SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
NOVEMBER 1, 1996
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Date of Report (Date of earliest event reported)
HANGER ORTHOPEDIC GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 0-10670 84-0904275
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
7700 OLD GEORGETOWN ROAD, BETHESDA, MARYLAND 20814
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(Address of principal executive offices) (zip code)
(301) 986-0701
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Registrant's telephone number, including area code:
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 1, 1996, Hanger Orthopedic Group, Inc. ("Hanger") acquired
J.E. Hanger, Inc. of Georgia, a Georgia corporation ("JEH"), in a merger
transaction effected pursuant to an Agreement and Plan of Merger, dated as of
July 29, 1996 (the "Merger Agreement") by and among Hanger, JEH and JEH
Acquisition Corporation, a Georgia corporation ("Acquisition") wholly-owned by
Hanger. The Merger Agreement provided for the merger of Acquisition with and
into JEH (the "Merger"), as a result of which JEH became a wholly-owned
subsidiary of Hanger, effective November 1, 1996 (the "Effective Date"). Upon
the Effective Date, each share of common stock, par value $1.00 per share, of
JEH (the "JEH Common Stock") was converted into the right to receive (i)
$2,009.13 in cash (subject to adjustment as discussed below) and (ii) 45.66
shares of Hanger common stock, par value $.01 per share (the "Hanger Common
Stock"). The Boards of Directors of Hanger and JEH unanimously approved the
Merger Agreement. At a Special Meeting of JEH Shareholders held on October 28,
1996, such shareholders approved the Merger Agreement. The Merger Agreement
was not required to be voted upon by Hanger shareholders. The following
description of portions of the Merger Agreement is qualified by reference to
the complete Merger Agreement, which is filed as an exhibit hereto.
JEH
JEH provides orthotic and prosthetic services in 93 patient care centers
in 15 states. Of JEH's patient care centers, only six operate in cities also
served by Hanger patient care centers. JEH is the largest distributor of
prosthetic and orthotic supplies and components in the United States and with
the addition of Hanger's O&P Express distribution warehouse, the combined
companies have six distribution points throughout the country.
TERMS OF THE MERGER
Under the Merger Agreement, Acquisition merged with and into JEH, as a
result of which JEH (as the surviving corporation in the Merger) became a
wholly-owned subsidiary of Hanger. Subject to the adjustment provisions
discussed below, upon effectiveness of the Merger on November 1, 1996 (the
"Effective Date"), each outstanding share of JEH Common Stock was converted
into the right to receive $2,009.13 in cash (subject to adjustment as
discussed below) and 45.66 shares of Hanger Common Stock. The total amount of
cash paid to holders of JEH Common Stock was $44 million (subject to
adjustment as discussed below) and the total number of shares of Hanger Common
Stock issued to holders of JEH Common Stock was one million shares (subject to
the payment of cash in lieu of fractional shares as discussed below).
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The $2,009.13 in cash payable by Hanger in exchange for each share of JEH
Common Stock consists of (i) $1,825.00, which was paid at the closing under
the Merger Agreement on November 1, 1996 (the "Closing"), is not subject to
any adjustment (the "Primary Cash Payment"); and (ii) $184.13 which was placed
in an escrow account with a bank (the "Escrow Agent"), will be subject to
adjustment as discussed below and will be paid as promptly as practicable
after the amount of such post-closing adjustment is determined as described
below (the "Post-Closing Cash Payment"). The Merger became effective on
November 1, 1996, when a properly executed Certificate of Merger was duly
filed with the Secretary of State of the State of Georgia.
The $184.13 cash payment per share of JEH Common Stock referred to above
will be subject to adjustment as described below. Such cash payment amount is
referred to hereinafter as the "Payment Subject to Adjustment." On the
Effective Date, Hanger placed in escrow with the Escrow Agent $4,032,447,
representing the aggregate amount of the Payments Subject to Adjustment for
all 21,900 outstanding shares of JEH Common Stock. Such amount is being held
in escrow pending determination of the amount of the Post-Closing Cash Payment
that will be set forth in the Accountants' PostClosing Report discussed below.
The amount placed in escrow bears interest at a rate not less than the
treasury bill rate until paid.
The Payment Subject to Adjustment will be increased or deceased, as the
case may be, by the amount by which the total amount of JEH's shareholders'
equity at the Effective Date, determined in accordance with generally accepted
accounting principals ("GAAP") on a basis consistent with the application of
GAAP in JEH's financial statements for the year ended December 31, 1995,
exceeds or is less than the Adjusted Shareholders' Equity as defined and
described below. Under the Merger Agreement, JEH's Adjusted Shareholders'
Equity at the Effective Date is required to be not less than $22,926,999,
which is the amount of JEH's shareholders' equity at December 31, 1995, less
(i) the fair market value of certain marketable securities distributed to JEH
shareholders prior to the Effective Date, (ii) the cash proceeds from the sale
by JEH of any marketable securities or non-operating real properties
distributed to JEH shareholders prior to the Effective Date and (iii) the net
book value determined in accordance with GAAP of the non-operating real
properties distributed to JEH shareholders prior to the Effective Date.
The Payment Subject to the Adjustment may also be increased by the
additional federal income tax attributable to the election by Hanger and JEH
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), and any corresponding election under state, local or foreign tax law.
Reference is made to Sections 4.2(d), 9.15 and 9.17(b) of the Merger Agreement
for
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additional information relating to such further adjustment of the Payment
Subject to Adjustment as a result of such tax election.
Within 60 days following the preparation by JEH of audit schedules in
accordance with the terms of a Coopers & Lybrand audit assistance letter
delivered to JEH on or about the Effective Date, Hanger will cause Coopers &
Lybrand to complete, at Hanger's expense, a report (the "Accountant's
Post-Closing Report") setting forth the adjustment in the Payment Subject to
Adjustment as discussed above. Hanger will promptly deliver the Accountant's
Post-Closing Report to the JEH Shareholders' Representatives (as defined in
the Merger Agreement) and in the event the total amount of the Post-Closing
Cash Payment is greater than the amount of the Payment Subject to Adjustment
held in escrow, Hanger will transfer an amount equal to such excess to the
Escrow Agent. In the event the Payment Subject to Adjustment held in escrow is
greater than the total amount of the Post-Closing Cash Payment, the Escrow
Agent will transfer an amount equal to such excess to Hanger. Hanger will
promptly direct the Escrow Agent to release the balance of the funds held in
escrow to the JEH Shareholders' Representatives as payment of the Post-Closing
Cash Payment. The Merger Agreement contains a provision providing a mechanism
for the resolution of any disagreement between the Accountants' Post-Closing
Report and the JEH Shareholders' Representatives with respect to the amount of
the Post-Closing Cash Payment.
EXCHANGE OF JEH STOCK CERTIFICATES
The shares of Hanger Common Stock issued by Hanger in exchange for each
share of JEH Common Stock issued to the JEH shareholders were not registered
under the Securities Act of 1933 or any state securities law in reliance upon
exemptions therefrom. Accordingly, such shares are subject to restrictions
upon their transferability.
No fractional shares of Hanger Common Stock were issued upon surrender
for exchange of JEH Common Stock. In lieu of any such fractional shares, each
holder of JEH Common Stock who would otherwise have been entitled to a
fractional share will be paid an amount in cash (without interest) equal to
such holder's proportionate interest in net proceeds from the sale or sales in
the open market, on behalf of all such holders, of the aggregate fractional
shares of Hanger Common Stock.
FINANCING OF THE MERGER
Banque Paribas (the "Bank"), as the agent for a syndicate of banks,
provided up to $88.0 million principal amount of senior secured financing (the
"Senior Financing Facilities") that includes (i) $55.0 million of term loans
(the "Term Loans") for use in connection with Hanger's acquisition of JEH,
(ii) a $8.0 million revolving loan facility (the "Revolver") and (iii) up to
$25.0 million principal amount of loans under an acquisition loan
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facility (the "Acquisition Loans") for use in connection with future
acquisitions. The proceeds of borrowings under the Term Loans and the
Revolver, along with approximately $8.0 million raised from the Bank and Chase
Venture Capital Associates L.P. in the form of Senior Subordinated Notes with
detachable Warrants and $5.0 million cash on hand, was or will be used to (i)
provide the $40 million cash consideration paid and the additional amount of
approximately $4 million to be paid (subject to adjustment as discussed above)
by Hanger to JEH shareholders pursuant to the Merger Agreement, (ii) refinance
existing Hanger and JEH indebtedness of approximately $20.0 million and (iii)
pay related transaction expenses not to exceed $4.0 million.
Of the Term Loans, approximately $29.0 million principal amount (the "A
Term Loan") will be amortized in equal quarterly amounts and will mature five
years from the Closing Date, and $26.0 million principal amount (the "B Term
Loan") will be amortized in equal quarterly amounts and will mature seven
years from the Closing Date. The final maturity of any loans under the
Revolver and Acquisition Loans will be five years from the Closing Date. An
unused commitment fee of 1/2 of 1% per year on the unused portion of the
Revolver and the Acquisition Loan facilities will be payable quarterly in
arrears.
The above Senior Financing Facilities are secured by a first priority
security interest in all of the common stock of Hanger's subsidiaries and all
assets of Hanger and its subsidiaries. At Hanger's option, the annual interest
rate will be adjusted LIBOR plus 2.75% or a Base Rate (as defined below) plus
1.75% in the case of the A Term Loan, Acquisition Loans and Revolver
borrowings, and adjusted LIBOR plus 3.25% or Base Rate plus 2.25% in the case
of the B Term Loan. The "Base Rate" is defined as the higher of (i) the
federal funds rate plus 1/2 of 1%, or (ii) the prime commercial lending rate
of the Chase Manhattan Bank, N.A., as announced from time to time.
All or any portion of outstanding loans under any of the Senior Financing
Facilities may be prepaid at any time and commitments may be terminated in
whole or in part at the option of Hanger without premium or penalty, except
that LIBOR - based loans may only be paid at the end of the applicable
interest period. Mandatory prepayments will be required in the event of
certain sales of assets, debt or equity financings and under certain other
circumstances.
Cash interest on the Subordinated Notes, which will mature eight years
from the date of issuance, will be payable quarterly at an annual rate of 8%;
provided, however, that Hanger will be permitted, in lieu of cash interest, to
pay interest in a combination of cash and additional Subordinated Notes ("PIK
Interest Notes") at the above interest rate. (In that event, interest paid in
cash will be at an annual rate of 3.2% and interest paid in the
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form of PIK Interest Notes will be paid at an annual rate of 4.8%.) The
Subordinated Notes will be subordinated to loans under the Senior Financing
Facilities. Hanger will, at its option, be entitled to redeem the Subordinated
Notes at any time at their liquidation value. Hanger must use 100% of the
proceeds from any public offering of its equity securities to repurchase the
Subordinated Notes, if permitted under the Senior Financing Facilities.
The detachable Warrants issued by Hanger in conjunction with the Senior
Subordinated Notes represent 1.6 million shares of Hanger Common Stock with an
exercise price equal to the lower of (a) $4.01 as to 929,700 shares, and (b)
$6.375 as to 670,300 shares. Up to 50% of the Warrants (representing up to
800,000 shares of Hanger Common Stock) will be terminated upon the repayment
of 100% of the Subordinated Notes within 18 months of the date of issuance. An
additional 5% of the Warrants (representing up to 80,000 shares of Hanger
Common Stock) will be terminated upon the repayment of 100% of the
Subordinated Notes within 12 months of the date of issuance. Warrants will be
terminated pro-rata across the above three exercise prices.
INDEMNIFICATION
Pursuant to Section 9.7 of the Merger Agreement, Hanger agreed that all
rights to indemnification, advancement of litigation expenses or limitation of
personal liability existing in favor of the directors and officers of JEH
under its Articles of Incorporation or By-Laws survive the Merger and Hanger
has assumed all obligations of JEH in respect thereof as to any claim or
claims for which such directors and officers would have been indemnified under
such Articles of Incorporation or By-Laws.
Pursuant to Section 12.2 of the Merger Agreement, the Shareholders'
Representatives entered into agreements with Hanger pursuant to which such
individuals assumed responsibility for the representations and warranties of
JEH in the Merger Agreement that survive the Merger. The form of such
indemnification agreement entered into between Hanger and such individuals is
set forth as Exhibit C to the Merger Agreement.
OPERATION AND MANAGEMENT OF JEH AFTER THE MERGER
Hanger presently intends to continue to operate the business of JEH
substantially as it was conducted by JEH prior to the Merger; provided,
however, it is expected that the headquarters for the combined patient care
center operations of Hanger and JEH will be located in Bethesda, Maryland and
that the headquarters for the combined wholesale distribution operations of
Hanger and JEH will be headquartered in Alpharetta, Georgia. Furthermore, it
is
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anticipated that accounting, human resources, payroll and contract services
will be headquartered in Bethesda, Maryland.
Pursuant to the Merger Agreement, Hanger will appoint Daniel A. McKeever
and H.E. Thranhardt to serve as directors of Hanger as soon as practicable
after the Effective Date.
The Merger Agreement provides that the Board of Directors of JEH
following the Merger will consist of two directors to be designated by Hanger,
who will serve until their successors are duly elected and qualified. The
Merger Agreement also provides that the officers of JEH immediately prior to
the Effective Date will continue to be officers of JEH until their successors
are duly elected and qualified. It is expected that (i) Ivan R. Sabel,
Chairman of the Board and President of Hanger, and Richard A. Stein, Vice
President - Finance, Treasurer and Secretary of Hanger, will be designated by
Hanger to be the directors of JEH; (ii) Mr. Sabel will be appointed President
of JEH and Mr. Stein will be appointed Vice President, Treasurer and Secretary
of JEH; and (iii) John D. McNeill, currently Senior Vice President and Chief
Operating Officer of JEH, will be appointed Senior Vice-President -Patient
Care Services of Hanger and Alice G. Tidwell, currently Senior Vice President
of Operations and Secretary of JEH, will be appointed Vice President -
Distribution of Hanger.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements Of Businesses Acquired.
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Attached hereto are audited JEH balance sheets, dated December 31, 1994
and 1995, and JEH statements of income, statements of retained earnings and
statements of cash flows for the years ended December 31, 1993, 1994 and 1995,
and the independent auditor's reports and notes to financial statements
relating thereto. In addition, attached is an unaudited JEH balance sheet at
June 30, 1996 and JEH statement of income for the six months ended June 30,
1996.
(b) Pro Forma Financial Information.
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Attached hereto are unaudited JEH pro forma consolidated statements of
operations of Hanger for the year ended December 31, 1995 and the six months
ended June 30, 1996, and the unaudited pro forma balance sheets as of June 30,
1996 and December 31, 1995, based on Hanger's historical financial statements
and adjusted to give effect to its acquisition of JEH.
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(c) Exhibits.
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The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
2 Agreement and Plan of Merger,
dated as of July 29, 1996,
among Hanger Orthopedic Group,
Inc., JEH Acquisition
Corporation and J.E. Hanger,
Inc. of Georgia
10(a) Credit Agreement, dated
November 1, 1996, among Hanger
Orthopedic Group, Inc.,
various banks and Banque
Paribas, as agent
10(b) Senior Subordinated Note
Purchase Agreement, dated as
of November 1, 1996, among
Hanger Orthopedic Group, Inc.
and the purchasers listed
therein
10(c) Warrants to purchase Common
Stock of Hanger Orthopedic
Group, Inc. issued November 1,
1996.
</TABLE>
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SIGNATURES
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.
Date: November 1, 1996 HANGER ORTHOPEDIC GROUP, INC.
By: /s/IVAN R. SABEL
----------------------------
Ivan R. Sabel
Chairman and President
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INDEX TO FINANCIAL STATEMENTS
PAGE
Historical JEH Financial Statements:
Independent auditor's report . . . . . . . . . . . . . . . F-1
Balance sheets, dated December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of income for the years ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . F-4
Statements of retained earnings for the years ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . F-5
Statements of cash flows for the years ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . F-6
Notes to financial statements . . . . . . . . . . . . . . . F-8
Balance sheet (unaudited), dated June 30, 1996. . . . . . . F-17
Statement of Income (unaudited) for the
six months ended June 30, 1996. . . . . . . . . . . . . . F-18
Unaudited Pro Forma Financial Information of Hanger:
Introduction. . . . . . . . . . . . . . . . . . . . . . . . F-19
Pro forma consolidated balance sheet as of
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . F-20
Pro forma consolidated balance sheet as of
December 31, 1995 . . . . . . . . . . . . . . . . . . . . F-21
Pro forma consolidated statement of operations
for the six months ended June 30, 1996. . . . . . . . . . F-22
Pro forma consolidated statement of operations
for the year ended December 31, 1995 . . . . . . . . . . . F-23
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[Windham Brannon, P.C. Logo]
W I N D H A M B R A N N O N, P. C.
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C E R T I F I E D P U B L I C A C C O U N T A N T S
INDEPENDENT AUDITOR'S REPORT
To The Stockholders and Directors
J. E. Hanger, Inc. of Georgia
We have audited the accompanying balance sheets of J.E. Hanger, Inc. of
Georgia as of December 31, 1995, 1994 and 1993, and the related statements of
income, retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of J.E. Hanger, Inc.
of Georgia as of December 31, 1995, 1994 and 1993 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed
its method of accounting for certain investments in debt and equity securities
during 1994 to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
[Windham Brannon, P.C. Logo]
Certified Public Accountants
February 23, 1996, except for
Note 14, as to which the date is
September 17, 1996.
1355 PEACHTREE STREET, N.E., SUITE 200, ATLANTA, GEORGIA 30309-3269
404/898-2000, FAX 404/898-2010
MEMBER OF TAG INTERNATIONAL WITH OFFICES IN PRINCIPAL CITIES WORLDWIDE
F-1
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J. E. HANGER, INC. OF GEORGIA
BALANCE SHEETS
December 31, 1995, 1994 and 1993
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<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
CURRENT ASSETS:
Cash and cash equivalents (Notes 2 and 4) $ 6,805,953 $ 7,094,940 $ 3,943,276
Marketable securities, at fair value (Notes 2 and 6) 4,196,946 3,531,902 -
Accounts receivable, trade (Note 2) 10,634,928 8,728,216 8,681,256
Notes receivable 56,704 77,045 189,136
Inventories (Notes 2 and 3) 4,102,218 3,540,840 3,284,394
Other receivables and prepaid expenses 346,207 294,124 338,666
----------- ----------- -----------
Total Current Assets 26,142,956 23,267,067 16,436,728
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT - at
remaining cost (Notes 2, 3, 5, 9 and 10) 7,019,776 7,150,841 7,241,169
----------- ----------- -----------
OTHER ASSETS:
Note receivable, long term 141,785 156,258 -
Investments (Notes 2 and 6):
Marketable securities at lower of cost or market - - 3,209,089
CRP, Inc. Dba Springlite 250,000 250,000 250,000
Cash value of life insurance 322,576 295,485 510,756
Other intangible assets, at unamortized cost
(Notes 2 and 7) 5,023,911 4,656,529 5,316,483
----------- ----------- -----------
Total Other Assets 5,738,272 5,358,272 9,286,328
----------- ----------- -----------
Total Assets $38,901,004 $35,776,180 $32,964,225
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
CURRENT LIABILITIES:
Accounts payable $ 1,942,347 $ 1,638,311 $ 1,252,447
Accrued salaries and wages 3,362,850 3,104,323 2,557,586
Accrued compensated absences 753,488 601,108 534,645
Accrued interest 67,989 87,819 23,747
Accrued deferred compensation (Note 8) - - 53,330
Current portion of Industrial Revenue Bonds
(Notes 9 and 10) 66,660 66,660 66,660
Mortgage and other notes (Note 10) 1,913,415 1,720,228 1,209,044
Accrued contribution to profit sharing plan
(Note 12) 484,683 420,000 354,896
Other accrued liabilities 387,003 319,244 -
----------- ----------- ------------
Total Current Liabilities 8,978,435 7,957,693 6,052,355
LIABILITIES DUE AFTER ONE YEAR:
Accrued compensated absences 277,111 279,219 252,361
Accrued deferred compensation (Note 8) 2,007,385 1,725,002 1,698,942
Long term portion of Industrial Revenue Bonds
(Notes 9 and 10) 288,960 355,620 422,280
Mortgages and other notes (Note 10) 4,422,114 4,683,608 6,073,096
----------- ----------- ------------
Total Liabilities 15,974,005 15,001,142 14,499,034
----------- ----------- ------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 250,000 shares
authorized, 21,900 shares outstanding (Note 11) 21,900 21,900 21,900
Retained Earnings 22,905,099 20,753,138 18,443,291
----------- ----------- ------------
Total Stockholders' Equity 22,926,999 20,775,038 18,465,191
----------- ----------- ------------
Total Liabilities and Stockholders' Equity $38,901,004 $35,776,180 $32,964,225
=========== =========== ============
</TABLE>
F-3
<PAGE>
J.E. HANGER, INC. OF GEORGIA
STATEMENTS OF INCOME
For The Years Ended December 31, 1995, 1994 and 1993
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<TABLE>
<S> <C> <C> <C>
1995 1994 1993*
---- ---- ----
SALES $59,780,443 $52,463,383 $48,026,084
COST OF SALES 32,812,637 28,177,501 25,871,325
GROSS PROFIT 26,967,806 24,285,882 22,154,759
SELLING AND ADMINISTRATIVE
EXPENSES 22,086,561 20,049,872 18,829,013
----------- ----------- ----------
OPERATING PROFIT 4,881,245 4,236,010 3,325,746
OTHER INCOME 1,130,869 244,257 244,062
INCOME BEFORE PROVISION FOR
INCOME TAXES 6,012,114 4,480,267 3,569,808
PROVISION FOR STATE INCOME TAXES
(Notes 1 and 2) 65,832 21,832 45,901
----------- ----------- ----------
NET INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR INVESTMENTS 5,946,282 4,458,435 3,523,907
CUMULATIVE EFFECT THROUGH
DECEMBER 31, 1993 OF CHANGE IN
ACCOUNTING FOR INVESTMENTS
(Notes 2 and 6) - 371,157 -
----------- ----------- ----------
NET INCOME $ 5,946,282 $ 4,829,592 $3,523,907
=========== ===========
<FN>
* Certain reclassifications have been made to conform to the 1994
presentation.
</FN>
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
J. E. HANGER, INC. OF GEORGIA
STATEMENTS OF RETAINED EARNINGS
For The Years Ended December 31, 1995, 1994 and 1993
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<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $20,753,138 $18,443,291 $17,497,269
NET INCOME 5,946,282 4,829,592 3,523,907
LESS - DIVIDEND DISTRIBUTIONS ($173.26
per share in 1995, $115.06 per share in 1994
and $117.71 per share in 1993) (Notes 1
and 11) (3,794,321) (2,519,745) (2,577,885)
---------- ---------- ----------
BALANCE, END OF YEAR $22,905,099 $20,753,138 $18,443,291
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
J. E. HANGER, INC. OF GEORGIA
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1994 and 1993
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<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Cash received from customers $ 58,320,751 $ 52,514,317 $ 47,699,276
Cash paid to suppliers and employees (50,904,474) (43,933,958) (40,378,081)
Interest received 383,160 236,273 141,751
Dividends received 65,051 44,967 43,966
Interest paid (520,207) (453,329) (700,143)
Net purchase of trading investments (212,809) (106,661) -
Profit sharing contribution paid (420,000) (354,896) (420,000)
Deferred compensation paid - (17,828) (53,330)
Income taxes paid (65,832) (21,832) (59,020)
------------ ------------ ------------
Net Cash Provided By Operating
Activities 6,645,640 7,907,053 6,274,419
------------ ------------ ------------
Cash Flows From Investing Activities:
Proceeds from sale of investments - - 1,142,568
Purchase of investments - - (1,241,426)
Proceeds from sale of property and
equipment 165,670 98,995 13,760
Purchase of property and equipment (571,708) (1,021,393) (1,159,457)
Collection of notes receivable 32,814 157,351 123,968
Payments of premiums resulting in an
increase in cash surrender value life
insurance (27,091) (31,336) (55,158)
Proceeds from surrender of life insurance
policies - 246,607 170,125
Payments for purchase of professional
services companies, net of cash
acquired (Note 3) (1,138,000) (232,365) (210,000)
------------ ------------ ------------
Net Cash Used In Investing Activities (1,538,315) (782,141) (1,215,620)
------------ ------------ ------------
Cash Flows from Financing Activities:
Payments on mortgages and other notes (1,535,331) (1,386,843) (1,404,012)
Payments on Industrial Revenue Bonds (66,660) (66,660) (66,660)
Distributions to stockholders (3,794,321) (2,519,745) (2,577,885)
------------ ------------ ------------
Net Cash Used In Financing Activities (5,396,312) (3,973,248) (4,048,557)
------------ ------------ ------------
Net Increase (Decrease) in Cash
and Cash Equivalents (288,987) 3,151,664 1,010,242
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
J.E. HANGER, INC. OF GEORGIA
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of
Year 7,094,940 3,943,276 2,933,034
--------- --------- ---------
Cash and Cash Equivalents at End of Year $6,805,953 $7,094,940 $3,943,276
========= ========= =========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net Income $5,946,282 $4,829,592 $3,523,907
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 899,677 890,643 816,610
Amortization of intangibles 1,421,641 1,193,493 1,211,142
Net gain (loss) on sale and abandonment of
equipment (23,476) (40,052) 2,259
Realized and unrealized (gain) loss on
trading investments (452,235) 155,005 (2,759)
Cumulative effect through December 31,
1995 of change in accounting for
investments (Notes 2 and 6) - (371,157) -
Change in assets and liabilities, net of
effects from purchase of various companies:
Increase in accounts receivable (1,862,642) (81,545) (124,534)
Write off of accounts and note receivables 248,086 172,067 62,371
Decrease (increase) in inventories (374,631) (225,946) 639,039
Net purchase of trading investments (212,809) (106,661) -
Decrease (increase) in other receivables
and prepaid expenses (52,083) 44,542 (254,158)
Increase in accounts payable 304,036 385,864 67,414
Increase in accrued interest (19,830) 64,072 (80,420)
Increase in accrued salaries, compensated
absences and deferred compensation 691,182 612,788 569,492
Increase (decrease) in accrued profit sharing
contribution 64,683 65,104 (65,104)
Decrease in accrued income taxes - - (13,119)
Increase (decrease) in other accrued
liabilities 67,759 319,244 (77,721)
--------- --------- ----------
Total Adjustments 699,358 3,077,461 2,828,233
--------- --------- ----------
Net Cash Provided By Operating Activities $6,645,640 $7,907,053 $6,274,419
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
J.E. HANGER, INC. OF GEORGIA
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995, the Company issued notes totaling $1,467,024 ($1,423,879 for
intangible assets and $43,143 for accounts receivable, equipment and
inventory) in connection with the acquisition of three professional service
companies (See Note 3).
During 1994, the Company issued a note totaling $508,539 for a
non-compete agreement in connection with the acquisition of one professional
service company. The Company also sold the assets of one professional service
company for notes receivable totaling $189,000 ($124,000 for building, $35,000
for intangible assets and $30,000 for accounts receivable, inventory and
equipment) (See Note 3).
During 1993, the Company issued notes totaling $309,874 ($254,874 for
intangible assets and $55,000 for equipment and inventory) in connection with
the acquisition of two professional service companies (See Note 3).
Approximately $20,000 during 1994 and $228,000 during 1993 of accounts
receivable were transferred to notes receivable.
The Company retired fully depreciated property and equipment of $32,310
during 1995 and $126,024 during 1994.
The Company retired fully amortized intangibles of $81,000 during 1995,
$829,862 during 1994 and $156,000 during 1993.
During 1994, $3,209,089 of investment securities were transferred to
trading securities (See Note 2).
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
1. COMPANY ORGANIZATION AND INDUSTRY
The Company's principal business is the manufacture, sale and
distribution of prosthetic and orthotic appliances, durable medical equipment,
components and supplies. The Company also distributes prosthetic and orthotic
materials to other manufacturers. The Company grants credit to prosthetic and
orthotic manufacturers and to medical patients with insurance, Medicare or
Medicaid, primarily in the south, midwest and eastern United States.
The Company and its stockholders have elected, under the provisions of
Subchapter S of the Internal Revenue Code, to have the corporate earnings
taxed directly to the stockholders. Accordingly, the accompanying financial
statements do not reflect corporate income taxes that otherwise would have
applied had the Company not elected S Corporation status.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories, consisting of materials, components and supplies, are valued
at last-in, first-out cost (LIFO), not in excess of market. If the first-in,
first-out method of inventory valuation had been used by the Company,
inventories would have been stated $1,282,311 more at December 31, 1995,
$1,154,880 more at December 31, 1994 and $1,196,034 more at December 31, 1993
than they are reported. In addition, certain costs under Internal Revenue Code
Section 263(a) have been included in inventory cost. These amounts do not have
a material effect on the financial statements.
The provision for bad debts is determined by the reserve accounting
method. The reserve was $140,000 at December 31, 1995 and $66,000 at December
31, 1994. Uncollectible accounts are charged off at the time they are
determined to be worthless. The reserve method was not used in 1993 because
uncollectible accounts were immaterial and management was of the opinion that
all accounts were collectible.
Property, plant and equipment are recorded at cost. Buildings, land
improvements and factory equipment are depreciated by accelerated methods over
useful lives ranging from five to thirty-one years; leasehold improvements are
amortized over periods up to thirty-one years; automobiles and office
equipment are depreciated by the straight-line method and accelerated methods
over lives ranging from five to seven years.
F-9
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
The compensation and noncompete agreements are amortized by the
straight-line method over their terms ranging from four to ten years. Other
intangible assets are amortized by the straight-line method over two to five
years.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires investments
to be classified in three categories: securities held to maturity reported at
amortized cost, trading securities reported at fair value, and securities
available for sale reported at fair value. Unrealized gains or losses on
trading securities are included in earnings. Unrealized gains or losses on
securities available for sale are excluded from earnings and reported as a
separate component of stockholders' equity.
Effective January 1, 1994, the Company adopted SFAS No. 115 and
transferred investment securities totaling $3,209,089, which were previously
accounted for at lower of cost or market value, to trading securities. The
Company has reported the cumulative effect, equal to the net unrealized
holding gains on the securities at January 1, 1994, of the change in
accounting as a separate component of net income.
Trading security investments are reported at fair value, as determined by
market quotations. Realized gains and losses of trading security investments
are recognized on the trade date. In computing realized gains and losses, the
specific identification method was used in determining the investment costs.
The current accrual and provision for income taxes relates to the states
that do not recognize the S Corporation status.
For purposes of the statement of cash flows, the Company considers all
cash on deposit and short-term liquid investments with original maturities of
three months or less to be cash equivalents.
3. ACQUISITIONS
During 1995, the Company acquired the inventory, accounts receivable,
equipment, goodwill and other intangible assets of four professional service
companies. The Company paid cash of $1,138,000 issued notes totaling
$1,467,024 in connection with these acquisitions. Part of the total cost
includes noncompete agreements with the former owners. One of these purchase
agreements provides for contingent consideration of up to $360,000 to be
determined based on net sales between June 1, 1995 through June 1, 1999.
F-10
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
During 1994, the Company acquired the inventory, accounts receivable,
equipment, goodwill and other intangible assets of two professional service
companies. The Company paid cash of $232,365 and issued notes totaling
approximately $508,000 in connection with these acquisitions. Part of the
total cost includes noncompete agreements with the former owners. One of these
agreements provides for contingent consideration of up to $245,100 to be
determined based on net sales between July 1, 1994 through June 30, 1997.
During 1994, the Company sold the inventory, accounts receivable,
equipment, goodwill and other intangible assets of one of its professional
service branches. The Company received cash of $10,000 and a note receivable
for $65,000 in connection with this sale. The Company also received a note
receivable for $124,000 for the building sold.
During 1993, the Company acquired the inventory, accounts receivable,
equipment, goodwill and other intangible assets of three professional service
companies. The Company paid cash of $210,000 and issued notes totaling
approximately $310,000 in connection with these acquisitions. Part of the
total cost includes noncompete agreements with the former owners.
4. CASH AND CASH EQUIVALENTS
The Company maintains the majority of its cash accounts in two Georgia
commercial banks and one investment brokerage firm. The bank balances are
guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000
per bank. During 1995, 1994 and 1993, the Company had an overnight investment
arrangement with one of its banking institutions under which funds are
invested in a government money market fund.
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Land $ 1,520,001 $ 1,520,001 $ 1,593,965
Land improvements 47,813 45,683 33,963
Buildings 6,449,380 6,565,059 6,670,141
Leasehold improvements 794,716 513,048 393,267
Factory and office equipment 4,784,060 4,405,615 3,904,191
Automobile equipment 619,325 636,005 624,196
---------- ---------- ----------
Total Cost 14,215,295 13,685,411 13,219,723
Accumulated depreciation (7,195,519) (6,534,570) (5,978,554)
---------- ---------- ----------
Remaining Cost $ 7,019,776 $ 7,150,841 $ 7,241,169
========== ========== ==========
</TABLE>
F-11
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
6. INVESTMENTS
Marketable securities are summarized below:
<TABLE>
<CAPTION>
Cost Fair Value
---- ----------
<S> <C> <C>
At December 31, 1995:
Investment cash account $ 18,416 $ 18,416
Municipal government and educa-
tional institution bonds 1,060,416 1,140,722
Tax exempt mutual funds 331,487 331,487
Marketable equity securities 2,144,016 2,706,321
--------- ---------
Total $3,554,335 $4,196,946
========= =========
Cost Fair Value
---- ----------
At December 31, 1994:
Investment cash account $ 124,172 $ 124,172
Municipal government and educa-
tional institution bonds 1,017,203 1,079,221
Tax exempt mutual funds 242,714 242,714
Marketable equity securities 1,999,801 2,085,795
--------- ---------
Total $3,383,890 $3,531,902
========= =========
Cost Fair Value
---- ----------
At December 31, 1993:
Investment cash account $ 369,446 $ 369,446
Municipal government and educa-
tional institution bonds 987,011 1,088,321
Tax exempt mutual funds 19,457 19,457
Marketable equity securities 1,833,175 2,103,022
--------- ---------
Total $3,209,089 $3,580,246
========= =========
</TABLE>
Included in 1995 other income are $78,982 net realized gains on sale of
trading security investments and a $373,253 increase in the net unrealized
holding gains.
Included in 1994 other income are $92,560 net realized gains on sale of
trading security investments and a $247,565 decrease in the net unrealized
holding gains.
F-12
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
The issuers of the above municipal government and educational institution
bonds are entities located predominately in the State of Georgia.
During 1990, the Company purchased 20% of the voting stock and 100% of
the non-voting stock of CRP, Inc. dba Springlite, a Utah based company. The
investment of $250,000 is accounted for under the cost method.
7. OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Noncompete agreements with the former
owners of acquired companies, being
amortized on a straight-line basis over four
to ten years through 2009 $ 8,535,787 $ 7,088,524 $ 7,407,347
Customer lists, trade names and goodwill
from various professional service companies,
being amortized over two to five years on a
straight-line basis with various maturities 704,604 443,846 421,346
---------- ---------- ----------
Total Other Intangible Assets 9,240,391 7,532,370 7,828,693
Less accumulated amortization (4,216,480) (2,875,841) (2,512,210)
---------- ---------- ----------
Unamortized Cost of Other Intangible
Assets $ 5,023,911 $ 4,656,529 $ 5,316,483
========== ========== ==========
</TABLE>
8. DEFERRED COMPENSATION CONTRACTS
During 1975, the Company entered into a deferred compensation contract
with a principal officer. The Company agreed to pay compensation for life upon
his retirement, or to his beneficiaries upon his death for a ten year period
from retirement. The present value of the obligation is accrued over the
employment tenure.
The Company has an unfunded deferred compensation plan for certain other
officers. The plan accrues benefits ratably over the period of active
employment from the time the contract is entered into to the time the
participant retires. Participation is determined by the Company's Board of
Directors.
F-13
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
The Company assumed a deferred compensation agreement in 1995 in
connection with the acquisition of a professional service company. Under the
agreement, the Company is to pay the employee $2,000 per month beginning in
July 1995 through December 1998.
The financial reporting expense for retirement and deferred compensation
was $282,383 in 1995, $2,489 in 1994 and $347,603 in 1993, including interest
on the discounted amounts. During 1994, a retired officer died and another
officer resigned. The obligations related to these deferred compensation
contracts resulted in a reduction of $290,084 in the accrued liability, which
was used to offset the increase in the accrued benefits required by the other
contracts. The Company is deducting the compensation for income tax purposes
in the year of payment.
9. INDUSTRIAL DEVELOPMENT REVENUE BONDS
During December 1985, the Company entered into an agreement with The
Development Authority of Forsyth County and The First National Bank of Atlanta
(Wachovia Bank of Georgia, N.A.) for the issuance of an Industrial Development
Revenue Bond loan in the amount of $1,000,000 to construct a new facility for
its home office and wholesale distribution division. The bonds are due in
monthly installments of $5,555, plus interest at 70% of prime, through April
1, 2000. The balance owing on these bonds as of December 31, 1995 was
$355,620. The land and the facilities constructed are pledged as collateral.
The agreement includes a covenant related to the Company's net worth.
10. MORTGAGES AND OTHER NOTES PAYABLE 1995 1994 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Notes payable to former owners of acquired
companies, due in varying payments through
2009, interest at rates ranging to 11% $6,960,852 $6,786,549 $7,743,917
Discount on noninterest-bearing notes (921,795) (698,020) (853,358)
Bank note due in monthly installments of
$1,021 through December, 2006 plus interest
fluctuating at prime plus 1%, secured by
certain property and equipment and
inventory 132,111 144,359 156,609
</TABLE>
F-14
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
U.S. Small Business Administration note due in
monthly installments of $1,997 including
interest at 10.35% through December, 2007,
secured by certain land, property and
equipment 164,361 170,948 176,890
Note secured by cash surrender value of life
insurance policies, interest at 5% - - 58,082
---------- ---------- ----------
Total 6,171,168 6,232,888 7,047,168
Less current maturities (1,913,415) (1,720,228) (1,209,044)
Amount Due After One Year $ 4,422,114 $ 4,683,608 $ 6,073,096
</TABLE>
Maturities of long term debt as of December 31, 1995, including the
Industrial Revenue Bonds (See Note 9), during the next five years and
thereafter are:
<TABLE>
<S> <C>
1996 $1,980,075
1997 1,645,179
1998 1,158,044
1999 912,397
2000 236,546
Thereafter 758,908
---------
Total $6,691,149
=========
</TABLE>
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long term
debt is approximately $6,021,000.
11. COMMON STOCK
The Company has an option to purchase its capital stock if a stockholder
proposes to transfer the stock to any person other than another stockholder,
the Company, or the stockholder's spouse. The purpose of the option is to
permit the Company to protect its election to be taxed as an S Corporation.
The purchase price and terms are, at the option of the Company, either the
price and terms set forth in the proposed transfer or the formula price and
terms described in a stockholder agreement.
F-15
<PAGE>
J. E. HANGER, INC. OF GEORGIA
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------
12. PROFIT SHARING PLAN
The Company has a defined contribution profit sharing plan covering
substantially all employees. Contributions are determined annually at the
discretion of the Board of Directors. The contributions were $484,817 for
1995, $420,000 for 1994 and $354,896 for 1993.
The Hanger of Ohio 401(k) Retirement Plan was merged with the Company's
profit sharing plan effective January 1, 1994. Also effective January 1, 1994,
the profit sharing plan was amended to include a 401(k) provision.
13. OPERATING LEASES
The Company leases office space and vehicles in several states.
Generally, leases are renewable each year subject to escalations based on CPI
or amounts stated in the lease agreement. The following is a schedule of
future minimum lease payments required under operating leases as of December
31, 1995: Year ending December 31: 1996 $1,413,779 1997 1,112,778 1998 849,077
1999 572,927 2000 368,866 Thereafter 796,194 $5,113,621
14. SUBSEQUENT EVENT
On July 29, 1996, the Company entered into an Agreement and Plan of
Merger under which all of the common stock of the Company would be sold to
Hanger Orthopedic Group, Inc. in exchange for approximately $44,000,000 and
1,000,000 shares of the common stock of Hanger Orthopedic Group, Inc.
