. None of the Clients will, however, be responsible
for any claims, liabilities, losses, damages or expenses pursuant to clause (B)
of the preceding sentence that have resulted primarily from HMCo's bad faith,
gross negligence or willful misconduct. The Clients also agree that neither
HMCo nor any other Indemnified Person shall have any liability to any Client
for or in connection with such engagement except for any such liability for
claims, liabilities, losses, damages or expenses incurred by any Client that
have resulted primarily from HMCo's bad faith, gross negligence or willful
misconduct. The Clients further agree that none of them will, without the
prior written consent of HMCo, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of HMCo and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding. EACH
CLIENT HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO
ANY CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES THAT HAVE RESULTED FROM OR
ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR
CONCURRENT ORDINARY NEGLIGENCE OF HMCO OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that HMCo and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any
4
<PAGE> 5
claim which is subject to this Agreement is brought against HMCo or any other
Indemnified Person.
It is understood that, in connection with HMCo's engagement, HMCo may
also be engaged to act for a Client or Clients in one or more additional
capacities, and that the terms of any such additional engagement(s) may be
embodied in one or more separate written agreements. This indemnification
shall apply to any such additional engagement(s) (whether written or oral) and
any modification of such additional engagement(s) and shall remain in full
force and effect following the completion or termination of such additional
engagement(s).
Each of the Clients further understands and agrees that if HMCo is
asked to furnish any Client a financial opinion letter or act for any Client in
any other formal capacity, such further action may be subject to a separate
agreement containing provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance
of the services hereunder, HMCo agrees not to divulge any confidential
information, secret processes or trade secrets disclosed by any Client or any
of its subsidiaries to it solely in its capacity as a financial advisor, unless
such Client consents to the divulging thereof or such information, secret
processes or trade secrets are publicly available or otherwise available to
HMCo without restriction or breach of any confidentiality agreement or unless
required by any governmental authority or in response to any valid legal
process.
7. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided, however, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned (other than with respect to the rights and obligations of HMCo,
which may be assigned to any one or more of its principals or affiliates) by
any of the parties without the prior written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
5
<PAGE> 6
10. Other Understandings. All discussions, understanding and
agreements heretofore made between any of the parties hereto with respect to
the subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the agreement of the parties hereto. All calculations of
the Monitoring Fee and Reimbursable Expenses shall be made by HMCo and, in the
absence of mathematical or other manifest error, shall be final and conclusive.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date and year first above written.
HICKS, MUSE & CO. PARTNERS, L.P.
By: HM PARTNERS INC.,
its General Partner
By:
-----------------------------------------
Lawrence D. Stuart, Jr.
Managing Director and Principal,
Executive Vice President
HOME INTERIORS & GIFTS, INC.
By:
-----------------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
DALLAS WOODCRAFT, INC.
By:
-----------------------------------------
Donald J. Carter, Jr.
Executive Vice President
GIA, INC.
By:
-----------------------------------------
Donald J. Carter, Jr.
Executive Vice President
<PAGE> 8
HOMCO, INC.
By:
-----------------------------------------
Donald J. Carter, Jr.
Executive Vice President
HOMCO PUERTO RICO, INC.
By:
-----------------------------------------
Donald J. Carter, Jr.
President
SPRING VALLEY SCENTS, INC.
By:
-----------------------------------------
Donald J. Carter, Jr.
President
HOMCO DE MEXICO, S.A. DE C.V.
By:
-----------------------------------------
Donald J. Carter, Jr.
President
<PAGE> 9
EXHIBIT A
Wire Transfer Instructions
Texas Commerce Bank
ABA #: 113000609
Account E: 08805113824
Credit: Hicks, Muse & Co. Partners
Reference: Payment of Monitoring Fees or
Reimbursable Expenses by Home Interiors
A-1
<PAGE> 1
EXHIBIT 10.3
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
as of the 4th day of June, 1998, by and between Home Interiors & Gifts, Inc., a
Texas corporation (hereinafter, together with its successors and permitted
assigns, referred to as the "Company"), on the one hand, and Ronald L. Carter
(hereinafter referred to as the "Consultant"), on the other hand.
W I T N E S S E T H:
A. The Company is in the business of selling home decorative
accessories (the "Business").
B. The Company recognizes that the Consultant possesses unique
knowledge and experience concerning the Business and, as a consequence, the
Company desires to contract with the Consultant to provide consulting services
to the Company in connection with its operation of the Business.
C. The Consultant has agreed to perform the consulting
services desired by the Company for the compensation and subject to and upon all
of the other terms, conditions and provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises, the parties
hereby agree as follows:
A G R E E M E N T:
1. Consulting Services. The Consultant agrees to furnish
consulting and advisory services to the Company, at such times and places as the
Company reasonably requests, relating to the operation of the Business. Each
request by the Company for consulting and advisory services shall be in writing
and shall specify the nature of the service sought. Upon receipt of any such
request, the Consultant shall confer with the acting Chief Executive Officer of
the Company concerning the requested consulting and advisory services,
1
<PAGE> 2
and a description of the services and a schedule for providing these services
shall be agreed upon.
2. Term. The consulting and advisory services provided by the
Consultant hereunder shall be for a term (the "Term") of one year beginning on
the date hereof.
3. Compensation; Expenses; Benefits. (a) The Company agrees to
pay to the Consultant a consulting fee (the "Fee") of $200,000, payable in 12
consecutive monthly installments of $16,667.00 each, the first such monthly
payment being due on the first day of the first month after the date hereof.
(b) In addition to the Fee, the Company shall
reimburse the Consultant for all reasonable out-of-pocket expenses incurred by
the Consultant in providing the consulting and advisory services requested by
the Company. All such expenses must be approved in writing by the Company prior
to being incurred.
4. Independent Contractor. In furnishing consulting and
advisory services to the Company under this Agreement, the Consultant is acting
only as an independent contractor and is not furnishing such consulting and
advisory services to the Company as an employee or in any other capacity. This
Agreement shall not be construed to create any partnership or joint venture
between the Company and the Consultant.
5. Assignment. In the event the Company sells the Business,
this Agreement shall be deemed terminated and of no further force or effect and
the Company shall have no obligation to make any further payments to the
Consultant (other than accrued but unpaid obligations of the Company). The
Consultant shall not have the right to assign his rights under this Agreement to
any person or entity other than an entity that is owned or controlled, directly
or indirectly, by the Consultant.
2
<PAGE> 3
6. Further Obligations.
(a) During and following the Term, the Consultant
shall use commercially reasonable efforts to hold in confidence and not directly
or indirectly disclose any confidential information or proprietary data of the
Company or any of its subsidiaries, except to the extent authorized by the Board
of Directors of the Company or required by any court or administrative agency or
legal process, other than to an employee of or contractor with the Company or
any of its subsidiaries, or a "person," within the meaning of Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (a "Person"), to whom
the Consultant in good faith believes disclosure is reasonably necessary or
appropriate in connection with the performance by the Consultant of his duties
under this Agreement. In determining whether such disclosure is required, the
Consultant will be entitled to rely on the written advice of counsel.
Confidential information shall not include any information known generally to
the public or in the industry in which the Company is engaged. All records,
files, documents and materials, or copies thereof, relating to the Company's or
any of its subsidiaries' business which the Consultant shall prepare or use, or
come into contact with during the Term, shall be and remain the sole property of
the Company or any of its subsidiaries, as the case may be, and shall be
promptly returned by the Consultant to the Company or such subsidiary (as
applicable) upon termination of this Agreement.
(b) Except with the prior written approval of the
Board of Directors of the Company, during the Term and for two (2) years
thereafter, the Consultant shall not, directly or indirectly (i) solicit,
entice, persuade or induce any employee, displayer, or other independent
contractor of the Company or any of its subsidiaries to terminate his or her
employment or relationship with the Company or any of its subsidiaries or to
become employed or engaged in a similar capacity by any Person other than the
Company or any of its subsidiaries or (ii) authorize, solicit or assist in the
taking of such actions by any third party. Notwithstanding the foregoing,
nothing herein shall prohibit the Consultant or any affiliate of the Consultant
from hiring as an employee or consultant any current employee of the Company or
any of its subsidiaries who has terminated his or her employment with the
Company and requests on an unsolicited basis employment with the Consultant.
(c) During the Term and for two (2) years thereafter,
the Consultant shall not, directly or indirectly, engage, participate, make any
financial investment in, or become employed by or render advisory or other
services to or for any Person or other business enterprise (other than the
Company and its affiliates) engaged in the business of selling home decorative
accessories within any of the same markets as the Company or any of its
subsidiaries (any of the foregoing activities being referred to herein as
"Competitive Activities"). The foregoing covenant respecting Competitive
Activities shall not be construed
3
<PAGE> 4
to preclude the Consultant from making any investments in the securities of any
company, whether or not engaged in competition with the Company or any of its
subsidiaries, to the extent that such securities are actively traded on a
national securities exchange or in the over-the-counter market in the United
States or any foreign securities exchange and such investment does not exceed
five percent (5%) of the issued and outstanding shares of such company or give
the Consultant the right or power to control or participate directly in making
the policy decisions of such company.
(d) If any court determines that any portion of this
Section 6 is invalid or unenforceable, the remainder of this Section 6 shall not
thereby be affected and shall be given full effect without regard to the invalid
provision. If any court construes any of the provisions of this Section 6, or
any part thereof, to be unreasonable because of the duration or scope of such
provision, such court shall have the power to reduce the duration or scope of
such provision and to enforce such provision as so reduced.
(e) The Consultant hereby acknowledges and agrees
that damages will not be an adequate remedy for the Consultant's breach of any
of his covenants contained in this Section 6, and further agrees that the
Company shall be entitled to obtain appropriate injunctive and/or other
equitable relief for any such breach, without the posting of any bond or other
security.
7. Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given (i) in writing and delivered personally,
(ii) by telecopy, (iii) by a recognized courier service or (iv) by registered or
certified mail, postage prepaid, to the parties at the following addresses (or
to the attention of such other person or such other address as any party shall
provide to the other parties by notice in accordance with this section):
If to the Company:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244
Facsimile: (972) 490-7573
Attention: President
4
<PAGE> 5
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Facsimile: (214) 746-7777
Attention: Glenn D. West, Esq.
If to the Consultant:
Ronald L. Carter
1325 W. Belt Line Road
Carrollton, Texas 75006
Facsimile: (972) 446-8383
with a copy to:
Jeffrey Fink, Esq.
1325 W. Belt Line Road
Carrollton, Texas 75006
Facsimile: (972) 446-8383
Any such notice or other communication shall be deemed to have
been given and received (whether actually received or not) on the day it is
personally delivered, telecopied or delivered by a recognized courier service as
aforesaid or, if mailed, on the second day after it is mailed as aforesaid.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
the principles of conflicts-of-law thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
HOME INTERIORS & GIFTS, INC.
By:
-----------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
Ronald L. Carter
6
<PAGE> 1
EXHIBIT 10.4
HOME INTERIORS & GIFTS, INC.
1998 STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR KEY EMPLOYEES
June 4, 1998
Donald J. Carter, Jr.
4550 Spring Valley Road
Dallas, Texas 75244
Re: Grant of Stock Option
Dear Joey:
The Board of Directors of Home Interiors & Gifts, Inc. (the
"Company") has adopted the Company's 1998 Stock Option Plan (the "Plan") for
certain individuals and key employees of the Company and its Related Entities.
A copy of the Plan is being furnished to you concurrently with the execution of
this Option Agreement and shall be deemed a part of this Option Agreement as if
fully set forth herein. Unless the context otherwise requires, all capitalized
terms used but not otherwise defined herein shall have the meanings given such
terms in the Plan and in that certain Executive Employment Agreement (the
"Employment Agreement"), dated the date hereof, between you and the Company;
provided, however, that to the extent definitions in the Plan are different
from definitions in the Employment Agreement, the definitions in the Employment
Agreement will control.
1. The Grant.
Subject to the conditions set forth below, the Company hereby
grants to you, effective as of June 4, 1998 (the "Grant Date"), as a matter of
separate inducement and not in lieu of any salary or other compensation for
your services, the right and option to purchase (the "Option"), in accordance
with the terms and conditions set forth herein and in the Plan, an aggregate of
338,441 shares of Common Stock of the Company (the "Option Shares"), at the
Exercise Price (as hereinafter defined). As used herein, the term "Exercise
Price" shall mean a price equal to $18.05451 per share, subject to the
adjustments and limitations set forth herein and in the Plan. The Option
granted hereunder is intended to constitute a Non-
<PAGE> 2
Qualified Option within the meaning of the Plan; however, you should consult
with your tax advisor concerning the proper reporting of any federal or state
tax liability that may arise as a result of the grant or exercise of the
Option.
2. Exercise.
(a) For purposes of this Option Agreement, the Option
Shares shall be deemed "Nonvested Shares" unless and until they have become
"Vested Shares." Notwithstanding anything to the contrary contained in Section
6(f) of the Plan, the Option Shares shall become "Vested Shares" in five equal,
consecutive annual installments on June 4, 1999, June 4, 2000, June 4, 2001,
June 4, 2002 and June 4, 2003, provided that, subject to the provisions of
this Section 2, vesting shall cease upon your ceasing to be an employee of the
Company or a Related Entity as expressly provided in Section 3 hereof. In
addition, all Nonvested Shares shall become Vested Shares upon (i) the
occurrence of a Change in Control, (ii) the termination of your employment with
the Company without Cause, (iii) the termination by you of your employment with
the Company for Good Reason and (iv) the sale, conveyance or other disposition
by the Company of all or substantially all of its assets to a Person that is
not an Affiliate of the Company.
(b) Subject to the relevant provisions and limitations
contained herein and in the Plan, you may exercise the Option to purchase all
or a portion of the applicable number of Vested Shares at any time prior to the
termination of the Option pursuant to this Option Agreement. In no event shall
you be entitled to exercise the Option for any Nonvested Shares or for a
fraction of a Vested Share.
(c) The unexercised portion of the Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the Grant Date.
(d) Any exercise by you of the Option shall be in writing
addressed to the Secretary of the Company at its principal place of business (a
copy of the form of exercise to be used will be available upon written request
to the Secretary), and shall be accompanied by a certified or bank check
payable to the order of the Company in the full amount of the Exercise Price of
the shares so purchased, or in such other manner as described in the Plan and
established by the Committee.
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<PAGE> 3
(e) Notwithstanding any other provision of this Option
Agreement to the contrary, unless and until this Option Agreement has been
approved by a separate vote of the Company's shareholders in accordance with
the Employment Agreement, the Company shall not be obligated to provide any
benefit (including the acceleration of the Option) to the extent that such
benefit results (as determined in accordance with the Employment Agreement) in
a parachute payment (as defined in Section 280G of the Code); provided,
however, that the Company shall provide all benefits under this Option
Agreement to the fullest extent permitted without giving rise to a parachute
payment.
3. Termination of Employment.
Notwithstanding anything to the contrary contained in Section
6(f) of the Plan, upon the termination of your employment with the Company or
any Related Entity, you may, until the earlier of (x) 30 days from the date of
such termination or (y) the expiration of the Option in accordance with its
terms, exercise the Option with respect to all or any part of the Vested Shares
which you were entitled to purchase and, thereafter, the Option shall, to the
extent not previously exercised, automatically terminate and become null and
void, provided that:
(a) in the case of termination of your employment with
the Company or any Related Entity due to death, your
estate (or any Person who acquired the right to
exercise such Option by bequest or inheritance or
otherwise by reason of your death) may, until the
earlier of (x) the 181st day after the date of death
or (y) the expiration of the Option in accordance
with its terms, exercise the Option with respect to
all or any part of the Vested Shares which you were
entitled to purchase; and
(b) in the case of termination of your employment with
the Company or any Related Entity due to Disability,
you or your legal representative may, until the
earlier of (x) the 181st day after the date your
employment was terminated or (y) the expiration of
the Option in accordance with its terms, exercise the
Option with respect to all or any part of the Vested
Shares which you were entitled to purchase.
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<PAGE> 4
4. Transferability.
The Option and any rights or interests therein are not
assignable or transferable by you except by will or the laws of descent and
distribution, and during your lifetime, the Option shall be exercisable only by
you or, in the event that a legal representative has been appointed in
connection with your Disability, such legal representative.
5. Registration.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities laws to permit exercise of the Option or to issue any Common Stock
in violation of the Securities Act or any applicable state securities laws.
You (or in the event of your death or, in the event a legal representative has
been appointed in connection with your Disability, the Person exercising the
Option) shall, as a condition to your right to exercise the Option, deliver to
the Company an agreement or certificate containing such representations,
warranties and covenants as the Company may deem necessary or appropriate to
ensure that the issuance of the Option Shares pursuant to such exercise is not
required to be registered under the Securities Act or any applicable state
securities laws.
Certificates for Option Shares, when issued, shall have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS."
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<PAGE> 5
The foregoing legend may not be required for Option Shares
issued pursuant to an effective registration statement under the Securities Act
and in accordance with applicable state securities laws.
6. Withholding Taxes.
By acceptance hereof, you hereby (i) agree to reimburse the
Company or any Related Entity by which you are employed for any federal, state
or local taxes required by any government to be withheld or otherwise deducted
by such corporation in respect of your exercise of all or a portion of the
Option; (ii) authorize the Company or any Related Entity by which you are
employed to withhold from any cash compensation paid to you or on your behalf,
an amount sufficient to discharge any federal, state and local taxes imposed on
the Company or the Related Entity by which you are employed, and which
otherwise has not been reimbursed by you, in respect of your exercise of all or
a portion of the Option; and (iii) agree that the Company may, in its
discretion, hold the stock certificate to which you are entitled upon exercise
of the Option as security for the payment of the aforementioned withholding tax
liability, until cash sufficient to pay that liability has been accumulated,
and may, in its discretion, effect such withholding by retaining shares
issuable upon the exercise of the Option having a Fair Market Value on the date
of exercise which is equal to the amount to be withheld.
7. Miscellaneous.
(a) This Option Agreement is subject to all the terms,
conditions, limitations and restrictions contained in the Plan (except for the
terms and conditions of Section 9 of the Plan, which shall not be applicable to
this Option Agreement or the Option granted hereunder). In the event of any
conflict or inconsistency between the terms hereof and the terms of the Plan,
the terms of the Plan shall be controlling.
(b) This Option Agreement is not a contract of employment
and the terms of your employment shall not be affected by, or construed to be
affected by, this Option Agreement, except to the extent specifically provided
herein. Nothing herein shall impose, or be construed as imposing, any
obligation (i) on the part of the Company or any Related Entity to continue
your employment, or (ii) on your part to remain in the employ of the Company or
any Related Entity.
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<PAGE> 6
Please indicate your acceptance of all the terms and
conditions of the Option and the Plan by signing and returning a copy of this
Option Agreement.
Very truly yours,
HOME INTERIORS & GIFTS, INC.
By:
--------------------------------
Name: Leonard A. Robertson
Title: Chief Financial Officer
ACCEPTED:
- -------------------------------
Donald J. Carter, Jr.
Date: June 4, 1998
6
<PAGE> 1
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and
entered into as of June 4, 1998, by and between Home Interiors & Gifts, Inc., a
Texas corporation (hereinafter, together with its successors, referred to as the
"COMPANY"), on the one hand, and Donald J. Carter (hereinafter referred to as
the "EXECUTIVE"), on the other hand.
W I T N E S S E T H :
---------------------
WHEREAS, the Company is party to an Agreement and Plan of
Merger (the "MERGER AGREEMENT"), dated as of April 13, 1998, between the Company
and Crowley Investments, Inc., a Texas corporation ("NEWCO");
WHEREAS, pursuant to the terms of the Merger Agreement, Newco
will be merged (the "MERGER") with and into the Company, with the Company being
the surviving corporation of the Merger;
WHEREAS, upon the consummation of the Merger, the Company
desires to employ the Executive in an executive capacity with the Company, and
the Executive desires to be employed by the Company in said capacity; and
WHEREAS, the parties hereto desire to set forth in writing the
terms and conditions of their understandings and agreements.
NOW THEREFORE, in consideration of the foregoing, of the
mutual promises contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS.
-----------
"ACCRUED BENEFITS" means (i) all salary earned or
accrued through the date the Executive's employment is terminated; (ii)
reimbursement for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred
by the Executive through the date the Executive's employment is
terminated and (iii) all other payments and benefits to which the
Executive or the Executive's family or other beneficiaries may be
entitled under the terms of any applicable compensation arrangement,
benefit plan, program or policy of the Company.
"ACT" shall mean the Securities Exchange Act of 1934,
as amended.
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<PAGE> 2
"AFFILIATE" shall have the meaning given such term in
Rule 12b-2 of the Act.
"AGREEMENT" shall have the meaning set forth in the
introductory paragraph.
"BASE SALARY" has the meaning set forth in Section
4(a).
"BOARD" shall mean the board of directors of the
Company.
"COMPANY" shall have the meaning set forth in the
introductory paragraph.
"COMPETITIVE ACTIVITIES" shall have the meaning set
forth in Section 10(c).
"EMPLOYMENT DATE" has the meaning set forth in
Section 2.
"EMPLOYMENT PERIOD" shall mean the period during
which the Executive is employed by the Company.
"EXECUTIVE" shall have the meaning set forth in the
introductory paragraph.
"MERGER" shall have the meaning set forth in the
recitals.
"MERGER AGREEMENT" shall have the meaning set forth
in the recitals.
"NEWCO" shall have the meaning set forth in the
recitals.
"OFFICE ARRANGEMENTS" shall have the meaning set
forth in Section 3.
"PERSON" shall mean any "person," within the meaning
of Sections 13(d) and 14(d) of the Act, including a "group" as therein
defined.
"SUBSIDIARY" shall mean, with respect to any Person,
any other Person of which such first Person owns the majority of the
economic interest in such Person or owns or has the power to vote,
directly or indirectly, securities representing a majority of the votes
ordinarily entitled to be cast for the election of directors or other
governing Persons.
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<PAGE> 3
SECTION 2. TERM OF EMPLOYMENT. Unless earlier terminated in
accordance with the terms of this Agreement, the Executive's Employment Period
shall commence on the date hereof (the "EMPLOYMENT DATE") and shall end on June
4, 2003.
SECTION 3. DUTIES. During the Employment Period, the
Executive (i) shall serve as Chairman Emeritus of the Company and (ii) subject
to and in accordance with the authority and direction of the Board and the
Chairman of the Board of the Company, shall have such authority and perform in a
diligent and competent manner such duties as may be assigned to him from to time
by the Chief Executive Officer of the Company. In connection with the
performance of his duties hereunder, the Executive shall be entitled, in his
sole discretion, to maintain his office suite, parking and secretarial
arrangements (the "OFFICE ARRANGEMENTS") as in existence immediately prior to
the date hereof; provided, however, that upon the reasonable request of the
Executive, the Company shall provide alternative Office Arrangements to the
Executive which shall be satisfactory to the Executive in his sole discretion.
SECTION 4. COMPENSATION. During the Employment Period, the
Executive shall be compensated as follows:
(a) the Executive shall receive an annual salary (pro
rata for any partial year) equal to Two Hundred Thousand and No/100
Dollars ($200,000) ("BASE SALARY"), which Base Salary shall be payable
in equal monthly installments;
(b) the Executive shall be reimbursed, at such
intervals and in accordance with such Company policies as may be in
effect from time to time, for any and all reasonable business expenses
incurred by him in the business interests of the Company, including but
not limited to travel expenses, direct operating costs and helicopter
expenses (including reimbursement of a portion of the liability
insurance premiums, based on the percentage of business use, for a Bell
430 helicopter or equivalent) incurred in connection with the
transportation of the Executive to such locations as may be designated
by the Chief Executive Officer of the Company from time to time or as
may be reasonably necessary for the performance of the Executive's
duties hereunder, including transportation to and from the Executive's
home;
(c) the Executive shall be entitled to participate in
all incentive, savings, retirement and death benefit plans, practices,
policies and programs on a basis no less favorable than that basis
available to similarly-situated senior executives of the Company as
determined by the Board from time to time;
(d) the Executive and/or the Executive's family, as
the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies
and programs generally provided by the Company to
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<PAGE> 4
similarly-situated senior executives of the Company (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs), in each case at the most
favorable level of participation and providing the highest levels of
benefits available to them; and
(e) the Executive shall be entitled to the use of a
passenger truck (or other similar vehicle as may reasonably be
designated by the Executive from time to time) and shall be reimbursed,
at such intervals and in accordance with such Company policies as may
be in effect from time to time, for any and all reasonable expenses
incurred by him in connection with the use of such vehicle in the
performance of his duties hereunder, including but not limited to
cellular phone service and automobile insurance.
SECTION 5. TERMINATION OF EMPLOYMENT BY EXECUTIVE. Notwith-
standing anything in this Agreement to the contrary, the Executive may, upon not
less than thirty (30) days written notice to the Company, voluntarily terminate
his employment for any reason.
