<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended June 28, 1997
Commission File Number 1-13430
Converse Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-1419731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Fordham Road 01864
North Reading, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 664-1100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
As of June 28, 1997, 17,274,706 shares of common stock were outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheet 1
B. Condensed Consolidated Statement of Operations 2
C. Condensed Consolidated Statement of Cash Flows 3
D. Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II:OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
SIGNATURE 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
December 28,1996 June 28, 1997
---------------- --------------
Assets
- ------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................... $ 5,908 $ 4,136
Restricted cash......................................... 1,354 ---
Receivables, less allowances of
$1,994 and $2,513, respectively....................... 61,546 95,445
Inventories (Note 3).................................... 86,799 98,406
Refundable income taxes................................. 582 582
Prepaid expense and other current assets................ 20,383 16,421
-------- --------
Total current assets................................ 176,572 214,990
Net property, plant and equipment............................ 17,849 19,002
Other assets................................................. 28,182 32,067
-------- --------
$222,603 $266,059
======== ========
Liabilities and Stockholders' Equity (Deficiency)
- ------------------------------------------------
Current liabilities:
Short-term debt (Note 4)................................ $ 13,421 $ 13,955
Current maturities of long-term debt (Note 4).......... 117,765 82,424
Accounts payable........................................ 49,503 57,573
Accrued expenses........................................ 25,124 15,957
Income taxes payable.................................... 3,407 4,040
-------- --------
Total current liabilities........................... 209,220 173,949
Long-term debt, less current maturities (Note 4)............. 9,644 80,000
Current assets in excess of reorganization value............. 32,376 31,337
Deferred post-retirement benefits other than pensions........ 10,231 10,192
Stockholders' equity (deficiency):
Common stock, $1.00 stated value, 50,000,000 shares
authorized, 17,213,157 and 17,274,706 shares issued and
outstanding at December 28, 1996 and June 28, 1997,
respectively............................................ 17,213 17,275
Preferred stock, no par value, 10,000,000 shares
authorized none issued and outstanding.................. --- ---
Additional paid-in capital................................ 5,392 2,149
Retained earnings (deficit)............................... (60,265) (47,581)
Foreign currency translation adjustment................... (1,208) (1,262)
-------- --------
Total stockholders' equity (deficiency)............. (38,868) (29,419)
-------- --------
$222,603 $266,059
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------------------------
June 29, 1996 June 28, 1997 June 29, 1996 June 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales................................ $ 79,907 $103,325 $166,458 $239,293
Cost of sales............................ 57,020 72,439 121,954 166,248
-------- -------- -------- --------
Gross profit............................. 22,887 30,886 44,504 73,045
Selling, general and administrative
expenses................................ 29,129 30,489 55,435 67,252
Royalty income........................... 6,317 5,009 11,245 11,386
Restructuring expense (credit) (Note 5).. (2,209) --- (2,209) (563)
-------- -------- -------- --------
Earnings from operations................. 2,284 5,406 2,523 17,742
Loss (credit) on investment in
unconsolidated subsidiary (Note 7)..... 515 --- 515 (13,051)
Interest expense, net.................... 4,256 3,875 8,093 6,554
Other (income ) expense, net............. 621 204 1,497 2,294
-------- -------- -------- --------
Earnings (loss) from continuing
operations before income tax............ (3,108) 1,327 (7,582) 21,945
Income tax expense (benefit)............. 635 511 (580) 8,449
-------- -------- -------- --------
Net earnings (loss) from continuing
operations.............................. (3,743) 816 (7,002) 13,496
Extraordinary loss net of tax of $508
- write-off of deferred financing fees.. --- 812 --- 812
-------- -------- -------- --------
Net earnings (loss)...................... $ (3,743) $ 4 $ (7,002) $ 12,684
======== ======== ======== ========
Net earnings (loss) per share:
Continuing operations................ $ (0.22) $ 0.05 $ (0.42) $ 0.76
Extraordinary loss................... --- (0.05) --- (0.05)
-------- -------- -------- --------
Net earnings......................... $ (0.22) $ 0.00 $ (0.42) $ 0.71
======== ======== ======== ========
Weighted average number of common
shares (Note 2)......................... 16,692 17,851 16,692 17,856
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
June 29, 1996 June 28, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ...................................................... $( 7,002) $ 12,684
Adjustments to reconcile net earnings (loss) to net cash required for
operating activities:
Loss (credit) on investment in unconsolidated subsidiary........... 515 (20,633)
Credit for restructuring actions .................................. ( 2,209) ( 563)
Extraordinary loss from write-off of deferred financing fees....... --- 1,320
Depreciation of property, plant and equipment...................... 1,630 1,652
Amortization of intangible assets.................................. 222 234
Amortization of current assets in excess of reorganization
value ........................................................... ( 1,039) ( 1,039)
Deferred taxes..................................................... ( 3,337) 5,973
Changes in assets and liabilities:
Receivables........................................................ (11,797) (33,899)
Inventories........................................................ (15,306) (11,607)
Refundable income taxes ........................................... 11,377 ---
Prepaid expenses and other current assets.......................... 1,295 ( 383)
Accounts payable and accrued expenses.............................. 9,250 6,927
Income taxes payable............................................... 442 633
Other long-term assets and liabilities............................. 1,393 ( 2,206)
-------- --------
Net cash required for operating activities..................... (14,566) (40,907)
-------- --------
Cash flows from investing activities:
Proceeds from disposal of assets.......................................... 5,101 ---
Additions to property, plant and equipment................................ ( 2,984) ( 2,805)
-------- --------
Net cash provided (used) by investing activities............... 2,117 ( 2,805)
-------- --------
Cash flows from financing activities:
Net proceeds from exercise of stock options............................... ---- 347
Net proceeds from short-term debt......................................... 5,815 534
Net proceeds from (repayment of) old credit facility...................... 7,927 (117,765)
Net borrowings under new credit facility.................................. --- 82,424
Net proceeds from bond issue.............................................. --- 76,400
-------- --------
Net cash provided by financing activities...................... 13,742 41,940
Net increase/(decrease) in cash and cash equivalents......................... 1,293 ( 1,772)
Cash and cash equivalents at beginning of period............................. 2,738 5,908
-------- --------
Cash and cash equivalents at end of period................................... $ 4,031 $ 4,136
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CONVERSE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Summary of Significant Accounting Policies
Basis of presentation:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation. This interim
financial information and notes thereto should be read in conjunction with the
Company's annual report on Form 10-K for the year ended December 28, 1996. The
Company's consolidated results of operations for the three and six month periods
ended June 28, 1997 are not necessarily indicative of the results to be expected
for any other interim period or the entire fiscal year.
2. Net Earnings (Loss) per Common Share
Net earnings (loss) per common share is computed based on the weighted
average number of common shares and common equivalent shares, if dilutive,
assumed outstanding for the applicable period.
Net earnings for First Half 1997 included a gain of approximately $8,000,
net of income taxes, pertaining to the settlement of outstanding litigation and
claims relating to Apex One, Inc. ("Apex"). See Note 7. Earnings per share from
continuing operations of $0.76 for First Half 1997 includes $0.45 relating to
the settlement of these claims.
3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 28, 1996 June 28, 1997
----------------- -------------
<S> <C> <C>
Retail merchandise................ $ 6,298 $ 5,643
Finished products................. 73,887 84,288
Work in process .................. 3,320 4,688
Raw materials..................... 3,294 3,787
------- -------
$ 86,799 $ 98,406
======= =======
</TABLE>
4
<PAGE>
4. Debt
In May 1997, the Company issued $80,000 of 7% Convertible Subordinated
Notes due June 1, 2004 (the "Notes"). The Notes are subordinated to all existing
and future Senior Indebtedness (as defined therein). The Notes are convertible
at any time prior to maturity, unless previously redeemed, into common stock of
the Company, at the option of the holder, at a conversion price of $21.83 per
share, subject to adjustment in certain events. In addition, the Notes may be
redeemed, in whole or in part, at the option of the Company, at any time on or
after June 5, 2000 at redemption prices set forth therein plus accrued interest
to the date of redemption. Interest is payable semi-annually on June 1 and
December 1, commencing on December 1, 1997. Proceeds from the Notes were used to
repay indebtedness under the Company's then existing credit agreement (the
"Old Credit Facility").
Simultaneously with the issuance of the Notes in May 1997, the Company
entered into a new $150,000 secured credit agreement (the "Credit Facility")
with BT Commercial Corporation ("BTCC") for revolving loans, letters of credit,
foreign exchange contracts and banker acceptances and repaid the Old Credit
Facility. In connection with the repayment of the Old Credit Facility, the
Company wrote off deferred financing fees of $1,320. This write-off is presented
as an extraordinary item on the statement of operations. In July 1997 BTCC, as
agent, syndicated the Credit Facility to a group of participating lenders (the
"Banks"). The amount of credit available to the Company at any time is limited
by a borrowing base formula, as defined in the Credit Facility, consisting
primarily of U.S. and Canadian accounts receivable and inventory. The aggregate
of letters of credit, foreign exchange contracts and banker acceptances may not
exceed $80,000 at any time; revolving loans are limited only by the Credit
Facility's maximum availability less any amounts outstanding for letters of
credit, foreign exchange contracts or banker acceptances.
The Credit Facility is for a five-year term and, accordingly, has an
expiration date of May 21, 2002. However, the total revolving loans and banker
acceptances outstanding under the Credit Facility of $82,424 are classified as
current due to the Company's lockbox arrangement (whereby payments by the
Company's customers are deposited in a lockbox controlled by the Banks) and
certain clauses contained in the Credit Facility regarding mandatory repayment
that involve subjective judgments by the Banks. This classification is required
by Emerging Issues Task Force 95-22, "Balance Sheet Classification of Borrowings
Outstanding under a Revolving Credit Agreement that Includes both a Subjective
Acceleration Clause and a Lockbox Arrangement".
As of June 28, 1997 the Company's borrowing base was $138,510. Utilization
under the Credit Facility amounted to $102,443 consisting of revolving loans of
$58,098, banker acceptances of $24,326 and outstanding letters of credit of
$20,019. Accordingly, $36,067 of the maximum available borrowing base remained
unutilized as of June 28, 1997.
5
<PAGE>
Revolving loans under the Credit Facility bear interest either at the
Prime Lending Rate (as defined therein) plus one percent (1.00%) per annum or at
the Adjusted LIBOR Rate (as defined therein) plus a margin of two and one-half
percent (2.50%) per annum. The foregoing LIBOR margin is subject to reduction
based upon the Company achieving certain interest coverage ratios specified in
the Credit Facility. At June 28, 1997 revolving loans outstanding under the
Credit Facility bore interest of 8.71% based upon the weighted average of the
Prime Lending Rate and Adjusted LIBOR Rate, as defined. Obligations outstanding
under the Credit Facility are secured by first priority liens on substantially
all of the Company's U.S. and Canadian assets. The Credit Facility contains
customary affirmative and negative covenants, including one financial covenant
with respect to an interest coverage ratio that become effective for the quarter
ended September 27, 1997.
Subsidiaries of the Company maintain asset-based financing arrangements in
certain European countries with various lenders. In general, these financing
arrangements allow for borrowings based upon eligible accounts receivable and
inventory at varying advance rates and varying interest rates. As of June 28,
1997, total short-term borrowings outstanding under these financing arrangements
totaled $13,955. These obligations are secured by first priority liens on the
respective foreign assets being financed. In addition, Converse Inc. provided
guarantees with respect to the outstanding borrowings for certain of the
financing arrangements.
5. Restructuring
As more fully described in Note 4 to the consolidated financial statements
for the year ended December 28, 1996 included within the Company's annual report
on Form 10-K, during 1995 the Company recorded restructuring charges relating
primarily to initiatives aimed at reducing future operating costs. The following
table presents the restructuring reserves remaining at June 28, 1997:
<TABLE>
<CAPTION>
December 28, June 28,
1996 Charges/ Changes in 1997
Balance Write-offs Estimates Balance
------- ---------- --------- -------
<S> <C> <C> <C> <C>
Contract termination costs................. $ 1,502 $ 810 --- $ 692
Employee severance and
related costs.......................... 2,456 957 --- 1,499
Lease termination costs.................... 564 --- (564) ---
----- ----- ----- -----
$ 4,522 $1,767 $ (564) $2,191
===== ===== ===== =====
</TABLE>
During the first quarter of 1997, the Company re-opened the manufacturing
facility located in Mission, Texas for cutting and limited production due to an
unexpected increase in demand for athletic original products. Accordingly, the
remaining lease termination restructuring reserve was reversed. The remaining
liabilities represent fixed amounts to be paid out over the next two years.
6
<PAGE>
6. Commitments and Contingencies
Converse is or may become a defendant in a number of pending or threatened
legal proceedings in the ordinary course of its business. Converse believes that
the ultimate outcome of any such proceedings will not have a material adverse
effect on its financial position or results of operations.
7. Apex Litigation and Claims Resolution
As more fully described in Note 16 to the Consolidated Financial
Statements for the year ended December 28, 1996 included within the Company's
annual report on Form 10-K, during the first quarter of 1997, the Company
settled substantially all claims with the former owners of Apex, as well as
substantially all claims with former Apex creditors and the Apex bankruptcy
estate. As a result of these settlements, the Company recorded a net pretax gain
of $13,051 during the first quarter of 1997. During Second quarter of 1997, the
Company received a cash payment of $753 in settlement of its claim with the one
remaining former owner of Apex. This former owner of Apex continues to hold
subordinated notes issued by Converse in the amount of $774. This amount is
included within accrued expenses in the accompanying June 28, 1997 consolidated
balance sheet. As of June 28, 1997, there are no remaining material claims
against Converse relating to its 1995 acquisition of Apex.
As more fully described in Note 3 to the Consolidated Financial Statements
for the year ended December 28, 1996 included within the Company's annual report
on Form 10-K, on December 28, 1996, an accrual of $5,424, which represented the
Company's estimates of its liabilities relating to Apex, remained on the
Company's financial statements. During the first quarter of 1997, this remaining
accrual was reversed in conjunction with the Apex litigation settlements.
8. Recently Issued Accounting Standards
During 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" (FAS 128). FAS 128 requires the Company to disclose a
basic and diluted earnings per share calculation. Basic earnings per share
excludes common stock equivalents from the EPS calculation, while diluted EPS is
calculated consistent with the Company's primary earnings per share calculation.
The Company will adopt the provisions of FAS 128 within the 1997 year-end
consolidated financial statements. Basic and diluted earnings per share, as
computed under FAS 128, would have been $0.00 and $0.00 per share, respectively,
for the three months ended June 28, 1997, and $0.74 and $0.70 for First Half
1997.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in the
consolidated financial statements. FAS 131 establishes standards for reporting
information on operating segments in interim and annual financial statements.
Both are effective for the Company for fiscal 1998 and the Company is reviewing
the impact on the consolidated financial statements of Converse Inc.
7
<PAGE>
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of three months ended June 28, 1997 to June 29, 1996
The following table sets forth certain items relating to the Company's
operating results as a percentage of net sales for the three months ended June
29, 1996 ("Second Quarter 1996") and for the three months ended June 28, 1997
("Second Quarter 1997").
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
June 29, 1996 % June 28, 1997 %
------------- --- ------------- ---
<S> <C> <C> <C> <C>
Net sales ........................................ $ 79,907 100.0 $ 103,325 100.0
Gross profit...................................... 22,887 28.6 30,886 29.9
Selling, general and administrative
expenses ....................................... 29,129 36.5 30,489 29.5
Royalty income ................................... 6,317 7.9 5,009 4.8
Earnings from operations ......................... 2,284 2.9 5,406 5.2
Loss (credit) on investment in
unconsolidated subsidiary ...................... 515 0.6 --- ---
Interest expense, net ............................ 4,256 5.3 3,875 3.8
Earnings (loss) from continuing
operations before income tax.................... (3,108) (3.9) 1,327 1.3
Net earnings (loss) from
continuing operations........................... $ (3,743) (4.7) $ 816 0.8
Net earnings (loss) per share from
continuing operations........................... $ (0.22) $ 0.05
Extraordinary loss, net of tax.................... --- --- $ 812 0.8
Net earnings (loss)............................... $ (3,743) (4.7) $ 4 ---
Net earnings (loss) per share..................... $ (0.22) $ 0.00
</TABLE>
Net Sales
Net sales for Second Quarter 1997 increased to $103.3 million from $79.9
million for Second Quarter 1996, a 29.3% improvement. This $23.4 million
increase in net sales was attributable to increases of 107.4% in the basketball
category and 19.6% in the athletic originals (formerly athleisure) category
compared to Second Quarter 1996. These improvements were partially offset by a
$1.3 million decline in the cross training category, while the children's
category remained flat as compared to the prior year period.
8
<PAGE>
Second Quarter 1997 net sales in the United States increased 42.9% to
$68.0 million from $47.6 million for Second Quarter 1996. International net
sales increased 9.3% to $35.3 million for Second Quarter 1997 from $32.3 million
for Second Quarter 1996. Pacific region net sales increased 199.8%, while Europe
and Latin America recorded sales declines of 24.4% and 21.0%, respectively, as
compared to the prior year period.
Gross Profit
Gross profit increased to $30.9 million for Second Quarter 1997 from $22.9
million for Second Quarter 1996, a 34.9% improvement. Higher volumes and gross
profit margins accounted for the majority of the improvements over this period
with emphasis on future orders and strong inventory controls contributing the
difference. The Company's gross profit margin improved to 29.9% of net sales for
Second Quarter 1997 compared to 28.6% for Second Quarter 1996. Although gross
profit increased during Second Quarter 1997, it was negatively impacted by $1.3
million of foreign currency losses due to the strengthening of the U.S. dollar
during this period.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 4.8% to $30.5
million for Second Quarter 1997 from $29.1 million for Second Quarter 1996. As a
percentage of net sales, selling, general and administrative expenses decreased
to 29.5% for Second Quarter 1997 from 36.5% for the prior year period. The
increase of $1.4 million in expenses was attributable to: (i) a 20.4% increase
in United States selling expenses required to support a 42.9% sales increase,
(ii) a 27.7% increase in international sales and marketing expenses, and (iii) a
32.9% increase in product development expenses partially offset by lower
marketing costs.
Royalty Income
Royalty income decreased by 20.6% to $5.0 million in Second Quarter 1997
from $6.3 million in Second Quarter 1996. International royalty income, which
currently represents approximately 80% of the Company's total royalty income,
decreased 30.6% primarily as a result of lower royalties in the Pacific region,
which declined 41.8% compared to the prior year period as a result of the
Company's strategic decision to eliminate certain lower quality distribution
channels, coupled with increased competition. Reduced demand for the Company's
licensed products in Japan accounted for the majority of the decline. This
decrease was partially offset by increases in the Latin America region of 139.8%
and Europe, Middle East and Africa region of 23.2%. Domestic royalty income
increased 98.8% compared to the prior year period due to higher demand for
virtually all of the Company's licensed products. As a percentage of net sales,
royalty income was 4.8% in Second Quarter 1997 compared to 7.9% in Second
Quarter 1996. The Company expects that the trend of reduced royalties from the
Pacific region will continue in the second half of 1997 and estimates that
royalty income in the second half will be approximately $6 million below the
$16.4 million experienced in the second half of 1996.
9
<PAGE>
Earnings from Operations
The Company recorded earnings from operations of $5.4 million for Second
Quarter 1997 as compared to $2.3 million for Second Quarter 1996, a 134.8%
increase. As a percentage of net sales, Second Quarter 1997 earnings from
operations were 5.2% as compared to 2.9% for Second Quarter 1996. The
improvement in earnings from operations is attributable to higher sales,
improved gross profit and lower selling, general and administrative expenses as
a percentage of net sales partially offset by a decline in royalty income.
Interest Expense
Interest expense for Second Quarter 1997 decreased to $3.9 million from
$4.3 million for Second Quarter 1996, a 9.3% decline. The decrease is primarily
attributable to a reduction in credit facility amendment fees incurred in Second
Quarter 1996. See Note 4 to the Consolidated Financial Statements of the Company
included herein.
Earnings (Loss) from Continuing Operations before Income Tax
Earnings from continuing operations before income tax was $1.3 million for
Second Quarter 1997 compared to a $3.1 million loss for Second Quarter 1996.
Foreign currency losses due to the strengthening of the U.S. dollar negatively
impacted earnings from continuing operations before income tax by $0.7 million
in Second Quarter 1997. The Company expects that the strength of the U.S. dollar
in the second half of 1997 will have a further negative impact of $2 million to
$4 million in the period.
Net Earnings (Loss) from Continuing Operations
Due to the business factors described above, the Company recorded net
earnings from continuing operations of $0.8 million for Second Quarter 1997
compared to a net loss from continuing operations of $3.7 million for Second
Quarter 1996.
Net Earnings (Loss) Per Share from Continuing Operations
The Company recorded net earnings per share from continuing operations of
$0.05 for Second Quarter 1997 compared to a $0.22 loss per share from continuing
operations for Second Quarter 1996.
Extraordinary Loss, Net of Tax
The Company entered into a new $150 million secured credit agreement (the
"Credit Facility") on May 21, 1997 that replaced its former credit agreement
(the "Old Credit Facility"). In connection with repayment of the Old Credit
Facility, the Company wrote off deferred financing fees of $1,320 relating to
the Old Credit Facility which resulted in an extraordinary loss net of taxes of
$812.
10
<PAGE>
Net Earnings (Loss) Per Share
The Company recorded break-even earnings per share for Second Quarter 1997
compared to a $0.22 loss per share for Second Quarter 1996.
Comparison of six months ended June 28, 1997 to June 29, 1996
The following table sets forth certain items relating to the Company's
operating results as a percentage of net sales for the six months ended June 29,
1996 ("First Half 1996") and for the six months ended June 28, 1997 ("First Half
1997").
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------------------------------------------
June 29, 1996 % June 28, 1997 %
------------- --- ------------- ---
<S> <C> <C> <C> <C>
Net sales ........................................ $ 166,458 100.0 $ 239,293 100.0
Gross profit...................................... 44,504 26.7 73,045 30.5
Selling, general and administrative
expenses ....................................... 55,435 33.3 67,252 28.1
Royalty income ................................... 11,245 6.8 11,386 4.8
Earnings from operations ......................... 2,523 1.5 17,742 7.4
Loss (credit) on investment in
unconsolidated subsidiary ...................... 515 0.3 (13,051) (5.5)
Interest expense, net ............................ 8,093 4.9 6,554 2.7
Earnings (loss) from continuing
operations before income tax.................... (7,582) (4.6) 21,945 9.2
Net earnings (loss) from
continuing operations........................... $ (7,002) (4.2) $ 13,496 5.6
Net earnings (loss) per share from
continuing operations .......................... $ (0.42) $ 0.76
Extraordinary loss, net of tax ................... --- --- $ 812 0.3
Net earnings (loss) .............................. $ (7,002) (4.2) $ 12,684 5.3
Net earnings (loss) per share..................... $ (0.42) $ 0.71
</TABLE>
Net Sales
Net sales for First Half 1997 increased 43.7% to $239.3 million from
$166.5 million for First Half 1996. Compared to the prior year period, the $72.8
million improvement in net sales was attributable to increases of 105.7%, 23.0%,
26.3%, and 31.7% in the core categories of basketball, athletic originals,
children's and cross training, respectively.
Net sales in the United States for First Half 1997 increased 72.9% to
$157.5 million from $91.1 million for First Half 1996. International net sales
increased 8.5% to $81.8 million from $75.4 million over the prior year period.
Pacific region net sales increased 100.7%, while sales in Europe and Latin
America declined 16.9% and 18.1% respectively.
11
<PAGE>
Gross Profit
Gross profit increased 64.0% to $73.0 million for First Half 1997 from
$44.5 million for First Half 1996. Higher volumes and increased gross profit
margins accounted for the majority of the improvement with continued emphasis on
future orders and improved inventory controls contributing the difference. The
Company's gross profit margin improved to 30.5% of net sales compared to 26.7%
for First Half 1996. Although gross profit increased during First Half 1997, it
was negatively impacted by $1.8 million of foreign currency losses due to the
strengthening of the U.S. dollar during this period.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased 21.5% to $67.3
million for First Half 1997 from $55.4 million for First Half 1996. As a
percentage of net sales, selling, general and administrative expenses decreased
to 28.1% for First Half 1997 from 33.3% for the prior year period. The increase
in selling, general and administrative expenses of $11.9 million was
attributable to: (i) an increase in the United States of 27.9% in selling
expenses to support the 72.9% increase in sales; (ii) a 21.6% increase in
marketing expenses; (iii) a 33.8% increase in product development and (iv) a
25.4% increase in international selling and marketing expenditures.
Royalty Income
Royalty income increased by 0.9% to $11.4 million for First Half 1997 from
$11.3 million for First Half 1996. International royalty income, which currently
represents approximately 80% of the Company's total royalty income, decreased
7.0%. The largest reduction was in the Pacific region, which declined 21.0%
compared to the prior year period. Reduced demand for the Company's licensed
products in Japan during Second Quarter 1997 accounted for the majority of the
decline. As noted above, the Company anticipates that this trend will continue
in the second half of 1997. The decrease in the Pacific region for First Half
1997 was offset by increases of 245.7% in the Latin America region and 45.7% in
the Europe, Middle East and Africa region. Domestic royalty income increased
70.6% over the prior year period due to higher demand for virtually all of the
Company's licensed products. As a percentage of net sales, royalty income was
4.8% for First Half 1997 compared to 6.8% for the prior year period.
Earnings from Operations
The Company recorded earnings from operations of $17.7 million for First
Half 1997 as compared to $2.5 million for First Half 1996. As a percentage of
net sales, earnings from operations were 7.4% for First Half 1997 as compared to
1.5% from the prior year period. The improvement in earnings from operations is
attributable to higher sales, improved gross profit and lower selling, general
and administrative expenses as a percentage of net sales partially offset by a
decline in royalty income as a percentage of net sales.
12
<PAGE>
Loss (Credit) on Investment in Unconsolidated Subsidiary
For First Half 1997, Converse recorded a pretax gain totaling $13.1
million relating to the settlement of certain obligations related to Apex One,
Inc. ("Apex"). See Note 7 to the Consolidated Financial Statements of the
Company included herein.
Interest Expense
Interest expense for First Half 1997 decreased to $6.6 million from $8.1
million for First Half 1996, a 18.5% decline. The decrease is primarily
attributable to the reversal of $1.4 million of interest payments made into
escrow relating to the subordinated notes issued to the former owners of Apex,
issuance of $80 million of 7% Convertible Subordinated Notes due June 1, 2004
(the "Convertible Notes") on May 21, 1997 replacing other higher-interest
indebtedness, and reduction in credit facility amendment fees incurred in Second
Quarter 1996. See Liquidity and Capital Resources below and Note 4 to the
Consolidated Financial Statements of the Company included herein.
Earnings (Loss) from Continuing Operations before Income Tax
Earnings from continuing operations before income tax was $21.9 million
for First Half 1997 compared to a $7.6 million loss for First Half 1996. The
First Half 1997 results were negatively impacted by $2.7 of foreign currency
losses due to the strengthening of the U.S. dollar in the Company's
international markets over that period. As noted above, the Company anticipates
that the strength of the U.S. dollar will have a continuing negative effect in
the second half of 1997.
Net Earnings (Loss) from Continuing Operations
Due to the business factors described above, the Company recorded net
earnings from continuing operations of $13.5 million for First Half 1997
compared to a net loss from continuing operations of $7.0 million for First Half
1996. Net earnings from continuing operations included a gain of approximately
$8.0 million, net of income taxes, pertaining to the settlement of outstanding
litigation and claims relating to Apex and the Apex bankruptcy plan
confirmation. See Note 7 to the Consolidated Financial Statements of the Company
included herein.
Net Earnings (Loss) Per Share from Continuing Operations
The Company recorded a net earnings per share from continuing operations of
$0.76 for First Half 1997 compared to a $0.42 loss per share from continuing
operations for First Half 1996. Earnings per share from continuing operations
for First Half 1997 include $0.45 relating to the settlements of virtually all
outstanding claims resulting from the Company's purchase of Apex.
13
<PAGE>
Extraordinary Loss, Net of Tax
The Company entered into the new Credit Facility on May 21, 1997. In
connection with repayment of the Old Credit Facility, the Company wrote off
deferred financing fees of $1,320 relating to the Old Credit Facility which
resulted in an extraordinary loss net of taxes of $812.
Net Earnings (Loss) Per Share
The Company recorded a net earnings per share of $0.71 for First Half 1997
compared to a $0.42 loss per share for First Half 1996. Earnings per share for
First Half 1997 include $0.45 relating to the settlements of virtually all
outstanding claims resulting from the Company's purchase of Apex.
Liquidity and Capital Resources
As of June 28, 1997, the Company's working capital (net of cash) position
increased to $36.9 million from a deficit of $38.6 million at December 28, 1996.
Accounts receivable increased $33.9 million as a result of significantly higher
shipments during First Half 1997 versus the prior year. Also, inventories
increased by $11.6 million as a result of the seasonal build up for shipments in
the third quarter of 1997. Working capital requirements were funded in large
part by cash provided by financing activities of $41.9 million for the First
Half 1997.
In May 1997 the Company issued $80.0 million of Convertible Notes and
entered into the new Credit Facility. Proceeds from the Convertible Notes of
$76.4 were used to repay indebtedness under the Company's Old Credit Facility.
Total borrowings under the Credit Facility and asset based financing
arrangements decreased to $96.4 million at June 28, 1997 from $131.2 million at
December 28, 1996. See Note 4 to Consolidated Financial Statements of the
Company included herein.
For First Half 1997 and First Half 1996 net cash required for operating
activities was $40.9 million and $14.6 million, respectively. During these
periods cash was predominantly used to fund the Company's working capital
requirements. Net cash used by investing activities was $2.8 million for First
Half 1997 due to additions to property, plant and equipment. Net cash provided
by investing activities was $2.1 million for First Half 1996 due to the sale of
a non-operating distribution facility in South Carolina net of additions to
property, plant and equipment. Net cash provided by financing activities was
$41.9 million and $13.7 million for First Half 1997 and First Half 1996,
respectively. Cash provided by financing activities for the First Half 1997 was
generated primarily by the issuance of $80.0 million of Convertible Notes and
$82.4 million of net borrowings on the Credit Facility offset by the repayment
of $117.8 on the Old Credit Facility.
14
<PAGE>
Year 2000 Software Changes
The Company recognizes the need and urgency of ensuring that it is
not adversely impacted by a software failure arising from the so-called Year
2000 problem. A Company-wide task force has been established to review the
situation and implement potential solutions. Major areas of potential business
impact have been identified, and initial conversion efforts are underway. The
Company presently anticipates having all internal systems completed by in-house
staff prior to 1999. The Company is also in communication with suppliers,
customers and others with which it does business to coordinate conversion
efforts. The total cost of compliance is still being determined.
Backlog
At the end of Second Quarter 1997, the Company's global backlog was $190.9
million, compared to $126.2 million at the end of Second Quarter 1996, an
increase of 51.3%. The amount of backlog at a particular time is affected by a
number of factors, including the scheduling of the introduction of new products
and the timing of the manufacturing and shipping of the Company's products.
Accordingly, a comparison of backlog as of two different dates is not
necessarily meaningful.
Forward-looking statements
Information contained in this Report may contain "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should" or "anticipates" or the
negatives thereof or other variations thereon or comparable terminology. No
assurance can be given that future results covered by any forward-looking
statements will be achieved. The risk factors contained in the Company's annual
report on Form 10-K for the year ended December 28, 1996 constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to vary materially from the future results covered in such
forward-looking statements. Other factors, such as failure to implement adequate
solutions to the Year 2000 problem or high costs of implementation, could also
cause actual results to vary materially from the future results covered in such
forward-looking statements. The Company undertakes no obligation to publicly
release any revisions to these forward-looking statements to reflect any future
events or occurrences.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes from the information
previously reported under Item 3 of the Company's annual
report on Form 10-K for the fiscal year ended December 28,
1996.
Item 2. Changes In Securities
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
On June 18, 1997 the Company conducted its annual meeting of
stockholders pursuant to due notice. A quorum being present either in person or
by proxy, the stockholders voted on the following matters:
1. To elect twelve directors to hold office until the next annual
meeting and until their successors are elected and qualified.
2. To ratify the selection of Price Waterhouse LLP as the Company's
independent auditors for the next fiscal year.
No other matters were voted upon. The votes cast were as follows:
16
<PAGE>
1. Election of Directors. The following directors were elected to
the Company's Board:
<TABLE>
<CAPTION>
Number of voted cast Number of votes
Name of Director FOR WITHHELD
---------------- --- --------
<S> <C> <C>
Donald J. Barr 16,842,236 63,172
Leon D. Black 16,843,172 62,236
Julius W. Erving 16,841,087 64,321
Robert H. Falk 16,841,501 63,907
Gilbert Ford 16,839,396 66,012
Michael S. Gross 16,450,925 454,483
John J. Hannan 16,841,514 63,894
Joshua J. Harris 16,450,875 454,533
John H. Kissick 16,841,414 63,994
Richard B. Loynd 15,739,379 1,166,029
Glenn N. Rupp 16,843,581 61,827
Michael D. Weiner 16,840,497 64,911
</TABLE>
2. Ratification of selection of Price Waterhouse LLP as the
Company's independent auditors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
16,847,027 22,795 35,586
</TABLE>
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are contained in this
report:
4 Indenture dated as of May 21, 1997 between
Converse Inc. and First Union National Bank, as
Trustee, relating to Converse Inc. 7%
Convertible Subordinated Notes due 2004 in the
principal amount of $80,000,000, including the
form of Note.
10.1 Credit Agreement dated May 21, 1997 between
Converse Inc. and BT Commercial Corporation, as
agent, and the financial institutions party
thereto.
10.2 Amendment No. 1 to Credit Agreement dated June
26, 1997 between Converse Inc. and BT Commercial
Corporation, as agent, and the financial
institutions party thereto.
17
<PAGE>
10.3 Asset Purchase Agreement dated June 1, 1997
between Converse Inc. and Exeter Research, Inc.
11.1 Regarding Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed on April 17, 1997,
containing financial information for the quarter ended
March 29, 1997 reported under Item 5.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 7, 1997 Converse Inc.
By: /s/ Donald J. Camacho
-----------------------------
Donald J. Camacho
Senior Vice President and
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
4 Indenture dated as of May 21, 1997 between Converse
Inc. and First Union National Bank, as Trustee,
relating to Converse Inc. 7% Convertible
Subordinated Notes due 2004 in the principal amount
of $80,000,000, including the form of Note.
10.1 Credit Agreement dated May 21, 1997 between Converse
Inc. and BT Commercial Corporation, as agent, and
the financial institutions party thereto.
10.2 Amendment No. 1 to Credit Agreement dated June 26,
1997 between Converse Inc. and BT Commercial
Corporation, as agent, and the financial
institutions party thereto.
10.3 Asset Purchase Agreement dated June 1, 1997 between
Converse Inc. and Exeter Research, Inc.
11.1 Statement Regarding Computation of Per Share
Earnings
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 4
INDENTURE, dated as of May 21, 1997 between CONVERSE, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal executive offices at One
Fordham Road, North Reading, Massachusetts 01864, and FIRST UNION NATIONAL BANK,
a national banking association, as Trustee (herein called the "Trustee"), having
an office at 123 South Broad Street, Philadelphia, Pennsylvania 19109.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 7%
Convertible Subordinated Notes Due 2004 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with United States generally accepted accounting
principles, and, except as otherwise herien expressly provided, the term
"generally accepted accounting principles" with
<PAGE>
respect to any computation required and permitted hereunder shall mean United
States accounting principles as are generally accepted at the date of this
Indenture; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms used in either Article Twelve or Thirteen are defined in
such Article.
"Acquiring Person Acquiring Person " means any person or group (as
defined in Section 13(d)(3) of the Exchange Act) who or which, together with all
affiliates and associates (as defined in Rule 12b-2 under the Exchange Act),
becomes the Beneficial Owner of shares of Common Stock or other voting
securities of the Company having more than 50% of the total number of votes that
may be cast for the election of directors of the Company; provided, however,
that an Acquiring Person shall not include (i) the Apollo Stockholders, (ii) the
Company, (iii) any Subsidiary of the Company or (iv) any current or future
employee benefit plan of the Company or any Subsidiary of the Company or any
entity holding Common Stock of the Company for or pursuant to the terms of any
such plan. Notwithstanding the foregoing, no person shall become an Acquiring
Person as the result of an acquisition of Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to more than 50% of the Common Stock of
the Company then outstanding; provided, however, that if a Person shall become
the beneficial owner of 50% or more of the Common Stock of the Company then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the beneficial owner of any additional
shares of Common Stock of the Company, then such Person shall be deemed to be an
Acquiring Person.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate " of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Global Security to the extent
applicable to such transaction and as in effect from time to time.
"Apollo Stockholders" means Apollo Advisors, L.P., Lion Advisors, L.P.,
any Affiliate of either thereof (including without limitation, Apollo Investment
Fund, L.P.), and all accounts
2
<PAGE>
managed by any of them for so long as any of them holds the power of disposition
and voting with respect thereto.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
The term "Beneficial Owner" is determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York or
the city in which the Corporate Trust Office is located are authorized or
obligated to close by law or executive order.
"Change in Control" means any of the following events:
(a) There shall be consummated any consolidation or merger of the
Company (1) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly-owned Subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same consideration)
or (2) pursuant to which the Common Stock is converted into cash, securities or
other property, in each case, other than a consolidation or merger of the
Company in which the holders of Common Stock immediately prior to the
consolidation or merger hold, directly or indirectly, at least a majority of the
common stock of the continuing or surviving corporation immediately after such
consolidation or merger;
(b) Any Acquiring Person shall have become such Person; or
(c) There shall be consummated a sale of all or substantially all of the
Company's assets as an entirety.
Notwithstanding anything to the contrary set forth in this definition, a
Change in Control shall not be deemed to have occurred (A) under paragraph (b)
above, solely by virtue of the Company, any Subsidiary, any employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary or any Person holding securities of the Company for or pursuant to
the terms of any such employee benefit plan, filing or becoming obligated to
file a report under or in response to Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report) under the Exchange Act disclosing beneficial
ownership by it of shares of securities of the Company, whether in excess of 50%
or otherwise, or (B) under paragraphs (a), (b) and (c)
3
<PAGE>
above, if the last reported sale price of the Common Stock on the New York Stock
Exchange Composite Tape for any five trading days during the ten trading days
immediately preceding the Change in Control is at least equal to 105% of the
conversion price in effect immediately preceding the time of such Change in
Control.
"Close of Business" means 5:00 p.m. in New York, New
York.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1311, shares issuable on conversion of Securities shall
include only shares of the class designated as Common Stock of the Company at
the date of this Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
delivered to the Trustee and signed in the name of the Company by (a) the
Chairman of the Board, the President or any Vice President of the Company and
(b) the Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary of the Company.
"Corporate Trust Office" means the office of the Trustee in New York,
New York, which initially shall be 40 Broad Street, Suite 530, New York, New
York 10004.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"Credit Facility" means the Credit Agreement dated as of May 15, 1997
among the Company, BT Commercial Corporation, as agent, and certain financial
institutions party thereto,
4
<PAGE>
as amended from time to time, and any agreement evidencing the refinancing,
replacement, renewal or refunding therof.
"Current Market Price" has the meaning specified in Section 1304.
"Daily Market Price" means the price of a share of Common Stock on the
relevant date, determined on the basis of the last reported sale price regular
way of the Common Stock as reported on the composite tape, or similar reporting
system, for issues listed on the New York Stock Exchange (or if the Common Stock
is not then listed on that Exchange, on the principal national securities
exchange upon which the Common Stock is listed or, if not listed on any national
securities exchange, on the Nasdaq National Market, if the Common Stock shall be
listed thereon or, if there is no such reported sale on the day in question, on
the basis of the average of the closing bid and asked quotations regular way as
so reported, or, if the Common Stock is not listed on any national securities
exchange or on the Nasdaq National Market, on the basis of the average of the
high bid and low asked quotations regular way on the day in question in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or if not so quoted, as reported by National
Quotation Bureau, Incorporated, or a similar organization.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to any Global Securities, a clearing
agency that is registered as such under the Exchange Act and is designated by
the Company to act as a Depositary for such Global Securities (or any successor
securities clearing agency so registered).
"DTC" means the Depository Trust Company, a New York corporation
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or nominee thereof.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
5
<PAGE>
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity thereof or by declaration of
acceleration, redemption or otherwise.
"Officers' Certificate" means a certificate delivered to the Trustee and
signed by (a) the Chairman of the Board, the President or any Vice President of
the Company and (b) the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company. One of the officers signing an Officers'
Certificate given pursuant to Section 1004 shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for or an employee of the Company, and who shall not be unacceptable to
the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount have been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Securities; provided, that if such Securities, or
portions thereof, are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal amount of the
Outstanding Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, Securities owned by the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
6
<PAGE>
"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Record Date" means either a Regular Record Date or a Special Record
Date, as applicable.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture on the applicable Redemption Date.
"Regular Record Date", for the interest payable on any Interest Payment
Date means the May 15 or November 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Repurchase Date" has the meaning specified in Section 1401.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means (a) principal of, premium, if any, and
accrued and unpaid interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company) on
(i) indebtedness of the Company for money borrowed, whether outstanding on the
date of execution of this Indenture or thereafter created, incurred or assumed,
(ii) guarantees by the Company of indebtedness for money borrowed by any other
person, or reimbursement obligations under letters of credit, in either case,
whether outstanding on the date of execution of this Indenture or thereafter
created, incurred or assumed, (iii) indebtedness evidenced by notes (other than
the Securities), debentures, bonds or other instruments of indebtedness for the
payment of which the Company is responsible or liable, by guarantees or
otherwise, whether outstanding on the date of execution of this Indenture or
thereafter created, incurred or assumed, (iv) obligations of the Company under
interest rate and currency swaps, caps, floors, collars or similar agreements or
arrangements intended to protect the Company against fluctuations in interest or
currency rates, whether outstanding on the date of execution of this Indenture
or thereafter created, incurred or assumed and (v) obligations of the Company
under any agreement to lease, or any lease of, any real or personal property,
which
7
<PAGE>
obligations, whether outstanding on the date of execution of this Indenture or
thereafter created, incurred or assumed, are required to be capitalized on the
books of the Company in accordance with generally accepted accounting
principles, or guarantees by the Company of similar obligations of others, and
(b) modifications, renewals, extensions and refundings of any such indebtedness,
obligations or guarantees; unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
indebtedness, obligations or guarantees or such modification, renewal, extension
or refunding thereof are not superior in right of payment to the Securities;
provided, however, that Senior Indebtedness shall not be deemed to include, and
the Securities will rank pari passu in right of payment with any obligation of
the Company to any Subsidiary.
"Significant Subsidiary" has the meaning ascribed to it under Regulation
S-X promulgated under the Securities Exchange Act.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
"Time of Determination" means (1) for purposes of Section 1304(b) or
(c), the time and date of the earlier of (a) the record date for determining
stockholders entitled to receive the rights, warrants or distributions referred
to in Section 1304(b) and (c), or (b) the commencement of "ex-dividend" trading
on the exchange or market referred to in the definition of the term "Daily
Market Price"; (2) for purposes of Section 1304(d), the date of issuance of
Common Stock to the relevant Affiliate; and (3) for purposes of Section 1304(e)
the Expiration Time (as defined in Section 1304(e)).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
8
<PAGE>
"Vice President", when used with respect to the Company means any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president".
Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirement set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (c) a statement that, in the opinion of each
such individual, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by or
covered by an opinion of any specified Person, it is not necessary that all such
matters be certified by, or covered by the opinion of, only one such Person, or
that they be so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and one or more
other such Persons as to other matters, and any Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certification or Opinion of
Counsel unless such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate of public officials or upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession
9
<PAGE>
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
Notwithstanding the foregoing, the Company shall not set a record date for, and
the provisions of this paragraph shall not apply with respect to, any Act by the
Holders pursuant to Section 501, 502 or 512.
(d) The ownership of Securities shall be proved by the Security
Register.
10
<PAGE>
(e) Any Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer therefor or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to give
or take any action hereunder with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
Section 105. Notices, Etc., to Trustee and Company.
Any Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee at the address specified in the first paragraph of this Indenture or
such other address as previously furnished in writing by the Trustee ,or
(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company, addressed to it
at the address of its principal executive offices specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company.
Section 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail any notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be
11
<PAGE>
made with the approval of the Trustee shall constitute a sufficient notification
for every purpose hereunder.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders of Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to the
principles of conflicts of laws of such State.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal and premium if any, or conversion of the Securities need not be
12
<PAGE>
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or Redemption
Date, or at the Stated Maturity, or on such last day for conversion; provided,
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date, Stated Maturity or last day for conversion, as
the case may be.
Section 114. No Security Interest Created.
Nothing in this Indenture or in the Securities, express or implied,
shall be construed to constitute a security interest under the Uniform
Commercial Code or similar legislation, as now or hereafter enacted and in
effect in any jurisdiction where property of the Company or its Subsidiaries is
or may be located.
Section 115. Limitation on Individual Liability.
No recourse under or upon any obligation, covenant or agreement
contained in this Indenture or in any Security, or for any claim based thereon
or otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or any successor corporation, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the incorporators, shareholders, officers or
directors, as such, of the Company or any successor Person, or any of them,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any Security or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, shareholder, officer or director, as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any
Security or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Security.
ARTICLE 2.
SECURITY FORMS
Section 201. Forms Generally.
The Securities and the Trustee's certificates of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with any law or with the rules of any securities exchange on
which the
13
<PAGE>
Securities are listed or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities.
The definitive Securities (other than a Global Security) shall be
printed, lithographed or engraved or produced by any combination of these
methods on steel engraved borders or may be produced in any other manner
permitted by the rules of any securities exchange on which the Securities may be
listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities. A Global Security may be in the
foregoing form or may be typewritten form.
Section 202. Form of Face of Security.
A legend in substantially the following form shall also appear on the
face of each Global Security:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
REFERRED TO BELOW AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE
OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY
AGENT THEREOF AS THE OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.
A legend in substantially the following form shall also appear on the
face of each Global Security for which the Depository Trust Company is to be the
Depositary:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR 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.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM, THIS GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY
CONVERSE INC.
14
<PAGE>
7% Convertible Subordinated Notes Due 2004
No. ________ $___________
Converse, Inc., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________________________, or registered
assigns, upon presentment and surrender hereof, the principal sum of
________________ Dollars on June 1, 2004, and to pay interest thereon from
and including the date of the initial issuance of Securities under this
Indenture or from and including the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on June 1 and
December 1 in each year, commencing December 1, 1997 at the rate of 7% per
annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the May 15 or November 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Notice of a Special
Record Date shall be given to Holders of Securities not less than ten days prior
to such Special Record Date. Payment of the principal of and premium, if any,
and interest on this Security will be made at the office or agency of the
Company maintained for that purpose pursuant to Section 1002 of the Indenture,
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: _________________ CONVERSE INC.
15
<PAGE>
Attest: By _________________________
[Title]
- ------------------------
[Title]
Section 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its 7% Convertible Subordinated Notes Due 2004 (herein
called the "Securities"), limited in aggregate principal amount to $80,000,000
(including $10,000,000 principal amount of the Securities issuable upon exercise
of an underwriters' over-allotment option), issued and to be issued under an
Indenture, dated as of May 21, 1997 (herein called the "Indenture"), between
the Company and First Union National Bank, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or before the
close of business on June 1, 2004, or in case this Security or a portion hereof
is called for redemption, then in respect of this Security or such portion
hereof until and including, but (unless the Company defaults in making the
payment due upon redemption) not after, the close of business on the Business
Day immediately preceding the Redemption Date, to convert this Security (or any
portion of the principal amount hereof which is $1,000 or an integral multiple
thereof), at the principal amount hereof, or of such portion, into
fully paid and non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock of the Company at a conversion price
equal to $21.83 principal amount for each share of Common Stock (or at the
current adjusted conversion price if an adjustment has been made as provided in
the Indenture) by surrender of this Security, duly endorsed or assigned to the
Company or in blank, to the Company at its office or agency maintained for that
purpose pursuant to Section 1002 of the Indenture, accompanied by written notice
to the Company in the form provided in this Security (or such other notice as is
acceptable to the Company) that the Holder hereof elects to convert this
Security, or if less than the entire principal amount hereof is to be converted,
the portion hereof to be converted, and, in case such surrender shall be made
after the close of business on any Regular Record Date next preceding any
Interest Payment Date and before the close of business on such Interest Payment
Date (unless there exists a default in the payment of interest on this Security
or this Security or the portion thereof being converted has been called for
redemption) also accompanied by payment in funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Security then being converted. Subject to the aforesaid
requirement for payment and, in the case
16
<PAGE>
of a conversion after the Regular Record Date next preceding any Interest
Payment Date and on or before such Interest Payment Date, to the right of the
Holder of this Security (or any Predecessor Security) of record at such Regular
Record Date to receive an installment of interest (with certain exceptions
provided in the Indenture), no payment or adjustment is to be made upon
conversion on account of any interest accrued hereon or on account of any
dividends on the Common Stock issued upon conversion. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but instead
of any fractional share the Company shall pay a cash adjustment as provided in
the Indenture. The conversion price is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in case of certain
consolidations, mergers or statutory exchanges of securities with another
corporation to which the Company is a party or the sale or conveyance of the
assets of the Company substantially as an entirety, the Indenture shall be
amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon the consolidation,
merger, statutory exchange or transfer by a holder of the number of shares of
Common Stock into which this Security was convertible immediately prior to such
consolidation, merger, statutory exchange or transfer (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount of consideration received per share by a plurality of non-
electing shares).
The Securities are subject to redemption upon not less than 15 and not
more than 60 days' notice by mail, at any time on or after June 5, 2000, as
a whole or in part, at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount) plus accrued interest
to the Redemption Date, provided that interest installments whose Maturity is on
or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates, all as provided in the Indenture.
If redeemed during the 12-month period beginning June 1 in the year
indicated (June 5 in the case of the year 2000), the Redemption Price shall
be:
Redemption
Year Price
2000 104.0%
2001 103.0%
2002 102.0%
2003 101.0%
If all accrued interest on the Securities has not been paid, the
Securities may not be redeemed in part and the Company may not purchase or
acquire any Security otherwise than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Securities.
In certain circumstances involving the occurrence of a Change in Control
(as defined in the Indenture), the Holder hereof shall have the right to require
the Company to repurchase this Security (or any portion of the principal amount
hereof which is $1,000 or an integral multiple thereof) at 100% of the principal
amount hereof (or of such portion), together with accrued
17
<PAGE>
interest to the Repurchase Date, but interest installments whose Stated Maturity
is on or prior to such Repurchase Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.