F-16
<PAGE>
J.E. Hanger, Inc. of Georgia
June 30, 1996
Balance Sheets (Unaudited)
<TABLE>
<S> <C>
ASSETS
June 30, 1996
CURRENT ASSETS:
Cash and cash equivalents 4,478,457
Marketable securities, at fair value 4,390,249
Accounts receivable, trade 10,757,313
Notes receivable 87,853
Inventories 4,215,942
Other receivables and prepaid expenses 428,360
Total Current Assets 24,358,174
PROPERTY, PLANT AND EQUIPMENT - at
remaining cost 7,439,738
OTHER ASSETS:
Note receivable, long term 146,263
Investment in CRP, Inc. 250,000
Cash value of life insurance 336,799
Other intangible assets, at unamortized cost 4,355,902
Total Other Assets 5,088,964
Total Assets 36,886,876
LIABILITIES AND STOCKHOLDER'S EQUITY
June 30, 1996
CURRENT LIABILITIES:
Accounts payable 2,204,856
Accrued salaries and wages 2,165,758
Accrued compensated absences 543,762
Accrued interest 67,796
Current portion of Industrial Revenue Bonds 66,660
Mortgage and other notes 1,558,287
Accrued contribution to profit sharing plan 264,738
Other accrued liabilities 571,797
Total Current Liabilities 7,443,654
LIABILITIES DUE AFTER ONE YEAR:
Accrued compensated absences 201,118
Accrued deferred compensation 2,206,056
Long term portion of Industrial Revenue 255,630
Bonds
Mortgages and other notes 3,590,047
Total Liabilities 13,696,505
STOCKHOLDER'S EQUITY:
Common stock 21,900
Retained Earnings 23,168,471
Total Stockholder's Equity 23,190,371
Total Liabilities and Stockholder's 36,886,876
Equity
</TABLE>
F-17
<PAGE>
J.E. Hanger, Inc. of Georgia
June 30, 1996 and December 31, 1995
Six Months Ended
<TABLE>
<S> <C>
STATEMENTS OF INCOME Six Months Ended
June 30, 1996
SALES 32,696,693
COST OF SALES:
Materials 12,143,993
Salaries and wages 2,913,898
Payroll taxes 300,132
Profit sharing plan contribution 76,042
Group insurance 374,201
Other taxes 154,717
Factory expense and professional training 862,523
Depreciation 236,489
Rent 838,548
Hazard insurance 299,759
Total Cost of Sales 18,200,302
GROSS PROFIT 14,496,391
SELLING AND ADMINISTRATIVE EXPENSES:
Salaries 7,215,983
Deferred compensation 198,671
Payroll taxes 462,510
Profit sharing plan contribution 186,695
Group insurance 359,527
Sales expense 875,693
Depreciation 230,069
Office expense and telephone 897,573
Legal and accounting 156,291
Interest 256,627
Amortization 736,230
Bad debt expense 200,717
Miscellaneous 225,835
Total Selling and Administrative 12,002,421
Expenses
OPERATING PROFIT 2,493,970
OTHER INCOME 442,766
INCOME BEFORE PROVISION FOR INCOME 2,936,736
TAXES
Provision for income taxes 63,467
NET INCOME 2,873,269
</TABLE>
F-18
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated statements of operations
for the six months ended June 30, 1996 and the year ended December 31, 1995
and the unaudited pro forma consolidated balance sheets as of June 30, 1996
and December 31, 1995 are based on the historical financial statements of
Hanger Orthopedic Group, Inc. ("Hanger" or "the Company") adjusted to give the
effect to the acquisition of certain assets and assumption of certain
liabilities of J.E. Hanger, Inc. of Georgia ("JEH").
The pro forma consolidated statements of operations for the six months
ended June 30, 1996 and the year ended December 31, 1995 have been prepared
assuming the JEH acquisition occurred as of January 1, 1995. The pro forma
consolidated balance sheets as of June 30, 1996 and December 31, 1995 have
been prepared assuming that such acquisition occured on June 30, 1996 and
December 31, 1995, respectively. The acquisition and related adjustments are
described in the notes thereto.
The pro forma consolidated financial information does not purport to
represent the Company's consolidated results of operations had the acquisition
of JEH occurred as of January 1, 1995, or to project the Company's
consolidated results of operation for any future period. The pro forma
consolidated financial information does not purport to represent the Company's
consolidated financial position had the acquisition of JEH occurred as of June
30, 1996 or December 31, 1995, or to project the Company's consolidated
financial position for any future period. The consolidated pro forma financial
information does not give effect to any matters other than those described in
the notes thereto.
The following pro forma financial statements do not give any effect to
certain overhead cost savings that are expected to be achieved in the future
as a result of the merger.
F-19
<PAGE>
Pro Forma Consolidated Balance Sheet as of June 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
Hanger Acquisition
Orthopedic J.E. Hanger, Pro Forma
Group, Inc. (a) Inc. (a) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $527,476 $4,478,457 (c) ($4,625,168) $380,765
Marketable securities 0 4,390,249 (b) (4,390,249) 0
Accounts receivable 13,640,590 10,757,313 24,397,903
Inventory 10,355,866 4,215,942 (c) 1,629,654 16,201,462
Prepaids and other assets 1,263,210 516,213 (c) 85,000 1,864,423
Deferred income taxes 804,499 0 (c) 1,137,378 1,941,877
--------------- --------------- --------------- ---------------
Total Current Assets 26,591,641 24,358,174 (6,163,385) 44,786,430
--------------- --------------- --------------- ---------------
Property, plant & equipment, net 7,575,116 7,439,738 (b)/(c) 2,713,042 17,727,896
Intangible assets, net 26,111,899 4,355,902 (c) 25,812,575 56,280,376
Other assets 401,074 733,062 (b)/(c) 2,700,000 3,834,136
--------------- --------------- --------------- ---------------
Total Assets $60,679,730 $36,886,876 $25,062,232 $122,628,838
=============== =============== =============== ===============
LIABILITIES
Current Liabilities
Current portion of long-term debt $2,035,853 $1,624,947 (d) $3,500,000 $7,160,800
Accounts payable and accrued expenses 3,884,521 5,818,707 (c) 965,000 10,668,228
Deferred revenue 269,005 0 0 269,005
--------------- --------------- --------------- ---------------
Total Current Liabilities 6,189,379 7,443,654 4,465,000 18,098,033
--------------- --------------- --------------- ---------------
Long-term debt 21,086,315 3,845,677 (c)/(d) 36,912,499 61,844,491
Deferred income taxes 709,863 0 709,863
Other liabilites 525,959 2,407,174 (b) (372,229) 2,560,904
--------------- --------------- --------------- ---------------
Total Liabilities 28,511,516 13,696,505 41,005,270 83,213,291
STOCKHOLDERS' EQUITY
Common Stock 84,368 21,900 (c) (11,900) 94,368
Additional paid in capital 33,562,289 0 (c)/(d) 7,237,333 40,799,622
Retained Earnings (Accumulated Deficit) (822,881) 23,168,471 (b)/(c) (23,168,471) (822,881)
--------------- --------------- --------------- ---------------
32,823,776 23,190,371 (15,943,038) 40,071,109
Treasury Stock (655,562) (655,562)
--------------- --------------- --------------- ---------------
Total Stockholders' Equity 32,168,214 23,190,371 (15,943,038) 39,415,547
--------------- --------------- --------------- ---------------
Total Liabilities and Stockholder's Equity $60,679,730 $36,886,876 $25,062,232 $122,628,838
=============== =============== =============== ===============
<FN>
(a) Represents historical balance sheet data as of June 30, 1996.
(b) The pro forma adjustments to marketable securities ($4,390,249),
property,plant and equipment ($617,851), other assets ($250,000) and
other liabilities ($372,229) reflect the elimination of assets /
liabilities not acquired / assumed in connection with the proposed
transaction.
(c) To record the purchase price, including estimated acquisition and debt
issue costs of $4,000,000, in connection with the proposed transaction
which comprises $44,000,000 in cash and the issuance of 1,000,000 shares
of common stock with an estimated value of $5,250,000. The additions to
inventory ($1,629,654), deferred income taxes ($1,137,378), property,
plant and equipment ($3,413,434) and intangible assets ($25,812,575) are
to adjust assets to their estimated fair market values.
(d) To record additional debt incurred in connection with the proposed
transaction as follows:
$8,000,000 in senior subordinate notes, bearing 8% interest, net of
discount of $1,997,333 related to detachable warrants issued to the
lender.
$29,000,000 term loan, bearing interest at the 3-month LIBOR rate plus
2.75%. Proceeds from this loan are to be used in connection with the
proposed transaction and the refinancing of $21,090,168 of pre-existing
indebtedness.
$26,000,000 term loan, bearing interest at the 3-month LIBOR rate plus
3.25%.
$500,000 drawn from an $8,000,000 revolving loan facility, bearing
interest at the 3-month LIBOR rate plus 2.75%.
</FN>
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Balance Sheet as of December 31, 1995
HISTORICAL
----------------------------------------------
Hanger Acquisition
Orthopedic J.E. Hanger, Pro Forma
Group, Inc. (a) Inc. (a) Adjustments Pro Forma
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $1,456,305 $6,805,953 (c) ($6,413,468) $1,848,790
Marketable securities 0 4,196,946 (b) (4,196,946) 0
Accounts receivable 13,324,991 10,634,928 23,959,919
Inventory 10,312,289 4,102,218 (c) 1,551,537 15,966,044
Prepaids and other assets 1,040,914 402,911 (c) 85,000 1,528,825
Deferred income taxes 804,499 0 (c) 1,273,711 2,078,210
--------------- --------------- --------------- --------------
Total Current Assets 26,938,998 26,142,956 (7,700,166) 45,381,788
--------------- --------------- --------------- --------------
Property, plant & equipment, net 7,765,656 7,019,776 (b)/(c) 2,456,246 17,241,678
Intangible assets, net 2,709,745 5,023,911 (c) 26,115,063 57,848,719
Other assets 385,662 714,361 (b)/(c) 2,700,000 3,800,023
--------------- --------------- --------------- --------------
Total Assets $61,800,061 $38,901,004 $23,571,143 $124,272,208
=============== =============== =============== ==============
LIABILITIES
Current Liabilities
Current portion of long-term debt $1,828,953 $1,980,075 (d) $3,000,000 $6,809,028
Accounts payable and accrued expenses 4,488,269 6,998,360 (c) 965,000 12,451,629
--------------- --------------- --------------- --------------
Total Current Liabilities 6,317,222 8,978,435 3,965,000 19,260,657
--------------- --------------- --------------- --------------
Long-term debt 22,925,124 4,711,074 (c)/(d) 35,624,199 63,260,397
Deferred income taxes 706,965 0 706,965
Other liabilites 559,385 2,284,496 (b) (338,390) 2,505,491
--------------- --------------- --------------- --------------
Total Liabilities 30,508,696 15,974,005 39,250,809 85,733,510
--------------- --------------- --------------- --------------
STOCKHOLDERS' EQUITY
Common Stock 84,241 21,900 (c) (11,900) 94,241
Additional paid in capital 33,574,058 0 (c)/(d) 7,237,333 40,811,391
Retained Earnings (Accumulated Deficit) (1,711,372) 22,905,099 (b)/(c) (22,905,099) (1,711,372)
--------------- --------------- --------------- --------------
31,946,927 22,926,999 (15,679,666) 39,194,260
Treasury Stock (655,562) 0 0 (655,562)
--------------- --------------- --------------- --------------
Total Stockholders' Equity 31,291,365 22,926,999 (15,679,666) 38,538,698
--------------- --------------- --------------- --------------
Total Liabilities and Stockholder's Equity $61,800,061 $38,901,004 $23,571,143 $124,272,208
=============== =============== =============== ==============
<FN>
(a) Represents historical balance sheet data as of December 31, 1995.
(b) The pro forma adjustments to marketable securities ($4,196,946),
property,plant and equipment ($757,487), other assets ($250,000) and
other liabilities ($338,390) reflect the elimination of assets /
liabilities not acquired / assumed in connection with the proposed
transaction.
(c) To record the purchase price, including estimated acquisition and debt
issue costs of $4,000,000, in connection with the proposed transaction
which comprises $44,000,000 in cash and the issuance of 1,000,000 shares
of common stock with an estimated value of $5,250,000. The additions to
inventory ($1,551,537), deferred income taxes ($1,273,711), property,
plant and equipment ($3,213,733) and intangible assets ($26,115,063) are
to adjust assets to their estimated fair market values.
(d) To record additional debt incurred in connection with the proposed
transaction as follows:
$8,000,000 in senior subordinate notes, bearing 8% interest, net of
discount of $1,997,333 related to detachable warrants issued to the
lender.
$29,000,000 term loan, bearing interest at the 3-month LIBOR rate plus
2.75%. Proceeds from this loan are to be used in connection with the
proposed transaction and the refinancing of $22,378,468 of pre-existing
indebtedness.
$26,000,000 term loan, bearing interest at the 3-month LIBOR rate plus
3.25%.
</FN>
</TABLE>
F-21
<PAGE>
Pro Forma Consolidated Statement of Operations
for the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
Hanger Acquisition
Orthopedic J.E. Hanger, Pro Forma
Group, Inc. (a) Inc. (a) Adjustments Pro Forma
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales $26,249,672 $32,696,693 $58,946,365
Cost of Sales 12,238,843 18,200,302 (b)/(c) 55,818 30,494,963
--------------- --------------- --------------- --------------
Gross Profit 14,010,829 14,496,391 (55,818) 28,451,402
Selling, general & administrative 10,222,239 10,779,495 (b)/(e) 8,661 21,010,395
Depreciation & amortization 1,295,359 966,299 (c)/(e) 615,771 2,877,429
--------------- --------------- --------------- --------------
Income from operations 2,493,231 2,750,597 (680,250) 4,563,578
Interest expense (861,539) (256,627) (d) (2,075,978) (3,194,144
Other income (expense), net (73,502) 442,766 (b)/(d) (345,152) 24,112
--------------- --------------- --------------- --------------
Income before taxes 1,558,190 2,936,736 (3,101,380) 1,393,546
Provision for income taxes 669,700 63,467 (f) (147,877) 585,290
--------------- --------------- --------------- --------------
Net Income(loss) $888,490 $2,873,269 ($2,953,503) $808,256
=============== =============== =============== ==============
Net Income per share (g): $0.11 $0.09
--------------- --------------
Shares used to compute net income per share: 8,351,436 9,351,436
--------------- --------------
<FN>
(a) Represents the historical statement of operations for the period
presented.
(b) The pro forma adjustments to reduce cost of sales ($28,367), selling,
general and administrative ($33,839) and other income ($275,774) reflects
the elimination of income and expenses in connection with assets /
liabilities not acquired / assumed.
(c) The adjustments to depreciation and amortization ($406,842) and cost of
sales ($84,185) represents the effects of the purchase price allocation.
(d) The adjustment to interest expense ($2,075,978) and other expense
($69,278) represents the effects of new debt agreements and cash utilized
in connection with the proposed transaction. The interest expense
adjustment includes $124,833 of amortized debt discount.
(e) The adjustments to depreciation and amortization for $208,929 of
amortized debt issue costs and selling, general and administrative for
$42,500 of loan administative expenses are in connection with the
aforementioned debt agreements.
(f) To reflect income taxes as if the Company and JEH were a C Corporation
for the period presented.
(g) Historical and pro forma net income per share is computed by dividing net
income by the number of shares of common stock outstanding for the
period. The shares used in the computation of net income per share on a
pro forma adjusted basis also includes 1,000,000 shares being issued in
conjunction with the acquisition of JEH.
(h) Pro forma adjustments exclude nonrecurring inventory charges and related
tax effects which result directly from the transaction and which will be
included in the income of Hanger within the 12 months succeeding the
transaction.
</FN>
</TABLE>
F-22
<PAGE>
Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
Hanger Acquisition
Orthopedic J.E. Hanger, Pro Forma
Group, Inc. (a) Inc. (a) Adjustments Pro Forma
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales $52,467,899 $59,780,443 $112,248,342
Cost of Sales 24,572,089 32,812,637 (b)/(c) 85,486 57,470,212
--------------- --------------- --------------- --------------
Gross Profit 27,895,810 26,967,806 (85,486) 54,778,130
Selling, general & administrative 19,361,701 19,726,135 (b)/(e) 17,322 39,105,158
Depreciation & amortization 2,691,388 1,860,049 (c)/(e) 1,231,421 5,782,858
--------------- --------------- --------------- --------------
Income from operations 5,842,721 5,381,622 (1,334,229) 9,890,114
Interest expense (2,056,140) (500,377) (d) (4,193,507) (6,750,024)
Other income (expense), net (106,644) 1,130,869 (b)/(d) (898,358) 125,867
--------------- --------------- --------------- --------------
Income from operations before taxes 3,679,937 6,012,114 (6,426,094) 3,265,957
Provision for income taxes 1,544,498 65,832 (f) (238,628) 1,371,702
--------------- --------------- --------------- --------------
Net Income(loss) $2,135,439 $5,946,282 ($6,187,466) $1,894,255
=============== =============== =============== ==============
Net Income per share (g): $0.26 $0.20
--------------- --------------
Shares used to compute net income per share: 8,290,544 9,290,544
--------------- --------------
<FN>
(a) Represents the historical statement of operations for the period
presented.
(b) The pro forma adjustments to reduce cost of sales ($75,201), selling,
general and administrative ($67,678) and other income ($614,370) reflects
the elimination of income and expenses in connection with assets /
liabilities not acquired / assumed.
(c) The adjustments to depreciation and amortization ($813,564) and cost of
sales ($160,687) represents the effects of the purchase price allocation.
(d) The adjustment to interest expense ($4,193,507) and other expense
($192,404) represents the effects of new debt agreements and cash
utilized in connection with the proposed transaction. The interest
expense adjustment includes $249,667 of amortized debt discount.
(e) The adjustments to depreciation and amortization for $417,857 of
amortized debt issue costs and selling, general and administrative for
$85,000 of loan administrative expenses are in connection with the
aforementioned debt agreements.
(f) To reflect income taxes as if the Company and JEH were a C Corporation
for the period presented.
(g) Historical and pro forma net income per share is computed by dividing net
income by the number of shares of common stock outstanding for the
period. The shares used in the computation of net income per share on a
pro forma adjusted basis also includes 1,000,000 shares being issued in
conjunction with the acquisition of JEH.
(h) Pro forma adjustments exclude nonrecurring inventory charges and related
tax effects which result directly from the transaction and which will be
included in the income of Hanger within the 12 months succeeding the
transaction.
</FN>
</TABLE>
F-23
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
Dated as of July 29, 1996
Among
HANGER ORTHOPEDIC GROUP, INC.
JEH ACQUISITION CORPORATION
and
J.E. HANGER, INC. OF GEORGIA
<PAGE>
TABLE OF CONTENTS
PAGE
NO.
ARTICLE I CERTAIN DEFINITIONS
Section 1.1 Certain Definitions...................... 1
ARTICLE II THE MERGER
Section 2.1 The Merger............................... 6
Section 2.2 Effective Date of the Merger............. 7
ARTICLE III THE SURVIVING CORPORATION
Section 3.1 Articles of Incorporation................ 7
Section 3.2 By-Laws.................................. 7
Section 3.3 Officers and Board of Directors.......... 8
ARTICLE IV CONVERSION OF SHARES
Section 4.1 Exchange Ratio........................... 8
Section 4.2 Post-Closing Adjustments................. 9
Section 4.3 Dividends; Transfer Taxes................ 12
Section 4.4 No Fractional Securities................. 12
Section 4.5 Non-Transferability of Company Common
Stock Following Effective Date........... 12
Section 4.6 Closing.................................. 12
Section 4.7 Lost Certificates........................ 13
Section 4.8 Capitalization Changes................... 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT
Section 5.1 Organization and Qualification........... 13
Section 5.2 Capitalization........................... 14
Section 5.3 Subsidiaries............................. 14
Section 5.4 Authority Relative to this Agreement..... 15
Section 5.5 Reports, Financial Statements
and Proxy Statement............... 16
Section 5.6 Information in the Private Offering
Memorandum/Proxy Statement............... 16
Section 5.7 Vote Required............................ 16
Section 5.8 Absence of Undisclosed Liabilities....... 17
Section 5.9 Absence of Certain Changes or Events..... 17
Section 5.10 No Default or Litigation; Permits........ 17
Section 5.11 Taxes.................................... 18
Section 5.12 Employee Benefit Plans; ERISA............ 18
Section 5.13 Patents and Trademarks................... 20
Section 5.14 Interests of Officers and Directors...... 20
(i)
<PAGE>
TABLE OF CONTENTS (Cont.)
PAGE
NO.
Section 5.15 Certain Agreements....................... 20
Section 5.16 Investment Company....................... 21
Section 5.17 Ownership of Company Stock............... 21
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 6.1 Organization and Qualification........... 21
Section 6.2 Capitalization........................... 21
Section 6.3 Subsidiaries............................. 21
Section 6.4 Authority Relative to this Agreement..... 22
Section 6.5 Financial Statements and Proxy
Statements.............................. 22
Section 6.6 Absence of Undisclosed Liabilities....... 22
Section 6.7 Absence of Certain Changes or Events..... 23
Section 6.8 No Default or Litigation; Permits........ 23
Section 6.9 Taxes.................................... 24
Section 6.10 Employee Benefit Plans; ERISA............ 25
Section 6.11 Patents and Trademarks................... 26
Section 6.12 Information in the Private Offering
Memorandum/Proxy Statement............... 27
Section 6.13 Interests of Officers and Directors...... 27
Section 6.14 Certain Agreements ...................... 27
Section 6.15 Investment Company ...................... 27
Section 6.16 Vote Required ........................... 27
Section 6.17 Insurance ............................... 27
Section 6.18 Environmental Matters ................... 28
ARTICLE VII REPRESENTATIONS AND WARRANTIES REGARDING
ACQUISITION
Section 7.1 Organization............................. 29
Section 7.2 Capitalization........................... 29
Section 7.3 Authority Relative to this Agreement..... 29
Section 7.4 No Prior Activities...................... 29
ARTICLE VIII CONDUCT OF BUSINESS AFTER EXECUTION
OF THE AGREEMENT
Section 8.1 Conduct of Business by the Company
Prior to the Merger...................... 29
Section 8.2 Conduct of Business by Parent Prior
to the Merger............................ 31
Section 8.3 Conduct of Business of Acquisition....... 31
(ii)
<PAGE>
TABLE OF CONTENTS (Cont.)
PAGE
NO.
ARTICLE IX ADDITIONAL AGREEMENTS
Section 9.1 Access to and Information Regarding
the Company...................... 32
Section 9.2 Private Offering Memorandum.............. 33
Section 9.3 Company Shareholders' Meeting............ 33
Section 9.4 Fees and Expenses........................ 33
Section 9.5 Additional Agreements.................... 35
Section 9.6 Publicity................................ 35
Section 9.7 Director and Officer Indemnification .... 35
Section 9.8 Fair Price Statute....................... 35
Section 9.9 Notification of Certain Matters.......... 36
Section 9.10 Employee Benefit Plans................... 37
Section 9.11 Company Employment Agreements............ 37
Section 9.12 Distribution or Transfer of Certain
Marketable Securities and
Real Property.......................... 37
Section 9.13 Grant of Parent Stock Options............ 37
Section 9.14 Appointment of Directors.................. 38
Section 9.15 Section 338(h)(10) Election............... 38
Section 9.16 Certain Conveyance Taxes ................. 39
Section 9.17 Other Tax Matters......................... 39
ARTICLE X CONDITIONS PRECEDENT
Section 10.1 Conditions to Each Party's Obligation
to Effect the Merger ............ 40
Section 10.2 Conditions to Obligation of the Company
to Effect the Merger ............ 41
Section 10.3 Conditions to Obligations of Parent and
Acquisition to Effect the Merger. 42
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination............................... 45
Section 11.2 Effect of Termination..................... 47
Section 11.3 Amendment................................. 47
Section 11.4 Waiver.................................... 47
ARTICLE XII GENERAL PROVISIONS
Section 12.1 Non-Survival of Representations,
Warranties and Agreements................ 47
Section 12.2 Assumption of Responsibility for, and
Limitations on Damages for Breaches
of, Certain Representations and
Warranties............................... 48
(iii)
<PAGE>
TABLE OF CONTENTS (Cont.)
PAGE
NO.
Section 12.3 Notices.................................. 48
Section 12.4 Interpretation........................... 49
Section 12.5 Disclosure Letters and Exhibits.......... 49
Section 12.6 Miscellaneous............................ 49
Exhibit A - Form of Amendment to Employment Agreement
Exhibit B - Form of Amendment to Employment Agreement
Exhibit C - Form of Indemnification Agreement
(iv)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 29, 1996, by and among
Hanger Orthopedic Group Inc., a Delaware corporation ("Parent"), JEH
Acquisition Corporation, a Georgia corporation and a wholly-owned subsidiary
of Parent ("Acquisition"), and J.E. Hanger, Inc. of Georgia, a Georgia
corporation (the "Company") (Acquisition and the Company being hereinafter
collectively referred to as the "Constituent Corporations").
WHEREAS, the respective Boards of Directors of Acquisition and the
Company have approved the merger of Acquisition with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Adjusted Stockholders Equity" shall have the meaning set forth in
Section 4.2(c).
"Accountant's Post-Closing Report" shall have the meaning set forth in
Section 4.2(c).
"Acquisition" shall mean JEH Acquisition Corporation, a Georgia
corporation and a wholly-owned subsidiary of Parent.
"Acquisition Transaction" shall have the meaning set forth in Section
8.1(v).
"Actions" shall have the meaning set forth in Section 6.8(c).
"Additional Section 338 Tax" shall have the meaning set forth in Section
4.2(d).
"AMEX" shall mean the American Stock Exchange.
"best knowledge of the Company" shall have the meaning set forth in
Section 6.8(b).
"best knowledge of Parent" shall have the meaning set forth in Section
5.10(b).
1
<PAGE>
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act.
"Certificates" shall have the meaning set forth in Section 4.1(e).
"certificates" shall have the meaning set forth in Section 4.4(a).
"Closing" shall have the meaning set forth in Section 4.6.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean J.E. Hanger, Inc. of Georgia, a Georgia corporation.
"Company Common Stock" shall mean the common stock, $1.00 par value per
share, of the Company.
"Company Letter" shall have the meaning set forth in the first sentence
of ARTICLE VI.
"Constituent Corporations" shall mean Acquisition and the Company.
"Effective Date" shall have the meaning set forth in Section 2.2.
"Employee Benefit Plan" means any "employee benefit plan" (as defined in
Section 3(3) of ERISA) as well as any other plan, agreement, program or
arrangement (whether written or oral) involving direct and indirect
compensation, under which the Company or any ERISA Affiliate of the Company
has any present or future obligations or liability on behalf of its employees
or former employees, contractual employees or their dependents or
beneficiaries.
"Environmental and Safety Requirements" means all Laws, Orders,
contractual obligations and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including, without limitation, all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, including, but not limited to,
the Solid Waste Disposal Act, as amended, 42 U.S.C. Subsection 6901, et seq.,
the Clean Air Act, as amended, 42 U.S.C. Subsection 7401 et seq., the Federal
Water Pollution Control Act, as
2
<PAGE>
amended, 33 U.S.C. Subsection 1251 et seq., the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Subsection 1101 et seq., the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C. Subsection 9601 et seq., the Hazardous Materials
Transportation Uniform Safety Act, as amended, 49 U.S.C. Section 1804 et seq.,
the Occupational Safety and Health Act of 1970, and the regulations
promulgated thereunder.
"ERISA Affiliate" means, with respect to any Person, any entity that is a
member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Section 414(b), 414(c) or 414(m) of the Code.
"Escrow" shall have the meaning set forth in Section 4.2(a).
"Escrow Agent" shall mean NationsBank, N.A.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Ratio" shall have the meaning set forth in Section 4.1(c).
"Excluded Persons" shall have the meaning set forth in Section 8.1(v).
"GAAP" shall mean United States generally accepted accounting principles
in effect.
"Georgia Code" shall mean the Georgia Business Corporation Code.
"Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, Federal, state or local.
"Indebtedness" shall mean the indebtedness of the Company, including
capital leases, accrued interest and bank overdrafts, industrial revenue
bonds, mortgages and other promissory notes of the Company, determined in
accordance with GAAP and on a basis consistent with the preparation of the
Company's financial statements for the year ended December 31, 1995, and notes
9 and 10 thereto.
"Indemnified Parties" shall have the meaning set forth in Section 9.7.
3
<PAGE>
"Law" means any law, statute, treaty, rule, directive or regulation or
Order of any Governmental Entity.
"Liability" means any liability or obligation, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of
when asserted.
"Material Adverse Effect" shall have the respective meanings set forth in
Sections 5.1.
"Orders" means judgments, writs, decrees, compliance agreements,
injunctions or orders of any Governmental Entity or arbitrator.
"Parent" shall mean Hanger Orthopedic Group, Inc., a Delaware
corporation.
"Parent Common Stock" shall mean Parent's common stock, par value $.01
per share.
"Parent Letter" shall have the meaning set forth in the first sentence of
ARTICLE V.
"Parent Preferred Stock" shall mean Parent's preferred stock, par value
$.01 per share.
"Parent 1991 Stock Option Plan" shall mean the Parent's 1991 Stock Option
Plan.
"Parent 1993 Stock Option Plan" shall mean the Parent's 1993 Non-Employee
Directors Stock Option Plan.
"Payment Subject to Adjustment" shall have the meaning set forth in
Section 4.2(a).
"Person" shall have the meaning set forth in Section 8.1(iii)(D).
"Post-Closing Cash Payment" shall have the meaning set forth in Section
4.1(d).
"Primary Cash Payment" shall have the meaning set forth in Section
4.1(d).
"Proceedings" means actions, suits, claims, investigations or legal or
administrative arbitration proceedings.
"Private Offering Memorandum" shall have the meaning set forth in Section
5.4.
"Merger" shall have the meaning set forth in Section 2.1.
4
<PAGE>
"Restricted securities" shall have the meaning set forth in Section
4.1(e).
"SEC" shall mean the Securities and Exchange Commission.
"Section 338(h)(10) Election" shall have the meaning set forth in Section
9.15(a).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Shareholders" shall have the meaning set forth in Section 12.2.
"Shareholders' Representatives" shall mean Howard E. Thranhardt and
Daniel A. McKeever.
"subsidiaries" shall have the meaning set forth in Section 5.3.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"SWDA" means the Solid Waste Disposal Act, as amended.
"Tax" means any of the Taxes.
"Tax Gross-Up" shall have the meaning set forth in Section 4.2(d).
"Tax Liability Adjustment" shall have the meaning set forth in Section
4.2(d).
"Tax Returns" means Federal, state, local and foreign tax returns,
reports, statements, declaration of estimated tax and forms.
"Taxes" means, with respect to any entity, (i) all income taxes
(including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings or
profits) and all gross receipts, sales, use, ad valorem, transfer, franchise,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits taxes, alternative or add-on
minimum taxes, customs duties and other taxes, fees, assessments or charges of
any kind whatsoever, together with all interest and penalties, additions to
tax and other additional amounts imposed by any taxing authority (domestic or
foreign) on such entity (if any) and (ii) any liability for the payment of any
amount of the type described in the immediately preceding clause (i) as a
result of being a "transferee" (within the meaning of Section 6901 of the Code
or any
5
<PAGE>
other applicable law) of another entity or a member of an affiliated or
combined group.
"Third Party" shall have the meaning set forth in Section 9.4(a).
"Third Party Acquisition" shall have the meaning set forth in Section
9.4(a).
"Total Section 338 Tax" shall have the meaning set forth in Section
4.2(d).
"Working Capital" shall mean the current assets minus current liabilities
of the Company, determined in accordance with GAAP and on a basis consistent
with the preparation of the Company's financial statements for the year ended
December 31, 1995, and notes 2, 3, 6, 8, 9, 10 and 12 thereto.
ARTICLE II
THE MERGER
Section 2.1 THE MERGER. Upon the terms and subject to the conditions
hereof, on the Effective Date, Acquisition shall be merged with and into the
Company in accordance with the Georgia Code and the separate existence of
Acquisition shall thereupon cease (the "Merger"), and the name of the Company,
as the surviving corporation in the Merger (the "Surviving Corporation"),
shall by virtue of the Merger remain "J.E. Hanger, Inc. of Georgia." Upon the
effectiveness of the Merger, the Company shall possess all of the estate,
property, rights, privileges, powers and franchises of the Constituent
Corporations and all of their property, real, personal and mixed, and all of
the debts due on whatever account to any of them, as well as all stock
subscriptions and other choses in action belonging to any of them; and all
claims, demands, property and other interest of either of the Constituent
Corporations shall be the property of the Surviving Corporation, and the title
to all real estate vested in either of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger, but shall be vested
in the Surviving Corporation; provided, however, that the marketable
securities and real properties presently owned by the Company and referred to
in Section 9.12 hereof, shall not be retained by the Company and shall not be
the property of the Surviving Corporation as of the Effective Date. The rights
of creditors of either Constituent Corporation shall not in any manner be
impaired, nor shall any liability or obligation, including taxes due or to
become due, or any claim or demand in any cause existing against such
Constituent Corporation, or any stockholder, director or officer thereof, be
released or impaired by the Merger, but the Surviving Corporation shall be
deemed to have assumed, and shall be
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liable for, all liabilities and obligations of each of the Constituent
Corporations in the same manner and to the same extent as if the Surviving
Corporation had itself incurred such liabilities or obligations. The
shareholders, directors, and officers of the Constituent Corporations shall
continue to be subject to all the liabilities, claims and demands existing
against them as such at or before the Merger, subject to Section 9.7. No
action or proceeding then pending before any court or tribunal in which either
Constituent Corporation is a party, or in which any such shareholder,
director, or officer is a party, shall abate or be discontinued by reason of
the Merger, but any such action or proceeding may be prosecuted to final
judgment as though the Merger had not taken place, or the Surviving
Corporation may be substituted as a party in place of any Constituent
Corporation by the court in which such action or proceeding is pending.
Section 2.2 EFFECTIVE DATE OF THE MERGER. The Merger shall become
effective when properly executed Articles of Merger are duly filed by the
Surviving Corporation with the Secretary of State of the State of Georgia,
which filing shall be made as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 4.6
hereof; provided that, by mutual consent, such Articles of Merger may provide
for a later date of effectiveness of the Merger not more than 30 days after
the date of such filing. When used in this Agreement, the term "Effective
Date" shall mean the date and time at which such Articles of Merger are so
filed in accordance with Section 14-2-1105 of the Georgia Code (or the date
and time provided in such Articles of Merger).
ARTICLE III
THE SURVIVING CORPORATION
Section 3.1 ARTICLES OF INCORPORATION. At the Effective Date, Article Two
of the Articles of Incorporation of the Company shall be amended to change the
total number of shares of stock which the Company is authorized to issue to be
solely as follows: 1,000 shares of Common Stock, par value $1.00 per share. As
so amended, the Articles of Incorporation of the Company shall be the Articles
of Incorporation of the Surviving Corporation after the Effective Date unless
and until amended in accordance with their terms and as provided by law.
Section 3.2 BY-LAWS. The By-Laws of the Company as in effect on the
Effective Date shall be the By-Laws of the Surviving Corporation unless and
until amended in accordance with their terms or the Articles of Incorporation
of the Surviving Corporation and as provided by law.
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Section 3.3 OFFICERS AND BOARD OF DIRECTORS. The Board of Directors of
the Surviving Corporation shall consist of two directors to be designated by
Parent, who shall serve until their respective successors are duly elected and
qualified. The officers of the Company immediately prior to the Effective Date
shall be the officers of the Surviving Corporation until their respective
successors are duly elected and qualified.
ARTICLE IV
CONVERSION OF SHARES
Section 4.1 EXCHANGE RATIO. As of the Effective Date, by virtue of the
Merger and without any action on the part of any holder of Company Common
Stock:
(a) Any shares of Company Common Stock which are held in the
treasury of the Company shall be cancelled.
(b) All issued and outstanding shares of capital stock of
Acquisition shall be converted into 1,000 issued and outstanding shares
of common stock of the Surviving Corporation.
(c) Subject to the provisions of paragraph (d) of this Section 4.1
and Sections 4.2, 4.5 and 4.6 hereof, each remaining outstanding share of
Company Common Stock shall be converted into the right to receive
$2,009.13 (subject to adjustment as set forth in Section 4.2 hereof) and
45.66 shares of Parent Common Stock (subject to adjustment as provided in
Section 4.8). The amount of cash and shares of Parent Common Stock
(subject to adjustment as provided in Section 4.8) to be exchanged for
each share of Company Common Stock is hereinafter referred to as the
"Exchange Ratio." The total amounts of such cash and shares of Parent
Common Stock (subject to adjustment as provided in Section 4.8) to be
paid or issued to the holders of Company Common Stock are $44,000,000
(subject to adjustment as set forth in Section 4.2 hereof) and 1,000,000
shares of Parent Common Stock.
(d) The $2,009.13 amount of the cash consideration to be paid by
Parent in exchange for each share of Company Common Stock pursuant to
paragraph (c) of this Section 4.1 shall consist of (i) $1,825.00 which
shall be paid at Closing by wire transfer to the bank account designated
by Shareholders' Representative and shall not be subject to adjustment
(the "Primary Cash Payment"); and (ii) $184.13 which shall be placed in
Escrow on the
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Effective Date, be subject to adjustment after the Closing as provided in
Section 4.2 hereof and shall be paid as promptly as practicable after the
amount of such post-closing adjustment is determined pursuant to Section 4.2
hereof (the "Post-Closing Cash Payment"). The Shareholders' Representative
will obtain the consents of the Company shareholders to make the Primary Cash
Payment and any Post Closing Cash Payment by aggregate wire transfers.
(e) The shares of Parent Common Stock to be issued by Parent in
exchange for each share of Company Common Stock pursuant to paragraph (c)
of this Section 4.1 shall be delivered at the Closing to the
Shareholders' Representatives in the name of the Company shareholders
upon receipt of all shares of Company Stock ("Certificates") duly
endorsed for transfer. Such shares of Parent Common Stock shall not be
registered under the Securities Act or any state securities law and,
accordingly, shall constitute "restricted securities" within the meaning
of Rule 144(a)(3) under the Securities Act. Such shares of Parent Common
Stock will be approved for listing on the American Stock Exchange upon
official notice of issuance.
Section 4.2 POST-CLOSING ADJUSTMENTS.
(a) The $184.13 cash payment per share of Company Common Stock
provided for in Section 4.1(d) (the "Payment Subject to Adjustment")
shall be subject to adjustment following the Closing as provided in this
Section 4.2. Upon the Effective Date, Parent shall place in escrow (the
"Escrow") with the NationsBank, N.A. or such other party agreeable to
Parent and the Company (the "Escrow Agent") $4,032,447, representing the
aggregate amount of the Payments Subject to Adjustment for all
outstanding shares of Company Common Stock, to be held in Escrow pending
the determination of the amount of the Post-Closing Cash Payment to be
set forth in the Accountant's Post-Closing Report referred to below. The
amount placed in escrow shall bear interest at a Treasury bill rate until
paid.
(b) The Payment Subject to Adjustment shall be increased or
decreased, as the case may be, by the amount by which the total of
stockholders' equity at the Effective Date, determined in accordance with
GAAP on a basis consistent with the application of GAAP in the Company
financial statements for the year ended December 31, 1995, exceeds or is
less than the Adjusted Stockholders' Equity as determined in accordance
with Section 4.2(c). The Company may sell to CRP, Inc. the Company's
investment in CRP, Inc. for $175,000
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and distribute the $175,000 to the Company shareholders in accordance
with Section 9.12 hereof. If CRP, Inc. declines to purchase such
investment, Parent shall have the option by written notice of the
Shareholders' Representative on or before September 30, 1996 to increase
the Payment Subject to Adjustment by $175,000 and have the investment in
CRP, Inc. not included in the marketable securities to be distributed to
shareholders of the Company in accordance with Section 9.12 hereof. If
such investment is not sold to CRP, Inc. and if Parent fails to exercise
its option, such investment shall be distributed to the shareholders of
the Company in accordance with Section 9.12. The Payment Subject to
Adjustment shall also be increased by the Total Section 338 Tax
attributable to the Section 338(h)(10) Election referred in Section 9.15
hereof as set forth in paragraph (d) of this Section 4.2 (the "Tax
Liability Adjustment").
(c) The Adjusted Stockholders' Equity shall be $22,926,999, the
stockholders' equity at December 31, 1995, less (i) the fair market value
of the marketable securities referred to in Section 9.12 at the date
distributed to the Company shareholders prior to the Effective Date, (ii)
the cash proceeds from the sale by the Company of any marketable
securities or non-operating real properties referred to in Section 9.12
distributed to the Company shareholders prior to the Effective Date, and
(iii) the net book value determined in accordance with GAAP of the
non-operating real properties referred to in Section 9.12 distributed to
the Company shareholders prior to the Effective Date.
(d) The Tax Liability Adjustment shall be equal to the "Total
Section 338 Tax" which is equal to (i) the "Additional Section 338 Tax"
associated with a Section 338(h)(10) Election and (ii) the "Tax Gross-Up"
of federal, and state tax on the increase in purchase price attributable
to the Additional Section 338(h)(10) Tax.
The "Additional Section 338 Tax" shall be computed on the following
assumptions:
(i) The Company has one shareholder ("Deemed Shareholder");
(ii) The Deemed Shareholder has an aggregate state and federal marginal
tax rate of 44.31% for ordinary income and 32.32% for long-term
capital gain income.