SECTION 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
Upon termination of the Executive's employment with the Company, the Company
shall have the following obligations:
(a) Death. If the Executive's employment is
terminated by reason of the Executive's death, all Accrued Benefits
shall be paid to the Executive, his beneficiaries, or his estate, as
applicable, in a lump sum in cash within thirty (30) days after the
date of termination. In addition, the Executive's (i) beneficiaries or
his estate shall be entitled to receive the Base Salary that would have
been paid to the Executive from the date of termination through June 4,
2003 if the date of termination had not occurred and (ii) family shall
be entitled to receive benefits generally available to the surviving
families of other senior executive officers of the Company.
(b) Other Termination. If the Executive's employment
is terminated by the Company for any reason other than death, the
Executive and the Executive's spouse shall be entitled to continue to
participate in or be covered under the Company's health and life
insurance benefit plans generally applicable to similarly situated
senior executives of the Company or, at the Company's option, to
receive equivalent benefits by alternate means, at least equal to such
health and life insurance benefits. Unless otherwise directed by the
Executive, the Executive shall also be paid all Accrued Benefits in a
lump sum in cash within thirty (30) days after the date of termination.
In addition, the Executive shall receive the Base Salary that would
have been paid to the Executive from the date of termination through
June 4, 2003 if the date of termination had not occurred; provided,
however, that the Company shall not be obligated to make such payment
to the extent that such payment reduces the
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<PAGE> 5
disability benefits to which the Executive is entitled from an insurer
by an equal or greater amount. Such payment is to be made within thirty
(30) days after the date of termination.
(c) Voluntary Termination by Executive. If the
Executive's employment is voluntarily terminated by the Executive, the
Company shall pay the Executive the Accrued Benefits in a lump sum in
cash within thirty (30) days after the date of termination.
(d) Any amounts payable to the Executive pursuant to
this Section 6 shall be in full and complete satisfaction of the
obligations of the Company to the Executive in connection with the
termination of the Executive.
SECTION 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation, during the term of Executive's employment, in any benefit bonus,
incentive or other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other agreements with the
Company. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the Company at or subsequent to
the date of termination shall be payable in accordance with such plan or
program.
SECTION 8. FULL SETTLEMENT. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise. In no event
shall the Executive be obligated to seek other employment by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement.
SECTION 9. LEGAL FEES AND EXPENSES. The Company shall pay or
cause to be paid any and all reasonable attorneys' fees and expenses incurred by
the Executive in connection with the preparation and negotiation of this
Agreement promptly following receipt of an invoice therefor (together with
reasonable supporting documentation) from the Executive.
SECTION 10. FURTHER OBLIGATIONS OF THE EXECUTIVE.
(a) During and following the Executive's employment
by the Company, the Executive shall use commercially reasonable efforts
to hold in confidence and not directly or indirectly disclose any
confidential information or proprietary data of the Company or any of
its Subsidiaries, except to the extent
5
<PAGE> 6
authorized by the Board or required by any court or administrative
agency or legal process, other than to an employee of or contractor
with the Company or any of its Subsidiaries, or a Person to whom the
Executive in good faith believes disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his
duties as an executive of the Company. In determining whether such
disclosure is required, Executive will be entitled to rely on the
written advice of counsel provided to the Company. Confidential
information shall not include any information known generally to the
public or in the industry in which Company is engaged. All records,
files, documents and materials, or copies thereof, relating to the
Company's or any of its Subsidiaries', business which the Executive
shall prepare, or use, or come into contact with during the term of
this Agreement, shall be and remain the sole property of the Company or
any of its Subsidiaries, as the case may be, and shall be promptly
returned by the Executive to the Company or such Subsidiary (as
applicable) upon termination of the Executive's employment with the
Company.
(b) Except with the Board's prior written approval,
during the Employment Period and until the earlier of (i) three (3)
years thereafter or (ii) the date on which a direct descendant of
Donald J. Carter is no longer the Chief Executive Officer of the
Company, the Executive shall not, directly or indirectly (i) solicit,
entice, persuade or induce any employee, displayer, or other
independent contractor of the Company or any of its Subsidiaries to
terminate his employment or relationship with the Company or any of its
Subsidiaries or to become employed or engaged in a similar capacity by
any Person other than the Company or any of its Subsidiaries or (ii)
authorize, solicit or assist in the taking of such actions by any third
party. Notwithstanding the foregoing, nothing herein shall prohibit the
Executive or any affiliate of the Executive from hiring as an employee
or consultant any current employee of the Company or any of its
subsidiaries who has terminated his or her employment with the Company
and requests on an unsolicited basis employment with the Executive.
(c) During the Employment Period and until the
earlier of (i) three (3) years thereafter or (ii) the date on which a
direct descendant of Donald J. Carter is no longer the Chief Executive
Officer of the Company, the Executive shall not, directly or
indirectly, engage, participate, make any financial investment in, or
become employed by or render advisory or other services to or for any
Person or other business enterprise (other than the Company and its
Affiliates) engaged in the business of selling home decorative
accessories within any of the same markets as the Company or any of its
Subsidiaries (any of the foregoing activities being referred to herein
as "COMPETITIVE ACTIVITIES"). The foregoing covenant respecting
Competitive Activities shall not be construed to preclude the Executive
from (a) with the prior consent of the Chief Executive Officer of the
Company (which consent shall not be unreasonably withheld or delayed),
making an investment in any supplier to the Company; provided, however,
that notwithstanding the foregoing, the Company shall
6
<PAGE> 7
have the option (but not the obligation), exercisable upon notice to
the Executive, to make such proposed investment in such supplier on the
same terms and conditions as the investment proposed to be made by the
Executive and (b) making any investments in the securities of any
company, and whether or not engaged in competition the Company or any
of its Subsidiaries, to the extent that such securities are actively
traded on a national securities exchange or in the over-the-counter
market in the United States or any foreign securities exchange and such
investment does not exceed five percent (5%) of the issued and
outstanding shares of such company or give the Executive the right or
power to control or participate directly in making the policy decisions
of such company.
(d) If any court determines that any portion of this
Section 10 is invalid or unenforceable, the remainder of this Section
10 shall not thereby be affected and shall be given full effect without
regard to the invalid provision. If any court construes any of the
provisions of this Section 10, or any part thereof, to be unreasonable
because of the duration or scope of such provision, such court shall
have the power to reduce the duration or scope of such provision and to
enforce such provision as so reduced.
(e) The Executive hereby acknowledges and agrees that
damages will not be an adequate remedy for the Executive's breach of
any of his covenants contained in this Section 10, and further agrees
that the Company shall be entitled to obtain appropriate injunctive
and/or other equitable relief for any such breach, without the posting
of any bond or other security.
SECTION 11. SUCCESSORS. The Company may assign its rights
under this Agreement to any successor to all or substantially all the assets of
the Company, by merger or otherwise, and may assign or encumber this Agreement
and its rights hereunder as security for indebtedness of the Company, but only
if the assignee assumes all obligations of the Company hereunder. Any such
assignment by the Company shall remain subject to the Executive's rights under
this Agreement, including without limitation, Section 5 and Section 6 hereof.
The rights of the Executive under this Agreement may not be assigned or
encumbered by the Executive, voluntarily or involuntarily, during his lifetime,
and any such purported assignment shall be void ab initio. However, all rights
of the Executive under this Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, estates,
executors, administrators, heirs and beneficiaries. All amounts payable to the
Executive hereunder shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs or representatives.
SECTION 12. THIRD PARTIES. Except for the rights granted to
the Company and its Subsidiaries pursuant hereto (including, without limitation,
pursuant to Section 10 hereof) and except as expressly set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give any Person other than the
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<PAGE> 8
parties hereto and their successors and permitted assigns any rights or remedies
under or by reason of this Agreement.
SECTION 13. ENFORCEMENT. The provisions of this Agreement
shall be regarded as divisible, and if any of said provisions or any part
thereof is declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remainder of such
provisions or parts hereof and the applicability thereof shall not be affected
thereby.
SECTION 14. AMENDMENT. This Agreement may not be amended or
modified at any time except by a written instrument approved by the Board, and
executed by the Company and the Executive; provided, however, that any attempted
amendment or modification without such approval and execution shall be null and
void ab initio and of no effect.
SECTION 15. WITHHOLDING. The Company shall be entitled to
withhold from any amounts to be paid to the Executive hereunder any federal,
state, local, or foreign withholding or other taxes or charges which it is from
time to time required to withhold. The Company shall be entitled to rely on an
opinion of counsel if any question as to the amount or requirement of any such
withholding shall arise.
SECTION 16. GOVERNING LAW. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of Texas, without regard to principles of conflicts of law of
Texas or any other jurisdiction.
SECTION 17. NOTICE. Notices given pursuant to this Agreement
shall be in writing and shall be deemed given when received and, if mailed,
shall be mailed by United States registered or certified mail, return receipt
requested, addressee only, postage prepaid:
If to the Company:
-----------------
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244
Attention: President
If to the Executive:
-------------------
4761 Frank Luke Drive
Suite 400
Dallas, Texas 75248
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<PAGE> 9
with a copy to:
Jeffrey Fink, Esq.
4761 Frank Luke Drive
Suite 400
Dallas, Texas 75248
or to such other address as the party to be notified shall have given to the
other in accordance with the notice provisions set forth in this Section 17.
SECTION 18. NO WAIVER. No waiver by either party at any time
of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at any time.
SECTION 19. HEADINGS. The headings contained herein are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
in one or more counterparts, each of which shall be deemed one and the same
instrument, as of the day and year first written above.
HOME INTERIORS & GIFTS, INC.
By:
-----------------------------
Donald J. Carter, Jr.
Chief Executive Officer
EXECUTIVE:
----------------------------------
Donald J. Carter
<PAGE> 1
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and
entered into as of June 4, 1998 by and between Home Interiors & Gifts, Inc., a
Texas corporation (hereinafter, together with its successors, referred to as
the "COMPANY"), on the one hand, and Donald J. Carter, Jr. (hereinafter
referred to as the "EXECUTIVE"), on the other hand.
W I T N E S S E T H :
WHEREAS, the Company is party to an Agreement and Plan of
Merger (the "MERGER AGREEMENT"), dated as of April 13, 1998, between the
Company and Crowley Investments, Inc., a Texas corporation ("NEWCO");
WHEREAS, pursuant to the terms of the Merger Agreement, Newco
will be merged (the "MERGER") with and into the Company, with the Company being
the surviving corporation of the Merger;
WHEREAS, upon the consummation of the Merger, the Company
desires to employ the Executive in an executive capacity with the Company, and
the Executive desires to be employed by the Company in said capacity; and
WHEREAS, the parties hereto desire to set forth in writing the
terms and conditions of their understandings and agreements.
NOW THEREFORE, in consideration of the foregoing, of the
mutual promises contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
"ACCRUED BENEFITS" means (i) all salary earned or
accrued through the date the Executive's employment is terminated,
plus, in the case of death, the product of the Annual Bonus paid to
the Executive with respect to the preceding fiscal year (or, if
applicable, a partial fiscal year) of the Company and a fraction, the
numerator of which is the number of days in the current fiscal year of
the Company through the Date of Termination, and the denominator of
which is 365; (ii) reimbursement for any and all monies advanced in
connection with the Executive's employment for reasonable expenses
incurred by the Executive in accordance with Section 4(c)hereof
through the date the Executive's employment is terminated and (iii)
all other payments and benefits to which the Executive or the
Executive's family or other beneficiaries
<PAGE> 2
may be entitled under the terms of any applicable compensation
arrangement, benefit plan, program or policy of the Company, including
any compensation previously deferred by the Executive (together with
any accrued earnings thereon) and not yet paid by the Company and any
earned and accrued, but unused vacation pay, in each case through the
Date of Termination.
"ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"AFFILIATE" shall have the meaning given such term in
Rule 12b-2 of the Act.
"ANNUAL BONUS" has the meaning set forth in Section
4(b).
"BASE SALARY" has the meaning set forth in Section
4(a).
"BOARD" shall mean the board of directors of the
Company.
"CAUSE" shall mean (i) the Executive's conviction of
any felony, unless the Board reasonably determines that the
Executive's conviction of such felony does not materially affect the
Executive's business reputation or significantly impair the
Executive's ability to carry out his duties under this Agreement
(provided the Board shall have no obligation to make such
determination); (ii) the Executive's willful and material breach of
his obligations under this Agreement which results in material damage
to the Company's business, or (iii) the Executive's dishonesty or
gross misconduct in connection with his employment hereunder which
results in material damage to the Company's business. Notwithstanding
the above, the occurrence of the event specified in clause (ii) above
shall not constitute Cause unless the Executive fails to cure such
event within ten (10) days after receipt from the Company of the
Notice of Termination (as defined in Section 5(e) below).
"CHANGE OF CONTROL" shall mean the first to occur of
the following events: (1) the Company is acquired or becomes
controlled by any Person or group of Persons, other than by any member
of the HMC Group (as hereinafter defined); (2) Hicks, Muse, Tate &
Furst Incorporated or any of its Affiliates, including without
limitation HM/RB Partners, L.P., a Delaware limited partnership, or
its or their respective partners, employees, officers and directors
(and members of their respective families and trusts for the primary
benefit of such family members) (collectively, the "HMC GROUP") shall
cease to have the power, directly or indirectly, to vote or direct the
voting of securities having a majority of the ordinary voting power
for the election of directors of the Company; or (3) the shareholders
of the Company approve a complete liquidation or dissolution of the
Company; provided that the occurrence of an event described in (1) or
(2) above shall not be deemed a Change of Control if (a) prior to the
consummation of an Initial Public Offering (i)
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the HMC Group otherwise has the right, directly or indirectly, to
designate (and does so designate) a majority of the Board or (ii) the
HMC Group, together with members of management of the Company,
directly or indirectly, own of record and beneficially an amount of
common stock of the Company equal to at least fifty percent (50%) of
the amount of common stock of the Company (adjusted for stock splits,
stock dividends and other similar events on an equitable basis)
directly or indirectly owned by the HMC Group, together with
management of the Company, of record and beneficially as of the date
of this Agreement and such ownership by the HMC Group, together with
members of management of the Company, represents the largest single
block of voting securities of the Company held by any Person or group
of Persons (within the meaning of Section 13(d) of the Act), or (b)
after the consummation of an Initial Public Offering, and for any
reason whatever, (i) no Person or group of Persons, excluding the HMC
Group, shall become the beneficial owner, directly or indirectly, of
more than the greater of (x) fifteen percent (15%) of the voting
shares of the Company then outstanding and (y) the percentage of the
then outstanding voting stock of the Company directly or indirectly
owned by the HMC Group, together with members of management of the
Company; and (ii) the Board shall consist of a majority of Continuing
Directors. For the purposes of this definition, the term "the Company"
shall include any successor to the Company.
"CONTINUING DIRECTORS" shall mean the directors of
the Company on the date of this Agreement and each director appointed
subsequent to the date of this Agreement, if, in each case, such other
director's nomination for election to the Board, as applicable, is
recommended by a majority of the directors at the time of such
election or such director receives the vote of the HMC Group in his or
her election by the shareholders.
"CONTROL" (including the correlative terms
"Controlled by" and "Controlling") shall mean the possession, directly
or indirectly, of the power to direct, or to cause the direction of,
the management and policies of a Person, whether through ownership of
voting securities, by contract or otherwise.
"COBRA" means the Consolidated Omnibus Reconciliation
Act of 1985, as amended.
"EMPLOYMENT DATE" has the meaning set forth in
Section 2.
"EMPLOYMENT PERIOD" shall mean the period during
which the Executive is employed by the Company.
"GOOD REASON" shall mean (i) any material breach by
the Company of this Agreement or the Shareholders Agreement (for so
long as Executive is subject thereto) or the failure of the Executive
to be a director of the Company for any reason
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(other than death, Permanent Disability, voluntary resignation or
termination of employment for Cause); (ii) any reduction or
alteration, approved by the Board without the Executive's written
consent, in the Executive's title, duties or responsibilities or the
Executive's Base Salary and/or annual target bonus opportunity other
than under a circumstance which constitutes Cause; provided, that any
such reduction or alteration in the Executive's title, duties or
responsibilities without the Executive's consent during the ten-day
cure period applicable to subparagraph (ii) of the definition of Cause
shall not constitute "Good Reason"; provided, further, that any cure
by the Executive during such ten-day period shall entitle the
Executive to reinstatement of his title, duties and responsibilities;
and (iii) a change, without the Executive's written consent, of more
than twenty-five (25) miles in the office or location where the
Executive is based. Notwithstanding the above, the occurrence of any
of the events described above will not constitute Good Reason unless
the Company fails to cure any such event within ten (10) days after
receipt from the Executive of the Notice of Termination (as defined in
Section 5(e) below).
"INITIAL PUBLIC OFFERING" shall mean an underwritten
public offering of capital stock of the Company, as applicable,
pursuant to a registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act of 1933, as
amended.
"PERMANENT DISABILITY" shall mean the inability of
the Executive to discharge his duties hereunder for a period of six
(6) consecutive months, or for a total of six (6) months in any twelve
(12) month period, by reason of physical or mental illness, injury or
incapacity.
"PERSON" shall mean any "person," within the meaning
of Sections 13(d) and 14(d) of the Act, including a "group" as therein
defined.
"SHAREHOLDERS AGREEMENT" shall mean that certain
Shareholders Agreement, dated as of June 4, 1998, among the Company
and the securityholders of the Company listed on the signature pages
thereof.
"SUBSIDIARY" shall mean, with respect to any Person,
any other Person of which such first Person owns the majority of the
economic interest in such Person or owns or has the power to vote,
directly or indirectly, securities representing a majority of the
votes ordinarily entitled to be cast for the election of directors or
other governing Persons.
SECTION 2. TERM OF EMPLOYMENT. Unless earlier terminated
in accordance with the terms of this Agreement, the Executive's Employment
Period shall commence on the date hereof (the "EMPLOYMENT DATE") and shall end
on June 4, 2003; provided, however, that such Employment Period shall be
extended for successive terms of one (1)
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year each unless either party advises the other, at least one hundred twenty
(120) days prior to the end of the initial term or annual extension, as the
case may be, that it will not agree to extend this Agreement.
SECTION 3. DUTIES. During the Employment Period, the
Executive (i) shall serve as Chairman of the Board and Chief Executive Officer
of the Company, subject to the direction and control of the Board; (ii) shall
report directly to the Board; and (iii) shall devote his full business time
during normal business hours to the business and affairs of the Company and
shall use his best efforts to perform faithfully and efficiently the
responsibilities assigned to Executive hereunder, to the extent necessary to
discharge such responsibilities, except for: (A) time spent in managing
Executive's personal, financial, and legal affairs and serving on corporate,
civic, or charitable boards or committees, in each case, only to the extent not
substantially interfering with the performance of such responsibilities; and
(B) a vacation to which Executive is entitled. The continuing service by the
Executive on any boards and committees on which he is serving or with which he
is otherwise associated immediately preceding the date of this Agreement, or
the Executive's service on any other boards or committees of which the Company
has knowledge and does not object in writing, within thirty (30) days after
first becoming aware of such service or proposed service, shall not be deemed
to interfere with the performance of the Executive's services to the Company;
provided that Executive's time commitment or participation in respect of such
continuing service does not materially increase after the date hereof or after
the expiration of such thirty (30) day period, as applicable.
SECTION 4. COMPENSATION. During the Employment Period,
the Executive shall be compensated as follows:
(a) the Executive shall receive a minimum annual
salary (pro rata for any partial year) equal to Five Hundred Thousand
and No/100 Dollars ($500,000) ("BASE SALARY"), which Base Salary shall
be payable in equal monthly installments and shall be subject to
appropriate increase, as determined by the sole discretion of the
Board;
(b) the Executive shall be eligible to receive an
annual bonus (the "ANNUAL BONUS") in an amount up to the percentage of
the Executive's Base Salary set forth on Schedule 1 hereto for each
fiscal year of the Company commencing with the fiscal year ending
December 31, 1998 (on a pro rata basis for any partial year)
calculated based upon budgeted earnings before interest, income tax,
depreciation and amortization ("EBITDA") as approved by the Board in
good faith, and such other criteria as may be recommended by
management and established by the Board from time to time, at the
beginning of each fiscal year provided that in any event the Executive
shall become entitled to receive an annual bonus for any fiscal year
in which the Company achieves at least eighty-eight percent (88%) of
such budgeted EBITDA in such fiscal year (the amount of such bonus to
be determined in good faith
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by the Board based upon the formula set forth on Schedule 1 hereto).
Each Annual Bonus (or portion thereof) shall be paid in cash promptly
following the delivery to the Board of audited financial statements of
the Company for the fiscal year for which the Annual Bonus (or
prorated portion) is earned or awarded, unless electively deferred by
the Executive pursuant to any deferral programs or arrangements that
the Company may make available to the Executive;
(c) the Executive shall be reimbursed, at such
intervals and in accordance with such Company policies as may be in
effect from time to time, for any and all reasonable business expenses
incurred by him in the business interests of the Company, including
but not limited to travel expenses;
(d) the Executive shall be entitled to
participate in all incentive, savings, retirement and death benefit
plans, practices, policies and programs on a basis no less favorable
than that basis available to similarly-situated senior executives of
the Company as determined by the Board from time to time;
(e) the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies
and programs generally provided by the Company to similarly-situated
senior executives of the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident
insurance plans and programs), in each case at the most favorable
level of participation and providing the highest levels of benefits
available to them;
(f) the Executive shall be entitled to receive
(in addition to the benefits described above) such perquisites and
fringe benefits appertaining to Executive's position in accordance
with any practice established by the Board, including without
limitation, air travel arrangements consistent with policies and
practice in effect during the one (1) year prior to the date of this
Agreement; and
(g) in addition to any benefits the Executive may
receive pursuant to paragraph 4(d), the Company shall grant stock
options (the "STOCK OPTIONS") to the Executive under the Company's
1998 Stock Option Plan exercisable for an aggregate of 338,441 shares
of common stock, par value $.10 per share, at an exercise price of
$18.05451 per share. The Stock Options shall vest and become
exercisable in five equal annual installments commencing on the first
anniversary of the date of grant; provided, however, that the Stock
Options shall, subject to Section 7 below, vest and become immediately
exercisable upon (i) the termination of the Executive's employment
without Cause, (ii) the Executive's termination of his employment for
Good Reason, (iii) the occurrence of a Change of Control; (iv) the
sale, conveyance or other disposition by the Company of all or
substantially all of its assets to a Person
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that is not an Affiliate of the Company. In addition to the foregoing,
the Stock Options will contain the following provisions:
(i) Stock options will be exercisable
for a period of ten (10) years from the date of issuance.
(ii) To the extent definitions in this
Agreement are different from the definitions in the Company's
1998 Stock Option Plan (e.g., Change of Control, Cause, Good
Reason, etc.), the definitions in this Agreement will control.
(iii) On a termination for Cause or a
voluntary termination by the Executive, the Executive may
exercise all vested options within thirty (30) days after the
termination date.
(iv) If Employment is terminated as a
result of death or disability, the vested stock options may be
exercised within one hundred eighty (180) days after the date
of the Executive's termination of employment.
(v) On a termination of employment for
any other reason, all vested stock options may be exercised
within thirty (30) days after such date of termination. The
Committee (as such term is defined in the Company's 1998 Stock
Option Plan) may not shorten the exercise period described in
clauses (iii), (iv) or (v).
(vi) The Company shall have no right to
purchase the Executive's Stock Options or shares of stock
pursuant to Section 9 of the Stock Option Plan.
SECTION 5. TERMINATION OF EMPLOYMENT.
(a) Permanent Disability. The Company may
terminate the Executive's employment because of a Permanent Disability
by first giving Executive written notice of the Company's intention to
terminate such employment.
(b) Voluntary Termination by Executive.
Notwithstanding anything in this Agreement to the contrary the
Executive may, upon not less than thirty (30) days written notice to
the Company, voluntarily terminate employment for any reason (provided
that any termination by the Executive pursuant to Section 5(d) on
account of Good Reason shall not be treated as a voluntary termination
under this Section 5(b)).
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(c) Termination by the Company. The Company at
any time may terminate the Executive's employment for Cause or without
Cause.
(d) Good Reason. The Executive at any time may
terminate his employment for Good Reason.
(e) Notice of Termination. Any termination by the
Company for Cause or by the Executive for Good Reason shall be
communicated by a Notice of Termination to the other party hereto
given in accordance with Section 18. For purposes of this Agreement, a
"NOTICE OF TERMINATION" means a written notice given, in the case of a
termination for Cause, within one hundred eighty (180) days of the
Company's having actual knowledge of the events giving rise to such
termination, and in the case of a termination for Good Reason, within
one hundred eighty (180) days of the Executive's having actual
knowledge of the events giving rise to such termination. The Notice of
Termination shall: (i) indicate the specific termination provision in
this Agreement relied upon; (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated; and (iii)
if the termination date is other than the date of receipt of such
notice, specify the termination date of this Agreement (which date
shall be no more than fifteen (15) days after the giving of such
notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause, as applicable, shall not waive
any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
In addition, in the event the Company determines to terminate the
Executive's employment without Cause, the Company shall deliver to the
Executive written notification thereof on a date not later than the
Date of Termination.