In the event of redemption, conversion or repurchase of this Security in
part only, a new Security or Securities for the unredeemed, unconverted or
unpurchased portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.
Any Securities called for redemption, unless surrendered for conversion
by the close of business on the Business Day immediately preceding the date
fixed for redemption, are subject to being purchased from the Holder of such
Securities at the redemption price by one or more investment banking firms or
other purchasers who may agree with the Company to purchase such Securities and
convert them into Common Stock.
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payment to the prior
payment in full of all Senior Indebtedness, and this Security is issued subject
to the provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent
or waiver by the Holder of this Security shall be conclusive and binding upon
such Holder and upon all future Holders of this Security and of any Security
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed or to convert this Security as provided in the
Indenture.
18
<PAGE>
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and premium,
if any, and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, in each case, with an appropriate signature
guarantee, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Securities are issuable only in fully registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer or
exchange except as provided in the Indenture. The Company may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, except as provided in this Security, whether or not this Security be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
[FORM OF CONVERSION NOTICE]
TO CONVERSE INC.:
The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
$1,000 or a multiple thereof) designated below, into shares of Common Stock in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon the conversion, together
with any check in payment for a fractional share and any Security representing
any unconverted principal amount hereof, be issued and delivered to the
registered owner hereof unless a different name has been provided below. Except
as otherwise provided in the Indenture, if this Notice is being delivered on a
date after the close of business on a Regular Record Date and before the close
of business on the related Interest Payment Date, this Notice is accompanied by
payment in funds acceptable to the Company, of an amount equal to the interest
payable on such Interest Payment Date on the principal of this Security to be
converted. If shares or any portion of this
19
<PAGE>
Security not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Dated: _________________________
-------------------------
-------------------------
Signature(s)
20
<PAGE>
Signature(s) must be guaranteed by an Eligible Guarantor Institution
with membership in an approved signature guarantee program pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934.
- ----------------------------------------------------
Signature Guarantee
Fill in for registration of shares of Common Stock if they are to be
delivered, or Securities if they are to be issued, other than to and in the name
of the registered owner:
- -----------------------------------------------------------
(Name)
- -----------------------------------------------------------
(Street Address)
- -----------------------------------------------------------
(City, State and Zip code)
(Please print name and address)
Register: _____ Common Stock
_____ Securities
(Check appropriate line(s)).
Principal amount to be converted (if less than all):
$__________,000
---------------------------------
Social Security or other Taxpayer
Identification Number of owner
Section 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
<PAGE>
This is one of the Securities referred to in the within-mentioned Indenture.
First Union National Bank,
as Trustee
By ____________________________
Authorized Signatory
ARTICLE 2.
THE SECURITIES
Section 301. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $80,000,000 (including
$10,000,000 aggregate principal amount of Securities that may be sold by the
Company pursuant to the over-allotment option granted pursuant to the
Underwriting Agreement, dated May 15, 1997, among the Company, Smith Barney,
Inc., Dillon, Read & Co. Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co., except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 304, 305, 306, 906, 1108, 1302 or 1405.
The Securities shall be known and designated as the "7% Convertible
Subordinated Notes Due 2004" of the Company. Their Stated Maturity shall be
June 1, 2004 and they shall bear interest at the rate of 7% per annum, from
and including the date of the initial issuance of Securities under this
Indenture or from and including the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, payable
semi-annually on June 1 and December 1 commencing December 1, 1997, until the
principal thereof is paid or made available for payment. Each payment of
interest shall include interest accrued to but excluding the Interest Payment
Date on which payment is to be made.
The principal of and premium, if any, and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose pursuant to Section 1002; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article 11.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article 12.
The Securities shall be convertible as provided in Article 13.
<PAGE>
The Securities shall be subject to repurchase at the option of the
Holder as provided in Article 14.
Section 302. Denominations.
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents, under its
corporate seal or a facsimile thereof reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall either at one time or from time to time pursuant
to such instructions as may be described therein authenticate and deliver such
Securities as in this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of the Indenture.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon receipt of a Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such
23
<PAGE>
Securities. Every such temporary Security shall be executed by the Company and
shall be authenticated and delivered by the Trustee upon the same conditions and
in substantially the same manner, and with the same effect, as the definitive
Security or Securities in lieu of which it is issued.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor one or more definitive Securities of a like
principal amount of authorized denominations. Until so exchanged the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
For purposes of this Section 304 each Global Security shall be
considered a definitive Security.
Section 305. Registration, Registration of Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided. At all reasonable times the Security
Register shall be open for inspection by the Company.
Upon surrender for registration of transfer of any Security at an office
or agency of the Company designated pursuant to Section 1002 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Securities
of any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at the office or agency
maintained for that purpose. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
(b) All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange. Every Security
presented or surrendered for registration of transfer or for exchange shall (if
so required by the Company or the Trustee) be duly endorsed, or be accompanied
by a
24
<PAGE>
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing, and, in the case of a transfer, with an appropriate
guarantee of signature.
No service charge shall be made for any registration of transfer or
exchange of Securities except as provided in Section 306. The Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Securities, other than exchanges pursuant to Section 304, 906, 1108,
1302 or 1405 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of
or exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, (ii) to register the transfer of or exchange of any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part, or (iii) to register the
transfer or exchange of any Securities surrendered for conversion or repurchase
upon the occurrence of a Change in Control.
The provisions of clauses (1), (2), (3), (4) and (5) below shall apply
only to Global Securities;
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary (A) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Note or (B) has
ceased to be a clearing agency registered under the Exchange Act or (ii) the
Company at any time in its sole discretion determines not to have Global
Securities and shall so notify the Depositary and Trustee.
(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a Global Security or any portion thereof shall be registered in
such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article Three or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
25
<PAGE>
(5) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through
records maintained by the Depositary or its nominee or its Agent Members and
such owners of beneficial interests in a Global Security will not be considered
the owners or holders thereof. Neither the Company nor the Trustee will have any
responsibility or obligation to the Depositary or any of its Agent Members with
respect to (i) the accuracy of any records maintained by the Depositary (ii) the
payment by the Depositary or any Agent Members of any amount due to any owner of
beneficial interests in a Global Security in respect of any Securities, (iii)
the delivery of any notice by the Depositary or any Agent Member, or (iv) any
other action taken by the Depositary or any Agent Members.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (a) evidence
to their satisfaction of the destruction, loss or theft of any Security and (b)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
26
<PAGE>
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest. At the
option of the Company, interest on any Security may be paid by mailing checks to
the addresses of the Holders thereof as such addresses appear in the Securities
Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, which payment date shall be at least 30 calendar days after
such notice delivered by the Company to the Trustee (or such shorter period as
is satisfactory to the Trustee), and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this Clause provided.
Thereupon, the Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less than 10
days prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record Date
and shall no longer be payable pursuant to the following Clause (b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given
27
<PAGE>
by the Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date; provided,
however, that Securities so surrendered for conversion shall (except in the case
of Securities or portions thereof (i) which have been called for redemption or
(ii) as to which there exists a default in the payment of interest thereon) be
accompanied by payment in funds acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount being
surrendered for conversion. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Security which is converted,
interest whose Stated Maturity is after the date of conversion of such Security
shall not be payable.
Section 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and premium, if any, and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
Section 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer, exchange or conversion shall, if surrendered to any Person other than
the Trustee, be delivered to the Trustee and shall be promptly canceled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be disposed of as directed by a Company
Order.
28
<PAGE>
Section 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 311. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number and, if
it does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that 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 change in the CUSIP number.
ARTICLE 4.
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion or registration of transfer or
exchange of Securities herein expressly provided for), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered
(other than (A) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 306 and (B)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity
within one year, or
29
<PAGE>
(C) 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, or
(D) are delivered to the Trustee for conversion in
accordance with Article 13;
and the Company, in the case of (A), (B), (C) or (D) above, has
deposited or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire indebtedness on
such Securities not theretofore delivered to the Trustee for cancellation for
principal and premium, if any, and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with. Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 607, the
obligations of the Trustee to any Authenticating Agent under Section 614 and, if
money shall have been deposited with the Trustee pursuant to subclause (ii) of
Clause (a) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
Section 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and premium, if
any, and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held
by it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
Section 403. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article 4 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 4 until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust with respect to the Securities;
provided, however, that if the
30
<PAGE>
Company makes any payment of principal of or any premium or interest on any
Security following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of the Securities to receive such
payment from the money so held in trust.
ARTICLE 5.
REMEDIES
Section 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article 12 or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body):
(a) default in the payment of any interest upon any Security when it
becomes due and payable, whether or not such payment is prohibited by the
provisions of Article 12, and continuance of such default for a period of 30
days; or
(b) default in the payment of the principal of or premium, if any, on
any Security at its Maturity, whether or not such payment is prohibited by the
provisions of Article 12; or
(c) default in the payment of the Repurchase Price in respect of any
Security on the Repurchase Date, whether or not such payment is prohibited by
the provisions of Article 12 or failure to provide timely notice of a Change
in Control as required by Section 1402; or
(d) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 45 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder; or
(e) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any Significant Subsidiary or
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any Significant Subsidiary having an aggregate principal
amount of $10,000,000 or more, which default (i) is caused by, a failure to pay
the principal of or premium, if any, or interest on such indebtedness when due
and payable after the expiration of any applicable grace or forebearance period
with respect thereto or (ii) shall have resulted in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
have become due and payable, without such acceleration
31
<PAGE>
having been rescinded or annulled, within a period of 30 days after there shall
have been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such default
and requiring the Company to cause such acceleration to be rescinded or annulled
and stating that such notice is a "Notice of Default" hereunder; or
(f) a final judgment or final judgments for the payment of money against
the Company or any Significant Subsidiary the entry by a court or courts of
competent jurisdiction of which remain undischarged for a period (during which
execution shall not be effectively stayed, the posting of any required bond not
being deemed an execution for purposes hereof) of 30 days, provided that the
aggregate amount of all such judgments exceeds $10,000,000 (net of amounts to
which the Company or such Significant Subsidiary is entitled pursuant to
insurance policies which can reasonably be expected to be paid in the ordinary
course); or
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable Federal or
state bankruptcy, insolvency, reorganization or other similar law or (ii) a
decree or order adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Significant Subsidiary under any applicable Federal or State law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Significant Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 90 consecutive
days; or
(h) the commencement by the Company or any Significant Subsidiary of a
voluntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Company or any
Significant Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or the
consent by it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or any Significant Subsidiary or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Company or any Significant Subsidiary in furtherance of any such action.
Upon receipt by the Trustee of any Notice of Default pursuant to this
Section 501, a record date shall automatically and without any other action by
any Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such Notice of Default,
32
<PAGE>
which record date shall be the close of business on the day the Trustee receives
such Notice of Default. The Holders of Outstanding Securities on such record
date (or their duly appointed agents), and only such Persons, shall be entitled
to join in such Notice of Default, whether or not such Holders remain Holders
after such record date: provided, that unless such Notice of Default shall have
become effective by virtue of the Holders of the requisite principal amount of
Outstanding Securities on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th day after such record date, such
Notice of Default shall automatically and without any action by any Person be
canceled and of no further force or effect.
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(g) or (h)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal plus
any interest accrued on the Securities to the date of declaration shall become
immediately due and payable. In the case of an Event of Default specified in
Section 501(g) or (h), all unpaid principal of and accrued interest on the
Securities then outstanding shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the holders of
Securities.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(a) the Company has paid or deposited with the Trustee a sum sufficient
to pay (i) all overdue interest on all Securities, (ii) the principal of and
premium, if any, on any Securities which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Securities, (iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities, and (iv) all
sums paid or advanced by the Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel;
and
(b) all Events of Default, other than the nonpayment of the principal of
Securities which has become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
No such rescission and waiver shall affect any subsequent default or
impair any right consequent thereon.
33
<PAGE>
Upon receipt by the Trustee of any declaration of acceleration, or any
rescission and annulment of any such declaration, pursuant to this Section 502,
a record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such declaration, or rescission and annulment, as the case
may be, which record date shall be the close of business on the day the Trustee
receives such declaration, or rescission and annulment, as the case may be. The
Holders of Outstanding Securities on such record date (or their duly appointed
agents), and only such Persons, shall be entitled to join in such declaration,
or rescission and annulment, as the case may be, whether or not such Holders
remain Holders after such record date; provided, that unless such declaration,
or rescission and annulment, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding Securities on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such declaration, or rescission
and annulment, as the case may be, shall automatically and without any action by
any Person be canceled and of no further force or effect.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days, or
(b) default is made in the payment of the principal of or premium, if
any, on any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal and premium, if any, and on any overdue interest, at the rate
borne by the Securities, and, in addition thereto, such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If an Event of Default specified in Section 503(a) or (b) occurs and is
continuing with respect to the Securities, the Trustee may recover judgment in
its own name and as trustee of an express trust against the Company for the
collection of such sums due and unpaid.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
34
<PAGE>
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise,
including filing proofs of claim in federal bankruptcy proceedings, to take any
and all actions authorized under the Trust Indenture Act in order to have the
claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture 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 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 506. Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal or premium, if any, or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To payment of all amounts due the Trustee under Section 607;
SECOND: To the payment of the amounts then due and unpaid for principal
of and premium, if any, and interest on the Securities in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to
35
<PAGE>
the amounts due and payable on such Securities for principal and premium, if
any, and interest, respectively; and
THIRD: The balance, if any, to the Company or any other Person or
Persons determined to be entitled thereto.
Section 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default; (b) the Holders of not less than 25% in principal
amount of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder; (c) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request; (d) the Trustee for 60 days after its
receipt of such notice, request and offer of indemnity has failed to institute
any such proceeding; and(e)no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities; it being understood
and intended that no one or more Holders shall have any right in any manner
whatever by virtue of, or by availing of, any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holders, or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date or, in the case
of a repurchase pursuant to Article Fourteen, on the Repurchase Date) and to
convert such Security in accordance with Article Thirteen and to institute suit
for the enforcement of any such payment and right to convert, and such rights
shall not be impaired without the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights
36
<PAGE>
and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, that
(a) such direction shall not be in conflict with any rule of law or with
this Indenture; and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(c) subject to the provisions of Section 601, the Trustee shall have the
right to decline to follow any such direction if the Trustee in good faith shall
determine that the action so directed would involve the Trustee in personal
liability or would be unduly prejudicial to Holders not joining in such
direction.
Upon receipt by the Trustee of any such direction, a record date shall
automatically and without any other action by any Person be set for the purpose
of determining the Holders of Outstanding Securities entitled to
37
<PAGE>
join in such direction, which record date shall be the close of business on the
day the Trustee receives such direction. The Holders of Outstanding Securities
on such record date (or their duly appointed agents), and only such Persons,
shall be entitled to join in such direction, whether or not such Holders remain
Holders after such record date; provided, that unless such direction shall have
become effective by virtue of Holders of the requisite principal amount of
Outstanding Securities on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th day after such record date, such
direction shall automatically and without any action by any Person be canceled
and of no further force or effect.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(a) in the payment of the principal of or premium, if any, or interest
on any Security, or, without the consent of the Holder of the Security affected,
in the repurchase of any Security or part thereof in accordance with Article
Fourteen, or
(b) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court in its discretion may require any party
litigant in such suit to file an undertaking to pay the costs of such suit, and
may assess reasonable costs against any such party litigant, including
reasonable attorneys' fees, in the manner and to the extent provided in the
Trust Indenture Act; provided, that this Section shall not be deemed to
authorize any court to require such an undertaking or to make such an assessment
in any suit instituted by the Company or in any suit for the enforcement of the
right to convert any Security in accordance with Article 13.
Section 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to
38
<PAGE>
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE 6.
THE TRUSTEE
Section 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
Section 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder in
the manner and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(d), no such notice to Holders shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default. Notwithstanding the foregoing, the Trustee shall be
entitled to withhold notice of any default hereunder to the extent permitted by
Section 315(b) of the Trust Indenture Act.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
39
<PAGE>
(d) the Trustee may consult with counsel satisfactory to it and the
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
Section 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and the Trustee and any Authenticating Agent assume no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. The Trustee and any
Authenticating Agent shall not be accountable for the use or application by the
Company of Securities or the proceeds thereof.
Section 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
40
<PAGE>
Section 606. Money Held in Trust.
Money held by the Trustee or any Paying Agent in trust hereunder need
not be segregated from other funds except to the extent required by law. The
Trustee or any Paying Agent shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
Section 607. Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder as may be mutually agreed upon in writing
by the Company and the Trustee (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) except to the extent any such expense,
disbursement or advance may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
As security for the performance of the obligations of the Company under
this Section 607, the Trustee shall have a lien prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the benefit of the Holders of particular Securities.
Section 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
Section 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, or any State or Territory or the District of Columbia that (a) is
eligible pursuant to the Trust Indenture Act to act as such, (b) has (or, in the
case of a corporation included in a bank holding company system, whose related
bank holding company has) a combined capital and surplus of at least $50,000,000
and (c) has an
41
<PAGE>
office in the Borough of Manhattan, The City of New York as required by Section
1002. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of a Federal or state supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. No
obligor upon the Securities or Affiliate of such obligor shall serve as Trustee
upon the Securities. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee required
by Section 611 shall not have been delivered to the resigning Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for the last six months, or
(ii) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee, or (B) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
42
<PAGE>
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
such successor Trustee shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611 become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner required by Section 611, any Holder who has been a
bona fide Holder of a Security for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any
43
<PAGE>
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities.
Section 613. Preferential Collection of Claims Against Company.
The Trustee shall comply with Section 311 of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311 of the Trust Indenture Act to the extent indicated therein.
Section 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a Person organized and doing
business under the laws of the United States of America, any State thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any Person into which an Authenticating Agent may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Authenticating Agent shall be a party,
or any Person succeeding to the corporate agency or corporate trust business of
an Authenticating Agent, shall continue to be an Authenticating Agent, provided
such Person shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the
44
<PAGE>
Company. Upon receiving such a notice of resignation or upon such a termination,
or in case at any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee may appoint a
successor Authenticating Agent which shall be acceptable to the Company and
shall mail notice of such appointment by first-class mail, postage prepaid, to
all Holders as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment under this
Section shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible to act as such under the provisions of this Section.
Any Authenticating Agent by the acceptance of its appointment shall be
deemed to have represented to the Trustee that it is eligible for appointment as
Authenticating Agent under this Section and to have agreed with the Trustee
that: it will perform and carry out the duties of an Authenticating Agent as
herein set forth, including among other things the duties to authenticate
Securities when presented to it in connection with the original issuance and
with exchanges, registrations of transfer or redemptions or conversions thereof
or pursuant to Section 306; it will keep and maintain, and furnish to the
Trustee from time to time as requested by the Trustee, appropriate records of
all transactions carried out by it as Authenticating Agent and will furnish the
Trustee such other information and reports as the Trustee may reasonably
require; and it will notify the Trustee promptly if it shall cease to be
eligible to act as Authenticating Agent in accordance with the provisions of
this Section. Any Authenticating Agent by the acceptance of its appointment
shall be deemed to have agreed with the Trustee to indemnify the Trustee against
any loss, liability or expense incurred by the Trustee and to defend any claim
asserted against the Trustee by reason of any acts or failures to act of such
Authenticating Agent, but such Authenticating Agent shall have no liability for
any action taken by it in accordance with the specific written direction of the
Trustee.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in lieu of the Trustee's certificate of authentication,
an alternative certificate of authentication in the following form:
This is one of the Securities described in the within-mentioned Indenture.
----------------------------------,
As Trustee
By ________________________________
As Authenticating Agent
By ________________________________
45
<PAGE>
Authorized Officer
ARTICLE 7.
HOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date,
a list, in such form as the Trustee may reasonably require containing all the
information in the possession or control of the Company, or any of its Paying
Agents, other than the Trustee, as to the names and addresses of the Holders as
of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished. Notwithstanding the foregoing, so long as the Trustee is the
Security Registrar, no such list shall be required to be furnished.
Section 702. Preservation of Information; Communication to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) The Company, the Trustee and any other Person shall have the
protection of Section 312(c) of the Trust Indenture Act.
Section 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports dated as of May
15 concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
46
<PAGE>
Section 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, as amended, shall be filed
with the Trustee within 15 days after the same is so required to be filed with
the Commission.
ARTICLE 8.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER or LEASE
Section 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company, unless:
(a) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or transfer, or
which leases, the properties and assets of the Company substantially as an
entirety shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of and premium, if
any, and interest on all the Securities and the performance or observance of
every covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Section 1311;
(b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing;
(c) such consolidation, merger, conveyance, transfer or lease does not
adversely affect the validity or enforceability of the Securities; and
(d) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with this
Article and that all conditions precedent herein provided for relating to such
transaction have been complied with.
47
<PAGE>
Section 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE 9.
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company, or
successive successions, and the assumption by any such successor of the
covenants of the Company herein and in the Securities; or
(b) to add to the covenants of the Company for the benefit of the
Holders or an additional Event of Default, or to surrender any right or power
herein conferred upon the Company; or
(c) to secure the Securities; or
(d) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Section 1311; or
(e) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities; or
(f) to cause the Indenture and the Securities to comply with applicable
law, including the Trust Indenture Act; or
(g) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture which shall not be inconsistent with
48
<PAGE>
the provisions of this Indenture; provided, that such action pursuant to this
clause (g) shall not adversely affect the interests of the Holders in any
material respect.
Section 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
outstanding Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof, or
impair the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or make the principal thereof or any premium or interest
thereon payable in any coin or currency other than that provided for in the form
of Security hereinabove set forth or modify the provisions of this Indenture
with respect to the subordination of the Securities in a manner adverse to the
Holders, or impair the right to convert the Securities into Common Stock or to
require the Company to repurchase the Securities upon the occurrence of a Change
in Control, subject to the terms set forth herein, or
(b) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture, or
(c) modify any of the provisions of this Section, Section 513 or Section
1006, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding Security affected thereby; provided, however,
that this Clause shall not be deemed to require the consent of any Holder with
respect to changes in the references to "the Trustee" and concomitant changes in
this Section and Section 1006, or the deletion of this proviso, in accordance
with the requirements of Section 901(e).
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the
49
<PAGE>
Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not (except to the extent required in the
case of a supplemental indenture entered into under 901(f)) be obligated to,
enter into any such supplemental indenture which adversely affects in a material
way the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act, as then in effect.
Section 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
Section 907. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 902, the Company shall transmit to
the Holders a notice setting forth the substance of such supplemental indenture.
ARTICLE 10.
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of and premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
50
<PAGE>
The Company will maintain in New York, New York an office or agency
(which may be the Corporate Trust Office or other office of the Trustee) where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer, where Securities may be surrendered
for exchange, conversion or repurchase in accordance with the terms of this
Indenture and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of any such office or agency. If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in New
York, New York for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Section 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, on or
before each due date of the principal of and premium, if any, or interest on any
of the Securities, the Company will segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal and
premium, if any, 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.
Whenever the Company shall have one or more Paying Agents, on or prior
to each due date of the principal of and premium, if any, or interest on any
Securities, the Company will deposit with a Paying Agent a sum sufficient to pay
the principal and any premium and interest so becoming due, such sum to be held
as provided by the Trust Indenture Act, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (a) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and hold all sums held by it for the payment
of principal of or any premium or interest on the Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided; and (b) at any time during
the continuance of any default by the Company (or any other obligor upon the
Securities) in the making of any payment in respect of the Securities,
51
<PAGE>
upon the written request of the Trustee, forthwith pay to the Trustee all sums
held in trust by such Paying Agent for payment in respect of the Securities.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of and premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal and premium, if any, or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in New York, New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate stating whether or not to the best knowledge of the signers thereof
the Company is in compliance with all conditions and covenants under this
Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
Section 1005. Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise,
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
52
<PAGE>
Section 1006. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 1005, if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
ARTICLE 11.
REDEMPTION OF SECURITIES
Section 1101. Right of Redemption.
The Securities may be redeemed at the election of the Company, in whole
or from time to time in part, at any time on or after May __, 2000 at the
Redemption Prices specified in the form of Security hereinbefore set forth,
together with accrued interest, to the Redemption Date; provided, however, that
if all accrued interest on the Securities has not been paid, the Securities may
not be redeemed in part and the Company may not redeem any Security other than
pursuant to a purchase or exchange offer to all holders of the Securities.
Section 1102. Applicability of Article.
Redemption of Securities at the election of the Company as permitted by
any provision of this Indenture shall be made in accordance with such provision
and this Article.
Section 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 30 days prior to the
Redemption Date fixed by the Company (unless a shorter period shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by lot or pro rata or by such other method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of the
principal amount of Securities of a denomination larger than $1,000.
53
<PAGE>
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be practical) to be the portion selected for redemption. Securities
which have been converted during a selection of Securities to be redeemed shall
be treated by the Trustee as Outstanding for the purpose of such selection. In
any case where more than one Security is registered in the same name, the
Trustee in its discretion may treat the aggregate principal amount so registered
as if it were represented by one Security.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
Section 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 15 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial
redemption of any Securities, the principal amounts) of the
particular Securities to be redeemed,
(d) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and
that interest thereon will cease to accrue on and after said
date,
(e) the conversion price, the date on which the right to convert
the Securities to be redeemed will terminate and the place or
places where such Securities may be surrendered for
conversion, and
(f) the place or places where such Securities are to be
surrendered for payment of the Redemption Price. Notice of
redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the
Company's request, by the Trustee in the name and at the
expense of the Company.
54
<PAGE>
Section 1106. Deposit of Redemption Price.
At or prior to 10:00 am on any Redemption Date, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as provided in Section 1003)
an amount of money sufficient to pay on such date the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Securities or portions thereof which are to be redeemed on
that date other than any Securities called for redemption on that date which
have been converted prior to the Redemption Date.
If any Security called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
last paragraph of Section 307) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
Section 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date, on the later of the Redemption Date or the date such
Security is surrendered; provided, however, that installments of interest whose
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption as provided herein, the principal and premium,
if any, shall, until paid, bear interest from the Redemption Date at the rate
borne by the Security. The Company shall be deemed to have made payment as
provided herein if checks are mailed to the appropriate Persons not later than
the Business Day next subsequent to the Redemption Date.
Section 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company maintained for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate
55
<PAGE>
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered.
Section 1109. Conversion Arrangements on Call for Redemption.
In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion of any Securities surrendered for redemption by
an agreement with one or more investment banking firms or other purchasers to
purchase such Securities by paying to the Holders thereof, or to the Trustee or
Paying Agent in trust for such Holders, at or before 10:00 a.m. on the
Redemption Date, an amount not less than the Redemption Price, together with
interest accrued to the Redemption Date, payable by the Company on redemption of
such Securities. Notwithstanding anything to the contrary contained in this
Article Eleven, the obligation of the Company to pay the Redemption Price of
such Securities, together with interest accrued to the Redemption Date, shall be
satisfied and discharged to the extent such amount is so paid by such
purchasers. Pursuant to such an agreement, any Securities tendered by the Holder
thereof for redemption or not duly surrendered for conversion by such Holder
shall be deemed acquired by such purchasers from such Holders and surrendered by
such purchasers for conversion, all as of immediately prior to the Close of
Business on the Redemption Date, subject to payment of the above amount as
aforesaid.
ARTICLE 12.
SUBORDINATION OF SECURITIES
Section 1201. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the indebtedness represented
by the Securities and the payment of the principal of and premium, if any, and
interest on each and all of the Securities, and the amount, if any, of the
Repurchase Price payable in respect of Securities pursuant to Article Fourteen,
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness.
Section 1202. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company, whether total or partial,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company, then and in any such event
the holders of Senior Indebtedness shall be entitled to receive payment in full
of all amounts due or to become due on or in respect of all Senior Indebtedness
before the Holders
56
<PAGE>
of the Securities are entitled to receive any payment or distribution of any
kind or character, whether in cash, property or securities, on account of
principal of or premium, if any, or interest on the Securities, (including the
Repurchase Price payable in respect of Securities pursuant to Article Fourteen),
and to that end the holders of Senior Indebtedness shall be entitled to receive,
for application, to the payment thereof, any payment or distribution of any kind
or character, whether in cash, property or securities, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Securities, which may be payable or deliverable in respect of the
Securities in any such case, proceeding, dissolution, liquidation or other
winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, prohibited by the foregoing, including
any such payment or distribution which may be payable or deliverable by reason
of the payment of any other indebtedness of the Company being subordinated to
the payment of the Securities, before all Senior Indebtedness is paid in full,
then and in such event such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, property or
securities" shall not be deemed to include securities of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment that does not adversely
alter the rights of holders of Senior Indebtedness which are subordinated in
right of payment to all Senior Indebtedness which may at the time be outstanding
to substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article. The consolidation of the
Company with, or the merger of the Company into, another Person or the
liquidation or dissolution of the Company following the conveyance or transfer
of its properties and assets substantially as an entirety to another Person upon
the terms and conditions set forth in Article Eight shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the benefit
of creditors or marshalling of assets and liabilities of the Company for the
purposes of this Section if the Person formed by such consolidation or into
which the Company is merged or which acquires by conveyance or transfer such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance or transfer, comply with the
conditions set forth in Article 8.
Section 1203. Acceleration of Securities.
Notwithstanding anything in this Indenture to the contrary, neither the
Trustee nor any Holder shall exercise any right either may have to accelerate
the maturity of the Securities at any time when payment of any amount owing on
the Securities is prohibited, in whole or in part,
57
<PAGE>
pursuant to Section 1202 or 1204; provided, however, that such right may
nevertheless be so exercised upon the earliest of (i) the acceleration of the
maturity of any Senior Indebtedness, (ii) the exercise by any holder of Senior
Indebtedness of any remedies available to it upon a default with respect to
Senior Indebtedness, or (iii) the occurrence of an Event of Default described in
Section 501(g) or (h).
Section 1204. No Payment When Senior Indebtedness in Default.
(a) In the event (i) and during the continuation of any default in the
payment of principal of, premium, if any, or interest on any Senior
Indebtedness, whether at the date of a required payment, maturity, upon
mandatory prepayment redemption or otherwise, or (ii) that any other default
with respect to any Senior Indebtedness shall have occurred and be continuing,
then no payment (including any payment which may be payable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Securities) shall be made by the Company on account of the
principal of or premium, if any, or interest on the Securities or on account of
the purchase, redemption or other acquisition of Securities (x) in the case of
any default described in subclause (i) above, unless and until the Senior
Indebtedness to which such default relates is discharged or such default shall
have been cured or waived or shall have ceased to exist or the holders of such
Senior Indebtedness or their agents have waived the benefits of this Section
1204(a), and (y) in the case of any default specified in clause (ii) above, from
the date the Company or the Trustee receives written notice of such default (a
"Senior Default Notice") from the (1) the agent for the lenders under the Credit
Facility if such default relates to the Credit Facility or any replacement
thereof, or (2) holders of at least 25% in principal amount of the kind or
category of Senior Indebtedness to which such default relates or any
representative of such holders if such default does not relate to the Credit
Facility or any replacement thereof, until the earlier of (A) 180 days after
such date or (B) the date, if any, on which the Senior Indebtedness to which
such default relates is discharged or such default shall have been cured or
waived or shall have ceased to exist or the holders of such Senior Indebtedness
or their agents shall have waived the benefits of this Section 1204(a);
provided, however, that not more than one Senior Default Notice shall be given
during any period of 360 consecutive days, regardless of the number of defaults
with respect to Senior Indebtedness during such 360-day period.
(b) In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, then and in such event such payment shall
be paid over and delivered forthwith to the Company; provided, however, that the
Trustee shall only be required to return to the Company such payment or any
portion of such payment that is held by the Trustee.
The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.
58
<PAGE>
Section 1205. Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all amounts due on or in respect of
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company which by its express terms
is subordinated to other indebtedness of the Company to substantially the same
extent as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of and premium, if any, and interest on
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this Article, and no payments
over pursuant to the provisions of this Article to the holders of Senior
Indebtedness by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, be deemed to be a payment or distribution by the Company to
or on account of the Senior Indebtedness.
Section 1206. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of and premium, if any, and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
Section 1207. Trustee to Effectuate Subordination.
Each holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
59
<PAGE>
Section 1208. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
Section 1209. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee therefor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 601, shall be entitled in all respects to assume that no
such facts exist.
Subject to the provisions of Section 601, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a trustee therefor) to
establish that such notice has been given by a holder of Senior Indebtedness (or
a trustee therefor). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, 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 any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any
60
<PAGE>
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
Section 1210. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the 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.
Section 1211. 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
in good faith mistakenly pay over or distribute to Holders of Securities or to
the Company or to any other Person cash, property or securities to which holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
Section 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
61
<PAGE>
Section 1213. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1212 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
Section 1214. Rights with respect to Conversion and Certain Payments.
Nothing contained in this Article or elsewhere in this Indenture, or in
any of the Securities, shall prevent (x) the application by the Trustee or any
paying agent (including by the Company if the Company shall then be acting as
paying agent) of any moneys deposited with it hereunder to the payment of or on
account of the principal of and premium, if any, or interest on Securities,
including, without limitation, redemptions or repurchases pursuant to Articles
Eleven or Fourteen, if, at the time of such deposit (provided that the time of
such deposit was not more than 10 days prior to the time of such payment), such
payment would not have been prohibited by the foregoing provisions of this
Article, or (y) conversion of Securities.
ARTICLE 13.
CONVERSION OF SECURITIES
Section 1301. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which equals $1,000 or any integral multiple thereof may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock, at the conversion price, determined
as hereinafter provided, in effect at the time of conversion. Such conversion
right shall expire at the close of business on June 1, 2004. In case a
Security or portion thereof is called for redemption, such conversion right in
respect of the Security or portion so called shall expire at the close of
business on the Business Day immediately preceding the Redemption Date, unless
the Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered
uponconversion (herein called the "conversion price") shall be initially $21.83
per share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e), (f) and (i) of
Section 1304.
Section 1302. Exercise of Conversion Privilege.
62
<PAGE>
In order to exercise the conversion privilege, the Holder of any
Security shall surrender such Security, duly endorsed or assigned to the Company
or in blank, at any office or agency of the Company maintained pursuant to
Section 1002, accompanied by written notice to the Company in the form provided
in the Security (or such other notice as is acceptable to the Company) at such
office or agency that the Holder elects to convert such Security or, if less
than the entire principal amount thereof is to be converted, the portion thereof
to be converted. In the case of any Security which is surrendered for conversion
during the period from the close of business on any Regular Record Date through
and including the next succeeding Interest Payment Date (other than any Security
whose Maturity is prior to such Interest Payment Date), interest whose Stated
Maturity is on such Interest Payment Date shall be payable on such Interest
Payment Date notwithstanding such conversion, and such interest shall be paid to
the Person in whose name that Security (or one or more Predecessor Securities)
is registered at the close of business on such Regular Record Date (unless the
Company shall default in the payment of interest on such Interest Payment Date,
in which case such amount shall be paid to the person who made the payment
referred to below); provided, however, that Securities so surrendered for
conversion shall be accompanied by payment in funds acceptable to the Company of
an amount equal to the interest payable on such Interest Payment Date on the
principal amount being surrendered for conversion; provided, however, that no
such payment need be made if there shall exist at the time of conversion a
default in the payment of interest on the Securities; provided, further,
however, that no such payment need be made if there exists a default in the
payment of interest on such Security or such Security or portion thereof being
converted shall have been called for redemption. Except as provided in the
immediately preceding sentence, in the case of any Security which is converted
(a) interest whose Stated Maturity is after the date of conversion of such
Security shall not be payable and (b) no payment or adjustment shall be made
upon conversion on account of any dividends on the Common Stock issued upon
conversion.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock as and
after such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at any office or agency of the Company
maintained pursuant to Section 1002 a certificate or certificates for the number
of full shares of Common Stock issuable upon conversion, together with payment
in lieu of any fraction of a share, as provided in Section 1303.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
63
<PAGE>
Section 1303. Fractions of Shares.
No fractional share of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fractional share in an
amount equal to such fraction multiplied by the Closing Price (as hereinafter
defined) at the close of business on the day of conversion (or, if such day is
not a Trading Day (as hereafter defined), on the Trading Day immediately
preceding such day).
Section 1304. Adjustment of Conversion Price.
(a) In case the Company shall (i) issue Common Stock as a dividend or
distribution on its capital stock, including the Common Stock, (ii) combine its
outstanding shares of Common Stock into a smaller number of shares, (iii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, or (iv) issue by reclassification of its Common Stock any shares of
capital stock of the Company, the conversion price in effect immediately prior
to such action shall be adjusted so that the holder of any Security thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock or other capital stock of the Company that it would have owned or
been entitled to receive immediately following such action had such Security
been converted immediately prior to the occurrence of such action. An adjustment
made pursuant to this subsection (a) shall become effective immediately after
the record date, in the case of a dividend or distribution, or immediately after
the effective date, in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any Securities thereafter surrendered for
conversion shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock of the Company,
the Board of Directors (whose determination shall be conclusive and shall be
described in a statement filed by the Company with the Trustee and with any
conversion agent as soon as practicable) shall determine the allocation of the
adjusted conversion price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock.
(b) In case the Company shall issue rights, warrants or options to all
holders of its outstanding shares of Common Stock entitling them to subscribe
for or purchase shares of Common Stock (or securities convertible into Common
Stock) at a price per share less than the Current Market Price per share (as
determined pursuant to subsection (g) of this Section 1304) of the Common Stock,
the conversion price in effect immediately prior thereto shall be adjusted so
that it shall equal the price determined by multiplying the conversion price in
effect immediately prior to the date of issuance of such rights, warrants or
options by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, warrants or
options (immediately prior to such issuance) plus the number of shares
64
<PAGE>
that the aggregate offering price of the total number of shares so offered would
purchase at such Current Market Price, and of which the denominator shall be the
number of shares of Common Stock outstanding on the date of issuance of such
rights, warrants or options immediately prior to such issuance) plus the number
of additional shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made successively whenever any rights, warrants or options
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, warrants or
options. In determining whether any rights, warrants or options entitle the
holders to subscribe for or purchase shares of Common Stock at less that such
Current Market Price, and in determining the aggregate offering price of such
shares of Common Stock, there shall be taken into account any consideration
received by the Company for such rights, warrants or options, the value of such
consideration, if other than cash, to be determined by the Board of Directors
(whose determination shall be conclusive and shall be described in a certificate
filed by the Company with the Trustee and with any conversion agent as soon as
practicable); provided, however, that rights, warrants or options issued by the
Company to all holders of its Common Stock entitling the holders thereof to
subscribe for or purchase shares of Common Stock, which rights, warrants or
options (i) are deemed to be transferred with such shares of Common Stock, (ii)
are not exercisable and (iii) are also issued in respect of future issuance of
Common Stock, in each case in clauses (i) through (iii) until the occurrence of
a specified event or events, shall, for purposes of this Section 1304, not be
deemed issued until the occurrence of the earliest such specified event.
(c) In case the Company shall distribute to all holders of its
outstanding Common Stock any shares of a capital stock (other than Common
Stock), evidences of its indebtedness or assets (including securities and cash,
but excluding any regular periodic cash dividend paid from surplus of the
Company and dividends or distributions payable in stock for which adjustment is
made pursuant to subsection (a) of this Section 1304) or rights, warrants or
options to subscribe for or purchase securities of the Company (excluding those
referred to in subsection (b) of this Section 1304), then in each such case the
conversion price shall be adjusted so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the record date of such distribution by a fraction of which the numerator shall
be the Current Market Price per share (as determined pursuant to the subsection
(g) of this Section 1304 of the Common Stock less the fair market value on such
record date (as determined by the Board of Directors, whose determination shall
be conclusive and shall be described in a certificate filed by the Company with
the Trustee and with any conversion agent as soon as practicable) of the portion
of the capital stock or the evidences of indebtedness or the assets so
distributed to the holder of one share of Common Stock or of such rights,
warrants or options applicable to one share of Common Stock, and of which the
denominator shall be such Current Market Price per share of Common Stock. Such
adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution; provided,
however, that rights, warrants or options issued by the Company to all holders
of its Common Stock entitling the holders thereof to subscribe for or purchase
shares of securities of the Company (excluding those referred to in subsection
(b) of this Section 1304), which rights, warrants or options (i) are deemed to
be transferred with such shares of Common Stock, (ii) are not exercisable and
(iii) are also issued in respect of future issuance of Common Stock, in each
case in clauses (i) through
65
<PAGE>
(iii) until the occurrence of a specified events or events, shall, for purposes
of this Section 1304, not be deemed issued until the occurrence of the earliest
such specified event.
(d) In case the Company shall issue to an Affiliate shares of its Common
Stock at a net consideration per share less than the Current Market Price per
share (as determined pursuant to subsection (g) of this Section 1304) on the
date the Company fixes the offering price of such additional shares, the
conversion price shall be reduced immediately thereafter so that the same shall
equal the price determined by multiplying such conversion price in effect
immediately prior thereto by a fraction of which the numerator shall be number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares plus the number of shares of Common Stock that the aggregate
offering price of the total number of shares of Common Stock so offered would
purchase at the Current Market Price and the denominator shall be the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made. This subsection (d) shall not apply to Common Stock issued to
any Affiliate under a bonafide employee or director benefit plan adopted by the
Board of Directors and approved by the holders of Common Stock when required by
law.
(e) In case the Company shall, by dividend or otherwise, at any time
make a distribution to all holders of the Company's Common Stock consisting
exclusively of cash (excluding any cash that is distributed as part of a
distribution referred to in subsection (c) of this Section 1304 or in connection
with a transaction to which Section 1311 applies) in an aggregate amount that,
together with (A) the aggregate amount of any other distributions to all holders
of the Company's Common Stock made exclusively in cash (excluding any cash
distributions referred to in subsection (c) of this Section 1304 or in
connection with a transaction to which Section 1311 applies) made within the 12
months preceding such distribution and in respect of which no conversion price
adjustment pursuant to this subsection (e) has been made and (B) the aggregate
of any cash plus the fair market value (as determined in good faith by the board
of Directors, whose determination shall be conclusive and shall be described in
a certificate filed by the Company with the Trustee and with any conversion
agent as soon as practicable) of other consideration payable in respect of any
previous tender offer by the Company or a Subsidiary for the Company's Common
Stock consummated within the 12 months preceding such distribution and in
respect of which no adjustment pursuant to subsection (f) of this Section 1304
has been made, exceeds 10% of the product of the Current Market Price per share
(determined pursuant to subsection (g) of this Section 1304) of the Common Stock
on the date fixed for determining the stockholders entitled to such distribution
times the number of shares of Common Stock outstanding on such date, the
conversion price shall be reduced by multiplying the conversion price in effect
immediately prior to the close of business on such date of determination by a
fraction of which the numerator shall be the Current Market Price per share
(determined pursuant to subsection (g) of this Section 1304) of Common Stock on
such date of determination less the amount of cash to be distributed at such
time applicable to one share of Common Stock and the denominator of which shall
be such Current Market Price, such reduction to become effective immediately
prior to the opening of business on the day after such date of determination.
66
<PAGE>
(f) In case a tender offer made by the Company or any Subsidiary for all
or any portion of the Company's Common Stock shall be consummated and such
tender offer shall involve an aggregate consideration having a fair market value
(as determined in good faith by the Board of Directors, whose determination
shall be conclusive and shall be described in a certificate filed by the Company
with the Trustee and with any conversion agent as soon as practicable) on the
last time (the "Expiration Time") tenders may be made pursuant to such tender
offer (as it may have been amended) that, together with (X) the aggregate of the
cash plus the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and shall be described in a
certificate filed by the Company with the Trustee and with any conversion agent
as soon as practicable), of other consideration paid or payable in respect of
any previous tender offer by the Company or a Subsidiary for all or any portion
of the Company's Common Stock consummated within the 12 months preceding the
consummation of such tender offer and in respect of which no conversion price
adjustment pursuant to this paragraph (f) has been made, such cash plus the fair
market value of other consideration to be calculated in each case as of the
expiration of each such previous tender offer, and (Y) the aggregate amount of
all cash distributions to holders of the Company's Common Stock (excluding any
cash that is distributed as part of a distribution referred to in subsection (c)
of this Section 1304) within the 12 months preceding the consummation of such
tender offer and in respect of which no conversion price adjustment pursuant to
this paragraph (f) has been made, exceeds 10% of the product of the Current
Market Price per share (determined pursuant to subsection (g) of this Section
1304) of the Common Stock at the Expiration Time times the number of shares of
Common Stock outstanding (including any tendered shares) at the Expiration Time,
the conversion price shall be reduced so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall be (i) the
product of the Current Market Price per share (determined pursuant to subsection
(g) of this Section 1304) of the Common Stock at the Expiration Time times the
number of shares of Common Stock outstanding (including any tendered shares) at
the Expiration Time minus (ii) the fair market value (determined as aforesaid)
of the aggregate consideration paid or payable to stockholders based on the
number of validly tendered shares to be purchased and not withdrawn prior to the
Expiration Time (the number of shares so purchased being hereinafter referred to
as the "Purchased Shares") and the denominator of which shall be the product of
(i) such Current Market Price per share on the Expiration Time times (ii) such
number of outstanding shares on the Expiration Time less the number of Purchased
Shares, such reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time.
(g) For the purpose of any computation under subsections (b), (c), (d),
(e) and (f) of this Section 1304, the Current Market Price per share of Common
Stock on any date shall be deemed to be the average of the Daily Market Prices
for the shorter of (i) 30 consecutive Business Days ending on the last full
trading day on the exchange or market referred to in determining such daily
market prices prior to the Time of Determination or (ii) the period commencing
on the date next succeeding the first public announcement of the issuance of
such rights or warrants, such distribution, such issuance of Common Stock to an
Affiliate or such
67
<PAGE>
tender offer, as the case may be, through such last full trading day prior to
the Time of Determination.
(h) In any case in which this Section 1304 shall require that an
adjustment be made immediately following a record date or an effective date, the
Company may elect to defer (but only until five Business Days following the
filing by the Company with the Trustee and any conversion agent of the
certificate required by Section 1305) issuing to the holder of any Security
converted after such record date or effective date the shares of Common Stock
issuable upon such conversion over and above the shares of Common Stock issuable
upon such conversion on the basis of the conversion price prior to adjustment,
and paying to such holder any amount of cash in lieu of a fractional share.
(i) No adjustment in the conversion price shall be required to be made
unless such adjustment would require an increase or decrease of at least 1% of
such price; provided, however, that any adjustments that by reason of this
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
1304 shall be made to the nearest cent or to the nearest 1/100th of a share, as
the case may be. Anything in this Section 1304 to the contrary notwithstanding,
the Company shall be entitled to make such reduction in the conversion price, in
addition to those adjustments required by this Section 1304, as it in its
discretion shall determine to be advisable in order that any stock dividend,
subdivision of shares, distribution of rights to purchase stock or securities or
distribution of securities convertible into or exchangeable for stock hereafter
made by the Company to its shareholders shall not be taxable to the recipients.
(j) In the event that at any time as a result of an adjustment made
pursuant to subsection (a) of this Section 1304, the holder of any Security
thereafter surrendered for conversion shall become entitled to receive any
shares of the Company other than shares of Common Stock, thereafter the
conversion price of such other shares so receivable upon conversion of any
Security shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Article 13.
Section 1305. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 1304 and shall prepare a certificate signed by the
Treasurer or Chief Financial Officer of the Company setting forth the adjusted
conversion price and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed (with a copy
to the Trustee) at each office or agency maintained for the purpose of
conversion of Securities pursuant to Section 1002; and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be prepared, and as
soon as practicable after it is
68
<PAGE>
prepared, such notice shall be furnished by the Company to the Trustee and
mailed by the Company at its expense to all Holders at their last addresses as
they shall appear in the Security Register.
Section 1306. Notice of Certain Corporate Action.
In case:
(a) the Company shall take an action that would require a conversion
price adjustment pursuant to Section 1304(b), (c), (e) or (f); or
(b) the Company shall grant to the holders of its Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
(excluding shares of capital stock or options for capital stock issued pursuant
to a benefit plan for employees, officers or directors of the Company and
excluding rights or warrants described in the provisos to Sections 1304(b) and
1304(c)); or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
(e) the Company or any Subsidiary shall commence a tender offer for all
or a portion of the outstanding shares of Common Stock (or shall amend any such
tender offer to change the maximum number of shares being sought or the amount
or type of consideration being offered therefor);
then the Company shall cause to be filed at each office or agency
maintained pursuant to Section 1002, and shall cause to be mailed to all Holders
at their last addresses as they shall appear in the Security Register, at least
20 days (or 10 days in any case specified in clause (a), (b) or (e) above) prior
to the applicable record, effective or expiration date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
who will be entitled to such dividend, distribution, rights or warrants are to
be determined, (y) the date on which such reclassification, consolidation,
merger, share exchange, sale, transfer, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the
69
<PAGE>
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto). Neither the failure to give any such notice nor
any defect therein shall affect the legality or validity of any action described
in clauses (a) through (e) of this Section 1306.
Section 1307. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Common Stock or out of the
Common Stock held in treasury, for the purpose of effecting the conversion of
Securities, the full number of shares of Common Stock then issuable upon the
conversion of all outstanding Securities.
Before taking any action that would cause an adjustment reducing the
conversion price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Securities, the Company will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
shares of Common Stock at such adjusted conversion price.
Section 1308. Taxes on Conversions.
The Company will pay any and all original issuance, transfer, stamp and
other similar taxes that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Securities pursuant hereto. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of shares of Common Stock in
a name other than that of the Holder of the Security or Securities to be
converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax,
or has established to the satisfaction of the Company that such tax has been
paid.
Section 1309. Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be validly issued, fully
paid and nonassessable.
The Company further covenants that for so long as the Common Stock shall
be listed on the New York Stock Exchange or any other national securities
exchange, the Company will, if permitted by the rules of such exchange, list and
keep listed all Common Stock issuable upon conversion of the Securities.
Section 1310. Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
Section 1311. Provisions as to Consolidation, Merger or Sale of Assets.