Using the foregoing assumptions, the "Additional Section 338 Tax" is the
excess of (i) aggregate of the Deemed
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Shareholder's state and federal taxes attributable to the closing of the
Agreement and Plan of Merger assuming a Section 338(h)(10) Election is
made (exclusive of any Taxes arising out of any breach of a
representation or warranty contained in Section 6.9), over (ii) the
aggregate of the Deemed Shareholder's state and federal taxes
attributable to such closing had it been treated as a sale of Company
stock by such Deemed Shareholder. The Additional Section 338 Tax shall be
reduced by an built-in gains tax under Section 1374 the Code incurred by
the Company as a result of the transactions contemplated under this
Agreement. The "Tax Gross-Up" shall be the Additional Section 338 Tax,
unreduced by the foregoing Section 1374 adjustment, divided by 55.69% to
the extent the income subject to such Additional Section 338 Tax is taxed
as ordinary income and divided by 67.68% to the extent the income subject
to such Additional Section 338 Tax is taxed as long-term capital gain.
(e) Within 60 days following the preparation by the Company of audit
schedules in accordance with the terms of the Coopers & Lybrand audit
assistance letter, which audit assistance letter be will be delivered to
the Company on or prior to the Effective Date, Parent shall cause Coopers
& Lybrand to complete, at Parent's expense, a report (the "Accountant's
Post-Closing Report") (applying GAAP based upon the Company's accounting
policies so long as such policies are in accordance with GAAP) setting
forth the adjustment in the Payment Subject to Adjustment in Section
4.2(b) above. Parent shall promptly deliver the Accountant's Post-Closing
Report to the Shareholders' Representative and in the event the total
amount of the Post-Closing Cash Payments is greater than the amount of
the Payment Subject to Adjustment held in Escrow, Parent shall transfer
an amount equal to such excess to the Escrow Agent. In the event the
Payment Subject to Adjustment held in Escrow is greater than the total
amount of the Post-Closing Cash Payments, the Escrow Agent shall transfer
an amount equal to such excess to Parent. Parent shall promptly direct
the Escrow Agent to release the balance of the funds held in Escrow to
the bank account designated by the Shareholders' Representative as
payment of the Post-Closing Cash Payment calculated in accordance with
the above paragraphs of this Section 4.2. If the Shareholders'
Representative is in disagreement with the Accountant's Post Closing
Report, written notice to such effect shall be given to Parent within
five (5) business days of the receipt of the report. If the disagreement
cannot be resolved within ten (10) business days of such written notice,
the disagreement will be referred to a mutually agreed upon Big Six
accounting firm that has not
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previously performed services for Parent or Company. All parties agree to
cooperate with such firm. The decision of such firm shall be binding upon
all parties.
Section 4.3 DIVIDENDS; TRANSFER TAXES. No dividends or other
distributions that are declared after the Effective Date on Parent Common
Stock or are payable to the holders of record thereof after the Effective Date
will be paid to persons entitled by reason of the Merger to receive
certificates representing Parent Common Stock until such persons surrender
their Certificates. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such Parent Common Stock shall be
issued, any dividends or other distributions which shall have become payable
with respect to such Parent Common Stock between the Effective Date and the
time of such surrender. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions. Notwithstanding the foregoing, no party
hereto shall be liable to a holder of shares of Company Common Stock for any
shares of Parent Common Stock or dividends or other distributions thereon, or,
in accordance with Section 4.5 hereof, proceeds of the sale of fractional
interests, delivered to a public official pursuant to applicable escheat laws.
Section 4.4 NO FRACTIONAL SECURITIES. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates pursuant to this ARTICLE IV and no
Parent dividend or other distribution, stock split or interest shall relate to
any fractional security, and such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder of Parent. In lieu
of any such fractional securities, each holder of Company Common Stock who
would otherwise have been entitled to a fraction of a share of Parent Common
Stock upon surrender of Certificates for exchange pursuant to this ARTICLE IV
shall be paid an amount in cash (without interest) upon such surrender equal
to such holder's proportionate interest in the net proceeds from the sale or
sales in the open market, on behalf of all such holders, of the aggregate
fractional shares of Parent Common Stock. Such sale or sales shall be effected
promptly following the surrender of Certificates for Company Common Stock.
Section 4.5 NON-TRANSFERABILITY OF COMPANY COMMON STOCK FOLLOWING
EFFECTIVE DATE. Upon the Effective Date, no transfer of Company Common Stock
issued prior to the Effective Date shall be made. If, after the Effective
Date, Certificates representing such shares are presented to the Surviving
Corporation, they shall be cancelled and exchanged for cash and certificates
representing Parent Common Stock, as provided in this ARTICLE IV.
Section 4.6 CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place (i)
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at the offices of counsel to Parent, Freedman, Levy, Kroll & Simonds, in
Washington, D.C., as soon as practicable, after the fulfillment or waiver of
the last of the conditions set forth in Article X hereof, or (ii) at such
other time and place as Parent and the Company shall agree.
Section 4.7 LOST CERTIFICATES. In the event any Certificates for
Company Common Stock shall have been lost, stolen or destroyed, the Parent
shall issue in exchange for such lost, stolen or destroyed Certificate, upon
the making of an affidavit of that fact by the holder thereof, such shares of
Parent Common Stock and a check representing the cash payment provided in
Section 4.3(a) hereof plus the amount of cash in lieu of fractional shares, if
any, as may be required pursuant to this ARTICLE IV, provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
deliver a bond in such reasonable amount as it may direct as indemnity against
any claim that may be made against Parent or the Company with respect to the
Certificate alleged to have been lost, stolen or destroyed.
Section 4.8 CAPITALIZATION CHANGES. If, between the date of this
Agreement and the Effective Date, the outstanding shares of Parent Common
Stock shall have been changed into a different number of shares or a different
class by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares, or stock dividend, the Exchange Ratio set
forth in this Agreement shall be appropriately adjusted. If the number of
outstanding shares of Company Common Stock on the Effective Date is not 21,900
shares, the Exchange Ratio set forth in this Agreement shall be appropriately
adjusted.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company, except as set forth in the
letter of even date with this Agreement from the Parent to the Company (the
"Parent Letter"), as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has corporate power to carry on its business as it is
now being conducted or presently proposed to be conducted. Parent is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified will not, individually or in the
aggregate, have a material adverse
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effect on the assets, liabilities, results of operations, financial condition
or business (a "Material Adverse Effect") of Parent and its subsidiaries,
taken as a whole.
Section 5.2 CAPITALIZATION. The authorized capital stock of Parent
consists of 25,000,000 shares of Parent Common Stock and 10,000,000 shares of
Parent Preferred Stock. As of the date hereof, (i) 8,303,269 shares of Parent
Common Stock were validly issued and outstanding, fully paid and
non-assessable; (ii) 153,945 shares of Parent Common Stock were reserved for
issuance upon the exercise of warrants exercisable through December 31, 2001
at a price of $4.16 per share; (iii) 322,699 shares of Parent Common Stock
were reserved for issuance upon the exercise of warrants exercisable through
December 31, 2001 at a price of $7.65 per share; (iv) 790,459 shares of Parent
Common Stock were reserved for issuance upon the exercise of options granted
under the Parent 1991 Stock Option Plan at prices ranging from $2.75 to $12.25
per share; (v) 120,000 shares of Parent Common Stock were reserved for
issuance upon the exercise of options granted under the Parent 1993 Stock
Option Plan at prices ranging from $3.00 to $6.00 per share; (vi) 70,000
shares of Parent Common Stock were reserved for issuance upon the exercise of
non-qualified options granted other than pursuant to the Parent 1991 Stock
Option Plan or Parent 1993 Stock Option Plan and exercisable at prices ranging
from $3.00 to $12.00 per share; (vii) 454,545 shares of Parent Common Stock
were reserved for issuance upon the conversion of a $4,000,000 Convertible
Junior Subordinated Note due in March 1999; (ix) 148,367 shares of Parent
Common Stock were reserved for issuance upon the conversion of a $1,000,000
Convertible Junior Subordinated Note due in March 1999; and (x) 300 shares of
Parent Preferred Stock were issued and outstanding. All of the shares of
Parent Common Stock issuable in exchange for Company Common Stock at the
Effective Date in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and non-assessable and free of
preemptive rights.
Section 5.3 SUBSIDIARIES. Parent has 18 subsidiaries, each of which is
wholly owned by Parent unless otherwise indicated: Albuquerque Prosthetics
Center, Inc., a New Mexico corporation; Apothecaries, Inc., a Delaware
corporation; Capital Orthopedics, Inc., a Colorado corporation; Columbia Brace
Acquisition Corp., a Delaware corporation (80%-owned); DOBI-Symplex, Inc., a
Delaware corporation; Dorsch Prosthetics & Orthotics, Inc., a New York
corporation; Greiner & Saur Orthopedics, Inc., a Colorado corporation; J.E.
Hanger, Inc., a Delaware corporation; J.E. Hanger of California, Inc., a
Delaware corporation; JEH Acquisition Corporation, a Delaware corporation;
Memphis Orthopedic, Inc., a Delaware corporation; Metzgers Orthopaedic
Services, Inc., a California corporation; Opnet Inc., a Nevada corporation;
Ralph Storrs, Inc., a Delaware corporation; Scott Orthopedics, Inc., a
Colorado corporation; Scott Orthopedics of Northern Colorado, Inc., a Colorado
corporation; York Prosthetics, Inc., a Delaware corpora-
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tion; and Zielke Orthotics & Prosthetics, Inc., a Delaware corporation. (The
subsidiaries of Parent are collectively referred to hereinafter as the
"subsidiaries"). Each subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has corporate power to carry on its business as it is now
being conducted or proposed to be conducted. Each subsidiary is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease
or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not have a Material Adverse Effect
on Parent and its subsidiaries, taken as a whole. All the outstanding shares
of capital stock of each subsidiary owned by Parent are validly issued, fully
paid and non-assessable and Parent's shares in such subsidiaries are owned
free and clear of any liens, claims or encumbrances. There are no existing
options, calls or commitments of any character relating to the issued or
unissued capital stock or other securities of any subsidiary.
Section 5.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Parent has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by Parent's
Board of Directors; the issuance of up to 1,000,000 shares of Parent Common
Stock pursuant to this Agreement and the conduct of a private offering thereof
to the shareholders of the Company in accordance with Regulation D under the
Securities Act and the preparation of a Private Offering Memorandum (the
"Private Offering Memorandum") to be forwarded to such shareholders and the
filing with the SEC of a Form D in connection therewith, together with all
other filings required under all applicable state securities laws, have been
duly authorized by Parent's Board of Directors; no other corporate proceedings
on the part of Parent are necessary to authorize this Agreement and the
transactions contemplated hereby. Parent's Board of Directors has unanimously
determined that the Merger is in the best interests of Parent and has
unanimously approved all of the transactions contemplated by this Agreement,
including without limitation, the Merger. This Agreement has been executed and
delivered by each of Parent and Acquisition and (assuming the valid
authorization, execution and delivery of this Agreement by the Company) is a
valid and binding obligation of Parent and Acquisition. Parent and its
subsidiaries are not subject to or obligated under (i) any charter or bylaw,
(ii) any indenture or other loan document provision or (iii) any other
contract, license, franchise, permit, law, regulation, injunction, writ, order
or decree, which would be breached or violated or under which there would be a
default (with or without notice or passage of time) or a loss of benefits by
its executing and carrying out this Agreement other than, in the case of
clauses (ii) and (iii) only, any breaches, violations, or defaults which,
singly or in the aggregate, will not
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have a Material Adverse Effect on Parent and its subsidiaries taken as a whole
or which shall be cured, waived or terminated prior to the Effective Date.
Except as referred to herein or in connection or in compliance with any
applicable provisions of the Securities Act, the Exchange Act, the rules of
the AMEX and the corporation, securities or blue sky laws of the various
states of the United States, no filing or registration with, or authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Parent of the Merger or the other transactions contemplated by
this Agreement, other than filings, registrations, authorizations, consents or
approvals which if not made or obtained would not, singly or in the aggregate,
have a Material Adverse Effect on Parent and its subsidiaries, taken as a
whole.
Section 5.5 REPORTS, FINANCIAL STATEMENTS AND PROXY STATEMENT. Parent
has previously furnished the Company with true and complete copies (without
exhibits) of its (i) Annual Reports on Form 10-K for the years ended December
31, 1993, 1994 and 1995, as filed with the SEC, (ii) Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, and (iii) proxy statement, dated
May 1, 1996, of the Company relating to the Annual Meeting of Stockholders of
the Company held on June 18, 1996. As of their respective dates, such reports
and statements did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and any
unaudited interim financial statements of Parent included in such reports have
been prepared in accordance with GAAP applied on a consistent basis (except as
may be indicated therein or in the notes thereto) and fairly present the
financial position of Parent and its subsidiaries as at the dates thereof and
the results of their operations and changes in financial position for the
periods then ended. Parent is in compliance with the "current public
information" requirement of Rule 144 and will, at all times following the
Effective Date, remain in compliance with such requirement.
Section 5.6 INFORMATION IN THE PRIVATE OFFERING MEMORANDUM. None of
the information supplied by Parent or Acquisition for inclusion in the Private
Offering Memorandum will, in the case of the Private Offering Memorandum or
any supplement thereto, as of its date and at the Effective Date, and at the
time of the meeting referred to in Section 9.3 hereof, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
Section 5.7 VOTE REQUIRED. The vote of the holders of the outstanding
shares of Parent Common Stock is not necessary to approve this Agreement and
the transactions contemplated hereby.
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Section 5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Parent's Annual Report on Form 10-K for the year ended December 31, 1995, or
its Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
neither Parent nor any of its subsidiaries (i) had as of March 31, 1996, any
material Liability which is required to be accrued, reserved against or
otherwise disclosed in the consolidated financial statements of Parent under
GAAP or (ii) has incurred after March 31, 1996 any such material Liability
except in the ordinary course of business and consistent with past practices.
Section 5.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31,
1996, there have not been (i) any adverse change or changes in the financial
condition, results of operations, businesses, properties, assets or
Liabilities of Parent or any of its subsidiaries that would, singly or in the
aggregate, have a Material Adverse Effect on Parent and its subsidiaries,
taken as a whole, or (ii) any direct or indirect redemption, purchase or other
acquisition by Parent of any shares of Parent Common Stock, or any
declaration, setting aside or payment of any dividend or other distribution by
the Parent in respect of Parent Common Stock.
Section 5.10 No Default or Litigation; Permits. Except as disclosed in
Parent's Annual Report on Form 10-K for the year ended December 31, 1995, and
the reports, statements and schedules (other than exhibits thereto) filed by
Parent with the SEC since December 31, 1995:
(a) neither Parent nor any of its subsidiaries is in default or
violation under any agreement relating to indebtedness for borrowed money
to which it is a party; and neither Parent nor any of its subsidiaries is
in default or violation under any lease or other instrument to which it
is a party, or under any law, rule, regulation, writ, injunction, order
or decree of any court or any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, applicable laws, rules
and regulations relating to antitrust and civil rights) which default or
violation would have a Material Adverse Effect on Parent and its
subsidiaries taken as a whole;
(b) there are no actions at law, suits in equity or claims pending
or, to the best knowledge of the directors and executive officers of
Parent (such knowledge is hereinafter referred to as the "best knowledge
of Parent"), threatened against or affecting Parent or any of its
subsidiaries or their respective businesses or properties which in the
aggregate might result in a Material Adverse Effect on Parent and its
subsidiaries
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taken as a whole; and
(c) Parent and its subsidiaries possess all franchises, permits,
licenses, certificates, approvals and other authorizations necessary to
own or lease and operate their properties and to conduct their businesses
as now conducted, except for incidental licenses, permits and
certificates which would be readily obtainable by any qualified applicant
without undue burden in the event of any lapse, termination, cancellation
or forfeiture.
The Parent Letter sets forth a list as of the date hereof of, and Parent has
delivered to the Company true, correct and complete copies of, all agreements
or other instruments, including all amendments thereto, under which Parent or
its subsidiaries have outstanding, or may incur, indebtedness for borrowed
money, together with the principal amount of indebtedness outstanding under
each such agreement or instrument as of March 31, 1996. There are no liens on
any property of Parent or its subsidiaries securing any such indebtedness
except as set forth in the Parent Letter.
Section 5.11 TAXES. All federal, state, county, municipal or foreign
income, franchise, sales and other Tax Returns required by Law to be filed
have been duly filed, and all Taxes, assessments, fees and other governmental
charges upon Parent or any of its subsidiaries or upon any of their respective
properties, assets, revenues, income or franchises which have become due and
payable as shown therein have been paid, and adequate provision has been made
for all such Taxes, assessments, fees and other charges which may become due
and payable with respect to such periods for which returns were required to be
filed. Neither the Internal Revenue Service nor any other taxing authority or
agency is now asserting, in writing, any deficiency or claim for material
additional Taxes or interest thereon or penalties in connection therewith
against Parent or any of its subsidiaries; nor, to the best knowledge of
Parent, is any such authority threatening, in writing, to initiate a
proceeding against Parent or any of its subsidiaries with respect to any such
deficiency or claim. Neither Parent nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension of
a period for the assessment of, any federal, state or foreign income Tax or
material county or municipal income Tax. The accruals and reserves for Taxes
reflected in the balance sheet included in Parent's Annual Report on Form 10-K
for the year ended December 31, 1995 are adequate to cover all taxes accruable
through such date (including interest and penalties, if any, thereon) in
accordance with GAAP.
Section 5.12 EMPLOYEE BENEFIT PLANS; ERISA.
(a) The Parent Letter sets forth a list of each employee pension
benefit plan, as defined in Section 3(2)
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of ERISA, to which Parent or any of its subsidiaries contributes on
behalf of its employees, and Parent has delivered to the Company true,
correct and complete copies of each of such plans and trusts, including
all amendments thereto, and, with respect to each of such plans, the most
recent report on Form 5500, actuarial valuation report and summary plan
description. None of such plans is (i) a multi-employer plan (as defined
in Section 414(f) of the Code or Section 4001(a) of ERISA), or (ii) a
plan with respect to which more than one employer makes contributions
within the meaning of Sections 4063 and 4064 of ERISA.
(b) With respect to each of such plans:
(i) as of the date of execution of this Agreement, all
contributions required for such plan for the plan year most recently
ended and for all prior plan years have been made or are reserved
for on the balance sheet included in Parent's Annual Report on Form
10-K for the year ended December 31, 1995;
(ii) no reportable event, as such term is defined in Section
4043(b) of ERISA, has occurred with respect to any of such plans
which are subject to Section 4043(b) of ERISA, other than those
which will not have a Material Adverse Effect on Parent and its
consolidated subsidiaries, taken as a whole, which might arise
solely as a result of the transactions contemplated by this
Agreement or which pursuant to applicable regulations are not
subject to the 30-day notice to the Pension Benefit Guaranty
Corporation;
(iii) the total assets of such plans are sufficient to
discharge all liabilities of the plans on a termination basis; and
(iv) as of the Effective Date, no event will have occurred
which will result in the imposition of a material liability on
Parent under Section 4063 or 4201 of ERISA.
(c) The Parent Letter sets forth a list and Parent has delivered to
the Company copies of all deferred compensation plans, all supplemental
death, disability, and retirement plans, all medical reimbursement plans,
all employee welfare benefit plans (within the meaning of Section 3(1) of
ERISA), all severance plans, all bonus plans and all other employee
benefit plans of any kind or
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character, whether written or oral, maintained by Parent or any of
its subsidiaries. Except as set forth in said list, none of such
plans or arrangements provides benefits to employees or their
dependents after retirement, except as required by applicable law.
Section 5.13 PATENTS AND TRADEMARKS. Parent and each of its
subsidiaries own or have the right to use all patents, trademarks, service
marks, copyrights, trade names, inventions, improvements, processes, formulae,
trade secrets, mailing lists, know-how and proprietary or confidential
information used in conducting their businesses which are material to their
respective businesses. To the best knowledge of Parent, (i) the operations or
businesses of Parent or its subsidiaries do not infringe any patent, patent
right, trademark, service mark, trade name, or copyright or registration
thereof of any other party; (ii) no claim or threat of any such infringement
has been made, and no proceedings are pending or threatened against Parent or
any of its subsidiaries which challenge the validity or ownership of any
patent, trademark, trade name, service mark or copyright or the ownership of
any other right or property owned or used by Parent or any of its
subsidiaries; and (iii) there is no infringing use of any of the same by
others.
Section 5.14 INTERESTS OF OFFICERS AND DIRECTORS. Except as disclosed
in Parent's Annual Report on Form 10-K for the year ended December 31, 1995,
or any other reports or statements filed by Parent with the SEC since December
31, 1995, to the best knowledge of Parent, none of Parent's officers or
directors has, nor does any officer or director of any subsidiary of Parent
have, any interest in any material property, real or personal, tangible or
intangible, including inventions, trademarks, service marks, trade names and
copyrights, used in or pertaining to the business of Parent or any of its
subsidiaries, except for the normal rights of a stockholder and except for
rights under existing employee benefit plans.
Section 5.15 CERTAIN AGREEMENTS. Except as disclosed in Parent's Proxy
Statement, dated May 1, 1996, neither Parent nor any of its subsidiaries is a
party to any (i) agreements with any director, officer or employee of Parent
or any of its subsidiaries (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Parent or any of its subsidiaries of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee extending for a period longer than one
year, or (C) providing severance benefits or other benefits (which are
conditioned upon a change of control) after the termination of employment of
such employee regardless of the reason for such termination of employment,
(ii) agreement or plan, including, without limitation, any incentive or bonus
plan, stock option plan, stock appreciation right plan or stock purchase plan,
any of the benefits of which will be materially increased, or the vesting of
benefits of which will be materially accelerated, by the
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occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement or (iii) agreements
providing for any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement. Parent has
delivered to the Company copies of all such agreements and plans.
Section 5.16 INVESTMENT COMPANY. Neither Parent nor any of its
subsidiaries is an "investment company" or an "affiliated person" thereof or
an "affiliated person" of any such "affiliated person," as such terms are
defined in the Investment Company Act of 1940, as amended.
Section 5.17 OWNERSHIP OF COMPANY STOCK. Neither Parent nor Acquisition
nor any subsidiaries of Parent own beneficially or of record, or is party to
any agreement, arrangement or understanding for the purpose of acquiring,
holding or voting, shares of capital stock of the Company.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition, except as
set forth in the letter of even date with this Agreement from the Company to
the Parent (the "Company Letter"), as follows:
Section 6.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of Georgia and has corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified will not, individually or in the
aggregate, have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole.
Section 6.2 CAPITALIZATION. The authorized capital stock of the
Company consists of 250,000 shares of Company Common Stock. As of the date
hereof, (i) 21,900 shares of Company Common Stock were outstanding, all of
which were validly issued, fully paid and non-assessable; and (ii) no shares
of Company Common Stock were held in the treasury of the Company. There are no
options, warrants, rights, agreements or commitments presently outstanding
obligating the Company to issue shares of Company Common Stock.
Section 6.3 SUBSIDIARIES. The Company has no subsidiaries.
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The Company does not directly or indirectly have any investment in any other
corporation, partnership, joint venture or other business association or
entity which investment is not owned free and clear of any liens, claims or
encumbrances.
Section 6.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by the
Company's Board of Directors; and, except for the approval of its shareholders
as set forth in Section 9.3 hereof, no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement and the transactions
contemplated hereby. The Company's Board of Directors has unanimously
determined that the Merger is in the best interests of its shareholders and
has unanimously approved all of the transactions contemplated by this
Agreement, including without limitation, the Merger. The Company is not
subject to or obligated under (i) any charter or bylaw, (ii) any indenture or
other loan document provision, or (iii) any other contract, license,
franchise, permit, law, regulation, injunction, writ, order or decree, which
would be breached or violated or under which there would be a default (with or
without notice or passage of time) or a loss of benefits by its executing and
carrying out this Agreement. Except as referred to herein, no filing or
registration with, or authorization, consent or approval of, any public body
or authority is necessary for the consummation by the Company of the Merger or
the other transactions contemplated by this Agreement.
Section 6.5 FINANCIAL STATEMENTS AND PROXY STATEMENTS. The Company has
previously furnished Parent with true and complete copies (without exhibits)
of its financial statements for the years ended December 31, 1993, 1994 and
1995 (of which the financial statements for the year ended December 31, 1993
and December 31, 1995 were audited). As of their respective dates, such annual
financial statements did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company have been
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto) and fairly present the financial
position of the Company as at the dates thereof and the results of their
operations and changes in financial position for the periods then ended.
Section 6.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
the Company's audited financial statements for the year ended December 31,
1995, the Company (i) did not have as of December 31, 1995, any material
Liability or (ii) has not incurred after December 31, 1995 any such material
Liability except in the ordinary course of business and consistent with past
practices
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(none of which relate to violation of Law, tort, breach of contract or a
Proceeding), which would have a Material Adverse Effect on the Company.
Section 6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
contemplated by this Agreement, since December 31, 1995, there have not been
(i) any adverse change or changes in the financial condition, results of
operations, businesses, properties, assets or Liabilities of the Company that
would, singly or in the aggregate, have a Material Adverse Effect on the
Company ; or (ii) any direct or indirect redemption, purchase or other
acquisition by the Company of any share of Company Common Stock; (iii) any
declaration, setting aside or payment of any dividend or other distribution
(except for any distribution contemplated by Section 9.12) by the Company in
respect of Company Common Stock; or (iv) any action by the Company which would
have been prohibited by Section 8.1 of this Agreement had such Section 8.1
been in effect at all times since December 31, 1995.
Section 6.8 NO DEFAULT OR LITIGATION; PERMITS.
(a) the Company is not in default or violation under any agreement
relating to indebtedness for borrowed money to which it is a party; and
the Company is not in default or violation under any lease or other
instrument to which it is a party, or under any law, rule, regulation,
writ, injunction, order or decree of any court or any foreign, federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation,
applicable laws, rules and regulations relating to anti-trust and civil
rights) which default or violation would have a Material Adverse Effect
on the Company;
(b) there are no actions at law, suits in equity or claims pending
or, to the best knowledge of the directors and executive officers of the
Company (such knowledge is hereinafter referred to as the "best knowledge
of the Company"), threatened against or affecting the Company or its
business or properties which in the aggregate might result in a Material
Adverse Effect on the Company;
(c) to the best knowledge of the Company, there are no pending or
threatened claims, actions, suits, proceedings or investigations relating
to the Company ("Actions") against any Indemnified Parties (as defined in
Section 9.7 hereof) or facts upon which any such Actions could be based;
and
(d) the Company possesses all franchises, permits, licenses,
certificates, approvals and other authorizations necessary to own or
lease and operate its properties and to conduct its businesses as now
conducted,
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except for incidental licenses, permits and certificates which would be
readily obtainable by any qualified applicant without undue burden in the
event of any lapse, termination, cancellation or forfeiture.
The Company Letter sets forth the aggregate Indebtedness of the Company as of
December 31, 1995. There have been no changes to such Indebtedness since
December 31, 1995, other than repayments or as permitted under Section
8.1(iii). There are no liens on any property of the Company securing any such
indebtedness.
Section 6.9 TAXES. All federal, state, county, municipal or foreign,
income, franchise, sales and other Tax Returns required by law to be filed
have been duly filed, and all Taxes, assessments, fees and other governmental
charges upon the Company or upon any of its properties, assets, revenues,
income or franchises which have become due and payable have been paid, and
adequate provision has been made for all such Taxes, assessments, fees and
other charges which may become due and payable with respect to such periods
for which returns were required to be filed. Neither the Internal Revenue
Service nor any other taxing authority or agency is now asserting, in writing,
any deficiency or claim for material additional Taxes or interest thereon or
penalties in connection therewith against the Company; nor, to the best
knowledge of the Company, is any such authority threatening, in writing, to
initiate a proceeding against the Company with respect to any such deficiency
or claim. None of the Company's federal or state Tax Returns have been
audited. The Company has not granted any waiver of any statute of limitations
with respect to, or any extension of a period for the assessment of, any
federal, state or foreign income Tax or material county or municipal income
Tax. The accruals and reserves for Taxes reflected in the balance sheet
included in the Company's audited financial statements for the year ended
December 31, 1995 are adequate to cover all Taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with GAAP.
The Company has been a "small business corporation " (within the meaning of
Section 1361 of the Code) for all taxable years beginning on January 1, 1984
and ending on the date of the Closing, has duly elected under Section 1362(a)
of the Code to be taxed as an "S corporation" for federal income tax purposes
for each of such taxable years, and has made a corresponding election under
the tax laws of each state that permits an S election to be made of those
states in which the Company files tax returns for each of such taxable years
(or such shorter period for which tax returns have been filed). Payment to
shareholders of the Company in 1996 for their taxes attributable to prior year
Company net income is not reflected as a liability in the Company's fiscal
1995 financial statements because the Company had not then declared the
dividend. Deferred income taxes on the Company shareholders will be triggered
by the Closing. Accrual of such liability is not required by GAAP prior to
Closing.
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Section 6.10 EMPLOYEE BENEFIT PLANS; ERISA.
(a) The Company Letter sets forth a list of each Employee Benefit
Plan to which the Company or any Subsidiary contributes on behalf of its
employees, and the Company has delivered to Parent true, correct and
complete copies of each of such plans and trusts, including all
amendments thereto, and, with respect to each of such plans, the most
recent annual report on Form 5500 and related financial statements,
actuarial valuation report summary plan description, all governmental
rulings, determinations and opinions (and pending requests therefor).
None of such plans is and neither the Company nor any of its ERISA
Affiliates has ever maintained or been obligated to contribute to (i) a
multi employer plan (as defined in Section 414(f) of the Code or Section
4001(a) of ERISA), or (ii) a plan with respect to which more than one
employer makes contributions within the meaning of Sections 4063 and 4064
of ERISA or (iii) a defined benefit pension plan (as defined in Section
3(35) of ERISA). All employee plans have been operated and administered
in compliance in all material respects with ERISA, the Code and other
applicable Laws.
(b) With respect to each of such plans:
(i) each Employee Benefit Plan, if intended to be "qualified"
within the meaning of Section 401(a) of the Code, has been
determined by the Internal Revenue Service to be so qualified and
the related trusts are exempt from tax under Section 501(a) of the
Code, and to the best knowledge of the Company, nothing has occurred
that has or could reasonably be expected to affect adversely such
qualification or exemption;
(ii) to the best knowledge of the Company, neither the Company,
its ERISA Affiliates, nor any other "disqualified person" or "party
in interest" (as such terms are defined in Section 4975 of the Code
and Section 3(14) of ERISA, respectively) with respect to an
Employee Plan has breached the fiduciary rules of ERISA or engaged
in a prohibited transaction that could subject the Company or any of
its ERISA Affiliates to any tax or penalty imposed under Section
4975 of the Code or Section 501(i), (j) or (l) of ERISA;
(iii) no Proceedings (other than routine claims for benefits)
are pending, or to the best knowledge of the Company, threatened,
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with respect to or involving any Employee Benefit Plan;
(iv) except as may be required under Laws of general
application, none of the Employee Benefit Plans obligate the Company
to provide any employee or former employee, or their spouses, family
members or beneficiaries, any post-employment or post-retirement
health or life insurance or other benefits;
(v) each Employee Benefit Plan that is a "group health plan"
within the meaning of Section 5000 of the Code has been maintained
in compliance with Section 4980B of the Code and Title I, Subtitle
B, Part 6 of ERISA and no tax payable on account of Section 4980B of
the Code has been or is expected to be incurred;
(vi) as of the date of execution of this Agreement, all
contributions required for such plan for the plan year most recently
ended and for all prior plan years have been made or are reserved
for on the balance sheet included in the Company's audited financial
statements for the year ended December 31, 1995;
Section 6.11 PATENTS AND TRADEMARKS. The Company and each Subsidiary
own or have the right to use all patents, trademarks, service marks,
copyrights, trade names, inventions, improvements, processes, formulae, trade
secrets, mailing lists, know-how and proprietary or confidential information
used in conducting their businesses which are material to their respective
businesses. To the best knowledge of the Company, (i) the operations or
businesses of the Company or any Subsidiary do not infringe any patent, patent
right, trademark, service mark, trade name, or copyright or registration
thereof of any other party; (ii) no claim or threat of any such infringement
has been made, and no proceedings are pending or threatened against the
Company or any Subsidiary which challenge the validity or ownership of any
patent, trademark, trade name, service mark or copyright or the ownership of
any other right or property owned or used by the Company or any Subsidiary;
and (iii) there is no infringing use of any of the same by others.
Section 6.12 INFORMATION IN THE PRIVATE OFFERING MEMORANDUM. None of
the information supplied by the Company for inclusion in the Private Offering
Memorandum or any supplement thereto will, as of its date and at the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
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Section 6.13 INTERESTS OF OFFICERS AND DIRECTORS. To the best knowledge
of the Company, none of the Company's officers or directors has, nor does any
officer or director of any Subsidiary have, any interest in any material
property, real or personal, tangible or intangible, including inventions,
trademarks, service marks, trade names and copyrights, used in or pertaining
to the business of the Company or any Subsidiary, except for the normal rights
of a stockholder and except for rights under existing employee benefit plans.
Section 6.14 CERTAIN AGREEMENTS. The Company is not a party to any (i)
agreements with any director, officer or employee of the Company (A) the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee extending for a
period longer than one year, or (C) providing severance benefits or other
benefits (which are conditioned upon a change of control) after the
termination of employment of such employee regardless of the reason for such
termination of employment; (ii) agreement or plan, including, without
limitation, any incentive or bonus plan, stock option plan, stock appreciation
right plan or stock purchase plan, any of the benefits of which will be
materially increased, or the vesting of benefits of which will be materially
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement; or (iii)
agreements providing for any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement.
The Company has delivered to Parent copies of all such agreements and plans.
Section 6.15 INVESTMENT COMPANY. The Company is not an "investment
company" or an "affiliated person" thereof or an "affiliated person" of any
such "affiliated person," as such terms are defined in the Investment Company
Act of 1940, as amended.
Section 6.16 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class of the Company's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
Section 6.17 INSURANCE. The Company Letter sets forth a list and brief
description of all policies of medical malpractice and other insurance and
surety bonds held by or on behalf of the Company (specifying the issuer and
the policy number or other identifying number with respect to binders), and
describes any pending claims thereunder. The insurer has accepted coverage
with respect to such pending claims. Such policies and bonds (and binders, if
any) are in full force and effect, and insure against risks and liabilities to
the extent and in the manner appropriate
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and sufficient under industry practice.
Section 6.18 ENVIRONMENTAL MATTERS. To the best knowledge of the
Company,
(a) neither the Company nor any of its past owned or leased real
properties or operations, are subject to or the subject of, any Proceeding,
Order, settlement, or other contract or agreement arising under Environmental
and Safety Requirements, nor has any investigation been commenced or is any
Proceeding threatened against the Company under the Environmental and Safety
Requirements with regard to the Company's business activities.
(b) the Company has not received any written notice, report or other
written information regarding any actual or alleged violation of any
Environmental and Safety Requirement, or any Liabilities or potential
Liabilities, including any investigatory remedial or corrective obligations,
relating to the Company's business activities or the real properties owned or
operated by the Company and arising under any Environmental and Safety
Requirement.
(c) none of the following exists, nor has ever existed, at any real
property previously owned or operated by the Company: (1) underground storage
tanks, (2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls or (4) landfills,
surface impoundments or disposal areas.
(d) the Company has not treated, stored, disposed of, arranged for
or permitted the disposal of, transported, handled or released any substance,
or owned or operated any real property (and no such real property is
contaminated by any such substance) in a manner that has given or could
reasonably be expected to give rise to onsite or offsite Liabilities pursuant
to CERCLA, SWDA or any other Environmental and Safety Requirement, including
any Liability for response costs, corrective action costs, personal injury,
property damage, natural resources damage or attorney fees, or any
investigative, corrective or remedial obligations.
(e) the Company has provided Parent with correct and complete copies
of all reports and studies within the possession or control of the Company
with respect to past or present environmental conditions or events at any of
real properties presently or previously owned or operated by the Company.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES REGARDING ACQUISITION
Parent and Acquisition jointly and severally represent and warrant to the
Company as follows:
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Section 7.1 ORGANIZATION. Acquisition is a corporation duly organized,
validly existing and in good standing under the laws of Georgia.
Section 7.2 CAPITALIZATION. The authorized capital stock of
Acquisition consists of 1,000 shares of common stock, par value $.01 per
share, 1,000 shares of which are validly issued and outstanding, fully paid
and non-assessable and are owned by Parent free and clear of all liens, claims
and encumbrances.
Section 7.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Acquisition has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and sole stockholder, and no other corporate proceedings on the
part of Acquisition are necessary to authorize this Agreement and the
transactions contemplated hereby.
No filing or registration with, or authorization, consent or approval of,
any public body or authority is necessary for the consummation by Acquisition
of the Merger or the other transactions contemplated by this Agreement.
Section 7.4 NO PRIOR ACTIVITIES. Acquisition has not, except as
contemplated by this Agreement, (i) engaged, directly or through any
subsidiary, in any business or activities of any type or kind whatsoever, (ii)
entered into any agreements or arrangements with any person or entity, or
(iii) become subject to or bound by any obligation or undertaking.
ARTICLE VIII
CONDUCT OF BUSINESS AFTER EXECUTION OF THE AGREEMENT
Section 8.1 CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO THE MERGER.
Prior to the Effective Date, unless Parent shall otherwise agree in writing or
as otherwise contemplated by this Agreement or as set forth in the Company
Letter:
(i) the business of the Company shall be conducted only in the
ordinary course, the Company shall not create any subsidiaries and there
shall be no material change in the conduct of the Company's operations;
(ii) the Company shall not (A) directly or indirectly redeem,
purchase or otherwise acquire any shares of Company Common Stock; (B)
amend its Articles of Incorporation or By-Laws; or (C) split, combine or
reclassify the outstanding Company Common Stock; or declare, set aside or
pay any dividend payable in cash, stock or
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property otherwise than as contemplated by Section 9.12;
(iii) the Company shall not (A) issue or agree to issue any additional
shares of, or rights of any kind to acquire any shares of, Company Common
Stock; (B) acquire or dispose of any fixed assets (other than the real
properties and marketable securities referred to in Section 9.12 hereof) or
acquire or dispose of any other substantial assets other than in the ordinary
course of business otherwise than as contemplated by Section 9.12; (C) incur
any indebtedness for money borrowed or evidenced by notes, debentures or
similar instruments or any other material liabilities or enter into any other
material transaction, other than in the ordinary course of business; (D) enter
into any new lease contracts with any person, corporation, partnership or
other entity or group (such person, corporation, partnership or other entity
or group being referred to hereinafter, singularly or collectively, as a
"Person") except for renewals of leases in the ordinary course of business;
(E) make any capital expenditures, or enter into any contract or commitment
therefor, in excess of $200,000 in the aggregate; or (F) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(iv) the Company shall use all reasonable efforts to preserve intact the
business organization of the Company, to keep available the services of its
and their present officers and key employees, and to preserve the good will of
those having business relationships with it;
(v) the Company shall not, and shall not permit its officers, employees,
representatives or agents to, directly or indirectly, (A) encourage, solicit
or initiate or participate in discussions or negotiations with or provide any
non-public information to, any Person, other than Parent or its affiliates or
any group in which Parent or its affiliates participates (collectively being
referred to hereinafter as the "Excluded Persons") concerning any merger,
amalgamation, sale of substantial assets or equity interests or other business
combination involving the Company or any division of the Company or tender
offer (each of such transactions being referred to hereinafter as an
"Acquisition Transaction") or (B) otherwise solicit, initiate or encourage
inquiries or the submission of any proposal contemplating an Acquisition
Transaction. The Company, its officers and directors may, however, engage in
such discussions or negotiations to the extent their fiduciary duties require
it. The Company will promptly communicate to Parent the terms of any inquiry
or proposal which it may receive in respect of an Acquisition Transaction. The
Company will
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immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore in
respect of an Acquisition Transaction. The Company's notification under
this Section 8.1(v) shall include the identity of the Person making such
proposal or any other such information with respect thereto as Parent may
reasonably request;
(vi) except as set forth in the Company Letter or Section 9.11
hereof, the Company will not enter into any new employment agreements
with any of its officers or grant any increases in the compensation of
its officers and employees (except in accordance with current incentive
compensation plans) or amend any Employee Benefit Plan or arrangement;
and
(vii) prior to the Effective Date, unless Parent shall otherwise
consent in writing, which consent shall not be unreasonably withheld, the
Company shall not settle any actions at law, suits in equity or claims
pending to which the Company is a party.
Section 8.2 CONDUCT OF BUSINESS BY PARENT PRIOR TO THE MERGER. Prior
to the Effective Date, unless the Company shall otherwise agree in writing or
as otherwise contemplated by this Agreement or as set forth in the Parent
Letter:
(i) the respective businesses of Parent and its subsidiaries shall
be conducted only in ordinary course and there shall be no material
change in the conduct of Parent's operations;
(ii) neither Parent nor any of its subsidiaries shall (A) issue or
agree to issue any additional shares of, or rights of any kind to acquire
any shares of, Parent Common Stock other than in connection with the
Parent 1991 Stock Option Plan or Parent 1993 Stock Option Plan or upon
the exercise of any options or warrants or conversion of any convertible
securities outstanding as of the date of this Agreement; (B) incur a
material amount of indebtedness for money borrowed or evidenced by notes,
debentures or similar instruments or any other material liabilities,
other than in ordinary course of business, except as contemplated under
Section 10.3(c) hereof; or (C) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing; and
(iii) Parent shall not amend any Employee Benefit Plan or
arrangement, other than in the ordinary course of business and consistent
with past practices.