(f) Date of Termination. For the purpose of this
Agreement, the term "DATE OF TERMINATION" means: (i) in the case of a
termination for which a Notice of Termination is required, the date of
receipt of such Notice of Termination or, if later, the date specified
therein, as the case may be; and (ii) in all other cases, the actual
date on which the Executive's employment terminates.
SECTION 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
Upon termination of the Executive's employment with the Company, the Company
shall have the following obligations:
(a) Death. If the Executive's employment is
terminated by reason of the Executive's death, all Accrued Expenses
shall be paid to the Executive, his beneficiaries, or his estate, as
applicable, in a lump sum in cash within thirty (30) days after the
Date of Termination. In addition, the Executive's family shall be
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entitled to receive benefits generally available to the surviving
families of other senior executive officers of the Company.
(b) Permanent Disability. If the Executive's
employment is terminated by reason of the Executive's Permanent
Disability, the Executive, and the Executive's spouse, shall be
entitled to continue to participate in or be covered under the
Company's health and life insurance benefit plans generally applicable
to similarly situated senior executives of the Company or, at the
Company's option, to receive equivalent benefits by alternate means,
at least equal to such health and life insurance benefits. Unless
otherwise directed by the Executive, the Executive shall also be paid
all Accrued Benefits in a lump sum in cash within thirty (30) days
after the Date of Termination. In addition, the Executive shall
receive severance pay from the Company in an amount equal to one
hundred percent (100%) of the total Base Salary and Annual Bonus, if
any, received by the Executive with respect to the fiscal year
immediately prior to the fiscal year in which such Date of Termination
occurs; provided, however, that the Company shall not be obligated to
make such severance payment to the extent that such severance payment
reduces the disability benefits to which the Executive is entitled
from an insurer by an equal or greater amount. Such severance payment
is to be made within thirty (30) days after the Date of Termination.
(c) Termination by the Company for Cause and
Voluntary Termination by Executive. If the Executive's employment is
terminated for Cause or voluntarily terminated by the Executive (other
than for Good Reason), the Company shall pay the Executive the Accrued
Benefits in a lump sum in cash within thirty (30) days after the Date
of Termination.
(d) Other Termination of Employment. If the
Company terminates the Executive's employment other than for Cause or
Permanent Disability, or the Executive terminates his employment for
Good Reason, the Company shall pay or provide the Executive the
following:
(A) Cash Payment. The Company shall pay
to the Executive in a lump sum in cash within 30 days after
the Date of Termination the following amounts (other than
amounts payable from non-qualified retirement plans and
deferred compensation plans, which amounts shall be paid in
accordance with the terms of such plans):
(1) all Accrued Benefits;
(2) if the Date of Termination
occurs on or prior to the first anniversary of this
Agreement, a cash amount equal to five (5) times the
Executive's Base Salary;
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(3) if the Date of Termination
occurs after the first anniversary of this Agreement,
a cash amount equal to the greater of:
(I) the Base Salary that would be
paid to the Executive from the Date of
Termination through June 4, 2003 if the Date
of Termination had not occurred; and
(II) three (3) times the total Base
Salary and Annual Bonus, if any, received by
the Executive with respect to the fiscal year
immediately prior to the fiscal year in which
the Date of Termination occurs.
(B) Other Benefits Continuation. The
Company shall provide for the continued participation of the
Executive, and his spouse, as the case may be, until June 4,
2003, in the Company's health and life insurance benefit plans
generally applicable to similarly situated senior executives
of the Company. In lieu of continued participation in any such
medical and life insurance programs, the Executive may elect
by written notice delivered to the Company prior to the Date
of Termination to receive an amount equal to the annual cost
to the Company (based on premium rates) of providing such
coverage.
(e) Any amounts payable to the Executive pursuant
to this Section 6 shall be considered severance payments and be in
full and complete satisfaction of the obligations of the Company to
the Executive in connection with the termination of the Executive.
SECTION 7. APPLICABILITY OF SECTION 280G OF THE CODE.
(a) Limitation on Severance Pay and Other
Benefits. Notwithstanding any other provision of this Agreement to the
contrary, unless and until this Agreement has been approved by a
separate vote of the Company's shareholders in accordance with Section
7(g) below, the Company shall not be obligated to make any payment or
provide any benefit (including the acceleration of Stock Options) to
the extent that such payment or benefit results (as determined in
accordance with Section 7(c) below) in a parachute payment (as defined
in Section 280G of the Code); provided, however, that the Company
shall make all payments and provide all benefits under this Agreement
to the fullest extent permitted without giving rise to a parachute
payment.
(b) Tax Reimbursement Payment. If the amount or
benefit paid or distributed to the Executive by the Company or any
Person that is an Affiliate of the Company, whether pursuant to this
Agreement or otherwise with respect to
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employment by the Company after the Employment Date (collectively, the
"Covered Payments"), is or becomes subject to the tax imposed under
Section 4999 of the Code or any similar tax that may hereafter be
imposed (the "Excise Tax") and if this Agreement has been approved by
a separate vote of the Company's shareholders in accordance with
Section 7(g) below, the Company shall pay to the Executive, at the
time specified in Section 7(f) below, the Tax Reimbursement Payment
(as defined below). The Tax Reimbursement Payment is defined as an
amount, which when added to the Covered Payments and reduced by any
Excise Tax on the Covered Payments and any federal, state and local
income tax and Excise Tax on the Tax Reimbursement Payment provided
for by this Agreement (but without reduction for any federal, state
and local income or employment tax on such Covered Payments), shall be
equal to the sum of (i) the amount of the Covered Payments; and (ii)
an amount equal to the product of any otherwise permitted deductions
disallowed for federal, state or local income tax purposes as a result
of the inclusion of the Tax Reimbursement Payment in the Executive's
adjusted gross income and the applicable marginal rate of federal,
state or local income taxation if the Tax Reimbursement Payment had
not been made, respectively, for the calendar year in which the Tax
Reimbursement Payment is to be made.
(c) Determining Excise Tax. For purposes of
determining whether any of the Covered Payments will be subject to the
Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be
treated as "parachute payments" within the meaning of Section
280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the
Code) shall be treated as subject to the Excise Tax, to the
extent so determined in the opinion of the Company's
independent certified public accountants (the "Accountants");
and
(ii) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G
of the Code.
(d) Applicable Tax Rates and Deductions. For
purposes of determining the amount of the Tax Reimbursement Payment,
the Executive shall be deemed:
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(i) to pay federal income taxes at the
highest applicable marginal rate of federal income taxation
for the calendar year in which the Tax Reimbursement Payment
is to be made, except in connection with the determination of
the Tax Reimbursement Payment attributable to a disallowed
deduction under clause (ii) of the definition of Tax
Reimbursement Payment; and
(ii) to pay any applicable state and
local income taxes at the highest applicable marginal rate of
taxation for the calendar in which the Tax Reimbursement
Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from the deduction of
such state or local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of the Executive's adjusted gross income).
(e) Subsequent Events. In the event that the
Excise Tax is subsequently determined by the Accountants or the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the
Executive shall repay to the Company, at the time that the amount of
such reduction in the Excise Tax is finally determined, the portion of
such prior Tax Reimbursement Payment that has been paid to the
Executive or to federal, state or local tax authorities on the
Executive's behalf and that would not have been paid if such Excise
Tax had been applied in initially calculating such Tax Reimbursement
Payment, plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing provisions of this Section 7(e), in the event any portion of
the Tax Reimbursement Payment to be refunded to the Company has been
paid to any federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion
has been made to the Executive, and interest payable to the Company
shall not exceed interest received or credited to the Executive by
such tax authority for the period it held such portion. The Executive
and the Company shall mutually agree upon the course of action to be
pursued (and the method of allocating the expenses thereof) if the
Executive's good faith claim for refund or credit is denied.
In the event that the Excise Tax is later determined
by the Accountants to exceed the amount taken into account hereunder
at the time the Tax Reimbursement Payment is made (including, but not
limited to, by reason of any payment the existence or amount of which
cannot be determined at the time of the Tax Reimbursement Payment in
respect thereof) the Company shall make an additional Tax
Reimbursement Payment of such excess (which Tax Reimbursement Payment
shall include any interest or penalty payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
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The Company and the Executive each agrees to
reasonably cooperate in good faith in the event of any reduction in
payments or benefits pursuant to Section 7(a) or any Tax Reimbursement
Payment pursuant to Section 7(b) to minimize the amount of such
reduction or Tax Reimbursement Payment and to take such other actions
under this Section 7 as may be necessary or required.
(f) Date of Payment. The portion of the Tax
Reimbursement Payment attributable to a Covered Payment shall be paid
to the Executive within ten (10) business days following the payment
of the Covered Payment. If the amount of such Tax Reimbursement
Payment (or portion thereof) is due, the Company shall pay to the
Executive, an amount estimated in good faith by the Accountants to be
the minimum amount of such Tax Reimbursement Payment and shall pay the
remainder of such Tax Reimbursement Payment (which Tax Reimbursement
Payment shall include interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than forty-five (45) calendar days
after payment of the related Covered Payment. In the event that the
amount of the estimated Tax Reimbursement Payment exceeds the amount
subsequently determined to have been due, such excess shall be repaid
or refunded pursuant to the provisions of Section 7(e) above.
(g) Shareholder Approval. The Company shall use
its reasonable best efforts to obtain, within 45 days following the
Employment Date, the approval of this Agreement (including, without
limitation, the removal of the limitation under Section 7(a), the Tax
Reimbursement Payment, the acceleration of vesting of Stock Options
upon a Change of Control and the continuation of benefits following a
termination of employment without Cause or resignation for Good Reason
within one year of a Change of Control) by a separate vote of the
Company's shareholders who own more than 75% of the total voting power
of all outstanding stock of the Company (excluding for this purpose
all stock actually or constructively owned by the Executive and all
other disqualified individuals (as defined in Section 280G of the
Code) who would receive payments constituting parachute payments if
shareholder approval for purposes of Section 280G of the Code was not
obtained). The vote of the Company's shareholders pursuant to this
Section 7(g) is intended to satisfy the shareholder approval
requirement described in Question and Answer 7 of the Proposed
Regulations under Section 280G of the Code.
SECTION 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation, during the term of Executive's employment, in any benefit bonus,
incentive or other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other agreements with the
Company, including, but not limited to stock option or restricted stock
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive
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under any plan or program of the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan or program.
SECTION 9. FULL SETTLEMENT. Except as provided in
Section 11(b), the Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise. In no event shall the Executive be obligated to
seek other employment by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement.
SECTION 10. LEGAL FEES AND EXPENSES. The Company shall
pay or cause to be paid any and all reasonable attorneys' fees and expenses
incurred by Executive in connection with the preparation and negotiation of
this Agreement promptly following receipt of an invoice therefor (together with
reasonable supporting documentation) from Executive.
SECTION 11. FURTHER OBLIGATIONS OF THE EXECUTIVE.
(a) During and following the Executive's
employment by the Company, the Executive shall use commercially
reasonable efforts to hold in confidence and not directly or
indirectly disclose any confidential information or proprietary data
of the Company or any of its Subsidiaries, except to the extent
authorized by the Board or required by any court or administrative
agency or legal process, other than to an employee of or contractor
with the Company or any of its Subsidiaries, or a Person to whom the
Executive in good faith believes disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his
duties as an executive of the Company. In determining whether such
disclosure is required, Executive will be entitled to rely on the
written advice of counsel provided to the Company. Confidential
information shall not include any information known generally to the
public or in the industry in which Company is engaged. All records,
files, documents and materials, or copies thereof, relating to the
Company's or any of its Subsidiaries', business which the Executive
shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company or any of its Subsidiaries, as the
case may be, and shall be promptly returned by the Executive to the
Company or such Subsidiary (as applicable) upon termination of the
Executive's employment with the Company.
(b) Except with the Board's prior written
approval, during the Employment Period and for three (3) years after
the Date of Termination, the Executive shall not, directly or
indirectly (i) solicit, entice, persuade or induce any employee,
displayer, or other independent contractor of the Company or any of
its Subsidiaries to terminate his employment or relationship with the
Company or any of
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its Subsidiaries or to become employed or engaged in a similar
capacity by any Person other than the Company or any of its
Subsidiaries or (ii) authorize, solicit or assist in the taking of
such actions by any third party.
(c) During the Employment Period and for three
(3) years after the Date of Termination, the Executive shall not,
directly or indirectly, engage, participate, make any financial
investment in, or become employed by or render advisory or other
services to or for any Person or other business enterprise (other than
the Company and its Affiliates) engaged in the business of selling
home decorative accessories within any of the same markets as the
Company or any of its Subsidiaries (any of the foregoing activities
being referred to herein as "COMPETITIVE ACTIVITIES"). The foregoing
covenant respecting Competitive Activities shall not be construed to
preclude the Executive from making any investments in the securities
of any company, and whether or not engaged in competition with the
Company or any of its Subsidiaries, to the extent that such securities
are actively traded on a national securities exchange or in the
over-the-counter market in the United States or any foreign securities
exchange and such investment does not exceed five percent (5%) of the
issued and outstanding shares of such company or give the Executive
the right or power to control or participate directly in making the
policy decisions of such company.
(d) If any court determines that any portion of
this Section 11 is invalid or unenforceable, the remainder of this
Section 11 shall not thereby be affected and shall be given full
effect without regard to the invalid provision. If any court construes
any of the provisions of this Section 11, or any part thereof, to be
unreasonable because of the duration or scope of such provision, such
court shall have the power to reduce the duration or scope of such
provision and to enforce such provision as so reduced.
(e) The Executive hereby acknowledges and agrees
that damages will not be an adequate remedy for the Executive's breach
of any of his covenants contained in this Section 11, and further
agrees that the Company shall be entitled to obtain appropriate
injunctive and/or other equitable relief for any such breach, without
the posting of any bond or other security.
SECTION 12. SUCCESSORS. The Company may assign its rights
under this Agreement to any successor to all or substantially all the assets of
the Company, by merger or otherwise, and may assign or encumber this Agreement
and its rights hereunder as security for indebtedness of the Company. Any such
assignment by the Company shall remain subject to the Executive's rights under
this Agreement, including without limitation, Section 5 and Section 6 hereof.
The rights of the Executive under this Agreement may not be assigned or
encumbered by the Executive, voluntarily or involuntarily, during his lifetime,
and any such purported assignment shall be void ab initio. However, all rights
of the Executive
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under this Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, estates, executors,
administrators, heirs and beneficiaries. All amounts payable to the Executive
hereunder shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs or representatives.
SECTION 13. THIRD PARTIES. Except for the rights granted
to the Company and its Subsidiaries pursuant hereto (including, without
limitation, pursuant to Section 10 hereof) and except as expressly set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give any Person other than the parties hereto and
their successors and permitted assigns any rights or remedies under or by
reason of this Agreement.
SECTION 14. ENFORCEMENT. The provisions of this Agreement
shall be regarded as divisible, and if any of said provisions or any part
thereof is declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remainder of such
provisions or parts hereof and the applicability thereof shall not be affected
thereby.
SECTION 15. AMENDMENT. This Agreement may not be amended
or modified at any time except by a written instrument approved by the Board,
and executed by the Company and the Executive; provided, however, that any
attempted amendment or modification without such approval and execution shall
be null and void ab initio and of no effect.
SECTION 16. WITHHOLDING. The Company shall be entitled to
withhold from any amounts to be paid to the Executive hereunder any federal,
state, local, or foreign withholding or other taxes or charges which it is from
time to time required to withhold. The Company shall be entitled to rely on an
opinion of counsel if any question as to the amount or requirement of any such
withholding shall arise.
SECTION 17. GOVERNING LAW. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to principles of conflicts of
law of Texas or any other jurisdiction.
SECTION 18. NOTICE. Notices given pursuant to this
Agreement shall be in writing and shall be deemed given when received and, if
mailed, shall be mailed by United States registered or certified mail, return
receipt requested, addressee only, postage prepaid:
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If to the Company:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244
Attention: President
If to the Executive:
Donald J. Carter, Jr.
5608 Glenbrook Circle
Plano, Texas 75093
or to such other address as the party to be notified shall have given to the
other in accordance with the notice provisions set forth in this Section 13.
SECTION 19. NO WAIVER. No waiver by either party at any
time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at any time.
SECTION 20. HEADINGS. The headings contained herein are
for reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement
in one or more counterparts, each of which shall be deemed one and the same
instrument, as of the day and year first written above.
HOME INTERIORS & GIFTS, INC.
By:
--------------------------------
Leonard A. Robertson
Chief Financial Officer
EXECUTIVE:
-----------------------------------
Donald J. Carter, Jr.
<PAGE> 1
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and
entered into as of June 4, 1998 by and between Home Interiors & Gifts, Inc., a
Texas corporation (hereinafter, together with its successors, referred to as
the "COMPANY"), on the one hand, and Barbara J. Hammond (hereinafter referred
to as the "EXECUTIVE"), on the other hand.
W I T N E S S E T H :
WHEREAS, the Company is party to an Agreement and Plan of
Merger (the "MERGER AGREEMENT"), dated as of April 13, 1998, between the
Company and Crowley Investments, Inc., a Texas corporation ("NEWCO");
WHEREAS, pursuant to the terms of the Merger Agreement, Newco
will be merged (the "MERGER") with and into the Company, with the Company being
the surviving corporation of the Merger;
WHEREAS, upon the consummation of the Merger, the Company
desires to employ the Executive in an executive capacity with the Company, and
the Executive desires to be employed by the Company in said capacity; and
WHEREAS, the parties hereto desire to set forth in writing the
terms and conditions of their understandings and agreements.
NOW THEREFORE, in consideration of the foregoing, of the
mutual promises contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
"ACCRUED BENEFITS" means (i) all salary earned or
accrued through the date the Executive's employment is terminated,
plus, in the case of death, the product of the Annual Bonus paid to
the Executive with respect to the preceding fiscal year (or, if
applicable, a partial fiscal year) of the Company and a fraction, the
numerator of which is the number of days in the
<PAGE> 2
current fiscal year of the Company through the Date of Termination,
and the denominator of which is 365; (ii) reimbursement for any and
all monies advanced in connection with the Executive's employment for
reasonable expenses incurred by the Executive in accordance with
Section 4(c) hereof through the date the Executive's employment is
terminated and (iii) all other payments and benefits to which the
Executive or the Executive's family or other beneficiaries may be
entitled under the terms of any applicable compensation arrangement,
benefit plan, program or policy of the Company, including any
compensation previously deferred by the Executive (together with any
accrued earnings thereon) and not yet paid by the Company and any
earned and accrued, but unused vacation pay, in each case through the
Date of Termination.
"ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"AFFILIATE" shall have the meaning given such term in
Rule 12b-2 of the Act.
"ANNUAL BONUS" has the meaning set forth in Section
4(b).
"BASE SALARY" has the meaning set forth in Section
4(a).
"BOARD" shall mean the board of directors of the
Company.
"CAUSE" shall mean (i) the Executive's conviction of
any felony, unless the Board reasonably determines that the
Executive's conviction of such felony does not materially affect the
Executive's business reputation or significantly impair the
Executive's ability to carry out her duties under this Agreement
(provided the Board shall have no obligation to make such
determination); (ii) the Executive's willful and material breach of
her obligations under this Agreement which results in material damage
to the Company's business, or (iii) the Executive's dishonesty or
gross misconduct in connection with her employment hereunder which
results in material damage to the Company's business. Notwithstanding
the above, the occurrence of the event specified in clause (ii) above
shall not constitute Cause unless the Executive fails to cure such
event within ten (10) days after receipt from the Company of the
Notice of Termination (as defined in Section 5(e) below).
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"CHANGE OF CONTROL" shall mean the first to occur of
the following events: (1) the Company is acquired or becomes
controlled by any Person or group of Persons, other than by any member
of the HMC Group (as hereinafter defined); (2) Hicks, Muse, Tate &
Furst Incorporated or any of its Affiliates, including without
limitation HM/RB Partners, L.P., a Delaware limited partnership, or
its or their respective partners, employees, officers and directors
(and members of their respective families and trusts for the primary
benefit of such family members) (collectively, the "HMC GROUP") shall
cease to have the power, directly or indirectly, to vote or direct the
voting of securities having a majority of the ordinary voting power
for the election of directors of the Company; or (3) the shareholders
of the Company approve a complete liquidation or dissolution of the
Company; provided that the occurrence of an event described in (1) or
(2) above shall not be deemed a Change of Control if (a) prior to the
consummation of an Initial Public Offering (i) the HMC Group otherwise
has the right, directly or indirectly, to designate (and does so
designate) a majority of the Board or (ii) the HMC Group, together
with members of management of the Company, directly or indirectly, own
of record and beneficially an amount of common stock of the Company
equal to at least fifty percent (50%) of the amount of common stock of
the Company (adjusted for stock splits, stock dividends and other
similar events on an equitable basis) directly or indirectly owned by
the HMC Group, together with management of the Company, of record and
beneficially as of the date of this Agreement and such ownership by
the HMC Group, together with members of management of the Company,
represents the largest single block of voting securities of the
Company held by any Person or group of Persons (within the meaning of
Section 13(d) of the Act), or (b) after the consummation of an Initial
Public Offering, and for any reason whatever, (i) no Person or group
of Persons, excluding the HMC Group, shall become the beneficial
owner, directly or indirectly, of more than the greater of (x) fifteen
percent (15%) of the voting shares of the Company then outstanding and
(y) the percentage of the then outstanding voting stock of the Company
directly or indirectly owned by the HMC Group, together with members
of management of the Company; and (ii) the Board shall consist of a
majority of Continuing Directors. For the purposes of this
definition, the term "the Company" shall include any successor to the
Company.
"CONTINUING DIRECTORS" shall mean the directors of
the Company on the date of this Agreement and each director appointed
subsequent to the date of this Agreement, if, in each case, such other
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director's nomination for election to the Board, as applicable, is
recommended by a majority of the directors at the time of such
election or such director receives the vote of the HMC Group in his or
her election by the shareholders.
"CONTROL" (including the correlative terms
"Controlled by" and "Controlling") shall mean the possession, directly
or indirectly, of the power to direct, or to cause the direction of,
the management and policies of a Person, whether through ownership of
voting securities, by contract or otherwise.
"EMPLOYMENT DATE" has the meaning set forth in
Section 2.
"EMPLOYMENT PERIOD" shall mean the period during
which the Executive is employed by the Company.
"GOOD REASON" shall mean (i) any material breach by
the Company of this Agreement or the Shareholders Agreement (for so
long as Executive is subject thereto) or the failure of the Executive
to be a director of the Company for any reason (other than death,
Permanent Disability, voluntary resignation or termination of
employment for Cause); (ii) any reduction or alteration, approved by
the Board without the Executive's written consent, in the Executive's
title, duties or responsibilities or the Executive's Base Salary
and/or annual target bonus opportunity other than under a circumstance
which constitutes Cause; provided, that any such reduction or
alteration in the Executive's title, duties or responsibilities
without the Executive's consent during the ten-day cure period
applicable to subparagraph (ii) of the definition of Cause shall not
constitute "Good Reason"; provided, further, that any cure by the
Executive during such ten-day period shall entitle the Executive to
reinstatement of her title, duties and responsibilities; and (iii) a
change, without the Executive's written consent, of more than
twenty-five (25) miles in the office or location where the Executive
is based. Notwithstanding the above, the occurrence of any of the
events described above will not constitute Good Reason unless the
Company fails to cure any such event within ten (10) days after
receipt from the Executive of the Notice of Termination (as defined in
Section 5(e) below).
"INITIAL PUBLIC OFFERING" shall mean an underwritten
public offering of capital stock of the Company, as applicable,
pursuant to a
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registration statement filed with the Securities and Exchange
Commission in accordance with the Securities Act of 1933, as amended.
"PERMANENT DISABILITY" shall mean the inability of
the Executive to discharge her duties hereunder for a period of six
(6) consecutive months, or for a total of six (6) months in any twelve
(12) month period, by reason of physical or mental illness, injury or
incapacity.
"PERSON" shall mean any "person," within the meaning
of Sections 13(d) and 14(d) of the Act, including a "group" as therein
defined.
"SHAREHOLDERS AGREEMENT" shall mean that certain
Shareholders Agreement, dated as of June 4, 1998, among the Company
and the securityholders of the Company listed on the signature pages
thereof.
"SUBSIDIARY" shall mean, with respect to any Person,
any other Person of which such first Person owns the majority of the
economic interest in such Person or owns or has the power to vote,
directly or indirectly, securities representing a majority of the
votes ordinarily entitled to be cast for the election of directors or
other governing Persons.