70
<PAGE>
Notwithstanding any other provision herein to the contrary, in case of
any consolidation or merger to which the Company is a party (other than a merger
or consolidation in which the Company is the continuing corporation and in which
the Company's Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash or the securities or other property of
another corporation), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (other than in connection with a merger or acquisition), the
corporation formed by such consolidation or the corporation whose securities,
cash or other property will immediately after the merger or consolidation be
owned, by virtue of the merger or consolidation by the holders of Common Stock
of the Company immediately prior to the merger, or the corporation that shall
have acquired such assets or securities of the Company, as the case may be,
shall promptly execute and deliver to the Trustee a supplemental indenture
providing that the holder of each Security then outstanding shall have the right
thereafter to convert such Security into the kind and amount of securities, cash
or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance by a holder of the number of shares of Common Stock
into which such Security might have been converted immediately prior to such
consolidation, merger, statutory exchange, sale or conveyance assuming such
holder of Common Stock did not exercise its rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided that, if
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election shall
not have been exercised (a "non-electing share"), then for the purposes of this
Section 1311, the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for appropriate adjustment with respect to
the rights of the holders of the Securities, to the end that the provisions set
forth in this Article Thirteen shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
or other securities or property thereafter deliverable on the conversion of the
Securities. Any such adjustment shall be evidenced by a certificate delivered to
the Trustee and any paying agent.
The above provisions of this Section 1311 shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
The Company shall give notice of the execution of such a supplemental
indenture to the holders of Securities in the manner provided in Section 1006
within 30 days after the execution thereof; provided, however, that such notice
need not be given if such information has been provided prospectively in the
notice given pursuant to Section 1306. Failure to give such notice, or any
defects therein, shall not affect the legality or validity of any such
supplemental indenture.
Section 1312. Disclaimer of Responsibility for Certain Matters.
71
<PAGE>
Neither the Trustee nor any conversion agent shall at any time be under
any duty or responsibility to any holder of Securities to determine whether any
facts exist that may require any adjustment of the conversion price, or with
respect to the nature or extent of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. Neither the Trustee nor any
conversion agent shall be accountable with respect to the listing referred to in
Section 1309 or the validity or value (or the kind or amount) of any shares of
Common Stock, or of any securities, cash or other property that may at any time
be issued or delivered upon the conversion of any Security; and neither the
Trustee nor any conversion agent makes any representation with respect thereto.
Neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of Common Stock
or stock certificates or other securities or property or to make any cash
payment upon the surrender of any Security for the purpose of conversion or,
subject to the provisions of Section 601, to comply with any of the covenants
contained in this Article 13.
ARTICLE 14.
RIGHT TO REQUIRE REPURCHASE
Section 1401. Right to Require Repurchase.
In the event that there shall occur a Change in Control, then each
Holder shall have the right, at such Holder's option, to require the Company to
purchase, and upon the exercise of such right, the Company shall, subject to the
provisions of Article 12 purchase all (or any portion with a principal
amount equal to $1,000 or an integral multiple thereof) of such Holder's
Securities on the date (the "Repurchase Date") that is 40 Business Days after
the occurrence of the Change in Control at a price (the "Repurchase Price")
equal to 100% of the principal amount thereof, together with accrued and unpaid
interest to the Repurchase Date.
Section 1402. Notice; Method of Exercising Repurchase Right.
(a) On or before the 20th Business Day after the occurrence of a Change
in Control, the Company, or at the request of the Company, the Trustee (in the
name and at the expense of the Company), shall give notice of the occurrence of
the Change in Control and of the repurchase right set forth herein arising as a
result thereof by first-class mail, postage prepaid, to each Holder of the
Securities at such Holder's address appearing in the Security Register. The
Company shall also deliver a copy of such notice of a repurchase right to the
Trustee.
Each notice of a repurchase right shall state:
(i) the event constituting the Change in Control and the date
thereof,
(ii) the Repurchase Date,
72
<PAGE>
(iii) the date by which the repurchase right must be exercised,
(iv) the Repurchase Price, and
(v) the instructions a Holder must follow to exercise a
repurchase right.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Change in
Control.
(b) To exercise a repurchase right, a Holder shall deliver to the
Company (or an agent designated by the Company for such purpose in the notice
referred to in (a) above) and to the Trustee on or before the close of business
on the Repurchase Date (i) written notice of the Holder's exercise of such
right, which notice shall set forth the name of the Holder, the principal amount
of the Security or Securities (or portion of a Security which is $1,000 or an
integral multiple thereof) to be repurchased, and a statement that an election
to exercise the repurchase right is being made thereby, and (ii) the Security or
Securities with respect to which the repurchase right is being exercised, duly
endorsed for transfer to the Company. Such written notice may be withdrawn at
any time on or before the close of business on the Repurchase Date. If the
Repurchase Date falls between any Regular Record Date and the next succeeding
Interest Payment Date, Securities to be repurchased must be accompanied by
payment from the Holder of an amount equal to the interest thereon which the
registered Holder thereof is to receive on such Interest Payment Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall on or promptly following the Repurchase
Date pay or cause to be paid in cash to the Holder thereof the Repurchase Price
of the Security or Securities as to which the repurchase right had been
exercised.
Section 1403. Deposit of Repurchase Price.
On or prior to the close of business on the Repurchase Date the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 1003) an amount of money sufficient to pay the Repurchase Price of the
Securities which are to be repaid on or promptly following the Repurchase Date.
Section 1404. Securities Not Repurchased on Repurchase Date.
Interest on any Security surrendered for repurchase shall cease to
accrue from and after the Repurchase Date unless the Company shall default in
the payment of any such Security at the purchase price, together with interest
accrued thereon to the Repurchase Date.
73
<PAGE>
Section 1405. Securities Repurchased in Part.
Any Security which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of any authorized denomination as requested
by such Holder, in an aggregate principal amount equal to and in exchange for
the repurchased portion of the principal of the Security so surrendered.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
CONVERSE INC.
By /s/ Donald J. Camacho
-----------------------------
Name: Donald J. Camacho
Title: Sr. Vice President and
Chief Financial Officer
Attest:
/s/ Jack A. Green
- --------------------------
Name: Jack A. Green
Title: Sr. Vice President, General
Counsel and Secretary
FIRST UNION NATIONAL BANK,
as Trustee
By /s/ Alice M. Amoro
---------------------------
Name: Alice M. Amoro
Title: Asst. Vice President
Attest:
/s/ Ralph E. Jones
- ----------------------
Name: Ralph E. Jones
Title: Corporate Trust Officer
74
<PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT
$150,000,000
among
CONVERSE INC.,
as Borrower,
EACH OF THE FINANCIAL INSTITUTIONS
INITIALLY A SIGNATORY HERETO,
TOGETHER WITH THOSE ASSIGNEES
PURSUANT TO SECTION 13.6 HEREOF,
as Lenders,
and
BT COMMERCIAL CORPORATION,
as Agent
Dated as of May 21, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------- ----
<S> <C> <C> <C>
1 Definitions............................................................. 1
1.1 General Definitions............................................ 1
1.2 Accounting Terms and Determinations............................ 29
1.3 Other Definitional Terms....................................... 29
2 Conditions Precedent.................................................... 30
2.1 Initial Loans.................................................. 30
2.2 All Loans...................................................... 31
3 The Loans............................................................... 31
3.1 Commitment and Delivery of Revolving Notes..................... 31
3.1.2 ............................................................... 32
3.2 Determination of Borrowing Base................................ 32
3.3 Borrowings; Notices of Borrowings.............................. 33
3.4 Alternate Periodic Settlements Among Lenders................... 34
3.5 Mandatory Payment; Voluntary Reductions of Commitments......... 37
3.6 Payments and Computations...................................... 38
3.7 Maintenance of Account......................................... 40
3.8 Loan Disbursement Account...................................... 40
3.9 Statement of Account........................................... 40
3.10 Taxes.......................................................... 41
3.11 Sharing of Payments............................................ 43
4 Letters of Credit, Foreign Exchange Contracts and Acceptances........... 43
4.1 Letter of Credit Issuances..................................... 43
4.2 Foreign Exchange Contracts..................................... 45
4.2.1 Acceptances.................................................... 46
4.3 Lenders' Participation......................................... 50
4.4 Definition of Obligations...................................... 50
4.5 Indemnification................................................ 51
4.6 Certain Waivers................................................ 51
4.7 Limitation on Liability; Authority of Lender................... 52
4.8 Covenants of Borrower.......................................... 52
4.9 Rights and Remedies of Lenders................................. 53
5 Representations and Warranties.......................................... 53
5.1 Corporate Existence; Qualification; Power; Licenses and Permits 53
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C> <C>
5.2 Corporate and Governmental Authorization; Contravention........ 54
5.3 Binding Effect................................................. 54
5.4 Information.................................................... 54
5.5 No Material Adverse Change..................................... 55
5.6 Litigation and Judgments....................................... 55
5.7 Compliance with ERISA.......................................... 55
5.8 Taxes.......................................................... 56
5.9 Subsidiaries................................................... 57
5.10 Not an Investment Company...................................... 57
5.11 No Conflicting Requirements.................................... 57
5.12 Debt........................................................... 58
5.13 Title to Properties and Assets; Collateral..................... 58
5.14 Compliance with Law............................................ 60
5.15 Compliance with Environmental Laws............................. 60
5.16 Security Interests and Liens; Inventory and Equipment.......... 61
5.17 Labor Relations................................................ 61
5.18 UCC Filing Information......................................... 62
5.19 Solvency....................................................... 62
5.20 Fictitious Business Names...................................... 63
5.21 Use of Proceeds................................................ 63
5.22 Margin Security................................................ 63
5.23 No Event of Default............................................ 63
5.24 Status of Accounts............................................. 63
5.25 Survival of Representations.................................... 63
5.26 Affiliate Transactions......................................... 63
5.27 Accuracy and Completeness of Information....................... 63
5.28 Representations Upon Execution................................. 64
6 Affirmative Covenants................................................... 64
6.1 Information.................................................... 64
6.2 Payment of Obligations......................................... 68
6.3 Maintenance of Property: Insurance............................. 68
6.4 Compliance with Laws........................................... 70
6.5 Inspection of Property, Books and Records; Change of Name,
Principal Place of Business, Location of Collateral, Etc....... 70
6.6 Compliance with Credit Documents............................... 71
6.7 Covenant to Mortgage After-Acquired Property................... 71
6.8 Corporate Existence............................................ 72
6.9 ERISA.......................................................... 72
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C> <C>
6.10 Environmental Matters.......................................... 74
6.11 Collateral Records............................................. 75
6.12 Security Interests............................................. 75
6.13 Taxes.......................................................... 76
6.14 Use of Proceeds................................................ 76
6.15 Collection of Accounts......................................... 77
6.16 Notice; Credit Memoranda; and Returned Goods................... 77
6.17 Trademarks..................................................... 77
6.18 Patents........................................................ 77
7 Negative Covenants and Financial Covenants.............................. 78
7.1 Debt and Guarantees............................................ 78
7.2 Restricted Payments............................................ 79
7.3 Investments.................................................... 80
7.4 Negative Pledge................................................ 80
7.5 Consolidations, Mergers and Sales of Assets.................... 81
7.6 Capital Expenditures........................................... 83
7.7 Interest Coverage Ratio........................................ 83
7.8 Transactions with Affiliates................................... 83
7.9 Restrictions on Foreign Subsidiary Support..................... 84
7.10 Environmental Matters.......................................... 84
7.11 [INTENTIONALLY OMITTED]........................................ 85
7.12 [INTENTIONALLY OMITTED]........................................ 85
7.13 [INTENTIONALLY OMITTED]........................................ 85
7.14 [INTENTIONALLY OMITTED]........................................ 85
7.15 Amendments to Certificates of Incorporation and By-Laws........ 85
7.16 No Prohibited Transactions Under ERISA......................... 85
7.17 No Additional Bank Accounts.................................... 86
7.18 No Additional Subsidiaries..................................... 86
7.19 [INTENTIONALLY OMITTED]........................................ 86
8 Interest, Fees and Expenses............................................. 86
8.1 Interest on LIBOR Rate Loans................................... 86
8.2 Interest on Prime Rate Loans................................... 87
8.3 Notice of Rollover and Notice of Conversion.................... 87
8.4 Interest After Event of Default................................ 89
8.5 Reimbursement of Expenses...................................... 90
8.6 [INTENTIONALLY OMITTED]........................................ 90
8.7 Unused Line Fee................................................ 90
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C> <C>
8.8 Letter of Credit Fees; Foreign Exchange Fees................... 91
8.9 [INTENTIONALLY OMITTED]........................................ 94
8.10 Collateral Management Fees; Expenses........................... 94
8.11 Authorization to Charge Account................................ 94
8.12 Indemnification in Certain Events.............................. 94
9 Powers of Attorney...................................................... 95
9.1 Appointment as Attorney-in-Fact................................ 95
9.2 Limitation on Exercise of Power................................ 96
10 Events of Default and Remedies.......................................... 96
10.1 Events of Default.............................................. 96
10.2 Acceleration................................................... 99
10.3 Remedies.......................................................100
11 Termination of the Revolving Commitments................................101
12 The Agent...............................................................102
12.1 Appointment of Agent...........................................102
12.2 Nature of Duties of Agent......................................102
12.3 Lack of Reliance on Agent......................................103
12.4 Certain Rights of the Agent....................................103
12.5 Reliance by Agent..............................................103
12.6 Indemnification of Agent.......................................104
12.7 The Agent in its Individual Capacity...........................104
12.8 Holders of Notes...............................................104
12.9 Successor Agent................................................104
12.10 Collateral Matters.............................................105
12.11 Actions with Respect to Defaults...............................107
12.12 Delivery of Information........................................107
13 Miscellaneous...........................................................108
13.1 Waivers........................................................108
13.2 JURY TRIAL.....................................................108
13.3 GOVERNING LAW..................................................108
13.4 VENUE; SERVICE OF PROCESS; WAIVER OF DAMAGES...................108
13.5 Notices........................................................110
13.6 Assignability..................................................110
13.7 [INTENTIONALLY OMITTED]........................................113
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
13.8 Information....................................................113
13.9 Indemnification................................................113
13.10 Entire Agreement; Successors and Assigns.......................114
13.11 Amendments, Etc................................................114
13.12 [INTENTIONALLY OMITTED]........................................115
13.13 Nonliability of Agent and Lenders..............................115
13.14 Independent Nature of Lenders' Rights..........................115
13.15 Counterparts...................................................116
13.16 Effectiveness..................................................116
13.17 Severability...................................................116
13.18 Headings Descriptive...........................................116
13.19 Maximum Rate...................................................116
13.20 Right of Setoff................................................117
13.21 Confidentiality................................................117
</TABLE>
ANNEXES
- -------
Annex I - List of Lenders and Commitment Amounts
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C> <C>
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Assumption Agreement
Exhibit C - Form of Letter of Credit Request
Exhibit D - Form of Patent Security Agreement
Exhibit E - Form of Pledge Agreement
Exhibit F - Form of Revolving Note
Exhibit G - Form of Security Agreement
Exhibit H - Form of Trademark Security Agreement
Exhibit I - Form of Opinions of Borrower's General and Special Counsel
Exhibit J - Form of Notice of Borrowing
Exhibit K - Form of Lockbox Agreement
Exhibit L - Form of Concentration Account Agreement
Exhibit M - Form of Compliance Certificate
Exhibit N - Form of Borrowing Base Certificate
Exhibit O - Form of Notice of Rollover
Exhibit P - Form of Notice of Conversion
</TABLE>
v
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit Q - Form of Remote Letter of Credit Customer Agreement
SCHEDULES
- ---------
Schedule A - Closing Document List
Schedule B - Outstanding Letters of Credit
Schedule C - Proprietary Rights Schedule
Schedule D - Disclosure Schedule
</TABLE>
vi
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is entered into as of May 21, 1997, among CONVERSE
INC., a Delaware corporation ("Borrower"), and each of those financial
institutions identified as Lenders on Annex I hereto (together with each of
their successors and assigns, referred to individually as a "Lender" and
collectively as the "Lenders") and BT COMMERCIAL CORPORATION ("BTCC"), acting in
the manner and to the extent described in Article 12 hereof (in such capacity,
----------
the "Agent").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower wishes to obtain a revolving credit facility to
refinance certain of Borrower's existing indebtedness and to provide financing
for the Borrower's ongoing working capital, letter of credit, foreign exchange
contracts, acceptances, and general corporate needs; and
WHEREAS, upon the terms and subject to the conditions set forth herein, the
Lenders are willing to make loans and advances to the Borrower;
NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as
follows:
ARTICLE 1
---------
Definitions
-----------
1.1 General Definitions. As used herein, the following terms shall have
-------------------
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
Acceptance shall mean a draft of the Borrower accepted by an Accepting Bank
----------
pursuant to Article 4 hereof.
---------
Acceptance Commission shall mean, with respect to any Acceptance, the fees
---------------------
and commissions payable to the Agent for the benefit of the Lenders by the
Borrower under and pursuant to Section 8.8 hereof.
-----------
Acceptance Date shall have the meaning given to it in Section 13.6(c)
--------------- ---------------
hereof.
<PAGE>
Acceptance Letter of Credit shall mean a Letter of Credit providing for the
---------------------------
payment of the Borrower's reimbursement obligations arising upon a drawing
thereunder by the creation and discounting of an Acceptance by an Accepting
Bank.
Acceptance Obligations shall mean, at any time, without duplication, (i)
----------------------
the sum of the face amount of all Acceptances outstanding as of such time plus
----
(ii) the aggregate amount of all payments made by each Lender to an Accepting
Bank with respect to its participation in Acceptances as provided in Article 4
---------
for which the Borrower is obligated to and has not at such time reimbursed the
Lenders whether by payment to the Lenders (as contemplated by Section 4.2.1
-----
hereof) or otherwise.
Accepting Bank shall mean Bankers Trust Company or any other bank or
--------------
financial institution approved by the Agent in writing to create Acceptances for
the account of the Borrower.
Accounts shall mean all of the Borrower's accounts, whether now existing or
--------
existing in the future, including, without limitation, all (i) accounts
receivable (whether or not specifically listed on schedules furnished to the
Agent), including, without limitation, all accounts created by or arising from
all of the Borrower's sales of goods or rendition of services made under any of
the Borrower's trade names or styles, or through any of the Borrower's
divisions; (ii) unpaid or unexercised seller's rights (including any right of
rescission, replevin, reclamation and stopping in transit) relating to the
foregoing or arising therefrom; (iii) rights to any goods represented by any of
the foregoing, including returned or repossessed goods; (iv) reserves and credit
balances held by the Borrower with respect to any such accounts receivable or
account debtors; (v) guarantees or collateral for any of the foregoing; (vi)
insurance policies; or (vii) rights relating to any of the foregoing.
Acknowledgement Agreement shall mean any acknowledgement agreement required
-------------------------
to be delivered by the Borrower to the Agent pursuant to which any mortgagee or
lessor of property on which Collateral is stored or otherwise located, or
pursuant to which any warehouseman, filler, processor or packer of any Inventory
acknowledges the Liens and security interests of the Agent and, in the case of
any real property leased by the Borrower or subject to a mortgage executed by
the Borrower, provides the Agent access to such real property for a reasonable
period of time to assemble, complete and sell any Collateral located thereon.
Additional Permitted Debt shall have the meaning given to such term in
-------------------------
Section 7.1 hereof.
- -----------
Adjusted LIBOR Rate shall mean, with respect to each Interest Period for
-------------------
any LIBOR Rate Loan, the rate obtained by dividing (i) the LIBOR Rate for such
Interest Period by (ii) a percentage equal to 1 minus the stated maximum rate
-----
(stated as a decimal) of all reserves required
2
<PAGE>
to be maintained against Eurocurrency liabilities as specified in Regulation D
(or against any other category of liabilities which includes deposits by
reference to which the interest rate on LIBOR Loans is determined or any
category of extensions of credit or other assets which includes loans by a non-
United States office of any Lender to United States residents).
Affiliate shall mean (i) a Controlling Person or any Person which is
---------
controlled by or is under common control with a Controlling Person and (ii) any
other Person who is a director, officer or member of management of the Borrower,
any of its Subsidiaries or any Controlling Person. For purposes of this Credit
Agreement, control of a Person shall mean the power, direct or indirect, (a) to
vote 20% or more of the outstanding stock or other ownership interests having
ordinary voting power for the election of directors of such Person or (b) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
After-Acquired Personal Property shall have the meaning given to it in
--------------------------------
Section 12.10(d) hereof.
- ----------------
After-Acquired Real Property shall have the meaning given to it in Section
---------------------------- -------
12.10(d) hereof.
- --------
Agent shall mean BTCC as provided in the preamble to this Credit Agreement
-----
or any successor to BTCC.
Ancillary Documents shall mean any Proprietary Rights Collateral Documents,
-------------------
any Security Agreements, any Pledge Agreements, any Mortgages and any Collateral
Assignments.
Apollo shall mean Apollo Advisors, L.P. and Lion Advisors, L.P., both
------
Delaware limited partnerships.
Applicable Lending Office shall mean, with respect to each Lender, such
-------------------------
Lender's LIBOR Lending Office in the case of a LIBOR Rate Loan, and such
Lender's Domestic Lending Office in the case of a Prime Rate Loan.
Asset Disposition shall mean any sale, transfer, lease, assignment or other
-----------------
disposition of any asset by the Borrower or any Subsidiary thereof (other than a
disposition to any other Subsidiary of the Borrower), excluding, however, any
sale or disposition by a Borrower or Subsidiary in the ordinary course of
business of Inventory.
Assignment and Acceptance shall mean an assignment and acceptance agreement
-------------------------
entered into by an assigning Lender and an assignee Lender, and accepted by the
Agent, in accordance with Section 13.6 hereof, in the form attached hereto as
------------
Exhibit A.
3
<PAGE>
Auditors shall mean a nationally-recognized firm of independent public
--------
accountants selected by the Borrower and satisfactory to the Agent in its
reasonable discretion. For purposes of this Credit Agreement, any of the
current so-called "Big Six" firms of independent public accountants shall be
deemed to be satisfactory to the Agent.
Beneficial Owner is used as defined in Rule 13d-3 promulgated by the
----------------
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Benefit Plan shall mean a defined benefit plan as defined in Section 3(35)
------------
of ERISA (other than a Multiemployer Plan) in respect of which the Borrower or
any ERISA Affiliate is, or within the immediately preceding six (6) years was,
an "employer" as defined in Section 3(5) of ERISA.
Borrower shall mean Converse Inc.
--------
Borrowing Base shall mean an amount equal to the sum of
--------------
(A) eighty-five percent (85%) of the then Eligible Accounts
Receivable, plus
----
(B) the sum of (1) sixty-five percent (65%) of the then Eligible
Inventory; plus (2) an amount equal to sixty-five percent (65%) of the face
amount of any letter of credit (including Letters of Credit) issued to
support the purchase of finished goods Inventory which, in the
determination of the Agent in the exercise of its Permitted Discretion,
would constitute Eligible Inventory when title thereto passes to the
Borrower ("Eligible L/C Inventory"); provided, however, that during the
-------- -------
months of April, May, June and July of each year during the term hereof,
the advance rate with respect to Eligible Inventory and Eligible L/C
Inventory shall be seventy percent (70%), plus
----
(C) sixty percent (60%) of the then Eligible Retail Inventory, plus
----
(D) $10,000,000 during the period from the date hereof, through and
including September 30, 1997; thereafter, on the first Business Day of each
October, January, April and July of each year during the term hereof, such
amount shall automatically reduce by $360,000; provided, however, that such
amount shall automatically be reduced from time to time during the term
hereof by an amount equal to (i) the Net Cash Proceeds in excess of
$1,000,000 from any Asset Disposition of any fixed asset during any fiscal
year during the term hereof, or (ii) the Net Cash Proceeds of any Funded
Debt secured by any fixed assets as permitted by Section 7.1(v) hereof,
plus
----
(E) the lesser of (i) $15,000,000, or (ii) sixty-five percent (65%) of
Borrower's annual Royalty Income, based on a rolling twelve month period.
4
<PAGE>
Borrowing Base Certificate shall have the meaning given to such term in
--------------------------
Section 6.1 hereof.
- -----------
BT Account shall have the meaning given to such term in Section 3.6 hereof.
---------- -----------
Business Day shall mean: (a) for all portions of the Loans on which
------------
interest accrues based upon the Prime Lending Rate, any day other than a
Saturday, Sunday or public holiday or the equivalent for banks in Chicago,
Illinois, and (b) for portions of the Loans on which interest accrues based upon
the LIBOR Rate, the days described in the immediately preceding subclause (a)
for the definition of Business Day, but excluding therefrom any day on which
commercial banks are not open for dealing in Dollar deposits in the London
(England, U.K.) interbank market.
Capital Lease shall mean any lease of property, real or personal, the
-------------
obligation of the lessee in respect of which is required in accordance with GAAP
to be capitalized on the balance sheet of the lessee.
Cash Equivalents shall mean, as to any Person, (i) direct obligations of
----------------
the United States or any agency thereof, or obligations guaranteed by the United
States or any agency thereof, (ii) commercial paper rated in the highest grade
by a nationally recognized credit rating agency, (iii) time deposits with,
including certificates of deposit issued by, the Agent or any office located in
the United States of any bank or trust company the senior debt securities of
which are rated in one of the two highest categories by a nationally recognized
credit rating agency, provided in each case that such securities or other
--------
obligations described in subsections (i), (ii) and (iii) above mature within one
year from the date of acquisition thereof by the Borrower or a Subsidiary, (iv)
repurchase obligations with a term of not more than ten (10) days of underlying
securities of the type described in clause (i) entered into with any bank of the
type described in clause (iii), (v) investments in money market funds that are
registered under the Investment Company Act of 1940, which have net assets of at
least $100,000,000 and at least eighty-five percent (85%) of whose assets
consist of securities and other obligations of the type described in clauses (i)
through (iv) above, and (vi) investments in any other money market mutual fund
the underlying assets of which are rated at least AAA or the equivalent by
Standard & Poor's Corporation or at least Aaa or the equivalent thereof by
Moody's Investors Service, Inc., including, without limitation, any such mutual
fund managed or advised by the Agent or any Lender. All such Cash Equivalents
must be denominated solely for payment in U.S. Dollars.
Casualty Loss shall have the meaning given to such term in Section 6.3
------------- -----------
hereof.
Change in Control shall mean the occurrence of any of the following: (i)
-----------------
the sale or other transfer of all or substantially all of the assets of the
Borrower to any person other than Apollo, any account managed by Apollo for so
long as it exercises power of disposition and voting with
5
<PAGE>
respect thereto (a "Controlled Account"), or an Affiliate of Apollo or of a
Controlled Account, (ii) any transaction (including a merger or consolidation)
the result of which is that any "person" or "group" (within the meaning of
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) becomes the "beneficial owner" (within the meaning of Rule
13d-3 under the Exchange Act) of more than thirty-five percent (35%) (calculated
on a fully diluted basis) of the voting power of all classes of Voting Stock of
the Borrower and/or warrants or options to acquire such Voting Stock and, at
such time, such person or group is the beneficial owner of a greater percentage
of the voting power of the Voting Stock of the Borrower than that which is then
beneficially owned (calculated on a fully diluted basis) by Apollo or a
Controlled Account or an Affiliate of Apollo or of a Controlled Account, (iii)
the adoption of a plan relating to the liquidation or dissolution of the
Borrower, and (iv) the first day on which a majority of the members of the Board
of Directors of the Borrower cease to be Continuing Directors (meaning the
directors of the Borrower on the date hereof and each other director, if such
director's nomination for election to the Board of Directors of the Borrower is
recommended by a majority of the Continuing Directors at the time of such
nomination or election)
Closing shall mean the execution of this Credit Agreement and the other
-------
documents identified on Part I of the Closing Documents List, and the
satisfaction of the other conditions precedent to the Initial Credit Event set
forth in Article 2 hereof.
---------
Closing Date shall mean the date on which the Closing occurs.
------------
Closing Documents List shall mean the Closing Documents List attached
----------------------
hereto as Schedule A.
Code shall have the meaning given to it in Section 1.3 hereof.
---- -----------
Collateral shall mean any and all assets and rights and interests in or to
----------
property of the Borrower pledged from time to time as security for the
Obligations pursuant to the Ancillary Documents whether now owned or hereafter
acquired, including, without limitation, (i) all of the Accounts, Inventory,
Equipment, Intellectual Property, Intangibles and Real Estate of the Borrower,
as defined in any Security Agreement, any Mortgage, any Pledge Agreement or any
Proprietary Rights Collateral Document (excluding any property expressly
excluded from the pledge or grant under any Ancillary Document) and (ii) all of
the rights and interest of the Borrower assigned to the Agent for the benefit of
the Lenders pursuant to the Collateral Assignments, if any.
Commitments of any Lender shall mean the Revolving Credit Commitment of
-----------
such Lender.
6
<PAGE>
Compliance Certificate shall have the meaning given to such term in Section
---------------------- -------
6.1(c) hereof.
- ------
Concentration Account shall have the meaning given to such term in Section
--------------------- -------
3.6 hereof.
- ---
Concentration Account Agreement shall have the meaning given to such term
-------------------------------
in Section 3.6 hereof.
-----------
Consolidated Capital Expenditures shall mean, for any period, the additions
---------------------------------
to property, plant and equipment and other capital expenditures of the Borrower
and its Consolidated Subsidiaries for such period, as the same are (or, in
accordance with GAAP, would be) set forth in the consolidated statement of cash
flows of the Borrower and its Consolidated Subsidiaries for such period.
Consolidated Interest Expense shall mean, for any period, the sum of (i)
-----------------------------
the aggregate amount of interest (except as hereinafter provided, including Fees
payable in connection with this Credit Agreement except to the extent any such
Fees are amortized by Borrower in accordance with GAAP, but excluding non-cash
interest, non-cash financing fee amortization and amortization of discount), in
each case, whether or not paid or payable, accrued or paid (without duplication)
by the Borrower and its Consolidated Subsidiaries during such period which is
treated as interest in accordance with GAAP and (ii) dividends paid or declared
in cash or other property (other than in stock) on preferred stock during such
period, less (iii) the aggregate amount of cash interest income during such
period.
Consolidated Net Income shall mean, for any period, the consolidated net
-----------------------
income (or loss) of the Borrower and its Consolidated Subsidiaries for such
period, excluding (i) gains or losses from dispositions of assets, (ii) any
extraordinary items, and (iii) other non-recurring items not related to
operations.
Consolidated Subsidiary of any Person shall mean at any date any Subsidiary
-----------------------
or other entity the accounts of which in accordance with GAAP would be
consolidated with those of such Person in its consolidated financial statements
as of such date.
Contractual Obligations shall mean, with respect to any Person, any term or
-----------------------
provision of any securities issued by such Person, or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement to
which such Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
Controlling Person means any Person that is in control of the Borrower or
------------------
any of its Subsidiaries (such control being the power to direct or cause the
direction of the management and
7
<PAGE>
policies of the Borrower or any such Subsidiary, whether through the ownership
of voting stock, by contract or otherwise).
Convert, Conversion and Converted each shall refer to a conversion of Loans
---------------------------------
of one Type into Loans of another Type pursuant to Section 8.3 hereof.
-----------
Credit Agreement shall mean this credit agreement, dated as of the date
----------------
hereof, as the same may be modified, amended, extended, restated or supplemented
from time to time.
Credit Documents shall mean, collectively, this Credit Agreement, the
----------------
Notes, each of the Ancillary Documents, the Fee Letter, and all other documents,
agreements, instruments, opinions and certificates executed and delivered in
connection herewith or therewith, as the same may be modified, amended,
extended, restated or supplemented from time to time.
Credit Parties shall mean, collectively, the Borrower and any other parties
--------------
to the Credit Documents (other than the Lenders and the Agent).
Debt shall mean of any Person at any date, without duplication, (a) all
----
obligations of such Person and its Consolidated Subsidiaries for borrowed money,
(b) all obligations of such Person and its Consolidated Subsidiaries evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person and its Consolidated Subsidiaries to pay the deferred purchase price
of property or services, except non-intercompany trade accounts payable arising
in the ordinary course of business representing the deferred purchase price of
property or services and having a maturity equal to or less than 360 days, (d)
all obligations of such Person and its Consolidated Subsidiaries under Capital
Leases, (e) all contingent or non-contingent obligations of such Person and its
Consolidated Subsidiaries to reimburse any Person in respect of amounts paid or
payable (currently or in the future, on a contingent or non-contingent basis)
under a letter of credit or similar instrument, (f) all Debt of others secured
by a Lien on any asset of such Person or a Consolidated Subsidiary, and (g) all
Debt of others Guaranteed by such Person or a Consolidated Subsidiary.
Default shall mean an event, condition or default which with the giving of
-------
notice, the passage of time or both would be an Event of Default.
Defaulting Lender shall have the meaning given to such term in Section
----------------- -------
3.4(b) hereof.
- ------
Depositary Account shall have the meaning given to such term in Section 3.6
------------------ -----------
hereof.
Discount Rate shall mean, with respect to any Acceptance, the applicable
-------------
discount rate of the applicable Accepting Bank (determined by such Accepting
Bank on the date of discount prior
8
<PAGE>
to 12:00 noon, Chicago time) for bankers acceptances having maturities
comparable to the maturity of such Acceptance and with face amounts equal to the
face amount thereof.
DOL shall mean the United States Department of Labor and any successor
---
department or agency.
Domestic Lending Office shall mean, with respect to any Lender, the office
-----------------------
of such Lender specified by such Lender to the Borrower and the Agent as its
"Domestic Lending Office" from time to time.
EBITDA with respect to any period, shall mean Consolidated Net Income for
------
such period before payment or provision of taxes measured by income plus,
----
without duplication, all interest charges (to the extent deducted in computing
Consolidated Net Income), all Fees payable in connection with this Credit
Agreement, amortization and depreciation expense (including any amortization and
depreciation associated with "fresh start accounting") and other non-cash items
reducing Consolidated Net Income for such period, in each case determined on a
consolidated basis for the Borrower and its Consolidated Subsidiaries.
Eligible Accounts Receivable shall mean the aggregate face amount of such
----------------------------
Borrower's Accounts that conform to the warranties contained herein and at all
times continue to be acceptable to the Agent in its Permitted Discretion, less
the aggregate amount of all returns, discounts, claims, credits, charges and
allowances of any nature (whether issued, owing, granted or outstanding), and
less the aggregate amount of all reserves established or required to be
established by the Agent from time to time for slow paying accounts, foreign
sales, bill and hold (or deferred shipment) transactions and the Lenders'
charges as set forth in this Credit Agreement. Unless otherwise approved in
writing by the Agent, no Account shall be deemed to be an Eligible Account
Receivable if:
(a) it arises out of a sale made by the Borrower to an Affiliate
(other than an Affiliate of Apollo which would not otherwise be an
Affiliate of Borrower but for the relationship to Apollo); or
(b) the Account is unpaid more than 60 days after the original due
date specified in the related invoice or the Account is unpaid more than
120 days after the initial date of such invoice, based on Borrower's
reasonable estimate thereof, and subject to reserves established by the
Agent with respect thereto in its Permitted Discretion; or
(c) the Account, when aggregated with all other Accounts of such
account debtor, exceeds fifteen percent (15%) in face value of all Accounts
of the Borrower then outstanding, to the extent of such excess, unless such
Account is supported by an irrevocable letter of credit or other form of
financial support in form and substance
9
<PAGE>
satisfactory to the Agent, issued by a financial institution satisfactory
to the Agent and which, following any request therefor by Agent, has been
endorsed in blank and delivered to the Agent; or
(d) (i) the account debtor is also a creditor of the Borrower or of
its Subsidiaries, in each case to the extent of the amount owed by the
Borrower or such Subsidiary to the account debtor, (ii) the account debtor
has disputed its liability on, or the account debtor has made any claim
with respect to, such Account, in each case which has not been resolved,
but the subject Account shall be excluded from Eligible Accounts Receivable
only to the extent of any amount with respect to which the account debtor
has disputed its liability or has made a claim or (iii) the Account
otherwise is or may become subject to any right of setoff by the account
debtor, to the extent of the amount of such setoff; or
(e) the account debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made
an assignment for the benefit of creditors, or if a decree or order for
relief has been entered by a court having jurisdiction in the premises in
respect to the account debtor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or if any other
petition or other application for relief under the federal bankruptcy laws
has been filed by or against the account debtor, or if the account debtor
has failed, suspended business, ceased to be solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs; or
(f) the sale is to an account debtor outside of the United States,
Canada or Puerto Rico, unless the account debtor thereon has supplied the
Borrower with an irrevocable letter of credit or other form of financial
support in form and substance satisfactory to the Agent, issued by a
financial institution satisfactory to the Agent and which, following any
request therefor by the Agent, has been endorsed in blank and delivered to
the Agent; or
(g) the sale to the account debtor is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval or consignment basis or made
pursuant to any other written agreement providing for repurchase or return;
or
(h) the Agent believes, in its Permitted Discretion, that collection
of such Account is insecure or that such Account may not be paid by reason
of the account debtor's financial inability to pay; or
(i) the account debtor is the United States of America or any
department, agency or instrumentality thereof, unless the Borrower duly
assigns its rights to payment
10
<PAGE>
of such Account to the Agent pursuant to the Assignment of Claims Act of 1940,
as amended (31 U.S.C. sec. 3727 et seq.); or
-- ---
(j) the goods giving rise to such Account have not been shipped and
delivered to and accepted by the account debtor or the services giving rise
to such Account have not been performed by the Borrower and accepted by the
account debtor or the Account otherwise does not represent a final sale; or
(k) the Account exceeds a credit limit determined by the Agent, in its
Permitted Discretion, to the extent such Account exceeds such limit; or
(l) fifty percent (50%) or more, in face amount, of other Accounts
from the same account debtor are not deemed Eligible Accounts Receivable
hereunder; or
(m) the Account does not comply with all applicable legal
requirements, including, without limitation, applicable provisions of the
Federal Consumer Credit Protection Act, the Federal Truth in Lending Act
and Regulation Z of the Board of Governors of the Federal Reserve System,
in each case as amended; or
(n) the Account is not owned by the Borrower free and clear of any
Liens (other than Liens in favor of the Agent) or is one in which the Agent
does not have a first prior perfected security interest; or
(o) the Account does not constitute a valid and binding obligation of
the applicable account debtor in accordance with its terms; or
(p) the Agent, in the exercise of its Permitted Discretion, determines
it to be ineligible.
In addition to the foregoing, Eligible Accounts Receivable shall include
such Accounts for which Borrower shall request approval and that the Agent
approves in advance, in writing, and in its Permitted Discretion, which approval
shall not prevent the Agent from time to time from revoking such approval in the
exercise of its Permitted Discretion.
Eligible Inventory shall mean:
------------------
(a) the gross amount of the Borrower's Inventory, valued at the lower
of cost (on a FIFO basis) or market, which (i) is owned solely by the
Borrower and with respect to which the Borrower has good, valid and
marketable title; (ii) is either (A) stored on property that is not a
retail location of the Borrower and that is either (x) owned or leased by
the Borrower or (y) owned or leased by a warehouseman that has contracted
with the
11
<PAGE>
Borrower to store Inventory on such warehouseman's property or by a filler,
processor or packer of the Borrower (provided that, with respect to
--------
Inventory stored on property leased by the Borrower, the Borrower shall
have delivered in favor of the Agent an Acknowledgement Agreement, except
that no Acknowledgement Agreement shall be required with respect to the
Charlotte, North Carolina warehouse leased by the Borrower (the "Charlotte
Warehouse") as a prerequisite to the inclusion of the Inventory therein as
"Eligible Inventory" so long as (1) Borrower has notified the landlord of
the Charlotte Warehouse of the Lender's security interest in the Collateral
at such facility and directed such landlord to send all notices with
respect to the Charlotte Warehouse, including without limitation, notices
of non-payment, late payment or default under the lease, to Agent, and
provided Agent with proof of such notice and (2) the rent on such location
is paid at least two (2) months in advance and, upon request, evidence of
such rental payments is provided to Agent, and, with respect to Inventory
stored on property owned or leased by a warehouseman, filler, processor or
packer, the Borrower shall have delivered to the Agent Acknowledgement
Agreements executed by the warehouseman) or (B) finished goods in transit
to a domestic location of Borrower, and which are being imported (or have
been imported) by Borrower for which payment is to be effected by either
(1) the presentment of a Letter of Credit issued (or deemed issued)
pursuant to this Agreement or (2) such other method agreed to between the
Borrower and the seller thereof pursuant to an open account purchase order,
so long as, (x) the Agent is named as consignee on the applicable bill of
lading or other similar document of title, (y) such bill of lading or
document has been delivered to the Agent (or a Person designated by the
Agent to act as its agent for such purpose) and (z) the Inventory is
covered by insurance acceptable to the Agent; (iii) is subject to a valid,
enforceable and perfected first priority Lien in favor of the Agent except,
with respect to Eligible Inventory stored at sites described in clause
(ii)(A)(y) above, for Liens for normal and customary warehouseman filler,
packer and processor charges and provided such Eligible Inventory is not
subject to any other Lien or consignment arrangement; other than Liens in
favor of the Agent; (iv) is located in the United States, Canada or Puerto
Rico or, with respect to Inventory described in (ii)(B) above, is in
transit to a domestic location; (v) is not obsolete, damaged, defective,
slow moving, unmerchantable, work-in-process, unsalable or otherwise
capable of sale only at a price materially less than the original cost of
such item and which otherwise conforms to the warranties contained herein
and which at all times continues to be acceptable to the Agent in its
Permitted Discretion; and (vi) is not financed by letters of credit
(including Letters of Credit),
(b) less any goods otherwise included in Eligible Inventory pursuant
----
to the preceding paragraph (a) that are returned or rejected by the
Borrower's customers and goods in transit to third parties (other than to
the Borrower's agents, warehouses, fillers, processors or packers that
comply with clause (a)(ii)(B) above),
12
<PAGE>
(c) less any Inventory otherwise included in Eligible Inventory
----
pursuant to the preceding paragraph (a) that the Agent determines in its
Permitted Discretion to be a no charge or sample item,
(d) less any reserves required by the Agent in its Permitted
----
Discretion for special order goods and market value declines, and
(e) less any Inventory that the Agent determines in its Permitted
----
Discretion to be ineligible.
In addition to the foregoing, Eligible Inventory shall include such items
of Borrower's Inventory for which the Borrower shall request approval and that
the Agent approves in advance, in writing, and in its Permitted Discretion,
which approval shall not prevent the Agent from time to time from revoking such
approval in the exercise of its Permitted Discretion.
Eligible Retail Inventory shall mean Borrower's Inventory which would
-------------------------
otherwise constitute Eligible Inventory but for the fact that it is located at a
retail location of the Borrower; provided, however, that no Acknowledgement
Agreement shall be required with respect to retail locations leased by Borrower
as a prerequisite to the inclusion of the inventory thereon as Eligible Retail
Inventory.
Environmental Law shall mean any federal, state or local law, statute,
-----------------
ordinance, or regulation pertaining to health, industrial hygiene, or the
environmental conditions on, under or about any real property owned, operated or
leased by the Borrower or any Subsidiary thereof.
Equity Offering Proceeds shall mean the aggregate amount of cash received
------------------------
by the Borrower from a public offering or private placement of equity securities
(including, without limitation, common stock, preferred stock and warrants and
options to acquire the same) of such Borrower minus, but without duplication,
-----
all underwriting discounts and commissions, placement fees and other
professional fees, expenses and taxes incurred in connection with such offering
or placement. For purposes of this definition, if any such discounts,
commissions, fees, expenses or taxes payable in connection with such offering or
placement are not known as of the date of the distribution of the proceeds
thereof, then such discounts, commissions, fees, expenses or taxes shall be
estimated in good faith by the Borrower and such estimated amounts shall be
deducted from the calculation of Equity Offering Proceeds.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute thereto and all final or
temporary regulations promulgated thereunder, and all published, generally
applicable rulings entitled to precedential effect.
13
<PAGE>
ERISA Affiliate shall mean any (i) corporation which is or was at any time
---------------
during the immediately preceding six years a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Internal Revenue
Code) as the Borrower; (ii) partnership or other trade or business (whether or
not incorporated) at any time during the immediately preceding six years under
common control (within the meaning of Section 414(c) of the Internal Revenue
Code) with the Borrower; and (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Internal Revenue Code) as the
Borrower, any corporation described in clause (i) above, or any partnership or
trade or business described in clause (ii) above.
Event(s) of Default shall have the meaning provided for in Article 10 of
------------------- ----------
this Credit Agreement.
Excess Consolidated Net Income shall mean, for any fiscal year, fifty
------------------------------
percent (50%) of the amount of the Borrower's Consolidated Net Income in excess
of the amounts set forth below for the corresponding fiscal year:
<TABLE>
<CAPTION>
<S> <C>
1997 $13,000,000
1998 $20,000,000
1999 and each fiscal $30,000,000
year thereafter during
the term hereof
</TABLE>
Excluded Taxes shall mean income, franchise and branch profits taxes
--------------
(including any privilege or intangible taxes to the extent measured by income or
calculated in a manner similar to franchise or branch profits taxes) imposed on
the Agent (or Bankers Trust Company) or any Lender (or an office, branch or
agency of the Agent or a Lender) by any governmental authority in a jurisdiction
in which the Agent or any Lender is organized or has its principal or registered
office or is acting for purposes of this Credit Agreement (other than any
jurisdiction in which the Agent or such Lender has become subject to taxation as
a result of entering into or performing its obligations under this Credit
Agreement).
Expenses shall mean all present and future expenses reasonably incurred by
--------
or on behalf of the Agent in connection with this Credit Agreement or any of the
other Credit Documents or any of the transactions contemplated hereby or
thereby, whether incurred heretofore or hereafter, which expenses shall include,
without being limited to, the cost of record searches, reasonable counsel fees,
all costs and expenses incurred by the Agent in opening bank accounts,
depositing checks, receiving and transferring funds, and any charges imposed on
the Agent due to "insufficient funds" of deposited checks and the Agent's
standard fee relating thereto, costs of the Agent (including internal and
external collateral examination staff) in conducting field examinations,
reasonable fees and expenses of accountants, appraisers or other experts or
advisors retained by the Agent, title insurance search fees (but not including
any premiums for title
14
<PAGE>
insurance except in connection with enforcement of the Agent's Liens), real
estate survey costs, fees and taxes relative to the filing of financing
statements, costs of preparing and recording Collateral Assignments, Proprietary
Rights Collateral Documents, Mortgages, the Security Agreement and all expenses,
costs and fees set forth in Article 8 of this Credit Agreement.
---------
Expiration Date shall mean May 21, 2002.
---------------
Federal Funds Rate shall mean, for any period, a fluctuating interest rate
------------------
per annum equal, for each day during such period, to the weighted average of the
rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by it.
Fees shall mean the Unused Line Fee, the Foreign Exchange Fees, the Letter
----
of Credit Fees, the Acceptance Commissions and the Collateral Management Fee
payable hereunder, and the fees payable for the account of the Agent pursuant to
the letter dated April 29, 1997 between Borrower and Agent (the "Fee Letter").
Filing Assets shall mean all property and assets comprising Collateral
-------------
which constitute Inventory, Accounts, equipment (excluding motor vehicles and
other equipment covered by a certificate of title or similar statute), general
intangibles or chattel paper other than any of the foregoing located outside of
the United States.
Financials shall have the meaning given to it in Section 5.4 hereof.
---------- -----------
Financial Statements shall mean the consolidated and consolidating balance
--------------------
sheets, consolidated and consolidating statements of operations, consolidated
statements of changes in cash flows and consolidated statements of changes in
stockholders' equity of the Borrower and its Consolidated Subsidiaries for the
period specified prepared in accordance with GAAP and consistent with prior
practices.
Foreign Exchange Contract shall mean any contract (other than spot
-------------------------
contracts) between a Foreign Exchange Guarantor and the Borrower requested by
the Borrower and executed pursuant to the terms of Article 4 hereof that
---------
requires payment or delivery of a currency other than U.S. Dollars.
Foreign Exchange Exposure shall mean, with respect to any Foreign Exchange
-------------------------
Contract, an amount equal to the product of (i) the U.S. Dollar equivalent (as
determined by the Agent from time to time) of the foreign currency obligation
under such Foreign Exchange Contract and (ii) a
15
<PAGE>
percentage determined by the applicable Foreign Exchange Guarantor, which
percentage shall be the percentage reasonably determined by such Foreign
Exchange Guarantor with respect to the applicable Foreign Exchange Contract.
Foreign Exchange Facing Fees shall have the meaning given to it in Section
---------------------------- -------
8.8 hereof.
- ---
Foreign Exchange Fees shall mean the fees payable to the Agent for the
---------------------
benefit of the Lenders by the Borrower under and pursuant to Section 8.8 hereof.
-----------
Foreign Exchange Guarantor shall mean Bankers Trust Company or any other
--------------------------
bank or financial institution approved by the Agent in writing to enter into
Foreign Exchange Contracts.
Foreign Exchange Obligations shall mean, at any time, the sum of, without
----------------------------
duplication, (i) the outstanding Foreign Exchange Exposure under Foreign
Exchange Contracts at such time, plus (ii) the aggregate amount of all payments
----
under Foreign Exchange Contracts for which the Foreign Exchange Guarantor is
entitled to be and has not at such time been reimbursed, plus (iii) the
----
aggregate amount of all payments made by each Lender to the Foreign Exchange
Guarantor with respect to the participation in Foreign Exchange Contracts as
provided in Article 4 for which the Borrower is obligated to and has not at such
---------
time reimbursed the Lenders, whether by payment to the Lenders, by way of a
Revolving Loan (as contemplated by Section 4.2 hereof) or otherwise.
-----------
Foreign Lender shall mean any Lender organized under the laws of a
--------------
jurisdiction outside of the United States.
Foreign Subsidiary shall mean any Subsidiary of a Person not incorporated
------------------
in or having material assets or operations in the United States.
Funded Debt shall mean, with respect to any Person, all Debt of such Person
-----------
which by the terms of the agreement governing, or instrument evidencing, such
Debt matures more than one year from, or is directly or indirectly renewable or
extendable at the option of the debtor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of
more than one year from, the date of creation thereof, including current
maturities of long-term Debt, revolving credit and short-term Debt extendable
beyond one year at the option of the debtor and, in respect of the Borrower,
including the Loans outstanding hereunder, but excluding Acceptances, Foreign
Exchange Contracts and Letters of Credit.
Funding Bank shall have the meaning given to such term in Section 8.12
------------ ------------
hereof.
GAAP shall mean generally accepted accounting principles in the United
----
States of America, as in effect from time to time.
16
<PAGE>
Guarantee by any Person shall mean any obligation, contingent or otherwise,
---------
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of such
Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that the term
--------
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
Hazardous Substance shall mean those substances included within the
-------------------
definitions of "hazardous substances", "hazardous materials", "toxic
substances", or "solid waste" under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.,
-- ---
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et
--
seq. and the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 1801 et
- --- --
seq., and in the regulations promulgated pursuant to said laws, and such other
- ---
substances, materials and wastes which are or become regulated under applicable
local, state or federal law, or which are classified as hazardous or toxic under
federal, state or local laws or regulations.