Section 8.3 CONDUCT OF BUSINESS OF ACQUISITION. During the
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period from the date of this Agreement to the Effective Date, Acquisition
shall not engage in any activities of any nature except as provided in or
contemplated by this Agreement.
ARTICLE IX
ADDITIONAL AGREEMENTS
Section 9.1 ACCESS TO AND INFORMATION REGARDING THE COMPANY AND THE
PARENT.
(a) The Company shall, and shall cause each of its officers,
directors, employees and agents, including accountants, counsel and other
representatives, to afford the officers, employees and agents of Parent
full access during normal business hours throughout the period prior to
the Effective Date to all of its respective officers, employees, agents,
properties, books, contracts, commitments and records and, during such
period, shall furnish promptly to Parent all information concerning its
business, properties and personnel as Parent, through its officers,
employees or agents, may reasonably request.
(b) In addition, the Company shall, and shall cause its officers,
directors, employees and agents, to, afford the officers, employees and
agents of Parent with access to such information concerning the Company
as may be necessary to ascertain the accuracy and completeness of the
information supplied by the Company for inclusion in the Private Offering
Memorandum and to verify the performance of and compliance with the
representations, warranties, covenants and conditions herein contained.
(c) Information obtained pursuant to this ARTICLE IX may be
disclosed to Parent's accountants, counsel and other representatives as
may be appropriate or required in connection with the transactions
contemplated hereby but only if such persons shall be specifically
informed by Parent of the confidential nature of such information and the
restrictions contained herein. If this Agreement is terminated, Parent
will, and will cause its officers, employees and agents to, destroy or
deliver to the Company all nonpublic documents, work papers and other
materials, and all copies thereof, obtained by Parent or on its behalf
from the Company as a result of this Agreement or in connection herewith,
whether so obtained before or after the execution hereof. Except as set
forth in this Section 9.1(c), Parent and its officers and employees will
not disclose any information so obtained, except as required by
applicable law or legal process, without the prior written consent of the
Company.
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(d) The Company shall have the same rights and obligations regarding
the Parent as the Parent has regarding this Company as set forth in
paragraphs (a) - (c) above.
Section 9.2 PRIVATE OFFERING MEMORANDUM.
(a) Parent shall prepare the Private Offering Memorandum as soon as
is reasonably practicable. The Company shall furnish Parent all
information concerning the Company and the holders of Company Common
Stock required for use in the Private Offering Memorandum and shall take
such other action as Parent may reasonably request in connection with any
such actions.
(b) The Private Offering Memorandum shall be sent by the Company to
its shareholders and used in connection with the Company's approval of
the transaction in accordance with Section 9.3 hereof.
(c) The information provided and to be provided by Parent and the
Company for use in the Private Offering Memorandum, shall be true and
correct in all material respects without omission of any material fact
which would be required to make such information not false or misleading.
(d) The Company and Parent shall each advise the other promptly if
prior to the Effective Date it has or obtains knowledge of any facts that
would make it necessary to supplement the Private Offering Memorandum in
order to render the statements therein not misleading or to comply with
applicable law. In such case, the Company and Parent shall cooperate in
preparing and disseminating to Company shareholders any necessary
supplement to the Private Offering Memorandum.
Section 9.3 COMPANY SHAREHOLDERS' MEETING. The Company shall either
call a special meeting of its shareholders to be held as soon as practicable
after the distribution of the Private Offering Memorandum or solicit the
written consents to the transaction contemplated by this Agreement of its
shareholders as soon as practicable after the distribution of the Private
Offering Memorandum for the purpose of voting upon this Agreement in
accordance with Section 14-2-1104 of the Georgia Code.
Section 9.4 FEES AND EXPENSES.
(a) If (i) the Company engages in discussions prior to the Effective
Date with a Third Party (as defined below) relating to a Third Party
Acquisition (as defined below), (ii) this Agreement is terminated by
Parent pursuant to
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Section 11.1(b) or the Company pursuant to Section 11.1(c)(iv), and (iii)
prior to or within eighteen (18) months after the termination of this
Agreement, the Company enters into any agreement or arrangement with
respect to a Third Party Acquisition (as defined below), then the Company
shall pay to Parent immediately upon the consummation of the Third Party
Acquisition, a fee of $5.0 million in cash. "Third Party Acquisition"
means any of the following events: (i) acquisition of the Company by
merger or otherwise by any Person other than Parent or any affiliate
thereof (a "Third Party"); (ii) acquisition by a Third Party of more than
50% of the total assets of the Company and its consolidated Subsidiaries,
taken as a whole; (iii) acquisition by a Third Party of more than 50% of
the outstanding shares of Company Common Stock; (iv) adoption and
implementation by the Company of a plan of liquidation or extraordinary
dividend relating to more than 50% of the outstanding shares of Company
Common Stock; or (v) the repurchase by the Company or any Subsidiary of
more than 50% of the outstanding shares of Company Common Stock.
(b) If this Agreement is terminated because either (i) Parent has
not received a commitment for financing as provided in Section 10.3(b)
hereof, or (ii) Parent does not consummate the transaction contemplated
by this Agreement for reasons other than as permitted pursuant to Section
11.1 hereof, Parent shall promptly pay to the Company the sum of $1
million in cash.
(c) In the event that this Agreement is terminated by Parent or the
Company as a result of, directly or indirectly, the material breach by
the other party of its obligations hereunder or the failure of any
representation or warranty of the other party to be true and correct in
any material respects, provided that the terminating party is not itself
in material breach, then such other party shall reimburse the party that
so terminated this Agreement (not later than two days after submission by
the non-breaching party to the breaching party of statements supporting
such expenses) for all out-of-pocket expenses and fees actually incurred
by such party in good faith or on their behalf in connection with the
Merger, the consummation of all transactions contemplated by this
Agreement and the negotiation, preparation, execution and performance of
this Agreement; provided, however, that nothing contained in this Section
9.4(c) shall be construed to be liquidated damages or preclude any party
not in breach of this Agreement from pursuing any remedy at law or in
equity.
(d) If the Merger is not consummated under circumstances where no
fees or expenses may be payable pursuant
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<PAGE>
to paragraph (c) of this Section 9.4, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses.
Section 9.5 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its best efforts to satisfy the conditions precedent to the
obligations of any of the parties hereto, to obtain all necessary waivers,
consents and approvals, to effect all necessary filings and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed
with the Merger as expeditiously as possible), subject, however, to the
appropriate vote of the shareholders of the Company. In case at any time after
the Effective Date any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and/or directors of
Parent, the Company and Acquisition shall take all such necessary action.
Section 9.6 PUBLICITY. The parties hereto agree that they will consult
with each other concerning any proposed press release or public announcement
pertaining to the Merger and shall use their best efforts to agree upon the
text of any such press release or public announcement prior to the publication
of such press release or the making of such public announcement; provided,
that nothing herein shall restrict any public announcement or other disclosure
which a party deems upon advice of counsel to be required to be made by law or
applicable AMEX rule.
Section 9.7 DIRECTOR AND OFFICER INDEMNIFICATION. Parent agrees that
all rights to indemnification, advancement of litigation expenses or
limitation of personal liability existing in favor of the directors and
officers of the Company (the "Indemnified Parties") under the provisions
existing on the date hereof of its Articles of Incorporation or By-laws shall
survive the Effective Date and that after the Effective Date Parent shall
assume all obligations of the Company in respect thereof as to any claim or
claims for which said officers and directors would have been indemnified under
said Articles of Incorporation or By-laws.
Section 9.8 FAIR PRICE STATUTE. If any "fair price," "control share
acquisition", or "business acquisition" statute or other similar statute or
regulation shall be or become applicable to the transactions contemplated
hereby, the Company and the members of the Board of Directors of the Company
shall use their best efforts to grant such approvals and take such actions as
are necessary so that the transactions contemplated hereby may be consummated
as promptly as practicable on the terms contemplated hereby and otherwise act
to minimize the effects of such statute or
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regulation on the transactions contemplated hereby.
Section 9.9 NOTIFICATION OF CERTAIN MATTERS. Without limiting any of
their other obligations under this Agreement, the Company and Parent each
shall promptly notify the other of:
(a) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating
to or involving or otherwise affecting Parent or its subsidiaries or the
Company or its Subsidiaries, as the case may be, that, if adversely
decided, would either individually or in the aggregate have a Material
Adverse Effect on the Parent and its subsidiaries taken as a whole or on
the Company and its Subsidiaries taken as a whole, as the case may be, or
that relate to the consummation of the Merger;
(b) any notice, or other communication relating to, a default or an
event that, with notice or lapse of time or both, would become a default,
received by Parent or any of its subsidiaries or the Company or any of
its Subsidiaries, as the case may be, subsequent to the date of this
Agreement and prior to the Effective Date, under any agreement to which
it is a party or to which it or any of its properties or assets may be
subject or bound if the agreement, alone or together with other
agreements as to which there has been such a notice, communication, or
event, is material to the business of the Company and its Subsidiaries
taken as a whole or, as the case may be, to the Parent and its
subsidiaries taken as a whole;
(c) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(d) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
(e) any adverse change or changes in the business of the Parent or
any of its subsidiaries or the Company or any of its Subsidiaries, as the
case may be, or the occurrence of one or more events or developments
that, so far as reasonably can be foreseen at the time of its occurrence,
is reasonably likely to result in any such change, if such change or
changes, individually or in the aggregate, would have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole, or as the
case may be, Parent and its subsidiaries, taken as a whole.
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<PAGE>
Section 9.10 EMPLOYEE BENEFITS PLANS. Parent shall, following the
Merger, either (i) continue the operation of the Employee Benefit Plans of the
Company that were in effect immediately prior to the Merger or (ii) permit
employees of the Company to participate in Employee Benefit Plans of the
Parent no less favorable to such employees than Employee Benefit Plans
currently made available by Parent or its subsidiaries to their employees.
Section 9.11 COMPANY EMPLOYMENT AGREEMENTS. Prior to the Effective
Date, Parent shall enter into new employment agreements in a mutually-agreed
form or amendments to current employment agreements with the following
persons, substantially in the form attached hereto as Exhibit A and B, as
indicated:
H.E. Thranhardt - new
John McNeill - new
Alice Tidwell - new
Mike Schlesinger - new
Gene Hair - A
Al Kritter - A
Al Teoli - A
Ron May - A
John Reynolds - B
David Nelson - B
Daniel Oglesby - B
Bob Brown - B
Bill Limehouse - B
Danny Phelps - B
Debra Sweeney - B
Debbie Plescia - B
Jeff Lutz - B
Connie Withers - B
Section 9.12 DISTRIBUTION OR TRANSFER OF CERTAIN MARKETABLE SECURITIES
AND REAL PROPERTIES. Prior to the Effective Date, the Company shall either
distribute to its shareholders the marketable securities and non-operating
real properties listed in the Company Letter, or sell or otherwise dispose of
such marketable securities and real properties and distribute the proceeds
thereof to its shareholders. Such marketable securities and real properties
shall not be owned by the Company as of the Effective Date and Parent shall
not be entitled to any of the proceeds from any sale thereof by the Company
prior thereto.
Section 9.13 GRANT OF PARENT STOCK OPTIONS. As of the Effective Date,
Parent agrees to grant options pursuant to the Parent 1991 Stock Option Plan
for an aggregate of 480,000 shares of Parent Common Stock to the following
persons, such options to be for the amounts of shares set forth below and to
be on terms consistent with options previously granted by Parent under that
plan:
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<TABLE>
<CAPTION>
Number of Shares
Name of Parent Common Stock
<S> <C>
H.E. Thranhardt 150,000
John McNeill 100,000
Alice Tidwell 30,000
Mike Schlesinger 20,000
Gene Hair 20,000
Al Kritter 20,000
Al Teoli 20,000
Ron May 20,000
John Reynolds 10,000
David Nelson 10,000
Daniel Oglesby 10,000
Bob Brown 10,000
Bill Limehouse 10,000
Danny Phelps 10,000
Debra Sweeney 10,000
Debbie Plescia 10,000
Jeff Lutz 10,000
Connie Withers 10,000
</TABLE>
Section 9.14 APPOINTMENT OF DIRECTORS. As soon as practicable after the
Effective Date, the Board of Directors of Parent shall amend Section 2 of
Article III of the By-Laws of Parent to increase the maximum size of the Board
to ten members and shall appoint Daniel A. McKeever and H.E. Thranhardt to
serve as members of the Board of Directors of Parent.
Section 9.15 SECTION 338(h)(10) ELECTION.
(a) At Parent's option and to the extent deemed necessary by
Parent, the Company will join, and the Company will cause its
shareholders to join, with Parent in making an election under Section
338(h)(10) of the Code and any corresponding elections under state,
local, or foreign tax law (collectively a "Section 338(h)(10)
Election"), with respect to the exchange of the Company Common stock
hereunder. On the Effective Date, or as soon as practicable thereafter
and within 8 1/2 months after the Effective Date, Parent and the
Company shall exchange completed and executed copies of Internal
Revenue Service Form 8023 and required schedules thereto, and any
similar state, local and foreign forms. If any changes are required in
these forms as a result of information which is first available after
the Effective Date, the parties shall promptly agree on such changes.
The Company shall cause its shareholders to pay any federal, state,
local, or foreign Tax payable by the Company or Parent attributable to
the making of the Section 338(h)(10) Election. The Parent agrees to
compensate the Company's shareholders for the Total Section 338 Tax
attributable to the election in accor-
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dance with the provisions of Section 4.2(d) of this agreement.
(b) The parties agree that the cash payments to be made by Parent
hereunder, the shares of Parent Common Stock to be issued hereunder, and
the Liabilities of the Company assumed will be allocated to the assets of
the Company for all purposes as shown on an allocation schedule set forth
in the Accountant's Post-Closing Report referred to in Section 4.2(e)
hereof. As among the Parent, the Company and the Company's shareholders,
the valuation of assets listed in the allocation schedule contained in
the Accountant's Post-Closing Report shall be conclusive and binding and
the parties will file all Tax Returns (including amended returns and
claims for refund) and information reports in a manner consistent with
such values.
Section 9.16 CERTAIN CONVEYANCE TAXES. All transfer, documentary,
sales, use, stamp, registration and other such Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement (other than
any Taxes and fees attributable to the Section 338(h)(10) Election) shall be
paid by the Company Shareholders when due, and the Company Shareholders shall
file all necessary Tax Returns and other documentation in connection with all
such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and if required by applicable law, Parent, Company and the
Shareholders will join in the execution of any such Tax Returns or
documentation.
Section 9.17 OTHER TAX MATTERS.
(a) Tax Period Ending on Closing Date. The Company Shareholders
shall prepare or cause to be prepared and file or cause to be filed any
and all Tax Returns of Company for the period beginning January 1, 1996
and ending on the Closing Date which Tax Returns are filed after the
Closing Date. The Company Shareholders shall report their respective
shares of income, gain, loss and other tax items reported by the Company
on such Tax Returns and shall bear responsibility for any corporate level
income tax not reflected in the Tax Liability or any individual income
taxes incurred with respect to such Tax Returns. Parent shall have the
right to review such Tax Returns prior to their filing and the Company
Shareholders shall provide copies to Parent of such Tax Returns after
their filing with proof of such filing.
(b) Tax Returns Relating to Section 338(h)(10) Election. Parent
shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for the Tax period relating to the filing of
the Section 338(h)(10) election contemplated under Section
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<PAGE>
9.15(a) of this Agreement. The Company Shareholders shall report their
respective shares of income, gain, loss and other tax items reported on
such Tax Returns and shall bear responsibility for any individual income
taxes incurred with respect to such Tax Returns. The Company Shareholders
shall have the right to review such Tax Returns prior to their filing and
the Parent shall provide copies to the Company Shareholders of such Tax
Returns after their filing with proof of such filing.
(c) Cooperation on Tax Matters. Parent, Company and the Shareholders
shall cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to
this Section and any audit, litigation or other proceeding with respect
to such Taxes. Such cooperation shall include the retention and provision
of books and records and other information which are reasonably relevant
to such audit, litigation or other proceeding and making employees or
themselves available on a mutually convenient basis to provide additional
information and explanations of any material provided hereunder. Parent
shall retain all books and records of the Company with respect to taxable
periods ending on or before the Closing Date, and shall be responsible
for hiring tax counsel or other tax professionals to represent the
Company in connection with any audit, litigation or other proceeding with
respect to Tax Returns relating to such taxable periods. The parties
further agree to use their best efforts, if necessary, to obtain any
certificate or other document from any governmental authority or any
other person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed, including, without limitation, with respect to the
transactions contemplated hereby. The parties further agree to provide
the other party with all information that either party may be required to
report pursuant to Section 6043 of the Code.
ARTICLE X
CONDITIONS PRECEDENT
Section 10.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved and adopted by the
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requisite votes of the holders of the Company Common Stock.
(b) No preliminary or permanent injunction or other order by any
federal or state court or any administrative order by any governmental
authority which prevents the consummation of the Merger shall have been
issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction or order lifted).
Section 10.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following additional
conditions:
(a) Except as contemplated or permitted by this Agreement, (i)
Parent and Acquisition shall have performed in all material respects each
of their agreements contained in this Agreement required to be performed
on or prior to the Effective Date; and (ii) the representations and
warranties of Parent and Acquisition contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Date
as if made on and as of such date, and the Company shall have received a
certificate of Parent, signed by the President and the Chief Financial
Officer of Parent, to that effect.
(b) The Company shall have received an opinion from Freedman, Levy,
Kroll & Simonds, counsel to Parent and Acquisition, dated the Effective
Date, to the effect that:
(i) Parent and Acquisition are each a corporation duly
organized and validly existing under the laws of the State of
Delaware.
(ii) Parent and Acquisition each has the corporate power to
enter into the Agreement and to consummate the transactions
contemplated hereby; and the execution and delivery of the Agreement
and the consummation of the transactions contemplated hereby have
been duly authorized by requisite corporate action taken on the part
of Parent and Acquisition, respectively.
(iii) The Agreement has been executed and delivered by each of
Parent and Acquisition and (assuming the valid authorization,
execution and delivery of the Agreement by the Company) is a valid
and binding obligation of
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Parent and Acquisition enforceable in accordance with its terms,
except (A) as enforceability may be limited by any bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (B) as such
enforceability is subject to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iv) Neither the execution, delivery nor performance of the
Agreement by Parent and Acquisition, nor the consummation of the
transactions contemplated thereby, will violate the Certificate of
Incorporation or Bylaws of Parent or Acquisition and, to the actual
knowledge of such counsel, without having made any independent
investigation, will not constitute a violation of or a default under
(except for any such violation or default as to which requisite
waivers or consent either shall have been obtained by Parent and
Acquisition by the Effective Date or shall have been waived by the
Company in writing) any material contract, agreement or instrument
to which Parent or Acquisition is subject and which has been
specifically identified to such counsel by Parent or Acquisition in
connection with rendering such opinion.
(v) The shares of Parent Common Stock to be issued in
connection with the transactions contemplated by the Agreement, are
duly authorized and reserved for issuance and, when issued as
contemplated by the Agreement will be validly issued, fully paid and
non-assessable.
As to any matter in such opinion which involves matters of fact,
such counsel may rely upon the certificates of officers and directors of
Parent and Acquisition and of public officials.
(c) There shall not have arisen prior to the Effective Date any
event that causes a Material Adverse Effect upon Parent and its
subsidiaries, taken as a whole.
Section 10.3 CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION TO
EFFECT THE MERGER. The obligations of Parent and Acquisition to effect the
Merger shall be subject to the fulfillment at or
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<PAGE>
prior to the Effective Date of the additional following conditions:
(a) Except as contemplated or permitted by this Agreement, (i) the
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or
prior to the Effective Date; and (ii) the representations and warranties
of the Company contained in this Agreement shall be true and correct in
all material respects on and as of the Effective Date as if made on and
as of such date, and Parent and Acquisition shall have received a
certificate of the Company, signed by the principal executive officer and
principal financial officer of the Company, to that effect.
(b) Parent shall have received, not later than September 30, 1996,
or such later date as mutually agreed upon by the parties, a standard
commitment letter from a financial institution or other person on terms
acceptable to Parent for not less than $44,000,000, which proceeds shall
be used by Parent to pay to the Company's shareholders the cash
consideration called for in Section 4.1(c) hereof.
(c) The total assets of the Company at August 31, 1996, determined
in accordance with GAAP on a basis consistent with the application of
GAAP in the Company financial statements as of December 31, 1995, shall
equal or exceed $32,037,934 (the total assets of the Company at December
31, 1995 of $38,901,004 less (i) the carrying values at December 31, 1995
of $4,196,946 for the marketable securities, (ii) $841,976 for the
non-operating real properties referred to in Section 9.12, (iii) $389,148
for deferred compensation to H.E. Thranhardt to be accrued through
September 30, 1996, and (iv) $1,435,000 for the amount by which
Indebtedness will be reduced during the period from December 31, 1995 to
September 30, 1996).
(d) The holders of no more than 10 percent of the outstanding shares
of Company Common Stock shall have (i) voted against approval of the
Agreement at the Company special meeting of shareholders referred to in
Section 9.3 hereof and (ii) elected to exercise the dissenters' rights of
appraisal under Section 14-2-1332 of the Georgia Code.
(e) Parent and Acquisition shall have received an opinion from
Alston & Bird, counsel to the Company, dated the Effective Date, to the
effect that:
(i) The Company is a corporation duly
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<PAGE>
organized and validly existing under the laws of Georgia.
(ii) The Company has the corporate power to enter into the
Agreement and to consummate the transactions contemplated hereby;
and the execution and delivery of the Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by
requisite corporate action taken on the part of the Company.
(iii) The Agreement has been executed and delivered by the
Company and (assuming the valid authorization, execution and
delivery of the Agreement by each of Parent and Acquisition) is a
valid and binding obligation of the Company enforceable in
accordance with its terms, except (A) as enforceability may be
limited by any bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights, and (B) as such enforceability is subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) The Company is not subject to or obligated under (A) any
Articles of Incorporation, charter or bylaw, (B) any indenture or
other loan document provision, other than as set forth in the
Company Letter, or (C) any other contract, license, franchise,
permit, law, regulation, injunction, writ, order or decree, which
would be breached or violated or under which there would be a
default (with or without notice or passage of time) or a loss of
benefits by its executing and carrying out the Agreement, except, in
the case of (B) or (C) only, for violations, breaches or defaults
which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole
or which shall be cured, waived or terminated prior to the Effective
Date.
(v) The Company is subject to no "fair price," "control share
acquisition," "business acquisition" or similar statute that
directly or indirectly limits or affects the terms of the Merger or
other transactions contemplated hereby, or that directly or
indirectly dilutes
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<PAGE>
the interest of, or limits the rights and privileges of, Parent,
Acquisition or Parent's stockholders to own Company Common Stock
upon consummation of the Merger.
As to any matter in such opinion which involves matters of fact,
such counsel may rely upon the certificates of officers and directors of the
Company and of public officials.
(f) The Indemnification Agreement referred to in Section 12.2 shall
have been executed and delivered to the Parent.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 TERMINATION. This Agreement may be terminated by Parent on
or before September 30, 1996, or such later date as mutually agreed upon by
the parties, if the results of Parent's due diligence investigation pursuant
to Section 9.1 shall not be reasonably acceptable to Parent in all material
respects. Furthermore, this Agreement may be terminated at any time prior to
the Effective Date, whether before or after approval by the shareholders of
the Company:
(a) by mutual consent of the Board of Directors of Parent and the
Board of Directors of the Company;
(b) by Parent if (i) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in
ARTICLES VIII or IX of this Agreement required to be complied with by the
Company prior to the date of such termination; (ii) the shareholders of
the Company do not approve the Merger in accordance with Section 9.3
hereof; (iii) the Company withdraws, amends or modifies its favorable
recommendation to its shareholders of the Merger or promulgates any
recommendation with respect to any other Acquisition Transaction (other
than a recommendation to reject such Acquisition Transaction); or (iv)
if, despite the real property purchases permitted hereunder, at August
31, 1996 the Company's Working Capital is less than $12,578,427 (the
Working Capital at December 31, 1995 of $17,164,521 less the carrying
value at December 31, 1995 of $4,196,946 for the marketable securities
referred to in Section 9.12, and $389,148 for deferred compensation to
H.E. Thranhardt to be accrued through September 30, 1996)). If necessary
to meet this Working Capital test, the Company Shareholders, at the
option of Parent, will purchase from the Company certain operating real
properties to be mutually agreed to by representatives of the
45
<PAGE>
Parent and the Company for cash at a price equivalent to the Company's
net book value in the properties. The maximum to be purchased shall be
approximately equal to the amount sufficient to increase the Company's
Working Capital to the amount stated in this paragraph above. The
properties eligible for purchase by the Company Shareholders shall be
limited to the assets purchased by the Company in 1996 in Greenville,
South Carolina, Charleston, South Carolina, and Birmingham, Alabama.
(Such properties purchased by the Company Shareholders will be leased
back to the Company under a 10 year triple net operating lease at rates
to yield an annual return to the Company Shareholders of 15%).
(c) by the Company if (i) Parent shall have failed to comply in any
material respect with any of the covenants or agreements contained in
ARTICLES VIII or IX of this Agreement required to be complied with by
Parent prior to the date of such termination; (ii) the shareholders of
the Company do not approve the Merger in accordance with Section 9.3
hereof, including any adjournments and postponements thereof; (iii) any
event has occurred that either individually or in the aggregate has a
material adverse effect on the assets, liabilities, results of
operations, financial condition or business of Parent and its
subsidiaries, taken as a whole; or (iv) the Board of Directors of the
Company, in the exercise of its fiduciary duties, elects to complete a
Third Party Transaction;
(d) by either Parent or the Company:
(i) if the Merger has not been effected on or prior to the
close of business on December 31, 1996; provided, however, that the
right to terminate this Agreement shall not be available to any
party whose failure to fulfill any obligation of this Agreement has
been the cause of, or resulted in, the failure of the Merger to have
occurred on the aforesaid date; or
(ii) if a federal or state court of competent jurisdiction or
federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this
46
<PAGE>
Agreement pursuant to this clause (ii) shall have used all
reasonable efforts to remove such injunction, order or decree.
Section 11.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided above (except in the
event of a breach of a representation, warranty or covenant contained in this
Agreement), this Agreement shall forthwith become void and there shall be no
liability on the part of either the Company or Parent or Acquisition or their
respective officers or directors (except as set forth in Section 9.1 and
Section 9.4 hereof which shall survive the termination).
Section 11.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of
Directors, at any time before or after approval hereof by the shareholders of
the Company, but, after any such approval, no amendment shall be made which
changes the Exchange Ratio or which in any way materially adversely affects
the rights of any such shareholders, without the further approval of the
shareholders so adversely affected. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
Section 11.4 WAIVER. At any time prior to the Effective Date, the
parties hereto, by action taken by their respective Boards of Directors, may
(i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations and warranties of the Parent under Sections 5.1, 5.2, 5.5, 5.6
and 5.8 through 5.13 and those of the Company under sections 6.6, 6.9, 6.10,
6.17 and 6.18 shall survive for a period of one year after the date of the
Closing. All other representations, warranties and agreements in this
Agreement shall not survive the Merger, except for the agreements contained in
Sections 4.1 through 4.9, 9.4, 9.7, 9.10 9.13, 9.14, 9.15, 9.16, 9.17 and
Article XII.
47
<PAGE>
Section 12.2 ASSUMPTION OF RESPONSIBILITY FOR, AND LIMITATION ON
DAMAGES FOR BREACHES OF, CERTAIN REPRESENTATIONS AND WARRANTIES. The Company
shall cause H.E. Thranhardt and Daniel A. McKeever (the "Selling
Shareholders") to enter into agreements with Parent pursuant to which such
Selling Shareholders shall assume responsibility for the representations and
warranties referred to in the first sentence of Section 12.1 hereof. Exhibit C
hereto sets forth the form of an Indemnification Agreement to be entered into
between Parent and the Selling Shareholders of the Company.
Section 12.3 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or
delivered by a national overnight delivery service (e.g., Federal Express) or
mailed by registered or certified mail (first class postage prepaid, return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Parent or Acquisition, to:
Hanger Orthopedic Group, Inc.
7700 Old Georgetown Road (2nd Floor)
Bethesda, Maryland 20814
Attention: Mr. Ivan R. Sabel
Chairman, President and
Chief Executive Officer
with a copy to:
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Walter Freedman, Esq.
(b) If to the Company, to:
J.E. Hanger, Inc. of Georgia
5510 McGinnis Ferry Road
Alpharetta, Georgia 30202
Attention: Mr. H.E. Thranhardt
President
with a copy to:
Frazer Durrett, Jr., Esq.
J. Vaughan Curtis, Esq.
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
48
<PAGE>
Section 12.4 INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 12.5 DISCLOSURE LETTERS AND EXHIBITS. The Company Letter and
the Parent Letter and any Exhibits thereto, or any documents expressly
incorporated into this Agreement, are hereby incorporated into this Agreement
and are hereby made a part hereof as if set out in full in this Agreement.
Section 12.6 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (b) shall not be assigned by operation of law or otherwise except that
the shareholders of the Company shall be, and be deemed to be, third party
beneficiaries of the representations, warranties and covenants of Parent that
survive in accordance with Section 12.1; and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Maryland (without giving effect to the provisions thereof relating to
conflicts of law), except that the Merger shall be governed by the laws of
Georgia. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
-----------------------
49
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
Attest: HANGER ORTHOPEDIC GROUP, INC.
/s/RICHARD A. STEIN By /s/IVAN R. SABEL
------------------------------ -----------------------------
Richard A. Stein Ivan R. Sabel
Secretary Chairman, President and Chief
Executive Officer
Attest: JEH ACQUISITION CORPORATION
/s/RICHARD A. STEIN By /s/IVAN R. SABEL
------------------------------ -----------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
Attest: J.E. HANGER, INC. OF GEORGIA
/s/ALICE G. TIDWELL By /s/H.E. THRANHARDT
------------------------------ -----------------------------
Alice G. Tidwell H.E. Thranhardt
Secretary President
50
EXHIBIT 10(a)
===========================================================
$90,000,000
CREDIT AGREEMENT
among
HANGER ORTHOPEDIC GROUP, INC.
JEH ACQUISITION CORPORATION,
VARIOUS BANKS
and
BANQUE PARIBAS,
as Agent
------------------------------------
Dated as of November 1, 1996
------------------------------------
===========================================================
0000D4LB.W51
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Amount and Terms of Credit.................................... 1
1.01 The Commitments............................................. 1
1.02 Minimum Amount of Each Borrowing............................ 4
1.03 Notice of Borrowing......................................... 4
1.04 Disbursement of Funds....................................... 5
1.05 Notes....................................................... 6
1.06 Conversions................................................. 8
1.07 Pro Rata Borrowings......................................... 9
1.08 Interest.................................................... 9
1.09 Interest Periods............................................ 10
1.10 Increased Costs, Illegality, etc............................ 11
1.11 Compensation................................................ 13
1.12 Replacement of Banks........................................ 14
Section 2. Letters of Credit............................................. 16
2.01 Letters of Credit........................................... 16
2.02 Minimum Stated Amount....................................... 17
2.03 Letter of Credit Requests................................... 17
2.04 Letter of Credit Participations............................. 17
2.05 Agreement to Repay Letter of Credit Drawings................ 19
2.06 Increased Costs............................................. 20
Section 3. Commitment Commission; Fees; Reductions of Commitment......... 21
3.01 Fees........................................................ 21
3.02 Voluntary Termination of Unutilized Commitments............. 22
3.03 Mandatory Reduction of Commitments.......................... 23
Section 4. Prepayments; Payments; Taxes.................................. 24
4.01 Voluntary Prepayments....................................... 24
4.02 Mandatory Repayments and Commitment Reductions.............. 26
4.03 Method and Place of Payment................................. 33
4.04 Net Payments................................................ 33
Section 5. Conditions Precedent to Loans on the Initial Borrowing Date... 35
5.01 Execution of Agreement; Notes............................... 35
5.02 Officer's Certificate....................................... 36
5.03 Opinions of Counsel......................................... 36
5.04 Corporate Documents; Proceedings............................ 36
0000D4LB.W51 (i)
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PAGE
5.05 Plans; Shareholders' Agreements; Management Agreements;
Employment Agreements; Collective Bargaining Agreements;
Debt Agreements; Affiliate Contracts; Tax Sharing
Agreements and Material Contracts.......................... 37
5.06 Cash on Hand................................................. 38
5.07 Consummation of the Acquisition; Consummation of the Merger.. 38
5.08 Pledge Agreement............................................. 39
5.09 Security Agreement........................................... 39
5.10 Subsidiaries Guaranty........................................ 40
5.11 Material Adverse Change, etc................................. 40
5.12 Litigation................................................... 41
5.13 Fees, etc.................................................... 41
5.14 Solvency Certificate; Environmental Analyses; Insurance
Analyses..................................................... 41
5.15 Approvals.................................................... 42
5.16 Financial Statements; Projections; Management Letter Reports. 42
5.17 Refinancing.................................................. 43
5.18 Issuance of Senior Subordinated Notes........................ 44
5.19 Consent Letter............................................... 44
5.20 Shareholder Appraisal Rights................................. 44
5.21 Mortgage; Title Insurance; Surveys; etc...................... 44
5.22 Borrowing Base Certificate................................... 45
5.23 State Takeover Statutes, etc................................. 45
Section 6. Conditions Precedent to All Credit Events...................... 45
6.01 No Default; Representations and Warranties................... 45
6.02 Material Adverse Change, etc................................. 46
6.03 Litigation................................................... 46
6.04 Notice of Borrowing; Letter of Credit Request................ 46
6.05 Permitted Acquisitions....................................... 46
Section 7. Representations, Warranties and Agreements..................... 47
7.01 Corporate Status............................................. 47
7.02 Corporate Power and Authority................................ 47
7.03 No Violation................................................. 47
7.04 Governmental Approvals....................................... 48
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc................................ 48
7.06 Litigation................................................... 49
7.07 True and Complete Disclosure................................. 50
7.08 Use of Proceeds; Margin Regulations.......................... 50
7.09 Tax Returns and Payments..................................... 51
7.10 Compliance with ERISA........................................ 51
7.11 The Security Documents....................................... 52
0000D4LB.W51 (ii)
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PAGE
7.12 Representations and Warranties in Documents.................. 53
7.13 Properties................................................... 53
7.14 Capitalization............................................... 53
7.15 Subsidiaries................................................. 54
7.16 Compliance with Statutes, etc................................ 54
7.17 Investment Company Act....................................... 54
7.18 Public Utility Holding Company Act........................... 54
7.19 Environmental Matters........................................ 55
7.20 Labor Relations.............................................. 55
7.21 Patents, Licenses, Franchises and Formulas................... 56
7.22 Indebtedness................................................. 56
7.23 Restrictions on or Relating to Subsidiaries.................. 57
7.24 Special Purpose Corporation.................................. 57
7.25 The Transaction.............................................. 57
7.26 Concentration Account........................................ 57
7.27 Subchapter S Status.......................................... 57
7.28 Material Contracts........................................... 58
7.29 Senior Subordinated Notes.................................... 58
Section 8. Affirmative Covenants.......................................... 58
8.01 Information Covenants........................................ 58
8.02 Books, Records and Inspections............................... 61
8.03 Maintenance of Property, Insurance........................... 62
8.04 Corporate Franchises......................................... 63
8.05 Compliance with Statutes, etc................................ 63
8.06 Compliance with Environmental Laws........................... 63
8.07 ERISA........................................................ 64
8.08 End of Fiscal Years; Fiscal Quarters......................... 65
8.09 Performance of Obligations................................... 65
8.10 Payment of Taxes............................................. 65
8.11 Interest Rate Protection..................................... 65
8.12 Use of Proceeds.............................................. 65
8.13 UCC Searches................................................. 65
8.14 Intellectual Property Rights................................. 66
8.15 Permitted Acquisitions....................................... 66
8.16 Registry..................................................... 70
8.17 Further Actions.............................................. 71
8.18 338(h)(10) Election.......................................... 71
8.19 Senior Subordinated Notes.................................... 72
8.20 Concentration Account........................................ 72
Section 9. Negative Covenants............................................. 72
9.01 Liens........................................................ 72
0000D4LB.W51 (iii)
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PAGE
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc....... 74
9.03 Dividends.................................................... 76
9.04 Leases ...................................................... 76
9.05 Indebtedness................................................. 76
9.06 Advances, Investments and Loans.............................. 77
9.07 Transactions with Affiliates................................. 78
9.08 Capital Expenditures......................................... 79
9.09 Fixed Charge Coverage Ratio.................................. 80
9.10 Interest Coverage Ratio...................................... 80
9.11 Consolidated Indebtedness to Consolidated EBITDA............. 81
9.12 Minimum Consolidated Net Worth............................... 82
9.13 Consolidated Indebtedness to Consolidated Net Worth.......... 83
9.14 Minimum EBITDA............................................... 84
9.15 Account Receivable Days...................................... 85
9.16 Limitation on Voluntary Payments and Modification of
Existing Indebtedness; Limitation on Modifications
of Certificate of Incorporation, By-Laws and Certain
Other Agreements; etc...................................... 85
9.17 Limitation on Certain Restrictions on Subsidiaries........... 86
9.18 Limitation on Issuance of Capital Stock...................... 86
9.19 Business..................................................... 86
9.20 Limitation on Creation of Subsidiaries....................... 87
9.21 Concentration Account; Bank Deposit Accounts................. 87
Section 10. Events of Default............................................. 87
10.01 Payments.................................................... 87
10.02 Representations, etc........................................ 87
10.03 Covenants................................................... 87
10.04 Default Under Other Agreements.............................. 87
10.05 Bankruptcy, etc............................................. 88
10.06 ERISA....................................................... 88
10.07 Security Documents.......................................... 89
10.08 Guaranties.................................................. 89
10.09 Judgments................................................... 89
10.10 Change in Control........................................... 90
Section 11. Definitions and Accounting Terms.............................. 90
11.01 Defined Terms............................................... 90
Section 12. The Agent.....................................................119
12.01 Appointment.................................................119
12.02 Nature of Duties............................................119
12.03 Lack of Reliance on the Agent...............................119
12.04 Certain Rights of the Agent.................................120
0000D4LB.W51 (iv)
<PAGE>
PAGE
12.05 Reliance....................................................120
12.06 Indemnification.............................................120
12.07 The Agent in Its Individual Capacity........................121
12.08 Holders.....................................................121
12.09 Resignation by the Agent....................................121
Section 13. Guaranty......................................................122
13.01 The Guaranty................................................122
13.02 Bankruptcy..................................................122
13.03 Nature of Liability.........................................122
13.04 Guaranty Absolute...........................................123
13.05 Independent Obligation......................................123
13.06 Authorization...............................................123
13.07 Reliance....................................................124
13.08 Subordination...............................................124
13.09 Waiver......................................................125
13.10 Guaranty Continuing.........................................125
13.11 Binding Nature of Guaranties................................126
13.12 Judgments Binding...........................................126
Section 14. Miscellaneous.................................................126
14.01 Payment of Expenses, etc....................................126
14.02 Right of Setoff.............................................127
14.03 Notices.....................................................128
14.04 Benefit of Agreement........................................128
14.05 No Waiver; Remedies Cumulative..............................129
14.06 Payments Pro Rata...........................................130
14.07 Calculations; Computations..................................130
14.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL...........................131
14.09 Counterparts................................................132
14.10 Effectiveness...............................................132
14.11 Headings Descriptive........................................132
14.12 Amendment or Waiver.........................................132
14.13 Survival....................................................134
14.14 Domicile of Loans...........................................134
14.15 Post-Closing Obligations....................................134
0000D4LB.W51 (v)
<PAGE>
SCHEDULE I Commitments
SCHEDULE II Insurance
SCHEDULE III Projections
SCHEDULE IV Real Property
SCHEDULE V Bank Deposit Accounts/Concentration Account
SCHEDULE VI Tax Matters
SCHEDULE VII ERISA
SCHEDULE VIII Capitalization
SCHEDULE IX Subsidiaries
SCHEDULE X Environmental Matters
SCHEDULE XI Existing Indebtedness
SCHEDULE XII Material Contracts
SCHEDULE XIII Existing Liens
EXHIBIT A-1 Notice of Borrowing
EXHIBIT A-2 Notice of Conversion
EXHIBIT B-1 A Term Note
EXHIBIT B-2 B Term Notes
EXHIBIT B-3 Acquisition Note
EXHIBIT B-4 Revolving Note
EXHIBIT B-5 Swingline Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Form of Opinion of Freedman, Levy, Kroll & Simonds
EXHIBIT F Officers' Certificate of Credit Parties
EXHIBIT G Acknowledgment Agreement
EXHIBIT H Form of Pledge Agreement
EXHIBIT I Form of Security Agreement
EXHIBIT J Subsidiaries Guaranty
EXHIBIT K Solvency Certificate
EXHIBIT L Consent Letter
EXHIBIT M Borrowing Base Certificate
EXHIBIT N Bank Assignment and Assumption Agreement
0000D4LB.W51 (vi)
<PAGE>
CREDIT AGREEMENT, dated as of November 1, 1996, among HANGER
ORTHOPEDIC GROUP, INC., a corporation organized and existing under the laws of
the State of Delaware ("Holdings"), JEH Acquisition Corporation, a corporation
organized and existing under the laws of Georgia and a wholly-owned subsidiary
of Holdings ("Newco"), the financial institutions party hereto from time to
time (each a "Bank" and, collectively, the "Banks"), and BANQUE PARIBAS, as
agent (the "Agent"). Unless otherwise defined herein, all capitalized terms
used herein and defined in Section 11 are used herein as therein defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Banks are willing to make available to the Borrowers the respective
credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
Section 1. AMOUNT AND TERMS OF CREDIT.