SECTION 2. TERM OF EMPLOYMENT. Unless earlier
terminated in accordance with the terms of this Agreement, the Executive's
Employment Period shall commence on the date hereof (the "EMPLOYMENT DATE") and
shall end on June 4, 2000.
SECTION 3. DUTIES. During the Employment Period, the
Executive (i) shall serve as President of the Company; (ii) shall report
directly to the Board and the Chairman of the Board; and (iii) shall devote her
full business time during normal business hours to the business and affairs of
the Company and shall use her best efforts to perform faithfully and
efficiently the responsibilities assigned to Executive hereunder, to the extent
necessary to discharge such responsibilities, except for: (A) time spent in
managing Executive's personal, financial, and legal affairs and serving on
corporate, civic, or charitable boards or committees, in each case, only to the
extent not substantially interfering with the performance of such
responsibilities; and (B) a vacation to which Executive is entitled. The
continuing service by the Executive on any boards and committees on which she
is serving or with which she is otherwise associated immediately preceding the
date of this Agreement, or the Executive's service on any other boards or
committees of which the Company has
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<PAGE> 6
knowledge and does not object in writing, within thirty (30) days after first
becoming aware of such service or proposed service, shall not be deemed to
interfere with the performance of the Executive's services to the Company;
provided that Executive's time commitment or participation in respect of such
continuing service does not materially increase after the date hereof or after
the expiration of such thirty (30) day period, as applicable.
SECTION 4. COMPENSATION. During the Employment Period,
the Executive shall be compensated as follows:
(a) the Executive shall receive a minimum annual
salary (pro rata for any partial year) equal to Four Hundred
Seventy-Five Thousand and No/100 Dollars ($475,000) ("BASE SALARY"),
which Base Salary shall be payable in equal monthly installments and
shall be subject to appropriate increase, as determined by the sole
discretion of the Board;
(b) the Executive shall be eligible to receive an
annual bonus (the "ANNUAL BONUS") in an amount up to the percentage of
the Executive's Base Salary set forth on Schedule 1 hereto for each
fiscal year of the Company commencing with the fiscal year ending
December 31, 1998 (on a pro rata basis for any partial year)
calculated based upon budgeted earnings before interest, income tax,
depreciation and amortization ("EBITDA") as approved by the Board in
good faith, and such other criteria as may be recommended by
management and established by the Board from time to time, at the
beginning of each fiscal year provided that in any event the Executive
shall become entitled to receive an annual bonus for any fiscal year
in which the Company achieves at least eighty-eight percent (88%) of
such budgeted EBITDA in such fiscal year (the amount of such bonus to
be determined in good faith by the Board based upon the formula set
forth on Schedule 1 hereto). Each Annual Bonus (or portion thereof)
shall be paid in cash promptly following the delivery to the Board of
audited financial statements of the Company for the fiscal year for
which the Annual Bonus (or prorated portion) is earned or awarded,
unless electively deferred by the Executive pursuant to any deferral
programs or arrangements that the Company may make available to the
Executive;
(c) the Executive shall be reimbursed, at such
intervals and in accordance with such Company policies as may be in
effect from time to time, for any and all reasonable business expenses
incurred by her in the
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business interests of the Company, including but not limited to (i)
travel expenses incurred in connection with her duties as President of
the Company and (ii) consistent with the past practice of the Company,
travel expenses incurred in commuting each week to and from her
residence in California;
(d) the Executive shall be entitled to (i)
participate in all incentive, savings, retirement and death benefit
plans, practices, policies and programs on a basis no less favorable
than that basis available to similarly-situated senior executives of
the Company as determined by the Board from time to time and (ii)
consistent with the past practice of the Company, reside, at no cost
or expense to the Executive, in the condominium where she currently
resides while in Dallas, Texas;
(e) the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies
and programs generally provided by the Company to similarly-situated
senior executives of the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident
insurance plans and programs), in each case at the most favorable
level of participation and providing the highest levels of benefits
available to them; and
(f) the Executive shall be entitled to receive
(in addition to the benefits described above) such perquisites and
fringe benefits appertaining to Executive's position in accordance
with any practice established by the Board, including without
limitation, air travel arrangements consistent with policies and
practice in effect during the one (1) year prior to the date of this
Agreement.
SECTION 5. TERMINATION OF EMPLOYMENT.
(a) Permanent Disability. The Company may
terminate the Executive's employment because of a Permanent Disability
by first giving Executive written notice of the Company's intention to
terminate such employment.
(b) Voluntary Termination by Executive.
Notwithstanding anything in this Agreement to the contrary the
Executive may, upon not less
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<PAGE> 8
than thirty (30) days written notice to the Company, voluntarily
terminate employment for any reason (provided that any termination by
the Executive pursuant to Section 5(d) on account of Good Reason shall
not be treated as a voluntary termination under this Section 5(b)).
(c) Termination by the Company. The Company at
any time may terminate the Executive's employment for Cause or without
Cause.
(d) Good Reason. The Executive at any time may
terminate her employment for Good Reason.
(e) Notice of Termination. Any termination by
the Company for Cause or by the Executive for Good Reason shall be
communicated by a Notice of Termination to the other party hereto
given in accordance with Section 18. For purposes of this Agreement,
a "NOTICE OF TERMINATION" means a written notice given, in the case of
a termination for Cause, within one hundred eighty (180) days of the
Company's having actual knowledge of the events giving rise to such
termination, and in the case of a termination for Good Reason, within
one hundred eighty (180) days of the Executive's having actual
knowledge of the events giving rise to such termination. The Notice
of Termination shall: (i) indicate the specific termination provision
in this Agreement relied upon; (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated; and (iii)
if the termination date is other than the date of receipt of such
notice, specify the termination date of this Agreement (which date
shall be no more than fifteen (15) days after the giving of such
notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause, as applicable, shall not waive
any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing her rights hereunder.
In addition, in the event the Company determines to terminate the
Executive's employment without Cause, the Company shall deliver to the
Executive written notification thereof on a date not later than the
Date of Termination.
(f) Date of Termination. For the purpose of this
Agreement, the term "DATE OF TERMINATION" means: (i) in the case of a
termination for which a Notice of Termination is required, the date of
receipt of such Notice of Termination or, if later, the date specified
therein, as the
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<PAGE> 9
case may be; and (ii) in all other cases, the actual date on which the
Executive's employment terminates.
SECTION 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
Upon termination of the Executive's employment with the Company, the Company
shall have the following obligations:
(a) Death. If the Executive's employment is
terminated by reason of the Executive's death, all Accrued Expenses
shall be paid to the Executive, her beneficiaries, or her estate, as
applicable, in a lump sum in cash within thirty (30) days after the
Date of Termination. In addition, the Executive's family shall be
entitled to receive benefits generally available to the surviving
families of other senior executive officers of the Company.
(b) Permanent Disability. If the Executive's
employment is terminated by reason of the Executive's Permanent
Disability, the Executive, and the Executive's spouse, shall be
entitled to continue to participate in or be covered under the
Company's health and life insurance benefit plans generally applicable
to similarly situated senior executives of the Company or, at the
Company's option, to receive equivalent benefits by alternate means,
at least equal to such health and life insurance benefits. Unless
otherwise directed by the Executive, the Executive shall also be paid
all Accrued Benefits in a lump sum in cash within thirty (30) days
after the Date of Termination. In addition, the Executive shall
receive severance pay from the Company in an amount equal to one
hundred percent (100%) of the total Base Salary and Annual Bonus, if
any, received by the Executive with respect to the fiscal year
immediately prior to the fiscal year in which such Date of Termination
occurs; provided, however, that the Company shall not be obligated to
make such severance payment to the extent that such severance payment
reduces the disability benefits to which the Executive is entitled
from an insurer by an equal or greater amount. Such severance payment
is to be made within thirty (30) days after the Date of Termination.
(c) Termination by the Company for Cause and
Voluntary Termination by Executive. If the Executive's employment is
terminated for Cause or voluntarily terminated by the Executive (other
than for Good Reason), the Company shall pay the Executive the Accrued
Benefits in a lump sum in cash within thirty (30) days after the Date
of Termination.
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<PAGE> 10
(d) Other Termination of Employment. If the
Company terminates the Executive's employment other than for Cause or
Permanent Disability, or the Executive terminates her employment for
Good Reason, the Company shall pay or provide the Executive the
following:
(A) Cash Payment. The Company shall pay
to the Executive in a lump sum in cash within 30 days after
the Date of Termination the following amounts (other than
amounts payable from non-qualified retirement plans and
deferred compensation plans, which amounts shall be paid in
accordance with the terms of such plans):
(1) all Accrued Benefits; and
(2) a cash amount equal to three
(3) times the Executive's Base Salary.
(B) Other Benefits Continuation. The
Company shall provide for the continued participation of the
Executive, and her spouse, as the case may be, until June 4,
2000, in the Company's health and life insurance benefit plans
generally applicable to similarly situated senior executives
of the Company. In lieu of continued participation in any
such medical and life insurance programs, the Executive may
elect by written notice delivered to the Company prior to the
Date of Termination to receive an amount equal to the annual
cost to the Company (based on premium rates) of providing such
coverage.
(e) Any amounts payable to the Executive pursuant
to this Section 6 shall be considered severance payments and be in
full and complete satisfaction of the obligations of the Company to
the Executive in connection with the termination of the Executive.
SECTION 7. APPLICABILITY OF SECTION 280G OF THE CODE.
(a) Limitation on Severance Pay and Other
Benefits. Notwithstanding any other provision of this Agreement to
the contrary, unless and until this Agreement has been approved by a
separate vote of the Company's shareholders in accordance with Section
7(g) below, the Company shall not be obligated to make any payment or
provide any benefit to the
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extent that such payment or benefit results (as determined in
accordance with Section 7(c) below) in a parachute payment (as defined
in Section 280G of the Code); provided, however, that the Company
shall make all payments and provide all benefits under this Agreement
to the fullest extent permitted without giving rise to a parachute
payment.
(b) Tax Reimbursement Payment. If the amount or
benefit paid or distributed to the Executive by the Company or any
Person that is an Affiliate of the Company, whether pursuant to this
Agreement or otherwise with respect to employment by the Company after
the Employment Date (collectively, the "Covered Payments"), is or
becomes subject to the tax imposed under Section 4999 of the Code or
any similar tax that may hereafter be imposed (the "Excise Tax") and
if this Agreement has been approved by a separate vote of the
Company's shareholders in accordance with Section 7(g) below, the
Company shall pay to the Executive, at the time specified in Section
7(f) below, the Tax Reimbursement Payment (as defined below). The Tax
Reimbursement Payment is defined as an amount, which when added to the
Covered Payments and reduced by any Excise Tax on the Covered Payments
and any federal, state and local income tax and Excise Tax on the Tax
Reimbursement Payment provided for by this Agreement (but without
reduction for any federal, state and local income or employment tax on
such Covered Payments), shall be equal to the sum of (i) the amount of
the Covered Payments; and (ii) an amount equal to the product of any
otherwise permitted deductions disallowed for federal, state or local
income tax purposes as a result of the inclusion of the Tax
Reimbursement Payment in the Executive's adjusted gross income and the
applicable marginal rate of federal, state or local income taxation if
the Tax Reimbursement Payment had not been made, respectively, for the
calendar year in which the Tax Reimbursement Payment is to be made.
(c) Determining Excise Tax. For purposes of
determining whether any of the Covered Payments will be subject to the
Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be
treated as "parachute payments" within the meaning of Section
280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the
Code) shall be treated as subject to the Excise Tax, to the
extent so determined in the opinion of
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the Company's independent certified public accountants (the
"Accountants"); and
(ii) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G
of the Code.
(d) Applicable Tax Rates and Deductions. For
purposes of determining the amount of the Tax Reimbursement Payment,
the Executive shall be deemed:
(i) to pay federal income taxes at the
highest applicable marginal rate of federal income taxation
for the calendar year in which the Tax Reimbursement Payment
is to be made, except in connection with the determination of
the Tax Reimbursement Payment attributable to a disallowed
deduction under clause (ii) of the definition of Tax
Reimbursement Payment; and
(ii) to pay any applicable state and
local income taxes at the highest applicable marginal rate of
taxation for the calendar in which the Tax Reimbursement
Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from the deduction of
such state or local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of the Executive's adjusted gross income).
(e) Subsequent Events. In the event that the
Excise Tax is subsequently determined by the Accountants or the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the
Executive shall repay to the Company, at the time that the amount of
such reduction in the Excise Tax is finally determined, the portion of
such prior Tax Reimbursement Payment that has been paid to the
Executive or to federal, state or local tax authorities on the
Executive's behalf and that would not have been paid if such Excise
Tax had been applied in initially calculating such Tax Reimbursement
Payment, plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing provisions of this Section 7(e), in the event any portion of
the Tax Reimbursement Payment to be refunded to the Company has been
paid to any federal, state or local tax
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authority, repayment thereof shall not be required until actual refund
or credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed interest received or credited
to the Executive by such tax authority for the period it held such
portion. The Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating the
expenses thereof) if the Executive's good faith claim for refund or
credit is denied.
In the event that the Excise Tax is later determined
by the Accountants to exceed the amount taken into account hereunder
at the time the Tax Reimbursement Payment is made (including, but not
limited to, by reason of any payment the existence or amount of which
cannot be determined at the time of the Tax Reimbursement Payment in
respect thereof) the Company shall make an additional Tax
Reimbursement Payment of such excess (which Tax Reimbursement Payment
shall include any interest or penalty payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Company and the Executive each agrees to
reasonably cooperate in good faith in the event of any reduction in
payments or benefits pursuant to Section 7(a) or any Tax Reimbursement
Payment pursuant to Section 7(b) to minimize the amount of such
reduction or Tax Reimbursement Payment and to take such other actions
under this Section 7 as may be necessary or required.
(f) Date of Payment. The portion of the Tax
Reimbursement Payment attributable to a Covered Payment shall be paid
to the Executive within ten (10) business days following the payment
of the Covered Payment. If the amount of such Tax Reimbursement
Payment (or portion thereof) is due, the Company shall pay to the
Executive, an amount estimated in good faith by the Accountants to be
the minimum amount of such Tax Reimbursement Payment and shall pay the
remainder of such Tax Reimbursement Payment (which Tax Reimbursement
Payment shall include interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than forty-five (45) calendar days
after payment of the related Covered Payment. In the event that the
amount of the estimated Tax Reimbursement Payment exceeds the amount
subsequently determined to have been due, such excess shall be repaid
or refunded pursuant to the provisions of Section 7(e) above.
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(g) Shareholder Approval. The Company shall use
its reasonable best efforts to obtain, within 45 days following the
Employment Date, the approval of this Agreement (including, without
limitation, the removal of the limitation under Section 7(a), the Tax
Reimbursement Payment and the continuation of benefits following a
termination of employment without Cause or resignation for Good Reason
within one year of a Change of Control) by a separate vote of the
Company's shareholders who own more than 75% of the total voting power
of all outstanding stock of the Company (excluding for this purpose
all stock actually or constructively owned by the Executive and all
other disqualified individuals (as defined in Section 280G of the
Code) who would receive payments constituting parachute payments if
shareholder approval for purposes of Section 280G of the Code was not
obtained). The vote of the Company's shareholders pursuant to this
Section 7(g) is intended to satisfy the shareholder approval
requirement described in Question and Answer 7 of the Proposed
Regulations under Section 280G of the Code.
SECTION 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation, during the term of Executive's employment, in any benefit bonus,
incentive or other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other agreements with the
Company, including, but not limited to stock option or restricted stock
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
SECTION 9. FULL SETTLEMENT. Except as provided in
Section 11(b), the Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise. In no event shall the Executive be obligated to
seek other employment by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement.
SECTION 10. LEGAL FEES AND EXPENSES. The Company shall
pay or cause to be paid any and all reasonable attorneys' fees and expenses
incurred by
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Executive in connection with the preparation and negotiation of this Agreement
promptly following receipt of an invoice therefor (together with reasonable
supporting documentation) from Executive.
SECTION 11. FURTHER OBLIGATIONS OF THE EXECUTIVE.
(a) During and following the Executive's
employment by the Company, the Executive shall use commercially
reasonable efforts to hold in confidence and not directly or
indirectly disclose any confidential information or proprietary data
of the Company or any of its Subsidiaries, except to the extent
authorized by the Board or required by any court or administrative
agency or legal process, other than to an employee of or contractor
with the Company or any of its Subsidiaries, or a Person to whom the
Executive in good faith believes disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of her
duties as an executive of the Company. In determining whether such
disclosure is required, Executive will be entitled to rely on the
written advice of counsel provided to the Company. Confidential
information shall not include any information known generally to the
public or in the industry in which Company is engaged. All records,
files, documents and materials, or copies thereof, relating to the
Company's or any of its Subsidiaries', business which the Executive
shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company or any of its Subsidiaries, as the
case may be, and shall be promptly returned by the Executive to the
Company or such Subsidiary (as applicable) upon termination of the
Executive's employment with the Company.
(b) Except with the Board's prior written
approval, during the Employment Period and for three (3) years after
the Date of Termination, the Executive shall not, directly or
indirectly (i) solicit, entice, persuade or induce any employee,
displayer, or other independent contractor of the Company or any of
its Subsidiaries to terminate his employment or relationship with the
Company or any of its Subsidiaries or to become employed or engaged in
a similar capacity by any Person other than the Company or any of its
Subsidiaries or (ii) authorize, solicit or assist in the taking of
such actions by any third party.
(c) During the Employment Period and for three
(3) years after the Date of Termination, the Executive shall not,
directly or indirectly,
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<PAGE> 16
engage, participate, make any financial investment in, or become
employed by or render advisory or other services to or for any Person
or other business enterprise (other than the Company and its
Affiliates) engaged in the business of selling home decorative
accessories within any of the same markets as the Company or any of
its Subsidiaries (any of the foregoing activities being referred to
herein as "COMPETITIVE ACTIVITIES"). The foregoing covenant
respecting Competitive Activities shall not be construed to preclude
the Executive from making any investments in the securities of any
company, and whether or not engaged in competition with the Company or
any of its Subsidiaries, to the extent that such securities are
actively traded on a national securities exchange or in the
over-the-counter market in the United States or any foreign securities
exchange and such investment does not exceed five percent (5%) of the
issued and outstanding shares of such company or give the Executive
the right or power to control or participate directly in making the
policy decisions of such company.
(d) If any court determines that any portion of
this Section 11 is invalid or unenforceable, the remainder of this
Section 11 shall not thereby be affected and shall be given full
effect without regard to the invalid provision. If any court
construes any of the provisions of this Section 11, or any part
thereof, to be unreasonable because of the duration or scope of such
provision, such court shall have the power to reduce the duration or
scope of such provision and to enforce such provision as so reduced.
(e) The Executive hereby acknowledges and agrees
that damages will not be an adequate remedy for the Executive's breach
of any of her covenants contained in this Section 11, and further
agrees that the Company shall be entitled to obtain appropriate
injunctive and/or other equitable relief for any such breach, without
the posting of any bond or other security.
SECTION 12. SUCCESSORS. The Company may assign its
rights under this Agreement to any successor to all or substantially all the
assets of the Company, by merger or otherwise, and may assign or encumber this
Agreement and its rights hereunder as security for indebtedness of the Company.
Any such assignment by the Company shall remain subject to the Executive's
rights under this Agreement, including without limitation, Section 5 and
Section 6 hereof. The rights of the Executive under this Agreement may not be
assigned or encumbered by the Executive, voluntarily or involuntarily, during
her lifetime, and any such purported
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<PAGE> 17
assignment shall be void ab initio. However, all rights of the Executive under
this Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, estates, executors,
administrators, heirs and beneficiaries. All amounts payable to the Executive
hereunder shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs or representatives.
SECTION 13. THIRD PARTIES. Except for the rights granted
to the Company and its Subsidiaries pursuant hereto (including, without
limitation, pursuant to Section 10 hereof) and except as expressly set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give any Person other than the parties hereto and
their successors and permitted assigns any rights or remedies under or by
reason of this Agreement.
SECTION 14. ENFORCEMENT. The provisions of this
Agreement shall be regarded as divisible, and if any of said provisions or any
part thereof is declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remainder of such
provisions or parts hereof and the applicability thereof shall not be affected
thereby.
SECTION 15. AMENDMENT. This Agreement may not be amended
or modified at any time except by a written instrument approved by the Board,
and executed by the Company and the Executive; provided, however, that any
attempted amendment or modification without such approval and execution shall
be null and void ab initio and of no effect.
SECTION 16. WITHHOLDING. The Company shall be entitled
to withhold from any amounts to be paid to the Executive hereunder any federal,
state, local, or foreign withholding or other taxes or charges which it is from
time to time required to withhold. The Company shall be entitled to rely on an
opinion of counsel if any question as to the amount or requirement of any such
withholding shall arise.
SECTION 17. GOVERNING LAW. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to principles of conflicts of
law of Texas or any other jurisdiction.
SECTION 18. NOTICE. Notices given pursuant to this
Agreement shall be in writing and shall be deemed given when received and, if
mailed, shall be mailed
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by United States registered or certified mail, return receipt requested,
addressee only, postage prepaid:
If to the Company:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244
Attention: Chief Executive Officer
If to the Executive:
Barbara J. Hammond
806 N. Leonard
Fresno, California 73727
or to such other address as the party to be notified shall have given to the
other in accordance with the notice provisions set forth in this Section 13.
SECTION 19. NO WAIVER. No waiver by either party at any
time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at any time.
SECTION 20. HEADINGS. The headings contained herein are
for reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement
in one or more counterparts, each of which shall be deemed one and the same
instrument, as of the day and year first written above.
HOME INTERIORS & GIFTS, INC.
By:
----------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
EXECUTIVE:
-------------------------------------
Barbara J. Hammond
<PAGE> 1
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and
entered into as of June 4, 1998 by and between Home Interiors & Gifts, Inc., a
Texas corporation (hereinafter, together with its successors, referred to as
the "COMPANY"), on the one hand, and Christina L. Carter Urschel (hereinafter
referred to as the "EXECUTIVE"), on the other hand.
W I T N E S S E T H :
WHEREAS, the Company is party to an Agreement and Plan of
Merger (the "MERGER AGREEMENT"), dated as of April 13, 1998, between the
Company and Crowley Investments, Inc., a Texas corporation ("NEWCO");
WHEREAS, pursuant to the terms of the Merger Agreement, Newco
will be merged (the "MERGER") with and into the Company, with the Company being
the surviving corporation of the Merger;
WHEREAS, upon the consummation of the Merger, the Company
desires to employ the Executive in an executive capacity with the Company, and
the Executive desires to be employed by the Company in said capacity; and
WHEREAS, the parties hereto desire to set forth in writing the
terms and conditions of their understandings and agreements.
NOW THEREFORE, in consideration of the foregoing, of the
mutual promises contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
"ACCRUED BENEFITS" means (i) all salary earned or
accrued through the date the Executive's employment is terminated,
plus, in the case of death, the product of the Annual Bonus paid to
the Executive with respect to the preceding fiscal year (or, if
applicable, a partial fiscal year) of the Company and a fraction, the
numerator of which is the number of days in the current fiscal year of
the Company through the Date of Termination, and the
<PAGE> 2
denominator of which is 365; (ii) reimbursement for any and all monies
advanced in connection with the Executive's employment for reasonable
expenses incurred by the Executive in accordance with Section 4(c)
hereof through the date the Executive's employment is terminated and
(iii) all other payments and benefits to which the Executive or the
Executive's family or other beneficiaries may be entitled under the
terms of any applicable compensation arrangement, benefit plan,
program or policy of the Company, including any compensation
previously deferred by the Executive (together with any accrued
earnings thereon) and not yet paid by the Company and any earned and
accrued, but unused vacation pay, in each case through the Date of
Termination.
"ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"AFFILIATE" shall have the meaning given such term in
Rule 12b-2 of the Act.
"ANNUAL BONUS" has the meaning set forth in Section
4(b).
"BASE SALARY" has the meaning set forth in Section
4(a).
"BOARD" shall mean the board of directors of the
Company.
"CAUSE" shall mean (i) the Executive's conviction of
any felony, unless the Board reasonably determines that the
Executive's conviction of such felony does not materially affect the
Executive's business reputation or significantly impair the
Executive's ability to carry out her duties under this Agreement
(provided the Board shall have no obligation to make such
determination); (ii) the Executive's willful and material breach of
her obligations under this Agreement which results in material damage
to the Company's business, or (iii) the Executive's dishonesty or
gross misconduct in connection with her employment hereunder which
results in material damage to the Company's business. Notwithstanding
the above, the occurrence of the event specified in clause (ii) above
shall not constitute Cause unless the Executive fails to cure such
event within ten (10) days after receipt from the Company of the
Notice of Termination (as defined in Section 5(e) below).