Highest Lawful Rate shall mean, at any given time during which any
-------------------
Obligations shall be outstanding hereunder, the maximum nonusurious interest
rate, if any, that at any time or from time to time may be contracted for,
taken, reserved, charged or received on the indebtedness under this Credit
Agreement, under the laws of the State of Illinois (or the law of any other
jurisdiction whose laws may be mandatorily applicable notwithstanding other
provisions of this Credit Agreement and the other Credit Documents), or under
applicable federal laws which may presently or hereafter be in effect and which
allow a higher maximum nonusurious interest rate than under Illinois (or such
other jurisdiction's) law, in any case after taking into account, to the extent
permitted by applicable law, any and all relevant payments or charges under this
Credit Agreement and any other Credit Documents executed in connection herewith,
and any available exemptions, exceptions and exclusions.
Initial Credit Event shall have the meaning given to it in Section 2.1
-------------------- -----------
hereof.
Insurance Proceeds shall mean the proceeds of any insurance or any
------------------
judgments or settlements made in lieu thereof resulting from a casualty with
respect to the Collateral or any part thereof.
Interest Period shall mean for any LIBOR Rate Loan the period commencing on
---------------
the date of such borrowing and ending on the last day of the period selected by
the Borrower pursuant to
17
<PAGE>
the provisions below. The duration of each such Interest Period shall be one,
two, three or six months, in each case as the Borrower may, in an appropriate
Notice of Borrowing, Notice of Rollover or Notice of Conversion, select;
provided, however, that the Borrower may not select any Interest Period that
- -------- -------
ends after the Expiration Date. Whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day,
provided, that if such extension would cause the last day of such Interest
- -------- ----
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day.
Interim Advances shall have the meaning given to it in Section 3.2 hereof.
---------------- -----------
Interim Advance Period shall have the meaning given to it in Section 3.2
---------------------- -----------
hereof.
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as
---------------------
amended from time to time, and any successor statute thereto and all final or
temporary regulations promulgated thereunder and published, and generally
applicable rulings entitled to precedential effect to the extent such
regulations or rulings by their effective dates are applicable hereto.
Internal Revenue Service shall mean the Internal Revenue Service and any
------------------------
successor agency.
Inventory shall mean all of the Borrower's inventory, including without
---------
limitation: (i) all raw materials, work in process, parts, components,
assemblies, supplies and materials used or consumed in the Borrower's business;
(ii) all goods, wares and merchandise, finished or unfinished, held for sale or
lease or leased or furnished or to be furnished under contracts of service; and
(iii) all goods returned or repossessed by the Borrower.
Investment shall mean any investment in any Person, whether by means of
----------
share purchase, capital contribution, loan, advance, time deposit or otherwise.
Issuing Bank shall mean Bankers Trust Company or any other bank or
------------
financial institution approved by the Agent in writing to issue Letters of
Credit for the account of the Borrower.
Judgment shall have the meaning given to it in Section 10.1(g) hereof.
-------- ---------------
L/C Facing Fee shall have the meaning given to it in Section 8.8 hereof.
-------------- -----------
Leased Real Property shall mean all of the real property leased by the
--------------------
Borrower at any time, including, without limitation, all of the material real
property leased by the Borrower as of the date of this Credit Agreement as set
forth on Schedule D hereto.
18
<PAGE>
Leases shall have the meaning given to such term in Section 5.13 hereof.
------ ------------
Lender shall have the meaning provided in the preamble to this Credit
------
Agreement.
Letter of Credit Fees shall mean the fees payable to the Agent for the
---------------------
benefit of the Lenders by the Borrower under and pursuant to Section 8.8 hereof.
-----------
Letter of Credit Obligations shall mean, at any time, the sum of, without
----------------------------
duplication, (i) the aggregate undrawn amount of all Letters of Credit
outstanding at such time, plus (ii) the aggregate amount of all drawings under
----
Letters of Credit for which the Issuing Bank is entitled to be and has not at
such time been reimbursed, plus (iii) the aggregate amount of all payments made
----
by each Lender to the Issuing Bank with respect to its participation in Letters
of Credit as provided in Article 4 for which the Borrower is obligated to and
------- -
have not at such time reimbursed the Lenders, whether by payment to the Lenders,
by way of a Revolving Loan (as contemplated by Section 4.1 hereof) or otherwise.
-----------
Letter of Credit Request shall mean a request for the issuance of a Letter
------------------------
of Credit executed by the Borrower in the form of Exhibit C hereto.
Letters of Credit shall mean all letters of credit (whether commercial or
-----------------
stand-by and whether for the purchase of inventory, equipment or otherwise)
issued by any Issuing Bank for the account of the Borrower in accordance with
Article 4 hereof.
- ---------
LIBOR Lending Office shall mean, with respect to any Lender, such office or
--------------------
such affiliate of such Lender as such Lender may specify from time to time to
the Borrower and the Agent (or, if no such office is specified, its Domestic
Lending Office).
LIBOR Rate shall mean, with respect to the Interest Period for each LIBOR
----------
Rate Loan comprising part of the same borrowing, an interest rate per annum
equal to the rate (rounded upward to the nearest whole multiple of one-sixteenth
(1/16) of one percent (1%) per annum, if such rate is not such a multiple) of
the offered quotation, if any, to first class banks in the LIBOR market by
Bankers Trust Company for U.S. dollar deposits of amounts in immediately
available funds comparable to the principal amount of the LIBOR Rate Loan for
which the LIBOR Rate is being determined with maturities comparable to the
Interest Period for which such LIBOR Rate will apply as of approximately 10:00
a.m. (New York time) two (2) Business Days prior to the commencement of such
Interest Period.
LIBOR Rate Loan shall mean a Loan that bears interest as provided in
---------------
Section 8.1 hereof.
- -----------
LIBOR Rate Margin shall mean the percentage set forth in the schedule
-----------------
below, determined as follows:
19
<PAGE>
Prior to the delivery by Borrower of the financial reports with respect to
the fiscal quarter ending September 27, 1997, the LIBOR Rate Margin shall
be two and fifty hundredths percent (2.50%) per annum. Thereafter, if the
ratio of Borrower's EBITDA to Consolidated Interest Expense as at the end
of any fiscal quarter, commencing with the fiscal quarter ending September
27, 1997, measured on the basis of the period consisting of the three (3)
fiscal quarters ending September 27, 1997 and the four (4) fiscal quarters
ending with any subsequent fiscal quarter (the "Measurement Period"), shall
fall within any of the ranges set forth in the schedule below, based on
such financial reports delivered by Borrower to Agent sufficient to Agent's
satisfaction confirming such fact, and so long as no Default or Event of
Default then exists and subject to the additional terms hereof, effective
on the first day of the month (the "Effective Date") immediately following
such confirmation by Agent, the LIBOR Rate Margin for any LIBOR Rate Loan
outstanding at any time during the period of three calendar months
commencing with the Effective Date, shall be the percentage set forth below
opposite the applicable range:
Range of Ratio LIBOR Rate Margin
-------------- -----------------
less than 2.50 to 1 2.50%
2.50 to 1 or greater, but 2.25%
less than 2.75 to 1
2.75 to 1 or greater, but 2.00%
less than 3.0 to 1
3.0 to 1 or greater, but 1.75%
less than 3.25 to 1
3.25 to 1 or greater 1.50%
In the event that Borrower shall receive any Equity Offering Proceeds
during the term hereof, Borrower's Consolidated Interest Expense shall be
calculated on a proforma basis as if such Equity Offering Proceeds were used on
a daily basis from the beginning of such Measurement Period until the date such
Equity Offering Proceeds were received to permanently reduce the Revolving Loans
outstanding on each day thereof in an amount equal to the lesser of such
Revolving Loans then outstanding or such Equity Offering Proceeds.
Notwithstanding the foregoing, (1) any change in the LIBOR Rate Margin to
which Borrower is otherwise entitled to hereunder shall nonetheless be limited
to not more than (a) twenty five hundredths percent (.25%) reduction based on
Borrower's performance hereunder measured as at the end of the first full fiscal
quarter occurring after the date hereof, (b) fifty
20
<PAGE>
hundredths percent (.50%) reduction based on Borrower's performance hereunder
measured as at the end of the second full fiscal quarter occurring after the
date hereof, and (c) seventy five hundredths percent (.75%) reduction based on
Borrower's performance hereunder measured as at the end of the third full fiscal
quarter occurring after the date hereof (provided, however, that the limitations
of the preceding subsections (b) and (c) shall not apply if Borrower shall be
entitled to a greater reduction in the LIBOR Rate Margin by reason of the
receipt of Equity Offering Proceeds), and (2) if a Default or Event of Default
shall occur at any time during the term hereof in which Borrower is otherwise
entitled to the benefit of a LIBOR Rate Margin of less than 2.50%, the LIBOR
Rate Margin shall revert to not less than 2.50% during the pendency of any such
Default or Event of Default (subject to the provisions of Section 8.4 hereof).
-----------
Lien shall mean, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Credit Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
Loan Account shall have the meaning given to it in Section 3.7 hereof.
------------ -----------
Loans shall mean the Revolving Loans made from time to time hereunder.
-----
Lockbox Agreements shall have the meaning given to such term in Section 3.6
------------------ -----------
hereof.
Lockbox Bank shall have the meaning given to such term in Section 3.6
------------ -----------
hereof.
Lockboxes shall have the meaning given to such term in Section 3.6 hereof.
--------- -----------
Material Adverse Change shall mean a material adverse change (i) in the
-----------------------
business, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Consolidated Subsidiaries taken
as a whole, or (ii) in the value of a material portion of the Inventory or
Accounts or in the value of the Collateral taken as a whole or the amount which
the Agent and the Lenders would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral.
Material Adverse Effect shall mean a material adverse effect on (i) the
-----------------------
business, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Consolidated Subsidiaries taken
as a whole, (ii) the value of a material portion of the Inventory or Accounts or
the value of the Collateral taken as a whole or the amount which the Agent and
the Lenders would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of such Collateral, (iii)
the Borrower's ability
21
<PAGE>
to perform its obligations under the Credit Documents, or (iv) the rights and
remedies of the Agent or the Lenders hereunder.
Mortgage shall mean, with respect to real property owned by the Borrower,
--------
each mortgage or deed of trust executed and delivered on the date hereof or
hereafter delivered from time to time pursuant to the terms hereof, and with
respect to real property leased by the Borrower, each leasehold mortgage or
leasehold deed of trust, if any, executed and delivered on the date hereof or
hereafter delivered from time to time pursuant to the terms hereof, as any of
the same may be amended, modified, supplemented, extended or renewed from time
to time.
Multiemployer Plan shall mean a "multiemployer plan" as defined in Section
------------------ -------
4001(a)(3) of ERISA and (i) which is, or within the immediately preceding six
- ----------
(6) years was, contributed to by the Borrower or any ERISA Affiliate or (ii)
with respect to which the Borrower or any ERISA Affiliate may incur any
liability.
Net Cash Proceeds shall mean, with respect to the sale or disposition of
-----------------
any asset, the aggregate amount of cash received by the Borrower (including cash
payments received in respect of deferred payment pursuant to any note or
installment receivable or otherwise and state or federal income tax refunds
attributable to such sale or disposition, but in each case only as and when
received) in respect of such sale or disposition minus (i) all fees,
-----
commissions, expenses and taxes incurred in connection with such sale or
disposition, (ii) the principal amount of Debt of the Borrower which is senior
(in lien priority) to the Debt hereunder and which by its terms is required to
be and is repaid, and (iii) any amount considered appropriate by the Borrower,
in good faith, to provide reserves for payment of indemnities or liabilities
that may be incurred in connection with such sale or disposition. For purposes
of this definition, if taxes or other expenses payable in connection with the
sale or disposition of any asset are not known as of the date of such sale or
disposition, then such fees, commissions, expenses or taxes shall be estimated
by the Borrower, in good faith, and such estimated amounts shall be deducted
therefrom.
Notes shall mean the Revolving Notes.
-----
Notice of Borrowing shall have the meaning given to such term in Section
------------------- -------
3.3 hereof.
- ---
Notice of Conversion shall have the meaning given to such term in Section
-------------------- -------
8.3 hereof.
- ---
Notice of Rollover shall have the meaning given to such term in Section 8.3
------------------ -----------
hereof.
Obligations shall mean the Loans, any other loans and advances or
-----------
extensions of credit made or to be made by any Lender to the Borrower, or to
others for the Borrower's account pursuant to the terms and provisions of this
Credit Agreement, together with interest thereon (including interest which would
be payable as post-petition interest in connection with any
22
<PAGE>
bankruptcy or similar proceeding) and, including, without limitation, any
reimbursement obligation or indemnity of the Borrower on account of Letters of
Credit and Foreign Exchange Contracts (including, without limitation, the Letter
of Credit Obligations and the Foreign Exchange Obligations), any amounts payable
under or in respect of the Acceptances (including, without limitation the
Acceptance Obligations), and any and all indebtedness, liabilities and
obligations which may at any time be owing by the Borrower to any Lender
pursuant to this Credit Agreement or any other Credit Document, whether now in
existence or incurred by the Borrower from time to time hereafter, whether
unsecured or secured by pledge, Lien upon or security interest in any of the
Borrower's assets or property or the assets or property of any other Person,
whether such indebtedness is absolute or contingent, joint or several, matured
or unmatured, direct or indirect and whether the Borrower is liable to such
Lender for such indebtedness as principal, surety, endorser, guarantor or
otherwise. Obligations shall also include any other indebtedness owing to any
Lender by the Borrower under this Credit Agreement, the Credit Documents, the
Borrower's liability to any Lender pursuant to this Credit Agreement as maker or
endorser of any promissory note or other instrument for the payment of money,
the Borrower's liability to any Lender pursuant to this Credit Agreement or any
other Credit Document under any instrument of guaranty or indemnity, or arising
under any guaranty, endorsement or undertaking which any Lender may make or
issue to others for the Borrower's account pursuant to this Credit Agreement or
any other Credit Document, including any accommodation extended with respect to
applications for Letters of Credit, or any Lender's acceptance of drafts or
endorsement of notes or other instruments for the Borrower's account and
benefit.
OSHA shall mean the Occupational Safety and Health Act, as amended from
----
time to time, and any successor statute thereto and all final or temporary
regulations promulgated thereunder, and all published, generally applicable
rulings entitled to precedential effect.
Other Taxes shall have the meaning given to such term in Section 3.10
------------ ------------
hereof.
Owned Real Property shall mean the real property owned by the Borrower at
-------------------
any time, including, without limitation, all of the material real property owned
by the Borrower as of the date of this Credit Agreement as set forth on Schedule
D hereto.
Patent Security Agreements shall mean, collectively, the Patent Security
--------------------------
Agreements executed by the Borrower in favor of the Agent in the form attached
hereto as Exhibit D.
PBGC shall mean the Pension Benefit Guaranty Corporation and any Person
----
succeeding to the functions thereof.
Permitted Discretion shall mean the Agent's judgment exercised in good
--------------------
faith and not in an irrational manner based upon its consideration of any factor
which the Agent believes in good faith could affect the value of any Inventory
or Accounts or the amount which the Agent and the
23
<PAGE>
Lenders would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of such Collateral. In
exercising such judgment, the Agent may consider such factors which are already
included in or tested by the definition of Eligible Accounts Receivable,
Eligible Inventory, or Eligible Retail Inventory, as well as any of the
following: (i) changes in collection history and dilution with respect to the
Accounts, (ii) changes in levels of backlog of firm purchase orders and demand
for, and pricing of, Inventory, (iii) changes in any concentration of risk with
respect to Accounts and Inventory, and (iv) any other factors that change the
credit risk of lending to the Borrower on the security of the Accounts and
Inventory.
Permitted Investments shall mean (i) Cash Equivalents, (ii) interest-
---------------------
bearing demand or time deposits (including certificates of deposit) which are
insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar
federal insurance program; provided, however, that the Borrower may, in the
-------- -------
ordinary course of its business, maintain in the Loan Disbursement Account from
time to time amounts in excess of then applicable FDIC or other program
insurance limits, (iii) securities distributed in connection with the
confirmation of a plan of reorganization following the bankruptcy of any Person
indebted to the distributee at the time such bankruptcy is filed, (iv) any
reinvestment of dividends paid by a Foreign Subsidiary or a foreign Affiliate in
such Foreign Subsidiary or such foreign Affiliate and (v) such other investments
as the Agent may approve in its sole discretion.
Permitted Liens shall mean, without duplication:
---------------
(a) Liens for taxes, assessments, governmental charges or levies not
yet due or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Borrower or the appropriate Subsidiary, as the case may be, in
accordance with GAAP;
(b) statutory Liens of landlords and carriers', or other
warehousemen's, mechanics', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which are not overdue for a
period of more than 60 days or which are being contested in good faith and
by appropriate proceedings in a manner which will not jeopardize or
diminish the interest of the Lenders or the Agent in any of the Collateral
subject to the Ancillary Documents or interfere with the ordinary conduct
of the business of the Borrower or any Subsidiary;
(c) pledges or deposits and Liens (other than any Lien imposed by
ERISA) under bonds required in connection with workers compensation,
unemployment insurance and other social security legislation;
(d) Liens (other than any Lien imposed by ERISA or by Environmental
Laws) incurred on deposits to secure the performance of tenders, bids,
trade contracts (other than
24
<PAGE>
for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance and return-of-money bonds and other obligations of a
like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which do not
substantially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Borrower or any
Subsidiary;
(f) Liens affecting assets existing at the time such assets are
acquired provided that such Liens are not created in contemplation of such
-------- ----
acquisition;
(g) Liens affecting the assets of any of the Borrower's Subsidiaries
at the time such Subsidiaries are acquired provided such Liens are not
created in contemplation of such acquisition; and
(h) Liens affecting the assets of any Foreign Subsidiary.
Person shall mean any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency or
department thereof), and, as applicable, the successors, heirs and assigns of
each.
Plan shall mean any "employee benefit plan" as defined in Section 3(3) of
----
ERISA, maintained or contributed to by the Borrower or with respect to which the
Borrower may incur liability.
Pledge Agreement shall mean, collectively, the Pledge Agreements executed
----------------
by the Borrower in favor of the Agent, in the form attached hereto as Exhibit E.
Prime Lending Rate shall mean the rate which Bankers Trust Company
------------------
announces from time to time as its prime lending rate, as in effect from time to
time. The Prime Lending Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer. Bankers
Trust Company may make commercial loans or other loans at rates of interest at,
above or below the Prime Lending Rate.
Prime Rate Loan shall mean a Loan that bears interest as provided in
---------------
Section 8.2 hereof.
- -----------
Proportionate Share shall mean, with respect to any Lender, a fraction
-------------------
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Revolving Credit Commitment and the denominator of which shall be the
Total Revolving Loan Commitments.
25
<PAGE>
Proprietary Rights shall have the meaning given to such term in Section
------------------ -------
5.13 hereof.
- ----
Proprietary Rights Collateral Documents shall mean the Trademark Security
---------------------------------------
Agreements and the Patent Security Agreements.
Real Estate shall mean, collectively, the Owned Real Property and the
-----------
Leased Real Property.
Register shall have the meaning given to it in Section 13.6(e) hereof.
-------- ---------------
Regulation G shall mean Regulation G of the Board of Governors of the
------------
Federal Reserve System, as in effect from time to time.
Regulation U shall mean Regulation U of the Board of Governors of the
------------
Federal Reserve System, as in effect from time to time.
Regulation X shall mean Regulation X of the Board of Governors of the
------------
Federal Reserve System, as in effect from time to time.
Rentals of any Person shall mean at any date, without duplication, (i) all
-------
obligations of such Person under any lease (excluding any Capital Lease) having,
as of such date, an unexpired term (including any renewals at the option of the
lessor) of one year or more, plus (ii) all Rentals of others Guaranteed by, or
----
secured by a Lien on any asset of, such Person.
Reportable Event shall mean any of the events described in Section 4043 of
---------------- ------------
ERISA and the regulations thereunder.
Required Lenders shall mean, at any time, subject to the provisions set
----------------
forth in Section 13.11 hereof, Lenders holding more than fifty percent (50%) of
-------------
the then aggregate unpaid principal amount of the Revolving Notes or, if no such
principal amount is then outstanding, Lenders having more than fifty percent
(50%) of the Total Commitments.
Retiree Health Plan shall mean an "employee welfare benefit plan" within
-------------------
the meaning of Section 3(1) of ERISA that provides health care benefits to
persons after termination of employment, other than as required by Section 601
of ERISA.
Revolving Credit Commitment of any Lender shall mean the amount set forth
---------------------------
opposite such Lender's name on Annex I hereto, as such annex may be amended from
time to time, under the heading Revolving Credit Commitment, as such amount may
be reduced from time to time pursuant to the terms of this Credit Agreement.
26
<PAGE>
Revolving Loans shall have the meaning given to such term in Section 3.2
--------------- -----------
hereof, which Loan may be a LIBOR Rate Loan or a Prime Rate Loan.
Revolving Note shall mean a promissory note of the Borrower payable to the
--------------
order of any Lender, in the form of Exhibit F hereto, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting from the Revolving Loans
made by such Lender (including any Revolving Loans made pursuant to Section 4.1
-----------
hereof to reimburse any Issuing Bank for drawings under any Letter of Credit,
Revolving Loans made pursuant to Section 4.2 hereof to reimburse a Foreign
-----------
Exchange Guarantor for payments under any Foreign Exchange Contract, and
Revolving Loans made pursuant to Section 4.2.1 hereof to repay an Accepting Bank
-------------
with respect to any Acceptance) or acquired by such Lender from another Lender
pursuant to Section 13.6 hereof.
------------
Rollover shall have the meaning given to such term in Section 8.3 hereof.
-------- -----------
Royalty Income shall mean the amount of royalty income earned by Borrower,
--------------
determined in accordance with GAAP, as reflected on Borrower's monthly income
statements, paid to Borrower by licensees of certain of Borrower's registered
trademarks, pursuant to license agreements between Borrower and such licensees,
and which agreements shall be assigned to Agent pursuant to the Trademark
Security Agreement.
Security Agreement shall mean the Security Agreement between the Agent and
------------------
the Borrower, in the form attached hereto as Exhibit G.
Settlement Period shall have the meaning given to such term in Section 3.4
----------------- -----------
hereof.
Structures shall mean all plants, offices, manufacturing facilities,
----------
warehouses, administration buildings and related facilities of the Borrower
located at the Owned Real Property.
Subordinated Note Indenture shall mean that certain Indenture dated May 21,
---------------------------
1997 by and between Borrower and First Union National Bank, as trustee,
governing the issuance of the Subordinated Notes, as the same may be amended,
supplemented, restated or otherwise modified from time to time.
Subordinated Notes shall mean those certain 7% Convertible, Subordinated
------------------
Notes in the aggregate principal amount of not less than $60,000,000, due June
1, 2004, issued by Borrower pursuant to the Subordinated Note Indenture.
Subsidiary shall mean, with respect to any Person, a corporation,
----------
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other persons performing similar
27
<PAGE>
functions are at the time, directly or indirectly through one or more
intermediaries, or both, owned or controlled, by such Person. Unless otherwise
expressly indicated to the contrary herein, all references to a "Subsidiary" or
to "Subsidiaries" in this Credit Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
Taxes shall mean any federal, state, local or foreign income, sales, use,
-----
transfer, payroll, property, occupancy, franchise or other tax, levy, impost,
fee, imposition, assessment or similar charge, together with any interest
thereon.
Termination Event shall mean (i) a Reportable Event with respect to any
-----------------
Benefit Plan or Multiemployer Plan which is likely to constitute grounds for
termination of such Benefit Plan or Multiemployer Plan; (ii) the withdrawal
(within the meaning of Section 4063 of ERISA) of the Borrower or any ERISA
Affiliate from a Benefit Plan during a plan year in which such entity was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the institution by the
PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan; (v) any
event or condition (a) described in Section 4042(a) of ERISA and which could
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit Plan
or Multiemployer Plan, or (b) described in Section 4041A(a) of ERISA and that
could reasonably be expected to result in termination of a Multiemployer Plan
pursuant to Section 4041A of ERISA; or (vi) the partial or complete withdrawal
within the meaning of Sections 4203 and 4205 of ERISA, of any Borrower or any
ERISA Affiliate from a Multiemployer Plan.
Total Commitments shall mean the aggregate of the Revolving Credit
-----------------
Commitments of all Lenders from time to time.
Trademark Security Agreements shall mean, collectively, each of the
-----------------------------
Trademark Security Agreements executed by the Borrower in favor of the Agent in
the form attached hereto as Exhibit H.
Type shall mean, with respect to any Loan, whether such Loan is a LIBOR
----
Rate Loan or a Prime Rate Loan.
Unrestricted Debt Proceeds shall mean the sum of (i) that portion of the
--------------------------
proceeds of any Debt permitted pursuant to Section 7.1(v) hereof, and (ii) that
--------------
portion of the proceeds of any Additional Permitted Debt, each which are not
required to be applied to the repayment of the Loans pursuant to Section 3.5
-----------
hereof.
Unrestricted Equity Proceeds shall mean that portion of Equity Offering
----------------------------
Proceeds which are not required to be applied to the repayment of the Loans
pursuant to Section 3.5 hereof. Upon
-----------
28
<PAGE>
final determination of all discounts, commissions, fees, expenses and taxes paid
or payable in connection with any transaction giving rise to any Unrestricted
Equity Proceeds, to the extent such discounts, commissions, fees, expenses and
taxes shall exceed the amounts estimated by the Borrower in good faith in
connection with such transaction, the amount of Unrestricted Equity Proceeds
shall be reduced by such excess.
Unrestricted Proceeds shall mean the sum of (i) Unrestricted Debt Proceeds
---------------------
and (ii) Unrestricted Equity Proceeds.
Unused Line Fee shall mean that fee payable by the Borrower to the Agent
---------------
for the Account of the Lenders pursuant to Section 8.7 hereof.
-----------
Voting Stock shall mean stock of the Borrower of the class or classes
------------
having general voting power under ordinary circumstances to elect at least a
majority of the board of directors of the Borrower (irrespective of whether or
not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
1.2 Accounting Terms and Determinations. Unless otherwise defined or
-----------------------------------
specified herein, all accounting terms shall be construed herein and all
accounting determinations for purposes of determining compliance with Sections
--------
7.6, 7.7, and 7.11 hereof and otherwise to be made under this Credit Agreement
- --- --- ----
shall be made in accordance with GAAP, applied on a basis consistent with the
most recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries for the fiscal year ended December 28, 1996. All
Financial Statements required to be delivered hereunder from and after the
Closing Date and all financial records shall be maintained in accordance with
GAAP. The parties hereto agree, however, that in the event that any change in
accounting principles from those used in the preparation of the most recent
audited financial statements of the Borrower and its Consolidated Subsidiaries
for the fiscal year ended December 28, 1996 is hereafter occasioned by the
promulgation of rules, regulations, pronouncements and opinions by or required
by the Financial Accounting Standards Board or Accounting Principles Board of
the American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) and results in any change in the method of
calculation of financial covenants, standards or terms found in this Credit
Agreement, such financial covenants, standards or terms (other than in respect
of Financial Statements to be delivered hereunder) shall be computed without
giving effect to such change in accounting principles, and the certificates
required to be delivered pursuant to Section 6.1 hereof demonstrating compliance
-----------
with the covenants contained herein shall include calculations setting forth the
adjustments necessary to demonstrate how the Borrower is in compliance with the
financial covenants without giving effect to such change in accounting
principles. If the Borrower shall change its method of inventory accounting
from the first-in-first-out method to the last-in-first-out method, all
calculations necessary to determine compliance with the covenants contained
herein shall be made as if such method of inventory accounting had not been so
changed.
29
<PAGE>
1.3 Other Definitional Terms. Terms not otherwise defined herein which
------------------------
are defined in the Uniform Commercial Code as in effect in the State of Illinois
(the "Code") shall have the meanings given them in the Code. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Credit Agreement shall refer to this Credit Agreement as a whole and not to any
particular provision of this Credit Agreement, and references to Article,
Section, Annex, Schedule, Exhibit and like references are references to this
Credit Agreement unless otherwise specified.
ARTICLE 2
---------
Conditions Precedent
--------------------
2.1 Initial Loans. The obligation of the Lenders to make the initial
-------------
Loans, or, if earlier, to cause the initial issuance of Letters of Credit
hereunder or the execution of a Foreign Exchange Contract hereunder (the first
one to occur being hereinafter referred to as the "Initial Credit Event") is
subject to the satisfaction of, or waiver of, immediately prior to or
concurrently with the making of such Loans or such issuance, the following
conditions precedent:
(a) Not less than $60,000,000 in gross proceeds shall be generated by
Borrower's issuance of its Subordinated Notes and the Agent shall have
received copies of the Subordinated Note Indenture, and any and all
agreements, registration statements and opinions executed and delivered or
filed in connection therewith.
(b) Borrower shall have demonstrated to the satisfaction of Agent that
Borrower has in place accounts receivable and inventory financing
facilities for its Foreign Subsidiaries and foreign factory support in
amounts and subject to such terms as are acceptable to Agent in its sole
discretion;
(c) The Initial Credit Event shall have occurred on or before June 30,
1997.
(d) The Lenders shall have received (i) on or prior to the Closing
Date each of the documents and certificates set forth in Section I of the
Closing Documents List and (ii) on or prior to the Initial Credit Event
each of the documents and certificates set forth in Section II of the
Closing Documents List.
(e) The Lenders shall have received on the Closing Date the opinions
of counsel to the Borrower reasonably satisfactory to the Agent, dated the
Closing Date in substantially the form of Exhibit I.
30
<PAGE>
(f) The Agent and the Lenders shall have received payment in full of
the Fees (as applicable), the Expenses and all other fees and expenses (or
an irrevocable authorization to pay such fees out of the proceeds of the
Loans) referred to in Article 8 hereof which are payable to them on or
---------
before the date of the Initial Credit Event.
(g) The Borrower shall have executed and delivered to the Agent all
documents which the Agent determines are reasonably necessary to consummate
the lending arrangements contemplated hereby.
2.2 All Loans. On the date of the making of any Loan, the issuance of any
---------
Letter of Credit, the execution of any Foreign Exchange Contract, or the
creation of any Acceptance (including the Initial Credit Event), both before and
after giving effect thereto and to the application of the proceeds therefrom,
the following statements shall be true to the satisfaction of the Agent (and
each request for borrowing under the Revolving Loan, request for a Letter of
Credit, request for a Foreign Exchange Contract, and request for an Acceptance
and the acceptance by the Borrower of the proceeds of such Loan, the issuance of
such Letter of Credit, the execution of such Foreign Exchange Contract, or the
creation of an Acceptance shall constitute a representation and warranty by the
Borrower that on the date of such Loan, such issuance of such Letter of Credit,
such execution of such Foreign Exchange Contract, or such creation of such
Acceptance before and after giving effect thereto and to the application of the
proceeds therefrom, such statements are true):
(a) the representations and warranties contained in this Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of such Loan, such issuance of such
Letter of Credit, such execution of such Foreign Exchange Contract, or such
creation of such Acceptance as though made on and as of such date, except
to the extent that such representations expressly relate solely to an
earlier date (in which case such representations and warranties shall have
been true and accurate on and as of such earlier date);
(b) no event, condition or default has occurred and is continuing, or
would result from such Loan, the issuance of any Letter of Credit, the
execution of any Foreign Exchange Contract or the creation of such
Acceptance or the application of the proceeds thereof, which would
constitute a Default or an Event of Default under this Credit Agreement;
and
(c) no Material Adverse Change, or event or development which could
reasonably be expected to have a Material Adverse Effect shall have
occurred.
31
<PAGE>
ARTICLE 3
---------
The Loans
---------
3.1 Commitment and Delivery of Revolving Notes. On the terms and
------------------------------------------
conditions set forth in this Credit Agreement, each of the Lenders severally
agrees to lend to the Borrower, at any time or from time to time on or after the
Closing Date and before the Expiration Date, such Lender's Proportionate Share
of the Revolving Loans as may be requested by the Borrower. The Borrower hereby
agrees to execute and deliver to each of the Lenders a Revolving Note to
evidence the maximum Revolving Loan which may be extended to the Borrower by
such Lender. The actual principal amount outstanding under the Revolving Notes
at any time shall equal and be determined in accordance with the then
outstanding principal balance of the Revolving Loans as set forth in the Loan
Account of the Borrower.
3.1.2 INTENTIONALLY OMITTED.
3.2 Determination of Borrowing Base.
-------------------------------
(a) The Lenders severally agree, subject to the terms and conditions
of this Credit Agreement, from time to time, to make revolving loans and
advances to the Borrower. Such loans and advances to the Borrower (each a
"Revolving Loan" and collectively the "Revolving Loans") shall not in the
aggregate exceed the lesser of (i) the Total Commitments then in effect,
minus the aggregate Letter of Credit Obligations, minus the aggregate
----- -----
Foreign Exchange Obligations, minus the aggregate Acceptance Obligations,
-----
and (ii) an amount equal to the Borrowing Base, minus the aggregate Letter
-----
of Credit Obligations, minus the aggregate Foreign Exchange Obligations,
-----
minus the aggregate Acceptance Obligations. The Agent at any time shall be
-----
entitled to establish reserves against the Eligible Accounts Receivable,
the Eligible Inventory and the Eligible Retail Inventory of the Borrower in
the exercise of its Permitted Discretion to reflect the Agent's assessment
of the performance of the Collateral and general credit considerations then
affecting the Borrower.
(b) No Lender shall be obligated at any time to make available to
the Borrower its Proportionate Share of any requested Revolving Loan if
such amount plus its Proportionate Share of all Revolving Loans, its
----
Proportionate Share of all Letter of Credit Obligations, its Proportionate
Share of all Foreign Exchange Obligations and its Proportionate Share of
all Acceptance Obligations then outstanding would exceed such Lender's
Revolving Credit Commitment at such time. The aggregate balance of
Revolving Loans outstanding, plus the aggregate amount of all Letter of
----
Credit Obligations outstanding, plus the aggregate amount of all Foreign
----
Exchange Obligations, plus the aggregate amount of all Acceptance
----
Obligations shall not at any time exceed the lesser of
32
<PAGE>
(i) the Borrowing Base and (ii) the Total Commitments. No Lender shall be
obligated to make available, nor shall the Agent make available, any
Revolving Loans to the Borrower to the extent such Revolving Loan when
added to the then outstanding Revolving Loans, all Letter of Credit
Obligations of the Borrower, all Foreign Exchange Obligations of the
Borrower and all Acceptance Obligations of the Borrower would cause the
aggregate outstanding Revolving Loans, all Letter of Credit Obligations of
the Borrower, all Foreign Exchange Obligations of the Borrower and all
Acceptance Obligations of the Borrower to exceed the lesser of the (i)
Borrowing Base and (ii) the Total Commitments. The Borrower shall promptly
repay to the Lenders from time to time the full amount of the excess, if
any, of (i) the amount of all Revolving Loans, Letter of Credit Obligations
outstanding, Foreign Exchange Obligations outstanding and Acceptance
Obligations outstanding over (ii) the lesser of (A) the Total Commitments
and (B) the Borrowing Base.
(c) Notwithstanding the provisions of subsection (b) above to the
contrary, in the event the Borrower is unable to comply with (i) the
Borrowing Base limitations set forth in Section 3.2(a) or (ii) the
conditions precedent to the making of a Loan, the issuance of a Letter of
Credit or the execution of a Foreign Exchange Contract set forth in Section
2.1, the Lenders authorize the Agent in its sole discretion, to make
advances ("Interim Advances") to the Borrower for a period commencing on
the date Agent first receives a Notice of Borrowing requesting an Interim
Advance until the earlier of (i) the seventh (7th) Business Day after such
date, (ii) the date the Borrower is again able to comply with the Borrowing
Base limitations and the conditions precedent set forth in Section 2.1, or
obtains an amendment or waiver with respect thereto, or (iii) the date the
Required Lenders instruct the Agent to cease making Interim Advances (in
each case, the "Interim Advance Period"). The Agent shall not, in any
event, make any Interim Advance if at such time the aggregate amount of all
such Interim Advances outstanding would exceed $5,000,000. An Interim
Advance shall cease to be an Interim Advance if the unsatisfied conditions
or events which cause such advance to be an Interim Advance shall
thereafter be satisfied.
3.3 Borrowings; Notices of Borrowings.
---------------------------------
(a) Each Revolving Loan of each Lender shall be made pursuant to a
single borrowing which borrowing shall, unless otherwise specifically
provided herein, consist entirely of Loans of the same Type; provided,
--------
however, that the Borrower may, at its option, request more than one
-------
borrowing of a Revolving Loan on a single day; and provided, further, that
-------- -------
the right of the Borrower to choose LIBOR Rate Loans is subject to the
provisions of Section 8.3(c) hereof.
--------------
(b) Each request for borrowings hereunder shall be made on notice in
the form attached hereto as Exhibit J from the Borrower to the Agent (the
"Notice of Borrowing"),
33
<PAGE>
given not later than 12:00 p.m. (Chicago time) on the Business Day on which
the proposed borrowing consisting of Prime Rate Loans is requested to be
made and on the third Business Day prior to the date of any proposed
borrowing consisting of LIBOR Rate Loans is requested to be made. Each
Notice of Borrowing shall be given by either telephone, telecopy, telex, or
cable, and, if requested by the Agent, confirmed in writing if by
telephone, specifying (i) the requested date of such borrowing, (ii) the
Type of Loans comprising such borrowing, (iii) the aggregate amount of such
requested borrowing and (iv) in the case of a borrowing consisting of LIBOR
Rate Loans, the Interest Period for each Loan comprising such borrowing,
all of which shall be specified in such manner as is necessary to comply
with all limitations on Revolving Loans outstanding hereunder (including,
without limitation, availability under the Borrowing Base). Each Notice of
Borrowing shall be irrevocable by and binding on the Borrower. Unless the
provisions of Section 3.4 hereof are applicable, the Agent shall give to
-----------
each Lender prompt notice of each Notice of Borrowing by telecopy, telex or
cable. Unless the provisions of Section 3.4 hereof are applicable, no later
-----------
than 2:00 p.m. (Chicago time) on the date of borrowing specified in each
Notice of Borrowing (unless such Notice of Borrowing specifies the Closing
Date as the date of any such borrowing, in which case no later than 12:00
p.m. (Chicago time) on the Closing Date), each Lender will make available
for the account of its Applicable Lending Office to the Agent at the
address of the Agent set forth on Annex I hereto, in immediately available
funds, its Proportionate Share of such borrowing requested to be made.
Unless the Agent shall have been notified by any Lender prior to the date
of borrowing that such Lender does not intend to make available to the
Agent its portion of the borrowing to be made on such date, the Agent may
assume that such Lender will make such amount available to the Agent at
such time or at the end of the Settlement Period (as defined below) to the
extent that the provisions of Section 3.4 hereof are applicable and the
-----------
Agent may, in reliance upon such assumption, make available the amount of
the borrowing to be provided by such Lender. Upon fulfillment of the
conditions set forth in Article 2 hereof for such borrowing, the Agent will
---------
make such funds available to the Borrower by depositing such funds into the
Loan Disbursement Account.
3.4 Alternate Periodic Settlements Among Lenders.
--------------------------------------------
(a) In order to administer the Prime Rate Loans in an efficient manner
and to minimize the transfer of funds between the Agent and the Lenders,
the Lenders hereby instruct the Agent, and the Agent may (but is not
obligated to) (i) make available, on behalf of the Lenders, the full amount
of all Prime Rate Loans requested by the Borrower without giving each
Lender prior notice of the proposed borrowing, of such Lender's
Proportionate Share thereof or the other matters covered by the Notice of
Borrowing and without requiring that the Borrower give the Agent a written
Notice of Borrowing prior to such borrowing, and (ii) if the Agent has made
any such amounts available as provided in clause (i), upon repayment of
Prime Rate Loans by the Borrower, apply such amounts
34
<PAGE>
repaid directly to the amounts made available by the Agent in accordance
with clause (i) and not yet settled as described below; provided that the
--------
Agent shall not advance funds as described in clause (i) above if the Agent
has actually received prior to such borrowing (x) an officers' certificate
from the Borrower pursuant to and in accordance with Section 6.1 that a
-----------
Default or Event of Default is in existence or (y) a Notice of Borrowing
from the Borrower wherein the certification provided therein states that
the conditions to the making of the requested Loans have not been satisfied
(which certification shall be given in the event such conditions are not
satisfied) or (z) a written notice from any Lender that the conditions to
such borrowing have not been satisfied, which officers' certificate, Notice
of Borrowing or notice, in each case, shall not have been rescinded. If the
Agent advances Prime Rate Loans on behalf of the Lenders, as provided in
the immediately preceding sentence, the amount of each Lender's
Proportionate Share of Prime Rate Loans shall be computed weekly rather
than daily and shall be adjusted upward or downward on the basis of the
amount of outstanding Prime Rate Loans as of 4:00 p.m. (Chicago time) on
the Business Day immediately preceding the date of each computation;
provided, however, that the Agent retains the absolute right at any time or
-------- -------
from time to time to make the aforedescribed adjustments at intervals more
frequent than weekly. The Agent shall deliver to each of the Lenders after
the end of each week, or such lesser period or periods as the Agent shall
determine, a summary statement of the amount of outstanding Prime Rate
Loans for such period (such week or lesser period or periods being
hereafter referred to as a "Settlement Period"). If the summary statement
is sent by the Agent and received by the Lenders prior to 11:00 a.m.
(Chicago time) each Lender shall make the transfers described in the next
succeeding sentence no later than 2:00 p.m. (Chicago time) on the day such
summary statement was sent; and if such summary statement is sent by the
Agent and received by the Lenders after 11:00 a.m. (Chicago time), each
Lender shall make such transfers no later than 2:00 p.m. (Chicago time) on
the next succeeding Business Day. If in any Settlement Period, the amount
of a Lender's Proportionate Share of the Prime Rate Loans is more than such
Lender's Proportionate Share of the Prime Rate Loans for the previous
Settlement Period, such Lender shall forthwith (but in no event later than
the time set forth in the next preceding sentence) transfer to the Agent by
wire transfer in immediately available funds the amount of the increase;
and, on the other hand, if the amount of a Lender's Proportionate Share of
the Prime Rate Loans in any Settlement Period is less than the amount of
such Lender's Proportionate Share of Prime Rate Loans for the previous
Settlement Period, the Agent shall forthwith (but in no event later than
the time set forth in the next preceding sentence) transfer to such Lender
by wire transfer in immediately available funds the amount of the decrease.
The obligation of each of the Lenders to transfer such funds shall be
irrevocable and unconditional and without recourse to or warranty by the
Agent. Each of the Agent and the Lenders agree to mark their respective
books and records at the end of each Settlement Period to show at all times
the dollar amount of their respective Proportionate Shares of the
outstanding Prime Rate Loans. Because the Agent on behalf of the Lenders
may be advancing and/or may be
35
<PAGE>
repaid Prime Rate Loans prior to the time when the Lenders will actually
advance and/or be repaid Prime Rate Loans, interest with respect to Prime
Rate Loans shall be allocated by the Agent to each Lender (including the
Agent) in accordance with the amount of Prime Rate Loans actually advanced
by and repaid to each Lender (including the Agent) during each Settlement
Period and shall accrue from and including the date such Loans are advanced
by the Agent to but excluding the date such Loans are repaid by the
Borrower in accordance with Section 3.5 hereof or, if later, actually
-----------
settled by the applicable Lender as described in this Section 3.4.
-----------
(b) If the amounts described in Section 3.3 hereof or this Section 3.4
----------- -----------
are not in fact made available to the Agent by a Lender (such Lender being
hereinafter referred to as a "Defaulting Lender") and the Agent has made
such amount available to the Borrower, the Agent shall be entitled to
recover such corresponding amount on demand from such Defaulting Lender.
If such Defaulting Lender does not pay such corresponding amount forthwith
upon the Agent's demand therefor, the Agent shall promptly notify the
Borrower and the Borrower shall immediately (but in no event later than
five Business Days after such demand) pay such corresponding amount to the
Agent. The Agent shall also be entitled to recover from such Defaulting
Lender and the Borrower, (x) interest on such corresponding amount in
respect of each day from the date such corresponding amount was made
available by the Agent to the Borrower to the date such corresponding
amount is recovered by the Agent, at a rate per annum equal to either (i)
if paid by such Defaulting Lender, the overnight Federal Funds Rate or (ii)
if paid by the Borrower, the then applicable rate of interest, calculated
in accordance with Section 8.1 or Section 8.2 hereof, plus (y) in each
----------- ----------- ----
case, an amount equal to any costs (including legal expenses) and losses
incurred as a result of the failure of such Defaulting Lender to provide
such amount as provided in this Credit Agreement. Nothing herein shall be
deemed to relieve any Lender from its obligation to fulfill its commitments
hereunder or to prejudice any rights which the Borrower may have against
any Lender as a result of any default by such Lender hereunder, including,
without limitation, the right of the Borrower to seek reimbursement from
any Defaulting Lender for any amounts paid by the Borrower under clause (y)
above on account of such Defaulting Lender's default.
(c) The failure of any Lender to make the Revolving Loan to be made by
it as part of any borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Revolving Loan on the date of
such borrowing, but no Lender shall be responsible for the failure of any
other Lender to make the Loan to be made by such other Lender on the date
of any borrowing.
(d) The Revolving Loans made by each Lender shall be evidenced by
Revolving Notes with appropriate insertions as to the date and principal
amount, payable to the order of each Lender.
36
<PAGE>
(e) Each Lender shall be entitled to earn interest at the then
applicable rate of interest, calculated in accordance with Article 8
---------
hereof, on outstanding Revolving Loans which it has funded to the Agent.
(f) Notwithstanding the obligation of the Borrower to send written
confirmation of a Notice of Borrowing made by telephone if and when
requested by the Agent, in the event that the Agent agrees to accept a
Notice of Borrowing made by telephone, such telephonic Notice of Borrowing
shall be binding on the Borrower whether or not written confirmation is
sent by the Borrower or requested by the Agent. The Agent may act prior to
the receipt of any requested written confirmation, without any liability
whatsoever, based upon telephonic notice believed by the Agent in good
faith to be from the Borrower or its agents. The Agent's records of the
terms of any telephonic Notices of Borrowing shall be conclusive on the
Borrower in the absence of gross negligence or willful misconduct on the
part of the Agent in connection therewith.
3.5 Mandatory Payment; Voluntary Reductions of Commitments.
------------------------------------------------------
(a) The aggregate balance of Revolving Loans, plus all Letter of
----
Credit Obligations outstanding, plus all Foreign Exchange Obligations, plus
---- ----
all Acceptance Obligations at any time in excess of the lesser of (i) the
Borrowing Base and (ii) the Total Commitments shall be immediately due and
payable without the necessity of any demand.
(b) On the Expiration Date, the Revolving Credit Commitment of each
Lender shall automatically reduce to zero and may not be reinstated.
(c) If the Borrower shall make any Asset Disposition, Borrower shall
make a prepayment of the Revolving Loans in an amount equal to the lesser
of (A) such Revolving Loans then outstanding, and (B) the Net Cash Proceeds
received in connection therewith.
Any such prepayments of Revolving Loans required to be made under this
subsection (c) shall not constitute a permanent reduction of the Total
Commitments; but shall, to the extent set forth in the definition of the term
Borrowing Base, constitute a permanent reduction of the amount available to
Borrower pursuant to subsection (D) of the defined term Borrowing Base.
(d) (i) If the Borrower shall receive any Equity Offering
Proceeds, the Borrower shall make a prepayment of the
Revolving Loans in an amount equal to the lesser of (1)
the Revolving Loans then outstanding, and (2)(y) twenty-
five percent (25%) of such Equity Offering Proceeds if
received from the issuance of common stock (or warrants or
options to acquire the same), and (z) fifty percent (50%)
of such Equity Offering Proceeds if received from the
37
<PAGE>
issuance of preferred stock (or warrants or options to
acquire the same).
(ii) If the Borrower shall receive proceeds from any Debt
permitted by Section 7.1(v) hereof, the Borrower shall
make a prepayment of the Revolving Loans then outstanding
in an amount equal to the lesser of (1) the Revolving
Loans then outstanding, and (2) the net amount of such
proceeds after deduction for fees, taxes, costs and
expenses reasonably incurred in connection therewith.
(iii) If the Borrower shall receive proceeds from any Additional
Permitted Debt (other than purchase money financing or
Capital Leases), the Borrower shall make a prepayment of
the Revolving Loans in an amount equal to the lesser of
(1) the Revolving Loans then outstanding, and (2) seventy-
five percent (75%) of the net amount of such proceeds
after deduction for fees, taxes, costs and expenses
reasonably incurred in connection therewith.
Any such prepayments of Revolving Loans required to be made under this
subsection (d) shall not constitute a permanent reduction of the Total
Commitments, but any such payments required to be made pursuant to subsection
(d)(ii) shall, to the extent set forth in the definition of the term Borrowing
Base, constitute a permanent reduction of the amount available to Borrower
pursuant to subsection (D) of the defined term Borrowing Base.
(e) The Borrower may reduce or terminate the Total Commitments at any
time and from time to time in whole or in part without premium or penalty;
provided, however, that the minimum amount and increments of any such
-------- -------
reduction shall be equal to $1,000,000 and provided further that once
reduced the amount of any such reductions in the Total Commitments may not
be reinstated.
3.6 Payments and Computations.
-------------------------
(a) The Borrower shall make each payment hereunder and under the Notes
not later than 12:00 noon (Chicago time) on the day when due. Unless
otherwise agreed to in writing, all payments which the Borrower is required
to make hereunder or under any other Credit Document shall be added to the
outstanding amount of Revolving Loans. Payments made directly by the
Borrower shall be in U.S. Dollars to the Agent at its address referred to
in Section 13.5 hereof in immediately available funds. Not later than one
------------
Business Day after such payment has been made, the Agent will cause to be
distributed like funds relating to the payment of principal, interest, or
Fees (other than amounts payable to the Agent to reimburse the Agent, the
Issuing Bank, the Foreign Exchange
38
<PAGE>
Guarantor and the Accepting Bank for Expenses and other fees and expenses
payable solely to them pursuant to Article 8 hereof) ratably to the
---------
Lenders, and like funds relating to the payment of any other amount payable
to such Lender, in each case to be distributed and applied in accordance
with the terms of this Section 3.6. The Borrower's obligations to the
-----------
Lenders with respect to such payments shall be discharged by making such
payments to the Agent pursuant to this Section 3.6 or if not timely paid,
-----------
may be added to the principal amount of the Revolving Loans outstanding.