1.01 THE COMMITMENTS. (a) Subject to and upon the terms and
conditions set forth herein, each Bank with an A Term Loan Commitment
severally agrees to make, on the Initial Borrowing Date, a term loan (each, an
"A Term Loan" and, collectively, the "A Term Loans") to Southern, which A Term
Loans (i) shall be made and initially maintained as a single Borrowing of Base
Rate Loans (subject to the option to convert such Base Rate Loans pursuant to
Section 1.06) and (ii) shall not exceed for any Bank, in initial aggregate
principal amount, that amount which equals the A Term Loan Commitment of such
Bank on such date (before giving effect to any reductions thereto on such date
pursuant to Section 3.03(b)(i) but after giving effect to any reductions
thereto on or prior to such date pursuant to Section 3.03(b)(ii)). Once
repaid, A Term Loans incurred hereunder may not be reborrowed.
(b) Subject to and upon the terms and conditions set forth herein,
each Bank with a B Term Loan Commitment severally agrees to make, on the
Initial Borrowing Date, a term loan (each, a "B Term Loan" and, collectively,
the "B Term Loans") to each of the Borrowers, which B Term Loans (i) shall be
made and initially maintained as two Borrow-ings of Base Rate Loans (subject
to the option to convert such B Term Loans pursuant to Section 1.06) (ii)
shall be made to each Borrower in an amount equal to such Borrower's
0000D4LB.W51
<PAGE>
B Term Percentage of the B Term Loans made on such date, and (iii) shall not
exceed for any Bank, in initial aggregate principal amount, that amount which
equals the B Term Loan Commitment of such Bank on such date (before giving
effect to any reductions thereto on such date pursuant to Section 3.03(b)(i)
but after giving effect to any reductions thereto on or prior to such date
pursuant to Section 3.03(b)(ii)). Once repaid, B Term Loans incurred hereunder
may not be reborrowed.
(c) Subject to and upon the terms and conditions set forth herein,
each Bank with an Acquisition Loan Commitment severally agrees to make, at any
time and from time to time after the Initial Borrowing Date and prior to the
Acquisition Loan Termination Date, a loan or loans (each an "Acquisition Loan"
and, collectively, the "Acquisition Loans") to Holdings, which Acquisition
Loans (i) shall, at the option of Holdings, be Base Rate Loans or Eurodollar
Loans; provided that (x) except as otherwise specifically provided in Section
1.10(b) all Acquisition Loans comprising the same Borrowing shall at all times
be of the same Type and (y) no Eurodollar Loans may be incurred prior to the
Syndication Termination Date and (ii) shall not exceed for any Bank, in
initial aggregate principal amount, that amount which equals the Acquisition
Loan Commitment of such Bank at such time (before giving effect to any
reductions thereto on such date pursuant to Section 3.03(c)(i) but after
giving effect to any reductions thereto on or prior to such date pursuant to
Section 3.03(c)(ii). Once repaid, Acquisition Loans incurred may be reborrowed
prior to the Acquisition Loan Termination Date in accordance with the
provisions hereof.
(d) Subject to and upon the terms and conditions set forth herein,
each Bank with a Revolving Loan Commitment severally agrees at any time and
from time to time after the Initial Borrowing Date and prior to the Revolving
Loan Maturity Date, to make a loan or loans (each a "Revolving Loan" and,
collectively, the "Revolving Loans") to Holdings, which Revolving Loans (i)
shall, at the option of Holdings, be Base Rate Loans or Eurodollar Loans;
provided that (x) except as otherwise specifically provided in Section 1.10(b)
all Revolving Loans comprising the same Borrowing shall at all times be of the
same Type and (y) no Eurodollar Loans may be incurred prior to the Syndication
Termination Date, (ii) may be repaid and reborrowed in accordance with the
provisions hereof, (iii) shall not exceed for any Bank at any time outstanding
that aggregate principal amount which, when added to the product of (x) such
Bank's Percentage and (y) the sum of (I) the aggregate amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) and (II) the aggregate principal amount of all
Swingline Loans then outstanding (exclusive of Swingline Loans which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans), equals the Revolving Loan
Commitment of such Bank at such time and (iv) shall not exceed for all Banks
at any time that aggregate principal amount which, when added to the aggregate
principal amount of all Swingline Loans then outstanding and
000D4LB.W51 -2-
<PAGE>
the aggregate amount of all Letter of Credit Outstandings at such time, equals
the Borrowing Base at such time.
(e) Subject to and upon the terms and conditions herein set forth,
the Swingline Bank agrees to make at any time and from time to time after the
Initial Borrowing Date and prior to the Swingline Expiry Date, a loan or loans
to Holdings (each a "Swingline Loan," and collectively, the "Swingline
Loans"), which Swingline Loans (i) shall be made and maintained as Base Rate
Loans; (ii) may be repaid and reborrowed in accordance with the provisions
hereof; (iii) shall not exceed in aggregate principal amount at any time
outstanding, when combined with the aggregate principal amount of (x) all
Revolving Loans then outstanding and (y) all Letter of Credit Outstandings at
such time (exclusive of Unpaid Drawings which are repaid with the proceeds of,
and simultaneously with the incurrence of, the respective incurrence of
Swingline Loans), an amount equal to the lesser of (A) the Total Revolving
Loan Commitment at such time (after giving effect to any reductions to the
Total Revolving Loan Commitment on such date) and (B) the Borrowing Base at
such time; and (iv) shall not exceed in aggregate principal amount at any time
outstanding the Maximum Swingline Amount. The Swingline Bank shall not make
any Swingline Loan after receiving a written notice from Holdings or the
Required Banks stating that a Default or an Event of Default exists and is
continuing until such time as the Swingline Bank shall have received written
notice of (i) rescission of all such notices from the party or parties
originally delivering such notice, (ii) the waiver of such Default or Event of
Default by the Required Banks, (iii) the Agent in good faith believes that
such Default or Event of Default has ceased to exist or (iv) the consent of
the Required Banks to make Swingline Loans notwithstanding the existence of
such Default or Event of Default.
(f) On any Business Day, the Swingline Bank may, in its sole
discretion, give notice to the Banks that its outstanding Swingline Loans
shall be funded with a Borrowing of Revolving Loans, provided that such notice
shall be deemed to have been automatically given upon the occurrence of an
Event of Default under Section 10.05 or upon the exercise of any of the
remedies provided in the last paragraph of Section 10, in which case a
Borrowing of Revolving Loans constituting Base Rate Loans (each such
Borrowing, a "Mandatory Borrowing") shall be made on the immediately
succeeding Business Day from all Banks with a Revolving Loan Commitment
(without giving effect to any terminations and/or reductions thereto pursuant
to the last paragraph of Section 10) pro rata on the basis of their respective
Percentages (determined before giving effect to any termination of the
Revolving Loan Commitments pursuant to the last paragraph of Section 10) and
the proceeds thereof shall be applied directly to the Swingline Bank to repay
the Swingline Bank for such outstanding Swingline Loans. Each such Bank hereby
irrevocably agrees to make Revolving Loans upon one Business Day's notice
pursuant to each Mandatory Borrowing in the amount and in the manner specified
in the preceding sentence and on the date specified in writing by the
Swingline Bank notwithstanding (i) the amount of the Mandatory Borrowing may
not comply with the minimum amount for Borrowings
0000D4LB.W51 -3-
<PAGE>
otherwise required hereunder, (ii) whether any conditions specified in Section
5 or 6 are then satisfied, (iii) whether a Default or an Event of Default then
exists, (iv) the date of such Mandatory Borrowing and (v) any reduction in the
Total Revolving Loan Commitment after any such Swingline Loans were made. In
the event that any Mandatory Borrowing cannot for any reason be made on the
date otherwise required above (including, without limitation, as a result of
the commencement of a proceeding under the Bankruptcy Code with respect to
Holdings), then each such Bank hereby agrees that it shall forthwith purchase
(as of the date the Mandatory Borrowing would otherwise have occurred, but
adjusted for any payments received from Holdings on or after such date and
prior to such purchase) from the Swingline Bank such participations in the
outstanding Swingline Loans as shall be necessary to cause such Banks to share
in such Swingline Loans ratably based upon their respective Percentages
(determined before giving effect to any termination of the Revolving Loan
Commitments pursuant to the last paragraph of Section 10); provided that (x)
all interest payable on the Swingline Loans shall be for the account of the
Swingline Bank until the date as of which the respective participation is
required to be purchased and, to the extent attributable to the purchased
participation, shall be payable to the participant from and after such date
and (y) at the time any purchase of participations pursuant to this sentence
is actually made, the purchasing Bank shall be required to pay the Swingline
Bank interest on the principal amount of participation purchased for each day
from and including the day upon which the Mandatory Borrowing would otherwise
have occurred to but excluding the date of payment for such participation, at
the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans
hereunder for each day thereafter.
1.02 MINIMUM AMOUNT OF EACH BORROWING. The aggregate principal
amount of each Borrowing hereunder shall not be less than the Minimum
Borrowing Amount and, if greater, shall be in integral multiples of $500,000
in the case of all Loans (other than Swingline Loans) and $100,000 in the case
of Swingline Loans. More than one Borrowing may occur on the same date, but at
no time shall there be outstanding more than five Borrowings of Eurodollar
Loans.
1.03 NOTICE OF BORROWING. (a) Whenever a Borrower desires to make a
Borrowing hereunder (excluding Borrowings of Swingline Loans and Mandatory
Borrow-ings), it shall give the Agent at its Notice Office, prior to 11:00
a.m. (New York time) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of Base
Rate Loans and at least three Business Days' prior written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of
Eurodollar Loans. Each such notice (each a "Notice of Borrowing"), except as
otherwise expressly provided in Section 1.10, shall be irrevocable and shall
be given by a Borrower in the form of Exhibit A-1, appropriately completed to
specify (i) the aggregate principal amount of the Loans to be made pursuant to
such Borrowing, (ii) the date of such Borrowing (which shall be a Business
Day), (iii) whether the Loans being made pursuant to such Borrowing shall
constitute A Term Loans, B Term Loans, Revolving Loans or Acquisition
0000D4LB.W51 -4-
<PAGE>
Loans and (iv) whether the Loans being made pursuant to such Borrowing are to
be initially maintained as Base Rate Loans or Eurodollar Loans and, if
Eurodollar Loans, the initial Interest Period to be applicable thereto. Any
notice received after 11:00 a.m. (New York time) shall be deemed to be
received on the next succeeding Business Day. The Agent shall promptly give
each Bank which is required to make Loans of the Tranche specified in the
respective Notice of Borrowing notice of such proposed Borrowing, of such
Bank's proportionate share thereof and of the other matters specified in the
Notice of Borrowing.
(b) (i) Whenever Holdings desires to make a Borrowing of Swingline
Loans hereunder, it shall give the Swingline Bank not later than 11:00 a.m.
(New York time) on the date that the Swingline Loan is to be made, written
notice (or telephonic notice confirmed in writing) of each Swingline Loan to
be made hereunder. Each such notice shall be irrevocable and specify in each
case (A) the date of Borrowing (which shall be a Business Day) and (B) the
aggregate principal amount of Swingline Loans to be made pursuant to such
Borrowing.
(ii) Without in any way limiting the obligation of a Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent, the respective Issuing Bank (in the case of Letters of Credit) or the
Swingline Bank, as the case may be, may, prior to receipt of written
confirmation, act without liability upon the basis of telephonic notice
believed by the Agent, the respective Issuing Bank (in the case of Letters of
Credit) or the Swingline Bank, as the case may be, in good faith to be from
the President, the Chief Financial Officer or Controller of a Borrower. In
each such case, the Agent's, such Issuing Bank's or the Swingline Bank's
record of the terms of such telephonic notice shall be conclusive absent
manifest error.
(iii) Mandatory Borrowings shall be made upon the notice specified
in Section 1.01(f), with Holdings irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of the Mandatory Borrowings as set forth in
Section 1.01(f).
1.04 DISBURSEMENT OF FUNDS. No later than 12:00 Noon (New York time)
on the date specified in each Notice of Borrowing (or (x) in the case of
Swingline Loans, no later than the close of business on the date specified
pursuant to Section 1.03(b)(i)) or (y) in the case of Mandatory Borrowings,
not later than 12:00 Noon (New York time) on the date specified in Section
1.01(f)), each Bank with a Commitment of the respective Tranche will make
available its pro rata portion (determined in accordance with Section 1.07) of
each such Borrowing requested to be made on such date (or in the case of
Swingline Loans, the Swingline Bank shall make available the full amount
thereof). All such amounts shall be made available in Dollars and in
immediately available funds at the Payment Office of the Agent, and the Agent
will make available to Holdings or Southern, as the case may be, at the
Payment Office the aggregate of the amounts so made available by the Banks.
Unless the Agent shall have been notified in writing by any Bank prior to
0000D4LB.W51 -5-
<PAGE>
the date of Borrowing that such Bank does not intend to make available to the
Agent such Bank's portion of any Borrowing to be made on such date, the Agent
may assume that such Bank has made such amount available to the Agent on such
date of Borrowing and the Agent may, in reliance upon such assumption, make
available to Holdings or Southern, as the case may be, a corresponding amount.
If such corresponding amount is not in fact made available to the Agent by
such Bank, the Agent shall be entitled to recover such corresponding amount on
demand from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify
the appropriate Borrower, and such Borrower shall immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
on demand from such Bank or such Borrower, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to such Borrower, until
the date such corresponding amount is recovered by the Agent, at a rate per
annum equal to (i) if recovered from such Bank, the cost to the Agent of
acquiring overnight federal funds and (ii) if recovered from either Borrower,
the rate of interest applicable to the respective Borrowing, as determined
pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to
relieve any Bank from its obligation to make Loans hereunder or to prejudice
any rights which such Borrower may have against any Bank as a result of any
failure by such Bank to make Loans hereunder.
1.05 NOTES. (a) A Borrower's obligation to pay the principal of, and
interest on, the Loans made by each Bank shall be evidenced (i) if A Term
Loans, by a promissory note duly executed and delivered by Southern
substantially in the form of Exhibit B-1 with blanks appropriately completed
in conformity herewith (each, an "A Term Note" and, collectively, the "A Term
Notes"), (ii) if B Term Loans, by a promissory note duly executed and
delivered by each of the Borrowers substantially in the form of Exhibit B-2
with blanks appropriately completed in conformity herewith (each, a "B Term
Note" and, collectively, the "B Term Notes"), (iii) if Acquisition Loans, by a
promissory note duly executed and delivered by Holdings substantially in the
form of Exhibit B-3, with blanks appropriately completed in conformity
herewith (each an "Acquisition Note" and collectively, the "Acquisition
Notes"), (iv) if Revolving Loans, by a promissory note duly executed and
delivered by Holdings substantially in the form of Exhibit B-4, with blanks
appropriately completed in conformity herewith (each a "Revolving Note" and,
collectively, the "Revolving Notes"), and (v) if Swingline Loans, by a
promissory note duly executed and delivered by Holdings substantially in the
form of Exhibit B-5, with blanks appropriately completed in conformity
herewith (the "Swingline Note").
(b) The A Term Note issued to each Bank shall (i) be executed by
Newco, (ii) be payable to the order of such Bank and be dated the Initial
Borrowing Date, (iii) be in a stated principal amount equal to the A Term Loan
made by such Bank on the Initial Borrowing Date and be payable in the
principal amount of the A Term Loan evidenced thereby, (iv) mature on the A
Term Loan Maturity Date, (v) bear interest as provided in
0000D4LB.W51 -6-
<PAGE>
the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary repayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this
Agreement and the Guaranties and be secured by the Security Documents.
(c) The B Term Notes issued to each Bank shall (i) be executed by
each of the Borrowers, (ii) be payable to the order of such Bank and be dated
the Initial Borrowing Date, (iii) be in a stated principal amount equal to the
B Term Loan made by such Bank on the Initial Borrowing Date to the applicable
Borrower and be payable in the principal amount of the B Term Loan evidenced
thereby, (iv) mature on the B Term Loan Maturity Date, (v) bear interest as
provided in the appropriate clause of Section 1.08 in respect of the Base Rate
Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be
subject to voluntary repayment as provided in Section 4.01, and mandatory
repayment as provided in Section 4.02 and (vii) be entitled to the benefits of
this Agreement and the Guaranties and be secured by the Security Documents.
(d) The Acquisition Note issued to each Bank with an Acquisition
Loan Commitment shall (i) be executed by Holdings, (ii) be payable to the
order of such Bank and be dated the Initial Borrowing Date, (iii) be in a
stated principal amount equal to the Acquisition Loan Commitment of such Bank
and be payable in the principal amount of the Acquisition Loans evidenced
thereby, (iv) mature on the Acquisition Loan Maturity Date, (v) bear interest
as provided in the appropriate clause of Section 1.08 in respect of the Base
Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi)
be subject to voluntary repayment as provided in Section 4.01, and mandatory
repayment as provided in Section 4.02 and (vii) be entitled to the benefits of
this Agreement and the Guaranties and be secured by the Security Documents.
(e) The Revolving Note issued to each Bank with a Revolving Loan
Commitment shall (i) be executed by Holdings, (ii) be payable to the order of
such Bank and be dated the Initial Borrowing Date, (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank and be
payable in the principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Revolving Loan Maturity Date, (v) bear interest as provided in
the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary repayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this
Agreement and the Guaranties and be secured by the Security Documents.
(f) The Swingline Note issued to the Swingline Bank shall (i) be
executed by Holdings, (ii) be payable to the order of the Swingline Bank and
be dated the Initial Borrowing Date, (iii) be in a stated principal amount
equal to the Maximum Swingline
0000D4LB.W51 -7-
<PAGE>
Amount and be payable in the principal amount of the outstanding Swingline
Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry
Date, (v) bear interest as provided in the appropriate clause of Section 1.08
in respect of the Base Rate Loans evidenced thereby, (vi) be subject to
voluntary repayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this
Agreement and the Guaranties and be secured by the Security Documents.
(g) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation or the making of an incorrect notation shall not affect the
Borrowers' obligations in respect of such Loans.
1.06 CONVERSIONS. Each Borrower shall have the option to convert, on
any Business Day, all or a portion at least equal to the Minimum Borrowing
Amount of the outstanding principal amount of the Loans (other than Swingline
Loans, which may not be converted pursuant to this Section 1.06) made pursuant
to one or more Borrowings (so long as of the same Tranche) of one Type of Loan
into a Borrowing or Borrowings (of the same Tranche) of the other Type of
Loan; provided that:
(i) except as otherwise provided in Section 1.10(b), Eurodollar
Loans may be converted into Base Rate Loans only on the last day of an
Interest Period applicable to the Loans being converted and no such
partial conversion of Eurodollar Loans shall reduce the outstanding
principal amount of such Eurodollar Loans made pursuant to a single
Borrowing to less than the Minimum Borrowing Amount applicable thereto;
(ii) Base Rate Loans may only be converted into Eurodollar
Loans if no Default or Event of Default is in existence on the date of
the conversion;
(iii) no conversion pursuant to this Section 1.06 shall result
in a greater number of Borrowings than is permitted under Section 1.02;
and
(iv) prior to the Syndication Termination Date, no Loan may be
converted into Eurodollar Loans.
Each such conversion shall be effected by the respective Borrower by giving
the Agent at its Notice Office prior to 12:00 Noon (New York time) at least
three Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) (each a "Notice of Conversion") which notice shall be in
the form of Exhibit A-2, appropriately completed to specify the Loans to be so
converted, the Borrowing(s) pursuant to which such Loans were made and, if to
be converted into Eurodollar Loans, the Interest Period to be initially
0000D4LB.W51 -8-
<PAGE>
applicable thereto. The Agent shall give each Bank prompt notice of any such
proposed conversion affecting any of its Loans.
1.07 PRO RATA BORROWINGS. All Borrowings of Loans (other than
Swingline Loans) under this Agreement shall be incurred from the Banks pro
rata on the basis of their respective A Term Loan Commitments, B Term Loan
Commitments, Acquisition Loan Commitments or Revolving Loan Commitments, as
the case may be; provided that all Borrowings of Revolving Loans made pursuant
to a Mandatory Borrowing shall be incurred by Holdings from the Banks pro rata
on the basis of their Percentages. It is understood that no Bank shall be
responsible for any default by any other Bank of its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans provided to
be made by it hereunder regardless of the failure of any other Bank to make
its Loans hereunder.
1.08 INTEREST. (a) Each of the Borrowers agree to pay interest in
respect of the unpaid principal amount of each Base Rate Loan made to it from
the date of the Borrowing thereof until the earlier of (i) the maturity
thereof (whether by acceleration or otherwise) of such Base Rate Loan and (ii)
the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section
1.06, at a rate per annum which shall at all times be equal to the sum of the
Applicable Margin plus the Base Rate in effect from time to time.
(b) Each of the Borrowers agree to pay interest in respect of the
unpaid principal amount of each Eurodollar Loan made to it from the date of
the Borrowing thereof until the earlier of (i) the maturity thereof (whether
by acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion
of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or
1.10(b), as applicable, at a rate per annum which shall, during each Interest
Period applicable thereto, be equal to the sum of the Applicable Margin plus
the Quoted Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
greater of (x) 2% per annum in excess of the rate otherwise applicable to Base
Rate Loans of the respective Tranche of Loans from time to time and (y) the
rate which is 2% in excess of the rate borne by such Loans. Interest which
accrues under this Section 1.08(c) shall be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i)
in respect of each Base Rate Loan, quarterly in arrears on each Quarterly
Payment Day, (ii) in respect of each Eurodollar Loan on (x) the date of any
prepayment or repayment thereof (on the amount prepaid or repaid), (y) the
date of any conversion into a Base Rate Loan pursuant to Section 1.06, 1.09 or
1.10(b), as applicable (on the amount converted) and (z) on the last day of
each Interest Period applicable thereto and, in the case of an Interest Period
in
0000D4LB.W51 -9-
<PAGE>
excess of three months, on each date occurring at three month intervals after
the first day of such Interest Period and (iii) in respect of each Loan, at
maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
(e) Upon each Interest Determination Date, the Agent shall determine
the Quoted Rate for the Interest Period applicable to Eurodollar Loans and
shall promptly notify the Borrowers and the Banks thereof. Each such
determination shall, absent manifest error, be final and conclusive and
binding on all parties hereto.
(f) All computations of interest hereunder shall be made in
accordance with Section 14.07(b).
1.09 INTEREST PERIODS. At the time it gives any Notice of Borrowing
or Notice of Conversion in respect of the making of, or conversion into, a
Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or prior to 11:00 a.m. (New York time) on the third Business Day
prior to the expiration of an Interest Period applicable to such Eurodollar
Loan (in the case of any subsequent Interest Period), a Borrower shall have
the right to elect, by giving the Agent notice thereof, the interest period
(each an "Interest Period") applicable to such Eurodollar Loan, which Interest
Period shall, at the option of such Borrower, be a one, three or six-month
period; provided that:
(i) all Eurodollar Loans comprising a single Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Loan (including the date of any
conversion thereto from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Loan shall commence on the
day on which the next preceding Interest Period applicable thereto
expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins on
a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall end
on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest Period
for a Eurodollar Loan would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
0000D4LB.W51 -10-
<PAGE>
(v) no Interest Period for a Borrowing under a Tranche shall be
selected which extends beyond the respective Maturity Date of such
Tranche;
(vi) no Interest Period may be selected at any time when any Default
or Event of Default is then in existence;
(vii) no Interest Period in respect of any Borrowing of A Term
Loans, B Term Loans or Acquisition Loans, as the case may be, shall be
selected which extends beyond any date upon which a mandatory repayment
of such A Term Loans, B Term Loans or Acquisition Loans will be required
to be made under Section 4.02(A)(c), (d) or (e), as the case may be, if,
after giving effect to the selection of such Interest Period, the
aggregate principal amount of such A Term Loans, B Term Loans or
Acquisition Loans, as the case may be, maintained as Eurodollar Loans
which have Interest Periods expiring after such date will be in excess of
the aggregate principal amount of such A Term Loans, B Term Loans or
Acquisition Loans, as the case may be, then outstanding less the
aggregate amount of such required prepayment; and
(viii) no Interest Period may be selected prior to the Syndication
Termination Date.
If upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans a Borrower has failed to elect a new Interest Period to be
applicable to such Eurodollar Loans as provided above or a Default or Event of
Default then exists, such Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that any
Bank shall have determined (which determination shall, absent manifest error,
be final and conclusive and binding upon all parties hereto but, with respect
to clause (i) below, may be made only by the Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition
of Quoted Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect
to any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and
0000D4LB.W51 -11-
<PAGE>
including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to: (A) a change in the basis of taxation of payments to any Bank
of the principal of or interest on the Notes or any other amounts payable
hereunder (except for changes in the rate of tax on, or determined by
reference to, the net income or profits of such Bank imposed by the
jurisdiction in which its principal office or applicable lending office
is located) or (B) a change in official reserve requirements (but, in all
events, excluding reserves required under Regulation D to the extent
included in the computation of the Quoted Rate) and/or (y) other
circumstances since the date of this Agreement affecting such Bank or the
interbank Eurodollar market or the position of such Bank in such market;
or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by any Bank in good
faith with any governmental request (whether or not having the force of
law) or (z) impracticable as a result of a contingency occurring after
the date of this Agreement which materially and adversely affects the
interbank Eurodollar market;
then, and in any such event, such Bank (or the Agent, in the case of clause
(i) above) shall promptly give notice (if by telephone, promptly confirmed in
writing) to the appropriate Borrower, and, except in the case of clause (i)
above, to the Agent of such determination (which notice the Agent shall
promptly transmit to each of the other Banks). Thereafter (x) in the case of
clause (i) above, Eurodollar Loans shall no longer be available until such
time as the Agent notifies such Borrower and the Banks that the circumstances
giving rise to such notice by the Agent no longer exist, and any Notice of
Borrowing or Notice of Conversion given by such Borrower with respect to
Eurodollar Loans which have not yet been incurred (including by way of
conversion) shall be deemed rescinded by such Borrower, (y) in the case of
clause (ii) above, such Borrower shall pay to such Bank, upon written demand
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Bank in its
sole discretion shall determine) as shall be required to compensate such Bank
for such increased costs or reductions in amounts received or receivable
hereunder (a written notice as to the additional amounts owed to such Bank,
showing in reasonable detail the basis for the calculation thereof, submitted
to the Borrower by such Bank shall, absent manifest error, be final and
conclusive and binding on all the parties hereto) and (z) in the case of
clause (iii) above, such Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), a Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (i) if the
0000D4LB.W51 -12-
<PAGE>
affected Eurodollar Loan is then being made initially or pursuant to a
conversion, by giving the Agent telephonic notice (confirmed in writing) on
the same date that such Borrower was notified by the affected Bank or the
Agent pursuant to Section 1.10(a)(ii) or (iii), cancel the respective
Borrowing or conversion, or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least three Business Days' written notice to the Agent,
require the affected Bank to convert such Eurodollar Loan into a Base Rate
Loan; provided that if more than one Bank is affected at any time, then all
affected Banks must be treated the same pursuant to this Section 1.10(b).
(c) If at any time after the date hereof, any Bank determines that
the introduction of or any change in applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the force of
law) concerning capital adequacy, or any change in interpretation or
administration thereof by any governmental authority, central bank or
comparable agency, will have the effect of increasing the amount of capital
required or expected to be maintained by such Bank or any corporation
controlling such Bank based on the existence of such Bank's Commitments
hereunder or its obligations hereunder, then the appropriate Borrower shall
pay to such Bank, upon its written demand therefor, such additional amounts as
shall be required to compensate such Bank for the increased cost to such Bank
or such other corporation or the reduction in the rate of return to such Bank
or such other corporation as a result of such increase of capital. In
determining such additional amounts, each Bank will act reasonably and in good
faith and will use averaging and attribution methods which are reasonable;
provided that such Bank's determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. Each Bank, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
prompt written notice thereof to such Borrower, which notice shall show in
reasonable detail the basis for calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish any
of such Borrower's obligations to pay additional amounts pursuant to this
Section 1.10(c).
1.11 COMPENSATION. Each Borrower shall compensate each Bank, upon
its written request (which request shall set forth in reasonable detail the
basis for requesting such compensation), for all losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other
funds required by such Bank to fund its Eurodollar Loans) which such Bank may
sustain: (i) if for any reason (other than a default by such Bank or the
Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not
occur on a date specified therefor in a Notice of Borrowing or Notice of
Conversion (whether or not withdrawn by such Borrower or deemed withdrawn
pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment
made pursuant to Section 4.02 or as a result of an acceleration of the Loans
pursuant to Section 10) or conversion of any of its Eurodollar Loans occurs on
a date which is not the last day of an Interest Period with respect thereto;
0000D4LB.W51 -13-
<PAGE>
(iii) if any prepayment of any of its Eurodollar Loans is not made on any date
specified in a notice of prepayment given by such Borrower; or (iv) as a
consequence of (x) any other default by such Borrower to repay its Loans when
required by the terms of this Agreement or any Note held by such Bank or (y)
any election made pursuant to Section 1.10(b). A Bank's basis for requesting
compensation pursuant to this Section, and a Bank's calculations of the amount
thereof, shall, absent manifest error, be final and conclusive and binding on
all the parties hereto.
1.12 REPLACEMENT OF BANKS. (x) If any Bank becomes a Defaulting Bank
or (y) if any Bank (other than the Agent) refuses to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in
Section 14.12(b), then the appropriate Borrower shall have the right, if no
Default or Event of Default then exists, to replace such Bank (the "Replaced
Bank") with any other Bank or with one or more Eligible Transferee or
Transferees, none of whom shall constitute a Defaulting Bank at the time of
such replacement (collectively, the "Replacement Bank") reasonably acceptable
to the Agent or, at the option of such Borrower, to replace only (a) the
Revolving Loan Commitment (and Revolving Loans outstanding pursuant thereto)
of the Replaced Bank with an identical Revolving Loan Commitment (and
Revolving Loans outstanding pursuant thereto) provided by the Replacement Bank
or (b) in the case of a replacement as provided Section 14.12(b) when a
consent of the respective Bank is required, with respect to less than all
Tranches of its Loans or Commitments, the Commitments and/or outstanding Loans
of such Bank in respect of each Tranche when a consent of such Bank would
otherwise be individually required, with identical Commitments and/or Loans of
the respective Tranche provided by the Replacement Bank; provided that:
(i) at the time of any replacement pursuant to this Section
1.12, the Replacement Bank shall enter into one or more assignment
agreements pursuant to Section 14.04(b) (and with all fees payable
pursuant to said Section 14.04(b) to be paid by the Replacement Bank)
pursuant to which the Replacement Bank shall acquire all of the
Commitments and outstanding Loans of (or, in the case of the replacement
of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment
and outstanding Revolving Loans and participations in Letter of Credit
Outstandings, (b) the Acquisition Loan Commitment, prior to the
Acquisition Loan Termination Date, the outstanding Acquisition Loans and
thereafter, the Acquisition Loans and/or (c) the outstanding Term Loans
(of either or both Tranches) of, and in each case (except for replacement
of only the outstanding Term Loans of one or both Tranches or Acquisition
Loans of the respective Bank) and participations in Letters of Credit by,
the Replaced Bank and, in connection therewith, shall pay to (x) the
Replaced Bank in respect thereof an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on, all
outstanding Loans (or, in the case of the replacement of only (I) the
Revolving Loan Commitment, the
0000D4LB.W51 -14-
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outstanding Revolving Loans, (II) the Acquisition Loans, or (III) the
Term Loans of either or both Tranches, the outstanding Term Loans of such
Tranches of the Replaced Bank), (B) except in the case of the replacement
of only the outstanding Term Loans of one or both Tranches of Replaced
Bank or only the Acquisition Loan Commitment or outstanding Acquisition
Loans, an amount equal to such Replaced Bank's Percentage of all Unpaid
Drawings that have been funded by (and not reimbursed to) such Replaced
Bank, together with all then unpaid interest with respect thereto at such
time and (C) an amount equal to all accrued, but theretofore unpaid, Fees
owing to the Replaced Bank but only with respect to the relevant Tranche,
in the case of the replacement of less than all the Tranches of Loans
then held by the respective Replaced Bank) pursuant to Section 3.01
hereof, (y) except in the case of the replacement of only the outstanding
Term Loans, Acquisition Loan Commitment or Acquisition Loans or one or
more Tranches of Term Loans or the Acquisition Loans of Replaced Bank,
the Issuing Bank or Banks an amount equal to such Replaced Bank's
Percentage (in each case of this purposes, determined as if the
adjustment described in clause (y) of the immediately succeeding sentence
had been made with respect to such Replaced Bank) of any Unpaid Drawing
(which at such time remains an Unpaid Drawing) with respect to a Letter
of Credit issued by such Issuing Bank to the extent such amount was not
theretofore funded by such Replaced Bank and (z) in the case of any
replacement of Revolving Loan Commitments, the Swingline Bank an amount
equal to such Replaced Bank's Percentage of any Mandatory Borrowing to
the extent such amount was not theretofore funded by such Replaced Bank;
and
(ii) all obligations of either Borrower owing to the Replaced
Bank (other than those (a) specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is
concurrently being, paid or (b) relating to any Tranche of Loans and/or
Commitments of the respective Replaced Bank which will remain outstanding
after giving effect to the respective replacement) shall be paid in full
by such Borrower to such Replaced Bank concurrently with such
replacement.
Upon the execution of the respective assignment documentation, the payment of
amounts referred to in clauses (i) and (ii) above, recordation of the
assignment on the Register by the Agent pursuant to Section 8.16 and, if so
requested by the Replacement Bank, delivery to the Replacement Bank of the
appropriate Note or Notes, executed by the appropriate Borrower, (x) the
Replacement Bank shall become a Bank hereunder, unless the respective Replaced
Bank continues to have outstanding Term Loans, an Acquisition Term Loan
Commitment or Acquisition Loans, or a Revolving Loan Commitment hereunder the
Replaced Bank shall cease to constitute a Bank hereunder with respect to the
Loans and Commitments so transferred, except with respect to indemnification
provisions under this Agreement, which shall survive as to such Replaced Bank,
and the Percentages and
0000D4LB.W51 -15-
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Acquisition Commitment Percentages of the Banks shall be automatically
adjusted at such time to give effect to such replacement.
Section 2. LETTERS OF CREDIT.
2.01 LETTERS OF CREDIT. (a) Subject to and upon the terms and
conditions herein set forth, Holdings may request any Issuing Bank at any time
and from time to time after the Initial Borrowing Date and prior to the third
Business Day immediately preceding the Revolving Loan Maturity Date to issue,
for the account of Holdings and for the benefit of any holder (or any trustee,
agent or other similar representative for any such holders) of L/C Supportable
Indebtedness, an irrevocable standby letter of credit in a form customarily
used by such Issuing Bank or in such other form as has been approved by such
Issuing Bank in support of said L/C Supportable Indebtedness (each such letter
of credit, a "Letter of Credit" and, collectively, the "Letters of Credit").
All Letters of Credit shall be denominated in Dollars.
(b) Each Issuing Bank (other than Banque Paribas) may agree in its
sole discretion and Banque Paribas hereby agrees that it will (subject to the
terms and conditions contained herein), at any time and from time to time
after the Initial Borrowing Date and prior to the Revolving Loan Maturity
Date, following its receipt of the respective Letter of Credit Request, issue
for the account of Holdings one or more Letters of Credit in support of such
L/C Supportable Indebtedness as is permitted to remain outstanding without
giving rise to a Default or Event of Default hereunder; provided that the
respective Issuing Bank shall be under no obligation to issue any Letter of
Credit if at the time of such issuance:
(i) any order, judgment or decree of any governmental authority
or arbitrator shall purport by its terms to enjoin or restrain such
Issuing Bank from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Bank or any request or directive (whether or
not having the force of law) from any governmental authority with
jurisdiction over such Issuing Bank shall prohibit, or request that such
Issuing Bank refrain from, the issuance of letters of credit generally or
such Letter of Credit in particular or shall impose upon such Issuing
Bank with respect to such Letter of Credit any restriction or reserve or
capital requirement (for which such Issuing Bank is not otherwise
compensated) not in effect on the date hereof, or any unreimbursed loss,
cost or expense which was not applicable, in effect or known to such
Issuing Bank as of the date hereof and which such Issuing Bank in good
faith deems material to it;
(ii) such Issuing Bank shall have received a notice of the type
described in the second sentence of Section 2.03(b) from any Bank prior
to the issuance of such Letter of Credit; or
0000D4LB.W51 -16-
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(iii) a Bank Default exists, unless such Issuing Bank has
entered into arrangements satisfactory to it and Holdings to eliminate
such Issuing Bank's risk with respect to the Bank which is the subject of
the Bank Default, including by cash collateralizing such Bank's
Percentage of the Letter of Credit Outstandings.
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of,
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed (x) $1,000,000 or (y) when added to the aggregate principal amount of
all Revolving Loans then outstanding and Swingline Loans then outstanding, the
lesser of (A) the Total Revolving Loan Commitment then in effect (after giving
effect to any reductions to the Total Revolving Loan Commitment on such date)
or (B) the Borrowing Base at such time and (ii) each Letter of Credit shall by
its terms terminate on or before the earlier of (x) the date which occurs 12
months after the date of the issuance thereof (although any such Letter of
Credit may be renewable for successive periods of up to 12 months, but not
beyond the Revolving Loan Maturity Date, on terms acceptable to the Issuing
Bank) and (y) the third Business Day immediately preceding the Revolving Loan
Maturity Date.
2.02 MINIMUM STATED AMOUNT. The Stated Amount of each Letter of
Credit shall be not less than $250,000 or such lesser amount as is acceptable
to the Issuing Bank.
2.03 LETTER OF CREDIT REQUESTS. (a) Whenever Holdings desires that a
Letter of Credit be issued for its account, Holdings shall give the Agent and
the respective Issuing Bank at least 10 Business Days' (or such shorter period
as is acceptable to the respective Issuing Bank in any given case) written
notice prior to the proposed date of issuance (which shall be a Business Day).
Each notice shall be in the form of Exhibit C (each a "Letter of Credit
Request").
(b) The making of each Letter of Credit Request shall be deemed to
be a representation and warranty by Holdings that such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
2.01(c). Unless the Issuing Bank has received notice from any Bank before it
issues a Letter of Credit that one or more of the conditions specified in
Section 6 are not then satisfied, or that the issuance of such Letter of
Credit would violate Section 2.01(c), then such Issuing Bank may issue the
requested Letter of Credit for the account of Holdings in accordance with the
Issuing Bank's usual and customary practices.
2.04 LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the
issuance by the respective Issuing Bank of any Letter of Credit, such Issuing
Bank shall be deemed to have sold and transferred to each Bank with a
Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in
its capacity under this Section 2.04, a "Participant"),
0000D4LB.W51 -17-
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and each such Participant shall be deemed irrevocably and unconditionally to
have purchased and received from such Issuing Bank, without recourse or
warranty, an undivided interest and participation, to the extent of such
Participant's Percentage in such Letter of Credit, each substitute letter of
credit, each drawing made thereunder and the obligations of Holdings under
this Agreement with respect thereto, and any security therefor or guaranty
pertaining thereto. Upon any change in the Revolving Loan Commitments of the
Banks pursuant to Section 14.04, it is hereby agreed that, with respect to all
outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic
adjustment to the participations pursuant to this Section 2.04 to reflect the
new Percentages of the assignor and assignee Bank or of all Banks with
Revolving Loan Commitments, as the case may be.
(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have any obligation relative to the respective
Participants 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. Any
action taken or omitted to be taken by any Issuing Bank under or in connection
with any Letter of Credit if taken or omitted in the absence of gross
negligence or willful misconduct, shall not create for such Issuing Bank any
resulting liability to Holdings, any Bank, any Participant or any other
Person.