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<PAGE> 3
"CHANGE OF CONTROL" shall mean the first to occur of
the following events: (1) the Company is acquired or becomes
controlled by any Person or group of Persons, other than by any member
of the HMC Group (as hereinafter defined); (2) Hicks, Muse, Tate &
Furst Incorporated or any of its Affiliates, including without
limitation HM/RB Partners, L.P., a Delaware limited partnership, or
its or their respective partners, employees, officers and directors
(and members of their respective families and trusts for the primary
benefit of such family members) (collectively, the "HMC GROUP") shall
cease to have the power, directly or indirectly, to vote or direct the
voting of securities having a majority of the ordinary voting power
for the election of directors of the Company; or (3) the shareholders
of the Company approve a complete liquidation or dissolution of the
Company; provided that the occurrence of an event described in (1) or
(2) above shall not be deemed a Change of Control if (a) prior to the
consummation of an Initial Public Offering (i) the HMC Group otherwise
has the right, directly or indirectly, to designate (and does so
designate) a majority of the Board or (ii) the HMC Group, together
with members of management of the Company, directly or indirectly, own
of record and beneficially an amount of common stock of the Company
equal to at least fifty percent (50%) of the amount of common stock of
the Company (adjusted for stock splits, stock dividends and other
similar events on an equitable basis) directly or indirectly owned by
the HMC Group, together with management of the Company, of record and
beneficially as of the date of this Agreement and such ownership by
the HMC Group, together with members of management of the Company,
represents the largest single block of voting securities of the
Company held by any Person or group of Persons (within the meaning of
Section 13(d) of the Act), or (b) after the consummation of an Initial
Public Offering, and for any reason whatever, (i) no Person or group
of Persons, excluding the HMC Group, shall become the beneficial
owner, directly or indirectly, of more than the greater of (x) fifteen
percent (15%) of the voting shares of the Company then outstanding and
(y) the percentage of the then outstanding voting stock of the Company
directly or indirectly owned by the HMC Group, together with members
of management of the Company; and (ii) the Board shall consist of a
majority of Continuing Directors. For the purposes of this
definition, the term "the Company" shall include any successor to the
Company.
"CONTINUING DIRECTORS" shall mean the directors of
the Company on the date of this Agreement and each director appointed
subsequent to the date of this Agreement, if, in each case, such other
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<PAGE> 4
director's nomination for election to the Board, as applicable, is
recommended by a majority of the directors at the time of such
election or such director receives the vote of the HMC Group in his or
her election by the shareholders.
"CONTROL" (including the correlative terms
"Controlled by" and "Controlling") shall mean the possession, directly
or indirectly, of the power to direct, or to cause the direction of,
the management and policies of a Person, whether through ownership of
voting securities, by contract or otherwise.
"COBRA" means the Consolidated Omnibus Reconciliation
Act of 1985, as amended.
"EMPLOYMENT DATE" has the meaning set forth in
Section 2.
"EMPLOYMENT PERIOD" shall mean the period during
which the Executive is employed by the Company.
"GOOD REASON" shall mean (i) any material breach by
the Company of this Agreement or the Shareholders Agreement (for so
long as Executive is subject thereto) or the failure of the Executive
to be a director of the Company for any reason (other than death,
Permanent Disability, voluntary resignation or termination of
employment for Cause); (ii) any reduction or alteration, approved by
the Board without the Executive's written consent, in the Executive's
title, duties or responsibilities or the Executive's Base Salary
and/or annual target bonus opportunity other than under a circumstance
which constitutes Cause; provided, that any such reduction or
alteration in the Executive's title, duties or responsibilities
without the Executive's consent during the ten-day cure period
applicable to subparagraph (ii) of the definition of Cause shall not
constitute "Good Reason"; provided, further, that any cure by the
Executive during such ten-day period shall entitle the Executive to
reinstatement of her title, duties and responsibilities; (iii) a
change, without the Executive's written consent, of more than
twenty-five (25) miles in the office or location where the Executive
is based; and (iv) the failure by the Company to appoint the Executive
as President of the Company upon the earlier to occur of (a) the date
on which Barbara J. Hammond's employment with the Company is
terminated and (b) the second anniversary of the date hereof.
Notwithstanding the above, the occurrence of any of the events
described above will not constitute Good Reason unless the Company
fails to cure any
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<PAGE> 5
such event within ten (10) days after receipt from the Executive of
the Notice of Termination (as defined in Section 5(e) below).
"INITIAL PUBLIC OFFERING" shall mean an underwritten
public offering of capital stock of the Company, as applicable,
pursuant to a registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act of 1933, as
amended.
"PERMANENT DISABILITY" shall mean the inability of
the Executive to discharge her duties hereunder for a period of six
(6) consecutive months, or for a total of six (6) months in any twelve
(12) month period, by reason of physical or mental illness, injury or
incapacity.
"PERSON" shall mean any "person," within the meaning
of Sections 13(d) and 14(d) of the Act, including a "group" as therein
defined.
"SHAREHOLDERS AGREEMENT" shall mean that certain
Shareholders Agreement, dated as of June 4, 1998, among the Company
and the securityholders of the Company listed on the signature pages
thereof.
"SUBSIDIARY" shall mean, with respect to any Person,
any other Person of which such first Person owns the majority of the
economic interest in such Person or owns or has the power to vote,
directly or indirectly, securities representing a majority of the
votes ordinarily entitled to be cast for the election of directors or
other governing Persons.
SECTION 2. TERM OF EMPLOYMENT. Unless earlier
terminated in accordance with the terms of this Agreement, the Executive's
Employment Period shall commence on the date hereof (the "EMPLOYMENT DATE") and
shall end on June 4, 2003; provided, however, that such Employment Period shall
be extended for successive terms of one (1) year each unless either party
advises the other, at least one hundred twenty (120) days prior to the end of
the initial term or annual extension, as the case may be, that it will not
agree to extend this Agreement.
SECTION 3. DUTIES. During the Employment Period, the
Executive (i) shall serve as Executive Vice President of the Company; provided,
however, that the Executive shall serve as President of the Company from and
after the earlier to occur of (a) the date on which Barbara J. Hammond's
employment with the Company is terminated and (b) the second anniversary of the
date hereof; (ii) shall, while
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serving as Executive Vice President of the Company, report directly to the
President of the Company and, while serving as President of the Company, report
directly to the Board and the Chairman of the Board; and (iii) shall devote her
full business time during normal business hours to the business and affairs of
the Company and shall use her best efforts to perform faithfully and
efficiently the responsibilities assigned to Executive hereunder, to the extent
necessary to discharge such responsibilities, except for: (A) time spent in
managing Executive's personal, financial, and legal affairs and serving on
corporate, civic, or charitable boards or committees, in each case, only to the
extent not substantially interfering with the performance of such
responsibilities; and (B) a vacation to which Executive is entitled. The
continuing service by the Executive on any boards and committees on which she
is serving or with which she is otherwise associated immediately preceding the
date of this Agreement, or the Executive's service on any other boards or
committees of which the Company has knowledge and does not object in writing,
within thirty (30) days after first becoming aware of such service or proposed
service, shall not be deemed to interfere with the performance of the
Executive's services to the Company; provided that Executive's time commitment
or participation in respect of such continuing service does not materially
increase after the date hereof or after the expiration of such thirty (30) day
period, as applicable.
SECTION 4. COMPENSATION. During the Employment Period,
the Executive shall be compensated as follows:
(a) the Executive shall receive a minimum annual
salary (pro rata for any partial year) equal to (i) Four Hundred
Thousand and No/100 Dollars ($400,000) while serving as Executive Vice
President of the Company and (ii) Four Hundred Seventy-Five Thousand
and No/100 Dollars ($475,000) while serving as President of the
Company (in each case, the "BASE SALARY"), which Base Salary shall be
payable in equal monthly installments and shall be subject to
appropriate increase, as determined by the sole discretion of the
Board;
(b) the Executive shall be eligible to receive an
annual bonus (the "ANNUAL BONUS") in an amount up to the percentage of
the Executive's Base Salary set forth on Schedule 1 hereto for each
fiscal year of the Company commencing with the fiscal year ending
December 31, 1998 (on a pro rata basis for any partial year)
calculated based upon budgeted earnings before interest, income tax,
depreciation and amortization ("EBITDA") as approved by the Board in
good faith, and such other criteria as may be recommended by
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<PAGE> 7
management and established by the Board from time to time, at the
beginning of each fiscal year provided that in any event the Executive
shall become entitled to receive an annual bonus for any fiscal year
in which the Company achieves at least eighty-eight percent (88%) of
such budgeted EBITDA in such fiscal year (the amount of such bonus to
be determined in good faith by the Board based upon the formula set
forth on Schedule 1 hereto). Each Annual Bonus (or portion thereof)
shall be paid in cash promptly following the delivery to the Board of
audited financial statements of the Company for the fiscal year for
which the Annual Bonus (or prorated portion) is earned or awarded,
unless electively deferred by the Executive pursuant to any deferral
programs or arrangements that the Company may make available to the
Executive;
(c) the Executive shall be reimbursed, at such
intervals and in accordance with such Company policies as may be in
effect from time to time, for any and all reasonable business expenses
incurred by her in the business interests of the Company, including
but not limited to travel expenses;
(d) the Executive shall be entitled to
participate in all incentive, savings, retirement and death benefit
plans, practices, policies and programs on a basis no less favorable
than that basis available to similarly-situated senior executives of
the Company as determined by the Board from time to time;
(e) the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies
and programs generally provided by the Company to similarly-situated
senior executives of the Company (including, without limitation,
medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident
insurance plans and programs), in each case at the most favorable
level of participation and providing the highest levels of benefits
available to them;
(f) the Executive shall be entitled to receive
(in addition to the benefits described above) such perquisites and
fringe benefits appertaining to Executive's position in accordance
with any practice established by the Board, including without
limitation, air travel arrangements consistent with
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<PAGE> 8
policies and practice in effect during the one (1) year prior to the
date of this Agreement; and
(g) in addition to any benefits the Executive may
receive pursuant to paragraph 4(d), the Company shall grant stock
options (the "STOCK OPTIONS") to the Executive under the Company's
1998 Stock Option Plan exercisable for an aggregate of 338,441 shares
of common stock, par value $.10 per share, at an exercise price of
$18.05451 per share. The Stock Options shall vest and become
exercisable in five equal annual installments commencing on the first
anniversary of the date of grant; provided, however, that the Stock
Options shall, subject to Section 7 below, vest and become immediately
exercisable upon (i) the termination of the Executive's employment
without Cause, (ii) the Executive's termination of her employment for
Good Reason, (iii) the occurrence of a Change of Control; (iv) the
sale, conveyance or other disposition by the Company of all or
substantially all of its assets to a Person that is not an Affiliate
of the Company. In addition to the foregoing, the Stock Options will
contain the following provisions:
(i) Stock options will be exercisable
for a period of ten (10) years from the date of issuance.
(ii) To the extent definitions in this
Agreement are different from the definitions in the Company's
1998 Stock Option Plan (e.g., Change of Control, Cause, Good
Reason, etc.), the definitions in this Agreement will control.
(iii) On a termination for Cause or a
voluntary termination by the Executive, the Executive may
exercise all vested options within thirty (30) days after the
termination date.
(iv) If Employment is terminated as a
result of death or disability, the vested stock options may be
exercised within one hundred eighty (180) days after the date
of the Executive's termination of employment.
(v) On a termination of employment for
any other reason, all vested stock options may be exercised
within thirty (30) days after such date of termination. The
Committee (as such term is
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<PAGE> 9
defined in the Company's 1998 Stock Option Plan) may not
shorten the exercise period described in clauses (iii), (iv) or
(v).
(vi) The Company shall have no right to
purchase the Executive's Stock Options or shares of stock
pursuant to Section 9 of the Stock Option Plan.
SECTION 5. TERMINATION OF EMPLOYMENT.
(a) Permanent Disability. The Company may
terminate the Executive's employment because of a Permanent Disability
by first giving Executive written notice of the Company's intention to
terminate such employment.
(b) Voluntary Termination by Executive.
Notwithstanding anything in this Agreement to the contrary the
Executive may, upon not less than thirty (30) days written notice to
the Company, voluntarily terminate employment for any reason (provided
that any termination by the Executive pursuant to Section 5(d) on
account of Good Reason shall not be treated as a voluntary termination
under this Section 5(b)).
(c) Termination by the Company. The Company at
any time may terminate the Executive's employment for Cause or without
Cause.
(d) Good Reason. The Executive at any time may
terminate her employment for Good Reason.
(e) Notice of Termination. Any termination by
the Company for Cause or by the Executive for Good Reason shall be
communicated by a Notice of Termination to the other party hereto
given in accordance with Section 18. For purposes of this Agreement,
a "NOTICE OF TERMINATION" means a written notice given, in the case of
a termination for Cause, within one hundred eighty (180) days of the
Company's having actual knowledge of the events giving rise to such
termination, and in the case of a termination for Good Reason, within
one hundred eighty (180) days of the Executive's having actual
knowledge of the events giving rise to such termination. The Notice
of Termination shall: (i) indicate the specific termination provision
in this Agreement relied upon; (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
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<PAGE> 10
the Executive's employment under the provision so indicated; and (iii)
if the termination date is other than the date of receipt of such
notice, specify the termination date of this Agreement (which date
shall be no more than fifteen (15) days after the giving of such
notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause, as applicable, shall not waive
any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing her rights hereunder.
In addition, in the event the Company determines to terminate the
Executive's employment without Cause, the Company shall deliver to the
Executive written notification thereof on a date not later than the
Date of Termination.
(f) Date of Termination. For the purpose of this
Agreement, the term "DATE OF TERMINATION" means: (i) in the case of a
termination for which a Notice of Termination is required, the date of
receipt of such Notice of Termination or, if later, the date specified
therein, as the case may be; and (ii) in all other cases, the actual
date on which the Executive's employment terminates.
SECTION 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
Upon termination of the Executive's employment with the Company, the Company
shall have the following obligations:
(a) Death. If the Executive's employment is
terminated by reason of the Executive's death, all Accrued Expenses
shall be paid to the Executive, her beneficiaries, or her estate, as
applicable, in a lump sum in cash within thirty (30) days after the
Date of Termination. In addition, the Executive's family shall be
entitled to receive benefits generally available to the surviving
families of other senior executive officers of the Company.
(b) Permanent Disability. If the Executive's
employment is terminated by reason of the Executive's Permanent
Disability, the Executive, and the Executive's spouse, shall be
entitled to continue to participate in or be covered under the
Company's health and life insurance benefit plans generally applicable
to similarly situated senior executives of the Company or, at the
Company's option, to receive equivalent benefits by alternate means,
at least equal to such health and life insurance benefits. Unless
otherwise directed by the Executive, the Executive shall also be paid
all Accrued Benefits in a lump sum in cash within thirty (30) days
after the Date of Termination. In addition,
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<PAGE> 11
the Executive shall receive severance pay from the Company in an
amount equal to one hundred percent (100%) of the total Base Salary
and Annual Bonus, if any, received by the Executive with respect to
the fiscal year immediately prior to the fiscal year in which such
Date of Termination occurs; provided, however, that the Company shall
not be obligated to make such severance payment to the extent that
such severance payment reduces the disability benefits to which the
Executive is entitled from an insurer by an equal or greater amount.
Such severance payment is to be made within thirty (30) days after the
Date of Termination.
(c) Termination by the Company for Cause and
Voluntary Termination by Executive. If the Executive's employment is
terminated for Cause or voluntarily terminated by the Executive (other
than for Good Reason), the Company shall pay the Executive the Accrued
Benefits in a lump sum in cash within thirty (30) days after the Date
of Termination.
(d) Other Termination of Employment. If the
Company terminates the Executive's employment other than for Cause or
Permanent Disability, or the Executive terminates her employment for
Good Reason, the Company shall pay or provide the Executive the
following:
(A) Cash Payment. The Company shall pay
to the Executive in a lump sum in cash within 30 days after
the Date of Termination the following amounts (other than
amounts payable from non-qualified retirement plans and
deferred compensation plans, which amounts shall be paid in
accordance with the terms of such plans):
(1) all Accrued Benefits;
(2) if the Date of Termination
occurs on or prior to the first anniversary of this
Agreement, a cash amount equal to five (5) times the
Executive's Base Salary;
(3) if the Date of Termination
occurs after the first anniversary of this Agreement,
a cash amount equal to the greater of:
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<PAGE> 12
(I) the Base Salary that would be
paid to the Executive from the Date of
Termination through June 4, 2003 if the Date
of Termination had not occurred; and
(II) three (3) times the total Base
Salary and Annual Bonus, if any, received by
the Executive with respect to the fiscal year
immediately prior to the fiscal year in which
the Date of Termination occurs.
(B) Other Benefits Continuation. The
Company shall provide for the continued participation of the
Executive, and her spouse, as the case may be, until June 4,
2003, in the Company's health and life insurance benefit plans
generally applicable to similarly situated senior executives
of the Company. In lieu of continued participation in any
such medical and life insurance programs, the Executive may
elect by written notice delivered to the Company prior to the
Date of Termination to receive an amount equal to the annual
cost to the Company (based on premium rates) of providing such
coverage.
(e) Any amounts payable to the Executive pursuant
to this Section 6 shall be considered severance payments and be in
full and complete satisfaction of the obligations of the Company to
the Executive in connection with the termination of the Executive.
SECTION 7. APPLICABILITY OF SECTION 280G OF THE
CODE.
(a) Limitation on Severance Pay and Other
Benefits. Notwithstanding any other provision of this Agreement to
the contrary, unless and until this Agreement has been approved by a
separate vote of the Company's shareholders in accordance with Section
7(g) below, the Company shall not be obligated to make any payment or
provide any benefit (including the acceleration of Stock Options) to
the extent that such payment or benefit results (as determined in
accordance with Section 7(c) below) in a parachute payment (as defined
in Section 280G of the Code); provided, however, that the Company
shall make all payments and provide all benefits under this Agreement
to the fullest extent permitted without giving rise to a parachute
payment.
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<PAGE> 13
(b) Tax Reimbursement Payment. If the amount or
benefit paid or distributed to the Executive by the Company or any
Person that is an Affiliate of the Company, whether pursuant to this
Agreement or otherwise with respect to employment by the Company after
the Employment Date (collectively, the "Covered Payments"), is or
becomes subject to the tax imposed under Section 4999 of the Code or
any similar tax that may hereafter be imposed (the "Excise Tax") and
if this Agreement has been approved by a separate vote of the
Company's shareholders in accordance with Section 7(g) below, the
Company shall pay to the Executive, at the time specified in Section
7(f) below, the Tax Reimbursement Payment (as defined below). The Tax
Reimbursement Payment is defined as an amount, which when added to the
Covered Payments and reduced by any Excise Tax on the Covered Payments
and any federal, state and local income tax and Excise Tax on the Tax
Reimbursement Payment provided for by this Agreement (but without
reduction for any federal, state and local income or employment tax on
such Covered Payments), shall be equal to the sum of (i) the amount of
the Covered Payments; and (ii) an amount equal to the product of any
otherwise permitted deductions disallowed for federal, state or local
income tax purposes as a result of the inclusion of the Tax
Reimbursement Payment in the Executive's adjusted gross income and the
applicable marginal rate of federal, state or local income taxation if
the Tax Reimbursement Payment had not been made, respectively, for the
calendar year in which the Tax Reimbursement Payment is to be made.
(c) Determining Excise Tax. For purposes of
determining whether any of the Covered Payments will be subject to the
Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be
treated as "parachute payments" within the meaning of Section
280G of the Code, and all "parachute payments" in excess of
the "base amount" (as defined under Section 280G(b)(3) of the
Code) shall be treated as subject to the Excise Tax, to the
extent so determined in the opinion of the Company's
independent certified public accountants (the "Accountants");
and
(ii) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G
of the Code.
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<PAGE> 14
(d) Applicable Tax Rates and Deductions. For
purposes of determining the amount of the Tax Reimbursement Payment,
the Executive shall be deemed:
(i) to pay federal income taxes at the
highest applicable marginal rate of federal income taxation
for the calendar year in which the Tax Reimbursement Payment
is to be made, except in connection with the determination of
the Tax Reimbursement Payment attributable to a disallowed
deduction under clause (ii) of the definition of Tax
Reimbursement Payment; and
(ii) to pay any applicable state and
local income taxes at the highest applicable marginal rate of
taxation for the calendar in which the Tax Reimbursement
Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from the deduction of
such state or local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of the Executive's adjusted gross income).
(e) Subsequent Events. In the event that the
Excise Tax is subsequently determined by the Accountants or the
Internal Revenue Service to be less than the amount taken into account
hereunder in calculating the Tax Reimbursement Payment made, the
Executive shall repay to the Company, at the time that the amount of
such reduction in the Excise Tax is finally determined, the portion of
such prior Tax Reimbursement Payment that has been paid to the
Executive or to federal, state or local tax authorities on the
Executive's behalf and that would not have been paid if such Excise
Tax had been applied in initially calculating such Tax Reimbursement
Payment, plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing provisions of this Section 7(e), in the event any portion of
the Tax Reimbursement Payment to be refunded to the Company has been
paid to any federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion
has been made to the Executive, and interest payable to the Company
shall not exceed interest received or credited to the Executive by
such tax authority for the period it held such portion. The Executive
and the Company shall mutually agree upon the course of action to be
pursued (and the method of allocating the expenses thereof) if the
Executive's good faith claim for refund or credit is denied.
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<PAGE> 15
In the event that the Excise Tax is later determined
by the Accountants to exceed the amount taken into account hereunder
at the time the Tax Reimbursement Payment is made (including, but not
limited to, by reason of any payment the existence or amount of which
cannot be determined at the time of the Tax Reimbursement Payment in
respect thereof) the Company shall make an additional Tax
Reimbursement Payment of such excess (which Tax Reimbursement Payment
shall include any interest or penalty payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Company and the Executive each agrees to
reasonably cooperate in good faith in the event of any reduction in
payments or benefits pursuant to Section 7(a) or any Tax Reimbursement
Payment pursuant to Section 7(b) to minimize the amount of such
reduction or Tax Reimbursement Payment and to take such other actions
under this Section 7 as may be necessary or required.
(f) Date of Payment. The portion of the Tax
Reimbursement Payment attributable to a Covered Payment shall be paid
to the Executive within ten (10) business days following the payment
of the Covered Payment. If the amount of such Tax Reimbursement
Payment (or portion thereof) is due, the Company shall pay to the
Executive, an amount estimated in good faith by the Accountants to be
the minimum amount of such Tax Reimbursement Payment and shall pay the
remainder of such Tax Reimbursement Payment (which Tax Reimbursement
Payment shall include interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than forty-five (45) calendar days
after payment of the related Covered Payment. In the event that the
amount of the estimated Tax Reimbursement Payment exceeds the amount
subsequently determined to have been due, such excess shall be repaid
or refunded pursuant to the provisions of Section 7(e) above.
(g) Shareholder Approval. The Company shall use
its reasonable best efforts to obtain, within 45 days following the
Employment Date, the approval of this Agreement (including, without
limitation, the removal of the limitation under Section 7(a), the Tax
Reimbursement Payment, the acceleration of vesting of Stock Options
upon a Change of Control and the continuation of benefits following a
termination of employment without Cause or resignation for Good Reason
within one year of a Change of Control) by a
15
<PAGE> 16
separate vote of the Company's shareholders who own more than 75% of
the total voting power of all outstanding stock of the Company
(excluding for this purpose all stock actually or constructively owned
by the Executive and all other disqualified individuals (as defined in
Section 280G of the Code) who would receive payments constituting
parachute payments if shareholder approval for purposes of Section
280G of the Code was not obtained). The vote of the Company's
shareholders pursuant to this Section 7(g) is intended to satisfy the
shareholder approval requirement described in Question and Answer 7 of
the Proposed Regulations under Section 280G of the Code.
SECTION 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation, during the term of Executive's employment, in any benefit bonus,
incentive or other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other agreements with the
Company, including, but not limited to stock option or restricted stock
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
SECTION 9. FULL SETTLEMENT. Except as provided in
Section 11(b), the Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others whether by reason of the subsequent employment
of the Executive or otherwise. In no event shall the Executive be obligated to
seek other employment by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement.
SECTION 10. LEGAL FEES AND EXPENSES. The Company shall
pay or cause to be paid any and all reasonable attorneys' fees and expenses
incurred by Executive in connection with the preparation and negotiation of
this Agreement promptly following receipt of an invoice therefor (together with
reasonable supporting documentation) from Executive.
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<PAGE> 17
SECTION 11. FURTHER OBLIGATIONS OF THE EXECUTIVE.
(a) During and following the Executive's
employment by the Company, the Executive shall use commercially
reasonable efforts to hold in confidence and not directly or
indirectly disclose any confidential information or proprietary data
of the Company or any of its Subsidiaries, except to the extent
authorized by the Board or required by any court or administrative
agency or legal process, other than to an employee of or contractor
with the Company or any of its Subsidiaries, or a Person to whom the
Executive in good faith believes disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of her
duties as an executive of the Company. In determining whether such
disclosure is required, Executive will be entitled to rely on the
written advice of counsel provided to the Company. Confidential
information shall not include any information known generally to the
public or in the industry in which Company is engaged. All records,
files, documents and materials, or copies thereof, relating to the
Company's or any of its Subsidiaries', business which the Executive
shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company or any of its Subsidiaries, as the
case may be, and shall be promptly returned by the Executive to the
Company or such Subsidiary (as applicable) upon termination of the
Executive's employment with the Company.