(b)(i)
From and after the Closing Date the Borrower shall have
established and maintain lockboxes (the "Lockboxes") and
depositary accounts, and shall instruct all account debtors
on the Accounts (other than present or future account
debtors located in Canada with respect to Accounts arising
from Borrower's Canadian operations as currently conducted)
to remit all payments to its Lockboxes or shall deposit all
receipts into its depositary accounts. All receipts held in
the Lockboxes at the end of each day and all other amounts
received by the Borrower from any account debtor (other than
present or future account debtors located in Canada with
respect to Accounts arising from Borrower's Canadian
operations as currently conducted), in addition to all other
cash received from any other source, including, without
limitation, Asset Dispositions, upon receipt, shall be
deposited into a depositary account opened in the name of
the Agent (a "Depositary Account") at each Lockbox Bank (as
hereinafter defined).
(ii) Prior to the Closing Date, the Borrower, the Agent and the
financial institutions selected by the Borrower and
acceptable to the Agent (the "Lockbox Banks") shall enter
into a three party agreement in the form of Exhibit K hereto
(the "Lockbox Agreement"), providing, among other things,
the matters described in subsection (b)(i) above.
(iii) The Borrower may close Lockboxes and/or open new Lockboxes
with the prior written consent of the Agent and subject to
prior execution and delivery to the Agent of Lockbox
Agreements consistent with the provisions of this Section
-------
3.6 and in form and substance satisfactory to the Agent and
---
its counsel.
39
<PAGE>
(c) Upon the terms and subject to the conditions set forth in the
Lockbox Agreements, all available amounts held in the Depositary Accounts
shall be wired each Business Day into an account (the "Concentration
Account") established pursuant to a concentration account agreement entered
into among the Borrower, the Agent and Bankers Trust Company substantially
in the form of Exhibit L (the "Concentration Account Agreement"). Subject
to the terms and conditions of the Concentration Account Agreement, all
available funds in the Concentration Account shall be transferred on every
Business Day to an account (the "BT Account") maintained by the Agent at
Bankers Trust Company. All such amounts shall be credited against the
Obligations then outstanding, with the balance, if any, being deposited in
the Loan Disbursement Account.
(d) All amounts received by the Agent for distribution hereunder shall
be distributed and applied in the following order: first, to the payment
-----
of any Fees, Expenses or other Obligations due and payable to the Agent
under any of the Credit Documents, including amounts advanced by the Agent
on behalf of the Lenders pursuant to Section 3.4(a); second, to the payment
-------------- ------
of any Fees, Expenses or other Obligations due and payable to the Issuing
Bank under any of the Credit Documents; third, to the ratable payment of
-----
any Fees, Expenses or other Obligations due and payable to the Lenders
under any of the Credit Documents other than those Obligations specifically
referred to in this Section 3.6(d); fourth, to the ratable payment of
-------------- ------
interest due on the Revolving Loans; fifth, to the extent required under
-----
Section 3.5 hereof, to the ratable payment of principal on the Revolving
-----------
Loans; and, sixth, to the ratable payment of principal due on the Revolving
-----
Loans; with the balance, if any, to be made available to Borrowers. Any
payment received hereunder as a distribution in any proceeding referred to
in Section 10.1(d) hereof shall, unless paid with respect to amounts
specifically owing to the Agent or an Accepting Bank, an Issuing Bank or a
Foreign Exchange Guarantor, be distributed and applied to the payment of
the amounts due hereunder and under the Revolving Notes ratably in
accordance with such amounts (or, if a court of competent jurisdiction
shall otherwise specify, as specified by such court).
3.7 Maintenance of Account. The Agent shall maintain an account on its
----------------------
books in the name of the Borrower (the "Loan Account") and in which the
Borrower will be charged with all loans and advances made by the Lenders to the
Borrower or for the Borrower's account, including the Revolving Loans, the
Letter of Credit Obligations, the Foreign Exchange Obligations, the Acceptance
Obligations and with any other Obligations, including any and all interest,
Fees, costs, expenses and attorney's fees which the Agent may incur in
connection with the exercise by or for the Lenders of any of the rights or
powers herein conferred upon the Agent (other than in connection with any
assignments or participations by any Lender) or in the prosecution or defense of
any action or proceeding by or against the Borrower or the Lenders concerning
any matter arising out of, connected with, or relating to this Credit Agreement
or the Accounts, or any
40
<PAGE>
Obligations owing to the Lenders by any Borrower. The Borrower will be credited
with all amounts received by the Lenders from the Borrower or from others for
the Borrower's account. In no event shall prior recourse to any Accounts or
other Collateral be a prerequisite to the Agent's right to demand payment of any
Obligation upon its maturity. Further, it is understood that the Agent shall
have no obligation whatsoever to perform in any respect any of the Borrower's
contracts or obligations relating to the Accounts.
3.8 Loan Disbursement Account. The Borrower has requested, and the Agent
-------------------------
and the Lenders have agreed, that the Loans and any proceeds of each Acceptance
discounted pursuant to Section 4.2.1 will be advanced to account no. 00-311-685
-------------
maintained at Bankers Trust Company, 130 Liberty Street, New York, New York
10006 in the name of the Borrower (the "Loan Disbursement Account").
3.9 Statement of Account. After the end of each month the Agent shall
--------------------
send the Borrower a statement showing the accounting for the charges, loans,
advances and other transactions occurring between the Lenders and the Borrower
during that month. Absent manifest error, the monthly statements shall be
deemed correct and binding upon the Borrower and shall constitute an account
stated among the Borrower and the Lenders unless the Agent receives a written
statement of the Borrower's exceptions within sixty (60) days after same is
mailed to the Borrower.
3.10 Taxes.
-----
(a) All payments by the Borrower hereunder or under the Notes to or
for the benefit of any Lender shall be made, in accordance with Section 3.6
-----------
hereof, free and clear of and without deduction, hold back or other
reduction for all present or future Taxes, deductions, charges or
withholdings by or for the benefit of any governmental taxing authority and
all liabilities with respect thereto, excluding, in the case of each such
Lender and the Agent, Excluded Taxes. If the Borrower shall be required by
law to deduct any Taxes (other than Excluded Taxes) from or in respect of
any sum payable hereunder or under any Note to or for the benefit of any
Lender or the Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions of Taxes (including
deductions of Taxes applicable to additional sums payable under this
Section 3.10) such Lender or the Agent, as the case may be, receives an
------------
amount equal to the sum it would have received had no such deductions been
made (based solely on the applicable rate of tax for the computation of
such reduction), (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount so deducted to the relevant taxing
authority or other authority in accordance with applicable law; provided,
--------
however, that the Borrower shall be under no obligation to increase the sum
-------
payable to any Foreign Lender by an amount equal to the amount of the
United States Tax required to be withheld under United States law from the
sums paid to such Foreign Lender, (aa) if such
41
<PAGE>
withholding is caused by the failure of such Foreign Lender to be engaged
in the active conduct of a trade or business in the United States, (bb) if
all amounts of interest and fees to be paid to such Foreign Lender
hereunder are not effectively connected with such trade or business within
the meaning of United States Treasury Regulation 1.864-4(a) or (cc) as
provided in Section 3.10(e) hereof.
---------------
(b) In addition, the Borrower agrees to pay any present or future
stamp, documentary, privilege, intangible or similar taxes or any other
excise or property taxes, charges or similar levies (other than Excluded
Taxes) that arise at any time or from time to time (i) from any payment
made under all Credit Documents, or (ii) from the execution or delivery by
the Borrower or any Subsidiary of, or from the filing or recording or
maintenance of, or otherwise with respect to, all Credit Documents
(hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Agent for the full
amount of the Taxes or Other Taxes (other than Excluded Taxes) (including,
without limitation and without duplication, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 3.10,
------------
subject to the provisions of the proviso set forth in Section 3.10(a)) paid
---------------
by such Lender or the Agent (on its own behalf or on behalf of any Lender),
as the case may be, in respect of payments made or to be made hereunder,
and any liability (including penalties, interest and expenses) arising
solely therefrom or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or legally asserted. Payment of this
indemnification shall be made within thirty (30) days from the date such
Lender or the Agent, as the case may be, makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes, the Borrower shall, upon request of the Agent, furnish to the
Agent, at its address referred to in Section 13.5 hereof, the original or
------------
certified copy of a receipt evidencing payment thereof.
(e) For any period with respect to which any Lender has failed to
provide the Borrower with the appropriate form described in Section 3.10(f)
---------------
(other than if such failure is due to a change in law occurring subsequent
to the date on which a form originally was required to be provided, or if
such form otherwise is not required under Section 3.10(f)), such Lender
---------------
shall not be entitled to indemnification under Section 3.10(a) or (c) with
--------------- ---
respect to Taxes imposed by the United States; provided, however, that
-------- -------
should any Lender become subject to Taxes because of its failure to deliver
a form required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such
Taxes.
42
<PAGE>
(f) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof agrees that it will deliver to the
Borrower and the Agent prior to the Closing Date (or in the case of an
assignee Lender of an assigning Lender listed on the signature pages hereof
prior to the date of such assignment) (i) two duly completed copies of the
United States Internal Revenue Service Form 1001 or United States Internal
Revenue Service Form 4224 or successor applicable form, as the case may be,
and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive all payments under this Credit
Agreement without deduction or withholding of any United States federal
income taxes or specifying (in such Form or otherwise) the amount of any
required deduction or withholding and (ii) in the case of a Form W-8 or
W-9, that it is entitled to an exemption from United States backup
withholding tax. Each such Lender also agrees to deliver to the Borrower
and the Agent (but only so long as such Lender is lawfully able to do so)
two further copies of the said Form 1001 or 4224 and Form W-8 and W-9, or
successor applicable forms or other manner of certification, as the case
may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the
most recent form previously delivered by it to the Borrower.
(g) Within 30 days after the date that any Lender or the Agent
receives a refund of any Taxes or Other Taxes (other than Excluded Taxes)
for which it has been indemnified by the Borrower pursuant to the
provisions of this Section 3.10, such Lender or the Agent, as the case may
------------
be, shall pay to the Borrower such refund of Taxes or Other Taxes.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 3.10 shall survive the payment in full of all
------------
Obligations hereunder and under the Notes.
3.11 Sharing of Payments. If any Lender shall obtain any payment (whether
-------------------
voluntary, involuntary, through the exercise of any right of set-off or
otherwise) on account of the Loans made by it or its participation in Letters of
Credit, Foreign Exchange Contracts or Acceptances in excess of its Proportionate
Share of payments on account of the Loans, Letters of Credit, Foreign Exchange
Contracts or Acceptances obtained by all the Lenders, such Lender shall
forthwith purchase from the other Lenders such participations in the Loans made
by them or in their participation in Letters of Credit, Foreign Exchange
Contracts or Acceptances as shall be necessary to cause such purchasing Lender
to share the excess payment ratably with each of them; provided, however, that
-------- -------
if all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and each
such Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery together with an amount equal to such Lender's ratable
share (according to the proportion of (i) the amount
43
<PAGE>
of such Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect to the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 3.11 may, to the fullest extent permitted by law,
------------
exercise all of its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
ARTICLE 4
---------
Letters of Credit, Foreign Exchange Contracts and Acceptances
-------------------------------------------------------------
4.1 Letter of Credit Issuances.
--------------------------
(a) Subject to and upon the terms and conditions of this Credit
Agreement, upon the delivery by the Borrower to the Agent of a Letter of
Credit Request at least four (4) Business Days prior to the date of the
proposed issuance of any standby Letter of Credit and at least one (1)
Business Day prior to the date of the proposed issuance of any commercial
Letter of Credit (or, in each case, such shorter period of time to which
the Agent and the Issuing Bank may agree), the Agent will, from time to
time on or after the Closing Date, cause an Issuing Bank to issue one or
more Letters of Credit in an aggregate undrawn amount at such time
outstanding not to exceed, together with the then aggregate unpaid
principal amount of Revolving Loans, all then outstanding Letter of Credit
Obligations, all then outstanding Foreign Exchange Obligations and all then
outstanding Acceptance Obligations, an amount equal to the lesser of (i)
the Borrowing Base and (ii) the Total Commitments; provided, however, in no
-------- -------
event shall the Agent cause an Issuing Bank to issue a Letter of Credit if
the original undrawn amount thereof, together with all of the then
outstanding Letter of Credit Obligations plus the then outstanding Foreign
Exchange Obligations, plus the then outstanding Acceptance Obligations
----
shall exceed $80,000,000. Each Letter of Credit shall (i) be in form, scope
and substance satisfactory to the Agent and the applicable Issuing Bank and
(ii) if a commercial letter of credit, have an expiration date not later
than 180 days after its date of issuance (except to the extent the Agent
and the Borrower may otherwise agree) and if a standby letter of credit,
have an expiration date not later than 360 days after its date of issuance
and all Letters of Credit issued hereunder shall expire on a date that is
no later than 5 days prior to the Expiration Date and all Acceptance
Letters of Credit shall expire on a date which, when taking into
consideration the maturity of the Acceptance to be issued thereunder, will
not result in such maturity being later than 5 days prior to the Expiration
Date; provided, however, that any Issuing Bank may, but shall not be
-------- -------
obligated to, issue Letters of Credit having a term not exceeding 90 days
beyond the Expiration Date provided that such Letters
-------- ----
44
<PAGE>
of Credit are collateralized by cash in an amount equal to 110% of the face
amount of such Letters of Credit as of the date of issuance. Each payment
by an Issuing Bank with respect to drawings under Letters of Credit shall
be promptly reimbursed by the Borrower together with interest thereon at
the rate applicable to Prime Rate Loans set forth in Article 8 hereof, and
---------
if not so reimbursed each Lender shall, without regard to any other
provision of this Credit Agreement, any defense that the Borrower may have
to such Borrower's obligation to reimburse such Issuing Bank in connection
with such drawing or any defense the Agent or any Lender may have in
connection with any participation under Section 4.3(a) hereof in such
obligations in connection with any such Letter of Credit, honor its
Proportionate Share of the Agent's and the Lenders' obligations to
reimburse such Issuing Bank pursuant to this Section 4.1(a), together with
--------------
interest thereon in accordance with the provisions of Article 8 hereof, and
---------
any such payments so made by the Lenders shall be deemed to be Revolving
Loans.
For purposes of this Credit Agreement, those currently outstanding
letters of credit described on Schedule B hereof shall be deemed to be
Letters of Credit requested by the Borrower under the terms hereof.
(b) The Borrower may request that a Letter of Credit be denominated
in, and payable in a currency other than U.S. Dollars. For purposes of
calculating facility usage and Letter of Credit Fees under this Credit
Agreement, the original face amount of such Letter of Credit shall be equal
to the U.S. Dollar equivalent (as determined by the Agent) of the face
amount of such Letter of Credit on the date of issuance. Thereafter, so
long as such Letter of Credit shall remain outstanding, the amount of such
Letter of Credit for such purposes shall be recalculated on the first day
of each month based upon the U.S. Dollar equivalent (as determined by the
Agent) of the undrawn amount of such Letter of Credit. In addition to the
foregoing, the Agent shall establish an additional reserve against the
Borrowing Base in an amount equal to 10% of the U.S. Dollar equivalent of
the outstanding face amount of any such Letter of Credit as of the date of
determination thereof at the times specified in the two immediately
preceding sentences.
(c) In order to facilitate the issuance of Letters of Credit, the
Borrower and Bankers Trust Company shall enter into a Remote Letter of
Credit Customer Agreement substantially in the form of Exhibit Q hereto
providing for the Borrower's use of Bankers Trust Company's Remote L/C
service. Each request for the issuance of a Letter of Credit made pursuant
to and in accordance with the procedures described in such agreement shall
constitute the delivery to the Agent of a Letter of Credit Request and the
Borrower shall be deemed to have made the representations and warranties
set forth in a Letter of Credit Request. The issuance of any such Letter
of Credit shall be subject to and upon the terms and conditions of this
Credit Agreement.
45
<PAGE>
4.2 Foreign Exchange Contracts.
--------------------------
(a) Subject to and upon the terms and conditions of this Credit
Agreement, the Borrower may request, and the Agent will, from time to time
on or after the Closing Date, cause a Foreign Exchange Guarantor to enter
into one or more Foreign Exchange Contracts; provided that in no event
-------- ----
shall the Agent cause a Foreign Exchange Guarantor to execute a Foreign
Exchange Contract if any of (i) the Foreign Exchange Exposure thereunder,
together with the then aggregate unpaid principal amount of the Revolving
Loans, all then outstanding Letter of Credit Obligations, all then
outstanding Foreign Exchange Obligations and all then outstanding
Acceptance Obligations, shall exceed an amount equal to the lesser of (A)
the Borrowing Base or (B) the Total Commitments, (ii) the U.S. Dollar
equivalent (as determined by the Agent from time to time) of the aggregate
amount of all payments and deliveries to be made by all Foreign Exchange
Guarantors under the Foreign Exchange Contracts shall exceed $50,000,000,
or (iii) the Foreign Exchange Exposure thereunder plus the aggregate amount
----
of all Letter of Credit Obligations plus all Foreign Exchange Obligations
----
plus all Acceptance Obligations shall exceed $80,000,000 hereof. The
----
Borrower shall give the Agent written notice thereof no later than 11:00
a.m. (Chicago time) at least two (2) Business Days prior to entering into
such Foreign Exchange Contract (or such shorter period of time to which the
Agent may agree), together with a summary of all material provisions of
such Foreign Exchange Contract and the date on which such Foreign Exchange
Contract is to be executed. Each Foreign Exchange Contract shall (i) be in
form, scope and substance satisfactory to the Agent and the applicable
Foreign Exchange Guarantor and have an expiration date not later than the
Expiration Date. Each payment by a Foreign Exchange Guarantor with respect
to or under a Foreign Exchange Contract shall be promptly reimbursed by the
Borrower together with interest thereon at the rate applicable to Prime
Rate Loans set forth in Article 8 hereof, and if not so reimbursed each
---------
Lender shall, without regard to any other provision of this Credit
Agreement, any defense that the Borrower may have to its obligation to
reimburse such Foreign Exchange Guarantor in connection with such payment
or any defense the Agent or any Lender may have in connection with any
participation under Section 4.3(b) hereof in such obligations in favor of
--------------
such Foreign Exchange Guarantor in connection with such Foreign Exchange
Contract, honor its Proportionate Share of the Agent's and the Lenders'
obligations to reimburse such Foreign Exchange Guarantor pursuant to this
Section 4.2, together with interest thereon in accordance with the
-----------
provisions of Article 8 hereof, and any such payments so made by the
---------
Lenders shall be deemed to be Revolving Loans.
(b) For purposes of calculating facility usage and Foreign Exchange
Fees under this Credit Agreement, the original Foreign Exchange Exposure
with respect to any Foreign Exchange Contract shall be as determined by the
Agent on the date of execution of the Foreign Exchange Contract.
Thereafter, so long as such Foreign Exchange Contract
46
<PAGE>
shall remain in effect, the Foreign Exchange Exposure for such purposes
shall be recalculated on the first day of each month. In addition to the
foregoing, the Agent shall establish an additional reserve against the
Borrowing Base in an amount equal to 10% of the Foreign Exchange Exposure
under each Foreign Exchange Contract at the times specified in the two
immediately preceding sentences.
(c) Each request for the execution of a Foreign Exchange Contract made
pursuant to and in accordance with the procedures described herein shall
constitute a representation and warranty by the Borrower that all
conditions precedent to the execution thereof have been satisfied. The
execution of any such Foreign Exchange Contract shall be subject to and
upon the terms and conditions of this Credit Agreement.
4.2.1 Acceptances.
-----------
(a) Subject to and upon the terms and conditions of this Credit
Agreement and in accordance with the terms of the related Acceptance Letter
of Credit, the Agent will, from time to time on or after the Closing Date,
cause an Accepting Bank to create one or more Acceptances in an aggregate
amount at such time outstanding not to exceed, together with the then
aggregate unpaid principal amount of Revolving Loans, all then outstanding
Letter of Credit Obligations, all then outstanding Foreign Exchange
Obligations and all then outstanding Acceptance Obligations, an amount
equal to the lesser of (i) the Borrowing Base or (ii) the Total
Commitments; provided, however, in no event shall the Agent cause an
-------- -------
Accepting Bank to create an Acceptance if the amount thereof, together with
all of the then outstanding Letter of Credit Obligations plus the then
----
outstanding Foreign Exchange Obligation, plus the then outstanding
----
Acceptance Obligations shall exceed $80,000,000. Each Acceptance (or group
of related Acceptances) (i) shall be in a face amount not greater than an
amount which, when discounted and net of all Fees payable at the time of
creation, would generate net proceeds equal to the reimbursement obligation
owing with respect to the Acceptance Letter of Credit providing for the
creation of such Acceptance and (ii) shall have a maturity of not more than
120 days after such Acceptance is created nor in any event later than the
Expiration Date.
(b) To enable the applicable Accepting Bank to create Acceptances, the
Borrower shall supply the Agent, prior to or concurrently with each Letter
of Credit Request requesting the issuance of an Acceptance Letter of
Credit, with drafts satisfactory to such Accepting Bank, duly executed and
endorsed (if necessary) by the Borrower. Each such Accepting Bank is
hereby authorized by the Borrower to complete such drafts at the request of
the Borrower acting through the Agent, including the payee, amount, date
and maturity date thereof, in accordance with the applicable Acceptance
Letter of Credit. In case any authorized signatory of the Borrower whose
signature shall appear on any draft shall cease to have such authority
before the creation of an Acceptance with respect to such
47
<PAGE>
draft, the obligations of the Borrower hereunder and under such Acceptance
shall nevertheless be valid for all purposes as if such authority had
remained in force until such creation.
(c) On the date of the creation of an Acceptance by an Accepting Bank,
the Agent shall cause such Accepting Bank to (i) duly accept the draft(s)
of the Borrower supplied thereby, (ii) discount such Acceptance(s), (iii)
give the Borrower and the Agent telephonic notice (confirmed in writing,
which may include communication by telex or telecopier) of its creation of
such Acceptance, specifying the date, face amount and maturity thereof, and
of its discount thereof, specifying the Discount Rate applicable to such
Acceptance and the amount to be credited to the account of the Borrower,
and (iv) pay directly to the applicable Issuing Bank an amount equal to the
proceeds of the discount of such Acceptance (but not in excess of the
reimbursement obligations owed to such Issuing Bank in connection with the
related Acceptance Letter of Credit). The Accepting Bank shall notify the
Borrower by telephone of the Discount Rate applicable to any Acceptance no
later than 1:00 P.M., Chicago time, on the date of discount thereof. The
Borrower shall have the right not to accept such discount rate concurrently
upon being so notified, and any such refusal thereby to accept such
Discount Rate shall be deemed to be a withdrawal of its request for
acceptance of such Acceptance. An Accepting Bank may, in its sole
discretion, create any number of Acceptances aggregating the amount of
Acceptances so requested.
(d) The Borrower hereby unconditionally agrees, to pay to the Agent,
for the account of the applicable Accepting Bank, the face amount of each
Acceptance created by such Accepting Bank hereunder, on the maturity date
of such Acceptance (the payment obligation of the Borrower under this
Section 4.2.1(d) with respect to each Acceptance being the "Acceptance
----------------
Obligation" with respect to such Acceptance) by making payment to the
Agent, for the account of the Accepting Bank, not later than 12:00 noon
(Chicago time), on the due date thereof, and if not so paid each Lender
shall, without regard to any other provision of this Credit Agreement, any
defense that the Borrower may have to its obligation to make such payment
in connection with such Acceptance or any Lender may have in connection
with any participation with any such Acceptance, honor its Proportionate
Share of the Agent's and the Lenders' obligations to make such payment to
the Accepting Bank pursuant to this Section 4.2.1(d), together with
----------------
interest in accordance with the provisions of Article 8 hereof, and any
---------
such payments so made by the Lenders shall be deemed to be Revolving Loans.
Acceptance Obligations may not be prepaid except as may be required by the
terms of this Credit Agreement.
(e) (i) The Borrower represents and warrants with respect to each
Acceptance accepted and discounted at its request, that
prior to any request by it that any Accepting Bank accept
and
48
<PAGE>
discount Acceptances, the Borrower shall have entered into
one or more bona fide contracts specifically providing for
the transactions to which such Acceptances relate having an
aggregate value not less than the face amount of such
Acceptances; that completion of such transactions is
anticipated to occur on or before the maturity date of such
Acceptances; that the maturity of such Acceptances will be
consistent with the period usually and reasonably necessary
to finance transactions of such kind; that the Borrower will
not have outstanding any other financing of such
transactions; that such Acceptances satisfy the requirements
for eligibility for discount under the Federal Reserve Act;
and that the proceeds from the discounting of such
Acceptance will be used to reimburse an Issuing Bank for
drawings under Acceptance Letters of Credit issued by such
Issuing Bank. The Borrower hereby agrees to indemnify and
hold harmless each Accepting Bank, the Agent and each Lender
with respect to any obligation or liability imposed on such
Accepting Bank, the Agent or any Lender (including, without
limitation, the amount of any penalties and charges and the
cost of maintaining reserves) if any Acceptance created by
such Accepting Bank or participated in by any Lender is
determined not to be eligible for discount by the Federal
Reserve pursuant to Section 13 of the Federal Reserve Act,
as amended. The determination of the Accepting Bank, the
Agent or such Lender, as applicable, made in good faith, as
to the amount of any such obligation or liability, shall be
conclusive absent manifest error.
(ii) In the event that an Accepting Bank or any Lender shall have
determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties
hereto but, with respect to clause (A) below, may be made
only by the applicable Accepting Bank):
(A) at any time, that any draft accepted pursuant to the
terms hereof will be ineligible for purchase or for discount
(or if already purchased or discounted, should have been
ineligible for purchase or discount) by Federal Reserve
Banks; or
49
<PAGE>
(B) at any time, that the creation or continuance of, or
participation in, any Acceptances has become unlawful by
compliance by an Accepting Bank or such Lender in good faith
with any law, governmental rule, regulation, guideline or
order, or that any of the drafts accepted or participated in
by it, at any time after their respective executions and
deliveries and for any reason, has ceased to be in full
force and effect or has been declared to be null and void by
a court of competent jurisdiction or a regulatory agency
(other than, in the case of a draft, by payment);
then, and in any such event, such Accepting Bank or such Bank shall on such
date give notice (by telephone confirmed in writing) to the Borrower and to
the Agent of such determination. Thereafter the Borrower shall either (x)
if the affected Acceptance is then being created or is required to be
created pursuant to an Acceptance Letter of Credit, agree to pay the
reimbursement obligations with respect to such Acceptance Letter of Credit
upon any drawings thereunder as if such Letter of Credit was not an
Acceptance Letter of Credit, or (y) if the affected Acceptance or
Acceptances are then outstanding, in the case of clause (A), indemnify the
Accepting Bank and each affected Lender as provided in Section 4.2.1(e)(i)
and, in the case of clause (B), prepay in full the face amount of each
Acceptance so affected.
(f) Notwithstanding anything to the contrary contained herein, (i) an
Accepting Bank shall in no event be required to create an Acceptance unless
(A) such Accepting Bank, in its sole discretion, determines that the
creation of such Acceptance complies with all applicable regulations of the
Board of Governors of the Federal Reserve System of the United States
governing banker's acceptances and shall (if accepted and endorsed by a
member bank of the Federal Reserve System or a bank authorized to create
eligible acceptances) be eligible under such regulations for purchase or,
if such Acceptance has a maturity at the time of discount of not more than
120 days sight, exclusive of days of grace, for discount by the Federal
Reserve Banks and (B) the Agent and the applicable Accepting Bank, in their
individual discretion, determine that the creation, discount and rediscount
or sale of such Acceptance is commercially reasonable under current market
conditions and would not subject the Agent or such Accepting Bank to
conditions or restrictions (including reserve or capital adequacy
requirements) which the Agent or such Accepting Bank considers undesirable
and would otherwise be in all respects in compliance with all laws, rules
and regulations; and (ii) such Accepting Bank shall in no event create any
Acceptance if, prior to the time of the Borrower's request therefor, the
Agent shall notify the Borrower that, in such Accepting Bank's
determination, the creation of an Acceptance would or might cause such Bank
to exceed its limits for aggregate acceptance liability provided for in
Section 13 of the Federal Reserve Act or otherwise be in violation
50
<PAGE>
of any law, rule or regulation. In the event that the limitations set forth
in this clause (f) would excuse Bankers Trust Company from creating an
Acceptance requested by the Borrower, the Agent shall be relieved of any
obligation which it may have to cause an Accepting Bank to create such an
Acceptance.
4.3 Lenders' Participation.
----------------------
(a) Immediately upon the issuance or amendment by an Issuing Bank of a
Letter of Credit in accordance with the procedures set forth in this
Article 4, each Lender shall be deemed to have irrevocably and
---------
unconditionally purchased and received from such Issuing Bank, without
recourse or warranty, an undivided interest and participation therein to
the extent of such Lender's Proportionate Share (including, without
limitation, all obligations of the Borrower with respect thereto).
(b) Immediately upon the execution of a Foreign Exchange Contract by a
Foreign Exchange Guarantor in accordance with the procedures set forth in
this Article 4, each Lender shall be deemed to have irrevocably and
---------
unconditionally purchased and received from such Foreign Exchange
Guarantor, without recourse or warranty, an undivided interest and
participation therein to the extent of such Lender's Proportionate Share
(including, without limitation, all obligations of the Borrower with
respect thereto).
(c) Immediately upon the creation of any Acceptance by an Accepting
Bank in accordance with the procedures set forth in this Article 4, each
---------
Lender shall be deemed to have irrevocably and unconditionally purchased
and received from such Accepting Bank, without recourse or warranty, an
undivided interest and participation therein to the extent of such Lender's
Proportionate Share (including, without limitation, all obligations of the
Borrower with respect thereto).
4.4 Definition of Obligations. Any indebtedness, liability or obligation
-------------------------
of any sort whatsoever, however arising, whether present or future, fixed or
contingent, secured or unsecured, due or to become due, paid or incurred,
arising or incurred in connection with any Letters of Credit or any deferred
payment obligations, participations, drafts or acceptances thereunder, under any
Foreign Exchange Contract or arising or incurred in connection with any
Acceptance (herein part of the "Obligations" heretofore defined) shall be
incurred solely as an accommodation to the Borrower and for the Borrower's
account. Obligations shall include, without being limited to: all amounts due or
which may become due under any Letters of Credit or any drafts or acceptances
thereunder; all amounts due or which may become due under any Foreign Exchange
Contracts; all amounts due or which may become due under any Acceptance; all
amounts charged or chargeable to the Borrower or to the Lenders by the
applicable Issuing Bank in respect of any Letter of Credit, or any correspondent
bank which opens, issues or is involved with such Letters of Credit; all amounts
charged or chargeable to the Borrower or to the
51
<PAGE>
Lenders by the applicable Foreign Exchange Guarantor in respect of any Foreign
Exchange Contract; all amounts charged or chargeable to the Borrower or to the
Lenders by the applicable Accepting Bank in respect of any Acceptance; any other
bank charges; fees and commissions, duties and taxes, costs of insurance, and
all such other charges and expenses which may pertain to such Letters of Credit,
drafts, acceptances, deferred payment obligations or to the goods or documents
relating thereto, to any Foreign Exchange Contract or to any Acceptance. The
Agent shall have the right, at any time and without notice to the Borrower, to
charge the Loan Account with the amounts of any and all such Obligations. Any
debit balance which may exist at any time or from time to time in the Borrower's
account shall accrue interest (i) at the rates provided in Section 8.1 or
-----------
Section 8.2 hereof, as applicable, prior to the occurrence and continuance of an
- -----------
Event of Default and (ii) on and after the occurrence and continuance of an
Event of Default specified in Section 10.1(a) or following written notice to the
---------------
Borrower of the occurrence of any other Event of Default, to and including the
date that such Event of Default is waived, at the rate provided in Section 8.4
-----------
hereof.
4.5 Indemnification. The Borrower hereby agrees to unconditionally
---------------
indemnify each Lender, each Issuing Bank, each Foreign Exchange Guarantor and
each Accepting Bank and hold each of them harmless from any and all loss, claim
or liability arising from any transactions or occurrences relating to Letters of
Credit, the Foreign Exchange Contracts, the Acceptances, the Collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claims due to any action taken by any
Issuing Bank, the Foreign Exchange Guarantor, or any Accepting Bank, except
where such loss, claim or liability is due to the gross negligence or willful
misconduct of the Person seeking indemnification. The Borrower's unconditional
obligation to the Lenders hereunder shall not be modified or diminished for any
reason or in any manner whatsoever. The Borrower agrees that, as among the
Borrower and the Lenders, any charges incurred by the Lenders for the Borrower's
account by an Issuing Bank, a Foreign Exchange Guarantor or an Accepting Bank
shall be conclusive on the Borrower and may be charged to the Loan Account (in
the absence of manifest error).
4.6 Certain Waivers. Neither any Issuing Bank, any Accepting Bank nor the
---------------
Lenders shall be responsible to the Borrower for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods purporting
to be represented by any documents; any difference or variation in the
character, quality, quantity, condition, packing, value or delivery of the goods
from that expressed in the documents; the validity, sufficiency or genuineness
of any documents or of any endorsements thereon, even if such documents should
in fact prove to be in any or all respects invalid, insufficient, fraudulent or
forged; the time, place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or the documents relating thereto; any
deviation from instructions; delay, default, or fraud by the shipper or anyone
else in connection with the Collateral or the shipping thereof; or any breach of
contract between the shipper or vendors and the Borrower. None of the Lenders
nor the Agent in their capacity as a Lender or the Agent under
52
<PAGE>
this Credit Agreement shall be responsible to the Borrower for any action or
inaction by any Issuing Bank, by any Foreign Exchange Guarantor or by any
Accepting Bank. Furthermore, without being limited by the foregoing, neither the
Lenders, the Agent nor any Issuing Bank shall be responsible for any act or
omission with respect to or in connection with any goods referred to in the
Letters of Credit.
4.7 Limitation on Liability; Authority of Lender. The Borrower agrees
--------------------------------------------
that any action taken by the Lenders, or any action taken by any Issuing Bank,
under or in connection with the Letters of Credit, the guaranties, the drafts or
acceptances, or the Collateral, or taken by any Foreign Exchange Guarantor under
or in connection with any Foreign Exchange Contract, or taken by any Accepting
Bank in connection with any Acceptance shall be binding on the Borrower and no
resulting liability shall attach to the Lenders, any such Issuing Bank, any such
Foreign Exchange Guarantor or any Accepting Bank other than with respect to any
actions taken by such Lender, any such Issuing Bank, any such Foreign Exchange
Guarantor or any such Accepting Bank that constitute gross negligence or willful
misconduct with respect to its own actions. In determining whether to pay under
any Letter of Credit, the Issuing Bank thereon shall have no obligation relative
to the Lenders other than to confirm that any documents required to be delivered
under such Letter of Credit appear to have been delivered and that they appear
to comply on their face with the requirements of such Letter of Credit. In
furtherance thereof, the Agent shall have the full right and authority to:
clear and resolve any questions of non-compliance of documents; give any
instructions as to acceptance or rejection of any documents or goods; execute
any and all steamship or airway guaranties (and applications therefor),
indemnities or delivery orders; grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances, or documents;
and agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; all in the Agent's sole name (but for
the account of the Lenders), and the applicable Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed by
or received solely from the Agent, all without any notice to or any consent from
the Borrower.
4.8 Covenants of Borrower.
---------------------
(a) Without the Agent's prior approval, the Borrower agrees not to:
clear and resolve any questions of non-compliance of documents; give any
instructions as to acceptance or rejection of any non-complying documents
or goods; execute any applications for steamship or airway guaranties,
indemnities or delivery orders; grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances or
documents; or agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances.
53
<PAGE>
(b) The Borrower agrees that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and fully complied with in
all material respects; and copies of any certificates in that regard that
the Agent may at any time reasonably request will be promptly furnished.
In this connection, the Borrower represents and warrants that all shipments
made under any such Letters of Credit are in all material respects in
accordance with the laws and regulations of the countries in which the
shipments originate and terminate, and are not prohibited in any material
respect by any such laws and regulations. The Borrower assumes all risk,
liability and responsibility for, and agrees to pay and discharge, all
present and future local, state, federal or foreign taxes, duties, or
levies in respect of any Letters of Credit and the Collateral relating
thereto. Any embargo, restrictions, laws, customs or regulations of any
country, state, city, or other political subdivision, where the Collateral
is or may be located, or wherein payments are to be made, or wherein drafts
may be drawn, negotiated, accepted, or paid, shall, as among the Borrower
and the Lenders, be solely the Borrower's risk, liability and
responsibility.
4.9 Rights and Remedies of Lenders. Any rights, remedies, duties or
------------------------------
obligations granted or undertaken by the Borrower to any Issuing Bank, to any
Foreign Exchange Guarantor or to any Accepting Bank in any application for
Letters of Credit, or any standing agreement relating to Letters of Credit, any
Foreign Exchange Contract, any Acceptance or otherwise, shall be deemed to have
been granted to the Lenders and apply in all respects to the Lenders and shall
be in addition to any rights, remedies, duties or obligations contained herein.
ARTICLE 5
---------
Representations and Warranties
------------------------------
In order to induce the Lenders to enter into this Credit Agreement and to
make available the credit facilities contemplated hereby, the Borrower hereby
represents and warrants to the Agent and the Lenders as follows:
5.1 Corporate Existence; Qualification; Power; Licenses and Permits. The
---------------------------------------------------------------
Borrower (i) is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) is duly
qualified and is authorized to do business and is in good standing in every
jurisdiction in which the failure to be so qualified could reasonably be
expected to have a Material Adverse Effect, (iii) has all corporate power and
authority required to own its properties and assets and to carry on its business
as now conducted and (iv) has all licenses, authorizations, consents, approvals,
franchises, leases, permits,
54
<PAGE>
certificates, qualifications, easements, rights of way and other rights required
to carry on its business as now conducted which the failure to so have could
reasonably be expected to have a Material Adverse Effect. The Borrower is not in
violation of the terms of any such license, authorization, consent, approval,
franchise, lease, permit, certificate, qualification, easement, right of way or
other right in any such case which would have a Material Adverse Effect.
5.2 Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance by the Borrower of this Credit Agreement and
the other Credit Documents executed in connection herewith or therewith and the
consummation by Borrower of the transactions contemplated hereby and thereby,
(i) are within the Borrower's corporate powers, (ii) have been duly authorized
by all necessary corporate action, (iii) except as provided in the Ancillary
Documents, require no action by or in respect of, or filing with, any
governmental body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of any applicable law, statute, ordinance,
regulation, rule, order or other governmental restriction or of the Articles or
Certificates of Incorporation or By-Laws of the Borrower, (v) do not contravene,
or constitute a default under, any agreement, judgment, injunction, order,
decree, indenture, contract, lease, instrument or other commitment to which the
Borrower is a party or by which the Borrower or any of its assets are bound and
which could reasonably be expected to have a Material Adverse Effect, and (vi)
will not result in the creation or imposition of any material Lien upon any
asset of the Borrower under any existing indenture, mortgage, deed of trust,
loan or credit agreement or other agreement or instrument to which the Borrower
is a party or by which it or any of its assets may be bound or affected (except
as contemplated herein).
5.3 Binding Effect. The Credit Agreement is and, when executed and
--------------
delivered in accordance with the terms of this Credit Agreement, all of the
other Credit Documents are or will be the legal, valid and binding obligations
of the Borrower, and are or will be enforceable against the Borrower in
accordance with their terms.
5.4 Information. The Borrower has furnished to the Lenders as of the date
-----------
of this Credit Agreement the following financial statements (the "Financials")
of the Borrower: (i) combined balance sheets as of, and combined statements of
earnings, changes in consolidated shareholders' equity and changes in
consolidated cash flow for the fiscal year ended December 1, 1996 audited by
independent certified public accountants, and (ii) unaudited combined balance
sheets as of the end of the most recent fiscal quarter ending prior to the
Closing Date and the related unaudited combined statements of earnings, changes
in shareholders' equity and changes in combined cash flow for the three months
then ended. The Financials are and the historical financial statements to be
furnished to the Lenders in accordance with Section 6.1 hereof will be in
-----------
accordance with the books and records of the Borrower and fairly present the
financial condition of the Borrower at the dates thereof and the results of
operations for the periods indicated (subject, in the case of unaudited
financial statements, to normal year-end adjustments), and such financial
55
<PAGE>
statements have been and will be prepared in conformity with GAAP consistently
applied throughout the periods involved.
5.5 No Material Adverse Change. Since December 28, 1996, there has been
--------------------------
no Material Adverse Change.
5.6 Litigation and Judgments. Except as set forth on Schedule D, there is
------------------------
no (i) injunction, stay, decree, judgment, writ or order issued and outstanding
by any court or arbitrator or any governmental body, agency or official against
the Borrower or any of its Subsidiaries or (ii) action, suit, proceeding,
litigation, contested claim, investigation or arbitration pending, or to the
knowledge of the Borrower threatened, against or affecting the Borrower or any
of its Subsidiaries which, in either case, could reasonably be expected to have
a Material Adverse Effect, or which in any manner impairs the validity of this
Credit Agreement or any of the other Credit Documents.
5.7 Compliance with ERISA. As of the date of this Credit Agreement, and
---------------------
except as set forth on Schedule D, neither the Borrower nor any ERISA Affiliate
maintains or contributes to any Benefit Plan. Each Plan has been and is being
maintained and funded in all material respects in accordance with its terms and
in compliance with all provisions of ERISA and the Internal Revenue Code
applicable thereto. The Borrower and each ERISA Affiliate has fulfilled in all
material respects its obligations related to the minimum funding standards of
ERISA and the Internal Revenue Code for each Plan, is in compliance in all
material respects with the currently applicable provisions of ERISA and of the
Internal Revenue Code relating to the qualification with respect to each Plan
intended to be so qualified and has not incurred any material liability (other
than routine liability for premiums) under Title IV of ERISA. No Termination
Event has occurred which has resulted in liability which either has not been
satisfied or is not reflected on the Borrower's financial statements nor has any
other event occurred that is likely to result in a Termination Event which could
reasonably be expected to have a Material Adverse Effect. No event or events
have occurred in connection with which the Borrower, any ERISA Affiliate, or any
Plan, directly or indirectly, is likely to be subject to any liability under
ERISA, the Internal Revenue Code or any other law, regulation or governmental
order or under any agreement, instrument, statute, rule of law or regulation
pursuant to or under which any such entity has agreed to indemnify or is
required to indemnify any person against liability incurred under, or for a
violation or failure to satisfy the requirements of, any such statute,
regulation or order which could reasonably be expected to have a Material
Adverse Effect. True, correct and complete copies of the following documents
have been made available to the Agent as of the date of this Credit Agreement:
(i) each Plan (or, where any such plan is not in writing, complete description
thereof) (and if applicable, related trust agreements or other funding
instruments) and all amendments thereto, all written interpretations thereof and
written descriptions thereof that have been distributed to employees or former
employees of the Borrower or the ERISA Affiliates, (ii) the most recent
Revenue Service with respect to each Plan,
56
<PAGE>
(iii) for the three most recent plan years, Annual Reports on Form 5500 Series
required to be filed with any governmental agency for each Plan, (iv) all
actuarial reports prepared for the last three plan years for each Benefit Plan,
(v) a listing of all Multiemployer Plans, with the aggregate amount of the most
recent annual contributions required to be made by the Borrower or any ERISA
Affiliate to each such plan and copies of the collective bargaining agreements
requiring such contributions, (vi) any information that has been provided to the
Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan and (vii) the aggregate amount of the most recent annual
payments made to former employees of the Borrower or any ERISA Affiliate under
any Retiree Health Plan.
5.8 Taxes.
-----
(a) Except as set forth on Schedule D, the Borrower and its
Subsidiaries have timely filed (inclusive of any permitted extensions) with
the appropriate taxing authorities all United States Federal income tax
returns and except as set forth on Schedule D all other material tax
returns (including, without limitation, information returns and other
material information) in respect of Taxes required to be filed through the
date hereof. The information filed is complete and accurate in all
material respects. All material deductions taken by the Borrower and its
Subsidiaries as reflected in such income tax returns have been taken in
accordance with applicable laws and regulations.
(b) Except as set forth on Schedule D, all Taxes, in respect of
periods beginning prior to the date hereof, have been timely paid, except
where the same are being contested in good faith by appropriate proceedings
and appropriate reserves therefor have been established and maintained in
accordance with GAAP for the accrual thereof as reflected on the audited
financial statements for the Borrower's fiscal year ended December 28,
1996, and, to the extent such reserves are maintained for periods after
December 28, 1996, consistent with the Borrower's past practice.
(c) Except as set forth in Schedule D, (i) no material deficiencies
for Taxes have been claimed, proposed or assessed by any taxing or other
governmental authority against the Borrower or any of its Subsidiaries
other than such deficiencies of which the Agent has been notified in
writing and which are being contested in good faith by appropriate
proceedings, and appropriate reserves therefor have been established and
maintained as reflected on the audited financial statements for the
Borrower's fiscal year ended December 28, 1996 and in accordance with GAAP,
and, to the extent such reserves are maintained for periods after December
28, 1996, consistent with the Borrower's past practice and (ii) no material
tax liens have been filed against any of the Collateral other than Liens
permitted under Section 7.4 of this Credit Agreement of which the Agent has
-----------
been notified in writing, and which are being contested in good faith by
appropriate proceedings, and appropriate reserves therefor have been
established and maintained as
57
<PAGE>
reflected on the audited financial statements for the Borrower's fiscal
year ended December 28, 1996 in accordance with GAAP and, to the extent
such reserves are maintained for periods after December 28, 1996,
consistent with the Borrower's past practice, and to the extent such liens
have been bonded in a manner reasonably satisfactory to the Agent. Except
as set forth in Schedule D or as otherwise disclosed to the Agent in
writing, there are no pending or, to the best of the Borrower's knowledge,
threatened audits, investigations or claims for or relating to any material
liability in respect of Taxes, and there are no matters under discussion
with any governmental authorities with respect to Taxes which are likely to
result in a material additional liability for Taxes. Except as set forth on
Schedule D, for all years up to and including the fiscal year ended
February 23, 1991, either the period during which any assessments may be
made by the Internal Revenue Service have expired without waiver or
extension or the federal income tax returns of the Borrower and its
Subsidiaries have been audited by the Internal Revenue Service and such
audits have been closed.
5.9 Subsidiaries. The only respective direct or indirect Subsidiaries of
------------
the Borrower as of the date of this Credit Agreement are those listed on
Schedule D attached hereto. Except as set forth on such Schedule, the Borrower
is the record and beneficial owner of all of the shares of capital stock of each
of its Subsidiaries listed on such Schedule as being owned by such Borrower
(other than directors' qualifying shares), there are no proxies, irrevocable or
otherwise, with respect to such shares, and no equity securities of any of the
Subsidiaries are or may become required to be issued by reason of any options,
warrants, scrips, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Subsidiary is or may
become bound to issue additional shares of its capital stock or securities
convertible or exchangeable for such shares. All of such respective shares so
owned by Borrower are owned by them free and clear of any Liens, and all such
shares are validly issued, fully paid and non-assessable (except for statutory
rights of assessment for wages owed).
5.10 Not an Investment Company. Neither the Borrower nor any of its
-------------------------
Subsidiaries is (i) an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, (ii) a "holding company" or a "Subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "Subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (iii) subject to any other law which purports to
regulate or restrict its ability to borrow money or to consummate the
transactions contemplated by this Credit Agreement or the other Credit Documents
or to perform its obligations hereunder or thereunder.
5.11 No Conflicting Requirements. Neither the Borrower nor any of its
---------------------------
Subsidiaries is in default under any term or provision of any charter, by-law,
mortgage, indenture, agreement,
58
<PAGE>
instrument, statute, rule, regulation, judgment, decree, order, writ,
injunction, contract, lease or other commitment to which any of them is a party
or by which any of them is bound such that such violations or defaults in the
aggregate could reasonably be expected to have a Material Adverse Effect. The
Borrower knows of no dispute regarding any indenture, contract, lease,
agreement, instrument or other commitment which would individually, or when
aggregated with other such disputes, be reasonably likely to have a Material
Adverse Effect.
5.12 Debt. The Borrower has no Debt that is senior, pari passu or
---- ---- -----
subordinated in right of payment to its Debt to Lenders hereunder, except for
Debt permitted pursuant to Section 7.1 of this Credit Agreement.
-----------
5.13 Title to Properties and Assets; Collateral.
------------------------------------------
(a) Except for (i) Liens permitted pursuant to Section 7.4 hereof and
-----------
(ii) such imperfections of title that represent imperfections of title or
easements of record, if any, which do not materially detract from the value
or interfere with the use of the properties subject thereto or affected
thereby, or otherwise materially impair business operations, the Borrower
has (a) good and marketable fee simple title to the Owned Real Property
material to its business and the Owned Real Property on which a Lien has
been granted to the Agent and valid leasehold interests in all of its
Leased Real Property material to its business and (b) good and marketable
title to all of its other material property and assets owned by the
Borrower at any time (including, without limitation, all of its accounts
and inventory), other than properties disposed of in any manner permitted
under this Credit Agreement. The Borrower enjoys peaceful and undisturbed
possession of all its material Real Estate and there is no pending or, to
the best of its knowledge, threatened condemnation proceeding relating to
any Real Estate which could reasonably be expected to have a Material
Adverse Effect. The leases with respect to the Leased Real Property, are
referred to collectively as the "Leases." No default exists under any
Lease which could reasonably be expected to have a Material Adverse Effect.
All of the Structures and other tangible assets owned, leased or used by
the Borrower in the conduct of its business are (a) insured as required by
the terms of this Credit Agreement and the other Credit Documents, (b)
sufficient for the operation of the business of the Borrower and its
Subsidiaries as presently conducted and (c) in conformity with all
applicable laws, ordinances, orders, regulations and other requirements
(including applicable zoning, environmental, motor vehicle safety,
occupational safety and health laws and regulations) relating thereto,
except where the failure to conform could not reasonably be expected to
have a Material Adverse Effect.
(b) The Borrower possesses adequate assets, licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications
and tradenames to continue to conduct its business as presently conducted.