(c) In the event that any Issuing Bank makes any payment under any
Letter of Credit and Holdings shall not have reimbursed such amount in full to
the Issuing Bank pursuant to Section 2.05(a), such Issuing Bank shall promptly
notify the Agent, which shall promptly notify each Participant of such
failure, and each Participant shall promptly and unconditionally pay to the
Agent for the account of such Issuing Bank the amount of such Participant's
Percentage of such unreimbursed payment in Dollars and in same day funds. If
the Agent so notifies, prior to 11:00 A.M. (New York time) on any Business
Day, any Participant required to fund a payment under a Letter of Credit, such
Participant shall make available to the Agent at the Payment Office of the
Agent for the account of such Issuing Bank in Dollars such Participant's
Percentage of the amount of such payment on such Business Day in same day
funds. If and to the extent such Participant shall not have so made its
Percentage of the amount of such payment available to the Agent for the
account of such Issuing Bank, such Participant agrees to pay to the Agent for
the account of such Issuing Bank, forthwith on demand such amount, together
with interest thereon, for each day from such date until the date such amount
is paid to the Agent for the account of such Issuing Bank at the overnight
federal funds rate. The failure of any Participant to make available to the
Agent for the account of such Issuing Bank its Percentage of any payment under
any Letter of Credit shall not relieve any other Participant of its obligation
hereunder to make available to the Agent for the account of such Issuing Bank
its Percentage of any Letter of Credit on the date required, as specified
above, but no Participant shall be responsible for the failure of any other
Participant to make available to the Agent for the account of such Issuing
Bank such other Participant's Percentage of any such payment.
0000D4LB.W51 -18-
<PAGE>
(d) Whenever any Issuing Bank receives a payment of a reimbursement
obligation as to which the Agent has received for the account of such Issuing
Bank any payments from the Participants pursuant to clause (c) above, such
Issuing Bank shall pay to the Agent and the Agent shall promptly pay each
Participant which has paid its Percentage thereof, in Dollars and in same day
funds, an amount equal to such Participant's share (based on the proportionate
aggregate amount funded by such Participant to the aggregate amount funded by
all Participants) of the principal amount of such reimbursement obligation and
interest thereon accruing after the purchase of the respective participations.
(e) The obligations of the Participants to make payments to the
Agent for the account of each Issuing Bank with respect to Letters of Credit
issued shall be irrevocable and not subject to any qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of
this Agreement under all circumstances, including, without limitation, any of
the following circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the Credit Documents;
(ii) the existence of any claim, setoff, defense or other right
which Holdings may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), the Agent, any Participant,
or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between Holdings and
the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.05 AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) Holdings
hereby agrees to reimburse the respective Issuing Bank, by making payment to
the Agent in immediately available funds at the Payment Office (or by making
the payment directly to such Issuing Bank at such location as may otherwise
have been agreed upon by Holdings and such Issuing Bank), for any payment or
disbursement made by such Issuing Bank under any Letter of Credit (each such
amount so paid until reimbursed, an "Unpaid Drawing"), immediately after, and
in any event on the date of, such payment or disbursement, with
0000D4LB.W51 -19-
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interest on the amount so paid or disbursed by such Issuing Bank, to the
extent not reimbursed prior to 12:00 Noon (New York time) on the date of such
payment or disbursement, from and including the date paid or disbursed to but
excluding the date such Issuing Bank is reimbursed by Holdings therefor at a
rate per annum which shall be the Base Rate in effect from time to time plus 3
3/4% in each case with such interest to be payable on demand.
(b) The obligations of Holdings under this Section 2.05 to reimburse
the respective Issuing Bank with respect to Unpaid Drawings (including, in
each case, interest thereon) shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim or defense to
payment which Holdings may have or have had against any Bank (including in its
capacity as Issuing Bank or as Participant), including, without limitation,
any defense based upon the failure of any drawing under a Letter of Credit
(each a "Drawing") to conform to the terms of the Letter of Credit or any
nonapplication or misapplication by the beneficiary of the proceeds of such
Drawing; provided, however, that Holdings shall not be obligated to reimburse
any Issuing Bank for any wrongful payment made by such Issuing Bank under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of such Issuing Bank.
2.06 INCREASED COSTS. If at any time after the date hereof any
Issuing Bank or any Participant determines that the introduction of or any
change in any applicable law, rule, regulation, order, guideline or request or
in the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by
such Issuing Bank or any Participant, or any corporation controlling such
Person, with any request or directive by any such authority (whether or not
having the force of law), shall either (i) impose, modify or make applicable
any reserve, deposit, capital adequacy or similar requirement against letters
of credit issued by such Issuing Bank or participated in by any Participant,
or (ii) impose on such Issuing Bank or any Participant, or any corporation
controlling such Person, any other conditions relating, directly or
indirectly, to this Agreement or any Letter of Credit; and the result of any
of the foregoing is to increase the cost to such Issuing Bank or any
Participant of issuing, maintaining or participating in any Letter of Credit,
or reduce the amount of any sum received or receivable by such Issuing Bank or
any Participant hereunder or reduce the rate of return on its capital with
respect to Letters of Credit, then, upon demand to Holdings by such Issuing
Bank or any Participant (a copy of which demand shall be sent by such Issuing
Bank or such Participant to the Agent), Holdings shall pay to such Issuing
Bank or such Participant such additional amount or amounts as will compensate
such Bank for such increased cost or reduction in the amount receivable or
reduction on the rate of return on its capital. Such Issuing Bank or any
Participant, upon determining that any additional amounts will be payable
pursuant to this Section 2.06, will give prompt written notice thereof to
Holdings, which notice shall include a certificate submitted to Holdings by
such Issuing Bank or such Participant (a copy
0000D4LB.W51 -20-
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of which certificate shall be sent by such Issuing Bank or such Participant to
the Agent), setting forth in reasonable detail the basis for the calculation
of such additional amount or amounts necessary to compensate such Issuing Bank
or such Participant, although failure to give any such notice shall not
release or diminish Holdings' obligations to pay additional amounts pursuant
to this Section 2.06. The certificate required to be delivered pursuant to
this Section 2.06 shall, absent manifest error, be final, conclusive and
binding on Holdings.
Section 3. COMMITMENT COMMISSION; FEES; REDUCTIONS OF COMMITMENT.
3.01 FEES. (a) Holdings agrees to pay to the Agent for distribution
to each Bank with a Revolving Loan Commitment or an Acquisition Loan
Commitment a commitment commission (the "Commitment Commission") for the
period from and including the Initial Borrowing Date to and excluding the
later of the Acquisition Loan Termination Date and the Revolving Loan Maturity
Date (or such earlier date as the Total Commitment shall have been terminated)
computed at a rate for each day equal to 1/2 of 1% per annum on the daily
Aggregate Unutilized Commitment of such Bank. Accrued Commitment Commission
shall be due and payable quarterly in arrears on each Quarterly Payment Date
and on the later of the Acquisition Loan Termination Date and the Revolving
Loan Maturity Date or such earlier date upon which the Total Commitment is
terminated.
(b) Holdings agrees to pay to each Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by such
Issuing Bank hereunder (the "Facing Fee"), for the period from and including
the date of issuance of such Letter of Credit to and including the date of
termination of such Letter of Credit, equal to 1/4 of 1% per annum of the
daily Stated Amount of such Letter of Credit; provided that in no event shall
the annual Facing Fee with respect to each Letter of Credit be less than
$1,000. Accrued Facing Fees shall be due and payable in arrears to the Issuing
Bank in respect of each Letter of Credit issued by it on each Quarterly
Payment Date and the date of the termination of the Total Revolving Loan
Commitment on which no Letters of Credit remain outstanding.
(c) Holdings agrees to pay to the Agent for distribution to each
Bank with a Revolving Loan Commitment a fee in respect of each Letter of
Credit issued hereunder (the "Letter of Credit Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
date of termination of such Letter of Credit, computed at a rate per annum
equal to the Applicable Margin for Revolving Loans which are maintained as
Eurodollar Loans of the daily Stated Amount of such Letter of Credit. Letter
of Credit Fees shall be distributed by the Agent to the Banks on the basis of
the respective Percentages as in effect from time to time. Accrued Letter of
Credit Fees shall be due and payable quarterly in arrears on each Quarterly
Payment Date and on the date of the
0000D4LB.W51 -21-
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termination of the Total Revolving Loan Commitment on which no Letters of
Credit remain outstanding.
(d) Holdings hereby agrees to pay in immediately available funds
directly to the Issuing Bank upon each issuance of, drawing under, and/or
amendment of, a Letter of Credit issued by the Issuing Bank such amount as
shall at the time of such issuance, drawing or amendment be the administrative
charge which the Issuing Bank is customarily charging for issuances of,
drawings under (including wire charges) or amendments of, letters of credit
issued by it or such alternative amounts as may have been agreed upon in
writing by the Borrower and the Issuing Bank.
(e) The Borrowers shall pay to the Agent, for its account, such
other fees as have been agreed to in writing by the Borrowers or any of its
Subsidiaries and the Agent.
3.02 VOLUNTARY TERMINATION OF UNUTILIZED COMMITMENTS. (a) Upon at
least three Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) to the Agent at its Notice Office (which notice the
Agent shall promptly transmit to each of the Banks), Holdings shall have the
right, without premium or penalty, to terminate the Total Unutilized Revolving
Loan Commitment and/or the Total Unutilized Acquisition Loan Commitment, in
whole or in part; provided that (i) each such reduction shall apply
proportionately to reduce the Revolving Loan Commitment or the Acquisition
Loan Commitment, as the case may be, of each Bank with such a Commitment and
(ii) any partial reduction pursuant to this Section 3.02 shall be in integral
multiples of at least $500,000.
(b) In the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in
Section 14.12(b), Holdings shall have the right, upon five Business Days'
prior written notice to the Agent at its Notice Office (which notice the Agent
shall promptly transmit to each of the Banks), to terminate all of the
Acquisition Loan Commitment and/or the Revolving Loan Commitment of such Bank,
so long as all Loans, together with accrued and unpaid interest, Fees and all
other amounts, owing to such Bank (other than amounts owing in respect of any
Tranche of Term Loans or Acquisition Loans maintained by such Bank, if such
Term Loans or Acquisition Loans are not being repaid pursuant to Section
14.12(b)) are repaid concurrently with the effectiveness of such termination
pursuant to Section 4.01(b) and Holdings shall pay to the Agent at such time
an amount in cash and/or Cash Equivalents equal to such Bank's applicable
Percentage of the outstanding Letters of Credit (which cash and/or Cash
Equivalents shall be held by the Agent as security for the obligations of
Holdings hereunder in respect of the outstanding Letters of Credit pursuant to
a cash collateral agreement to be entered into in form and substance
reasonably satisfactory to the Agent, (at which time
0000D4LB.W51 -22-
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Annex I shall be deemed modified to reflect such changed amounts), and at such
time, unless the respective Bank continues to act as a Bank with respect to
any Tranche of Term Loans or Acquisition Loans or has a Revolving Loan
Commitment or Acquisition Loan Commitment hereunder, such Bank shall no longer
constitute a "Bank" for purposes of this Agreement, except with respect to
indemnifications and similar provisions under this Agreement, which shall
survive as to such repaid Bank.
3.03 MANDATORY REDUCTION OF COMMITMENTS. (a) The Total Commitment
(and the A Term Loan Commitment, the B Term Loan Commitment, the Revolving
Loan Commitment and the Acquisition Loan Commitment of each Bank with such a
Commitment) shall terminate on November 30, 1996 unless the Initial Borrowing
Date has occurred on or before such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Term Loan Commitment (and the A Term
Loan Commitment and B Term Loan Commitment of each Bank with such a
Commitment) shall (i) terminate in its entirety on the Initial Borrowing Date
(after giving effect to the making of the Term Loans on such date) and (ii)
prior to the termination of the Total Term Loan Commitment as provided in
clause (i) above, be reduced from time to time to the extent required by
Section 4.02.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Acquisition Loan Commitment (and the
Acquisition Loan Commitment of each Bank with such a Commitment) shall (i)
terminate in its entirety on the Acquisition Loan Termination Date (after
giving effect to the making of Acquisition Loans on such date) and (ii) prior
to the termination of the Total Acquisition Loan Commitment as provided in
clause (i) above, be reduced from time to time to the extent required by
Section 4.02.
(d) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank) shall terminate on the Revolving Loan
Maturity Date.
(e) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank with such a Commitment) shall be
reduced at the time any payment is required to be made on the principal amount
of Revolving Loans (or would be required to be made if Revolving Loans were
then outstanding) pursuant to Section 4.02(B)(a), by an amount equal to the
maximum amount of Revolving Loans that would be required to be repaid pursuant
to Section 4.02(B)(a) assuming that Revolving Loans were outstanding in an
aggregate principal amount equal to the Total Revolving Loan Commitment.
0000D4LB.W51 -23-
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(f) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Acquisition Loan Commitment (and the
Acquisition Loan Commitment of each Bank with such a Commitment) shall be
reduced at the time any payment is required to be made on the principal amount
of Acquisition Loans (or would be required to be made of Acquisition Loans
then outstanding) pursuant to Section 4.02(B)(a), by an amount equal to the
maximum amount of Acquisition Loans that would be required to be repaid
pursuant to Section 4.02(B)(a) assuming that Acquisition Loans were
outstanding in an aggregate principal amount equal to the Total Acquisition
Loan Commitment.
(g) Each reduction to the Total A Term Loan Commitment, the Total B
Term Loan Commitment, the Total Acquisition Loan Commitment and the Total
Revolving Loan Commitment, pursuant to this Section 3.03 shall be applied
proportionately to reduce the A Term Loan Commitment, the B Term Loan
Commitment, Acquisition Loan Commitment or the Revolving Loan Commitment, as
the case may be, of each Bank with such a Commitment.
Section 4. PREPAYMENTS; PAYMENTS; TAXES.
4.01 VOLUNTARY PREPAYMENTS. (a) The Borrowers shall have the right
to prepay Loans, without premium or penalty, in whole or in part from time to
time on the following terms and conditions:
(i) The appropriate Borrower shall give the Agent prior to 11:00
a.m. (New York time) at its Notice Office at least three Business Days'
prior written notice in the case of Eurodollar Loans and one Business
Day's prior written notice in the case of Base Rate Loans (and on the
date of such prepayment in the case of Swingline Loans) of its intent to
prepay the Loans, whether A Term Loans, B Term Loans, Acquisition Loans,
Revolving Loans, or Swingline Loans shall be prepaid, the amount of such
prepayment and the Types of Loans to be prepaid and, in the case of
Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which
made, which notice the Agent shall promptly transmit to each of the
Banks;
(ii) each prepayment shall be in an aggregate principal amount
of at least the applicable Minimum Borrowing Amount and, if greater, in
integral multiples of $500,000 or in the case of Swingline Loans
$100,000; provided that no partial prepayment of Eurodollar Loans made
pursuant to any Borrowing shall reduce the outstanding Loans made
pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount;
0000D4LB.W51 -24-
<PAGE>
(iii) no prepayments of Eurodollar Loans made pursuant to this
Section 4.01 may be made on a day other than the last day of an Interest
Period applicable thereto;
(iv) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans;
(v) each prepayment of Term Loans or Acquisition Loans pursuant
to this Section 4.01 must consist of a prepayment of A Term Loans (in an
amount equal to the A TL Percentage of such prepayment), B Term Loans (in
an amount equal to the B TL Percentage of such prepayment) and
Acquisition Loans (in an amount equal to the Acquisition TL Percentage of
such prepayment; provided, however, prior to the Acquisition Loan
Termination Date a prepayment of Acquisition Loans shall not be required
to be accompanied by a prepayment of Term Loans and a prepayment of Term
Loans shall not be required to be accompanied by a prepayment of
Acquisition Loans); and
(vi) each prepayment of Acquisition Loans after the Acquisition
Loan Termination Date and each prepayment of Term Loans pursuant to this
Section 4.01 shall be applied to reduce the then remaining Scheduled
Repayments of the respective Tranche being repaid on a pro rata basis
(based upon the then remaining principal amount of each such Scheduled
Repayment).
(b) In the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in
Section 14.12(b), a Borrower shall have the right, upon five Business Days'
prior written notice to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Banks)
to repay all Loans, together with accrued and unpaid interest, Fees and all
other amounts owing to such Bank (or owing to such Bank with respect to each
Tranche which gave rise to the need to obtain such Bank's individual consent)
in accordance with said Section 14.12(b) so long as (A) in the case of the
repayment of Revolving Loans of any Bank with a Revolving Loan Commitment or
Acquisition Loans of any Bank with an Acquisition Loan Commitment pursuant to
this clause (b) the Revolving Loan Commitment or Acquisition Loan Commitment,
as the case may be, of such Bank is terminated concurrently with such
repayment pursuant to Section 4.02(b) (at which time Schedule I shall be
deemed modified to reflect the changed Revolving Loan Commitments), and (B) in
the case of the repayment of Loans of any Bank the consents required by
Section 14.12(b) in connection with the repayment pursuant to this clause (b)
shall have been obtained.
0000D4LB.W51 -25-
<PAGE>
4.02 MANDATORY REPAYMENTS AND COMMITMENT REDUCTIONS.
(A) REQUIREMENTS:
(a) If any Borrowing Base Certificate shall disclose the existence
of a Borrowing Base Deficiency, Holdings shall on the date of delivery of the
Borrowing Base Certificate in accordance with Section 8.01(k), repay the
principal of the Swingline Loans outstanding in an aggregate amount equal to
the Borrowing Base Deficiency and, to the extent such Swingline Loans have
been repaid in full and, to the extent such Borrowing Base Deficiency
continues to exist after such repayment, Holdings shall repay the principal of
the Revolving Loans outstanding in an aggregate amount equal to the remaining
Borrowing Base Deficiency and, to the extent such Swingline and Revolving
Loans have been repaid in full, and, to the extent such Borrowing Base
Deficiency continues to exist after such repayments, Holdings shall pay to the
Administrative Agent at the Payment Office an amount of cash or Cash
Equivalents equal to such excess, such cash or Cash Equivalents to be held as
security for all Obligations of Holdings hereunder with respect to the Letter
of Credit Outstandings in a cash collateral account established and maintained
(including the investments made pursuant thereto) by the Administrative Agent
pursuant to a cash collateral agreement in form and substance satisfactory to
the Administrative Agent (the "Letter of Credit Cash Collateral Account").
(b) On any day on which the sum of (x) the aggregate outstanding
principal amount of the Revolving Loans, (y) the aggregate amount of all
Swingline Loans and (z) Letter of Credit Outstandings at such time, exceeds
the Total Revolving Loan Commitment as then in effect, Holdings shall prepay
the principal of Swingline Loans and after the Swingline Loans have been
repaid in full, the principal of Revolving Loans in an amount equal to such
excess. If, after giving effect to the prepayment of all outstanding Swingline
Loans and Revolving Loans, the aggregate amount of the Letter of Credit
Outstandings exceeds the Total Revolving Loan Commitment as then in effect,
Holdings shall pay to the Agent at its Payment Office on such date an amount
of cash or Cash Equivalents equal to the amount of such excess, such cash or
Cash Equivalents to be held as security for all Obligations of Holdings
hereunder in the Letter of Credit Cash Collateral Account. On any day on or
prior to the Acquisition Loan Termination Date on which the aggregate
outstanding principal amount of Acquisition Loans exceeds the Total
Acquisition Loan Commitment, Holdings shall repay the principal of Acquisition
Loans in the amount equal to such excess.
(c) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), Southern shall be required to
repay on each date set forth below the principal amount of A Term Loans, to
the extent then outstanding, set forth below opposite such date (each such
repayment as the same may be reduced as provided in Sections 4.01 and 4.02(B),
a "Scheduled A Term Loan Repayment"):
0000D4LB.W51
-26-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED A TERM LOAN REPAYMENT DATE AMOUNT
<S> <C>
March 31, 1997 $ 525,000
June 30, 1997 $ 525,000
September 30, 1997 $ 550,000
December 31, 1997 $ 600,000
March 31, 1998 $ 850,000
June 30, 1998 $ 1,100,000
September 30, 1998 $ 1,300,000
December 31, 1998 $ 1,350,000
March 31, 1999 $ 1,500,000
June 30, 1999 $ 1,500,000
September 30, 1999 $ 1,500,000
December 31, 1999 $ 1,500,000
March 31, 2000 $ 1,650,000
June 30, 2000 $ 1,800,000
September 30, 2000 $ 2,000,000
December 31, 2000 $ 2,150,000
March 31, 2001 $ 2,150,000
June 30, 2001 $ 2,150,000
September 30, 2001 $ 2,150,000
December 31, 2001 $ 2,150,000
</TABLE>
(d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), each Borrower shall be required
to repay on each date set forth below its B Term Percentage of the principal
amount of B Term Loans, to the extent then outstanding, set forth below
opposite such date (each such repayment as the same may be reduced as provided
in Sections 4.01 and 4.02(B), a "Scheduled B Term Loan Repayment"):
<TABLE>
<CAPTION>
SCHEDULED B TERM LOAN REPAYMENT DATE AMOUNT
<S> <C>
March 31, 1997 $ 225,000
June 30, 1997 $ 225,000
September 30, 1997 $ 225,000
December 31, 1997 $ 225,000
March 31, 1998 $ 225,000
June 30, 1998 $ 225,000
September 30, 1998 $ 225,000
December 31, 1998 $ 225,000
March 31, 1999 $ 225,000
June 30, 1999 $ 225,000
</TABLE>
0000D4LB.W51 -27-
<PAGE>
<TABLE>
<S> <C>
September 30, 1999 $ 225,000
December 31, 1999 $ 225,000
March 31, 2000 $ 225,000
June 30, 2000 $ 225,000
September 30, 2000 $ 225,000
December 31, 2000 $ 225,000
March 31, 2001 $ 225,000
June 30, 2001 $ 225,000
September 30, 2001 $ 225,000
December 31, 2001 $ 225,000
March 31, 2002 $ 2,700,000
June 30, 2002 $ 2,700,000
September 30, 2002 $ 2,700,000
December 31, 2002 $ 2,700,000
March 31, 2003 $ 3,175,000
June 30, 2003 $ 3,175,000
September 30, 2003 $ 3,175,000
December 31, 2003 $ 3,175,000
</TABLE>
(e) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), Holdings shall be required to
repay on each date set forth below a principal amount of Acquisition Loans, to
the extent then outstanding, equal to (i) the aggregate principal amount of
Acquisition Loans outstanding on the Acquisition Loan Termination Date (after
giving effect to any Acquisition Loans made on such date) multiplied by (ii)
the percentage set forth below opposite such date (each such repayment as the
same may be reduced as provided in Sections 4.01 and 4.02(B), a "Scheduled
Acquisition Loan Repayment" and the Scheduled A Term Loan Repayments and
Scheduled B Term Loan Repayments, together with the Scheduled Acquisition Loan
Repayments, collectively referred to as the "Scheduled Repayments"):
0000D4LB.W51 -28-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED ACQUISITION LOAN REPAYMENT DATES PERCENTAGE
<S> <C>
Each Quarterly Payment Date
occurring during the 12 month
period commencing on the
Second Anniversary of the
Initial Borrowing Date 5.0%
Each Quarterly Payment Date
occurring during the 12 month
period commencing on the
Third Anniversary of the
Initial Borrowing Date 7.5%
Each Quarterly Payment Date
occurring during the 12 month
period commencing on the
Fourth Anniversary of the
Initial Borrowing Date 12.5%
</TABLE>
(f) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on the date of the receipt thereof
by Holdings or any of its Subsidiaries, an amount equal to:
(i) 100% of the cash proceeds (net of underwriting discounts and
commissions and all other reasonable costs associated with such
transaction) from any sale or issuance after the Effective Date of equity
of Holdings or any Subsidiary of Holdings (other than (a) equity issued
on the Initial Borrowing Date in connection with the Transaction, and (b)
Permitted Equity Issuances) provided, that repayments pursuant to this
Section 4.02(f)(i) shall be required only to the extent required to
reduce the ratio of Consolidated Indebtedness at the time of
determination to Consolidated EBITDA for the period of four consecutive
fiscal quarters commencing on or after the Initial Borrowing Date and
ending on the last day of the fiscal quarter last ended immediately prior
to the date of determination to less than 2.0:1.0. and, provided further
that proceeds of equity sold or issued to officers or employees of
Holdings ("Employee Stock Proceeds") shall not be required to be paid on
the date of the receipt thereof (unless such date of receipt is also a
date specified below) but instead shall be required to be paid on each
date on which the aggregate amount of such Employee Stock Proceeds
received during the period commencing on the later of (x) the Effective
Date and (y) the immediately preceding date on which a mandatory
repayment or commitment reduction was made pursuant to this Section
4.02(A)(f) as a result of the receipt of Employee
0000D4LB.W51 -29-
<PAGE>
Stock Proceeds and ending on the date of determination (the "Employee
Stock Proceeds Payment Period"), equals or exceeds $100,000, with the
amount of the repayments or commitment reductions required on each such
date to equal 100% of the aggregate amount of Employee Stock Proceeds
received on or before such date during the applicable Employee Stock
Proceeds Payment Period; and
(ii) 100% of the cash proceeds (net of underwriting discounts
and commissions, loan fees and all other reasonable costs associated with
such transaction) from any incurrence of any Indebtedness by Holdings or
any Subsidiary of Holdings (other than Indebtedness permitted by Section
9.05 as said Section is in effect on the Effective Date),
shall be applied as provided in Section 4.02(B).
(g) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, no later than 90 days after the last
day of each fiscal year of Holdings, an amount equal to 75% of Excess Cash
Flow of Holdings and its Subsidiaries for the relevant Excess Cash Flow
Payment Period shall be applied as provided in Section 4.02(B).
(h) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date after the Effective
Date on which Holdings or any Subsidiary of Holdings receives cash proceeds
from any sale of assets (including capital stock and securities other than
capital stock the proceeds from the sale of which is recaptured under Section
4.02(A)(f) and other than Holdings Common Stock issued by Holdings in
connection with issuances described in the second parenthetical of Section
4.02(A)(f)(i), but excluding (1) sales of inventory in the ordinary course of
business and (2) other sales of assets so long as the aggregate amount of Net
Sale Proceeds excluded pursuant to this clause (2) does not exceed $100,000 in
the aggregate for all such asset sales in any fiscal year of the Borrower), an
amount equal to 100% of the Net Sale Proceeds thereof shall be applied as
provided in Section 4.02(B).
(i) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date after the Effective
Date of the receipt thereof by Holdings or any Subsidiary of Holdings, an
amount equal to 100% of the cash proceeds of any Recovery Event (net of
reasonable costs incurred in connection with such Recovery Event (including
the estimated marginal increase in income taxes which will be payable as a
result of such Recovery Event by Holdings or any Subsidiary of Holdings))
shall be applied as provided in Section 4.02(B); provided that such proceeds
not in excess of $100,000 in the aggregate for all Recovery Events occurring
during one fiscal year of Holdings shall not be required to be so applied on
such date to the extent that Holdings delivers a certificate to the Agent on
or prior to such date stating that such proceeds shall
0000D4LB.W51 -30-
<PAGE>
be used to replace or restore any properties or assets in respect of which
such proceeds were paid within a period specified in such certificate not to
exceed 180 days after the date of receipt of such proceeds (which certificate
shall set forth estimates of the proceeds to be so expended); and provided
further, that if all or any portion of such proceeds not so applied pursuant
to Section 4.02(B) are not so used within the period specified in the proviso,
such remaining portion shall be applied on the last day of such specified
period as provided in Section 4.02(B).
(j) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), on each date upon which Holdings
or any of its Subsidiaries receives cash proceeds pursuant to the Acquisition
Agreement or any other agreement or understanding relating to the Acquisition,
including, without limitation, indemnification or similar payments and
post-closing adjustments, but excluding in each case reimbursement of
out-of-pocket costs and expenses, an amount equal to 100% of such proceeds
(net of reasonable expenses incurred in connection with obtaining such
proceeds and the estimated marginal increase in income taxes payable in
respect thereof) shall be applied as provided in Section 4.02(B).
(k) If on January 1 of each year commencing January 1, 1998, a
Clean-Down Period shall not have occurred since the preceding November 1,
Holdings shall repay first Swingline Loans and then Revolving Loans in an
amount necessary to reduce the aggregate outstanding principal amount of
Revolving Loans and Swingline Loans taken as a whole to the amount set forth
in the definition of Clean-Down Period for a period of 30 consecutive days
(including in such period any days prior to such January 1 on which the
aggregate outstanding principal amount of Swingline Loans and Revolving Loans
shall have been less than the amount set forth in the definition of Clean-Down
Period).
(l) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, (i) all then outstanding Swingline Loans shall be repaid in
full on the Swingline Expiry Date and (ii) all other then outstanding Loans of
the respective Tranche shall be repaid in full on the Maturity Date for such
Tranche.
(B) APPLICATION:
(a) Each mandatory repayment of Loans pursuant to Section 4.02(A)(f)
through (j), inclusive, shall be applied:
(i) first, (A) prior to the Acquisition Loan Termination Date, to
prepay the principal of outstanding A Term Loans (or, if the Initial
Borrowing Date has not yet occurred, as a mandatory reduction to the
Total A Term Loan Commitment) and B Term Loans (or, if the Initial
Borrowing Date has not yet occurred, as a mandatory reduction to the
Total B Term Loan Commitment) on a pro rata basis,
0000D4LB.W51 -31-
<PAGE>
with the A Term Loan Facility to receive the A TL Percentage and the B
Term Loan Facility to receive the B TL Percentage, in each case, of the
total amount to be applied as a mandatory repayment of Term Loans
pursuant to this Section 4.02(B), and which prepayments of such Term
Loans (or mandatory reductions to Term Loan Commitments) shall be applied
to reduce the then remaining Scheduled Repayments of the respective
Tranche pro rata (based on the then remaining Scheduled Repayments of the
respective Tranche) (it being understood and agreed that the amount of
any reduction to the Total A Term Loan Commitment or Total B Term Loan
Commitment shall be deemed to be an application of proceeds for purposes
of this Section 4.02(B) even though cash is not actually applied), and
(B) after the Acquisition Loan Termination Date, to prepay the principal
of outstanding A Term Loans, B Term Loans and Acquisition Loans on a pro
rata basis, with the A Term Loan Facility to receive the A TL Percentage,
the B Term Loan Facility to receive the B TL Percentage and the
Acquisition Loan Facility to receive the Acquisition TL Percentage, in
each case of the total amount to be applied as a mandatory repayment of
Term Loans and Acquisition Loans pursuant to this Section 4.02(B), and
which prepayments of such Term Loans and Acquisition Loans shall be
applied to reduce the then remaining Scheduled Repayments of the
respective Tranche on a pro rata basis (based on the then remaining
amounts of such Scheduled Repayments) provided, however, that any
repayment applied to B Term Loans pursuant to this paragraph
4.02(B)(a)(i) shall be made by the applicable Borrower in an amount equal
to such Borrower's B Term Percentage of such repayment amount;
(ii) second, prior to the Acquisition Loan Termination Date, to
prepay the principal of outstanding Acquisition Loans (with a
corresponding reduction to the Total Acquisition Loan Commitment);
(iii) third, prior to the Acquisition Loan Termination Date, to
reduce the Total Acquisition Loan Commitment (with a corresponding
reduction to the Total Acquisition Loan Commitment of each Bank (it being
understood and agreed that the amount of such reduction shall be deemed
to be an application of proceeds for purposes of this Section
4.02(B)(a)(iii) even though cash is not actually applied);
(iv) fourth, to prepay the principal of outstanding Swingline Loans
(with a corresponding reduction to the Total Revolving Loan Commitment);
(v) fifth, to prepay the principal of outstanding Revolving Loans
(with a corresponding reduction to the Total Revolving Loan Commitment);
(vi) sixth, to cash collateralize Letter of Credit Outstandings by
depositing cash in the Letter of Credit Cash Collateral Account in an
amount equal to such
0000D4LB.W51 -32-
<PAGE>
Letter of Credit Outstandings (it being understood that the Total
Revolving Loan Commitment shall be reduced by the amount of cash
collateral required to be deposited by this clause (vi)); and
(vii) seventh, to reduce the remaining (i.e., after giving effect to
all prior reductions thereto, including, without limitation, to the
reductions theretofore effected pursuant to the preceding clauses (iv),
(v) and (iv)) Total Revolving Loan Commitment (it being understood and
agreed that the amount of such reduction shall be deemed to be an
application of proceeds for purposes of this Section 4.02(B)(a)(vii) even
though cash is not actually applied).
(b) With respect to each repayment of Loans required by this Section
4.02, the applicable Borrower may designate the Types of Loans which are to be
repaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings of the respective Tranche pursuant to which made; provided that:
(i) repayments of Eurodollar Loans pursuant to this Section 4.02 may only be
made on the last day of an Interest Period applicable thereto unless all
Eurodollar Loans of the respective Tranche with Interest Periods ending on
such date of required repayment and all Base Rate Loans of the respective
Tranche have been paid in full; (ii) if any repayment of Eurodollar Loans made
pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans
made pursuant to such Borrowing to an amount less than the applicable Minimum
Borrowing Amount, such Borrowing shall immediately be converted into Base Rate
Loans; and (iii) each repayment of any Loans made pursuant to a single
Borrowing shall be applied pro rata among such Loans. In the absence of a
designation by such Borrower as described in the preceding sentence, the Agent
shall, subject to the above, make such designation in its sole discretion.
4.03 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made
to the Agent for the account of the Bank or Banks entitled thereto not later
than 12:00 Noon (New York time) on the date when due and shall be made in
Dollars in immediately available funds at the Payment Office of the Agent.
Whenever any payment to be made hereunder or under any Note shall be stated to
be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall be payable at the applicable rate during such
extension.
4.04 NET PAYMENTS. (a) All payments made by any Guarantor or either
Borrower hereunder, or by either Borrower under any Note, will be made without
setoff, counterclaim or other defense. Except as provided in Section 4.04(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by
any jurisdiction or by any political subdivision or taxing
0000D4LB.W51 -33-
<PAGE>
authority thereof or therein with respect to such payments (but excluding,
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income of a Bank pursuant to the laws of the jurisdiction
or any political subdivision or taxing authority thereof or therein in which
the principal office or applicable lending office of such Bank is located) and
all interest, penalties or similar liabilities with respect thereto
(collectively, "Taxes"). If any Taxes are so levied or imposed, the Borrowers
and each of the Guarantors jointly and severally agree to pay the full amount
of such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due hereunder or under any Note, after withholding or
deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note. If any amounts are payable in respect of
Taxes pursuant to the preceding sentence, then the Borrowers and each of the
Guarantors shall jointly and severally be obligated to reimburse each Bank,
upon the written request of such Bank, for taxes imposed on or measured by the
net income of such Bank pursuant to the laws of the jurisdiction or any
political subdivision or taxing authority thereof or therein in which the
principal office or applicable lending office of such Bank is located as such
Bank shall determine are payable by such Bank in respect of such amounts so
paid to or on behalf of such Bank pursuant to the preceding sentence and in
respect of any amounts paid to or on behalf of such Bank pursuant to this
sentence. Each Borrower or the respective Guarantor, as the case may be, will
furnish to the Agent within 45 days after the date of the payment of any Taxes
due pursuant to applicable law certified copies of tax receipts evidencing
such payment by such Borrower or such Guarantor. Each Borrower and each
Guarantor jointly and severally agree to indemnify and hold harmless each
Bank, and reimburse such Bank upon its written request, for the amount of any
Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to Holdings and
the Agent on or prior to the Effective Date, or in the case of a Bank that is
an assignee or transferee of an interest under this Agreement pursuant to
Section 14.04 (unless the respective Bank was already a Bank hereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Bank, (i) two accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor
forms) certifying to such Bank's entitlement to a complete exemption from
United States withholding tax with respect to payments to be made under this
Agreement and under any Note, or (ii) if the Bank is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit D (any such certificate, a
"Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement to a complete exemption from United
States withholding tax with respect to payments of interest to be made under
this Agreement and under any Note. In addition, each Bank agrees that from
time to time after the Effective Date, when a lapse in time or change in
circumstances
0000D4LB.W51 -34-
<PAGE>
renders the previous certification obsolete or inaccurate in any material
respect, it will deliver to Holdings and the Agent two new accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001,
or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and
such other forms as may be required in order to confirm or establish the
entitlement of such Bank to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Note, or it shall immediately notify Holdings and the Agent of its inability
to deliver any such Form or Certificate, in which case such Bank shall not be
required to deliver any such form of certificate pursuant to this Section
4.04(b). Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to the immediately succeeding sentence, (x) the
applicable Borrower shall be entitled, to the extent it is required to do so
by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Bank which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent
that such Bank has not provided to Holdings U.S. Internal Revenue Service
Forms that establish a complete exemption from such deduction or withholding
and (y) no Borrower shall be obligated pursuant to Section 4.04(a) hereof to
gross-up payments to be made to a Bank in respect of income or similar taxes
imposed by the United States if (I) such Bank has not provided Holdings the
Internal Revenue Service Forms required to be provided Holdings pursuant to
this Section 4.04(b) or (II) in the case of a payment, other than interest, to
a Bank described in clause (ii) above, to the extent that such forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 4.04, each Borrower agrees to pay additional amounts and to
indemnify each Bank in the manner set forth in Section 4.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any amounts deducted or withheld by it as described in the
immediately preceding sentence as a result of any changes after the Effective
Date in any applicable law, treaty, governmental rule, regulation, guideline
or order, or in the interpretation thereof, relating to the deducting or
withholding of income or similar Taxes.
Section 5. CONDITIONS PRECEDENT TO LOANS ON THE INITIAL BORROWING
DATE. The obligation of each Bank to make Loans on the Initial Borrowing Date
is subject at the time of such Loan to the satisfaction of the following
conditions:
5.01 EXECUTION OF AGREEMENT; NOTES. On or prior to the Initial
Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Agent for the account of each of the Banks the
appropriate A Term Note, B Term Note, Acquisition Note or Revolving Note
executed by the appropriate Borrower and for the
0000D4LB.W51 -35-
<PAGE>
account of the Swingline Bank, the Swingline Note executed by Holdings, in
each case in the amount, maturity and as otherwise provided herein.
5.02 OFFICER'S CERTIFICATE. On the Initial Borrowing Date, the Agent
shall have received a certificate dated the Initial Borrowing Date signed on
behalf of Holdings by the President, any Executive Vice President or any Vice
President of the Holdings stating that all of the conditions in Sections 5.06,
5.07, 5.11, 5.12, 5.15, 5.17, 5.18, 6.01, 6.02 and 6.03 have been satisfied on
such date; provided the certificate shall not be required to certify as to the
acceptability of any items to the Agent and/or the Banks or as to whether the
Agent and/or the Banks are satisfied with any of the matters described in said
Sections.
5.03 OPINIONS OF COUNSEL. On the Initial Borrowing Date, the Agent
shall have received from (i) Freedman, Levy, Kroll & Simonds, counsel to
Holdings and its Subsidiaries, an opinion addressed to the Agent, the
Collateral Agent and each of the Banks and dated the Initial Borrowing Date
covering the matters set forth in Exhibit E, (ii) counsel rendering such
opinions, reliance letters addressed to the Agent, the Collateral Agent and
each of the Banks dated the Initial Borrowing Date with respect to all legal
opinions delivered in connection with the Acquisition, which legal opinions
and reliance letters shall be in form and substance satisfactory to the Agent
and (iii) from local counsel to Holdings and its Subsidiaries satisfactory to
the Agent, opinions addressed to the Agent, the Collateral Agent and each of
the Banks and dated the Initial Borrowing Date, each of which shall be in form
and substance satisfactory to the Agent and shall cover the perfection and
priority of the security interests granted pursuant to the Security Documents
and such other matters incident to the transactions contemplated herein and in
the other Credit Documents as the Agent may request.
5.04 CORPORATE DOCUMENTS; PROCEEDINGS. (a) On the Initial Borrowing
Date, the Agent shall have received a certificate, dated the Initial Borrowing
Date, signed by the President or any Vice President of each Credit Party, and
attested to by the Secretary or any Assistant Secretary of such Credit Party,
in the form of Exhibit F with appropriate insertions, together with copies of
the Certificate of Incorporation and By-Laws of such Credit Party and the
resolutions of such Credit Party referred to in such certificate, and the
foregoing shall be acceptable to the Agent and the Required Banks in their
sole discretion.
(b) All corporate and legal proceedings and all instruments and
agreements relating to the transactions contemplated by this Agreement and the
other Documents shall be satisfactory in form and substance to the Agent and
the Required Banks, and the Agent shall have received all information and
copies of all documents and papers, including records of corporate
proceedings, governmental approvals, good standing certificates and bring-down
telegrams, if any, which the Agent or the Required Banks may have requested
0000D4LB.W51 -36-
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in connection therewith, such documents and papers where appropriate to be
certified by proper corporate or governmental authorities.