(b) Except with the Board's prior written
approval, during the Employment Period and for three (3) years after
the Date of Termination, the Executive shall not, directly or
indirectly (i) solicit, entice, persuade or induce any employee,
displayer, or other independent contractor of the Company or any of
its Subsidiaries to terminate his employment or relationship with the
Company or any of its Subsidiaries or to become employed or engaged in
a similar capacity by any Person other than the Company or any of its
Subsidiaries or (ii) authorize, solicit or assist in the taking of
such actions by any third party.
(c) During the Employment Period and for three
(3) years after the Date of Termination, the Executive shall not,
directly or indirectly, engage, participate, make any financial
investment in, or become employed by or render advisory or other
services to or for any Person or other business enterprise (other than
the Company and its Affiliates) engaged in the business of selling
home decorative accessories within any of the same markets as the
17
<PAGE> 18
Company or any of its Subsidiaries (any of the foregoing activities
being referred to herein as "COMPETITIVE ACTIVITIES"). The foregoing
covenant respecting Competitive Activities shall not be construed to
preclude the Executive from making any investments in the securities
of any company, and whether or not engaged in competition with the
Company or any of its Subsidiaries, to the extent that such securities
are actively traded on a national securities exchange or in the
over-the-counter market in the United States or any foreign securities
exchange and such investment does not exceed five percent (5%) of the
issued and outstanding shares of such company or give the Executive
the right or power to control or participate directly in making the
policy decisions of such company.
(d) If any court determines that any portion of
this Section 11 is invalid or unenforceable, the remainder of this
Section 11 shall not thereby be affected and shall be given full
effect without regard to the invalid provision. If any court
construes any of the provisions of this Section 11, or any part
thereof, to be unreasonable because of the duration or scope of such
provision, such court shall have the power to reduce the duration or
scope of such provision and to enforce such provision as so reduced.
(e) The Executive hereby acknowledges and agrees
that damages will not be an adequate remedy for the Executive's breach
of any of her covenants contained in this Section 11, and further
agrees that the Company shall be entitled to obtain appropriate
injunctive and/or other equitable relief for any such breach, without
the posting of any bond or other security.
SECTION 12. SUCCESSORS. The Company may assign its
rights under this Agreement to any successor to all or substantially all the
assets of the Company, by merger or otherwise, and may assign or encumber this
Agreement and its rights hereunder as security for indebtedness of the Company.
Any such assignment by the Company shall remain subject to the Executive's
rights under this Agreement, including without limitation, Section 5 and
Section 6 hereof. The rights of the Executive under this Agreement may not be
assigned or encumbered by the Executive, voluntarily or involuntarily, during
her lifetime, and any such purported assignment shall be void ab initio.
However, all rights of the Executive under this Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
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<PAGE> 19
All amounts payable to the Executive hereunder shall be paid, in the event of
the Executive's death, to the Executive's estate, heirs or representatives.
SECTION 13. THIRD PARTIES. Except for the rights granted
to the Company and its Subsidiaries pursuant hereto (including, without
limitation, pursuant to Section 10 hereof) and except as expressly set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give any Person other than the parties hereto and
their successors and permitted assigns any rights or remedies under or by
reason of this Agreement.
SECTION 14. ENFORCEMENT. The provisions of this
Agreement shall be regarded as divisible, and if any of said provisions or any
part thereof is declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remainder of such
provisions or parts hereof and the applicability thereof shall not be affected
thereby.
SECTION 15. AMENDMENT. This Agreement may not be amended
or modified at any time except by a written instrument approved by the Board,
and executed by the Company and the Executive; provided, however, that any
attempted amendment or modification without such approval and execution shall
be null and void ab initio and of no effect.
SECTION 16. WITHHOLDING. The Company shall be entitled
to withhold from any amounts to be paid to the Executive hereunder any federal,
state, local, or foreign withholding or other taxes or charges which it is from
time to time required to withhold. The Company shall be entitled to rely on an
opinion of counsel if any question as to the amount or requirement of any such
withholding shall arise.
SECTION 17. GOVERNING LAW. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to principles of conflicts of
law of Texas or any other jurisdiction.
SECTION 18. NOTICE. Notices given pursuant to this
Agreement shall be in writing and shall be deemed given when received and, if
mailed, shall be mailed by United States registered or certified mail, return
receipt requested, addressee only, postage prepaid:
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If to the Company:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, Texas 75244
Attention: President (while the Executive serves as
Executive Vice President of the Company);
Chief Executive Officer (while the Executive
serves as President of the Company)
If to the Executive:
Christina L. Carter Urschel
3637 Maplewood
Dallas, Texas 75205
or to such other address as the party to be notified shall have given to the
other in accordance with the notice provisions set forth in this Section 13.
SECTION 19. NO WAIVER. No waiver by either party at any
time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at any time.
SECTION 20. HEADINGS. The headings contained herein are
for reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement
in one or more counterparts, each of which shall be deemed one and the same
instrument, as of the day and year first written above.
HOME INTERIORS & GIFTS, INC.
By:
------------------------------------
Donald J. Carter, Jr.
Chief Executive Officer
EXECUTIVE:
---------------------------------------
Christina L. Carter Urschel
<PAGE> 1
Exhibit 10.9
HOME INTERIORS & GIFTS, INC. 1998 STOCK OPTION PLAN
FOR UNIT DIRECTORS, BRANCH DIRECTORS AND CERTAIN OTHER
INDEPENDENT CONTRACTORS
1. Purpose.
Home Interiors & Gifts, Inc., a Texas corporation (herein, together
with its successors, referred to as the "Company"), by means of this 1998 Stock
Option Plan (the "Plan"), desires to afford certain unit directors, branch
directors and certain other independent contractors of the Company (the
"Participants") an opportunity to acquire a proprietary interest in the Company
and thus to create in such persons an increased interest in and a greater
concern for the welfare of the Company.
The award of Units (as hereinafter defined) described in Section 4,
the grant of Options (as hereinafter defined) described in Section 5, and the
shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of Options are a matter of separate inducement and are not in lieu of
any other compensation for services. Stock options granted initially under the
Plan shall be granted to the Home Interiors & Gifts, Inc. 1998 Stock Option
Trust (the "Trust") for the benefit of the Participants.
2. Administration.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "Board of
Directors"), or by any other committee appointed by the Board of Directors to
administer the Plan (the "Committee"); provided, the entire Board of Directors
may act as the Committee if it chooses to do so. The number of individuals
that shall constitute the Committee shall be determined from time to time by a
majority of all the members of the Board of Directors, and, unless that
majority of the Board of Directors determines otherwise, shall be no less than
two individuals. The Chairman of the Board of Directors of the Company shall
be a member of the Committee at all times. A majority of the Committee shall
constitute a quorum (or if the Committee consists of only two members, then
both members shall constitute a quorum), and subject to the provisions of
Section 7, the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Committee, shall be the acts of the Committee.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the
Committee may be with or without
<PAGE> 2
cause. Any individual serving as a member of the Committee shall have the
right to resign from membership on the Committee by written notice to the Board
of Directors. The Board of Directors, and not the remaining members of the
Committee, shall have the power and authority to fill vacancies on the
Committee, however caused. The Board of Directors shall promptly fill any
vacancy that causes the number of members of the Committee to be less than two.
3. Shares Available.
Subject to the adjustments provided in Section 8, the maximum
aggregate number of shares of common stock, par value $0.10 per share ("Common
Stock"), of the Company in respect of which Options may be granted for all
purposes under the Plan shall be 338,481 shares. If, for any reason, any
shares as to which Options have been granted cease to be subject to purchase
thereunder, including the expiration of such Option, the termination of such
Option prior to exercise, or the forfeiture of such Option, such shares shall
thereafter no longer be available for grants under the Plan. Options granted
under the Plan may be fulfilled in accordance with the terms of the Plan with
(i) authorized and unissued shares of the Common Stock and (ii) issued shares
of Common Stock held in the Company's treasury. Notwithstanding anything to
the contrary contained herein, no Options shall be granted under the Plan, and
no Units shall be awarded to Participants, after the consummation of an Initial
Public Offering (as hereinafter defined).
4. Award of Units.
The Committee may, from time to time, award one or more units of
participation to a Participant, each of which entitles the Participant to
receive a Participant Option (as hereinafter defined) (each individual unit of
participation, a "Unit"). Upon the adoption of this Plan, the Committee shall
award Units to the Participants listed, and in the amounts set forth beside
such Participants' names, on Exhibit II to the Trust. The corresponding Trust
Options (as hereinafter defined) granted to the Trust in connection with the
awards of Units in accordance with such Exhibit II shall have an exercise price
equal to $18.05451 per share, subject to adjustment as provided herein. All
corresponding Trust Options granted to the Trust in connection with subsequent
awards of Units to Participants shall have an exercise price equal to the
greater of (i) the Fair Market Value per share of Common Stock on the date of
the award, or (ii) $18.05451 per share.
2
<PAGE> 3
5. Grant of Options.
For each Unit awarded under this Plan, a corresponding Option shall be
granted to the Trust to purchase one share of Common Stock for each outstanding
Unit at the exercise price specified in Section 4 (a "Trust Option", or
collectively, the "Trust Options"). Trust Options shall not be exercisable by
the Trust but shall be divisible and transferable to Participants by the
trustee of the Trust (the "Trustee") as described herein. Any Trust Option
which is allocable to a Unit that has been forfeited shall be terminated and
cancelled as of the date of such forfeiture. Upon the termination and
liquidation of the Trust, each Trust Option shall be transferred to a
Participant such that each Participant receives an option to purchase one share
of Common Stock for each outstanding Unit, subject to adjustment as provided in
Section 8 and subject to the other terms and conditions of this Plan (which,
when received by the Participant, shall be a "Participant Option").
Collectively, the Participant Options and Trust Options are referred to as the
"Options".
Except with respect to the award of Units specified in Exhibit II to
the Trust, the adoption of this Plan shall not be deemed to give any person or
entity of any nature whatsoever, specifically including an individual, a firm,
a company, a corporation, a partnership, a trust, or other entity
(collectively, a "Person"), a right to receive an award, grant, distribution or
transfer of any Units or Options.
6. Exercise, Forfeitures and Cash-Out Events.
(i) Vesting. Subject to the provisions hereof
(including, without limitation, the other provisions of this Section 6), unless
otherwise determined by the Committee at the time of award, Units, and the
corresponding Options issued in respect thereof, shall vest in five equal
installments in accordance with the vesting schedule set forth below:
(A) one-fifth shall become vested on the first
anniversary of the date of award and shall, subject to the
terms and conditions contained herein, remain vested until the
termination of the Unit and any corresponding Option;
(B) an additional one-fifth shall become vested
on the second anniversary of the date of award and shall,
subject to the terms and conditions contained
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<PAGE> 4
herein, remain vested until the termination of the Unit and
any corresponding Option;
(C) an additional one-fifth shall become vested
on the third anniversary of the date of award and shall,
subject to the terms and conditions contained herein, remain
vested until the termination of the Unit and any corresponding
Option;
(D) an additional one-fifth shall become vested
on the fourth anniversary of the date of award and shall,
subject to the terms and conditions contained herein, remain
vested until the termination of the Unit and any corresponding
Option; and
(E) the remaining one-fifth shall become vested
on the fifth anniversary of the date of award and shall,
subject to the terms and conditions contained herein, remain
vested until the termination of the Unit and any corresponding
Option.
(ii) Additional Vesting Provisions. Notwithstanding the
provisions of this Section 6, all outstanding Units, and corresponding Options
issued in respect thereof, shall also become fully vested upon an Initial
Public Offering prior to the expiration of ten years following the date of the
award of the Unit. In its sole discretion, the Committee may also fully vest
all or a portion of any outstanding awards of Units, and their corresponding
Options, in the event of a Change in Control or upon such other events
determined by the Committee.
(iii) Forfeitures of Units Prior to Distribution of
Participant Options. Prior to the distribution of Participant Options from the
Trust, each Participant's rights under a Unit, whether vested or unvested, and
any corresponding Options issued in respect thereof, shall be terminated,
forfeited and cancelled upon the earlier of:
(A) ten years following the date of the award of
the Unit; or
(B) a Business Termination (as hereinafter
defined) by the Company for Good Cause.
In addition, upon a Business Termination for any reason (whether as a result of
death, Disability, retirement or otherwise) prior to the distribution of
Participant Options, all of the affected Participant's rights under any
unvested Unit, and any Trust
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<PAGE> 5
Option in respect thereof, shall be terminated, forfeited and cancelled.
(iv) Exercisability of Participant Options.
Participant Options shall become exercisable after they have been distributed
from the Trust and upon the first to occur of (i) the 90th day following an
Initial Public Offering, or (ii) the eighth anniversary of the date of award of
the Units with respect to which such Participant Options were granted, and
shall, subject to the terms and conditions contained herein, remain exercisable
until the tenth anniversary of the date of award of the Units with respect to
which the Participant Options were granted. In its sole discretion, the
Committee may accelerate the exercisability of Participant Options in the event
of a Change in Control or upon such other events determined by the Committee.
The price per share of Common Stock with respect to each Participant Option
exercised shall be payable in cash or by other means acceptable to the
Committee. Any Participant Options not exercised prior to the tenth
anniversary of the date of the award of the Unit for which the Participant
Option was issued shall be terminated, forfeited and cancelled.
(v) Forfeitures and Exercise of Participant Options
After Distribution of Participant Options. The following provisions shall
apply to the Participant Options:
(A) Death. Upon a Business Termination due to
the death of such Participant, the estate of such Participant,
or a Person who acquired the right to exercise such
Participant Option by bequest or inheritance or by reason of
the death of the Participant, shall have the right to exercise
such Participant Option in accordance with its terms at any
time and from time to time within 180 days after the date of
death (but in no event after the expiration date of such
Option) or, if such death occurs prior to the time such
Participant Option becomes exercisable in accordance with
Section 6(iv) hereof, within 180 days after the date such
Participant Option becomes exercisable (but in no event after
the expiration date of such Option);
(B) Disability. Upon a Business Termination due
to the Disability of a Participant, such Participant or his or
her legal representative shall have the right to exercise the
Option in accordance with its terms at any time and from time
to time within 180 days after the date of such Business
Termination (but in no event
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<PAGE> 6
after the expiration date of the Option) or, if such
Disability occurs prior to the time such Participant Option
becomes exercisable in accordance with Section 6(iv) hereof,
within 180 days after the date such Participant Option becomes
exercisable (but in no event after the expiration date of such
Option);
(C) Termination for Good Cause. A Participant
shall immediately forfeit all rights under his Participant
Option, except as to the shares of Common Stock already
purchased thereunder, upon a Business Termination by the
Company for Good Cause; provided, however, that in the event
of such a Business Termination occurring prior to the date
such Participant Options otherwise become exercisable in
accordance with Section 6(iv) hereof, such forfeiture shall
occur on the fifth business day following the date such
Participant Options become exercisable; and
(D) Other Business Termination. Upon a Business
Termination for any reason other than those specified in
subsection (A), (B) or (C) above, such Participant shall have
the right to exercise his or her Participant Option in
accordance with its terms, within 30 days after the date of
such Business Termination (but in no event after the
expiration date of the Option) or, if such Business
Termination occurs prior to the time such Participant Option
becomes exercisable in accordance with Section 6(iv) hereof,
within 30 days after the date such Participant Option becomes
exercisable (but in no event after the expiration date of such
Option).
(vi) Cash-Out Events. Within a six month period
beginning upon the occurrence of a Cash Out Event, the Company may elect, in
its sole discretion, to cancel each outstanding Trust Option in exchange for an
amount of cash equal to the amount by which (i) the amount per share to be paid
to the holders of outstanding Common Stock in a transaction giving rise to a
Change in Control, or the Fair Market Value of the Common Stock as of the Cash
Out Event for Cash Out Events not relating to a Change in Control, exceeds (ii)
the exercise price applicable to the Trust Option (the "Cash Out Amount"). In
such event, the Trustee shall pay the Cash Out Amount for each Option to the
Participant with the corresponding Unit, whereupon the Option shall be
cancelled.
In addition, in connection with a Cash Out Event described in clause
(iv) of the definition thereof, the Company may also
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<PAGE> 7
elect, in its sole discretion and within one year of the occurrence of such
Cash Out Event, to cancel any outstanding Trust Option(s) (and corresponding
Units issued in respect thereof) that are allocable to the terminating
Participant, for the applicable Cash Out Amount (determined as of the date of
the Cash Out Event). The Trustee shall pay such Cash Out Amount to the
terminating Participant, whereupon the Option shall be cancelled.
If the Cash Out Amount for an Option upon the occurrence of a Cash Out
Event is equal to or less than zero, the Option (and any corresponding Unit
issued in respect thereof) shall be cancelled.
7. Authority of Committee.
Subject to and not inconsistent with the express provisions of this
Plan, the Committee shall have plenary authority to:
(i) after the initial award of Units specified in Exhibit II
to the Trust, determine the Participants to whom Units shall
be awarded, the time when such Units shall be awarded, the
number and exercise price of Units (and corresponding Options
issued in respect thereof), the restrictions to be applicable
to all Units (and corresponding Options issued in respect
thereof) and all other terms and provisions thereof (which
need not be identical);
(ii) prescribe, amend, modify and rescind rules and
regulations relating to the Plan;
(iii) provide the establishment of procedures for a
Participant (A) to have withheld from the total number of
shares of Common Stock to be acquired upon the exercise of a
Participant Option that number of shares having a Fair Market
Value which, together with such cash as shall be paid in
respect of fractional shares, shall equal the aggregate
exercise price under such Participant Option for the number of
shares then being acquired (including the shares to be so
withheld), and (B) to exercise a portion of a Participant
Option by delivering that number of shares of Common Stock
already owned by such Participant having an aggregate Fair
Market Value at date of exercise which shall equal the partial
Participant Option exercise price and to deliver the shares
thus acquired by such Participant in payment of shares to be
received pursuant to the
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<PAGE> 8
exercise of additional portions of such Participant Option,
the effect of which shall be that such Participant can in
sequence utilize such newly acquired shares in payment of the
exercise price of the entire Participant Option, together with
such cash as shall be paid in respect of fractional shares;]
(iv) require (in accordance with Section 11 or otherwise) that
a number of shares of Common Stock or other securities be
withheld from the total number of shares of Common Stock or
other securities to be issued upon exercise of a Participant
Option, or require the withholding of a portion of any cash
compensation paid to a Participant or to the Trust (including,
without limitation, a Cash Out Amount), to meet any obligation
of withholding for income, social security and other taxes
incurred by a Participant upon such exercise or payment of a
Cash Out Amount, or required to be withheld by the Company in
connection with such exercise or payment; and
(v) make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan, Unit or Option provision, perform all
other acts, exercise all other powers, and establish any other
procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the
conduct of the Committee's business. Any act of the
Committee, including interpretations of the provisions of the
Plan or any Unit or Option and determinations under the Plan
or any Unit or Option shall be final, conclusive and binding
on all parties.
During any period of time when Participant Options are outstanding,
the Committee shall establish an arrangement through a registered broker-dealer
whereby temporary financing may be made available to a Participant by the
broker-dealer, under the rules and regulations of the Board of Governors of the
Federal Reserve, for the purpose of assisting the Participant in the exercise
of a Participant Option, which arrangement may include the payment by the
Company of the commissions of the broker-dealer.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to
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<PAGE> 9
render advice with respect to any responsibility the Committee or such Person
may have under the Plan. The Committee may employ attorneys, consultants,
accountants, or other Persons and the Committee, the Company, and its officers
and Directors shall be entitled to rely upon the advice, opinions, or
valuations of any such Persons. No member or agent of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan and all members and agents of the Committee
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
8. Adjustment of Shares and Price.
Unless otherwise expressly provided in a particular Option, in the
event that, by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up, split-
off, spin-off, combination of shares, exchange of shares or other like change
in the capital structure of the Company (collectively, a "Reorganization"), the
Common Stock is substituted, combined, or changed into any cash, property, or
other securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares
and/or interests subject to a Unit and/or an Option and the per share price or
value thereof shall be appropriately and equitably adjusted by the Committee to
give appropriate effect to such Reorganization. Any fractional shares or
interests resulting from such adjustment shall be eliminated.
In the event the Company is not the surviving entity of a
Reorganization and, following such Reorganization, any Participant will hold
Units and/or Options issued pursuant to this Plan which have not been
exercised, cancelled, or terminated in connection therewith, the Company shall
cause such Units and/or Options to be assumed (or cancelled and replacement
rights or options issued) by the surviving entity or an affiliate thereof.
9. Assignment or Transfer.
Except as otherwise expressly contemplated in a Trust Option or a
broker-dealer financing arrangement under Section 7, no Unit awarded or
corresponding Option granted under the Plan in respect thereto, or any rights
or interests therein, shall be assignable or transferable by a Participant
except by will or the laws of descent and distribution, and during the lifetime
of a Participant, Participant Options shall be exercisable only by the
Participant or, in the event that a legal representative has been
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<PAGE> 10
appointed in connection with the Disability of a Participant, such legal
representative.
10. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state securities law, to permit exercise
of any Participant Option, or be obligated to issue any Common Stock in
violation of the Securities Act or any applicable state securities law. Each
Participant shall, as a condition to his or her right to exercise any
Participant Option, deliver to the Company an agreement or certificate
containing such representations, warranties and covenants as the Company may
deem necessary or appropriate to ensure that the issuance of shares of Common
Stock pursuant to such exercise is not required to be registered under the
Securities Act or any applicable state securities law.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
11. Withholding Taxes.
By acceptance of an Option, a Participant will be deemed to (i) agree
to reimburse the Company for any federal, state or local taxes required by any
government to be withheld or otherwise deducted by the Company in respect of
the exercise of a Participant Option or the payment of any Cash Out Amount,
(ii)
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<PAGE> 11
authorize the Company to withhold from any cash compensation paid to the Trust
or a Participant (including, without limitation, a Cash Out Amount), an amount
sufficient to discharge any federal, state and local taxes imposed on the
Company, and which otherwise has not been reimbursed by the Participant, with
respect to the transfer or exercise of an Option or the payment of any Cash Out
Amount, and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which a Participant is entitled upon exercise of a Participant
Option as security for the aforementioned withholding tax liability, until cash
sufficient to pay that liability has been accumulated.
12. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Unit, Option or Participant.
13. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make
any segregation of assets to assure the transfer or payment of any Option or
Cash Out Amount.
14. Other Incentive Plans
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for Participants.
15. Effect on Business Relationship.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of the
business relationship between the Company and any Participant except to the
extent specifically provided herein or therein. Nothing contained in the Plan
or any agreement related hereto or referred to herein shall impose, or be
construed as imposing, an obligation on (i) the Company to continue its
business relationship with a Participant, and (ii) any Participant to continue
its business relationship with the Company.
16. Definitions.
In addition to the terms specifically defined elsewhere in the Plan,
as used in the Plan, the following terms shall have the respective meanings
indicated:
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<PAGE> 12
"Business Termination" shall mean the termination, by either the
Company or a Participant, of the Participant's business relationship
with the Company. The determination that a Business Termination has
occurred shall be made by the Committee and any such decision in
respect thereof by the Committee shall be final and binding on all of
the parties in interest.
"Cash Out Event" shall mean, with respect to any outstanding Option
(and any outstanding Unit allocable thereto) the occurrence of any of
the following events:
(i) the eighth anniversary of the date of grant of such
Option;
(ii) an Initial Public Offering whereby the Company
reasonably determines that the Trust Options cannot be
transferred to Participants, or shares of Common Stock cannot
be issued to Participants upon exercise of Participant
Options, without registration of such transfer or issuance
under the Securities Act (other than on Form S-8 or any
successor form thereto);
(iii) a Change in Control in which the Committee has decided
to fully vest any outstanding Units and their corresponding
Options; or
(iv) a Business Termination for any reason.
"Change of Control" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company to any Person or group of related
Persons (a "Group") for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than one
or more members of the HMC Group, (ii) a majority of the Board of
Directors of the Company shall consist of Persons who are not
Continuing Directors; or (iii) the acquisition by any Person or Group
(other than one or more members of the HMC Group) of the power,
directly or indirectly, to vote or direct the voting of securities
having more than 50% of the ordinary voting power for the election of
Directors of the Company.
"Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors on the date of
adoption of this Plan, (ii) was
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nominated for election or elected to the Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or
election, or (iii) is a member of the HMC Group.