Schedule C
59
<PAGE>
attached hereto sets forth as of the date of this Credit Agreement (i) all
of the federal, state and foreign registrations of the registered
trademarks of the Borrower and all pending applications for any such
registrations and (ii) all of the patents of the Borrower and all pending
applications therefor (collectively, together with all service marks and
other marks and all applications therefor, tradenames and other trade
rights of the Borrower, the "Proprietary Rights"). As of the date of this
Credit Agreement, the Borrower is the owner of each of the trademarks and
patents listed on Schedule C as indicated on such schedule and except as
set forth on such Schedule and, except pursuant to licenses granted in the
ordinary course of business, no other Person has the right to exploit such
patents or use any of such marks in commerce either in the identical form
or in such near resemblance thereto as may be likely to cause confusion or
to cause mistake or to deceive. As of the date of this Credit Agreement
each of the trademarks listed on Schedule C is a valid and subsisting
federally registered trademark of the Borrower having the registration
number and issue date set forth on Schedule C and each of the patents
listed on Schedule C is a valid and subsisting patent of the Borrower
having the patent number and issue date set forth on Schedule C. As of the
date of this Credit Agreement except as disclosed on Schedule C, no Person
has a right to receive any material royalty or similar payment from the
Borrower in respect of any such registered Propriety Rights. As of the date
of this Credit Agreement the Borrower has not granted any material license
except as disclosed on Schedule C hereto or such licenses as were granted
in the ordinary course of the Borrower's business, or sold or otherwise
transferred any interest in any of the Proprietary Rights to any other
person. The Borrower is not aware that the use of any of the material
Proprietary Rights by the Borrower is infringing upon or otherwise
violating the rights of any third party in or to such Proprietary Rights
which violation or infringement could reasonably be expected to result in a
material liability to the Borrower, and no proceeding has been instituted
against or notice received by the Borrower that are presently outstanding
alleging that the use of any of the material Proprietary Rights infringes
upon or otherwise violates the rights of any third party in or to any of
the material Proprietary Rights which, if successful, could reasonably be
expected to materially adversely affect the fair market value of any such
material Proprietary Rights or the rights granted therein to the Agent
including, without limitation, the validity, priority or perfection of the
security interest granted therein to the Agent under the Ancillary
Documents or the remedies of the Agent therein or in this Credit Agreement.
All of the material Proprietary Rights of the Borrower and the Subsidiaries
are valid and enforceable rights of the Borrower and the Subsidiaries and
will not cease to be valid and in full force and effect by reason of the
execution and delivery of this Credit Agreement or the Credit Documents or
the consummation of the transactions contemplated hereby or thereby.
(c) The capital stock of each Subsidiary, (including, without
limitation, each Foreign Subsidiary provided that, for any Foreign
Subsidiary which constitutes a "Controlled Foreign Corporation" within the
meaning of Section 951 of the Internal
60
<PAGE>
Revenue Code, Borrower shall not be required to pledge hereunder or under
the other Credit Documents more than 65% of the combined voting power of
all classes of capital stock of such Foreign Subsidiary entitled to vote),
in each case which is owned directly or indirectly by the Borrower, has
been delivered and pledged to the Agent under the Pledge Agreements;
excluding, however, the capital stock of any Subsidiary owned directly or
indirectly by a Subsidiary of the Borrower one hundred percent (100%) of
which is not owned directly or indirectly by the Borrower. The owners of
all such capital stock are parties as pledgors under the Pledge Agreements.
5.14 Compliance with Law. Neither the Borrower nor any of its Subsidiaries
-------------------
has violated or failed to comply with any statute, law, ordinance, regulation,
rule or order of any foreign, federal, state or local government or any other
governmental department or agency or any self regulatory organization, or any
judgment, decree or order of any court, applicable to its business or operations
except where the aggregate of all such violations or failures to comply would
not have a Material Adverse Effect. The conduct of the businesses of the
Borrower and each of its Subsidiaries is in conformity with all securities,
commodities, energy, public utility, zoning, building code, health, OSHA and
environmental requirements and all other foreign, federal, state and local
governmental and regulatory requirements and requirements of any self regulatory
organizations, except where the aggregate of all such non-conformities could not
reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries has received any notice to the effect that, or
otherwise been advised that, it is not in compliance with, and neither the
Borrower nor any of its Subsidiaries has any reason to anticipate that any
presently existing circumstances are likely to result in the violation of, any
such statute, law, ordinance, regulation, rule, judgment, decree or order which
failure or violation could reasonably be expected to have a Material Adverse
Effect.
5.15 Compliance with Environmental Laws.
----------------------------------
(a) The Borrower and each of its Subsidiaries have complied with and
are currently in compliance with any Environmental Laws, except where
noncompliance could not reasonably be expected to have a Material Adverse
Effect.
(b) No solid or hazardous or toxic wastes or hazardous substances (as
defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resources Conservation and Recovery Act and the
Superfund Amendments and Reauthorization Act of 1986, as amended or under
any successor or similar law or any applicable state or local law), are
processed, discharged, stored, treated, disposed of, or managed at any
facility owned, leased or operated by the Borrower or any Subsidiary
thereof or, at the request or behest of the Borrower or any Subsidiary
thereof, at any adjoining site, so as to require a license, permit or
authorization of any type from any governmental authority, other than
licenses, permits and authorizations which have been
61
<PAGE>
obtained and are in full force and effect or where the failure to obtain
such a license, permit or authorization could not reasonably be expected to
have a Material Adverse Effect. Except as set forth on Schedule D hereto,
as of the date of this Credit Agreement no governmental or private actions
to enforce environmental or pollution control laws are pending against the
Borrower or any Subsidiary thereof, or against or with respect to any
facility owned, operated or leased by the Borrower or any Subsidiary
thereof. Except as disclosed on Schedule D and except where any of the
following, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect: (i) neither the Borrower nor
any of its Subsidiaries has received any complaint, notice of violation,
alleged violation, investigation or advisory action or of potential
liability or of potential responsibility regarding environmental protection
matters or permit compliance, and (ii) neither the Borrower nor any of its
Subsidiaries have any contingent liability of which the Borrower has
knowledge in connection with any release of any hazardous or toxic waste,
substance or constituent, or other substance into the environment, nor has
the Borrower or any Subsidiary received any notice, letter or other
indication of potential liability arising from the disposal of any
hazardous or toxic waste, substance or constituent or other substance into
the environment.
(c) Except as disclosed on Schedule D and other than any pending
workers' compensation claims which individually and in the aggregate are
not significant to the Borrower, no action, suit or proceeding brought by
any employee of the Borrower or any Subsidiary thereof or any other Person
involving (i) a claim for damages in excess of $100,000 or (ii) claims for
damages under $100,000 and which, in either such case, in the aggregate
could reasonably be expected to have a Material Adverse Effect, in each
case based on alleged damage to health caused by any such hazardous or
toxic substance or by any waste or by-product thereof, is pending before
any court or arbitrator or any governmental body, agency or official.
5.16 Security Interests and Liens; Inventory and Equipment. There are no
-----------------------------------------------------
Liens in favor of third parties with respect to any of the Collateral,
including, without limitation, with respect to the Inventory, wherever located,
other than Liens permitted pursuant to Section 7.4 hereof. To the best of the
-----------
Borrower's knowledge, no lessor, warehouseman, filler, processor or packer of
the Borrower or any of its Subsidiaries (other than Foreign Subsidiaries) has
granted any Lien with respect to the Inventory maintained by the Borrower or any
of its Subsidiaries (other than Foreign Subsidiaries) at the property of any
such lessor, warehousemen, filler, processor or packer. Upon the proper filing
of financing statements and the proper recordation of other applicable documents
with the appropriate filing or recordation offices in each of the necessary
jurisdictions, the security interests granted pursuant to the Credit Documents
on the Filing Assets and the Real Estate with respect to which Mortgages have
been filed constitute and shall at all times constitute the valid and
enforceable first, prior and perfected Liens on such Collateral, subject only to
prior Liens existing on the Closing Date and set forth on Schedule D hereto and
62
<PAGE>
Liens permitted pursuant to Section 7.4 hereof. The Borrower is or will be at
-----------
the time additional Collateral is acquired by it, the absolute owners of the
Collateral with full right to pledge, sell, consign, transfer and create a Lien
therein, free and clear of any and all Liens in favor of third parties, except
for Liens permitted pursuant to Section 7.4 hereof. No consents, filings or
-----------
recordings are required in order to perfect the security interests created by
the Pledge Agreements.
5.17 Labor Relations. The Borrower is not engaged in any material unfair
---------------
labor practices which could reasonably be expected to result in a material
liability to the Borrower, materially increase the costs of operations or
materially decrease the revenue generated from the Borrower's operations or
which could otherwise reasonably be expected to have a Material Adverse Effect.
There is (i) no unfair labor practice complaint pending against the Borrower or,
to the best knowledge of the Borrower, threatened against it, before the
National Labor Relations Board, and no material grievance or significant
arbitration proceeding arising out of or under collective bargaining agreements
is so pending against the Borrower or, to the best knowledge of the Borrower,
threatened against it, (ii) no strike, labor dispute, slowdown or stoppage
pending against the Borrower or, to the best knowledge of the Borrower,
threatened against it which, in the case of the items described in the preceding
clauses (i) and (ii) could reasonably be expected to result in a material
liability to the Borrower, materially increase the costs of the Borrower's
operations or materially decrease the revenue generated from the Borrower's
operations or which could otherwise reasonably be expected to have a Material
Adverse Effect, and (iii) no union representation question with respect to the
employees of the Borrower and no union organizing activities which
representation question or organizing activity could reasonably be expected to
have a Material Adverse Effect. There are no controversies pending or, to the
best knowledge of the Borrower, threatened between the Borrower and any of its
employees, other than (i) employee grievances and other controversies arising in
the ordinary course of business which could not, in the aggregate, be reasonably
expected to have a Material Adverse Effect and (ii) employee grievances and
other controversies arising outside the ordinary course of business of which the
Agent has received written notice and could not reasonably be expected to have a
Material Adverse Effect.
5.18 UCC Filing Information. As of the date of this Credit Agreement the
----------------------
chief executive office and principal place of business of the Borrower is as set
forth on Schedule D, which office is the place where the Borrower is "located"
for the purposes of Section 9-103(3)(d) of the UCC. As of the date of this
-------------------
Credit Agreement the places where the Borrower keeps its books, chattel paper
and records concerning its respective Accounts or regularly keeps any Inventory
are also identified on Schedule D. As of the date of this Credit Agreement
there is no jurisdiction located in the United States in which the Borrower or
any of its Subsidiaries have any assets, equipment or Inventory (except for
vehicles, Inventory in transit for processing in the ordinary course of
business, or immaterial items) other than those jurisdictions listed on Schedule
D. Schedule D is a true, correct and complete list as of the date of this
Credit Agreement of (i) the address of all offices where records and books of
account of the Borrower
63
<PAGE>
and each of its Subsidiaries are kept, and (ii) to the best knowledge of
Borrower, the legal names and addresses of each warehouseman, filler, processor
and packer at which Inventory is stored as of the date of this Credit Agreement.
None of the receipts received by the Borrower from any warehouseman, filler,
processor or packer states that the goods covered thereby are to be delivered to
bearer or to the order of a named person or to a named person and such named
person's assignees.
5.19 Solvency. On and at all times after the Closing Date the fair
--------
saleable value of the Borrower's assets exceeds all probable liabilities,
including those to be incurred pursuant to this Credit Agreement. On and at all
times after the Closing Date, the Borrower (i) does not have unreasonably small
capital in relation to the business in which it is or proposes to be engaged and
(ii) has not incurred, and does not believe that it will incur after giving
effect to the transactions contemplated by this Credit Agreement, debts beyond
its ability to pay such debts as they become due.
5.20 Fictitious Business Names. Neither the Borrower nor any of its
-------------------------
Subsidiaries has conducted any material amount of business on or after August 3,
1992 under any corporate or fictitious name other than the corporate name shown
on its or such Subsidiary's Articles or Certificate of Incorporation, as
disclosed on Schedule D or as disclosed to the Agent in writing from time to
time.
5.21 Use of Proceeds. All proceeds of the Loans and all proceeds from the
---------------
discount of the Acceptances have been used only in accordance with Section 6.14
------------
hereof.
5.22 Margin Security. The Borrower does not own any margin security and
---------------
none of the loans advanced hereunder have been used for the purpose of
purchasing or carrying any margin securities of for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase any margin
securities or for any other purpose not permitted by Regulation G, U or X of the
Board of Governors of the Federal Reserve System.
5.23 No Event of Default. No Default or Event of Default has occurred and
-------------------
is continuing.
5.24 Status of Accounts. The Borrower confirms to the Lenders that any
------------------
and all taxes or fees relating to its business, its sales, the Accounts or the
goods relating thereto, are their sole responsibility and that all such material
taxes will be paid by the Borrower when due (unless duly contested and
adequately reserved for) and that none of said taxes or fees (including any
immaterial taxes or fees) is or will become a lien (other than a Permitted Lien)
on or claim against the Accounts. The Borrower's books and records are marked
to reflect the Lenders' interest in the Accounts.
64
<PAGE>
5.25 Survival of Representations. All representations made by the Borrower
---------------------------
in this Credit Agreement and in any other Credit Document executed and delivered
in connection herewith shall survive the execution and delivery hereof and
thereof.
5.26 Affiliate Transactions. Except as set forth on Schedule D hereto,
----------------------
neither the Borrower nor any Subsidiary is a party to or bound by any agreement
or arrangement (whether oral or written) to which any Affiliate of the Borrower
or any Subsidiary is a party except as permitted pursuant to Section 7.8 hereof.
-----------
5.27 Accuracy and Completeness of Information. All factual information
----------------------------------------
heretofore, contemporaneously or hereafter furnished by or on behalf of the
Borrower or any of its Subsidiaries in writing to the Agent, any Lender, or the
Auditors for purposes of or in connection with this Credit Agreement or any
Credit Documents, or any transaction contemplated hereby or thereby is or will
be true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time.
There is no fact now known to any officer of the Borrower or any of its
Subsidiaries which has, or would have, a Material Adverse Effect which fact has
not been set forth herein, in the Financial Statements, or some certificate,
opinion or other written statement made or furnished by the Borrower to the
Agent.
5.28 Representations Upon Execution. The Borrower hereby represents and
------------------------------
warrants as of the date of this Credit Agreement that (i) the execution and
delivery of this Credit Agreement (A) are within the Borrower's corporate
powers, (B) have been duly authorized by all necessary corporate action, (C)
require no further action or order by or in respect of or filing with any
governmental body, agency or official, (D) do not contravene or constitute a
default under any provision of any applicable law, statute, ordinance,
regulation, rule, order or other governmental restriction or of the Articles or
Certificates of Incorporation or By-laws of the Borrower, (E) do not cause a
violation of any agreement, judgment, injunction, order, decree, indenture,
contract, lease, instrument or other commitment to which the Borrower is a party
or by which the Borrower or any of its assets are bound and (F) will not result
in the creation or imposition of any Lien upon any asset of the Borrower under
any existing indenture, mortgage, deed of trust, loan or credit agreement or
other agreement or instrument to which the Borrower is a party or by which the
Borrower or any of its assets may be bound and (ii) this Credit Agreement is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms.
65
<PAGE>
ARTICLE 6
---------
Affirmative Covenants
---------------------
Until termination of the Commitments and payment and satisfaction of all
Obligations due hereunder (other than Letter of Credit Obligations with respect
to Letters of Credit expiring after the Expiration Date which have been cash
collateralized pursuant to Section 4.1), the Borrower agrees that, unless the
-----------
Agent shall have certified to the Borrower that the Required Lenders shall have
otherwise consented in writing:
6.1 Information. The Borrower will deliver:
-----------
(a) to each of the Lenders, (i) as soon as available and in any
event within 90 days after the end of each fiscal year of the Borrower,
consolidated and consolidating balance sheets of the Borrower and its
Consolidated Subsidiaries as of the end of such fiscal year and the related
consolidated and consolidating statements of earnings, changes in
consolidated shareholders equity and changes in consolidated cash flow for
such fiscal year, setting forth in the case of each consolidated financial
statement in comparative form the figures for the previous fiscal year,
including the previous fiscal year budget; all (except for the
consolidating statements) accompanied by an opinion of the Auditors
unqualified as to scope of audit and stating that such financial statements
present fairly in all material respects the financial position of the
Borrower and its Consolidated Subsidiaries and the results of their
operations and cash flows for such fiscal year in conformity with generally
accepted accounting principles and otherwise reported on in a manner
acceptable to the Securities and Exchange Commission, accompanied by a
written statement signed by the Auditors as to whether in the course of
such firm's audit anything of a financial or accounting nature has come to
its attention to cause it to believe that any Default or Event of Default
existed on the date of such statements and stating whether anything has
come to its attention to cause it to believe the calculations set forth in
the officers certificate delivered pursuant to subsection (c) below were
not prepared in accordance with the terms hereof and (ii) as soon as
available and in any event within 180 days after the end of each fiscal
year of the Borrower, a copy of the Auditors' Management Letter to the
Borrower relating to financial statements for such fiscal year delivered
pursuant to clause (i) above;
(b) to each of the Lenders, as soon as available and in any event
within 45 days after the end of each of the first three quarters of each
fiscal year of the Borrower, consolidated and consolidating balance sheets
of the Borrower and its Consolidated Subsidiaries as of the end of such
quarter and the related consolidated and consolidating statements of
earnings, changes in consolidated shareholders equity and changes in
consolidated cash flow for such quarter and for the portion of the
Borrower's fiscal year
66
<PAGE>
ended at the end of such quarter, setting forth in the case of each
consolidated financial statement in comparative form the figures for the
corresponding quarter and the corresponding portion of the Borrower's
previous fiscal year, including the previous fiscal year budget, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, GAAP and consistency by the chief financial officer or the
chief accounting officer of the Borrower;
(c) to each of the Lenders, simultaneously with the delivery of
each set of financial statements referred to in subsections (a) and (b)
--------------- ---
above (i) a certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth in reasonable detail any
calculations required to establish whether the Borrower was in compliance
with the requirements of Sections 7.6, 7.7 and 7.11 hereof on the date of
------------ --- ----
such financial statements, and (ii) a compliance certificate in the form of
Exhibit M attached hereto (the "Compliance Certificate");
(d) to each of the Lenders, as soon as available and in any event
within 30 days after the end of each of the first two months of each fiscal
quarter (45 days in the case of the last month of each fiscal year of the
Borrower), statements of earnings and consolidated and consolidating
balance sheets of the Borrower and its Consolidated Subsidiaries as of the
end of such month, and related changes in consolidated cash flow for such
month and for the portion of the Borrower's fiscal year ended at the end of
such month, all certified (subject to normal year-end adjustments) as to
fairness of presentation, GAAP and consistency by the chief financial
officer or chief accounting officer of the Borrower;
(e) to each of the Lenders, as soon as available and in any event
no later than 60 days after the last day of each fiscal year of the
Borrower, copies of annual budgets and other similar materials prepared by
or for the Borrower and any of its Subsidiaries, which budgets and other
information shall be presented on a monthly basis for the then current
fiscal year and on an annual basis for each subsequent fiscal year;
(f) to each of the Lenders, within three Business Days of any
officer of the Borrower obtaining knowledge of any Event of Default or any
Default, if such Default is then continuing, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting
forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(g) to each of the Lenders, promptly upon the mailing thereof to
the shareholders of the Borrower generally, copies of all financial
statements, reports and proxy statements so mailed;
67
<PAGE>
(h) to each of the Lenders, promptly upon the filing thereof,
copies of all registration statements (other than the exhibits thereto
unless the securities covered thereby are held or distributed by the
Borrower, other than any registration statement on Form S-3 to the extent
that it relates to a secondary offering, and other than any registration
statement on Form S-8 or its equivalent), and reports on Form 10-K, 10-Q
and 8-K (or their equivalents) which the Borrower shall have filed with the
Securities and Exchange Commission;
(i) to each of the Lenders, if and when any ERISA Affiliate (i)
gives or is required to give notice to the PBGC of any Reportable Event
with respect to any Plan which could reasonably be expected to constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is required to give
notice of any such Reportable Event, a copy of the notice of such
Reportable Event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA,
a copy of such notice; or (iii) receives notice from the PBGC under Title
IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice;
(j) to each of the Lenders, within three Business Days of any
officer of the Borrower obtaining knowledge of (i) any litigation or
proceeding affecting the Borrower or any Subsidiary in which the amount
involved is $3,000,000 or more and is not covered by insurance or in which
injunctive or similar relief is sought, or (ii) any order, judgment or
decree in excess of $1,000,000 which shall have been entered against the
Borrower or any Subsidiary or any of their respective properties or assets,
a certificate of the chief financial officer or accounting officer of the
Borrower setting forth details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(k) to each of the Lenders, (i) forthwith upon the occurrence of
(A) any Change in Control or (B) any receipt of Net Cash Proceeds in excess
of $2,500,000 from any single Asset Disposition, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting
forth, with respect to any Change in Control, the details thereof and the
action which the Borrower is taking or proposes to take with respect
thereto and with respect to the receipt of any Net Cash Proceeds, the
details of the bases for calculation and the sources thereof; and (ii)
forthwith upon becoming aware thereof, notice that a tender offer, exchange
offer or market purchase program or proxy solicitation has been announced
or is pending or has been consummated which, if consummated or otherwise
successful, could result in a Change in Control;
(l) to each of the Lenders, prompt notice of any notification of a
violation of any law or regulation received by the Borrower or any
Subsidiary from any local, state,
68
<PAGE>
federal or foreign governmental authority or agency which violation could
reasonably be expected to have a Material Adverse Effect;
(m) to each of the Lenders, prompt notice of any material change in
the Borrower's credit and collection policy;
(n) to each of the Lenders, prompt notice, in reasonable detail, of
any material change relating to the type, quantity or quality of the
Inventory, Accounts or any other material portion of the Collateral, or any
event which could have a material adverse effect on the value of such
Collateral or any event affecting the validity or priority of the security
interests granted to the Agent and the Lenders in such Collateral;
(o) to each of the Lenders, weekly, before 12:00 noon on the second
Business Day of each week, and monthly within ten (10) Business Days of the
last Business Day of each month, and at any other time reasonably requested
by the Agent, a borrowing base certificate (the "Borrowing Base
Certificate") in substantially the form of Exhibit N hereto, duly
completed, detailing the Borrower's Eligible Accounts Receivable, Eligible
Inventory and Eligible Retail Inventory, as of the last day of, as
applicable, such preceding week or month (or as of the date reasonably
requested by the Agent), as applicable, and, in each case, certified by the
Borrower's chief executive officer, chief financial officer, controller or
other senior financial officer. In addition, each monthly Borrowing Base
Certificate shall have attached to it as exhibits the summary accounts
receivable aged trial balance for such month and a summary schedule of
Inventory owned by the Borrower. The Agent may, but shall not be required
to, rely on each Borrowing Base Certificate delivered hereunder as
accurately setting forth the available Borrowing Base for all purposes of
this Credit Agreement (including, without limitation, Sections 3.2 and 3.3
------------ ---
hereof) until such time as a new Borrowing Base Certificate is delivered to
the Agent in accordance herewith. In the event at any time the Agent's
calculation of the Borrower's Eligible Accounts Receivable, Eligible
Inventory and Eligible Retail Inventory is materially less than the
calculations of the Borrower set forth on the most recent Borrowing Base
Certificate delivered to the Agent, the Agent shall notify the Borrower of
such fact; provided that the Agent shall incur no liability to the Borrower
-------- ----
if the Agent fails to give such notice;
(p) to each of the Lenders, within three Business Days of the chief
executive officer, chief financial officer, chief accounting officer,
controller or other senior financial officer of the Borrower obtaining
knowledge of any Material Adverse Change, a certificate of the chief
financial officer or accounting officer of the Borrower setting forth
details thereof and the action which the Borrower is taking or proposes to
take with respect thereto; and
69
<PAGE>
(q) to the Agent, from time to time such additional information
regarding the financial position or business of the Borrower or any
Subsidiary as the Agent, at the request of any Lender, may reasonably
request.
6.2 Payment of Obligations. The Borrower will pay and discharge, and will
----------------------
cause each of its Subsidiaries to pay and discharge, at or before maturity, all
of their respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings, and will maintain, and will cause each of its
Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the
accrual of any of the same.
6.3 Maintenance of Property: Insurance.
----------------------------------
(a) The Borrower will keep, and will cause each of its Subsidiaries
(other than Foreign Subsidiaries) to keep, all material property useful and
necessary in their businesses in good working order and condition (ordinary
wear and tear, casualty and condemnation excepted) and not commit or suffer
any waste with respect to any of its material properties.
(b) The Borrower agrees to maintain, and to cause each of its
Subsidiaries (other than Foreign Subsidiaries) to maintain, public
liability insurance, third party property damage and replacement cost
insurance on the Collateral under such policies of insurance, with such
insurance companies, in such amounts and covering such risks as are at all
times satisfactory to the Agent in its commercially reasonable judgment.
Such insurance may include levels of self insurance comparable to those in
place on the date of this Credit Agreement or otherwise satisfactory to the
Agent in its commercially reasonable judgment. All policies covering the
Collateral are to name the Borrower and the Agent as additional insureds
and loss payees in case of loss, as their interests may appear, and are to
contain such other provisions as the Agent may reasonably require to fully
protect the Agent's interest in the Collateral and to any payments to be
made under such policies. Certificates of all insurance policies are to be
delivered to the Agent (with true copies of such policies to be made
available to the Agent) on or prior to the Closing Date, and such policies
shall have all premiums with respect thereto currently paid and contain
loss payable endorsements in the Agent's favor, and shall provide for not
less than ten (10) days prior written notice to the Agent, of the exercise
of any right of cancellation. In the event the Borrower or any of its
Subsidiaries (other than Foreign Subsidiaries) fail to respond in a timely
and appropriate manner (as determined by the Agent in its reasonable
discretion) with respect to collecting under any insurance policies
required to be maintained under this Section 6.3, the Agent shall have the
-----------
right, in the name of the Agent, the Borrower or any Subsidiary (other than
a Foreign Subsidiary) of the Borrower, to file claims under such insurance
policies, to receive and give acquittance for any payments that may be
payable thereunder, and to execute any and all endorsements, receipts,
releases,
70
<PAGE>
assignments, reassignments or other documents that may be necessary to
effect the collection, compromise or settlement of any claims under any
such insurance policies. The Borrower shall provide written notice to the
Agent of the occurrence of any of the following events within five (5)
Business Days after the occurrence of such event: any material asset or
property owned or used by any Borrower or any of the Borrower's
Subsidiaries (other than a Foreign Subsidiary) (i) is damaged or destroyed,
or suffers any other loss, or (ii) is, or the Borrower receives notice of
the institution of any proceeding pursuant to which any such asset or
property could reasonably be expected to be, condemned, confiscated or
otherwise taken, in whole or in part, or the use thereof is otherwise
diminished so as to render impracticable or unreasonable the use of such
asset or property for the purposes to which such asset or property were
used immediately prior to such condemnation, confiscation or taking, by
exercise of the powers of condemnation or eminent domain or otherwise, and
in either case the amount of the damage, destruction, loss or diminution in
value is in excess of $1,000,000 (collectively, a "Casualty Loss"). The
Borrower shall diligently file and prosecute its claim or claims for any
award or payment in connection with a Casualty Loss. In the event of a
Casualty Loss with respect to any of the Collateral, the Borrower shall pay
to the Agent or deposit in the Concentration Account, promptly upon receipt
thereof, any and all insurance proceeds and payments received by the
Borrower or any of its Subsidiaries (other than Foreign Subsidiaries) on
account of damage, destruction, loss, condemnation or eminent domain
proceedings. So long as no Default or Event of Default shall have occurred
and be continuing, the Borrower may use such proceeds and payments to
repair, replace or rebuild the asset or property or portion thereof that
was the subject of the Casualty Loss or, if such asset or property is not
material to the operations of Borrower, may use such proceeds and payments
as otherwise permitted pursuant to the terms of this Credit Agreement and
after the occurrence and during the continuance of any Default or Event of
Default the Agent may, at its election in its sole discretion either (a)
apply the proceeds realized from Casualty Losses to payment of accrued and
unpaid interest or outstanding principal under the Loans or (b) pay such
proceeds to the Borrower to be used to repair, replace or rebuild the asset
or property or portion thereof that was the subject of the Casualty Loss.
After the occurrence and during the continuance of an Event of Default, (i)
no settlement on account of any such Casualty Loss shall be made without
the consent of the Agent and (ii) the Agent may participate in any such
proceedings and the Borrower shall deliver to the Agent such documents as
may be requested by the Agent to permit such participation and shall
consult with the Agent, its attorneys and agents in the making and
prosecution of such claim or claims. The Borrower hereby irrevocably
authorizes and appoints the Agent its attorney-in-fact, after the
occurrence and continuance of an Event of Default, to collect and receive
for any such award or payment and to file and prosecute such claim or
claims, which power of attorney shall be irrevocable and shall be deemed to
be coupled with an interest, and the Borrower shall, upon demand of the
Agent, make, execute and deliver any and all assignments and other
instruments sufficient for the purpose of
71
<PAGE>
assigning any such award or payment to the Agent for the benefit of the
Lenders, free and clear of any encumbrances of any kind or nature
whatsoever.
6.4 Compliance with Laws. The Borrower will comply, and cause each of its
--------------------
Subsidiaries to comply with all acts, regulations, orders, directions and
ordinances of any legislative, administrative or judicial body or official,
applicable to the Collateral or any part thereof, or to the operation of their
business (including, without limitation ERISA and the rules and regulations
thereunder) except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect.
6.5 Inspection of Property, Books and Records; Change of Name, Principal
--------------------------------------------------------------------
Place of Business, Location of Collateral, Etc. The Borrower will keep, and
- ----------------------------------------------
will cause each of its Subsidiaries to keep, proper books of record and account
in which full, true and correct entries in conformity with GAAP shall be made of
all dealings and transactions in relation to their businesses and activities;
the Borrower shall make no significant change in its accounting practices except
as permitted or required by GAAP. The Borrower shall have the right, however,
to change its fiscal year on one occasion, provided, however, as a condition
-------- -------
precedent thereto, the Borrower shall, at the request of the Agent, enter into
an amendment of this Credit Agreement, in form and substance reasonably
satisfactory to the Required Lenders, sufficient to make this Credit Agreement
(and the terms contained herein), after effectuation of such proposed change in
fiscal year, financially and economically equivalent to this Credit Agreement as
it existed prior to the effectuation of such proposed change. The Borrower
agrees that the Agent or its agents may enter upon the premises of the Borrower
or any of its Subsidiaries at any time and from time to time, during normal
business hours and upon reasonable prior notice, and at any time at all and
without notice on and after the occurrence and during the continuance of an
Event of Default, for the purpose of (i) inspecting the Collateral, (ii)
inspecting and/or copying (at Borrower's expense) any and all records pertaining
thereto, (iii) discussing the affairs, finances and business of the Borrower
with any officers, employees and directors of the Borrower or with the Auditors
and (iv) verifying Eligible Accounts Receivable and/or Eligible Inventory. Any
Lender may accompany the Agent on any such visit at such Lender's own expense.
The Borrower agrees to afford the Agent ten (10) Business Days prior written
notice of (a) any new or additional location of any Collateral at which location
Collateral having an aggregate value in excess of $1,000,000 will be located,
(b) any change in the location of its chief executive office or any new or
additional places of business (other than new retail locations for which the
Borrower shall give Agent written notice within fifteen (15) days after the
opening thereof) from the locations specified in Schedule D, and (c) any change
in its corporate name and, in each such case, the Borrower further agrees to
execute in advance of such addition or change and cause to be filed and/or
delivered to the Agent any financing statements or other documents required by
the Agent, all in form and substance satisfactory to the Agent.
72
<PAGE>
6.6 Compliance with Credit Documents. The Borrower will comply, and will
--------------------------------
cause each of its Subsidiaries to comply, with the terms of each of the Credit
Documents.
6.7 Covenant to Mortgage After-Acquired Property. With respect to any real
--------------------------------------------
property, acquired and held in fee or owned by the Borrower at any time after
the date hereof, and having a gross cost individually in excess of $2,500,000,
as soon as possible and in no event later than 90 days after the relevant
acquisition date and/or construction completion date, whichever is later, the
Borrower shall grant to the Agent, for the benefit of the Lenders, a Lien on all
such property, subject to the Permitted Liens, upon the terms set forth in the
Security Documents, as appropriate, and satisfactory in form and substance to
the Agent; provided, however, that in the event (i) such real property is
-------- -------
encumbered with a purchase money mortgage permitted pursuant to Section 7.4(f)
--------------
hereof or any extensions, modifications and replacements thereof permitted
pursuant to Section 7.4(i), (ii) the holder of such Lien and the Agent have
--------------
entered into an intercreditor agreement reasonably satisfactory to the Agent
permitting the Agent access to such real property for a reasonable period of
time to the extent necessary to assemble, complete and sell any Collateral
located thereon (or, in the event an acceptable intercreditor agreement can not
be obtained, any such Collateral is excluded from the Borrowing Base calculation
hereunder) and (iii) no Event of Default shall have occurred and be continuing,
the Borrower shall not be required to grant the Agent a Lien on such real
property. The Borrower, at its own expense, shall execute, acknowledge and
deliver, or cause the execution, acknowledgement and delivery of, and thereafter
register, file or record in the appropriate governmental office, any document or
instrument reasonably deemed by the Agent to be necessary or desirable for the
creation and perfection of the foregoing Liens.
6.8 Corporate Existence. The Borrower (i) except as otherwise permitted
-------------------
pursuant to Section 7.5, shall maintain its corporate existence, shall maintain
-----------
in full force and effect all material licenses, bonds, franchise, leases,
qualifications to do business, trademarks, patents, contracts and other rights
necessary for the conduct of its businesses, (ii) shall continue in, and limit
its operations to, the same general lines of business as that presently
conducted by it and reasonable extensions thereof and (iii) shall comply with
all applicable laws and regulations of any federal, state or local governmental
authority, except in each case when noncompliance with the foregoing would not,
in the aggregate, have a Material Adverse Effect.
6.9 ERISA. The Borrower shall deliver to the Agent, at the Borrower's
-----
expense, the following information at the times specified below:
(a) within twenty (20) Business Days after the Borrower or any
ERISA Affiliate knows that a Termination Event has occurred which could
reasonably be expected to result in a liability to the Borrower of
$1,000,000 or more, a written statement of the chief financial officer of
the Borrower describing such Termination Event and the action, if any,
which the Borrower or any other entities have taken, are taking or propose
to take with
73
<PAGE>
respect thereto, and when known, any action taken or threatened by the
Internal Revenue Service, DOL or PBGC with respect thereto;
(b) within sixty (60) Business Days after the Borrower or any ERISA
Affiliate knows that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Internal Revenue Code) has occurred which could
reasonably be expected to result in a liability to the Borrower of
$1,000,000 or more, a statement of the chief financial officer of the
Borrower describing such transaction and the action which the Borrower or
other such entities have taken, are taking or propose to take with respect
thereto;
(c) at any time that Agent may reasonably request, copies of each
annual report (form 5500 series), including Schedule B thereto, filed with
respect to each Benefit Plan;
(d) at any time that Agent may reasonably request, copies of each
actuarial report for any Benefit Plan or Multiemployer Plan and each annual
report for any Multiemployer Plan;
(e) within three (3) Business Days after the filing thereof with
the Internal Revenue Service, a copy of each funding waiver request filed
with respect to any Benefit Plan with respect to any funding of $1,000,000
or more and all communications received by the Borrower or any ERISA
Affiliate with respect to such request;
(f) within twenty (20) Business Days upon the occurrence thereof,
notification of any increase in the benefits of any existing Plan or the
establishment of any new Plan or the commencement of contributions to any
Plan to which any Borrower or any ERISA Affiliate was not previously
contributing, in either case, which could reasonably be expected to result
in an increase in the annual contributions necessary to satisfy the minimum
funding requirements of ERISA or the terms of such Plan to any of the
Borrower of $1,000,000 or more;
(g) within three (3) Business Days after receipt by the Borrower or
any ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or
to have a trustee appointed to administer a Benefit Plan, in either case
which could reasonably be expected to result in a liability to the Borrower
of $1,000,000 or more, copies of each such notice;
(h) within ten (10) Business Days after receipt by the Borrower or
any ERISA Affiliate of any unfavorable determination letter from the
Internal Revenue Service regarding the qualification of a Plan under
Section 401(a) of the Internal Revenue Code which could reasonably be
expected to result in a liability to the Borrower of $1,000,000 or more,
copies of each such letter;
74
<PAGE>
(i) within ten (10) Business Days after receipt by the Borrower or
any ERISA Affiliate of a notice regarding the imposition of withdrawal
liability of $1,000,000 or more under Section 4203, 4204 or 4205 of ERISA,
copies of each such notice;
(j) within ten (10) Business Days after the Borrower or any ERISA
Affiliate fails to make a required installment or any other required
payment of $1,000,000 or more under Section 412 of the Internal Revenue
Code on or before the due date for such installment or payment, a
notification of such failure; and
(k) within ten (10) Business Days after the Borrower or any ERISA
Affiliate knows (a) a Multiemployer Plan has been terminated, (b) the
administrator or plan sponsor of a Multiemployer Plan intends to terminate
a Multiemployer Plan, or (c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan,
in any such case, which could reasonably be expected to result in a
liability to the Borrower of $1,000,000 or more, a written statement
setting forth any such event or information.
For purposes of this Section 6.9, the Borrower and any ERISA Affiliate
-----------
shall be deemed to know all facts known by the administrator of any Plan of
which such entity is the plan sponsor.
The Borrower shall establish, maintain and operate all Plans to comply with
the applicable provisions of ERISA, Internal Revenue Code, and all other
applicable laws, other than to the extent that the Borrower is in good faith
contesting by appropriate proceedings the validity or application of any such
provision or law, except to the extent failure to so comply could not reasonably
be expected to result in the Borrower incurring a liability, individually or in
the aggregate equal to or in excess of $2,500,000.
6.10 Environmental Matters.
---------------------
(a) The Borrower will use its best efforts to conduct its business
and the businesses of each of its Subsidiaries so as to comply with all
Environmental Laws in all jurisdictions in which any of them is or may at
any time be doing business, except to the extent that the Borrower or any
of its Subsidiaries are contesting, in good faith by appropriate legal
proceedings, any such Environmental Law or interpretation thereof or
application thereof and except where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect; provided,
--------
further, that the Borrower and each of its Subsidiaries shall comply with
-------
the order of any court or other governmental body or applicable
jurisdiction relating to such Environmental Laws unless the Borrower or
Subsidiary shall currently be prosecuting an appeal or proceedings for
review and shall have secured a stay of enforcement or execution or other
arrangement postponing enforcement or execution pending such appeal or
proceedings for review. If the Borrower
75
<PAGE>
or any Subsidiary of the Borrower shall (a) receive notice that any
violation of any Environmental Law may have been committed or is about to
be committed by the Borrower or any such Subsidiary, (b) receive notice
that any administrative or judicial complaint or order has been filed or is
about to be filed against the Borrower or any such Subsidiary alleging
violations of any Environmental Law or requiring the Borrower or any such
Subsidiary to take any action in connection with the release of Hazardous
Substances into the environment or (c) receive any notice from a federal,
state, or local governmental agency or private party alleging that the
Borrower or Subsidiary may be liable or responsible for costs associated
with a response to or cleanup of a release of a Hazardous Substance into
the environment or any damages caused thereby, the Borrower shall provide
the Agent with a copy of such notice within thirty (30) days after the
receipt thereof by the Borrower or such Subsidiary. The Borrower shall
promptly take all actions necessary to prevent the imposition of any Liens
on any of its properties or any of the properties of any of its
Subsidiaries arising out of or related to any environmental matters.
(b) In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any
kind or nature (the "Remedial Work") with respect to any real property
owned, operated or leased by the Borrower or any of its Subsidiaries is
required to be performed by the Borrower or any of the Subsidiaries under
any applicable local, state or federal law or regulation, any judicial
order, or by any governmental or nongovernmental entity or Person because
of, or in connection with, the current or future presence, suspected
presence, release or suspected release of a Hazardous Substance in or into
the air, soil, groundwater, surface water or soil vapor on, about, under or
within the Property (or any portion thereof), the Borrower or such
Subsidiary shall within 30 days after written demand for performance
thereof by the Agent (or such shorter period of time as may be required
under any applicable law, regulation, order or agreement), commence and
thereafter diligently prosecute to completion, all such Remedial Work
unless the requirement to perform such Remedial Work is being contested in
good faith by the Borrower and to the reasonable satisfaction of the Agent.
6.11 Collateral Records. The Borrower agrees to promptly execute and
------------------
deliver, and to cause each of its Subsidiaries to execute and deliver, to the
Agent, from time to time, solely for the Agent's convenience in maintaining a
record of the Collateral, such written statements and schedules as the Agent may
reasonably require, including without limitation those described in Section 6.1
-----------
of this Credit Agreement, designating, identifying or describing the Collateral
pledged to the Lenders hereunder. The Borrower's or any of its Subsidiaries'
failure, however, to promptly give the Agent such statements or schedules shall
not affect, diminish, modify or otherwise limit the Agent's security interests
in the Collateral. In addition, upon the Agent's reasonable request, the
Borrower will make available to the Agent copies of agreements with, or purchase
orders from, the customers of the Borrower and its Subsidiaries, and copies of
invoices to customers, proof of shipment or delivery and such other
documentation and information relating
76
<PAGE>
to said Collateral as the Agent may reasonably require. Failure to provide the
Agent with any of the foregoing shall in no way affect, diminish, modify or
otherwise limit the security interests granted herein. The Borrower hereby
authorizes the Agent to regard its or any of its Subsidiaries' printed name or
rubber stamp signature on assignment schedules or invoices as the equivalent of
a manual signature by such Person's authorized officers or agents.
6.12 Security Interests. The Borrower will defend the Collateral against
------------------
all claims and demands of all Persons at any time claiming the same or any
interest therein which claims or demands are in excess of $500,000 or otherwise
affect a material portion of the Collateral (provided, however, that the failure
-------- -------
to be successful in such defense shall only be an Event of Default hereunder to
the extent set forth in Section 10.1(g) below). The Borrower agrees to comply,
---------------
and to cause each of its Subsidiaries to comply, with the requirements of all
state and federal laws in order to grant to the Agent and the Lenders valid and
perfected first security interests in the Collateral (other than Collateral
located outside the United States and, except as required by the Security
Agreement, motor vehicles and other equipment covered by a certificate of title
statute), subject only to prior Liens permitted pursuant to Section 7.4(a),
--------------
Section 7.4(e), Section 7.4(f), Section 7.4(i) and Permitted Liens prior to the
- -------------- -------------- --------------
Agent's security interest by operation of law and other Liens permitted pursuant
to Section 7.4 hereof, and except to the extent the Agent's Lien in cash held by
-----------
the Borrower as petty cash or till cash in the ordinary course of its business
consistent with past practice shall not remain perfected. Without limiting the
generality of the foregoing, the Borrower shall promptly, upon the request of
any Lender, at the Borrower's expense, execute, acknowledge and deliver, or
cause the execution, acknowledgement and delivery of, and thereafter register,
file or record, or cause to be registered, filed or recorded, in an appropriate
governmental office, any document or instrument supplemental to or confirmatory
of the Ancillary Documents or otherwise deemed by the Agent necessary or
reasonably desirable for the continued validity, perfection and priority of the
Liens on the Collateral covered thereby to the extent required by the
immediately preceding sentence. The Agent is hereby authorized by the Borrower
to file any financing statements covering the Collateral whether or not the
Borrower's signatures appear thereon. The Borrower agrees to do, and to cause
each of its Subsidiaries to do, whatever the Agent may reasonably request, from
time to time, by way of: filing notices of liens, financing statements, fixture
filings and amendments, renewals and continuations thereof; cooperating with the
Agent's custodians; keeping stock records; using best efforts to obtain waivers
from landlords and mortgagees and from warehousemen, fillers, processors and
packers and their respective landlords and mortgagees; paying claims, which
might if unpaid, become a Lien on the Collateral; and performing such further
acts as the Agent may reasonably require in order to effect the purposes of this
Credit Agreement and the other Credit Documents. Any and all fees, costs and
expenses, of whatever kind and nature (including any Taxes, attorneys' fees or
costs for insurance of any kind), which the Agent may incur with respect to the
Collateral or the Obligations; in filing public notices; in preparing or filing
documents; making title examinations or rendering opinions; in protecting,
maintaining, or preserving the Collateral or its interest therein; in enforcing
or foreclosing the
77
<PAGE>
Liens hereunder, whether through judicial procedures or otherwise; or in
defending or prosecuting any actions or proceedings arising out of or relating
to its transactions with the Borrower or any of its Subsidiaries under this
Credit Agreement or any other Credit Document, shall be borne and paid by the
Borrower. If same are not promptly paid by the Borrower, the Agent may pay same
on the Borrower's behalf, and the amount thereof shall be an Obligation secured
hereby and due to the Agent on demand.
6.13 Taxes. The Borrower agrees to pay, when due, and to cause each of its
-----
Subsidiaries to pay when due, all Taxes lawfully levied or assessed against the
Borrower, any of its Subsidiaries or any of the Collateral; provided, however,
-------- -------
that, unless such Taxes have become a federal tax or ERISA Lien on any of the
assets of such Person, no such Tax need be paid if the same is being contested,
in good faith, by appropriate proceedings promptly instituted and diligently
conducted and if an adequate reserve or other appropriate provision shall have
been made therefor as reflected on the audited financial statements for the
fiscal year ended December 28, 1996 in accordance with GAAP, and, to the extent
such reserves shall be taken thereafter, consistent with the Borrower's past
practice.
6.14 Use of Proceeds. The initial advances made to the Borrower under this
---------------
Credit Agreement shall be used by the Borrower to repay certain indebtedness, to
pay the costs and expenses contemplated hereby which are due and payable on the
Closing Date, including without limitation the Fees and Expenses pursuant to
Article 8 hereof, and for working capital and general corporate purposes of the
- ---------
Borrower; and the proceeds of any subsequent advances made hereunder shall be
used by the Borrower solely for working capital and general corporate purposes.
In addition, Borrower shall not use any portion of the proceeds of any Loans for
the purpose of purchasing or carrying any "margin stock" (as defined in
Regulation G of the Board of Governors of the Federal Reserve System) or for any
other purpose which violates the provisions of Regulation G, U or X of said
Board of Governors or for any other purpose in violation of any applicable
statute or regulation, or of the terms and conditions of this Credit Agreement.
The Borrower shall use the proceeds of each Acceptance solely to reimburse the
Issuing Bank of each Acceptance Letter of Credit for obligations owing to such
Issuing Bank on account of drawings thereunder.
6.15 Collection of Accounts. Unless an Event of Default has occurred and
----------------------
shall not have been waived, the Borrower may and will enforce and collect in
accordance with its credit and collection policy, all amounts owing on the
Accounts, for the Lenders' benefit and on the Lenders' behalf, but at the
Borrower's expense in accordance with the provisions of Section 8.5 hereof; such
-----------
privilege shall terminate automatically, however, upon the occurrence and during
the continuance of any Event of Default after notice from the Agent. Any
checks, cash, notes or other instruments or property received by the Borrower or
any Subsidiary with respect to any Accounts shall be immediately deposited into
the collection and concentration accounts maintained pursuant
78
<PAGE>
to Section 3.6 hereof. No checks, drafts or other instruments received by the
-----------
Agent shall constitute final payment unless and until such instruments have
actually been collected.
6.16 Notice; Credit Memoranda; and Returned Goods. The Borrower agrees to
--------------------------------------------
issue credit memos promptly (with copies made available to the Agent upon its
request) upon accepting returns or granting allowances, and may continue to do
so until after the occurrence and during the continuance of an Event of Default
and notice from the Agent. After the occurrence and during the continuance of
an Event of Default and notice from the Agent, the Borrower agrees that all
returned, reclaimed or repossessed merchandise or goods shall be set aside by
the Borrower, marked with the Agent's and the Lenders' name and held by the
Borrower for the Agent's and the Lenders' account as owner and assignee.
6.17 Trademarks. The Borrower shall do and cause to be done all things
----------
necessary to preserve and keep in full force and effect all registrations of
trademarks, service marks and other marks, trade names or other trade rights
unless any of the foregoing is no longer in use or is of immaterial value.
Promptly after obtaining any federal registration of any trademark, trade name
or other trade right or the filing of any application therefor, the Borrower
shall deliver to the Agent for the benefit of the Lenders an undated Trademark
Security Agreement, executed in blank, with respect to each such registration
and application.
6.18 Patents. The Borrower shall do and cause to be done all things
-------
necessary to preserve and keep in full force and effect all patents and patent
applications unless any of the foregoing is no longer in use or of immaterial
value. Promptly after obtaining any federal registration of any patent or the
filing of any application therefor, the Borrower shall deliver to the Agent for
the benefit of the Lenders an undated Patent Security Agreement, executed in
blank, with respect to each such registration or application.
ARTICLE 7
---------
Negative Covenants and Financial Covenants
------------------------------------------
Until termination of the Commitments and payment and satisfaction of all
Obligations due hereunder (other than Letter of Credit Obligations with respect
to Letters of Credit expiring after the Expiration Date which have been cash
collateralized pursuant to Section 4.1), the Borrower agrees that, unless the
-----------
Agent shall have certified to the Borrower that the Required Lenders shall have
otherwise consented in writing:
79
<PAGE>
7.1 Debt and Guarantees.
-------------------
The Borrower shall not create, incur, assume or permit to be
outstanding any Debt of Borrower (excluding in any event, for purposes of
this Section 7.1, any Debt of Foreign Subsidiaries) other than:
-----------
(i) Debt incurred pursuant to this Credit Agreement;
(ii) Debt outstanding on the Closing Date and identified on
Schedule D;
----------
(iii) [INTENTIONALLY OMITTED]
(iv) Debt consisting of Guarantees of the Debt of any Foreign
Subsidiaries;
(v) Funded Debt secured by Borrower's headquarters facility
located at One Fordham Road, North Reading, Massachusetts,
so long as the terms and conditions thereof are commercially
reasonable; Agent hereby agrees to provide all necessary
releases of Liens necessary to effect any such financing;
(vi) Any other Funded Debt not described in clauses (i) through
(v) above (the "Additional Permitted Debt") which, when
aggregated with the Funded Debt of Borrower under clauses
(i), (ii) and (v) above then outstanding, shall not exceed
the sum of $225,000,000;
(vii) Debt created in connection with the refinancing of any
Debt permitted under clauses (i) through (iii) and clauses
----------- ----- -------
(v) and (vi) above in an amount not greater than the amount
--- ----
required to pay the Debt so refinanced, provided such Debt
shall contain terms substantially equivalent to (or more
favorable to the Borrower than) the terms of the Debt being
refinanced; provided, that, any such Debt created to
-------- ----
refinance any Debt subordinated to the Obligations (or any
part thereof) shall be expressly subordinated to the
Obligations and contain subordination terms and such other
terms and conditions which, in each case in the opinion of
the Agent, are substantially equivalent (or more favorable
to
80
<PAGE>
the Agent and the Lenders) to those contained in the Debt
being refinanced. Any Debt originally permitted under
clause (vi) above which is subsequently refinanced as
permitted by this clause (vii) will constitute usage of the
dollar amount limitations provided in such clause and, will,
but only to the extent and in the amounts outstanding,
reduce the amounts otherwise permitted thereunder; and
(viii) To the extent that any Subsidiary shall become a Borrower
pursuant to Section 7.18(ii) hereof, Debt of any Borrower to
----------------
any other Borrower.