5.05 PLANS; SHAREHOLDERS' AGREEMENTS; MANAGEMENT AGREEMENTS;
EMPLOYMENT AGREEMENTS; COLLECTIVE BARGAINING AGREEMENTS; DEBT AGREEMENTS;
AFFILIATE CONTRACTS; TAX SHARING AGREEMENTS AND MATERIAL CONTRACTS. On or
prior to the Initial Borrowing Date, there shall have been delivered to the
Banks true and correct copies, certified as true and complete by an
appropriate officer of Holdings of:
(i) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of the
most recent such report (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information), and for each Plan
that is a "single-employer plan," as defined in Section 4001(a)(15) of
ERISA, the most recently prepared actuarial valuation therefor) and any
other "employee benefit plans," as defined in Section 3(3) of ERISA, and
any other material agreements, plans or arrangements, with or for the
benefit of current or former employees of Holdings or any of its
Subsidiaries or any ERISA Affiliate (provided that the foregoing shall
apply in the case of any multiemployer plan, as defined in 4001(a)(3) of
ERISA, only to the extent that any document described therein is in the
possession of Holdings or any Subsidiary of Holdings or any ERISA
Affiliate or reasonably available thereto from the sponsor or trustee of
any such plan);
(ii) all agreements entered into by Holdings or any Subsidiary
of Holdings governing the terms and relative rights of its capital stock
and any agreements entered into by shareholders relating to any such
entity with respect to their capital stock (collectively, the
"Shareholders' Agreements");
(iii) all agreements with members of, or with respect to the,
management of Holdings or any Subsidiary of Holdings other than
Employment Agreements (collectively, the "Management Agreements");
(iv) any employment agreements entered into by Holdings or any
Subsidiary of Holdings (collectively, the "Employment Agreements");
(v) all collective bargaining agreements applying or relating to
any employee of Holdings or any Subsidiary of Holdings (collectively, the
"Collective Bargaining Agreements");
(vi) all agreements evidencing or relating to Indebtedness of
Holdings or any Subsidiary of Holdings whether or not such agreement is
to remain outstanding
0000D4LB.W51 -37-
<PAGE>
after giving effect to the incurrence of Loans on the Initial Borrowing
Date (col- lectively, the "Debt Agreements");
(vii) all tax sharing, tax allocation and other similar
agreements entered into by Holdings or any Subsidiary of Holdings
(collectively, the "Tax Sharing Agreements");
(viii) all contracts, agreements or understandings entered into
between Holdings or any of its Subsidiaries on the one hand, and any of
its Affiliates, on the other hand (collectively, the "Affiliate
Contracts"); and
(ix) all material contracts and licenses of Holdings or any of
its Subsidiaries that are to remain in effect after giving effect to the
consummation of the Transaction (collectively, the "Material Contracts");
all of which Plans, Shareholders' Agreements, Management Agreements,
Employment Agreements, Collective Bargaining Agreements, Debt Agreements, Tax
Sharing Agreements, Affiliate Contracts and Material Contracts shall be in
form and substance satisfactory to the Agent and the Required Banks and shall
be in full force and effect on the Initial Borrowing Date.
5.06 CASH ON HAND. Holdings shall provide to the Banks evidence
satisfactory to them that Holdings and its Subsidiaries and Southern and its
Subsidiaries, immediately prior to giving affect to the Transaction have
available and unrestricted at least $4 million of cash and Cash Equivalents.
5.07 CONSUMMATION OF THE ACQUISITION; CONSUMMATION OF THE MERGER.
(a) On or prior to the Initial Borrowing Date, there shall have been delivered
to the Banks true and correct copies of all Acquisition Documents and all
terms and provisions of such Acquisition Documents shall be in form and
substance satisfactory to the Agent and the Required Banks and shall not have
been amended without the consent of the Agent and the Required Banks. The
Acquisition, including all of the terms and conditions thereof, shall have
been duly approved by the board of directors and (if required by applicable
law) the shareholders of the parties thereto, and all Acquisition Documents
shall have been duly executed and delivered by the parties thereto and shall
be in full force and effect. The Banks shall have received a true and correct
copy of the private offering memorandum provided by Holdings to the
shareholders of Southern in soliciting such shareholders approval of the
merger and such private offering memorandum shall be in form and substance
satisfactory to the Agent and the Required Banks. The representations and
warranties set forth in the Acquisition Documents shall be true and correct in
all material respects as if made on and as of the Initial Borrowing Date. Each
of the conditions precedent to Holdings' and Newco's obligations to consummate
the Acquisition as set forth in the Acquisition
0000D4LB.W51 -38-
<PAGE>
Documents shall have been satisfied to the satisfaction of the Agent and the
Required Banks or waived with the consent of the Agent and the Required Banks,
and the Acquisition shall have been consummated in accordance with all
applicable law and the Acquisition Documents and the consideration payable in
connection therewith shall not exceed $44 million in cash and 1.0 million
shares of Holdings Common Stock and all other aspects thereof (including
financial accounting and tax aspects) to be satisfactory to the Required
Banks.
(b) Concurrently with the consummation of the Acquisition, but in
any event on or prior to the initial Credit Event, Newco shall consummate the
Merger in accordance with the Merger Documents and all applicable laws. On the
Initial Borrowing Date, Southern, as the surviving corporation of the Merger,
shall execute and deliver an Acknowledgment Agreement in the form of Exhibit
G. After giving effect to the Merger, Southern shall succeed to all rights and
obligations of Newco as were existing immediately prior to the Merger
(including, without limitation, all obligations under this Agreement and the
other Credit Documents to which Newco is a party). Simultaneously with the
Merger, all capital stock of Southern, as the surviving corporation of the
Merger, shall be pledged pursuant to the Pledge Agreement, and all stock
certificates evidencing such shares of capital stock of Southern after giving
effect to the Merger shall be delivered to the Collateral Agent. Additionally,
on or prior to the Initial Borrowing Date, the certificate of ownership and
merger or the certificate of merger, as the case may be, with respect to the
Merger shall have been filed with the Secretary of State of the State of
Georgia and a copy thereof shall be delivered to the Banks.
(c) On the Initial Borrowing Date after giving effect to the
Transaction, the ownership and capital structure (including, without
limitation, the terms of any capital stock, options, warrants or other
securities issued or to be issued by Holdings or any of its Subsidiaries) as
of the Initial Borrowing Date and management of Holdings and its Subsidiaries
shall be in form and substance satisfactory to the Agent and the Required
Banks.
5.08 PLEDGE AGREEMENT. On the Initial Borrowing Date, each, Credit
Party shall have duly authorized, executed and delivered a Pledge Agreement
substantially in the form of Exhibit H (as modified, supplemented or amended
from time to time, the "Pledge Agreement") and shall have delivered to the
Collateral Agent, as Pledgee thereunder, all of the Pledged Securities
referred to therein then owned by Holdings and each Subsidiary of Holdings (x)
endorsed in blank in the case of promissory notes constituting Pledged
Securities and (y) together with executed and undated irrevocable stock
powers, in the case of capital stock constituting Pledged Securities.
5.09 SECURITY AGREEMENT. (a) On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered a Security
Agreement in the form
0000D4LB.W51 -39-
<PAGE>
of Exhibit I (as modified, supplemented or amended from time to time, the
"Security Agreement") covering all of such Credit Party's present and future
Security Agreement Collateral, together with:
(i) proper financing statements (Form UCC-1 or such other
financing statements or similar notices as shall be required by local
law) fully executed for filing under the UCC or other appropriate filing
offices of each jurisdiction as may be necessary or, in the opinion of
the Collateral Agent, desirable to perfect the security interests
purported to be created by the Security Agreement;
(ii) certified copies of Requests for Information or Copies
(Form UCC- 11), or equivalent reports, listing all judgment liens, tax
liens or effective financing statements that name Holdings or any of its
Subsidiaries, or a division or other operating unit of any such Person,
as debtor and that are filed in the jurisdictions referred to in said
clause (i), together with copies of such other financing statements (none
of which shall cover the Collateral except to the extent evidencing
Permitted Liens or for which the Collateral Agent shall receive
termination statements (Form UCC-3 or such other termination statements
as shall be required by local law) fully executed for filing);
(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be
necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests intended to be created by such Security
Agreement; and
(iv) evidence that all other actions necessary or, in the
opinion of the Collateral Agent, desirable to perfect and protect the
security interests purported to be created by the Security Agreement have
been taken.
(b) On the Initial Borrowing Date, Holdings and each of its
Subsidiaries shall have established the Concentration Account with the
Concentration Account Bank.
5.10 SUBSIDIARIES GUARANTY. On the Initial Borrowing Date, each
Subsidiary of Holdings other than Foreign Subsidiaries shall have duly
authorized, executed and delivered a Guaranty in the form of Exhibit J (as
modified, supplemented or amended from time to time, the "Subsidiaries
Guaranty").
5.11 MATERIAL ADVERSE CHANGE, ETC. Since December 31, 1995, nothing
shall have occurred (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agent or the Required Banks shall
determine (a) could reasonably be expected to have a material adverse effect
on the rights or remedies of the Banks or the Agent, or on the ability of
Holdings or any of its Subsidiaries to perform their obli-
0000D4LB.W51 -40-
<PAGE>
gations to the Agent and the Banks under this Agreement or any other Credit
Document, (b) could reasonably be expected to have a materially adverse effect
on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole or (c) indicates the inaccuracy
in any material respect of the information previously provided to the Agent or
the Banks (taken as a whole) in connection with their analysis of the
transactions contemplated hereby or indicates that the information previously
provided omitted to disclose any material information.
5.12 LITIGATION. On the Initial Borrowing Date, no litigation by any
entity (private or governmental) shall be pending or threatened with respect
to this Agreement, any other Document or any documentation executed in
connection herewith or with respect to the transactions contemplated hereby,
or which the Agent or Required Banks shall determine could reasonably be
expected to have a materially adverse effect on the Transaction or on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and
its Subsidiaries taken as a whole.
5.13 FEES, ETC. On the Initial Borrowing Date, Holdings shall have
paid in full to the Agent and the Banks all costs, fees and expenses
(including, without limitation, all reasonable legal fees and expenses)
payable to the Agent and the Banks to the extent then due pursuant hereto or
as otherwise agreed between Holdings and the Agent.
5.14 SOLVENCY CERTIFICATE; ENVIRONMENTAL ANALYSES; INSURANCE
ANALYSES. On the Initial Borrowing Date, Holdings shall cause to be delivered
to the Agent and the Banks: (i) a certificate from the chief financial officer
or controller of Holdings, in the form of Exhibit K hereto, supporting the
conclusions that, after giving effect to the Transaction and the incurrence of
all financings contemplated herein, that each Credit Party, and Credit Party
taken as a whole, as the case may be, are not insolvent and will not be
rendered insolvent by the Indebtedness incurred in connection therewith, will
not be left with unreasonably small capital with which to engage in Credit
Party businesses and will not have incurred debts beyond their ability to pay
such debts as they mature, (ii) environmental and hazardous substance analyses
reports from ENVIRON, which shall be in scope, and in form and substance,
acceptable to the Agent and the Required Banks, together with a reliance
letter to the Banks and (iii) evidence (including, without limitation,
certificates with respect to each insurance policy listed on Schedule II) of
insurance, complying with the requirements of Section 8.03, with respect to
the business and properties of Holdings and its Subsidiaries, in scope, form
and substance satisfactory to the Agent and the Required Banks and naming each
of the Collateral Agent, the Agent and the Banks as an additional insured and
the Collateral Agent as loss payee and stating that such insurance shall not
be cancelled or revised without 30 days' prior written notice by the insurer
to the Collateral Agent.
0000D4LB.W51 -41-
<PAGE>
5.15 APPROVALS. All necessary governmental and third party approvals
in connection with the Transaction and the transactions contemplated by the
Documents and otherwise referred to herein or therein (including, but not
limited to, those approvals required in respect of existing permits, landlord
consents and transfers of contract rights) shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes, in the sole judgment of the Agent or the Required Banks, adverse
conditions upon the consummation of the Transaction or the other transactions
contemplated by the Documents and otherwise referred to herein or therein.
Additionally, there shall not exist any judgment, order, injunction or other
restraint issued or filed or a hearing seeking injunction relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon the consummation of the Transaction, the transactions
contemplated by the Documents, the making of the Loans or the issuance of
Letters of Credit.
5.16 FINANCIAL STATEMENTS; PROJECTIONS; MANAGEMENT LETTER REPORTS.
(a) On or prior to the Initial Borrowing Date, the Banks shall have received:
(i) the consolidated balance sheet of each of Holdings and
Southern as at December 31, 1995, December 31, 1994, December 31, 1993
and, in the case of Holdings, March 31, 1996 and June 30, 1996, and the
related statements of earnings and stockholders' equity and cash flows of
each of Holdings and Southern, as applicable for the fiscal periods ended
as of said dates, which, in the case of the annual statements, have been
examined by Coopers & Lybrand, L.L.P. for Holdings and Windham Brannon
P.C. for Southern, each independent certified public accountants, who
delivered unqualified opinions in respect thereto; and
(ii) the pro forma (after giving effect to the Transaction and
the related financing thereof) consolidated balance sheet of Holdings as
at the Initial Borrowing Date, all of which financial statements shall be
prepared in accordance with generally accepted accounting principles
consistent with past practices and shall be in form and substance
satisfactory to the Agent and the Required Banks, and shall not disclose
any material adverse differences in the business, properties, assets,
liabilities, results of operations, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole from that
previously disclosed to the Agent and the Required Banks.
(b) On the Initial Borrowing Date, the Banks shall have received
detailed consolidated financial projections, certified by the Chief Financial
Officer of Holdings, for Holdings and its Subsidiaries, which include the
projected results of Southern, after giving effect to the Transaction and the
other transactions contemplated herein, for the period commencing on the
Initial Borrowing Date and ending after December 31, 2003 (the "Projections"),
which Projections, and the supporting assumptions and explanations thereto,
0000D4LB.W51 -42-
<PAGE>
and the accounting practices and procedures to be utilized by Holdings
following the Initial Borrowing Date, shall be satisfactory in form and
substance to the Agent and the Required Banks and shall be as set forth on
Schedule III hereto. In addition, the pro forma financial statements of
Holdings and its Subsidiaries included in the Borrower's Information
Memorandum, dated as of October 17, 1996, related to the Transactions and the
related notes thereto shall have been prepared in accordance with the rules
and guidelines of the Securities and Exchange Commission or any successor
thereto (the "SEC") with respect to pro forma financial statements and have
been properly compiled on the basis described therein.
(c) On or prior to the Initial Borrowing Date, the Agent shall have
received a copy of any "management letter" received by Holdings or any of its
Subsidiaries from its certified public accountants on or after December 31,
1991.
(d) On or prior to the Initial Borrowing Date, the Banks shall have
received copies of the due diligence review of Coopers & Lybrand referred to
in the Acquisition Agreement, which review shall be in form and substance
satisfactory to the Agent and the Required Banks.
5.17 REFINANCING. (a) On the Initial Borrowing Date and after giving
effect to the Loans incurred on the Initial Borrowing Date, the Acquisition
and the other transactions contemplated hereby, neither Holdings nor any of
its Subsidiaries shall have any Indebtedness outstanding except for the Loans
and the Existing Indebtedness, which Existing Indebtedness shall not exceed
$8,000,000. All of the Existing Indebtedness shall remain outstanding after
the transactions contemplated hereby without any defaults or events of default
existing thereunder or arising as a result of the transactions contemplated
hereby. None of the Existing Indebtedness shall have been incurred in
anticipation of the transactions contemplated hereby.
(b) The Agent and the Required Banks shall be satisfied with the
amount of and the terms and conditions of (i) all Existing Indebtedness and
(ii) the repayment of, and termination of all commitments and documentation
relating to, all Indebtedness repaid in connection with the transactions
contemplated hereby (collectively, the "Refinanced Indebtedness") and the
amount of all accrued interest, premiums, fees, commissions and expenses owing
in connection with the repayment of such Refinanced Indebtedness. In no event
shall the aggregate amount paid pursuant to the preceding sentence exceed $21
million. All Liens arising in connection with such Refinanced Indebtedness
shall have been terminated (and all appropriate releases, termination
statements or other instruments of assignment with respect thereto shall have
been obtained), in each case to the satisfaction of the Agent and the Required
Banks, and the Banks shall have received opinions of counsel to such effect in
form and substance satisfactory to the Agent and the Required Banks.
0000D4LB.W51 -43-
<PAGE>
(c) The Agent shall have received copies, certified as true and
complete by an appropriate officer of Holdings, of all documents executed in
connection with the repayment and termination of the Refinanced Indebtedness
and the release of the Liens there-under (the "Debt Termination Documents")
all of which shall be in form and substance satisfactory to the Agent and the
Required Banks.
5.18 ISSUANCE OF SENIOR SUBORDINATED NOTES. On the Initial Borrowing
Date and prior to the Acquisition, Holdings shall have received gross cash
proceeds of at least $8,000,000 from the issuance of the Senior Subordinated
Notes and Holdings shall have utilized the full amount of such cash
consideration to make payments owing in connection with the Transaction prior
to utilizing any proceeds of any Loans for such purpose. On or prior to the
Initial Borrowing Date, there shall have been delivered to the Banks true and
correct copies of all Senior Subordinated Loan Documents (certified as such by
an appropriate officer of Holdings), and all of the terms and conditions of
such Senior Subordinated Loan Documents (including, without limitation, the
subordination provisions, covenants, events of default, interest rate and
limitations on cash interest payable) shall be in form and substance
satisfactory to the Agent and the Required Banks.
5.19 CONSENT LETTER. The Agent shall have received a letter from CT
Corporation System, presently located at 1633 Broadway, New York, New York
10019, substantially in the form of Exhibit L hereto, indicating its consent
to its appointment by Holdings and its Subsidiaries as their agent to receive
service of process as specified in Section 14.08 of this Agreement and Section
21 of the Subsidiaries Guaranty.
5.20 SHAREHOLDER APPRAISAL RIGHTS. On the Initial Borrowing Date, no
holder of the outstanding shares of Common Stock of Southern shall have
exercised its appraisal rights.
5.21 MORTGAGE; TITLE INSURANCE; SURVEYS; ETC. On the Initial
Borrowing Date, the Collateral Agent shall have received:
(a) fully executed counterparts of a mortgage or deed to secure debt
or similar documents in form and substance satisfactory to the Required
Banks (as may be amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof, each, a "Mortgage" and
collectively, "Mortgages"), which Mortgages shall cover all of the Real
Property owned by Holdings or any of its Subsidiaries (after giving
effect to the Transaction) as designated on Schedule IV (each, a
"Mortgaged Property" and collectively, the "Mortgaged Properties"),
together with evidence that counterparts of the Mortgages have been
delivered to the title insurance company insuring the Lien of the
Mortgages for recording in all places to the extent necessary or, in the
opinion of the Collateral Agent, desirable to effectively create a valid
and enforceable first priority mortgage lien on each
0000D4LB.W51 -44-
<PAGE>
Mortgaged Property in favor of the Collateral Agent (or such other
trustee as may be required or desired under local law) for the benefit of
the Secured Creditors;
(b) mortgagee title insurance policies in connection with the
Mortgaged Properties issued by title insurers satisfactory to the Agent
and the Required Banks, (the "Mortgage Policies") in amounts satisfactory
to the Agent and the Required Banks assuring the Collateral Agent that
the respective Mortgages on such Mortgaged Properties are valid and
enforceable first priority mortgage liens on the respective Mortgaged
Properties, free and clear of all defects and encumbrances except
Permitted Encumbrances and such Mortgage Policies shall otherwise be in
form and substance satisfactory to the Agent and the Required Banks and
shall include, as appropriate, an endorsement for future advances under
this Agreement, the Notes and the Mortgages and for any other matter that
the Agent or the Required Banks in their discretion may reasonably
request, shall not include an exception for mechanics' liens, and shall
provide for affirmative insurance and such reinsurance (including direct
access agreements) as the Agent or the Required Banks in their discretion
may reasonably request; and
(c) surveys in form and substance reasonably satisfactory to the
Collateral Agent of each Mortgaged Property dated a recent date
acceptable to the Collateral Agent, certified in a manner satisfactory to
the Collateral Agent by a licensed professional surveyor satisfactory to
the Collateral Agent.
5.22 BORROWING BASE CERTIFICATE. On the Initial Borrowing Date,
Holdings shall have delivered to each Bank its initial Borrowing Base
Certificate meeting the requirements of Section 8.01(k).
5.23 STATE TAKEOVER STATUTES, ETC. No state takeover statute of any
type, including, without limitation, any fair price, control share
acquisition, or business combination statute shall be applicable to the
Transaction or any part thereof and Southern shall have no "poison pill
provisions" which would be applicable to the transaction or any part thereof.
Section 6. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The obligation
of each Bank to make Loans (including Loans made on the Initial Borrowing
Date) and the obligation of an Issuing Bank to issue any Letter of Credit, is
subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
6.01 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of each
such Credit Event and also after giving effect thereto (i) there shall exist
no Default or Event of
0000D4LB.W51 -45-
<PAGE>
Default and (ii) all representations and warranties contained herein and in
the other Credit Documents shall be true and correct in all material respects
with the same effect as though such representations and warranties had been
made on the date of the making of such Credit Event.
6.02 MATERIAL ADVERSE CHANGE, ETC. Nothing shall have occurred since
December 31, 1995 (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agent or the Required Banks shall
determine (i) could reasonably be expected to have a material adverse effect
on the rights or remedies of the Banks or the Agent, or on the ability of
Holdings or any Subsidiary of Holdings to perform its obligations to the Banks
under this Agreement or any other Credit Document or (ii) which could
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
6.03 LITIGATION. At the time of each such Credit Event and also
after giving effect thereto, no litigation by any entity (private or
governmental) shall be pending or threatened with respect to this Agreement or
any other Credit Document executed in connection herewith or the transactions
contemplated hereby or which the Required Banks shall determine could
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
6.04 NOTICE OF BORROWING; LETTER OF CREDIT REQUEST. (a) Prior to the
making of each Loan (other than a Swingline Loan or a Mandatory Borrowing),
the Agent shall have received a Notice of Borrowing meeting the requirements
of Section 1.03. Prior to the making of each Swingline Loan, the Swingline
Bank shall have received the notice referred to in Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Issuing Bank
shall have received a Letter of Credit Request meeting the requirements of
Section 2.03.
6.05 PERMITTED ACQUISITIONS. Prior to the making of each Acquisition
Loan, all conditions to such Permitted Acquisition set forth in Section 8.15
and in the definition thereof shall have been satisfied and the president or
any other senior executive officer of Holdings shall have delivered an
officer's certificate certifying that such conditions have been met.
The acceptance of the benefits of each Credit Event shall constitute
a representation and warranty by each of the Borrowers to each of the Banks
that all the conditions specified in Section 5 and in this Section 6 and
applicable to such Credit Event exist as of that time. All of the Notes,
certificates, legal opinions and other documents and papers
0000D4LB.W51 -46-
<PAGE>
referred to in Section 5 and in this Section 6, unless otherwise specified,
shall be delivered to the Agent at the Notice Office for the account of each
of the Banks and, except for the Notes, in sufficient counterparts for each of
the Banks and, unless otherwise specified, shall be in form and substance
satisfactory to the Banks.
Section 7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to
induce the Banks to enter into this Agreement and to make the Loans, and issue
(or participate in) the Letters of Credit as provided herein, Holdings makes
the following representations, warranties and agreements as to itself and as
to each of its Subsidiaries, as of the Initial Borrowing Date (both before and
after giving effect to the Credit Events occurring on such date, the
Transaction and the other transactions contemplated by the Documents, and all
references to Holdings herein and elsewhere in this Agreement, shall, unless
otherwise specifically indicated, be references to Holdings after giving
effect to the Transaction) and as of the date of each subsequent Credit Event
which representations, warranties and agreements shall survive the execution
and delivery of this Agreement and the Notes and any subsequent Credit Event,
with the occurrence of each Credit Event on or after the Initial Borrowing
Date being deemed to constitute a representation and warranty that the matters
specified in this Section 7 are true and correct on and as of the Initial
Borrowing Date and on the date of each such Credit Event:
7.01 CORPORATE STATUS. Each of Holdings and its Subsidiaries (i) is
a duly organized and validly existing corporation in good standing under the
laws of the jurisdiction of its organization, (ii) has the corporate power and
authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (iii) is duly qualified and
is authorized to do business and is in good standing in each jurisdiction
where the ownership, leasing or operation of property or the conduct of its
business requires such qualifications except for failures to be so qualified
which, in the aggregate, could not reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
7.02 CORPORATE POWER AND AUTHORITY. Each of Holdings and its
Subsidiaries has the corporate power to execute, deliver and perform the terms
and provisions of each of the Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of each of such Documents. Each of Holdings and its
Subsidiaries has duly executed and delivered each of the Documents to which it
is party, and each of such Documents constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).
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7.03 NO VIOLATION. Neither the execution, delivery or performance by
Holdings or any of its Subsidiaries of the Documents to which it is a party,
nor compliance by it with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under,
or result in the creation or imposition of (or the obligation to create or
impose) any Lien (except pursuant to the Security Documents) upon any of the
property or assets of Holdings or any of its Subsidiaries pursuant to the
terms of any indenture, mortgage, deed of trust, credit agreement or loan
agreement, or any other agreement, contract or instrument to which Holdings or
its Subsidiaries is a party or by which it or any of its property or assets is
bound or to which it may be subject or (iii) will violate any provision of the
Certificate of Incorporation or By-Laws (or similar organizational documents)
of Holdings or any of its Subsidiaries.
7.04 GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made on or prior to the Initial Borrowing
Date and are in full force and effect), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with, (i) the execution, delivery and
performance of any Document or (ii) the legality, validity, binding effect or
enforceability of any such Document.
7.05 FINANCIAL STATEMENTS; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) (i) The consolidated balance sheet of each
of Holdings and Southern at December 31, 1995, December 31, 1994, and December
31, 1993 and, for Holdings, at March 31, 1996 and June 30, 1996 and the
related statements of earnings and stockholders' equity and cash flows of each
of Holdings and Southern, as applicable for the fiscal periods ended as of
said dates, which, in the case of the annual statements, have been examined by
Coopers & Lybrand L.L.P. for Holdings and Windham Brannon, P.C. for Southern,
each independent certified public accountants, who delivered unqualified
opinions in respect thereto and (ii) the pro forma (after giving effect to the
Transaction and the related financing thereof) consolidated balance sheet of
Holdings as at the Initial Borrowing Date, copies of all of which financial
statements referred to in the preceding clauses (i) and (ii) have heretofore
been furnished to each Bank, present fairly the financial position of the
respective entities at the dates of said statements and the results of
operations for the period covered thereby (or, in the case of the pro forma
balance sheet, present a good faith estimate of the pro forma financial
condition of Holdings and its Subsidiaries (after giving effect to the
Transaction) on a consolidated basis at the date thereof). All such financial
statements have been prepared in accordance with generally accepted accounting
principles and practices consistently applied except to the extent provided in
the notes to said financial statements and with respect to interim financial
statements, subject to normal year end adjustments. Since December 31, 1995,
there has been no material adverse change in the
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performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Southern and
its Subsidiaries as a whole or of Holdings and its Subsidiaries taken as a
whole.
(b) On and as of the Initial Borrowing Date, on a pro forma basis
after giving effect to the Transaction and all other transactions contemplated
by the Documents and to all Indebtedness (including the Loans) being incurred
in connection with the Transaction, and Liens created, and to be created, by
each Credit Party in connection therewith: (a) the sum of the assets
(including all intangible assets), at a fair valuation, of each Credit Party
will exceed its debts; (b) no Credit Party has incurred or intends to, or
believes that it will, incur debts beyond its ability to pay such debts as
such debts mature; and (c) each Credit Party will have sufficient capital with
which to conduct its business. For purposes of this Section 7.05(b) "debt"
means any liability on a claim, and "claim" means (i) right to payment,
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured or (ii) right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right
to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
(c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 7.05(a) there were as of the
Initial Borrowing Date (and after giving effect to the Transaction and the
other transactions contemplated hereby and by the Documents) no liabilities or
obligations with respect to Holdings or any of its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, could reasonably be
expected to be material to Holdings and its Subsidiaries taken as a whole. As
of the Initial Borrowing Date, neither Holdings nor any of its Subsidiaries
knows of any basis for the assertion against Holdings or any of its
Subsidiaries of any liability or obligation of any nature whatsoever that is
not fully reflected in the financial statements and the notes related thereto
described in Section 7.05(a) which, either individually or in the aggregate,
could reasonably be expected to be material to Holdings and its Subsidiaries
taken as a whole. As of the Initial Borrowing Date (and after giving effect to
the Transaction) none of Holdings or any of its Subsidiaries will have any
outstanding Indebtedness other than (i) the Loans and (ii) the Existing
Indebtedness.
(d) On and as of the Initial Borrowing Date, the Projections have
been prepared in good faith by Holdings and there are no statements or
conclusions in any of the Projections which are based upon or include
information known to Holdings to be misleading or which fail to take into
account material information regarding the matters reported therein. On the
Initial Borrowing Date, Holdings believes that the Projections were reasonable
and attainable (although actual results may differ from the Projections and no
representation is made that the Projections will in fact be attained).
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7.06 LITIGATION. There are no actions, suits or proceedings pending
or, to the best knowledge of Holdings, threatened (i) with respect to any
Document, or (ii) that are reasonably likely to materially and adversely
affect the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
7.07 TRUE AND COMPLETE DISCLOSURE. All factual information (taken as
a whole) heretofore or contemporaneously furnished by or on behalf of Holdings
or any Subsidiary of Holdings in writing to any Bank (including, without
limitation, all information contained in the Documents) for purposes of or in
connection with this Agreement or any transaction contemplated herein is, and
all other such factual information (taken as a whole with all information
previously furnished) hereafter furnished by or on behalf of Holdings or any
Subsidiary of Holdings in writing to any Bank 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. The
private offering memorandum is true and accurate in all material respects as
of the date of the shareholders' meeting of Southern at which the Merger was
voted upon and was not incomplete by omitting to state any material fact.
7.08 USE OF PROCEEDS; MARGIN REGULATIONS. (a) All proceeds of the A
Term Loans and the B Term Loans incurred by Southern, as the surviving
corporation in the merger, on the Initial Borrowing Date shall be used to
finance, in part, the cash Purchase Price of the Acquisition.
(b) All proceeds of B Term Loans incurred by Holdings on the Initial
Borrowing Date shall be used by Holdings (i) directly or indirectly to repay
the Refinanced Indebtedness of Holdings and its Subsidiaries and (ii) to pay
Transaction Fees and Expenses.
(c) All proceeds of Revolving Loans incurred after the Initial
Borrowing Date and Swingline Loans shall be used by Holdings for general
corporate and working capital purposes of Holdings but shall not be permitted
to be used to effect Permitted Acquisitions; PROVIDED, HOWEVER, that Holdings
shall be permitted to use Revolving Loans to repay certain Existing
Indebtedness of Southern set forth on Part B of Schedule XI hereof in the
event such Existing Indebtedness is accelerated pursuant to its terms as a
direct result of the Acquisition.
(d) All proceeds of Acquisition Loans shall be used by Holdings only
to effect Permitted Acquisitions and to pay fees, costs and expenses related
to such acquisitions.
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(e) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or
be inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
7.09 TAX RETURNS AND PAYMENTS. Each of Holdings and its Subsidiaries
has timely filed or caused to be timely filed (including pursuant to any valid
extensions of time for filing) with the appropriate taxing authority, all
returns, statements, forms and reports for taxes (the "Returns") required to
be filed by or with respect to the income, properties or operations of
Holdings and/or any of its Subsidiaries. The Returns accurately reflect in all
material respects all liability for taxes of Holdings and its Subsidiaries for
the periods covered thereby. Each of Holdings and each of its Subsidiaries
have paid all material taxes payable by them which have become due other than
those contested in good faith and for which adequate reserves have been
established in accordance with generally accepted accounting principles. There
is no material action, suit, proceeding, investigation, audit, or claim now
pending or, to the best knowledge of Holdings or any of its Subsidiaries,
threatened by any authority regarding any taxes relating to Holdings or any of
its Subsidiaries. Except as set forth on Schedule VI, as of the Initial
Borrowing Date, neither Holdings nor any of its Subsidiaries has entered into
an agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of Holdings or any of its Subsidiaries, or is aware of any circumstances
that would cause the taxable years or other taxable periods of Holdings or any
of its Subsidiaries not to be subject to the normally applicable statute of
limitations. Neither Holdings nor any of its Subsidiaries has provided, with
respect to themselves or property held by them, any consent under Section 341
of the Code. None of Holdings or any of its Subsidiaries has incurred, or will
incur, any material tax liability in connection with the Transaction or any
other transactions contemplated hereby.
7.10 COMPLIANCE WITH ERISA. Schedule VII sets forth each Plan; each
Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without
limitation, ERISA and the Code; each Plan (and each related trust, if any)
which is intended to be qualified under Section 401(a) of the Code has
received a determination letter from the Internal Revenue Service to the
effect that it meets the requirements of Sections 401(a) and 501(a) of the
Code; no Reportable Event has occurred; no Plan which is a multiemployer plan
(as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization;
no Plan has an Unfunded Current Liability; no Plan which is subject to Section
412 of the Code or Section 302 of ERISA has an accumulated funding deficiency,
within the meaning of such sections of the Code or ERISA, or has applied for
or received a waiver of an accumulated funding deficiency or an extension of
any amortization period, within the meaning of Section 412 of the Code or
Section 303 or 304 of ERISA; all contributions required to be made with
0000D4LB.W51 -51-
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respect to a Plan have been timely made; neither Holdings nor any Subsidiary
of Holdings nor any ERISA Affiliate has incurred any material liability
(including any indirect, contingent or secondary liability) to or on account
of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the
Code or expects to incur any such liability under any of the foregoing
sections with respect to any Plan; no condition exists which presents a
material risk to Holdings or any Subsidiary of Holdings or any ERISA Affiliate
of incurring a liability to or on account of a Plan pursuant to the foregoing
provisions of ERISA and the Code; no proceedings have been instituted to
terminate or appoint a trustee to administer any Plan which is subject to
Title IV of ERISA; no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment
of assets of any Plan (other than routine claims for benefits) is pending,
expected or threatened; using actuarial assumptions and computation methods
consistent with Part 1 of subtitle E of Title IV of ERISA, there exist no
liabilities of Holdings and its Subsidiaries and its ERISA Affiliates to all
Plans which are multiemployer plans (as defined in Section 4001(a)(3) of
ERISA) in the event of a complete withdrawal therefrom, as of the close of the
most recent fiscal year of each such Plan ended prior to the date of the most
recent Credit Event; each group health plan (as defined in Section 607(1) of
ERISA or Section 4980B(g)(2) of the Code) which covers or has covered
employees or former employees of Holdings, any Subsidiary of Holdings, or any
ERISA Affiliate has at all times been operated in compliance with the
provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of
the Code; no lien imposed under the Code or ERISA on the assets of Holdings or
any Subsidiary of Holdings or any ERISA Affiliate exists or is likely to arise
on account of any Plan; and Holdings and its Subsidiaries may cease
contributions to or terminate any employee benefit plan maintained by any of
them without incurring any material liability.
7.11 THE SECURITY DOCUMENTS. (a) The provisions of the Security
Agreement are effective to create in favor of the Collateral Agent for the
benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the respective Credit Parties in
the Collateral described therein and the Collateral Agent, for the benefit of
the Secured Creditors, has a fully perfected Lien on, and security interest
in, all right, title and interest of the respective Credit Parties, in all of
the Collateral described therein, subject to no other Liens other than
Permitted Liens. The recordation of the Security Agreement in the United
States Patent and Trademark Office together with filings on Form UCC-1 made
pursuant to the Security Agreement will be effective, under federal and state
law, to perfect the security interest granted to the Collateral Agent in the
trademarks and patents covered by the Security Agreement and the filing of the
Security Agreement with the United States Copyright Office together with
filings on Form UCC-1 made pursuant to the Security Agreement will be
effective under federal and state law to perfect the security interest granted
to the Collateral Agent in the copyrights covered by the Security Agreement.
Each of the Credit Parties party to the Security Agreement has good
0000D4LB.W51 -52-
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and merchantable title to all Collateral described therein, free and clear of
all Liens except those described above in this clause (a).
(b) The security interests created in favor of the Collateral Agent,
as Pledgee for the benefit of the Secured Creditors, under the Pledge
Agreement constitute first perfected security interests in the Pledged
Securities described in the Pledge Agreement, subject to no security interests
of any other Person. No filings or recordings are required in order to perfect
(or maintain the perfection or priority of) the security interests created in
the Pledged Securities and the proceeds thereof under the Pledge Agreement.
(c) The Mortgages create, as security for the obligations purported
to be secured thereby, a valid and enforceable perfected security interest in
and Lien on all of the Mortgaged Properties in favor of the Collateral Agent
(or such other trustee as may be required or desired under local law) for the
benefit of the Secured Creditors, superior to and prior to the rights of all
third persons (except that the security interest created in the Mortgaged
Properties may be subject to the Permitted Encumbrances related thereto) and
subject to no other Liens (other than Permitted Liens). Schedule IV contains a
true and complete list of each parcel of Real Property owned or leased by
Holdings and each of its Subsidiaries on the Initial Borrowing Date, and the
type of interest therein held by Holdings and/or its Subsidiaries. Each of
Holdings and its Subsidiaries has good and marketable title at the time of the
grant thereof and at all times thereafter to all Mortgaged Properties free and
clear of all Liens except those described in the first sentence of this
subsection (c).
7.12 REPRESENTATIONS AND WARRANTIES IN DOCUMENTS. All
representations and warranties set forth in the Documents are true and correct
in all material respects at the time as of which such representations and
warranties were made and on the Initial Borrowing Date.
7.13 PROPERTIES. Each of Holdings and its Subsidiaries has good and
merchantable title to all properties owned by them, including all property
reflected in the consolidated pro forma balance sheet (after giving effect to
the Transaction) referred to in Section 7.05(a) (except as sold or otherwise
disposed of since the date of such balance sheet in the ordinary course of
business or as permitted by Section 9.02), free and clear of all Liens, other
than (i) as referred to in the consolidated balance sheet or in the notes
thereto or in the pro forma balance sheet or (ii) otherwise permitted by
Section 9.01.
7.14 CAPITALIZATION. (a) On the Initial Borrowing Date, but before
giving effect to the Transaction, the authorized capital stock of Holdings
consists of (i) 25,000,000 shares of common stock, $.01 par value per share
("Holdings Common Stock"), 8,315,634 of which shares are issued and
outstanding, and (ii) 10,000,000 shares of preferred stock, $.01 par value per
share (the "Holdings Preferred Stock"), of which 300 shares are issued and
outstanding. On the Initial Borrowing Date, the authorized capital stock of
Newco
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consists of 1000 shares of common stock $.01 par value per share ("Newco
Common Stock") of which 1000 shares are issued and outstanding and owned by
Holdings. All of such outstanding shares have been duly and validly issued,
are fully paid and nonassessable and are free of preemptive rights. Except as
set forth on Part A of Schedule VIII, on the Effective Date, neither Holdings
nor any of its Subsidiaries has outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for
or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its capital stock.
(b) On the Initial Borrowing Date before giving effect to the
Acquisition, the authorized capital stock of Southern consists of 250,000
shares of Common Stock of which 21,900 shares are outstanding. Except as set
forth on part B of Schedule VIII, on the Initial Borrowing Date but before
giving effect to the Acquisition, neither Southern or any of its Subsidiaries
has outstanding any securities convertible into or exchangeable for its
capital stock or outstanding any rights to subscribe for or to purchase, or
any options for purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims from any
character relating to, its capital stock.
7.15 SUBSIDIARIES. On the Initial Borrowing Date, the corporations
listed on Schedule IX are the only Subsidiaries of Holdings. Schedule IX
correctly sets forth, as of the Initial Borrowing Date, the percentage
ownership (direct and indirect) of Holdings in each class of capital stock of
each of its Subsidiaries and also identifies the direct owner thereof.
7.16 COMPLIANCE WITH STATUTES, ETC. Each of Holdings and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to environmental standards and controls), except
with respect to each of the foregoing such noncompliance as could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
7.17 INVESTMENT COMPANY ACT. None of Holdings nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
7.18 PUBLIC UTILITY HOLDING COMPANY ACT. None of Holdings nor any of
its Subsidiaries is 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
0000D4LB.W51 -54-
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"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
7.19 ENVIRONMENTAL MATTERS. (a) Holdings and each of its
Subsidiaries have complied with, and on the date of such Credit Event are in
compliance with, in all respects, all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws except such
noncompliances which, in the aggregate, could not reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
There are no past, pending or, to the best knowledge of Holdings, threatened
material Environmental Claims against Holdings or any of its Subsidiaries or
any Real Property currently owned or operated by Holdings or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences
concerning the business or operations of Holdings or any of its Subsidiaries
or any Real Property owned or operated at any time by Holdings or any of its
Subsidiaries or, to the knowledge of Holdings, any property adjoining any such
Real Property that could reasonably be expected (i) to form the basis of an
Environmental Claim against Holdings or any of its Subsidiaries or any Real
Property owned or operated by Holdings or any of its Subsidiaries or (ii) to
cause such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability of such Real Property under any
Environmental Law except such Environmental Claims and restrictions which
individually or in the aggregate could not reasonably be expected to have a
material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
(b) Neither Holdings nor any of its Subsidiaries has, at any time,
generated, used, treated, stored, transported or released Hazardous Materials
on, to or from any Real Property at any time owned, leased or at any time
operated by Holdings or any of its Subsidiaries.