"Disability" shall mean a Participant's inability to perform the
services necessary to continue an ongoing business relationship with
the Company by reason of a physical or mental condition. The
determination that a Disability has occurred shall be made by the
Committee and any such decision in respect thereof by the Committee
shall be final and binding on all of the parties in interest.
"Fair Market Value" shall, as it relates to the Common Stock, mean the
average of the daily market prices of such Common Stock as reported on
the principal national securities exchange on which the shares of
Common Stock are then listed for each day during the ten consecutive
trading days prior to the date of determination, or if such Common
Stock is not listed on a national securities exchange, the last
reported bid price in the over-the- counter market, or if such shares
are not traded in the over-the-counter market, the per share cash
price for which all of the outstanding Common Stock could be sold to a
willing purchaser in an arms-length transaction (without regard to
minority discount, absence of liquidity, or transfer restrictions
imposed by any applicable law or agreement) at the date of the event
giving rise to a need for a determination. Fair Market Value shall be
determined in good faith by the Committee.
"Good Cause" shall mean a Business Termination by the Company because
of: (A) the Participant's conviction of, or plea of nolo contendere
to, a felony or a crime involving moral turpitude; (B) the
Participant's personal dishonesty, incompetent performance of duties,
willful misconduct, willful violation of any law, rule or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the Participant's
commission of material mismanagement in providing services to the
Company or any of its affiliates; (D) the Participant's willful
failure to comply with the policies of the Company in providing
services to the Company or any of its affiliates, or the Participant's
intentional failure to perform the services for which the Participant
has been engaged; (E) substance abuse or addiction on the part of the
Participant; (F) the Participant's failure to
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<PAGE> 14
comply with the terms of any non-competition agreement or similar
covenant for the benefit of the Company to which the Participant is a
party; or (G) the Participant's willfully making any material
misrepresentation or willfully omitting to disclose any material fact
to the Company with respect to the business of the Company. The
determination that there exists Good Cause shall be made by the
Committee and any such decision in respect thereof by the Committee
shall be final and binding on all of the parties in interest.
"HMC Group" shall mean Hicks, Muse, Tate & Furst Incorporated, its
affiliates and their respective employees, officers, and Directors
(and members of their respective families and trusts for the primary
benefit of such family members).
"Initial Public Offering" shall mean the first to occur of the
following events:
(i) the Company has consummated a firm commitment underwritten public
offering of Common Stock pursuant to a registration statement under
the Securities Act where both (A) the proceeds to the Company (prior
to deducting any underwriters' discounts and commissions) equal or
exceed $25,000,000, and (B) upon consummation of such offering, the
Common Stock is listed on the New York Stock Exchange or authorized to
be quoted and/or listed on the Nasdaq National Market; or
(ii) a Change in Control transaction in which the successor to the
Company or surviving corporation (if a corporation other than the
Company) in the transaction has agreed to assume the obligations under
the Options and such successor or surviving corporation has a class of
equity securities registered under Section 12(b) of 12(g) of the
Exchange Act.
17. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, that no amendment shall be made
which shall increase the total number of shares of Common Stock which may be
issued and sold pursuant to Options granted under the Plan unless such
amendment is made by or with the approval of the shareholders of the Company;
provided, further, that no amendment, modification, suspension or termination
of the Plan shall materially alter or impair any Units or Options previously
awarded or granted under the Plan, without the consent of the holder thereof.
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<PAGE> 15
18. Effective Date.
The Plan shall be effective as of June 4, 1998.
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<PAGE> 1
EXHIBIT 10.10
HOME INTERIORS & GIFTS, INC. 1998 STOCK OPTION TRUST
This Agreement made this 4th day of June 1998, by and between
Home Interiors & Gifts, Inc. (the "Company") and Jeffrey Fink (the "Trustee").
WHEREAS, Company has adopted the Home Interiors & Gifts, Inc.
1998 Stock Option Plan for Unit Directors, Branch Directors and Certain Other
Independent Contractors (the "Option Plan"), and
WHEREAS, Company wishes to establish a trust (hereinafter
called the "Trust") and to make stock option grants under the Option Plan to
the Trust that shall be held therein, subject to the claims of Company's
creditors in the event of Company's Insolvency, as herein defined, until such
grants (or the cash proceeds thereon) are distributed to participants in the
Option Plan (the "Participants") in such manner and at such times as specified
herein and in the Option Plan.
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust.
(a) Company hereby deposits with Trustee in trust such
rights under the stock option agreement between Company and Trustee attached
hereto as Exhibit I (the "Initial Trust Options"), which shall become the
principal of the Trust to be held, administered and disposed of by Trustee as
provided in this Agreement.
(b) The parties intend that the Trust will be an
independent legal entity. The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Company and shall be
used exclusively for the uses
<PAGE> 2
and purposes of Participants and general creditors as herein set forth.
Participants shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under this Trust
Agreement shall be mere unsecured contractual rights of Participants against
the Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of stock option agreements between
Company and Trustee (the "Subsequent Trust Options" and, together with the
Initial Trust Options, the "Trust Options"), which shall augment the principal
to be held, administered and disposed of by Trustee as provided in this
Agreement. Neither Trustee nor any Participant shall have any right to compel
such additional deposits.
Section 2. Transfers to Participants.
(a) Exhibit II attached hereto is a schedule (the
"Transfer Schedule") that indicates the Participants to whom the Initial Trust
Options are to be allocated and transferred, and the portion of the Initial
Trust Options allocable thereto. Following the issuance of Subsequent Trust
Options, Company shall update the Transfer Schedule to indicate the
Participants to whom Subsequent Trust Options are to be allocated and
transferred, and the portion allocable thereto. Company shall prepare, and the
Trustee shall deliver, at the expense of Company, a notice to each Participant
indicating his or her units of participation in the Trust, each of which
represents a contingent right to receive a distribution and transfer of a Trust
Option that is exercisable for one share of common stock, par value $0.10 per
share ("Common Stock"), of Company, subject to adjustments for stock splits,
stock dividends and other adjustments pursuant to the terms of the Option Plan
(a "Unit"). Each Unit, and any Trust Option distributable thereon, shall
remain outstanding until forfeited or terminated in accordance with the terms
of the Option Plan. Company shall update the Transfer Schedule no less often
than quarterly and any time at the request of the Trustee, to reflect any
forfeitures or terminations of Units.
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<PAGE> 3
(b) Upon the termination of the Trust, Trustee shall
divide and transfer its rights under the Trust Options such that each
Participant receives an option to purchase one share of Common Stock for each
outstanding Unit, which option shall be exercisable upon the terms and
conditions specified in the Option Plan and the Trust Options applicable to the
Unit. If Company exercises any of its cash-out rights under the Option Plan
with respect to all or a portion of the Trust Options, whether upon termination
of the Trust or otherwise, Trustee, based upon information provided by Company
and at the expense of Company, shall distribute to each affected Participant,
in satisfaction of each outstanding Unit subject to such rights and in lieu of
each such Participant's right to a Trust Option, the amount of cash received
with respect to each such Unit.
(c) If the principal of the Trust, and any earnings
thereon, are not sufficient to make the transfers (or cash distributions in
lieu thereof) in accordance with the terms of the Transfer Schedule, Company
shall remain obligated to make substantially similar transfers for any
Participant who does not receive a transfer and distribution of Trust Options
(or a cash distribution in lien thereof) in satisfaction of all of such
Participant's outstanding Units. Trustee shall notify Company where principal
and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Transfers to
Participants When Company Is Insolvent.
(a) Trustee shall cease the division and transfer of
Trust Options (or any proceeds thereon) to Participants if Company is
Insolvent. Company shall be considered "Insolvent" for purposes of this
Agreement if (i) Company is unable to pay its debts as they become due, or (ii)
Company is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code.
(b) At all times during the continuance of the Trust, the
principal and income of the Trust shall be subject to claims of general
creditors of Company under federal and state law as set forth below.
(1) The Board of Directors and the Chief
Executive Officer of Company shall have the duty to inform Trustee in
writing of Company's Insolvency. If a person claiming to be a
creditor of Company alleges
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<PAGE> 4
in writing to Trustee that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such
determination, Trustee shall discontinue any transfers and
distributions of Trust Options (and the proceeds thereon) to
Participants. Trustee, at the expense of Company, may engage outside
counsel or consultants to make such determination.
(2) Unless Trustee has actual knowledge of
Company's Insolvency, or has received notice from Company or a person
claiming to be a creditor alleging that Company is Insolvent, Trustee
shall have no duty to inquire whether Company is Insolvent. Trustee
may in all events rely on such evidence concerning Company's solvency
as may be furnished to Trustee and that provides Trustee with a
reasonable basis for making a determination concerning Company's
solvency.
(3) If at any time Trustee has determined that
Company is Insolvent, Trustee shall discontinue the transfer and
distribution of Trust Options (and proceeds thereon) to Participants
and shall hold the assets of the Trust for the benefit of Company's
general creditors. Nothing in this Agreement shall in any way
diminish any rights of Participants to pursue their rights as general
creditors of Company with respect to any transfers or distributions of
Trust Options (and proceeds thereon) due hereunder. Without limiting
the generality of any other provisions herein, Company shall defend,
indemnify and hold Trustee harmless from and against any and all
claims of Participants or creditors regarding any Insolvency
determinations.
(4) Trustee shall resume the transfer and
distribution of the Trust Options (and proceeds thereon) to
Participants in accordance with Section 2 of this Agreement only after
Trustee has determined that Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the transfer and distribution of the Trust Options (and proceeds
thereon) from the Trust pursuant to Section 3(b) hereof and subsequently
resumes such transfers and distributions, the first transfer and distribution
following such discontinuance shall include the
4
<PAGE> 5
aggregate amount of all transfers and distributions due to Participants under
the terms of the Transfer Schedule for the period of such discontinuance, less
the aggregate amount of any distributions made to Participants or their
beneficiaries by Company in lieu of the transfers and distributions provided
for hereunder during any such period of discontinuance.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, the Plan or pursuant
to the terms of a Trust Option, Company shall have no right or power to direct
Trustee to return to Company or to divert to others any of the Trust assets
before all transfers and distributions of the Trust Options (and proceeds
thereon) have been made to Participants pursuant to the terms of the Transfer
Schedule.
Section 5. Custodial Authority.
Trustee shall hold its rights with respect to the Trust
Options and any proceeds thereon as assets of the Trust. All rights associated
with assets of the Trust shall be exercised by Trustee or the person designated
by Trustee, and shall in no event be exercisable by or rest with Participants.
Section 6. Disposition of Income.
During the term of the Trust, all income received by the
Trust, net of any expenses and taxes not paid by Company in accordance with
Section 9 below, shall be accumulated.
Section 7. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all
transactions required to be made including such specific records as shall be
agreed upon in writing between Company and Trustee. Trustee shall also
maintain records for each Trust Option that indicates the corresponding number
of Units allocated to (or forfeited by) each Participant. Trustee may request
Company's assistance in the preparation and maintenance of such records and
Company
5
<PAGE> 6
shall bear all reasonable costs and expenses incurred by the Trustee in
connection with the performance of its duties under this Section 7.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that
Trustee shall incur no liability to any person for any action taken in good
faith pursuant to a direction, request or approval given by Company which is
contemplated by, and in conformity with, the Transfer Schedule or this
Agreement and is given in writing by Company. In the event of a dispute
between Company and a party, Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any claims or litigation
(including mediation and arbitration) arising in connection with the Trust,
Company agrees to indemnify Trustee against Trustee's costs, expenses and
liabilities (including, without limitation, reasonable attorneys' fees and
expenses) relating thereto and to be primarily liable for and, at Trustee's
request, to advance such payments; provided, however, that Company shall not be
liable for any costs, expenses and liabilities that are attributable to
Trustee's gross negligence or intentional misconduct (and Company may recover
any advances made relating thereto).
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder and may absolutely rely on the advice of such counsel.
(d) Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein.
(e) If at any time during the existence of the Trust there
shall be more than one person or entity who or which collectively shall be
acting as Trustee hereunder: (i) any action authorized by this Agreement or by
applicable law may be taken by any one of such persons or entities acting
alone; and (ii) the death, incapacity, bankruptcy, liquidation or other
dissolution of any one or more of such
6
<PAGE> 7
persons or entities shall not deprive any remaining person(s) or entities of
any authority to act hereunder.
(f) Notwithstanding any powers granted to Trustee pursuant to
this Agreement or applicable law, Trustee shall not have any power that could
give the Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
Company shall pay all administrative and Trustee's fees and
expenses, including reasonable fees and expenses of legal counsel.
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 60 days after receipt of such notice, unless
Company and Trustee agree otherwise.
(b) Except as provided in paragraph (c) of this Section,
Trustee may be removed by Company on 10 days notice or upon shorter notice
accepted by Trustee.
(c) Upon a Change of Control (as defined in the Option
Plan), Trustee may not be removed by Company for one year following the Change
of Control.
(d) If Trustee resigns or is removed within two years
after a Change of Control, Trustee shall select a successor Trustee in
accordance with the provisions of Section 11(b) hereof prior to the effective
date of Trustee's resignation or removal.
(e) Upon resignation or removal of Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after
receipt of notice of resignation, unless Company extends the time limit.
7
<PAGE> 8
(f) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of Trustee in connection with the proceeding shall be paid by Company.
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, and Section 10(d) hereof does not apply, Company
may appoint as a successor Trustee any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, or an individual.
(b) If Trustee resigns or is removed pursuant to the
provisions of Section 10(d) hereof and selects a successor Trustee, Trustee may
appoint as a successor Trustee any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, or
an individual.
(c) The appointment of a successor Trustee shall be
effective when accepted in writing by the new Trustee, who shall have all of
the rights and powers of the former Trustee, including ownership rights in the
Trust assets. The former Trustee shall execute any instrument necessary or
reasonably requested by the successor Trustee to evidence the transfer.
Section 12. Amendment or Termination.
(a) This Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of any Transfer Schedule delivered to
the Trustee, modify Section 2(a) hereof or make the Trust revocable.
(b) The Trust shall terminate on the earlier of (i) June 4,
2006, (ii) 90 days after the consummation of an Initial Public offering (as
defined in the Option Plan), (iii) upon a Change in Control (as defined in the
Option Plan) if there is an acceleration of vesting and
8
<PAGE> 9
exercisability of the Trust Options that relate to the Change of Control, or
(iv) at such other time as Company, in its sole discretion, determines and
notifies Trustee. Upon termination of the Trust, any assets remaining in the
Trust after the transfer and distribution of Trust Options (and the proceeds
thereof) to Participants shall be returned to Company.
Section 13. Miscellaneous.
(a) Any provision of this Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Trust Options may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process, except by
Trustee as expressly contemplated herein.
(c) Trustee shall execute, on behalf of the Trust, such
documentation as may be reasonably necessary to effect the transactions
described herein.
(d) In the event of a conflict or inconsistency between
the terms of this Agreement and the terms of the Option Plan, the terms of the
Option Plan shall be controlling; provided, however, that the terms of Section
3 of this Agreement shall be controlling over any conflicting terms of the
Option Plan.
(e) This Agreement shall be governed and construed in
accordance with the laws of the State of Texas.
9
<PAGE> 10
Section 14. Effective Date.
The effective date of this Trust Agreement shall be June 4,
1998.
HOME INTERIORS & GIFTS, INC.
----------------------------------------
By: Donald J. Carter, Jr.
Title: Chief Executive Officer
TRUSTEE
----------------------------------------
Jeffrey Fink
10
<PAGE> 11
Exhibit I to Stock Option Trust
- -------------------------------
TRUST OPTION UNDER
HOME INTERIORS & GIFTS, INC.
1998 STOCK OPTION PLAN
The Board of Directors of Home Interiors & Gifts, Inc. (the
"Company") has adopted the Company's 1998 Stock Option Plan for Unit Directors,
Branch Directors and Certain Other Independent Contractors (the "Plan"). The
Plan shall be deemed a part of this Option Agreement as if fully set forth
herein. Unless the context otherwise requires, all terms defined in the Plan
shall have the same meaning when used herein.
1. The Grant.
---------
Subject to the conditions set forth below, the Company hereby
grants to the Company's 1998 Stock Option Trust (the "Trust"), effective as of
June 4, 1998 (the "Grant Date"), the right and option to purchase (the "Trust
Option"), in accordance with the terms and conditions set forth herein and in
the Plan, an aggregate of 233,511 shares of Common Stock (the "Option Shares"),
at an exercise price equal to $18.05451 per share (the "Exercise Price"),
subject to the adjustments and limitations set forth herein and in the Plan.
2. Exercise.
--------
(a) This Option is not exercisable by the trustee of the Trust
(the "Trustee"), and, subject to the relevant provisions and limitations
contained herein and in the Plan, may only be exercised by a Participant who has
received a distribution and transfer of a divided portion of the Trust Option,
as described in the Plan. The Trustee shall divide, distribute and transfer the
Trust Option to Participants at the time and in the manner described in the
Trust, after which they shall be evidenced by an agreement that is substantially
in the form of Exhibit A attached hereto (a "Participant Option"). The Company
acknowledges that Participant Options shall be enforceable against the Company
when properly transferred and executed by the Trustee.
(b) Any portion of the Trust Option that has not been
transferred to a Participant will automatically terminate and become null and
void upon the expiration of
1
<PAGE> 12
ten (10) years from the Grant Date. Any portion of the Trust Option that is
attributable to an award of a Unit that has been forfeited or cancelled shall
also terminate and become null and void as of the date of such forfeiture or
cancellation.
3. Transferability.
---------------
Except as provided in the Trust, the Plan and Section 2
hereof, the Trust Option and any rights or interests therein are not assignable
or transferable.
4. Withholding Taxes.
-----------------
By acceptance of the Option, the Trustee will be deemed to
consent to the withholding by the Company for any federal, state or local taxes
required by any government to be withheld or otherwise deducted by the Company
in respect of the payment to the Trust of any Cash Out Amount.
5. Cash Outs.
---------
Upon the occurrence of a Cash Out Event, the Company may
elect, in its sole discretion, to cancel each outstanding Trust Option in
exchange for the Cash Out Amount. In such event, the Cash Out Amount (less any
required tax withholdings) shall be distributed to Participants in accordance
with the terms of the Plan and the Trust.
6. Miscellaneous.
-------------
(a) This Option Agreement is subject to all the terms,
conditions, limitations and restrictions contained in the Plan. In the event of
any conflict or inconsistency between the terms hereof and the terms of the
Plan, the terms of the Plan shall be controlling.
(b) This Option Agreement is not a contract to maintain a
business relationship between the Company and any Participant, and the terms of
any such business relationship shall not be affected by, or construed to be
affected by, this Option Agreement, except to the extent specifically provided
herein. Nothing herein shall impose, or be construed as imposing, any obligation
(i) on the part of the Company to continue any business relationship with a
Participant, or (ii) on the part of the Participant to remain in any business
relationship with the Company.
2
<PAGE> 13
The Trust's acceptance of all the terms and conditions of this
Trust Option and the Plan shall be evidenced by the Trustee's signature under
the acceptance provided below.
HOME INTERIORS & GIFTS, INC.
------------------------------
By: Donald J. Carter, Jr.
Title: Chief Executive Officer
ACCEPTED:
TRUSTEE OF THE
HOME INTERIORS & GIFTS, INC.
1998 STOCK OPTION TRUST
- -----------------------------
Jeffrey Fink
3
<PAGE> 14
EXHIBIT A TO TRUST OPTION
PARTICIPANT OPTION UNDER
HOME INTERIORS & GIFTS, INC.
1998 STOCK OPTION PLAN
The Board of Directors of Home Interiors & Gifts, Inc. (the
"Company") has adopted the Company 1998 Stock Option Plan for Certain Unit
Directors, Branch Directors and Certain Other Independent Contractors (the
"Plan"). Pursuant to the terms of the Plan, the Company has granted an option to
the Company's 1998 Stock Option Trust as of June 4, 1998 (the "Grant Date"), a
portion of which is being distributed and transferred to you by the trustee of
such Trust (the "Trustee") pursuant to this Option Agreement. A copy of the Plan
is being furnished to you concurrently with the execution of this Option
Agreement and shall be deemed a part of this Option Agreement as if fully set
forth herein. Unless the context otherwise requires, all terms defined in the
Plan shall have the same meaning when used herein.
1. The Transfer.
Subject to the conditions set forth below, the Trustee hereby
transfers to you, effective as of ______________ (the "Transfer Date"), the
right and option to purchase (the "Option"), in accordance with the terms and
conditions set forth herein and in the Plan, an aggregate of _____________
shares of Common Stock (the "Option Shares"), at an exercise price equal to
$18.05451 per share (the "Exercise Price"), subject to the adjustments and
limitations set forth herein and in the Plan. The Option transferred hereunder
is not intended to be taxable to you upon its transfer; however, you should
consult with your tax advisor concerning the proper reporting of any federal or
state tax liability that may arise as a result of your receipt or exercise of
the Option.
2. Exercise.
(a) You may exercise the Option to purchase all or a portion
of the Optioned Shares after the Option has become vested and exercisable in
accordance with the terms of the Plan.
1
<PAGE> 15
(b) The unexercised portion of the Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the Grant Date or in the event the Option is
otherwise cancelled or forfeited by you pursuant to the terms of the Plan.
(c) Any exercise by you of the Option shall be in writing
addressed to the Secretary of the Company at its principal place of business (a
copy of the form of exercise to be used will be available upon written request
to the Secretary), and shall be accompanied by a certified or bank check payable
to the order of the Company in the full amount of the Exercise Price of the
shares so purchased, or in such other manner approved by the Committee.
3. Transferability.
The Option and any rights or interests therein are not
assignable or transferable by you except by will or the laws of descent and
distribution, and during your lifetime, the Option shall be exercisable only by
you or, in the event that a legal representative has been appointed in
connection with your disability, such legal representative.
4. Registration.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities laws to permit exercise of the Option, or be obligated to issue any
Common Stock in violation of the Securities Act or any applicable state
securities laws. You (or in the event of your death or, in the event a legal
representative has been appointed in connection with your disability, the Person
exercising the Option) shall, as a condition to your right to exercise the
Option, deliver to the Company an agreement or certificate containing such
representations, warranties and covenants as the Company may deem necessary or
appropriate to ensure that the issuance of the Option Shares pursuant to such
exercise is not required to be registered under the Securities Act or any
applicable state securities laws.
Certificates for Option Shares, when issued, shall have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
2
<PAGE> 16
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
The foregoing legend may not be required for Option Shares
issued pursuant to an effective registration statement under the Securities Act
and in accordance with applicable state securities laws.
5. Withholding Taxes.
By acceptance hereof, you hereby (i) agree to reimburse the
Company for any federal, state or local taxes required by any government to be
withheld or otherwise deducted by the Company in respect of your exercise of all
or a portion of the Option; (ii) authorize the Company to withhold from any cash
compensation paid to you or on your behalf, an amount sufficient to discharge
any federal, state and local taxes imposed on the Company, and which otherwise
has not been reimbursed by you, in respect of your exercise of all or a portion
of the Option; and (iii) agree that the Company may, in its discretion, hold the
stock certificate to which you are entitled upon exercise of the Option as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated, and may, in its
discretion, effect such withholding by retaining shares issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise which
is no less than the amount to be withheld.
6. Miscellaneous.
(a) This Option Agreement is subject to all the terms,
conditions, limitations and restrictions contained in the Plan. In the event of
any conflict or inconsistency between the terms hereof and the terms of the
Plan, the terms of the Plan shall be controlling.
3
<PAGE> 17
(b) This Option Agreement is not a contract to continue any
business relationship between you and the Company, and the terms of your
business relationship with the Company shall not be affected by, or construed to
be affected by, this Option Agreement, except to the extent specifically
provided herein. Nothing herein shall impose, or be construed as imposing, any
obligation (i) on the part of the Company to continue your business relationship
with the Company, or (ii) on your part to continue your business relationship
with the Company.
Please indicate your acceptance of the transfer of your
allocable share of the Trust Option and all the terms and conditions of the
Option and the Plan by signing and returning a copy of this Option Agreement to
the Secretary of the Company.
Very truly yours,
HOME INTERIORS & GIFTS
1998 STOCK OPTION TRUST
By:
-----------------------------------
Its: Trustee
ACCEPTED:
- ----------------------------------
Signature of Optionee
- ----------------------------------
Name of Optionee (Please Print)
Date:
-----------------------------
4
<PAGE> 1
EXHIBIT 10.11
AGREEMENT
Between
Home Interiors & Gifts, Inc.
(Customer)
And
Distribution Architects International, Inc.
(DAI)
1. AGREEMENT. Customer and DAI agree to the terms and conditions set forth below
and in the following documents: Schedule A, Schedule B, Schedule C, Schedule D,
Schedule E, Schedule F, Schedule G, Form 1002-010196, Form 4002-DISC, and Form
1005-2-110193. These documents, and only these documents, form the Agreement.
The Effective Date of this Agreement is the date, indicated below, on which DAI
accepted this Agreement.