7.2 Restricted Payments. The Borrower will not, directly or indirectly,
-------------------
(i) except with (a) unused Unrestricted Proceeds, and (b) cumulative unused
Excess Consolidated Net Income and so long as no Default or Event of Default
shall have occurred and be continuing, declare or pay any dividend or make any
distribution on its capital stock or to the holders of its capital stock (other
than (x) dividends or distributions payable in its capital stock or rights to
acquire its capital stock and (y) so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, cash dividends
on preferred stock), (ii) except with (a) unused Unrestricted Proceeds and (b)
cumulative unused Excess Consolidated Net Income and so long as no Default or
Event of Default shall have occurred and be continuing, redeem, repurchase or
otherwise acquire or retire for value, or permit any Subsidiary (other than a
Foreign Subsidiary) to, directly or indirectly, redeem, purchase or otherwise
acquire or retire for value, any such capital stock (except shares acquired upon
the conversion thereof into other shares of capital stock or rights to acquire
such capital stock, odd lot shares, and except for the repurchase or acquisition
of such capital stock held by directors, officers or employees of the Borrower
or any domestic Subsidiary upon death, disability, retirement or termination of
employment not to exceed $1,500,000 in the aggregate in any fiscal year) or
rights to acquire such capital stock or (iii) except with (a) unused
Unrestricted Proceeds, and (b) cumulative unused Excess Consolidated Net Income,
so long as no Default or Event of Default shall have occurred and be continuing,
redeem, repurchase, defease or otherwise acquire or retire for value, or permit
any Subsidiary (other than a Foreign Subsidiary) to, directly or indirectly,
redeem, repurchase, defease or otherwise acquire or retire for value, prior to
any scheduled or mandatory maturity, scheduled or mandatory repayment or
scheduled sinking fund payment (after giving effect to the exercise of any and
all unconditional (other than as to the giving of notice) options to extend the
maturity), Debt of the Borrower or any of such Subsidiaries (other than Debt
pursuant to this Credit Agreement and the refinancing of Debt permitted by
Section 7.1 (vii) hereof); provided, however that so long as any of the
- -----------------
Obligations remain outstanding hereunder neither Borrower nor any Subsidiary
shall be permitted to, directly or indirectly, redeem, repurchase, defease or
otherwise acquire or retire for value, any of the Subordinated Notes.
81
<PAGE>
7.3 Investments. The Borrower will not, and will not permit any of its
-----------
Subsidiaries (other than Foreign Subsidiaries) to, make or acquire any
Investment in any Person other than:
(a) Investments in Subsidiaries existing on the Closing Date and
disclosed on Schedule D and Investments in Subsidiaries in the form of
loans and advances permitted under Section 7.1(viii) hereof;
-----------------
(b) Permitted Investments;
(c) Investments consisting of purchase money notes received in
connection with the sale or disposition of any asset, provided such sale or
disposition was made in accordance with the terms of this Credit Agreement;
(d) Financial support permitted pursuant to Section 7.9 hereof; and
-----------
(e) Investments in new Subsidiaries, including new Foreign
Subsidiaries created after the date hereof, in an aggregate amount not to
exceed, at any one time, the sum of (i) $7,000,000 plus, without
duplication, (ii) unused Unrestricted Proceeds, and (iii) unused Excess
Consolidated Net Income.
7.4 Negative Pledge. Neither the Borrower nor any Subsidiary (other than a
---------------
Foreign Subsidiary) will create, assume or suffer to exist any Lien on any asset
now owned or hereafter acquired by it, except:
(a) Liens existing on the Closing Date and listed in Schedule D hereto
----------
securing Debt outstanding on the Effective Date;
(b) any Lien arising pursuant to any order of attachment, distraint or
similar legal process arising in connection with court proceedings so long
as the execution or other enforcement thereof is effectively stayed and the
claims secured thereby are being contested in good faith by appropriate
proceedings and adequate reserves in accordance with GAAP have been set
aside;
(c) any Lien on an asset of a Subsidiary, securing Debt owed to the
Borrower;
(d) Liens created by and existing under the Ancillary Documents;
(e) Liens securing Debt incurred pursuant to Section 7.1(v);
--------------
(f) Liens securing Debt incurred pursuant to Section 7.1(vi) incurred
---------------
or assumed, in either case, for the purpose of financing all or any part of
the cost of acquiring
82
<PAGE>
an asset (other than Inventory), provided that such Lien attaches only to
-------- ----
such asset and attaches concurrently with or within 90 days after the
acquisition thereof;
(g) [INTENTIONALLY OMITTED];
(h) any Permitted Liens; and
(i) any extension, renewal or substitution of or for any of the
foregoing Liens described in clauses (a), (e), (f), and (h) above or this
clause (i); provided in each case that (i) the Debt or other obligation or
--------
liability secured by the applicable Lien shall not exceed the Debt or other
obligation or liability existing immediately prior to such extension,
renewal or substitution and (ii) the Lien securing such Debt or other
obligation or liability shall be limited to the property which, immediately
prior to such extension, renewal or substitution, secured such Debt or
other obligation or liability, and improvements on or additions to such
property.
7.5 Consolidations, Mergers and Sales of Assets.
-------------------------------------------
(a) The Borrower may sell, convey, lease or otherwise transfer, or
cause or permit to be sold, conveyed, leased or otherwise transferred,
directly or indirectly, in whole or in part, any assets, including (i)
Inventory in the ordinary course of business, (ii) surplus, obsolete or
worn out property disposed of in the ordinary course of business (iii)
Accounts supported by letters of credit discounted on a commercially
reasonable basis, (iv) Cash Equivalents in the ordinary course of business,
(v) fixed assets valued at up to $100,000 per year for less than fair
consideration, and (vi) other assets, provided that (a) such dispositions
of other assets under clause (vi) shall be for fair value and (b) the Net
Cash Proceeds thereof shall be used to repay the Loans. The Borrower will
not, however, sell, convey, lease or otherwise transfer, or cause or permit
to be sold, conveyed, leased or otherwise transferred, directly or
indirectly, in whole or in part, any assets, other than Inventory in the
ordinary course of business, if by reason of, or after giving effect to
such transaction, (i) the Borrowing Base limitations under Section 3.2
-----------
hereof shall not be complied with, or (ii) at such time as there shall be
an Event of Default hereunder or if either by reason of, or after giving
effect to such transaction a Default or an Event of Default (including
failure to make payments required by Section 3.5(c)) shall exist.
--------------
(b) The Borrower shall continue to maintain the operating integrity of
its business and shall continue to operate only in the same general types
of businesses as now conducted thereby and reasonable extensions thereof,
and shall continue to preserve, renew and keep in full force and effect,
its corporate existence and all material rights, privileges and franchises
necessary or desirable in the normal conduct of its business, provided,
--------
however, that asset sales, mergers, consolidations and liquidations shall
-------
be allowed as
83
<PAGE>
permitted under Sections 7.5(a) and (c) (so long as such Borrower shall
---------------
continue to be operated only in the same general types of businesses as now
conducted and reasonable extensions thereof).
(c) The Borrower will not and will not permit any Subsidiary (except
as otherwise permitted herein and excluding, in any case, a Foreign
Subsidiary) to consolidate or merge with or into any other Person, provided
--------
that (i) the Borrower may merge with or into another Subsidiary if the
----
Borrower is the corporation surviving such merger, (ii) any Subsidiary may
merge with or into any other Person provided that (x) following the merger
-------- ----
the surviving corporation shall be a wholly-owned Subsidiary of the
Borrower engaged in the same or similar general type of business as
conducted by such Subsidiary prior to such merger, (y) if such Person shall
be the corporation surviving such merger, and such Person is required by
Section 7.18 hereof to become a Borrower, such person executes an
------------
Assumption Agreement in form and substance reasonably acceptable to the
Agent whereby such Person becomes a co-obligor on the Obligations and a
Borrower hereunder and the Agent holds a perfected Lien on its assets
(including a first priority Lien on its Accounts and Inventory), and (z)
prior to completing the merger the Agent receives such Acknowledgement
Agreements as the Agent may reasonably request from any mortgagee or lessor
of property on which any Collateral is stored or otherwise located or any
warehouseman, filler, processor or packer at which any Collateral is stored
or otherwise located, and (iii) any Subsidiary may liquidate and transfer
substantially all its assets to, or consolidate with, or merge into, the
Borrower (so long as the provisions of Section 7.5(b) shall be observed);
--------------
and provided further, however, that no such consolidations or mergers may
-------- -------
be done at such time as there shall be an Event of Default hereunder or if
either by reason of, or after giving effect to such transaction there would
be a Default or an Event of Default. In the event of any such permitted
consolidation or merger, the Agent shall be given at least (i) ten (10)
Business Days' advance notice for any consolidation or merger of the
Borrower into any other Person and (ii) notice within five (5) Business
Days of any other consolidation or merger, and the Borrower shall, in
connection with any such consolidation or merger, execute, record and file
such instruments and certificates, if any, as may be necessary to continue
the perfection and relative priorities of the Liens of the Agent and the
Lenders in the Collateral (including the assets being acquired by the
Borrower by virtue of such merger). In addition, the assets of any
Subsidiary becoming a Borrower under Section 7.18 hereof may be disposed of
------------
through a merger or consolidation of such Subsidiary with and into another
Person that is not an Affiliate of such Subsidiary or by a sale of 100% of
the capital stock of any such Subsidiary to another such Person, if, and
only if the disposition of assets resulting from such merger, consolidation
or stock sale, if completed as an asset sale, would be permitted pursuant
to Section 7.5(a) hereof, including, to the extent applicable, compliance
--------------
with the requirements for a permitted asset sale set forth therein.
84
<PAGE>
(d) Subject to any other applicable provision of this Credit
Agreement, the Borrower will not and will not permit any Subsidiary to
purchase or otherwise acquire all or substantially all of the assets of any
Person or all or substantially all of the capital stock or other ownership
interests of any Person if at such time there shall be an Event of Default
hereunder or if either by reason of, or after giving effect to, any such
transaction there would be a Default or Event of Default.
7.6 Capital Expenditures. Consolidated Capital Expenditures shall not,
--------------------
for any fiscal year of the Borrower, exceed $11,000,000, subject to the
additional provisions of this Section 7.6. To the extent Consolidated Capital
------------
Expenditures in any fiscal year are less than the maximum permitted amount of
Consolidated Capital Expenditures determined pursuant to this Section 7.6 for
-----------
such fiscal year, the amount of such difference may be carried forward and used
to determine the maximum permitted amount of Consolidated Capital Expenditures
in succeeding fiscal years of the Borrower, provided that the maximum amount
-------- ----
carried forward to any fiscal year pursuant hereto shall not exceed an amount
equal to 50% of the amount of the maximum Consolidated Capital Expenditures so
determined for the immediately preceding fiscal year.
As an addition to the maximum permissible amounts of Consolidated Capital
Expenditures for each fiscal year as set forth above, the Borrower and its
Consolidated Subsidiaries may incur additional Consolidated Capital Expenditures
out of any Insurance Proceeds, unused Unrestricted Proceeds, and unused Excess
Consolidated Net Income from the preceding fiscal year. The Borrower may also
incur additional Consolidated Capital Expenditures not to exceed the aggregate
amount of $2,500,000 during the term hereof for or in connection with costs of
compliance or remediation measures relating to Environmental Laws.
7.7 Interest Coverage Ratio. Borrower shall not permit the ratio of
-----------------------
EBITDA to Consolidated Interest Expense to be less than 1.6 to 1 during the term
hereof. Borrower's compliance with this Section 7.7 shall be tested at the end
-----------
of the fiscal quarter ending September 1997 for the immediately preceding three
(3) fiscal quarters, and at the end of each fiscal quarter thereafter for the
immediately preceding four (4) fiscal quarters.
7.8 Transactions with Affiliates. The Borrower will not, and will not
----------------------------
permit any of its Subsidiaries to, directly or indirectly, pay any funds to or
for the account of, make any Investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect any other transaction
with, or render to or receive any service from, any Affiliate provided, however,
-------- -------
that the foregoing provisions of this Section 7.8 shall not prohibit, (a) the
-----------
Borrower or any Subsidiary from making sales to or purchases from any Affiliate
and, in connection therewith, extending credit or making payments, or from
making payments for services rendered by any Affiliate, or from effecting any
other transactions with an
85
<PAGE>
Affiliate, if such sales or purchases are made or such services are rendered, or
such other transactions are effected, on terms and conditions at least as
favorable and reasonable to the Borrower or such Subsidiary as the terms and
conditions which would apply in a similar transaction on an arm's length basis
with a Person not an Affiliate and will not have a material adverse effect on
the Collateral taken as a whole or the Accounts and Inventory, (b) the
preparation and filing of one or more registration statements with respect to
securities of the Borrower owned by Interco or Apollo or a Controlled Account or
an Affiliate of Apollo or of a Controlled Account, and the payment of reasonable
expenses associated therewith other than underwriting discounts and commissions
so long as no Default or Event of Default shall have occurred and be continuing,
(c) the Borrower or any Subsidiary from participating in, or effecting, any
other transaction in connection with, any joint enterprise or other joint
arrangement with, any Affiliate if the Borrower or such Subsidiary participates
on a basis no less advantageous than the basis on which such Affiliate
participates on terms and conditions which would apply in a similar transaction
on an arm's length basis with a Person not an Affiliate, (d) payment of fees in
the aggregate amount not to exceed $1,000,000 to Apollo, a Controlled Account,
an Affiliate of Apollo or of a Controlled Account and Interco in any fiscal year
in respect of services rendered provided such fees are approved by the Board of
Directors of the Borrower and no Default or Event of Default shall have occurred
and be continuing on the date of such payment or occasioned thereby; and (e)
payments due to Interco with respect to the Tax Sharing Agreement dated as of
November 17, 1994, so long as no Default or Event of Default shall have occurred
and be continuing on the date of such payment or occasioned thereby. For
purposes of this Section 7.8, the term "Affiliate" shall not include
-----------
Subsidiaries of the Borrower.
The foregoing restrictions shall not apply to reasonable fees paid to and
indemnity provided on behalf of the Directors and officers of the Borrower or
any of its Subsidiaries in the ordinary course of business and consistent with
past practices.
7.9 Restrictions on Foreign Subsidiary Support. The Borrower will not
------------------------------------------
permit to exist any open account sales, transfers by the Borrower of goods of
any kind, or any other financial support, to any Foreign Subsidiary, if, when
aggregated with the then outstanding open account sales, transfers of goods, or
other financial support by the Borrower to all Foreign Subsidiaries, the fair
value thereof, as reasonably determined by the Borrower and reasonably approved
by the Agent, would exceed $110,000,000 at any one time.
7.10 Environmental Matters. The Borrower, will not, and will not permit
---------------------
any of the Subsidiaries to, use, generate, manufacture, produce, store, release,
discharge or dispose of, on, under or about any real property owned, operated or
leased by the Borrower or any of its Subsidiaries, or transport to or from any
such property, any Hazardous Substance, or (to the extent within the Borrower's
or any such Subsidiary's control) permit any other person to do so, where such
could reasonably be expected to have a Material Adverse Effect.
86
<PAGE>
7.11 [INTENTIONALLY OMITTED].
7.12 [INTENTIONALLY OMITTED]
7.13 [INTENTIONALLY OMITTED]
7.14 [INTENTIONALLY OMITTED]
7.15 Amendments to Certificates of Incorporation and By-Laws. The Borrower
-------------------------------------------------------
shall not, nor shall it permit any of its Subsidiaries to, alter or modify their
respective Articles or Certificate of Incorporation or By-Laws in any manner
which could reasonably be expected to have a Material Adverse Effect. The
Borrower shall not change its corporate name, mailing address, principal place
of business or structure, unless it shall have complied with the requirements of
Section 6.5 hereof.
- -----------
7.16 No Prohibited Transactions Under ERISA. The Borrower shall not do any
--------------------------------------
of the following if such action could reasonably be expected to result in the
Borrower incurring a liability, individually or in the aggregate equal to or in
excess of $2,500,000:
(a) Engage, or permit any ERISA Affiliate to engage, in any prohibited
transaction which could result in a civil penalty or excise tax described
in Sections 502(i) of ERISA or 4975 of the Internal Revenue Code for which
a statutory or class exemption is not available or a private exemption has
not been previously obtained from the DOL;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the
Internal Revenue Code), whether or not waived;
(c) fail, or permit any ERISA Affiliate to fail, to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any ERISA Affiliate to terminate, any Benefit
Plan;
(e) fail, or permit any ERISA Affiliate to fail, to make any required
contribution or payment to any Multiemployer Plan;
(f) fail, or permit any ERISA Affiliate to fail, to pay any required
installment or any other payment required under Section 412 of the Internal
Revenue Code on or before the due date for such installment or other
payment;
87
<PAGE>
(g) amend, or permit any ERISA Affiliate to amend, a Benefit Plan
resulting in an increase in current liability for the plan year such that
any Borrower or any ERISA Affiliate is required to provide security to such
Plan under Section 401(a)(29) of the Internal Revenue Code; or
(h) withdraw, or permit any ERISA Affiliate to withdraw, from any
Multiemployer Plan.
7.17 No Additional Bank Accounts. The Borrower will not, and shall not
---------------------------
permit any of its domestic Subsidiaries to, directly or indirectly, open,
maintain or otherwise have any checking, savings or other accounts at any bank
or other financial institution, or any other account where money is or may be
deposited or maintained with any Person, other than the Loan Disbursement
Account and the accounts set forth on Schedule D, except to the extent the
Borrower shall give the Agent prior written notice thereof.
7.18 No Additional Subsidiaries. The Borrower will not, and shall
--------------------------
not permit any of its Subsidiaries (other than Foreign Subsidiaries) to,
directly or indirectly, form or acquire any new Subsidiaries, including Foreign
Subsidiaries, unless, and subject to the limitations of Section 7.3 hereof, (i)
-----------
with respect to Foreign Subsidiaries, the capital stock thereof owned by the
Borrower shall be pledged as part of the Collateral except in the case of
Foreign Subsidiaries constituting "Controlled Foreign Corporations" as
referenced in Section 5.13(c) hereof, in which case Borrower shall not be
required to pledge hereunder or under the other Credit Documents more than 65%
of the total combined voting power of all classes of capital stock of such
Foreign Subsidiary entitled to vote, and (ii) with respect to all other
Subsidiaries, the capital stock thereof shall be pledged as part of the
Collateral and to the extent the Investment of the Borrower shall exceed
$500,000, such newly-formed Subsidiary shall execute an Assumption Agreement in
form and substance similar to that attached hereto and make a part hereof as
Exhibit B pursuant to which such Subsidiary shall become a co-obligor of the
Revolving Notes and a Borrower hereunder and shall pledge its assets to secure
the Obligations.
7.19 [INTENTIONALLY OMITTED]
ARTICLE 8
---------
Interest, Fees and Expenses
---------------------------
8.1 Interest on LIBOR Rate Loans. Subject to the provisions of Section
---------------------------- -------
8.4 hereof, interest on LIBOR Rate Loans shall be payable at the end of each
- ---
applicable Interest Period with respect to such LIBOR Rate Loan (or, in the case
of Interest Periods in excess of three months,
on the ninetieth (90th) and the last day of such Interest Period), at the date
of Conversion of such LIBOR Rate Loan (or a portion thereof) to a Prime Rate
Loan and at maturity of such LIBOR Rate
88
<PAGE>
Loan at an interest rate per annum equal during the Interest Period for such
LIBOR Rate Loan to the Adjusted LIBOR Rate for the Interest Period in effect for
such LIBOR Rate Loan plus the LIBOR Rate Margin. The Agent upon determining the
----
Adjusted LIBOR Rate for any Interest Period shall promptly notify the Borrower
and the Lenders by telephone (confirmed promptly in writing) or in writing
thereof. Each determination by the Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
8.2 Interest on Prime Rate Loans. Subject to the provisions of Section
---------------------------- -------
8.4 hereof, interest on Prime Rate Loans shall be payable monthly in arrears as
- ---
of the end of each month at an interest rate per annum equal to the Prime
Lending Rate plus one percent (1.00%). In the event of any change in said Prime
----
Lending Rate, the rate hereunder shall change, effective as of the day the Prime
Lending Rate changes. The rate hereunder shall be calculated based on a 360-day
year for the actual number of days elapsed.
8.3 Notice of Rollover and Notice of Conversion.
-------------------------------------------
(a) With respect to any borrowing consisting of LIBOR Rate Loans, the
Borrower may, subject to the provisions of Section 8.3(c) and provided that
--------------
no Default or Event of Default has occurred and is continuing, elect to
maintain such borrowing or any portion thereof as consisting of LIBOR Rate
Loans by selecting a new Interest Period for such borrowing, which new
Interest Period shall commence on the last day of the immediately preceding
Interest Period. Each selection of a new Interest Period (a "Rollover")
shall constitute a borrowing and shall be made by notice given not later
than 12:00 p.m. (New York time) on the third Business Day prior to the date
of any such Rollover relating to LIBOR Rate Loans, by the Borrower to the
Agent. Such notice by the Borrower of a Rollover (a "Notice of Rollover")
shall be by telephone, telecopy, telex or cable, confirmed immediately in
writing if by telephone, in substantially the form of Exhibit O hereto,
specifying (i) the date of such Rollover, (ii) the Type of Loans subject to
such Rollover, (iii) the aggregate amount of Loans subject to such Rollover
and (iv) the duration of the selected Interest Period, all of which shall
be specified in such manner as is necessary to comply with all limitations
on Loans outstanding hereunder. The Borrower may elect to maintain more
than one borrowing consisting of LIBOR Rate Loans by combining such
borrowings into one borrowing and selecting a new Interest Period pursuant
to this Section 8.3(a); provided, however, that each of the borrowings so
-------------- -------- -------
combined shall consist of Loans having Interest Periods ending on the same
date. If the Borrower shall fail to select a new Interest Period for any
borrowing consisting of LIBOR Rate Loans in accordance with this Section
-------
8.3(a), or if at the end of any applicable Interest Period a Default or
------
Event of Default shall exist, the Agent will forthwith so notify the
Borrower and the Lenders, and such Loans will automatically, on the last
day of the then existing Interest Period therefor, convert into Prime Rate
Loans.
89
<PAGE>
(b) The Borrower may on any Business Day (provided that no Default or
Event of Default has occurred and is continuing), upon notice (each such
notice, a "Notice of Conversion") given by the Borrower to the Agent, and
subject to the provisions of Section 8.3(c), convert the entire amount of
--------------
or a portion of all Loans of one Type comprising the same borrowing into
Loans of another Type; provided, however, that any conversion of any LIBOR
-------- -------
Rate Loans into Loans of another Type shall be made on, and only on, the
last day of an Interest Period for such LIBOR Rate Loans and, upon
conversion of any Prime Rate Loans into Loans of another Type, the Borrower
shall pay accrued interest to the date of conversions on the principal
amount converted. Each such Notice of Conversion shall be given not later
than 12:00 p.m. (New York time) on the Business Day prior to the date of
any proposed conversion into Prime Rate Loans and on the third Business Day
prior to the date of any proposed Conversion into LIBOR Rate Loans.
Subject to the restrictions specified above, each Notice of Conversion
shall be by telephone, telecopy, telex or cable confirmed immediately in
writing if by telephone in substantially the form of Exhibit P hereto
specifying (i) the requested date of such Conversion, (ii) the Type of
Loans to be converted, (iii) the portion of such Type of Loan to be
converted, (iv) the Type of Loan such Loans are to be converted into and
(v) if such Conversion is into LIBOR Rate Loans, the duration of the
Interest Period of such Loan. Each Conversion shall be in an aggregate
amount for the Loans of all Lenders of not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof. The Borrower may elect
to convert the entire amount of or a portion of all Loans of one Type
comprising more than one borrowing into Loans of another Type by combining
such borrowings into one borrowing consisting of Loans of another Type;
provided, however, that if the borrowings so combined consist of LIBOR Rate
-------- -------
Loans, such Loans shall have Interest Periods ending on the same date.
(c) Anything in subsections (a) and (b) above to the contrary,
(i) if the Agent is unable to determine the LIBOR Rate for LIBOR
Rate Loans comprising any requested borrowing, Rollover or
Conversion, the right of the Borrower to select or maintain
LIBOR Rate Loans for such borrowing or any subsequent
borrowing shall be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such
suspension no longer exists, and each Loan comprising such
borrowing shall be a Loan of a Type that is unaffected by such
circumstances, as selected by the Borrower pursuant to this
Credit Agreement;
(ii) if (A) any Lender shall notify the Agent that it has
determined that maintenance of one or more LIBOR Rate
90
<PAGE>
Loans would violate any applicable law, rule, regulation or
directive, whether or not having the force of law, or (B) the
Required Lenders shall, at least one Business Day before the
date of any requested borrowing, Rollover or Conversion,
notify the Agent that deposits of a type and maturity
appropriate to match fund any borrowing of LIBOR Loans are not
available, then the right of the Borrower to select LIBOR Rate
Loans for such borrowing shall be suspended until the Agent
shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist, and
each Loan comprising such borrowing shall be a Loan of a Type
that is unaffected by such circumstances, as selected by the
Borrower pursuant to this Credit Agreement. The Agent shall
give the Borrower notice when the circumstances causing such
suspension no longer exist; and
(iii) the Borrower may not choose LIBOR Rate Loans for any
borrowing, Rollover or Conversion before the ninetieth (90th)
day following the Initial Credit Event without the Agent's
consent (which consent shall not require the approval of the
Required Lenders).
(d) The Agent shall give to each Lender prompt notice of any Notice of
Rollover or Notice of Conversion by telecopy, telex or cable. Each Notice
of Rollover and Notice of Conversion shall be irrevocable by and binding on
the Borrower. In the case of any borrowing, Rollover or Conversion that
the related Notice of Borrowing, Notice of Rollover or Notice of Conversion
specifies is to be comprised of LIBOR Rate Loans, the Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill, on or before the date for
such borrowing, Rollover or Conversion specified in such Notice of
Borrowing, Notice of Rollover or Notice of Conversion, the applicable
conditions set forth in Article 2, including, without limitation, any loss
---------
(including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or re-employment of deposits or other funds acquired by
such Lender to fund the Loan to be made by such Lender as part of such
borrowing, Rollover or Conversion.
8.4 Interest After Event of Default. Interest on any amount of matured
-------------------------------
principal under the Loans, and interest on the amount of principal under the
Loans outstanding as of the date an Event of Default specified in Section
-------
10.1(a) hereof occurs or following the date written notice to the Borrower of
- -------
the occurrence of any other Event of Default is received by the Borrower, and at
all times thereafter until the earlier of the date upon which (i) all
Obligations have been paid and
91
<PAGE>
satisfied in full or (ii) such Event of Default shall have been waived, shall be
payable on demand at a rate equal to the rate at which the Loans are bearing
interest pursuant to Section 8.1 or Section 8.2 above, as applicable, plus two
----------- ----------- ----
percent (2%). In the event of any change in said applicable interest rate, the
rate hereunder shall change, effective as of the day the applicable interest
rate changes, so as to remain two (2%) percent above the then applicable
interest rate. The rate hereunder shall be calculated based on a 360-day year
for the actual number of days elapsed.
8.5 Reimbursement of Expenses.
-------------------------
(a) On the Closing Date, the Borrower shall reimburse the Agent for
all Expenses incurred by the Agent on or prior to the Closing Date. From
and after the Closing Date, the Borrower shall promptly reimburse the Agent
for all Expenses of the Agent as the same are incurred by the Agent and
upon receipt of invoices therefor and, if requested by the Borrower, such
reasonable backup materials and information as the Borrower shall
reasonably request. In addition, the Borrower shall reimburse the Agent,
any Issuing Bank, any Foreign Exchange Guarantor, any Accepting Bank and
each Lender upon demand for all costs and expenses (including, without
limitation, reasonable attorneys' fees) of each of the Lenders in
connection with (i) the enforcement (whether through negotiations, legal
proceedings or otherwise) of this Credit Agreement and the other Credit
Documents and (ii) any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain
the Agent, any Issuing Bank and the Lenders, or any of them, from paying
any amount under any Letter of Credit.
(b) If any payment of principal of, or Conversion or Rollover of, any
LIBOR Rate Loan is made other than on the last day of the Interest Period
for such Loan as a result of a payment, prepayment, Conversion or Rollover
of such Loan or acceleration of the maturity of the Notes pursuant to
Article 10 hereof or for any other reason, the Borrower shall, upon demand
----------
by any Lender (with a copy of such demand to the Agent), pay to the Agent
for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses which it may reasonably
incur as a result of such payment, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by
any Lender to fund or maintain such Loan.
8.6 [INTENTIONALLY OMITTED].
8.7 Unused Line Fee. The Borrower shall pay to the Agent for the account
---------------
of the Lenders an unused line fee (the "Unused Line Fee") in an amount equal to
fifty hundredths of one percent (.50%) per annum on the average unused portion
of the Total Commitments, accruing
92
<PAGE>
from the first day after the Closing Date and calculated on the basis of a 360-
day year for the actual number of days elapsed. The Unused Line Fee shall be
payable monthly in arrears on the last Business Day of each month after the
Closing Date and on the Expiration Date. For purposes of calculating the Unused
Line Fee, the aggregate amount of the then outstanding (i) Revolving Loans, (ii)
Letter of Credit Obligations, (iii) Foreign Exchange Obligations, and (iv)
Acceptance Obligations shall constitute usage.
8.8 Letter of Credit Fees; Foreign Exchange Fees.
--------------------------------------------
(a) The Borrower agrees to pay to the Agent for the account of the
Lenders in the case of each Letter of Credit, a Letter of Credit fee (the
"Letter of Credit Fees") (i) based on the undrawn and outstanding face
amount of any such documentary or commercial Letter of Credit at a rate per
annum equal to 1.25% and (ii) based on the undrawn and outstanding face
amount of any such standby Letter of Credit at a rate per annum determined
in accordance with Section 8.8(g) hereof, in all cases calculated on the
--------------
basis of a 360-day year for the actual number of days elapsed. In
addition, the Borrower agrees to pay to the Agent for the account of the
Agent a facing fee equal to .5% on the initial face amount of each such
stand-by Letter of Credit (the "L/C Facing Fee"). The Letter of Credit
Fees shall be payable monthly in arrears on the last Business Day of each
month after the issuance of such Letter of Credit during the term of such
Letter of Credit and on the expiration date of such Letter of Credit. The
L/C Facing Fee owing with respect to any stand-by Letters of Credit shall
be payable at the time of issuance thereof. Notwithstanding the foregoing,
all Letter of Credit Fees shall be payable on demand and shall increase to
a rate which is 2% above the Letter of Credit Fee rate that is otherwise
applicable to any such Letters of Credit if (i) an Event of Default set
forth in Section 10.1(a) hereof occurs or (ii) the Agent gives written
---------------
notice to the Borrower of any other Event of Default set forth in Section
-------
10.1, and such increased rate shall remain in effect until such Event of
----
Default is waived.
(b) The Borrower agrees to pay to the Agent for the account of the
Lenders as and when incurred by the Agent or any Lender, any charges, fees,
costs and expenses charged to the Agent or any Lender for the Borrower's
account by the Issuing Bank (other than any fees charged to the Agent or
any Lender which would be duplicative of the Letter of Credit Fees and the
L/C Facing Fee paid to the Agent for the benefit of the Lenders) in
connection with the issuance of any Letters of Credit by the Issuing Bank.
The Borrower further agrees to pay to the Agent upon demand for its own
account, the Issuing Bank's customary issuing, administrative and
negotiating fees and the Agent shall pay the charges owing to such Issuing
Bank upon receipt of such amounts from the Borrower.
93
<PAGE>
(c) The Borrower agrees to pay to the Agent for the account of the
Lenders in the case of each Foreign Exchange Contract, a Foreign Exchange
fee (the "Foreign Exchange Fees") based on the Foreign Exchange Exposure of
such Foreign Exchange Contract at a rate per annum determined in accordance
with Section 8.8(g) hereof on the basis of a 360-day year for the actual
--------------
number of days elapsed. In addition, the Borrower agrees to pay to the
Agent for the account of the Agent a facing fee equal to .5% on the initial
face amount of each such Foreign Exchange Contract (the "Foreign Exchange
Facing Fee"). The Foreign Exchange Fees shall be payable monthly in arrears
on the last Business Day of each month after the execution of such Foreign
Exchange Contract during the term of such Foreign Exchange Contract and on
the expiration date of such Foreign Exchange Contract. The Foreign Exchange
Facing Fee owing with respect to any Foreign Exchange Contract shall be
payable at the time of issuance thereof. Notwithstanding the foregoing, all
Foreign Exchange Fees shall be payable on demand and shall increase to a
rate which is 2% above the Foreign Exchange Fee rate that is otherwise
applicable to any such Foreign Exchange Contract if (i) an Event of Default
set forth in Section 10.1(a) hereof occurs or (ii) the Agent gives written
---------------
notice to the Borrower of any other Event of Default set forth in Section
-------
10.1, and such interest rate shall remain in effect until such Event of
----
Default is waived.
(d) The Borrower agrees to pay to the Agent for the account of the
Lenders as and when incurred by the Agent or any Lender, any charges, fees,
costs and expenses charged to the Agent or any Lender for the Borrower's
account by the Foreign Exchange Guarantor (other than any fees charged to
the Agent or any Lender which would be duplicative of the Foreign Exchange
Fees and the Foreign Exchange Facing Fee paid to the Agent for the benefit
of the Lenders) in connection with the execution of any Foreign Exchange
Contract by a Foreign Exchange Guarantor. The Borrower further agrees to
pay to the Agent upon demand for its own account, the Foreign Exchange
Guarantor's customary issuing, administrative and negotiating fees and the
Agent shall pay the charges owing to such Foreign Exchange Guarantor upon
receipt of such amounts from the Borrower.
(e) The Borrower agrees to pay to the Agent for the account of the
Lenders in the case of each Acceptance, an Acceptance commission (the
"Acceptance Commission") based on the face amount of such Acceptance for
the period from the date of acceptance to maturity at a rate per annum
determined in accordance with Section 8.8(g) hereof on the basis of a 360-
--------------
day year for the actual number of days elapsed. The Acceptance Commissions
shall be payable monthly in arrears on the last Business Day of each month
after the creation of such Acceptance during the term of such Acceptance
and on the maturity of such Acceptance. Notwithstanding the foregoing, all
Acceptance Commissions shall be payable on demand and shall increase to a
rate which is 2% above the Acceptance Commission rate that is otherwise
applicable to any such Acceptance if (i) an Event of
94
<PAGE>
Default set forth in Section 10.1(a) hereof occurs or (ii) the Agent gives
---------------
written notice to the Borrower of any other Event of Default set forth in
Section 10.1 and such increased rate shall remain in effect until such
------------
Event of Default is waived.
(f) The Borrower agrees to pay to the Agent for the account of the
Lenders as and when incurred by the Agent or any Lender, any charges, fees,
costs and expenses charged to the Agent or any Lender for the Borrower's
account by the Accepting Bank (other than any fees charged to the Agent or
any Lender which would be duplicative of the Acceptance Commissions paid to
the Agent for the benefit of the Lenders) in connection with the creation
or discount of any Acceptance by the Accepting Bank. The Borrower further
agrees to pay to the Agent upon demand for its own account, the Accepting
Bank's customary creation, discounting, administrative and negotiating fees
and the Agent shall pay the charges owing to such Accepting Bank upon
receipt of such amounts from the Borrower.
(g) Prior to the delivery by Borrower of the financial reports with
respect to the fiscal quarter ending September 27, 1997, the applicable
Letter of Credit Fee for standby Letters of Credit, Foreign Exchange Fee
for Foreign Exchange Contracts, and Acceptance Commission for Acceptances,
shall be one and seventy five hundredths percent (1.75%). Thereafter, if
the ratio of Borrower's EBITDA to Consolidated Interest Expense as at the
end of any fiscal quarter, commencing with the fiscal quarter ending
September 27, 1997 measured on the basis of the period consisting of the
three (3) fiscal quarters ending September 27, 1997 and the four (4) fiscal
quarters ending with any subsequent fiscal quarter (the "LFA Measurement
Period") shall fall within any of the ranges set forth in the schedule
below, based on such financial reports delivered by Borrower to Agent
sufficient to Agent's satisfaction confirming such fact, and so long as no
Default or Event of Default then exists and subject to the additional terms
hereof, the applicable Letter of Credit Fee for standby Letters of Credit,
Foreign Exchange Fee for Foreign Exchange Contracts, and Acceptance
Commission for Acceptances shall each be the percentage set opposite such
range in the schedule below, effective on the first day of the month
immediately following such confirmation by Agent and continuing for a
period of three (3) calendar months:
<TABLE>
<CAPTION>
Range of Ratio Percentage
-------------- ----------
<S> <C>
less than 2.75 to 1 1.75%
2.75 to 1 or greater, but 1.50%
less than 3.25 to 1
3.25 to 1 or greater 1.25%
</TABLE>
95
<PAGE>
In the event that Borrower shall receive any Equity Offering Proceeds
during the term hereof, Borrower's Consolidated Interest Expense shall be
calculated on a proforma basis as if such Equity Offering Proceeds were
used on a daily basis from the beginning of such LFA Measurement Period
until the date such Equity Offering Proceeds were received to permanently
reduce the Revolving Loans outstanding on each day thereof in an amount
equal to the lesser of such Revolving Loans then outstanding, or such
Equity Offering Proceeds.
Notwithstanding the foregoing, (1) any change in the fees and commissions
to which Borrower is otherwise entitled to hereunder shall be limited to
not more than a twenty-five hundredths percent (.25%) reduction based on
Borrower's performance hereunder measured as at the end of each of the
first three (3) full fiscal quarters occurring after the date hereof
(provided, however, that no such limitation shall apply with respect to
Borrower's performance hereunder for the second and third full fiscal
quarters if Borrower shall be entitled to a greater reduction in such fees
and commissions by reason of the receipt of Equity Offering Proceeds), and
(2) if a Default or Event of Default shall occur at any time during the
term hereof in which Borrower is otherwise entitled to fees and commission
at a rate less than 1.75%, such fees and commissions shall revert to not
less than 1.75%, and be subject to increase pursuant to the applicable
provisions of Sections 8.8(a)(ii), (c) and (e) hereof during the pendency
------------------- --- ---
of any such Default or Event of Default.
8.9 [INTENTIONALLY OMITTED].
8.10 Collateral Management Fees; Expenses. The Borrower agrees to pay to
------------------------------------
the Agent for its sole account fees in such amounts and at such times as
follows:
(a) as a Collateral Management Fee, an amount equal to $100,000
payable on the Closing Date and on each anniversary thereof during the term
hereof; and
(b) upon demand by the Agent after the incurrence thereof, all
reasonable costs and Expenses of the Agent incurred in connection with the
audits, inspection and examination of the Collateral described in this
Credit Agreement and the other Credit Documents, and all reasonable legal
fees and Expenses of the Agent in connection with the management of the
loan facility as contemplated hereunder, excluding, however, the internal
overhead costs of Agent associated with the monitoring and internal
management of the Collateral during the ordinary course administration of
this Credit Agreement.
8.11 Authorization to Charge Account. The Borrower hereby authorizes the
-------------------------------
Agent to charge the Borrower's Loan Account with the amount of all payments and
Fees and Expenses
96
<PAGE>
due hereunder as and when such payments become due. The Borrower confirms that
any charges which the Agent may so make to the Borrower's Loan Account as herein
provided will be made as an accommodation to the Borrower and solely at the
Agent's discretion.
8.12 Indemnification in Certain Events. If after the Closing Date, either
---------------------------------
(i) any change in or in the interpretation of any law or regulation is
introduced, including, without limitation, with respect to reserve requirements,
applicable to Bankers Trust Company, Bankers Trust (Delaware) or any other
banking or financial institution from whom any of the Lenders borrow funds or
obtain credit (a "Funding Bank") or any of the Lenders, or (ii) a Funding Bank
or any of the Lenders complies with any future guideline or request from any
central bank or other governmental authority or (iii) a Funding Bank or any of
the Lenders determines that the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof has or would have the effect described below, or a
Funding Bank or any of the Lenders complies with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of return on any of the
Lenders' capital as a consequence of its obligations hereunder to a level below
that which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Funding Bank's or Lenders' policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, and the result of any of the foregoing events described in clauses
(i), (ii) or (iii) is or results in an increase in the cost to any of the
Lenders of funding or maintaining any such Lender's Commitments, then the
Borrower shall from time to time upon demand by the Agent (which demand shall be
made by the Agent upon the request of any such Lender), pay to the Agent
additional amounts sufficient to indemnify the Lenders against such increased
cost. A certificate as to the amount of such increased cost shall be submitted
to the Borrower by the Lender requesting such additional amount or increased
cost and shall be conclusive absent manifest error.
ARTICLE 9
---------
Powers of Attorney
------------------
9.1 Appointment as Attorney-in-Fact. The Borrower hereby irrevocably
-------------------------------
authorizes and appoints the Agent or any Person or agent the Agent may designate
as such Borrower's attorney-in-fact, at the Borrower's cost and expense, to
exercise, subject to the limitations set forth in Section 9.2 hereof, all of the
-----------
following powers, which being coupled with an interest, shall be irrevocable
until all of the Obligations to the Lenders have been paid and satisfied in
full:
97
<PAGE>
(a) To receive, take, endorse, sign, assign and deliver, all in the
name of the Agent, the Lenders or the Borrower, any and all checks, notes,
drafts, and other documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Borrower
and to notify postal authorities to change the address for delivery thereof
to such address as the Agent may designate;
(c) To request at any time from customers indebted on Accounts, in the
name of the Agent, the Lenders or the Borrower or that of the Agent's or
Lenders' designee, information concerning the Accounts and the amounts
owing thereon;
(d) To give customers indebted on Accounts notice of the Lenders'
interest therein, and/or to instruct such customers to make payment
directly to the Agent for the Borrower's account;
(e) To take or bring, in the name of the Agent, the Lenders or the
Borrower, all steps, actions, suits or proceedings deemed by the Agent
necessary or desirable to enforce or effect collection of the Accounts; and
(f) To revise, update, amend and otherwise complete the Trademark
Security Agreements and the Patent Security Agreements as the Agent may
determine to be necessary or desirable to, and file, record and register
any or all of the Trademark Security Agreements and the Patent Security
Agreements with the United States Patent and Trademark Office in order to,
assign and transfer the trademarks and patents covered thereby to any
Person, including, without limitation, the Agent or any of the Lenders.
9.2 Limitation on Exercise of Power. Notwithstanding anything hereinabove
-------------------------------
to the contrary, the powers set forth in subparagraphs (b), (d), (e) and (f)
above may only be exercised by the Agent on and after the occurrence of an Event
of Default which has not been waived by the Agent. The powers set forth in
subparagraphs (a) and (c) above may be exercised by the Agent at any time.
ARTICLE 10
----------
Events of Default and Remedies
------------------------------
10.1 Events of Default. The occurrence of any of the following events
-----------------
shall constitute an Event of Default hereunder:
98
<PAGE>
(a) failure of the Borrower to pay (i) any interest, Fees or Expenses
or other Obligations (other than principal) when due, or if the amount in
the Borrower's accounts and the Borrower's Borrowing Base is insufficient
to permit such payment when due, then within three (3) Business Days of
when due, in each case whether at stated maturity, by acceleration, or
otherwise, or (ii) any principal when due, whether at stated maturity, by
acceleration or otherwise;
(b) (i) failure of the Borrower to perform, comply with or observe
any term, covenant or agreement applicable to it contained
in Sections 6.14, 7.1, 7.2, 7.4, 7.5, 7.6, 7.7, 7.8, or
-------- ---- --- --- --- --- --- --- ---
7.9;
---
(ii) failure of the Borrower to perform, comply with or observe
any term, covenant or agreement applicable to it in
Section 6.1(f), (j), (k)(i)(A), (k)(ii), or (p) and the
------- ------ --- --------- ------- ---
failure shall continue unremedied until two (2) Business
Days after a senior officer of the Borrower knowledgeable
of the requirements of this Credit Agreement (including,
without limitation, the chief financial officer or
controller or chief accounting officer of the Borrower)
knows of such failure (provided that this clause (ii)
-------- ----
shall not be deemed to place any additional obligations
on any such officer to be so knowledgeable);
(iii) failure of the Borrower to perform, comply with or observe
any term, covenant or agreement applicable to it in
Section 6.1 (other than a provision of Section 6.1
------- --- -----------
covered by subparagraph (ii) above), 6.3, 6.9, 6.12, or
--- --- ----
7.3 and the failure shall continue unremedied until two
---
(2) Business Days after the Agent's delivery of notice to
the Borrower of such failure;
(iv) failure of the Borrower to perform, comply with or observe
any term, covenant or agreement applicable to it in
Articles 6 or 7 hereof (other than a provision covered by
---------- -
subparagraphs (i), (ii) or (iii) above) and the failure
shall continue unremedied until ten (10) Business Days
after the Agent's delivery of notice to the Borrower of
such failure;
99
<PAGE>
(c) breach by the Borrower of any representation or warranty, or
failure to comply with any covenant, contained in this Credit Agreement
(other than under a provision covered by subsection (a) or (b) above), the
other Credit Documents or any other agreement, document, instrument or
certificate among the Borrower, the Agent and the Lenders or executed by
the Borrower in favor of the Agent or the Lenders, which breach or failure
shall continue unremedied more than ten (10) Business Days after the
Agent's delivery of notice to the Borrower of such breach (such grace
period to apply only to the extent such breach or failure is curable within
such ten (10) Business Day period);
(d) (i) the Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or the Borrower or any of its Subsidiaries shall make a general
assignment for the benefit of creditors; or (ii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for 60 days after the
entry thereof; or (iii) there shall be commenced against the Borrower or
any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal for 60 days;
(e) a Change in Control shall have occurred;
(f) the Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on any Debt or in the payment of any
Guarantee the aggregate principal amount of the series of Debt under which
such Debt is issued and the aggregate principal amount of the obligation
guaranteed by such Guarantee equals or exceeds $3,000,000; or (ii) default
in the observance or performance of any other agreement or condition
relating to any such Debt or Guarantee or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such Debt
or beneficiary or beneficiaries of such Guarantee (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause,
with the giving of notice if required, such Debt to become due prior to its
stated
100
<PAGE>
maturity or such Guarantee to become due prior to its stated maturity or
such Guarantee to become payable;
(g) (i) any material covenant, agreement or obligation of any party
contained in or evidenced by any of the Credit Documents shall cease to be
enforceable in accordance with its terms, or any party (other than the
Agent or the Lenders) to any Credit Document shall deny or disaffirm it
obligations under any of the Credit Documents, or any Credit Document shall
be cancelled, terminated, revoked or rescinded without the express prior
written consent of the Agent, (ii) any of the Credit Documents shall cease
for any reason to be in full force and effect (other than in accordance
with the terms hereof or thereof) or any action or proceeding shall have
been commenced by any Person (other than the Agent or any Lender) seeking
to cancel, revoke, rescind or disaffirm the obligations of any party to any
Credit Document, (iii) any court or other governmental authority shall
issue a final judgment, order, decree or ruling for the payment of money (a
"Judgment") and such Judgment is in an amount (determined after an
allowance for the application of any insurance proceeds to such Judgment)
in excess of $1,000,000 and enforcement proceedings shall have been
commenced upon any such Judgment or any such Judgment shall remain unpaid
after a period of ten (10) consecutive days during which a stay of such
enforcement of any such Judgment, including, without limitation, by reason
of a pending appeal or otherwise, shall not be in effect, or (iv) any
security interest or lien purported to be created by the Ancillary
Documents shall cease to be valid and (to the extent required by the
Ancillary Documents) perfected or the Borrower shall so have asserted,
except that the failure of any security interest or lien purported to be
created by the Ancillary Documents to be valid and perfected shall not in
itself constitute a default hereunder if the value of the Collateral
purported to be covered thereby is, in the aggregate, not in excess of
$1,000,000.
10.2 Acceleration. Upon the occurrence of an Event of Default which has
------------
not been waived by the Agent at the direction of the Required Lenders, the Agent
shall, upon the written, telecopied or telex request of the Required Lenders,
and by delivery of written notice to the Borrower from the Agent, take any or
all of the following actions, without prejudice to the rights of the Agent, any
Lender or the holder of any Note to enforce its claims against the Borrower:
(a) declare all or any part of the Obligations to be immediately due and payable
(except with respect to any Event of Default set forth in Section 10.1(d)
---------------
hereof, in which case all Obligations shall automatically become immediately due
and payable without the necessity of any notice or other demand) without
presentment, demand, protest or any other action or obligation of the Agent or
any Lender; and/or (b) immediately terminate or reduce the Commitments under
this Credit Agreement.
In addition, upon demand by the Agent or the Required Lenders after the
occurrence of any Event of Default unless such Event of Default is waived, the
Borrower shall deposit with the
101
<PAGE>
Agent for the benefit of the Lenders with respect to each Letter of Credit then
outstanding, each Foreign Exchange Contract then in effect and each Acceptance
then outstanding promptly upon such demand, cash or Cash Equivalents in an
amount equal to 110% of the greatest amount for which such Letter of Credit may
be drawn, 110% of the Foreign Exchange Exposure under each such Foreign Exchange
Contract and 110% of the face amount of each outstanding Acceptance. Such
deposit shall be held by the Agent for the benefit of the Issuing Banks, the
Foreign Exchange Guarantors, the Accepting Banks and the other Lenders as
security for, and to provide for the payment of, outstanding Letters of Credit,
the Foreign Exchange Obligations and the Acceptance Obligations.
If at any time after acceleration of the maturity of the Loans, the
Borrower shall pay all arrears of interest and all payments on account of
principal of the Loans which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Credit Agreement) and all
Events of Default and Defaults (other than nonpayment of principal of and
accrued interest on the Loans and other Obligations due and payable solely by
virtue of acceleration) shall be remedied or waived, then by written notice to
the Borrower, the Required Lenders may elect, in the sole discretion of such
Required Lenders, to rescind and annul the acceleration and its consequences;
but such action shall not affect any subsequent Default or Event of Default or
impair any right or remedy consequent thereon. The provisions of the preceding
sentence are intended merely to bind the Lenders to a decision which may be made
at the election of the Required Lenders; they are not intended to benefit the
Borrower and do not give the Borrower the right to require the Lenders to
rescind or annul any acceleration hereunder, even if the conditions set forth
herein are met.
10.3 Remedies. Immediately upon the occurrence of any Event of Default
--------
which has not been waived by the Agent at the direction of the Required Lenders,
the Agent may: (a) remove from any premises where same may be located any and
all documents, instruments, files and records (including the copying of any
computer records), and any receptacles or cabinets containing same, relating to
the Accounts, or the Agent may use (at the expense of the Borrower) such of the
supplies or space of the Borrower at the Borrower's place of business or
otherwise, as may be necessary to properly administer and control the Accounts
or the handling of collections and realizations thereon; (b) bring suit, in the
name of the Borrower or the Lenders and generally shall have all other rights
respecting said Accounts, including without limitation the right to: accelerate
or extend the time of payment, settle, compromise, release in whole or in part
any amounts owing on any Accounts and issue credits in the name of the Borrower
or the Lenders; (c) sell, assign and deliver the Accounts and any returned,
reclaimed or repossessed merchandise, with or without advertisement, at public
or private sale, for cash, on credit or otherwise, at the Agent's sole option
and discretion, and any Lender may bid or become a purchaser at any such sale,
free from any right of redemption, which right is hereby expressly waived by the
Borrower; (d) foreclose the security interests created pursuant to the Credit
Documents by any available judicial procedure, or to take possession of any or
all of the Inventory and equipment without
102
<PAGE>
judicial process and enter any premises where any Inventory and equipment may be
located for the purpose of taking possession of or removing the same; and (e)
revise, update, amend and otherwise complete the Trademark Security Agreements
as the Agent may determine to be necessary or desirable to, and file, record and
register any or all of the Trademark Security Agreements and Patent Security
Agreements with the United States Patent and Trademark Office in order to,
assign and transfer the trademarks and patents covered thereby to any Person,
including, without limitation, the Agent or any of the Lenders. The Agent shall
have the right, without notice of advertisement, to sell, lease, or otherwise
dispose of all or any part of the Inventory and equipment, whether in its then
condition or after further preparation or processing, in the name of the
Borrower or the Lenders, or in the name of such other party as the Agent may
designate, either at public or private sale or at any broker's board, in lots or
in bulk, for cash or for credit, with or without warranties or representations,
and upon such other terms and conditions as the Agent in its sole discretion may
deem advisable, and the Agent or any other Lender shall have the right to
purchase at any such sale. If any Inventory and equipment shall require
rebuilding, repairing, maintenance or preparation, the Agent shall have the
right, at its option, to do such of the aforesaid as is necessary, for the
purpose of putting the Inventory and equipment in such saleable form as the
Agent shall deem appropriate. The Borrower agrees, at the request of the Agent,
to assemble the Inventory and equipment and to make it available to the Agent at
places which the Agent shall select, whether at the premises of the Borrower or
elsewhere, and to make available to the Agent the premises and facilities of the
Borrower or any Pledgor for the purpose of the Agent's taking possession of,
removing or putting the Inventory and equipment in saleable form. However, if
notice of intended disposition of any Collateral is required by law, it is
agreed that five (5) days notice shall constitute reasonable notification and
full compliance with the law. The Agent shall be entitled to use all Proprietary
Rights and computer software programs and data bases used by the Borrower in
connection with their respective businesses or in connection with the
Collateral. The net cash proceeds resulting from the Agent's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by the Agent to the payment of the
Borrower's Obligations to the Lenders, whether due or to become due, in such
order as the Agent may elect. The Borrower shall remain liable to the Lenders
for any deficiencies, and the Lenders in turn agree to remit to the Borrower or
its successors or assigns, any surplus resulting therefrom. The enumeration of
the foregoing rights is not intended to be exhaustive and the exercise of any
right shall not preclude the exercise of any other rights, all of which shall be
cumulative.
ARTICLE 11
----------
Termination of the Revolving Commitments
----------------------------------------
Except as otherwise provided in Article 10 hereof, the Revolving Credit
----------
Commitments made hereunder shall terminate on the Expiration Date and all then
outstanding Loans and
103
<PAGE>
Acceptance Obligations shall be immediately due and payable in full, all
outstanding Letters of Credit and all Foreign Exchange Contracts shall
immediately terminate except as otherwise provided in Section 4.1 hereof. Unless
------- ---
sooner demanded, all Obligations shall become due and payable as of any such
termination hereunder or under Article 10 hereof. All of the Agent's and the
----------
Lenders' rights, liens and security interests relating to any cash collateral
securing any outstanding Letters of Credit, Foreign Exchange Obligations or
Acceptance Obligations provided for in Section 4.1 and Article 10 hereof shall
----------- ----------
continue after any termination of the Commitments until all Obligations relating
to such Letters of Credit, all Obligations relating to such Foreign Exchange
Contracts and all Obligations relating to such Acceptances have been paid and
satisfied in full.
ARTICLE 12
----------
The Agent
---------
12.1 Appointment of Agent.
--------------------
(a) Each Lender hereby designates BTCC as Agent to act as herein
specified. Each Lender hereby irrevocably authorizes, and each holder of
any Note, by the acceptance of such Note, shall be deemed irrevocably to
authorize the Agent to take such action on its behalf under the provisions
of this Credit Agreement and the Notes and any other instruments and
agreements referred to herein and to exercise such powers and to perform
such duties hereunder and thereunder as are specifically delegated to or
required of the Agent by the terms hereof and thereof and such other powers
as are reasonably incidental thereto including, without limitation, the
execution, delivery and performance by the Agent of any application in
favor of an Issuing Bank in connection with the issuance of any Letter of
Credit, the execution, delivery and performance by the Agent of any Foreign
Exchange Contract or the execution, delivery and performance of an
application for the creation of an Acceptance or an Acceptance. The Agent
shall hold all Collateral and all payments of principal, interest, Fees,
charges and Expenses received pursuant to this Credit Agreement or any
other Credit Document for the ratable benefit of the Lenders. The Agent
may perform any of its duties hereunder by or through its agents or
employees.
(b) The provisions of this Article 12 are solely for the benefit of
----------
the Agent and the Lenders, and none of the Credit Parties shall have any
rights as a third party beneficiary of any of the provisions hereof (other
than Section 12.9 and 12.10). In performing its functions and duties under
------------ -----
this Credit Agreement, the Agent shall act solely as agent of the Lenders
and does not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for any Credit Party.
104
<PAGE>
12.2 Nature of Duties of Agent. The Agent shall have no duties or
-------------------------
responsibilities except those expressly set forth in this Credit Agreement.
Neither the Agent nor any of its officers, directors, employees or agents shall
be liable for any action taken or omitted by it as such hereunder or in
connection herewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Credit Agreement a fiduciary
relationship in respect of any Lender; and nothing in this Credit Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Credit Agreement except as
expressly set forth herein.
12.3 Lack of Reliance on Agent.
-------------------------
(a) Independently and without reliance upon the Agent, each Lender,
to the extent it deems appropriate, has made and shall continue to make (i)
its own independent investigation of the financial or other condition and
affairs of each Credit Party in connection with the taking or not taking of
any action in connection herewith and (ii) its own appraisal of the
creditworthiness of each Credit Party, and, except as expressly provided in
this Credit Agreement, the Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Lender with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times
thereafter.
(b) The Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein or
in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, priority or sufficiency of this Credit
Agreement or the Notes or the financial or other condition of any Credit
Party. The Agent shall not be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Credit Agreement or the Notes, or the financial
condition of any Credit Party, or the existence or possible existence of
any Default or Event of Default, unless specifically requested to do so in
writing by any Lender.
12.4 Certain Rights of the Agent. The Agent shall have the right to
---------------------------
request instructions from the Required Lenders by notice to each of the Lenders.
If the Agent shall request instructions from the Required Lenders with respect
to any act or action (including the failure to act) in connection with this
Credit Agreement, the Agent shall be entitled to refrain from such act or taking
such action unless and until the Agent shall have received instructions from the
Required Lenders, and the Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender shall have
any right of action whatsoever against the Agent as a result of the Agent acting
or refraining from acting hereunder in accordance with the instructions
105
<PAGE>
of the Required Lenders. The Agent may give any notice required under Article 10
----------
hereof without the consent of any of the Lenders unless otherwise directed by
the Required Lenders in writing and will, at the direction of the Required
Lenders, give any such notice required under Article 10.
----------
12.5 Reliance by Agent. The Agent shall be entitled to rely, and shall be
-----------------
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other documentary, teletransmission or telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person. The Agent may consult with legal counsel (including
counsel for the Borrower with respect to matters concerning the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
12.6 Indemnification of Agent. To the extent the Agent is not reimbursed
------------------------
and indemnified by the Borrower, each Lender will reimburse and indemnify the
Agent, in proportion to its respective Commitment, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in performing its duties hereunder, in any way relating to or
arising out of this Credit Agreement, provided that no Lender shall be liable
-------- ----
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or willful misconduct.
12.7 The Agent in its Individual Capacity. With respect to its obligation
------------------------------------
to lend under this Credit Agreement, the Loans made by it and the Notes issued
to it, and its participation in Letters of Credit, Acceptances created pursuant
hereto issued hereunder and Foreign Exchange Contracts executed pursuant hereto,
the Agent shall have the same rights and powers hereunder as any other Lender or
holder of a Note or participation interests and may exercise the same as though
it was not performing the duties specified herein; and the terms "Lenders,"
"Required Lenders," "holders of Notes," or any similar terms shall, unless the
context clearly otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, acquire equity
interests in, and generally engage in any kind of banking, trust, financial
advisory or other business with the Borrower or any Affiliate of the Borrower as
if it were not performing the duties specified herein, and may accept fees and
other consideration from the Borrower for services in connection with this
Credit Agreement and otherwise without having to account for the same to the
Lenders.
12.8 Holders of Notes. The Agent may deem and treat the payee of any Note
----------------
as the owner thereof for all purposes hereof unless and until a written notice
of the assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is the holder of any
106
<PAGE>
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
12.9 Successor Agent.
---------------
(a) The Agent may, upon five (5) Business Days' notice to the
Lenders and the Borrower, resign at any time (effective upon the
appointment of a successor Agent pursuant to the provisions of this Section
-------
12.9) by giving written notice thereof to the Lenders and the Borrower.
----
Upon any such resignation, the Required Lenders shall have the right, upon
five (5) days' notice and approval by the Borrower (which approval shall
not be unreasonably withheld or delayed), to appoint a successor Agent. If
no successor Agent shall have been so appointed by the Required Lenders and
accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation, then, upon five (5) days' notice
and approval by the Borrower (which approval shall not be unreasonably
withheld or delayed), the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be a bank or a trust company or
other financial institution which maintains an office in the United States,
or a commercial bank organized under the laws of the United States of
America or of any State thereof, or any Affiliate of such bank or trust
company or other financial institution which is engaged in the banking
business, having a combined capital and surplus of at least $50,000,000.
(b) Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Credit Agreement. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article 12 shall
----------
inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Credit Agreement.
(c) In the event BTCC resigns as Agent it shall refund to the
Borrower a pro rata portion of the Collateral Management Fee paid to BTCC
in respect of the year in which such resignation occurs equal to the
percentage of such year remaining prior to the next anniversary of the
Closing Date.
12.10 Collateral Matters.
------------------
(a) Each Lender authorizes and directs the Agent to enter into the
Ancillary Documents for the benefit of the Lenders. Each Lender hereby
agrees, and each holder of any Note by the acceptance thereof will be
deemed to agree, that, except as otherwise set forth herein, any action
taken by the Required Lenders in accordance with the provisions of this
Credit Agreement or the Ancillary Documents, and the exercise by the
107
<PAGE>
Required Lenders of the powers set forth herein or therein, together with
such other powers as are reasonably incidental thereto, shall be authorized
and binding upon all of the Lenders. The Agent is hereby authorized on
behalf of all of the Lenders, without the necessity of any notice to or
further consent from any Lender, from time to time prior to an Event of
Default, to take any action with respect to any Collateral or Ancillary
Documents which may be necessary to perfect and maintain perfected the
security interest in and liens upon the Collateral granted pursuant to the
Ancillary Documents.
(b) The Lenders hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment and
satisfaction of all of the Obligations at any time arising under or in
respect of this Credit Agreement or the Credit Documents or the
transactions contemplated hereby or thereby or (ii) if approved, authorized
or ratified in writing by the Required Lenders, unless such release is
required to be approved by all of the Lenders hereunder. Upon request by
the Agent at any time, the Lenders will confirm in writing the Agent's
authority to release particular types or items of Collateral pursuant to
this Section 12.10.
-------------
(c) The Lenders hereby agree that the Lien granted to the Agent and
the Lenders in any property sold or disposed of in accordance with the
provisions of Section 7.5 hereof shall, if no Default or Event of Default
-----------
shall then exist, be automatically released except to the extent a signed
release of the Agent is required pursuant to Section 7.5; provided, however
----------- -------- -------
that Agent's Lien shall attach to and continue in the proceeds and products
of such property arising from any such sale or disposition and provided,
--------
further, that the proceeds from any such sale or disposition by the
-------
Borrower shall be paid to the Agent for application to the then outstanding
Loans.
(d) The Lenders hereby agree that the Agent shall release (or
subordinate to the extent permitted by the provider of purchase money
financing referred to below, in the discretion of such provider) any Lien
granted to or held by the Agent and the Lenders on any personal property
other than Accounts and Inventory acquired or owned by any Borrower at any
time after the Effective Date (the "After-Acquired Personal Property")
which is located on any real property acquired and held in fee or owned by
the Borrower at any time after the Effective Date (the "After-Acquired Real
Property") so long as such After-Acquired Real Property on which the After-
Acquired Personal Property is located is (i) financed with a purchase money
mortgage permitted pursuant to Section 7.4(f) hereof and (ii) not required
--------------
to become subject to a Lien of the Agent pursuant to Section 6.7 hereof.
-----------
Such release or subordination shall be given by the Agent only upon the
request of the Borrower.
108
<PAGE>
(e) To the extent, pursuant to the provisions of Section 12.10(b),
-----------------
(c), and (d) hereof, the Agent's execution of a release is required to
---
release its Lien upon any sale and transfer of Collateral which is
expressly permitted pursuant to the terms of this Credit Agreement, or
consented to in writing by the Required Lenders or all of the Lenders, as
applicable, and upon at least five (5) Business Days' prior written request
by the Borrower, the Agent shall (and is hereby irrevocably authorized by
the Lenders to) execute such documents as may be necessary to evidence the
release of the Liens granted to the Agent for the benefit of the Lenders
herein or pursuant hereto upon the Collateral that was sold or transferred;
provided that (i) the Agent shall not be required to execute any such
-------- ----
document on terms which, in the Agent's opinion, would expose the Agent to
liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty and (ii) such release
shall not in any manner discharge, affect or impair the Obligations or any
Liens upon (or obligations of the Borrower in respect of) all interests
retained by the Borrower or any Subsidiary of any Borrower, including
(without limitation) the proceeds of the sale, all of which shall continue
to constitute part of the Collateral. In the event of any sale or transfer
of Collateral, or any foreclosure with respect to any of the Collateral,
the Agent shall be authorized to deduct all of the Expenses reasonably
incurred by the Agent from the proceeds of any such sale, transfer or
foreclosure.
(f) The Agent shall have no obligation whatsoever to the Lenders or
to any other Person to assure that the Collateral exists or is owned by the
Borrower or is cared for, protected or insured or that the Liens granted to
the Agent herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise or to continue exercising at all or in
any manner or under any duty of care, disclosure or fidelity any of the
rights, authorities and powers granted or available to the Agent in this
Section 12.10 or in any of the Ancillary Documents, it being understood and
-------------
agreed that in respect of the Collateral, or any act, omission or event
related thereto, the Agent may act in any manner it may deem appropriate,
in its sole discretion, given the Agent's own interest in the Collateral as
one of the Lenders and that the Agent shall have no duty or liability
whatsoever to the Lenders, except for its gross negligence or willful
misconduct. The Agent agrees to conduct or cause to be conducted at least
two audits of the Collateral during each year that this Credit Agreement
shall remain in effect.
12.11 Actions with Respect to Defaults. In addition to the Agent's right
--------------------------------
to take actions on its own accord as permitted under this Credit Agreement, the
Agent shall take such action with respect to a Default or Event of Default as
shall be directed by the Required Lenders; provided that until the Agent shall
-------- ----
have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable and in the best interests
of the Lenders.
109
<PAGE>
12.12 Delivery of Information. The Agent shall not be required to deliver
-----------------------
to any Lender originals or copies of any documents, instruments, notices,
communications or other information received by the Agent from the Borrower, any
Subsidiary of the Borrower, the Required Lenders, any Lender or any other Person
under or in connection with this Credit Agreement or any other Credit Document
except (i) as specifically provided in this Credit Agreement or any other Credit
Document and (ii) as specifically requested from time to time in writing by any
Lender with respect to a specific document, instrument, notice or other written
communication received by and in the possession of the Agent at the time of
receipt of such request and then only in accordance with such specific request.
ARTICLE 13
----------
Miscellaneous
-------------
13.1 Waivers. The Borrower hereby waives due diligence, demand,
-------
presentment and protest and any notices thereof as well as notice of nonpayment.
No delay or omission of the Agent or the Lenders to exercise any right or remedy
hereunder, whether before or after the happening of any Event of Default, shall
impair any such right or shall operate as a waiver thereof or as a waiver of any
such Event of Default. No single or partial exercise by the Agent or the
Lenders of any right or remedy shall preclude any other or further exercise
thereof, or preclude any other right or remedy.
13.2 JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS EACH HEREBY
----------
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) ARISING OUT OF THIS CREDIT AGREEMENT, THE CREDIT DOCUMENTS OR ANY
OTHER AGREEMENTS OR TRANSACTIONS RELATED HERETO OR THERETO.
13.3 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
-------------
CREDIT AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
13.4 VENUE; SERVICE OF PROCESS; WAIVER OF DAMAGES.
--------------------------------------------
(A) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS CREDIT
AGREEMENT, THE CREDIT DOCUMENTS, OR ANY OTHER DOCUMENT RELATING HERETO OR
THERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITUATED IN
COOK COUNTY, OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT
OF
110
<PAGE>
ILLINOIS, AND, BY EXECUTION AND DELIVERY OF THIS CREDIT AGREEMENT, THE
BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
THE BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION
OR PROCEEDING, (1) ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (2) THE RIGHT TO
INTERPOSE ANY NONCOMPULSORY SETOFF, COUNTERCLAIM OR CROSS-CLAIM. THE
BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
BORROWER AT THE ADDRESS SET FORTH IN SECTION 13.5 HEREOF. NOTHING HEREIN
------------
SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION, SUBJECT IN EACH
INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES.
(B) THE BORROWER (1) AGREES THAT NEITHER THE AGENT NOR ANY LENDER
SHALL HAVE ANY LIABILITY TO THE BORROWER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE BORROWER IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS
CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS CREDIT AGREEMENT OR
ANY OF THE OTHER CREDIT DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING
IN CONNECTION HEREWITH OR THEREWITH, UNLESS IT IS DETERMINED BY A JUDGMENT
OF A COURT THAT IS BINDING ON THE AGENT OR SUCH LENDER, AS THE CASE MAY BE
(WHICH JUDGMENT SHALL BE FINAL AND NOT SUBJECT TO REVIEW ON APPEAL), THAT
SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE AGENT
OR SUCH LENDER, AS THE CASE MAY BE, CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT AND (2) WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY
CLAIM AGAINST THE AGENT OR ANY LENDER (WHETHER SOUNDING IN TORT, CONTRACT
OR OTHERWISE), EXCEPT A CLAIM BASED UPON GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WHETHER OR NOT SUCH DAMAGES ARE RELATED TO A CLAIM THAT IS
SUBJECT TO THE WAIVER EFFECTED ABOVE AND WHETHER OR NOT SUCH WAIVER IS
111
<PAGE>
EFFECTIVE, NEITHER THE AGENT NOR ANY LENDER SHALL HAVE ANY LIABILITY WITH
RESPECT TO, AND THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE
UPON ANY CLAIM FOR, ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES SUFFERED BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN
ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED OR THE RELATIONSHIP
ESTABLISHED BY THIS CREDIT AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS,
OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION HEREWITH OR
THEREWITH, UNLESS IT IS DETERMINED BY A JUDGMENT OF A COURT THAT IS BINDING
ON THE AGENT OR SUCH LENDER, AS THE CASE MAY BE (WHICH JUDGMENT SHALL BE
FINAL AND NOT SUBJECT TO REVIEW ON APPEAL), THAT SUCH DAMAGES WERE THE
RESULT OF ACTS OR OMISSIONS ON THE PART OF THE AGENT OR SUCH LENDER, AS THE
CASE MAY BE, CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
13.5 Notices. Except as otherwise provided herein, all notices and
-------
correspondences hereunder shall be in writing and sent by certified or
registered mail, return receipt requested, or by overnight delivery service,
with all charges prepaid, if to the Agent, then to BT Commercial Corporation,
Sears Tower, 84th Floor, Chicago, Illinois 60606, Attention: Credit Department,
Wayne D. Hillock, and if to the Borrower, then to (i) Borrower at One Fordham
Road, North Reading, MA 01864-2680, Attention: James Lawlor, or by facsimile
transmission, promptly confirmed in writing sent by first class mail, if to the
Agent, at (312) 993-8096, and if to the Borrower at (508) 664-8763. All such
notices and correspondence to any of the Lenders shall be sent and confirmed in
a similar manner to the addresses set forth on the signature pages hereto. All
such notices and correspondence shall be deemed given (i) if sent by certified
or registered mail, three (3) Business Days after being postmarked, (ii) if sent
by overnight delivery service, when received at the above stated addresses or
when delivery is refused and (iii) if sent by facsimile transmission, when
receipt of such transmission is acknowledged; provided that notices to the Agent
-------- ----
shall not be effective until received.
13.6 Assignability.
-------------
(a) The Borrower shall not have the right to assign this Credit
Agreement or any interest therein except with the prior written consent of
the Agent and the Lenders.
(b) Any Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of such
Lender except to the extent such transfer would result in increased costs
to the Borrower (including, without limitation, any increased costs under
Section 3.10 hereof).
------------
112
<PAGE>
(c) Each Lender may, with the consent of the Agent which consent
shall not be unreasonably withheld, but without the consent of any other
Lender, assign to one or more banks or other financial institutions all or
a portion of its rights and obligations under this Credit Agreement and the
Notes; provided that (i) for each such assignment, the parties thereto
-------- ----
shall execute and deliver to the Agent, for its acceptance and recording in
the Register (as defined below), an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $2,500 to be paid by the assignee, (ii) no such
assignment shall be for less than $10,000,000 of the Commitments (except
any assignment made pursuant to Section 13.7 hereof), and (iii) any such
------------
assignment shall include such Lender's pro rata interest in all Loans
hereunder. Upon such execution and delivery of the Assignment and
Acceptance to the Agent, from and after the date specified as the effective
date in the Assignment and Acceptance (the "Acceptance Date"), (x) the
assignee thereunder shall be a party hereto, and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, such assignee shall have the rights and
obligations of a Lender hereunder and (y) the assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights (other
than any rights it may have pursuant to Section 13.9 hereof which will
------------
survive) and be released from its obligations under this Credit Agreement
(and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under
this Credit Agreement, such Lender shall cease to be a party hereto).
(d) By executing and delivering an Assignment and Acceptance, the
assignee thereunder confirms and agrees as follows: (i) other than as
provided in such Assignment and Acceptance, the assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the Notes or
any other instrument or document furnished pursuant hereto, (ii) such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or
any other Credit Parties or the performance or observance by the Borrower
or any other Credit Parties of any of its obligations under this Credit
Agreement or any other instrument or document furnished pursuant hereto,
(iii) such assignee confirms that it has received a copy of this Credit
Agreement, together with copies of the financial statements referred to in
Section 6.1 hereof and such other documents and information as it has
-----------
deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance, (iv) such assignee will, independently
and without reliance upon the Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this
113
<PAGE>
Credit Agreement, (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under
this Credit Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto and (vi)
such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Credit Agreement are
required to be performed by it as a Lender.
(e) The Agent shall maintain at its address referred to in Section
-------
13.5 hereof a copy of each Assignment and Acceptance delivered to and
----
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitments of, and principal amount of
the Loans owing to, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrower, the Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Credit Agreement. The Register and
copies of each Assignment and Acceptance shall be available for inspection
by the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, together with the Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit A hereto, (i) accept
such Assignment and Acceptance and (ii) record the information contained
therein in the Register. Within five (5) Business Days after the Agent's
acceptance and recordation of any of such Assignment and Acceptance, the
Borrower shall execute and deliver to the Agent in exchange for the
surrendered Note or Notes a new Note or Notes to the order of the assignee
in an amount equal to the Commitment or Commitments assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained
a Commitment or Commitments hereunder, a new Note or Notes to the order of
the assigning Lender in an amount equal to the Commitment or Commitments
retained by it hereunder. Such new Note or Notes shall re-evidence the
indebtedness outstanding under the old Note or Notes and shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the Closing Date and shall
otherwise be in substantially the form of the Note or Notes subject to such
assignments.
(g) Each Lender may sell participations (without the consent of the
Agent, the Borrower or any other Lender) to one or more parties in or to
all or a portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Commitments, the
Loans owing to it and the Note or Notes held by it); provided that (i) such
-------- ----
Lender's obligations under this Credit Agreement (including, without
limitation, its Commitments to the Borrower hereunder) shall remain
unchanged, (ii) such Lender
114
<PAGE>
shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder
of any such Note for all purposes of this Credit Agreement, (iv) the
Borrower, the Agent, and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Credit Agreement and (v) such Lender shall not
transfer, grant, assign or sell any participation under which the
participant shall have rights to approve any amendment or waiver of this
Credit Agreement except to the extent such amendment or waiver would (A)
extend the final maturity date or the date for the payments of any
installment of fees or principal or interest of any Loans or Letter of
Credit reimbursement obligations, or Foreign Exchange Obligations or
Acceptance Obligations in which such participant is participating, (B)
reduce the amount of any installment of principal of the Loans or Letter of
Credit reimbursement obligations or Foreign Exchange Obligations or
Acceptance Obligations in which such participant is participating, (C)
except as otherwise expressly provided in this Credit Agreement, reduce the
interest rate applicable to the Loans, or Letter of Credit reimbursement
obligations or Foreign Exchange Obligations or Acceptance Obligations in
which such participant is participating, or (D) except as otherwise
expressly provided in this Credit Agreement, reduce any Fees payable
hereunder.
(h) Each Lender agrees that, without the prior written consent of
the Borrower and the Agent, it will not make any assignment hereunder in
any manner or under any circumstances that would require registration or
qualification of, or filings in respect of, any Loan, Note or other
Obligation under the securities laws of the United States of America or of
any jurisdiction.
(i) In connection with the efforts of any Lender to assign its
rights or obligations or to participate interests, such Lender may disclose
any information in its possession regarding the Borrower.
13.7 [INTENTIONALLY OMITTED].
13.8 Information. The Borrower hereby agrees that the Agent and the
-----------
Lenders may exchange any information concerning the Borrower, including, without
limitation, information relating to the creditworthiness of the Borrower in the
possession or control of the Agent or the Lenders, as the case may be; (i) with
any of their respective affiliates; provided, however, that any such exchange,
-------- -------
and the nature, manner and extent thereof shall be limited pursuant to any
written confidentiality agreement governing the obligations of the Agent or the
Lenders or such affiliate, as the case may be, with respect to such information;
provided, further, that neither the Agent nor any of the Lenders shall in any
- -------- -------
event furnish any such information to any competitor of the Borrower or any
customer of the Borrower or any Person known by the Agent or any Lender to be
contemplating an acquisition of any capital stock or assets of the Borrower or
any agent or
115
<PAGE>
affiliate of any of the foregoing, except with the prior written consent of the
Borrower or as required by applicable law or judicial order; (ii) to any
regulatory authority having jurisdiction over the Lender, (iii) to any other
person, in connection with the exercise of the Lender's rights hereunder or
under any of the other Credit Documents.
13.9 Indemnification. The Borrower shall and hereby agrees to indemnify,
---------------
defend and hold harmless the Agent and each of the Lenders and their respective
directors, officers, agents and employees from and against (a) any and all
losses, claims, damages, liabilities, deficiencies, judgments or expenses
incurred by any of them (except to the extent that it is finally judicially
determined to have resulted from their own gross negligence or willful
misconduct) arising out of or by reason of any litigations, investigations,
claims or proceedings which arise out of or are in any way related to (i) this
Credit Agreement or the transactions contemplated thereby, (ii) any actual or
proposed use by the Borrower of the proceeds of the Loans or (iii) the Agent's
or the Lenders' entering into this Credit Agreement, the other Credit Documents
or any other agreements and documents relating hereto, including, without
limitation, amounts paid in settlement, court costs and the fees and
disbursements of counsel incurred in connection with any such litigation,
investigation, claim or proceeding or any advice rendered in connection with any
of the foregoing and (b) any such losses, claims, damages, liabilities,
deficiencies, judgments or expenses incurred in connection with any remedial or
other action taken by the Borrower, any Pledgor or any of the Lenders in
connection with compliance by the Borrower or any Subsidiaries, or any of their
respective properties, with any federal, state or local environmental laws,
acts, rules, regulations, orders, directions, ordinances, criteria or
guidelines. If and to the extent that the obligations of the Borrower hereunder
are unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law. The Borrower shall, upon demand, pay to the
Agent and any Lender all costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by the Agent
or such Lender in (i) enforcing or defending its rights under or in respect of
this Credit Agreement, the other Credit Documents or any other document or
instrument now or hereafter executed and delivered in connection herewith, (ii)
in collecting the Loans, (iii) in foreclosing or otherwise collecting upon the
Collateral or any part thereof and (iv) obtaining any legal, accounting or other
advice in connection with any of the foregoing. The provisions of this Section
-------
13.9 shall not limit or waive, and are not
- ----
intended to limit or waive, any claim which the Borrower has or may have against
any Defaulting Lender.
Without limiting the generality of the foregoing paragraph, the Borrower
will defend, indemnify and hold harmless the Agent and the Lenders, and their
respective employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to, the violation of or noncompliance
with any Environmental Laws applicable to any real property owned, leased or
operated by the Borrower, or any orders, requirements or demands of governmental
authorities
116
<PAGE>
related thereto, including, without limitation, attorney's and consultant's
fees, investigation and laboratory fees, court costs and litigation expenses,
except to the extent that any of the foregoing arise out of the gross negligence
or willful misconduct of the party seeking indemnification therefor.
The Borrower's obligations under this Section 13.09 shall survive any
-------------
termination of the Commitments and the payment in full of the Obligations, and
are in addition to, and not in substitution of, any other of its obligations set
forth in this Credit Agreement.
13.10 Entire Agreement; Successors and Assigns. This Credit Agreement
----------------------------------------
along with the other Credit Documents constitutes the entire agreement among the
Borrower, the Agent and the Lenders, supersedes any prior agreements among them,
and shall bind and benefit the Borrower and the Lenders and their respective
successors and permitted assigns.
13.11 Amendments, Etc. No amendment or waiver of any provision of this
----------------
Credit Agreement or any other Credit Document, nor consent to any departure by
any Credit Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Required Lenders, or if the Lenders shall
not be parties thereto, by the parties thereto and consented to by the Required
Lenders, and each such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; provided
--------
that no amendment, waiver or consent shall, unless in writing and signed by all
- ----
the Lenders, do any of the following: (i) increase the Commitments, (ii) except
as otherwise expressly provided in this Credit Agreement, reduce the principal
of, or interest on, the Notes, any Letter of Credit reimbursement obligations,
any Foreign Exchange Obligations, any Acceptance Obligations or any Fees
hereunder (other than Fees that are exclusively for the account of the Agent),
(iii) postpone any date fixed for any payment in respect of principal of, or
interest on, the Notes, any Letter of Credit reimbursement obligations, any
Foreign Exchange Obligations, any Acceptance Obligations or any Fees hereunder
(other than Fees that are exclusively for the account of the Agent), (iv) change
the percentage of the Commitments, or any minimum requirement necessary for the
Lenders or the Required Lenders to take any action hereunder, (v) amend or waive
Section 3.5(b) or this Section 13.11, or change the definition of Required
- -------------- -------------
Lenders, or (vi) except as otherwise expressly provided in this Credit
Agreement, and other than in connection with the financing, refinancing, sale or
other disposition of any asset of the Borrower permitted under this Credit
Agreement, release any Liens in favor of the Lenders on any of the Collateral
(except as provided in Sections 7.5 and 12.10) and provided further, that no
------------ ----- -------- -------
amendment, waiver or consent affecting the rights or duties of the Agent, an
Issuing Bank, a Foreign Exchange Guarantor or an Accepting Bank under any Credit
Document shall in any event be effective, unless in writing and signed by the
Agent and/or such Issuing Bank, such Foreign Exchange Guarantor or such
Accepting Bank, as applicable, in addition to the Lenders required hereinabove
to take such action. Notwithstanding any of the foregoing to the contrary, the
consent of the Borrower shall not be required for any amendment, modification or
waiver of the provisions of Article 12 (other than
----------
117
<PAGE>
the provisions of Section 12.9 and 12.10). In addition, the Borrower and the
------------ -----
Lenders hereby authorize the Agent to modify this Credit Agreement by
unilaterally amending or supplementing Annex I from time to time in the manner
requested by the Borrower, the Agent or any Lender in order to reflect any
assignments or transfers of the Loans as provided for hereunder; provided,
--------
however, that the Agent shall promptly deliver a copy of any such modification
- -------
to the Borrower and each Lender.
13.12 [INTENTIONALLY OMITTED].
13.13 Nonliability of Agent and Lenders. The relationship between the
---------------------------------
Borrower and the Lenders and the Agent shall be solely that of borrower and
lender. Neither the Agent nor any Lender shall have any fiduciary
responsibilities to the Borrower. Neither the Agent nor any Lender undertakes
any responsibility to the Borrower to review or inform the Borrower of any
matter in connection with any phase of the Borrower's business or operations.
13.14 Independent Nature of Lenders' Rights. The amounts payable at any
-------------------------------------
time hereunder to each Lender under such Lender's Note or Notes shall be a
separate and independent debt.
13.15 Counterparts. This Credit Agreement may be executed in any number
------------
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
13.16 Effectiveness. This Credit Agreement shall become effective on the
-------------
date on which all of the parties hereto shall have signed a copy hereof (whether
the same or different copies) and shall have delivered the same to the Agent or,
in the case of Lenders who have not so delivered the same to the Agent, shall
have given to the Agent written, telecopied or telex notice (actually received)
at such office that the same has been signed and mailed to it.
13.17 Severability. In case any provision in or obligation under this
------------
Credit Agreement or the Notes or the other Credit Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
13.18 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Credit Agreement, and the Table of Contents, are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Credit Agreement.
118
<PAGE>
13.19 Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Credit Agreement or in any other Credit Document, the
Borrower, the Agent and the Lenders hereby agree that all agreements among them
under this Credit Agreement and the other Credit Documents, whether now existing
or hereafter arising and whether written or oral, are expressly limited so that
in no contingency or event whatsoever shall the amount paid, or agreed to be
paid, to the Agent or any Lender for the use, forbearance, or detention of the
money loaned to the Borrower and evidenced hereby or thereby or for the
performance or payment of any covenant or obligation contained herein or
therein, exceed the Highest Lawful Rate. If due to any circumstance whatsoever,
fulfillment of any provisions of this Credit Agreement or any of the other
Credit Documents at the time performance of such provision shall be due shall
exceed the Highest Lawful Rate, then, automatically, the obligation to be
fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance any
Lender should ever receive anything of value deemed interest by applicable law
which would exceed the Highest Lawful Rate, such excessive interest shall be
applied to the reduction of the principal amount then outstanding hereunder or
on account of any other then outstanding Obligations and not to the payment of
interest, or if such excessive interest exceeds the principal unpaid balance
then outstanding hereunder and such other then outstanding Obligations, such
excess shall be refunded to the Borrower. All sums paid or agreed to be paid to
the Agent or any Lender for the use, forbearance, or detention of the
Obligations and other indebtedness of the Borrower to the Agent or any Lender
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until payment
in full so that the actual rate of interest on account of all such indebtedness
does not exceed the Highest Lawful Rate throughout the entire term of such
indebtedness. The terms and provisions of this Section 13.19 shall control every
-------------
other provision of this Credit Agreement and all agreements among the Borrower,
the Agent and the Lenders.
13.20 Right of Setoff. In addition to and not in limitation of all rights
---------------
of offset that any Lender or other holder of a Note may have under applicable
law, each Lender or other holder of a Note shall, upon the occurrence of any
Event of Default and whether or not such Lender or such holder has made any
demand or the Obligations of any Credit Party are matured, have the right to
appropriate and apply to the payment of the Obligations of such Credit Party all
deposits (general or special, time or demand, provisional or final) then or
thereafter held by and other indebtedness or property then or thereafter owing
by such Lender or other holder. Any amount received as a result of the exercise
of such rights shall be reallocated among the Lenders as set forth in Section
-------
3.11 hereof.
- ----
13.21 Confidentiality. (a) The Agent and each Lender agree that they
---------------
shall hold in confidence in accordance with their respective customary procedure
for handling confidential information of this nature and in accordance with safe
and sound banking practices, any confidential information which has been marked
as "confidential" provided by the Borrower either directly to the Agent or such
Lender or indirectly through the Agent.
119
<PAGE>
(b) Notwithstanding the foregoing paragraph (a), this Section shall not
apply to: (i) information exchanged among the Agent and the Lenders or among
their employees, officers, accountants, attorneys or consultants provided that
-------- ----
any such Person shall have first been advised of the confidential nature of such
information; (ii) information that has been or is made public by the Borrower or
any third party without breach of this Credit Agreement or otherwise becomes
generally available to the public other than as a result of a disclosure in
violation of this Section 13.21; (iii) information that was or becomes available
-------------
to the Agent, or any Lender from a third party on a non-confidential basis; (iv)
information that is required to be disclosed by law, including to bank examiners
and regulatory authorities; (v) information that is required to be disclosed by
any court, agency or legislative body (by interrogatories, requests for
information, oral questions, subpoena, civil investigative demand or similar
process); or (vi) any disclosure of confidential information to a proposed
participant or purchasing bank in connection with a proposed participation or
transfer pursuant to Section 13.6 hereof; provided that such proposed
------------ -------- ----
participant or purchasing bank shall have first agreed to treat such information
as confidential as provided in this Section 13.21.
-------------
120
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be executed and delivered by their proper and duly authorized officers as of the
date set forth above.
BORROWER:
CONVERSE INC.
By:
-------------------------------------------
Senior Vice President
LENDER:
BT COMMERCIAL CORPORATION
By:
-------------------------------------------
Senior Vice President
121
<PAGE>
ANNEX I
-------
LENDERS AND COMMITMENT AMOUNTS
As of May 20, 1997
Name and Address of Lender Revolving Credit Commitment
- -------------------------- ---------------------------
BT COMMERCIAL CORPORATION $150,000,000.00
233 South Wacker Drive
84th Floor
Chicago, Illinois 60606
Attention: Wayne D. Hillock
Telecopy No.: (312) 993-8096
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
This First Amendment to Credit Agreement (the "Amendment") is made on this
26/th/ day of June, 1997 by and among Converse Inc. (the "Borrower"), BT
Commercial Corporation, as Agent (in such capacity, the "Agent") and BT
Commercial Corporation (in its capacity as Lender, the "Lender").
WITNESSETH:
WHEREAS, the Agent, the Lender and the Borrower are parties to that certain
Credit Agreement dated as of May 21, 1997 (the "Credit Agreement"); and
WHEREAS, the parties desire to amend the Credit Agreement, as more fully
set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the adequacy is hereby acknowledged,
and subject to the terms and conditions hereof, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized
-----------
terms shall have the meaning given to them in the Credit Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The defined term "Borrowing
------------------------------
Base", which appears in Section 1.1 of the Credit Agreement, is hereby amended
by inserting the following phase at the beginning of subsection (B) thereof:
"the lesser of (i) $100,000,000, and (ii)"
SECTION 3. REAFFIRMATION OF BORROWER. Borrower hereby represents and
-------------------------
warrants to Agent and Lender that (i) the representations and warranties set
forth in Section 5 of the Credit Agreement are true and correct on and as of the
date hereof, except to the extent (a) that any such representations or
warranties relate to a specific date, or (b) of changes thereto as a result of
transactions for which Agent and Lender have granted their consent; (ii)
Borrower is on the date hereof in compliance with all of the terms and
provisions set forth in the Credit Agreement as hereby amended; and (iii) upon
execution hereof no Default or Event of Default has occurred and is continuing
or has not previously been waived.
SECTION 4. FULL FORCE AND EFFECT. Except as herein amended, the Credit
---------------------
Agreement and all other Credit Documents shall remain in full force and effect.
SECTION 5. COUNTERPARTS. This Amendment 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 document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
day and year specified above.
BORROWER:
CONVERSE INC.
By: /s/ Donald C. Camacho
--------------------------------
Name: Donald C. Camacho
--------------------------------
Title: Senior Vice President
---------------------------------
AGENT:
BT COMMERCIAL CORPORATION
By: /s/ Frank Fazio
---------------------------------
Title: Vice President
---------------------------------
LENDER:
BT COMMERCIAL CORPORATION
By: /s/ Frank Fazio
----------------------------------
Name: Frank Fazio
----------------------------------
Title: Vice President
----------------------------------
<PAGE>
EXHIBIT 10.3
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is dated as of the 1/st/ day of June, 1997, by and between
Converse Inc., a Delaware corporation (the "Buyer") and Exeter Research, Inc., a
Delaware corporation (the "Seller") ("Agreement").
WHEREAS, the Seller desires to sell and the Buyer desires to purchase
certain assets currently owned by the Seller;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Buyer and the Seller agree as follows:
1. PURCHASE AND SALE.
Acquired Assets. Subject to the terms and conditions set forth in
---------------
this Agreement, the Seller shall sell, assign, transfer and deliver to the
Buyer, and the Buyer shall purchase, acquire and take assignment and
delivery of all of the assets set forth in Exhibit A (all of which assets
are hereinafter referred to collectively as the "Acquired Assets").
2. PURCHASE PRICE. The buyer shall pay to the Seller $152,187.00 for
the Acquired Assets (the "Purchase Price"). The Purchase Price shall be
paid upon execution of this Agreement in immediately available funds.
3. DELIVERY OF TITLE. The Seller shall duly execute and deliver to the
Buyer or its nominee of nominees such deeds, bills of sale, certificates of
title and other instruments of assignment or transfer with respect to the
Acquired Assets as the Buyer may reasonably request and as may be necessary
to vest in the Buyer good record and marketable title to all of the
Acquired Assets.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer as follows:
4.1 Authority of Seller. The Seller has all requisite power and
-------------------
authority to own and hold the Acquired Assets, to execute and deliver this
Agreement and to carry out all actions required of it pursuant to the terms
of this Agreement.
4.2 Approvals of Seller; Binding Effect. The Seller has obtained all
-----------------------------------
necessary authorizations and approvals from its Board of Directors and
stockholders required for the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Seller and constitutes the
legal, valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms.
4.3 Title to Acquired Assets. The Seller is the lawful owner of, has
------------------------
<PAGE>
good and valid record and marketable title to, and has the full right to sell,
convey, transfer, assign and deliver the Acquired Assets, without any
restrictions of any kind whatsoever and all of the Acquired Assets are entirely
free and clear of any security interests, liens, claims, charges, options,
mortgages, debts, leases (or subleases), conditional sales agreements, title
retention agreements, encumbrances of any kind or restrictions against the
transfer or assignment thereof (collectively, "Encumbrances"), and, there are no
filings in any registry of deeds in any jurisdiction or under the Uniform
Commercial Code or similar statute in any jurisdiction showing the Seller as
debtor which create or perfect or which purport to create or perfect any
Encumbrance in or on any of the Acquired Assets. The Seller will convey the
Acquired Assets to the Buyer by deeds, bills of sale, certificates of title and
instruments of assignment and transfer effective to vest in the Buyer, and the
Buyer will have, good and valid record and marketable title to all of the
Acquired Assets, free and clear of all Encumbrances.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The
Buyer represents and warrants to the Seller as follows:
5.1 Organization and Standing of Buyer. The Buyer is a corporation duly
----------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Delaware. The Buyer has full power and authority under its
Certificate of Incorporation and By-Laws and applicable laws to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
5.2 Corporate Approval; Binding Effect. The Buyer has obtained all
----------------------------------
necessary authorizations and approvals required for the execution and delivery
of this Agreement. This Agreement has been duly executed and delivered by the
Buyer and constitutes the legal, valid and binding obligations of the Buyer,
enforceable against the Buyer in accordance with its terms.
5.3 Buyer's Due Diligence. The Buyer is familiar with the Acquired
---------------------
Assets and has received an independent appraisal of the Acquired Assets.
6. INDEMNIFICATION. The Seller agrees to defend, indemnify and hold
the Buyer harmless from and against any and all liabilities, claims, losses,
damages, deficiencies, obligations, costs and expenses (including, without
limitation, reasonable attorneys fees) arising out of the sale of the Acquired
Assets which arise directly or indirectly from the use of the Acquired Assets
prior to the date of this Agreement, including but not limited to, failure to
comply with the New Hampshire bulk sales laws.
7. GENERAL.
7.1 Notices. All notices, demands and other communications hereunder
-------
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or sent by written telecommunication, as
follows:
<PAGE>
If to the Seller, to:
Exeter Research, Inc.
8 Chestnut Street
Exeter, NH 03833-1859
Attention: Ned Frederick
If to Buyer, to:
Converse Inc.
One Fordham Road
North Reading, MA 01864
Attention: Jack A. Green, Senior Vice President General Counsel
and Secretary
7.2 Entire Agreement. This Agreement contains the entire understanding
----------------
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by all of the parties hereto.
7.3 Governing Law. The validity and construction of this Agreement
-------------
shall be governed by the laws of the Commonwealth of Massachusetts.
7.4 Sections and Section Headings. All enumerated subdivisions of this
-----------------------------
Agreement are herein referred to as "Sections" or "subsections." The headings
of Sections and subsections are for reference only and shall not limit or
control the meaning thereof.
7.5 Assigns. This Agreement shall be binding upon and inure to the
-------
benefit of the assignees and successors of each of the parties. Neither this
Agreement nor the obligations of any party hereunder shall be assignable or
transferable by such party without the prior written consent of the other party
hereto.
7.6 Further Assurances. From time to time, at the request of the Buyer
------------------
and without further consideration, the Seller shall execute and deliver such
further instruments of conveyance and transfer and take such other actions as
the Buyer may reasonably require more effectively to convey and transfer any of
the Acquired Assets to the Buyer. The Seller and the Buyer shall also execute
and deliver to the appropriate other party such other instruments as may be
reasonably required in connection with the performance this Agreement and each
shall take all such further actions as may be reasonably required to carry out
the transactions contemplated by this Agreement.
<PAGE>
7.7 Tax Treatment. The Buyer and the Seller shall treat and report the
-------------
transactions contemplated by this Agreement in all respects consistently for
purposes of any federal, state or local tax, including without limitation, with
respect to calculation of gain, loss and basis with reference to the Purchase
Price allocations made pursuant to Section 2 hereof. The parties hereto shall
not take any actions or positions inconsistent with the obligations set forth
herein.
7.8 No Implied Rights or Remedies. Except as otherwise expressly
-----------------------------
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, other than
the Seller and the Buyer, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers as of the date and year first above written.
CONVERSE INC.
By: /s/ Glenn N. Rupp
-----------------
Glenn N. Rupp, CEO & Chairman
of the Board
EXETER RESEARCH, INC.
By: /s/ Edward C. Frederick
-----------------------
Edward C. Frederick, President
<PAGE>
Exhibit 11.1
CONVERSE INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
June 29, 1996 June 28, 1997 June 29, 1996 June 28, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary:
- -------
Weighted average number of shares outstanding............. 16,692 17,256 16,692 17,244
Weighted average incremental shares from assumed
conversion of common stock equivalents.................. 0 595 --- 612
--------- ------- -------- --------
16,692 17,851 16,692 17,856
Income (loss) available to common stockholders............ $( 3,743) $ 4 $( 7,002) $ 12,684
Primary earnings (loss) per share $( 0 .22) $ 0.00 $( 0.42) $ 0.71
Fully Diluted:
- -------------
Weighted average number of common
shares outstanding...................................... 16,692 17,256 16,692 17,244
Weighted average incremental shares from assumed
conversion of common stock equivalents.................. --- 642 --- 650
Weighted average shares assumed issued upon
conversion of convertible debt securities............... --- --- --- 765
---------- ---------- ---------- --------
16,692 17,898 16,692 18,659
Income (loss) available to common stockholders............ $( 3,743) $ 4 $( 7,002) $ 12,684
Add interest (net of taxes) on bonds assumed to be
converted into common stock............................. --- --- --- 363
---------- ---------- ---------- --------
$( 3,743) $ 4 $( 7,002) $ 13,047
Fully diluted earnings (loss) per share $( 0 .22) $ 0.00 $ ( 0.42) $ 0.70
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 4,136
<SECURITIES> 0
<RECEIVABLES> 97,958
<ALLOWANCES> 2,357
<INVENTORY> 98,406
<CURRENT-ASSETS> 214,990
<PP&E> 28,239
<DEPRECIATION> 9,237
<TOTAL-ASSETS> 266,059
<CURRENT-LIABILITIES> 173,949
<BONDS> 80,000
0
0
<COMMON> 17,275
<OTHER-SE> (46,694)
<TOTAL-LIABILITY-AND-EQUITY> 266,059
<SALES> 239,293
<TOTAL-REVENUES> 250,679
<CGS> 166,248
<TOTAL-COSTS> 232,937
<OTHER-EXPENSES> (10,757)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,554
<INCOME-PRETAX> 21,945
<INCOME-TAX> 8,449
<INCOME-CONTINUING> 13,496
<DISCONTINUED> 0
<EXTRAORDINARY> 812
<CHANGES> 0
<NET-INCOME> 12,684
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
</TABLE>