2. LICENSE.
2.1 Operations Products. The following DAI Products are licensed to Customer
for up to 1.2 Million Annual Invoices and 100 Total DAI Users:
System Utilities
Order/Ship/Bill System
Inventory Management
Purchasing/Receiving System
Accounts Receivable
Accounts Payable
General Ledger
Warehouse Management
EDI Bridge
Bar Code Processing
Commission Management
Serial Number Tracking
Core Deposit Processing
Import/Export Package
for the version being ported to a Unix platform.
2.2 Executive Products. The following DAI Products are licensed to Customer
for up to the number of Total DAI Users which are paid for in accordance
with Section 4.1.2:
Visible Results Server
Executive Information System
Sales Analysis
Credit Analysis
Vendor Analysis
Page 1 of 5
<PAGE> 2
Inventory Analysis
Notification Builder
3. OTHER PRODUCTS. The Other Software licensed by Customer is set forth in
Schedule A.
4. CHARGES. The following charges are in U.S. dollars.
4.1. DAI LICENSE FEE.
4.1.1. Operations Products. The license fees for the DAI Products
are as follows:
<TABLE>
<CAPTION>
DAI PRODUCT DAI PRODUCT INCREMENTAL
----------- LICENSE FEE LICENSED PRODUCT TOTAL
----------- LICENSE FEE LICENSE FEES
----------- ------------
<S> <C> <C> <C>
System Utilities $ 15,000 $ 10,000 $ 25,000
Order/Ship/Bill System 39,000 26,000 65,000
Inventory Management 27,000 18,000 45,000
Purchasing/Receiving System 27,000 18,000 45,000
Accounts Receivable 10,800 7,200 18,000
Accounts Payable 10,800 7,200 18,000
General Ledger 18,000 12,000 30,000
Warehouse Management 12,000 8,000 20,000
EDI Bridge Per Module 3,600 2,400 6,000
(1 included)
Bar Code Processing 9,000 6,000 15,000
Commission Management 9,000 6,000 15,000
Serial Number Processing 9,000 6,000 15,000
Core Deposit Processing 8,400 5,600 14,000
Import/Export Package 5,400 3,600 9,000
-----
Total $ 204,000 $ 136,000 $ 340,000
Less $22,715 credit from Fit $ 190,371 $ 126,914 $ 317,285
Analysis
</TABLE>
Page 2 of 5
<PAGE> 3
The license fee due for the above DAI Products (prior to modification for
Customer) is $190,371 and is due as follows: $31,729 within 30 days after
signing this Agreement, $31,729 within 30 days after loading the DAI Products
on a processor for Customer to start the project, and $126,913 when and if DAI
successfully runs its generic test scripts on a Unix platform. The incremental
license fee for the Licensed Products (the above DAI Products after modification
for Customer) is $126,914 and is due when and if Customer completes 90 days of
continuous Live Use on the following core products: Order/Ship/Bill System,
Inventory Management, Purchasing/Receiving System, Accounts Receivable,
Accounts Payable, General Ledger, and Warehouse Management. LIVE USE refers to
use of any Licensed Product for any purpose other than testing, training, and
non-transactional data base population. If Customer decided to postpone Live
Use of any of the core products to a later phase, Live Use of such Licensed
Product shall be removed as a condition to the payment of the incremental
license fee for the Licensed Products.
4.1.2. Executive Products. The license fees for these DAI Products are as
follows:
<TABLE>
<S> <C> <C>
Visible Results Server ........ $12,000 (1-10 users)
Visible Results - Sales Analysis ........ $495 per user
Visible Results - Vendor Analysis* ........ $495 per user
Visible Results - Credit Analysis* ........ $495 per user
Visible Results - Inventory Analysis* ........ $495 per user
Visible Results - Executive Information System ........ $495 per user
visible Results - Notification Builder ........ $495 per user
</TABLE>
*if and when available
The license fee for the above DAI Products is due when and if Customer
completes 90 days of continuous Live Use on any such product.
4.1.3. The license fees for Customer to add the following products to the
license in Section 4.1.1 are:
<TABLE>
<S> <C> <C>
Distribution Resource Planning ........ $20,000
Forecasting ........ $20,000
Traffic Management ........ $18,000
</TABLE>
These license fee prices are valid for three years after the Effective Date.
4.1.4. The pricing for upgrading the license in Section 4.1.1 for increased
usage is as follows:
Page 3 of 5
<PAGE> 4
<TABLE>
<CAPTION>
Max Annual Invoices (AI)/Total DAI Users (TDU) Upgrade License Fee
---------------------------------------------- -------------------
<S> <C>
from 1.2 Million AI/100 TDU to 1.7 Million AI/122 TDU $40,000
from 1.7 Million AI/122 TDU to 2.2 Million AI/141 TDU $35,000
for each additional 500,000 AI/14 TDU $25,000
</TABLE>
4.2. OTHER PRODUCTS. The price of the Other Software set forth in Schedule A is
$14,770. The price for the Other Software plus freight, insurance, and
other delivery costs is due within thirty days after the date of delivery.
4.3. SERVICES. DAI will not proceed with services without the prior written
approval of Customer. A written project plan or change order approved by
Customer's project manager constitutes written approval for the services
set forth in the project plan or change order. Services are to be paid for
on a time, material and expense basis (except time spent in programming
Enhancements which may, at Customer's option, be provided on a fixed price
basis). The hourly rate for the time spent in providing services is as
follows:
<TABLE>
<S> <C> <C>
Senior Consultant ........ $175
Business Architect ........ 150
Project Manager ........ 130
Analyst/Senior Programmer ........ 150
Programmer 2-5 years ........ 110
Programmer <2 years ........ 80
Trainer ........ 120
Data/Telecom Specialists ........ 115
Senior System Manager ........ 110
System Manager 1-5 years ........ 80
Documentation/Reports ........ 100
</TABLE>
The per diem rate is $45 per person for DAI personnel not stationed in the
Dallas area. These rates are valid through 31 May 1998. Time, material,
expense, and per diems for services are invoiced weekly. Payment thereof
is due within thirty days after receipt of the invoice.
4.4. DAI PRODUCT MAINTENANCE FEES.
4.4.1. The Annual Fee for DAI Product Maintenance is due at the beginning
of each service year. The annual fee for service during Normal
Working Hours (9 hour coverage 5 days a week) is as follows:
Page 4 of 5
<PAGE> 5
<TABLE>
<S> <C> <C>
Update Service ........ 7% of license fee
Programmer Support ........ 7% of license fee
Help Desk Support ........ 7% of license fee
</TABLE>
4.4.2. For services outside Normal Working Hours, Customer pays an
additional 1/2 of DAI's current hourly rate. Such time is
invoiced weekly. Payment thereof is due within thirty days after
receipt of the invoice.
5. SIGNATURES. Customer acknowledges receipt of and agreement to this
document and the documents referenced herein and all the terms and conditions
of these documents.
Home Interiors & Gifts, Inc. (referred to as Customer)
4550 Spring Valley Road, Dallas, Texas, 75244
By: /s/ DONALD J. CARTER, JR.
----------------------------
Title: Executive Vice President
------------------------
This document becomes a binding contract on the EFFECTIVE DATE, 2/26/97, only
when accepted by DAI as indicated by the signature below.
Distribution Architects International, Inc. (referred to as DAI)
905 East Westchester, Tempe, Arizona, 85283
By: /s/ [ILLEGIBLE]
----------------------------
Title: Senior Vice President/COO
-------------------------
Page 5 of 5
<PAGE> 1
EXHIBIT 10.12
(Multicurrency--Cross Border)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of June 25, 1998
NationsBank, N.A. and Home Interiors & Gifts, Inc. have entered and/or
anticipate entering into one or more transactions (each a "Transaction") that
are or will be governed by this Master Agreement, which includes the schedule
(the "Schedule"), and the documents and other confirming evidence (each a
"Confirmation") exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
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(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy),
or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and
(4) if such Tax is to Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount
actually received by Y (free and clear of Indemnifiable Taxes, whether
assessed against X or Y) will equal the full amount Y would have
received had no such deduction or withholding been required. However,
X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section
3(f) to be accurate and true unless such failure would not have
occurred but for (I) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the
date on which a Transaction is entered into (regardless of
whether such action is taken or brought with respect to a party
to this Agreement) or (II) a Change in Tax Law.
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(ii) LIABILITY. If:--
(1) X is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, to make any deduction
or withholding in respect of which X would not be required to pay an
additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against
X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed: If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws of the
jurisdiction of its organisation or incorporation and, if relevant under
such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
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(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that
may be required or reasonably requested in writing in order to allow such
other party or its Credit Support Provider to make a payment under this
Agreement or any applicable Credit Support Document without any deduction
or withholding for or on account of any Tax or with such deduction or
withholding at a reduced rate (so long as the completion, execution or
submission of such form or document would not materially prejudice the
legal or commercial position of the party in receipt of such demand), with
any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be
delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
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<PAGE> 5
organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any applicable
grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each Transaction
to which such Credit Support Document relates without the written
consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the
validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however
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<PAGE> 6
described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) in an aggregate amount of not less than the
applicable Threshold Amount (as specified in the Schedule) which has
resulted in such Specified Indebtedness becoming, or becoming capable at
such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the
due date thereof in an aggregate amount of not less than the applicable
Threshold Amount under such agreements or instruments (after giving effect
to any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation, amalgamation
or merger); (2) becomes insolvent or is unable to pay its debts or
fails or admits in writing its inability generally to pay its debts as
they become due; (3) makes a general assignment, arrangement or
composition with or for the benefit of its creditors; (4) institutes
or has instituted against it a proceeding seeking a judgment of
insolvency or bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in the
case of any such proceeding or petition instituted or presented
against it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or the
making of an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case within 30
days of the institution or presentation thereof; (5) has a resolution
passed for its winding-up, official management or liquidation (other
than pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or other similar
official for it or for all or substantially all its assets; (7) has a
secured party take possession of all or substantially all its assets
or has a distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or substantially
all its assets and such secured party maintains possession, or any
such process is not dismissed, discharged, stayed or restrained, in
each case within 30 days thereafter; (8) causes or is subject to any
event with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified
in clauses (1) to (7) (inclusive); or (9) takes any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at
the time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume all
the obligations of such party or such Credit Support Provider under
this Agreement or any Credit Support Document to which it or its
predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):--
(1) to perform any absolute or contingent obligation to make a payment
or delivery or to receive a payment or delivery in respect of such
Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X consolidates
or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate, will
be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence
of such event (and, in such event, the Affected Party or Affected Parties
shall be as specified for such Additional Termination Event in the Schedule
or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
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6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will, promptly
upon becoming aware of it, notify the other party, specifying the nature of
that Termination Event and each Affected Transaction and will also give
such other information about that Termination Event as the other party may
reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at
such time would permit it to enter into transactions with the transferee on
the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or a
Tax Event occurs and there are two Affected Parties, each party will use
all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that Termination
Event.
(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(b)(iii), as the case may be, has not been effected with respect to
all Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger
or an Additional Termination Event occurs, or a Tax Event Upon Merger
occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case
of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event
or an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, by not more than 20 days notice to the other party and
provided that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining
a Market Quotation, the records of the party obtaining such quotation will
be conclusive evidence of the existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event
of Default:--
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting
Party the excess, if a positive number, of (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect
of the Terminated Transactions and the Termination Currency Equivalent
of the Unpaid Amounts owing to the Non-defaulting Party over (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions and
the Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party less (B) the Termination Currency Equivalent of
the Unpaid Amounts owing to the Defaulting Party. If that amount is a
positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to the Defaulting
Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with
the higher Settlement Amount ("X") and the Settlement Amount of
the party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all Terminated Transactions)
and an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to
Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES: MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"). each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(l) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
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"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that, Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17
<PAGE> 18
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding) such
Early Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
NationsBank, N.A. Home Interiors & Gifts, Inc.
- ------------------------------- ---------------------------------
(Name of Party) (Name of Party)
By: /s/ R. VAUGHAN DODD By: /s/ LEONARD A. ROBERTSON
---------------------------- ------------------------------
Name: R. Vaughan Dodd Name: Leonard A. Robertson
Title: Senior Vice President Title: Chief Financial Officer
Date: AUG 10 1998 Date: August 5, 1998
18
<PAGE> 1
EXHIBIT 12.1
HOME INTERIORS & GIFTS, INC.
Ratio of Earnings to Fixed Charges
Actual for all periods presented
(Dollars in thousands)
<TABLE>
<CAPTION> Year ended December 31, Six months ended June 30,
----------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes 104,891 113,710 84,859 88,403 100,111 44,582 46,759
Less undistributed
equity in earnings -- -- -- -- (180) -- --
of an affiliate
Plus fixed charges 287 92 2 503 362 13 3,491
------- ------- ------ ------ ------- ------ ------
Total 105,178 113,802 84,861 88,906 100,293 44,595 50,250
======= ======= ====== ====== ======= ====== ======
Fixed charges (interest
expense) 287 92 2 503 362 13 3,491
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges N/A N/A N/A N/A N/A N/A 14.4x
======= ======= ======= ======= ======= ======= =======
</TABLE>
Note: The ratio of earnings to fixed charges has been omitted for the years
ended December 31, 1993 through 1997 and the six months ended June 30,
1997 because fixed charges were de minimis during these periods.
Ratio of Earnings to Fixed Charges
Pro forma for all periods presented
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended Six months Latest twelve
December 31, ended months ended
1997 June 30, June 30, 1998
------------- ------------- -------------
1997 1998
---- ----
<S> <C> <C> <C> <C>
Income before income
taxes 47,257 18,518 27,004 55,743
Less undistributed equity
in earnings of an
affiliate (180) -- -- (180)
Plus fixed charges 45,231 22,700 25,168 47,699
------ ------ ------ -------
Total 92,308 41,218 52,172 103,262
====== ====== ====== =======
Fixed charges (interest
expense) 45,231 22,700 25,168 47,699
====== ====== ====== =======
Ratio of earnings to fixed
charges 2.0x 1.8x 2.1x 2.2x
===== ===== ==== =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
Dallas Woodcraft, Inc. Texas
GIA, Inc. Nebraska
Homco, Inc. Texas
Homco de Mexico, S.A. de C.V. Mexico
Homco Puerto Rico, Inc. Delaware
Spring Valley Scents, Inc. Texas
</TABLE>
<PAGE> 1
[PRICEWATERHOUSECOOPERS LETTERHEAD]
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 20, 1998, except for Notes 3, 11, 14 and 22 as to which
the date is June 4, 1998, on our audits of the consolidated financial statements
of Home Interiors & Gifts, Inc. and Subsidiaries. We also consent to the
references to our firm under the captions "Summary Historical Consolidated
Financial Data", "Selected Historical Consolidated Financial Data" and
"Experts."
PricewaterhouseCoopers LLP
Dallas, Texas
August 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001067541
<NAME> Home Interiors & Gifts, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USDOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 23,938
<SECURITIES> 0
<RECEIVABLES> 9,683
<ALLOWANCES> 251
<INVENTORY> 38,786
<CURRENT-ASSETS> 75,392
<PP&E> 56,431
<DEPRECIATION> 36,053
<TOTAL-ASSETS> 116,463
<CURRENT-LIABILITIES> 86,219
<BONDS> 0
0
0
<COMMON> 1,523
<OTHER-SE> (445,680)
<TOTAL-LIABILITY-AND-EQUITY> 116,463
<SALES> 236,073
<TOTAL-REVENUES> 236,073
<CGS> 116,087
<TOTAL-COSTS> 190,477
<OTHER-EXPENSES> (4,654)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,491
<INCOME-PRETAX> 46,759
<INCOME-TAX> 18,570
<INCOME-CONTINUING> 28,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,189
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001067541
<NAME> Home Interiors & Gifts, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 104,262
<SECURITIES> 2,003
<RECEIVABLES> 11,816
<ALLOWANCES> 239
<INVENTORY> 30,531
<CURRENT-ASSETS> 151,844
<PP&E> 56,573
<DEPRECIATION> 39,220
<TOTAL-ASSETS> 244,190
<CURRENT-LIABILITIES> 53,580
<BONDS> 0
0
0
<COMMON> 5,894
<OTHER-SE> 184,037
<TOTAL-LIABILITY-AND-EQUITY> 244,190
<SALES> 468,845
<TOTAL-REVENUES> 468,845
<CGS> 239,664
<TOTAL-COSTS> 379,241
<OTHER-EXPENSES> (10,869)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362
<INCOME-PRETAX> 100,111
<INCOME-TAX> 37,919
<INCOME-CONTINUING> 62,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,192
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
HOME INTERIORS & GIFTS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED AUGUST , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
Deliver to:
United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery
before 4:30 p.m.:
United States Trust Company United States Trust Company
of New York of New York
P.O. Box 843, Cooper Station 111 Broadway
New York, New York 10276 New York, New York 10006
Attn: Corporate Trust Services Attn: Lower Level Corporate
Trust Window
By Facsimile (for Eligible Institutions):
(212) 780-0592
Attention: Customer Service
For Information or
Confirmation by Telephone:
(212) 568-6565
(Originals of all documents sent by facsimile should be sent promptly by registered or
certified mail,
by hand or by overnight delivery service)
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 10 1/8% SENIOR SUBORDINATED NOTES DUE
2008, FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 10 1/8% SENIOR
SUBORDINATED NOTES DUE 2008, PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY
TENDER (AND NOT WITHDRAW) OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING
THIS LETTER OF TRANSMITTAL.
<PAGE> 2
DESCRIPTION OF TENDERED OLD NOTES
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AGGREGATE
AS IT APPEARS ON THE 10 1/8% SENIOR SUBORDINATED NOTES DUE CERTIFICATE PRINCIPAL AMOUNT
2008 NUMBER(S) OF OLD NOTES
(PLEASE FILL IN, IF BLANK) OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
TOTAL PRINCIPAL
AMOUNT OF OLD
NOTES TENDERED
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Home Interiors & Gifts, Inc., a Texas
corporation (the "Company"), the 10 1/8% Senior Subordinated Notes due 2008 (the
"Old Notes"), described above pursuant to the Company's offer of $1,000
principal amount of 10 1/8% Senior Subordinated Notes due 2008 (the "New
Notes"), in exchange for each $1,000 principal amount of the Old Notes, upon the
terms and subject to the conditions contained in the Prospectus dated August ,
1998 (the "Prospectus"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
authority to tender the Old Notes described above. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the tender of Old Notes.
3. The undersigned understands that the tender of the Old Notes pursuant to
all of the procedures set forth in the Prospectus will constitute an agreement
between the undersigned and the Company as to the terms and conditions set forth
in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, whether or
not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is engaging in
or intends to engage in a distribution of such New Notes;
(iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Notes; and
(iv) neither the holder nor any such other person is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), of the Company.
5. The undersigned may, if, and only if, unable to make all of the
representations and warranties contained in Item 4 above, elect to have its Old
Notes registered in the shelf registration described in the Registration Rights
Agreement, dated as of June 4, 1998, between the Company, the Guarantors and the
Initial Purchasers in the form filed as an exhibit to the Registration Statement
(the "Registration Agreement") (all terms used in this Item 5 with their initial
letters capitalized, unless otherwise defined herein, shall have the meanings
given them in the Registration Agreement). Such election may be made by checking
the box under "Special Registration Instructions" on page 5. By making such
election, the undersigned agrees, as a holder of Transfer Restricted Securities
participating in a shelf registration, to indemnify and hold harmless the
Company and the Guarantors, their directors, officers, representatives and
agents and each person, if any, who controls the Company or the Guarantors
within the meaning of either Section 15 of the Securities Act or Section 20(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and against any and all losses, liabilities, claims, damages and expenses
whatsoever (including, without limitation, any legal or other expenses incurred
in connection with defending or investigating any matter), joint or several, or
any action in respect thereof, to which the Company or Guarantors, or any such
director, officer, representative, agent or controlling person may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such loss, liability, claim, damage or expense arises out of, or is based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Shelf Registration Statement or the Prospectus or in any
amendment thereof or supplement thereto or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with information relating to the undersigned furnished to the Company in writing
by or on behalf of the undersigned expressly for use therein. Any such
indemnification shall be governed by the terms and subject to
<PAGE> 4
the conditions set forth in the Registration Agreement, including, without
limitation, the provisions regarding notice, retention of counsel, contribution
and payment of expenses set forth therein. The above summary of the
indemnification provision of the Registration Agreement is not intended to be
exhaustive and is qualified in its entirety by reference to the Registration
Agreement.
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and delivering a prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If the undersigned is a broker-dealer and Old Notes held for its
own account were not acquired as a result of market-making or other trading
activities, such Old Notes cannot be exchanged pursuant to the Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the New Notes will be issued in the name of the
undersigned.
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to someone
other than the undersigned or to the undersigned at an address other than that
provided above.
Mail [ ] Issue [ ] (check appropriate boxes) certificates to:
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old Notes in
the shelf registration described in the Registration Agreement, and (iii) the
undersigned agrees to indemnify certain entities and individuals as set forth in
the Registration Agreement and summarized in Item 5 above.
[ ] By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item 4
above, (ii) elects to have its Old Notes registered pursuant to the shelf
registration described in the Registration Agreement, and (iii) agrees to
indemnify certain entities and individuals identified in, and to the extent
provided in, the Registration Agreement and summarized in Item 5 above.
<PAGE> 5
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 6)
[ ] Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Prospectus and 10 copies of any amendments or supplements thereto.
<TABLE>
<S> <C>
Name:
------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
</TABLE>
<PAGE> 6
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by registered
holder exactly as name appears on Old Notes. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set forth
full title. See Instruction 3.
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated:
- --------------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
- -------------------------------------------------------------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
Dated:
- --------------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
<PAGE> 7
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or by an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange
Act (an "Eligible Institution") unless the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" above has not been completed or
the Old Notes described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes, together
with a properly completed and duly executed Letter of Transmittal (or copy
thereof), should be mailed or delivered to the Exchange Agent at the address set
forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, signed by such registered holder exactly as such registered
holder's name appears on such Old Notes.
If this 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,
proper evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding on all parties. The Company reserves the absolute
right to reject any or 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 right to waive any defects,
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 this Letter of Transmittal) will be final and
binding. 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 in such tenders or shall incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any Old Notes received by 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 by the Exchange Agent to the tendering holder thereof as
soon as practicable following the Expiration Date.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
HOME INTERIORS & GIFTS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED AUGUST , 1998
As set forth in the Prospectus (as defined below), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (i) if
certificates for unregistered 10 1/8% Senior Subordinated Notes due 2008 (the
"Old Notes") of Home Interiors & Gifts, Inc., a Texas corporation (the
"Company"), are not immediately available, (ii) time will not permit a holder's
Old Notes or other required documents to reach the Exchange Agent on or prior to
the Expiration Date (as defined below) or (iii) the procedure for book-entry
transfer cannot be completed on a timely basis. This form may be delivered by
facsimile transmission, registered or certified mail, by hand or by overnight
delivery service to the Exchange Agent. See "The Exchange Offer -- Procedures
for Tendering" in the Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER
IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
Deliver to:
United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery
before 4:30 p.m.:
United States Trust Company United States Trust Company
of New York of New York
P.O. Box 843, Cooper Station 111 Broadway
New York, New York 10276 New York, New York 10006
Attention: Corporate Trust Services Attention: Lower Level Corporate
Trust Window
</TABLE>
By Facsimile (for Eligible Institutions):
(212) 780-0592
Attention: Customer Service
For Information or
Confirmation by Telephone:
(212) 568-6565
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR
TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, in accordance with the
Company's offer, upon the terms and subject to the conditions set forth in the
Prospectus dated August , 1998 (the "Prospectus"), and in the accompanying
Letter of Transmittal, receipt of which is hereby acknowledged, $ in
aggregate principal amount of Old Notes pursuant to the guaranteed delivery
procedures described in the Prospectus.
Name(s) of Registered
Holder(s):
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code & Telephone No.:
- ---------------------------------------------------------------------------
Certificate Number(s) for
Old Notes (if available):
- --------------------------------------------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s): $
- --------------------------------------------------------------------------------
Signature of Registered Holders(s):
- ---------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
[ ] The Depository Trust Company
(Check if Old Notes will be tendered
by book-entry transfer)
Account Number
- --------------------------------------------------------------------------------
THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office in the United States, hereby
guarantees (a) that the above named person(s) "own(s)" the Old Notes tendered
hereby within the meaning of Rule 14e-4 ("Rule 14e-4") under the Securities
Exchange Act of 1934, as amended, (b) that such tender of such Old Notes
complies with Rule 14e-4, and (c) to deliver to the Exchange Agent the
certificates representing the Old Notes tendered hereby or confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company, in proper form for transfer, together with the Letter
of Transmittal, properly completed and duly executed, with any required
signature guarantees and any other required documents, within three New York
Stock Exchange trading days after the execution of the Notice of Guaranteed
Delivery.
Name of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone No.:
- -------------------------------------------------------------------------
Authorized Signature:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD
NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.