(c) Except as set forth on Schedule X, there are not now and, to the
best knowledge of Holdings, never have been any underground storage tanks
located on any Real Property owned or operated by Holdings or any of its
Subsidiaries.
(d) Except as set forth on Schedule X, no Real Property at any time
owned or at any time operated by Holdings or any of its Subsidiaries is
located on any site listed on, or proposed in the Federal Register for listing
on, the Superfund National Priorities List, or listed on the Comprehensive
Environmental Response Compensation and Liability Information System or their
state equivalents.
7.20 LABOR RELATIONS. None of Holdings nor any of its Subsidiaries
is engaged in any unfair labor practice that could reasonably be expected to
have a material
0000D4LB.W51 -55-
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adverse effect on Holdings and its Subsidiaries taken as a whole. There is (i)
no significant unfair labor practice complaint pending against Holdings or any
of its Subsidiaries or, to the best knowledge of Holdings, threatened against
any of them, before the National Labor Relations Board, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against Holdings or any of its
Subsidiaries or, to the best knowledge of Holdings, threatened against any of
them and (ii) no significant strike, labor dispute, slowdown or stoppage
pending against Holdings or any of its Subsidiaries or, to the best knowledge
of Holdings, threatened against Holdings or any of its Subsidiaries.
7.21 PATENTS, LICENSES, FRANCHISES AND FORMULAS. (a) Holdings,
together with its Subsidiaries, has a license to use or otherwise has the
right to use, free and clear of pending or threatened Liens, all the material
patents, patent applications, trademarks, service marks, trade names, trade
secrets, copyrights, proprietary information, computer programs, data bases,
licenses, franchises and formulas, or rights with respect to the foregoing
(collectively, "Intellectual Property"), and has obtained all licenses and
other rights of whatever nature, necessary for the present conduct of its
business, without any known conflict with the rights of others which, or the
failure to obtain which, as the case may be, could reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
(b) Holdings, together with its Subsidiaries, has the right to
practice under and use all Intellectual Property used in connection with
Southern which Southern had a right to practice under and use immediately
prior to the Transaction.
(c) Neither Holdings nor any of its Subsidiaries has knowledge of
any claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by Holdings or any of its Subsidiaries of any
such Intellectual Property has infringed or otherwise violated any
Intellectual Property right of any other Person and that to the best knowledge
of Holdings and its Subsidiaries no claim is threatened except for such claims
that could not individually or in the aggregate reasonably be expected to have
a material adverse affect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
7.22 INDEBTEDNESS. Schedule XI sets forth a true and complete list
of all Indebtedness (other than the Loans) of Holdings and each of its
Subsidiaries as of the Initial Borrowing Date after giving effect to the
Transaction and the other transactions contemplated hereby (the "Existing
Indebtedness"), in each case showing the aggregate amount thereof and the name
of the respective obligor and any other entity which directly or
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indirectly guaranteed such debt. None of the Existing Indebtedness was
incurred in connection with, or in contemplation of, the Transaction or the
other transactions contemplated hereby.
7.23 RESTRICTIONS ON OR RELATING TO SUBSIDIARIES. There does not
exist any encumbrance or restriction on the ability of (i) any Subsidiary of
Holdings to pay dividends or make any other distributions on its capital stock
or any other interest or participation in its profits owned by Holdings or any
Subsidiary of Holdings, or to pay any Indebtedness owed to Holdings or a
Subsidiary of Holdings, (ii) any Subsidiary of Holdings to make loans or
advances to Holdings or any of Holdings' Subsidiaries or (iii) Holdings or any
Subsidiary of Holdings to transfer any of its properties or assets to Holdings
or any Subsidiary of Holdings, except for such encumbrances or restrictions
existing under or by reason of (x) applicable law, (y) this Agreement and the
other Credit Documents or (z) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of Holdings or a
Subsidiary of Holdings.
7.24 SPECIAL PURPOSE CORPORATION. Newco (prior to the Merger) was
formed solely to effect the Acquisition and the Merger, and except in
connection therewith (and as contemplated by this Agreement), has no
significant assets or liabilities and has engaged in no business activities.
7.25 THE TRANSACTION. All aspects of the Transaction have been
effected in accordance with the Documents and all applicable law. At the time
of consummation thereof, all consents and approvals of, and filings and
registrations with, and all other actions in respect of, all governmental
agencies, authorities or instrumentalities required in order to consummate the
Transaction shall have been obtained, given, filed or taken and are in full
force and effect (or effective judicial relief with respect thereto has been
obtained). All applicable waiting periods with respect thereto have or, prior
to the time when required, will have, expired without, in all such cases, any
action being taken by any competent authority which restrains, prevents or
imposes material adverse conditions upon the consummation of the Transaction.
Additionally, at the time of consummation thereof, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the consummation of the Transaction.
7.26 CONCENTRATION ACCOUNT. Schedule V sets forth a true and
complete description of the Concentration Account maintained with the
Concentration Account Bank by Holdings and each of its Subsidiaries. Each
Credit Party represents and warrants that it does not now maintain, and will
not in the future maintain, any other Concentration Account with any
Concentration Account Bank other than the applicable Concentration Account;
provided, however, that each such Credit Party shall be permitted to establish
new Concentration Accounts pursuant to the terms of the Security Agreement.
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7.27 SUBCHAPTER S STATUS. Southern at all times since January 1,
1992 has been qualified to be treated as a Subchapter S Corporation within the
meaning of Section 1361 of the Code.
7.28 MATERIAL CONTRACTS. All Material Contracts of Holdings and each
of its Subsidiaries as of the Initial Borrowing Date are listed on Schedule
XII.
7.29 SENIOR SUBORDINATED NOTES. The subordination provisions of the
Senior Subordinated Notes and the senior subordinated guaranties relating to
such notes are enforceable against Holdings and its subsidiaries and the
holders thereof, as the case may be, and the Loans and other Obligations
hereunder (including, without limitation, pursuant to the Guaranties) and
obligations arising pursuant to the Interest Rate Protection or Other Hedging
Agreements are within the definition of "Senior Debt" included in such
subordination provisions.
Section 8. AFFIRMATIVE COVENANTS. Each Borrower covenants and agrees
that on and after the Effective Date and until the Total Commitment and all
Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings,
together with interest, Fees and all other Obligations incurred hereunder and
thereunder, are paid in full:
8.01 INFORMATION COVENANTS. Holdings will furnish to each Bank:
(a) MONTHLY REPORTS. Within 45 days after the end of each fiscal
month other than the last such month of any fiscal quarter of Holdings,
the consolidated and consolidating balance sheets of Holdings and its
Subsidiaries as at the end of such month and the related consolidated and
consolidating statements of earnings for such month and for the elapsed
portion of the fiscal year ended with the last day of such month, in each
case setting forth comparative figures for the corresponding month and
elapsed portion of such fiscal year for the prior fiscal year and
comparable budgeted figures for such period, all of which shall be
certified by the chief financial officer or controller of Holdings,
subject to normal year-end audit adjustments.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the close
of each of the first three quarterly accounting periods in each fiscal
year of Holdings, the consolidated and consolidating balance sheets of
Holdings and its Subsidiaries as at the end of such quarterly period and
the related consolidated and consolidating statements of earnings and
stockholders' equity and statement of cash flows for such quarter, in
each case for such quarterly period and for the elapsed portion of the
fiscal year ended with the last day of such quarterly period, in each
case setting forth comparative figures for the related periods in the
prior fiscal year and
0000D4LB.W51 -58-
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comparable budgeted figures for such period, all of which shall be
certified by the chief financial officer or controller of Holdings,
subject to normal year-end audit adjustments.
(c) Annual Financial Statements. Within 90 days after the close of
each fiscal year of Holdings, the consolidated and consolidating balance
sheets of Holdings and its Subsidiaries as at the end of such fiscal year
and the related consolidated and consolidating statements of earnings and
stockholders' equity and statement of cash flows for such fiscal year and
setting forth comparative figures for the preceding fiscal year and
comparable budgeted figures for such period and certified, (x) in the
case of the consolidating statements, by the chief financial officer or
controller of Holdings and (y) in the case of the consolidated financial
statements of Holdings and its Subsidiaries, by any of the "big six" or
other independent certified public accountants of recognized national
standing reasonably acceptable to the Required Banks, together with a
signed opinion of such accounting firm (which opinion shall not be
qualified in any respect) stating that in the course of its regular audit
of the financial statements of Holdings which audit was conducted in
accordance with generally accepted auditing standards, such accounting
firm obtained no knowledge of any Default or Event of Default which has
occurred and is continuing or, if in the opinion of such accounting firm
such a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof.
(d) Management Letters. Promptly after the receipt thereof by
Holdings or any of its Subsidiaries, a copy of any "management letter"
received by Holdings or any of its Subsidiaries from its certified public
accountants.
(e) Budgets. As soon as available but in no event later than 30 days
after the first day of each fiscal year of Holdings (60 days for the
fiscal year ended December 31, 1996), a budget for Holdings and its
Subsidiaries in form customarily prepared by Holdings (including budgeted
statements of earnings and sources and uses of cash and balance sheets)
prepared by Holdings for each calendar month of such fiscal year prepared
in reasonable detail with appropriate presentation and discussion of the
principal assumptions upon which such budgets are based, accompanied by
the statement of the chief financial officer or controller of Holdings to
the effect that, to the best of his knowledge, the budget is a reasonable
estimate for the period covered thereby.
(f) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 8.01(a), (b) and (c), a
certificate of the chief financial officer or controller of Holdings to
the effect that no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has
0000D4LB.W51 -59-
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occurred and is continuing, specifying the nature and extent thereof,
which certificate, (x) in the case of certificates delivered pursuant to
Section 8.01(b) or (c), shall set forth the calculations required to
establish whether Holdings was in compliance with the provisions of
Sections 3.03, 4.02, 8.15, 9.02, 9.04, 9.05 and 9.08 through 9.15,
inclusive at the end of such fiscal quarter or year, as the case may be,
and (y) in the case of certificates delivered pursuant to Section
8.01(c), the amount of Excess Cash Flow for the relevant Excess Cash Flow
Payment Period.
(g) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within two Business Days after an officer of Holdings or any of its
Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of
any event which constitutes a Default or Event of Default, (ii) any
litigation or governmental investigation or proceeding pending (x)
against Holdings or its Subsidiaries which could reasonably be expected
to materially and adversely affect the performance, business, assets,
nature of assets, liabilities, operations, properties, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole or (y) with respect to any Document and (iii) any other
event which could reasonably be expected to materially and adversely
affect the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects
of Holdings and its Subsidiaries taken as a whole.
(h) OTHER REPORTS AND FILINGS. Promptly upon transmission thereof,
copies of any financial information, proxy materials and other
information and reports, if any, which any Credit Party or any of its
Subsidiaries (x) has filed with the SEC or (y) has delivered to holders
of, or any agent or trustee with respect to, Indebtedness of any Credit
Party or any of its Subsidiaries in its capacity as such a holder, agent,
or trustee.
(i) ENVIRONMENTAL MATTERS. Promptly upon, and in any event within
two Business Days after an officer of Holdings or of any of its
Subsidiaries obtains knowledge thereof, notice of any of the following
environmental matters (i) any pending or threatened material
Environmental Claim against Holdings or any of its Subsidiaries or any
Real Property owned or operated at any time by Holdings or any of its
Subsidiaries; (ii) any condition or occurrence on or arising from any
Real Property owned or operated at any time by Holdings or any of its
Subsidiaries that (a) could reasonably be anticipated to result in a
material noncompliance by Holdings or any of its Subsidiaries with any
applicable Environmental Law, or (b) could reasonably be anticipated to
form the basis of a material Environmental Claim against Holdings or any
of its Subsidiaries or any Real Property owned or operated by Holdings or
any of its Subsidiaries; (iii) any condition or occurrence on any Real
Property owned or operated by Holdings or any of its Subsidiaries or any
property adjoining such Real Property that could reasonably be
anticipated to cause such Real
0000D4LB.W51 -60-
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Property to be subject to any material restrictions on the ownership,
occupancy, use or transferability of such Real Property under any
Environmental Law; and (iv) the taking of any removal or remedial action
in response to a material Release or material threatened Release or the
actual or alleged presence of any Hazardous Material on or from any Real
Property owned or operated at any time by Holdings or any of its
Subsidiaries in each case as required by any Environmental Law or any
governmental or other administrative agency. All such notices shall
describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and Holdings or such
Subsidiary's response thereto. In addition, Holdings will provide the
Banks with copies of all material communications with any government or
governmental agency relating to material Environmental Claims, all
material communications with any person relating to material
Environmental Claims, and such detailed reports of any Environmental
Claim as may reasonably be requested by the Required Banks.
(j) ANNUAL MEETINGS WITH BANKS. Within 120 days after the close of
each fiscal year of Holdings, Holdings shall, at the request of the Agent
or Required Banks, hold a meeting (at a mutually agreeable location and
time) with all Banks who choose to attend such meeting at which meeting
shall be reviewed the financial results of the previous fiscal year and
the financial condition of Holdings and its Subsidiaries and the budgets
presented for the current fiscal year of Holdings and its Subsidiaries.
(k) BORROWING BASE CERTIFICATES. (i) On the Initial Borrowing Date
and (ii) no later than 11:00 a.m. (New York time) on the thirtieth day
after each calendar month, a borrowing base certificate of Holdings in
the form of Exhibit M (each a "Borrowing Base Certificate"), with respect
to the Eligible Receivables and Eligible Inventory of Holdings and its
Subsidiaries as of (x) in the case of clause (i), September 30, 1996
(after giving effect to the transactions contemplated hereby and by the
other Credit Documents) and (y) in the case of clause (ii), the last day
of the immediately preceding month, and in all such cases, certified by
the chief financial officer of Holdings.
(l) OTHER INFORMATION. From time to time, such other information or
documents (financial or otherwise) with respect to any Credit Party or
any of its Subsidiaries, as the Agent, or the Required Banks may
reasonably request.
8.02 BOOKS, RECORDS AND INSPECTIONS. Holdings will, 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 United States generally
accepted accounting principles and all requirements of law, shall be made of
all dealings and transactions in relation to its business and activities.
Holdings will, and will cause each of its Subsidiaries to, permit
0000D4LB.W51 -61-
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officers and designated representatives of the Agent or any Bank to visit and
inspect, under guidance of officers of Holdings or of such Subsidiary, any of
the properties of Holdings or such Subsidiary, and to examine the books of
account of Holdings or such Subsidiary and discuss the affairs, finances and
accounts of Holdings or of such Subsidiary with, and be advised as to the same
by, its and their officers, all at such reasonable times and intervals and to
such reasonable extent as the Agent or such Bank may request.
8.03 MAINTENANCE OF PROPERTY, INSURANCE. (a) Schedule II sets forth
a true and complete listing of all insurance maintained by Holdings and each
of its Subsidiaries as of the Effective Date. Holdings will, and will cause
each of its Subsidiaries to, (i) keep all material property useful and
necessary in its business in good working order and condition (ordinary wear
and tear excepted), (ii) maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts and
against at least such risks as are described on Schedule II, and (iii) furnish
to each Bank, upon written request, full information as to the insurance
carried. The provisions of this Section 8.03 shall be deemed to be
supplemental to, but not duplicative of, the provisions of any of the Security
Documents that require the maintenance of insurance.
(b) Holdings will at all times keep, and will cause each of its
Subsidiaries to keep, its property insured in favor of the Collateral Agent,
and all policies (including mortgage policies) or certificates (or certified
copies thereof) with respect to such insurance (and any other insurance
maintained by Holdings or its Subsidiaries (other than employee benefit
insurance)) (i) shall be endorsed to the Collateral Agent's satisfaction for
the benefit of the Collateral Agent (including, without limitation, by naming
the Collateral Agent as loss payee and naming the Collateral Agent, the Agent
and each Bank as an additional insured) with respect to Collateral, (ii) shall
state that such insurance policies shall not be cancelled or revised without
30 days' prior written notice thereof by the respective insurer to the
Collateral Agent, (iii) shall provide that the respective insurers irrevocably
waive any and all rights of subrogation with respect to the Collateral Agent,
(iv) shall contain the standard noncontributory mortgagee clause endorsement
in favor of the Collateral Agent with respect to hazard insurance coverage,
(v) shall provide that any losses shall be payable notwithstanding (A) any act
or neglect of Holdings or any of its Subsidiaries, (B) the occupation or use
of the properties for purposes more hazardous than those permitted by the
terms of the respective policy if such coverage is obtainable at commercially
reasonable rates and is of the kind from time to time customarily insured
against by Persons owning or using similar property and in such amounts as are
customary, (C) any foreclosure or other proceeding relating to the insured
properties or (D) any change in the title to or ownership or possession of the
insured properties and (vi) shall be deposited with the Collateral Agent. If
Holdings or any of its Subsidiaries shall fail to insure its property in
accordance with this Section 8.03, or if Holdings or any of its Subsidiaries
shall fail to endorse and deposit all policies or certificates with respect
thereto, the Collateral Agent shall have the right (but shall be under no
obligation) to procure such insurance and
0000D4LB.W51 -62-
<PAGE>
Holdings jointly and severally agrees, to reimburse the Collateral Agent for
all costs and expenses of procuring such insurance.
8.04 CORPORATE FRANCHISES. Holdings will do, and will cause each of
its Subsidiaries to do or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its rights, franchises,
licenses and patents; provided, however, that nothing in this Section 8.04
shall prevent the withdrawal by Holdings or any Subsidiary of Holdings of its
qualification as a foreign corporation in any jurisdiction where such
withdrawal could not reasonably be expected to have a material adverse effect
on the performance, business, assets, nature of assets, liabilities,
properties, operations, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
8.05 COMPLIANCE WITH STATUTES, ETC. Holdings will, and will cause
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property except such noncompliances as could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
8.06 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) Holdings will comply,
and will cause each of its Subsidiaries to comply, in all material respects
with all Environmental Laws applicable to ownership or use of the Real
Property, will promptly pay or cause Holdings to pay all costs and expenses
incurred in such compliance, and will keep or cause to be kept all such Real
Properties free and clear of any Liens imposed pursuant to such Environmental
Laws. None of Holdings nor any Subsidiary of Holdings will generate, use,
treat, store, release or dispose of, or permit the generation, use, treatment,
storage, Release or disposal of Hazardous Materials on any Real Property, or
transport or permit the transportation of Hazardous Materials to or from any
Real Property, other than in compliance with applicable law.
(b) At the request of the Agent or the Required Banks at any time
and from time to time during the existence of this Agreement: (i) if an Event
of Default exists under this Agreement, (ii) upon the reasonable belief by the
Agent that Holdings or any of its Subsidiaries has breached any representation
or covenant herein with respect to any environmental matters and such breach
is continuing, or (iii) in the event notice is provided under Section 8.01(i)
herein, Holdings will provide, at its sole cost and expense (or will cause
Holdings to provide at its sole cost and expense), an environmental site
assessment report reasonable in scope concerning any Real Property of Holdings
or its Subsidiaries, prepared by an environmental consulting firm approved by
the Agent and the Required Banks, indicating the presence or Release of
Hazardous Materials on or from any of the
0000D4LB.W51 -63-
<PAGE>
Real Property and the potential cost of any removal or remedial action in
connection with any Hazardous Materials on such Real Property. If Holdings
fails to provide the same after thirty days' notice, the Agent may order the
same, and Holdings shall grant and hereby grants to the Agent and the Banks
and their agents access to such Real Property and specifically grants the
Agent and the Banks an irrevocable non-exclusive license, subject to the
rights of tenants, to undertake such an assessment all at Holdings' expense,
which assessments, if obtained, will be provided to Holdings.
8.07 ERISA. As soon as possible and, in any event, within ten (10)
days after Holdings, any Subsidiary of Holdings or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following, Holdings will
deliver to each of the Banks a certificate of the chief financial officer of
Holdings setting forth the full details as to such occurrence and the action,
if any, that Holdings, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given
to or filed with or by Holdings, the Subsidiary, the ERISA Affiliate, the
PBGC, a Plan participant or the Plan administrator with respect thereto: that
a Reportable Event has occurred; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code or Section 302 of ERISA, has
been incurred or an application may be or has been made for a waiver or
modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that
any contribution required to be made with respect to a Plan has not been
timely made; that a Plan has been or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA; that a Plan has an
Unfunded Current Liability; that proceedings may be or have been instituted to
terminate or appoint a trustee to administer a Plan which is subject to Title
IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of
ERISA to collect a delinquent contribution to a Plan; that Holdings, any
Subsidiary of Holdings or any ERISA Affiliate will or may incur any liability
(including any indirect, contingent, or secondary liability) to or on account
of the termination of or withdrawal from a Plan under Section 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under
Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or
502(l) of ERISA or with respect to a group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the
Code; or that Holdings or any Subsidiary of Holdings may incur any material
liability pursuant to any employee welfare benefit plan (as defined in Section
3(1) of ERISA) that provides benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or any Plan.
Holdings will deliver to each of the Banks a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan (including,
to the extent required, the related financial and actuarial statements and
opinions and other supporting statements, certifications, schedules and
information) required to be filed with the Internal Revenue Service. In
addition to any certificates or notices delivered to the Banks pursuant to the
first sentence hereof, copies of annual reports and any material notices
received by
0000D4LB.W51 -64-
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Holdings, any Subsidiary of Holdings or any ERISA Affiliate with respect to
any Plan shall be delivered to the Banks no later than ten (10) days after the
date such report has been filed with the Internal Revenue Service or such
notice has been received by Holdings, the Subsidiary or the ERISA Affiliate,
as applicable.
8.08 END OF FISCAL YEARS; FISCAL QUARTERS. Holdings will cause its,
and each of its Subsidiaries', fiscal years to end on December 31 and each of
its, and each of its Subsidiaries', first three fiscal quarters to end on
March 31, June 30 and September 30.
8.09 PERFORMANCE OF OBLIGATIONS. Holdings will, and will cause each
of its Subsidiaries to, perform all of its obligations under the terms of each
mortgage, indenture, security agreement and other debt instrument by which it
is bound, except such non-perfor-mances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and
its Subsidiaries taken as a whole.
8.10 PAYMENT OF TAXES. Holdings will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties would otherwise attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of Holdings or any
of its Subsidiaries not otherwise permitted under Section 9.01; provided that
neither Holdings nor any of its Subsidiaries shall be required to pay any such
tax, assessment, charge, levy or claim which is being contested in good faith
and by proper proceedings if it has maintained adequate reserves with respect
thereto in accordance with generally accepted accounting principles.
8.11 INTEREST RATE PROTECTION. Each Borrower shall no later than 60
days following the Initial Borrowing Date enter into arrangements acceptable
to the Agent establishing a fixed or maximum interest rate acceptable to the
Agent for an aggregate notional amount of at least 50% of the outstanding
principal amount of such Borrower's Term Loans for a period of at least three
years.
8.12 USE OF PROCEEDS. All proceeds of the Loans shall be used as
provided in Section 7.08.
8.13 UCC SEARCHES. On or prior to the 60th day following the Initial
Borrowing Date, Holdings shall deliver to the Agent (at the Borrower's own
cost) copies of Request for Information or Copies (UCC-11), or equivalent
reports for the purpose of verifying that all financing statements necessary
or, in the opinion of the Collateral Agent
0000D4LB.W51 -65-
<PAGE>
desirable, to perfect the security interests purported to be created by the
Security Agreement shall have been properly recorded and filed.
8.14 INTELLECTUAL PROPERTY RIGHTS. Holdings will, and will cause
each of its Subsidiaries to, make all filings in connection with the transfer
of the Intellectual Property rights in the Acquisition. Holdings will, and
will cause each of its Subsidiaries to, maintain in full force and effect all
Intellectual Property rights necessary or appropriate to the business of
Holdings or any Subsidiary of Holdings and take no action (including, without
limitation, the licensing of Intellectual Property), or fail to take an
action, as the case may be, in connection with such Intellectual Property
rights which could reasonably be expected to result in a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
properties, operations, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole. Holdings will, and will cause
each of its Subsidiaries to, diligently prosecute all pending applications
filed in connection with seeking or seeking to perfect the Intellectual
Property rights and take all other reasonable actions necessary for the
protection and maintenance of the Intellectual Property rights necessary or
appropriate to the business of Holdings or any Subsidiary of Holdings at all
times from and after the Initial Borrowing Date other than any such actions
the failure of which, in the aggregate, could not reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
8.15 PERMITTED ACQUISITIONS. (a) Subject to the remaining provisions
of this Section 8.15 applicable thereto and the requirements contained in the
definition of Permitted Acquisition, Holdings and its Subsidiaries may from
time to time after the Initial Borrowing Date effect Permitted Acquisitions,
so long as with respect to each Permitted Acquisition:
(i) no Default or Event of Default or default or event of default
under the Senior Subordinated Notes is in existence at the time of the
consummation of such Permitted Acquisition or would exist after giving
effect thereto and all representations and warranties contained herein
and in the other Credit Documents shall be true and correct in all
material respects with the same effect as though such representations and
warranties were made on and as of the date of such Permitted Acquisition
(both before and after giving effect thereto);
(ii) Holdings shall have given the Agent and the Banks at least 15
days prior written notice of any such Permitted Acquisition (each such
notice, a "Permitted Acquisition Notice"), which notice shall (r) contain
the estimated date such Permitted Acquisition is scheduled to be
consummated, (s) attach a true and correct copy of the draft purchase
agreement, letter of intent, description of material terms or similar
agreement executed by Holdings and the seller in connection with
0000D4LB.W51 -66-
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such Permitted Acquisition, (t) contain the estimated aggregate purchase
price of such Permitted Acquisition and the amount of related costs and
expenses and the intended method of financing thereof, (u) contain the
estimated amount of Acquisition Loans required to effect such Permitted
Acquisition, (v) contain a description of any Permitted Earn-Out Debt to
be incurred by Holdings in connection with such Permitted Acquisition and
the maximum potential liability of Holdings with respect thereto and (w)
contain a description of the Permitted Seller Notes (including Permitted
Secured Seller Notes), Holdings Common Stock or Seller Preferred Stock to
be issued by Holdings in connection with such Permitted Acquisition;
(iii) Holdings shall have given the Banks such other information
related to the Person or business, division or product line being
acquired and the Permitted Acquisition as the Agent shall reasonably
request;
(iv) (I) as soon as available but not less than the earlier of (x)
ten days after the execution thereof or (y) ten days prior the
consummation of such Permitted Acquisition, a copy of the executed
purchase agreement and all related agreements, schedules and exhibits
with respect to such Permitted Acquisition and (II) at the time of
delivery of the purchase agreement, a certification from Holdings as to
the purchase price for the acquisition and the estimated amount of all
related costs, fees and expenses and that, except as described, there are
no other amounts which will be payable in connection with the respective
Permitted Acquisition.
(v) with respect to Permitted Acquisitions effected during any
twelve-month period, the sum (without duplication) of (I) Acquisition
Loans incurred by Holdings, (II) the fair market value (as determined in
good faith by the Board of Directors of the Borrower) of Holdings Common
Stock issued as consideration in such Permitted Acquisitions, (III) the
aggregate amount (determined by using the face amount of the debt or the
amount payable at maturity, whichever is greater) of Permitted Seller
Notes issued by Holdings in connection with such Permitted Acquisitions,
(IV) the maximum potential liability of Holdings with respect to the
Permitted Earn-Out Debt issued in connection with such Permitted
Acquisitions and (V) the aggregate liquidation preference of Seller
Preferred Stock issued by Holdings in connection with such Permitted
Acquisition, shall not exceed $15,000,000 during any rolling twelve-month
period with the first such period commencing on the Initial Borrowing
Date;
(vi) with respect to each Permitted Acquisition the sum (without
duplication) of (I) Acquisition Loans incurred by Holdings, (II) the fair
market value (as determined in good faith by the Board of Directors of
Holdings) of Holdings Common Stock issued as consideration in such
Permitted Acquisition, (III) the
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aggregate amount (determined by using the face amount of the debt or the
amount payable at maturity, whichever is greater) of Permitted Seller
Notes issued by Holdings in connection with such Permitted Acquisition,
(IV) the maximum potential liability of Holdings with respect to all
Permitted Earn-Out Debt issued in connection with such Permitted
Acquisition and (V) the aggregate liquidation preference of Seller
Preferred Stock issued by Holdings in connection with such Permitted
Acquisition, shall not exceed $10,000,000;
(vii) the aggregate amount (determined by using the face amount of
the debt or the amount payable at maturity, whichever is greater) of
Permitted Secured Seller Notes issued in connection with all Permitted
Acquisitions shall not exceed $5,000,000;
(viii) calculations are made by Holdings of the Consolidated EBITDA
of the Person or business, division or product line being acquired
pursuant to the respective Permitted Acquisition (determined in
accordance with the definition of Consolidated EBITDA contained herein,
but treating references therein and in any other defined terms used in
determining Consolidated EBITDA to "Holdings" to instead be references to
the Person or business, division or product line being acquired pursuant
to the respective Permitted Acquisition), and the amount thereof shall
exceed -$100,000 for the period of four consecutive fiscal quarters
(taken as one accounting period) most recently ended prior to the date of
the Permitted Acquisition (the "Calculation Period"); provided, however,
in the case of calculations based on unaudited financial statements, the
Agent shall be reasonably satisfied that the Consolidated EBITDA of such
Person or business, division or product line being acquired pursuant to
the respective Permitted Acquisition exceeds -$100,000 for the
Calculation Period;
(ix) the Agent and the Required Banks shall be satisfied in their
reasonable discretion that the proposed Permitted Acquisition will not
reasonably likely result in materially increased liabilities (contingent
or otherwise) of Holdings or any of its Subsidiaries other than Permitted
Seller Notes and Permitted Earn-Out Debt incurred in accordance with the
provisions of this Agreement (including, without limitation, tax, ERISA
or environmental liabilities); provided that, so long as the Permitted
Acquisition Notice has been given as required above and so long as
Holdings has furnished each Bank, following request by the Agent,
information with respect to liabilities of the type described in this
clause with all information so requested, if any Bank has not notified
Holdings or the Agent on or prior to the tenth day prior to the
consummation of the Permitted Acquisition that such Bank has not yet been
satisfied that the proposed Permitted Acquisition would not be reasonably
likely to result in materially increased liabilities of Holdings or any
of its
0000D4LB.W51 -68-
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Subsidiaries, such Bank shall be deemed for purposes of this clause (ix)
to be so satisfied;
(x) the ratio of Consolidated Indebtedness on the last day of the
Calculation Period to Consolidated EBITDA of Holdings and its
Subsidiaries for the Calculation Period, on a Pro Forma Basis shall be
equal to or less than 4.00:1;
(xi) recalculations are made by Holdings of compliance with the
covenants contained in Sections 9.04 and 9.09, 9.10 and 9.12 for the
Calculation Period on a Pro Forma Basis, and such recalculations shall
show that all such covenants would have been complied with throughout the
Calculation Period on a Pro Forma Basis;
(xii) Holdings in good faith believes, based on calculations made by
Holdings, on a Pro Forma Basis, (as if the Calculation Period were the
one-year period following the date of the consummation of the respective
Permitted Acquisition) that the financial covenants contained in such
Sections 9.04 and 9.09 through 9.12, inclusive, will continue to be met
for the one year period following the date of the consummation of the
respective Permitted Acquisition; and
(xiii) prior to the consummation of the respective Permitted
Acquisition, Holdings shall furnish the Agent and the Banks an officer's
certificate executed by the chief financial officer of Holdings,
certifying as to compliance with the requirements of preceding clauses
(i) through (xii) and containing the calculations required by preceding
clauses (v) through (viii), and (x) and (xi). The consummation of each
Permitted Acquisition shall be deemed to be a representation and warranty
by Holdings that all conditions thereto have been satisfied and that same
is permitted in accordance with the terms of this Agreement, which
representation and warranty shall be deemed to be a representation and
warranty for all purposes hereunder, including, without limitation,
Sections 6 and 10.
(b) At the time of each Permitted Acquisition involving the creation
or acquisition of a Subsidiary, not less than 100% of the capital stock of
such Subsidiary shall be directly owned by Holdings or a Guarantor and such
100% owned by Holdings or Guarantor shall be pledged for the benefit of the
Secured Creditors pursuant to the Pledge Agreement or pursuant to a similar
agreement satisfactory to the Agent.
(c) Holdings shall cause each Subsidiary which is formed to effect,
or is acquired pursuant to, a Permitted Acquisition to execute and deliver,
prior to the date of the respective Permitted Acquisition, the Subsidiaries
Guaranty (or by an amendment thereto pursuant to which it shall be a party
thereto) or a substantially similar guaranty, in either case with the
documentation to be in form and substance satisfactory to the Agent.
0000D4LB.W51 -69-
<PAGE>
(d) Holdings shall on the date of a Permitted Acquisition, in the
case of Permitted Acquisitions involving the acquisition of assets by
Holdings, or, in the case of an acquisition by the respective Subsidiary,
shall cause the respective Subsidiary to, grant to the Collateral Agent, for
the benefit of the Secured Creditors, first priority perfected security
interests in all property of Holdings or such Subsidiaries (whether real,
personal or otherwise) acquired in connection with the Permitted Acquisition
and to take, or cause such Subsidiary to take, all actions requested by the
Agent or the Required Banks (including, without limitation, the obtaining of
UCC-11's, the filing of UCC-1's and the obtaining of mortgage policies, title
surveys and real estate appraisals) in connection with the granting of such
security interests. All security interests required to be granted pursuant to
this Section 8.15(d) shall be granted pursuant to such security documentation
(which shall be substantially similar to the analogous Security Documents
already executed and satisfactory in form and substance to the Agent) and
shall (except as otherwise consented to by the Agent and the Required Banks)
constitute valid and enforceable perfected security interests prior to the
rights of all third Persons and subject to no other Liens except such Liens as
are permitted by Section 9.01. The security documents and other instruments
related thereto shall be duly recorded or filed in such manner and in such
places as are required by law to establish, perfect, preserve and protect the
Liens, in favor of the Collateral Agent for the benefit of the Secured
Creditors, required to be granted pursuant to the respective Additional
Security Documents and all taxes, fees and other charges payable in connection
therewith shall be paid in full by Holdings. At the time of the execution and
delivery of Additional Security Documents, Holdings shall cause to be
delivered to the Collateral Agent such opinions of counsel, mortgage policies,
environmental appraisals, surveys and other related documents as may be
reasonably requested by the Collateral Agent or the Required Banks to assure
themselves that this Section has been complied with. All actions required to
be taken by this Section 8.15(d) with respect to the Additional Collateral
shall be completed no later than the date on which the Permitted Acquisition
is effected.
8.16 REGISTRY. The Borrowers hereby designate the Agent to serve as
the Borrowers' agent, solely for purposes of this Section 8.16, to maintain a
register (the "Register") on which it will record the Commitments from time to
time of each of the Banks, the Loans made by each of the Banks and each
repayment in respect of the principal amount of the Loans of each Bank.
Failure to make any such recordation, or any error in such recordation shall
not affect the Borrowers' obligations in respect of such Loans. With respect
to any Bank, the transfer of the Commitments of such Bank and the rights to
the principal of, and interest on, any Loan made pursuant to such Commitments
shall not be effective until such transfer is recorded on the Register
maintained by the Agent with respect to ownership of such Commitments and
Loans and prior to such recordation all amounts owing to the transferor with
respect to such Commitments and Loans shall remain owing to the transferor.
The registration of an assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Agent on the Register only upon
the acceptance by the Agent of a properly executed and delivered assignment
and assumption
0000D4LB.W51 -70-
<PAGE>
agreement pursuant to Section 14.04(b). Coincident with the delivery of such
an assignment and assumption agreement to the Agent for acceptance and
registration of assignment or transfer of all or part of a Loan, or as soon
thereafter as practicable, the assigning or transferor Bank shall surrender
the Note evidencing such Loan, and thereupon one or more new Notes in the same
aggregate principal amount shall be issued to the assigning or trans-feror
Bank and/or the new Bank. The Borrowers jointly and severally agree to
indemnify the Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Agent in performing its duties under this Section 8.16.
8.17 FURTHER ACTIONS. (a) Each Credit Party shall grant to the
Collateral Agent, for the benefit of the Secured Creditors, at the request of
the Agent or the Required Banks, at any time, a security interest in any Real
Property or vehicles owned by any such Credit Party and any other assets of
such Credit Party and not already subject to a Mortgage or other Security
Document and shall take all actions requested by the Agent or the Required
Banks (including, without limitation, the obtaining of mortgage policies,
title surveys and real estate appraisals satisfying the requirements of all
applicable laws) in connection with the granting of such security interest.
(b) The security interests required to be granted pursuant to clause
(a) above shall be granted pursuant to mortgages, deeds of trust and security
agreements, in each case satisfactory in form and substance to the Agent and
the Required Banks, which mortgages and security agreements shall create valid
and enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except such Liens as are permitted by
Section 9.01. The mortgages and other instruments related thereto and security
agreements shall be duly recorded or filed in such manner and in such places
and at such times as are required by law to establish, perfect, preserve and
protect the Liens, in favor of the Collateral Agent for the benefit of the
Secured Creditors, required to be granted pursuant to such documents and all
taxes, fees and other charges payable in connection therewith shall be paid in
full by the Borrowers. At the time of the execution and delivery of the
additional documents, the Borrowers shall cause to be delivered to the
Collateral Agent such opinions of counsel, mortgage policies, title surveys,
real estate appraisals, certificates of title and other related documents as
may be reasonably requested by the Agent or the Required Banks to assure
themselves that this Section 8.17 has been complied with.
(c) Each Credit Party agrees that each action required by Section
8.17(a), or (b) shall be completed within 60 days of the date such action is
requested to be taken.
8.18 338(h)(10) ELECTION. The Borrowers will timely file or shall
cause to be timely filed all forms required to be filed, to effect a valid
election under Section 338(h)(10) of the Code, and the Borrowers will timely
satisfy or will cause to be timely satisfied any requirements imposed by any
state or local government to give effect to an
0000D4LB.W51 -71-
<PAGE>
election analogous to the foregoing Section 338(h)(10) election for all
applicable state or local tax purposes. Within five Business Days after forms
required to be filed to effect a valid election under Section 338(h)(10) of
the Code are filed, the Borrowers will deliver to the Agent certificates,
signed and attested by any authorized officer of each of the Borrowers, that
all such Internal Revenue forms have been timely filed to effect the foregoing
election, and within five Business Days after requirements imposed by any
state or local government to give effect to an election analogous to the
foregoing Section 338(h)(10) election for state or local tax purposes have
been satisfied, the Borrowers will deliver to the Agent certificates, signed
and attested by any authorized officer of each of the Borrowers, that all such
requirements to give effect to the foregoing election under state and local
law have been timely satisfied.
8.19 SENIOR SUBORDINATED NOTES. Holdings shall pay interest on the
Senior Subordinated Notes through the issuance of additional Senior
Subordinated Notes except that an amount of interest due and owing on any
interest payment date with respect to the Senior Subordinated Notes not to
exceed 3.2% (on a per annum basis) of the aggregate outstanding principal
amount of the Senior Subordinated Notes at such time (after giving effect to
any additional issuances of Senior Subordinated Notes on and after the Initial
Borrowing Date as payments of interest in kind) may be paid in cash, provided,
to the extent default interest is owing with respect to unpaid amounts on the
Senior Subordinated Notes, then an additional amount of interest may be paid
in cash in an amount not to exceed .8% (on a per annum basis) of such unpaid
amounts.
8.20 CONCENTRATION ACCOUNT. On or prior to the 30th day after the
Initial Borrowing Date, Holdings shall, and shall have caused each of its
Subsidiaries to, have duly authorized, executed and delivered a Concentration
Account Consent Letter in such form as approved by the Collateral Agent (each
as modified, amended or supplemented from time to time in accordance with the
terms thereof and hereof, a "Concentration Account Consent Letter") with the
Collateral Agent and the Concentration Account Bank, acknowledging that the
Concentration Account listed on Schedule V maintained at the Concentration
Account Bank is under the exclusive dominion and control of the Collateral
Agent and that all moneys, instruments and other securities deposited in such
Concentration Account are to be held by the Concentration Account Bank for the
benefit of the Collateral Agent.
Section 9. NEGATIVE COVENANTS. Holdings hereby covenants that on and
after the Effective Date and until the Total Commitment and all Letters of
Credit have terminated and the Loans, Notes and Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder and thereunder,
are paid in full:
9.01 LIENS. Holdings will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property
0000D4LB.W51 -72-
<PAGE>
or assets (real or personal, tangible or intangible) of Holdings or any of its
Subsidiaries, whether now owned or hereafter acquired, or sell any such
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets (including sales of accounts
receivable with recourse to Holdings or any of its Subsidiaries), or assign
any right to receive income or permit the filing of any financing statement
under the UCC or any other similar notice of Lien under any similar recording
or notice statute; provided that the provisions of this Section 9.01 shall not
prevent Holdings or any of its Subsidiaries from creating, incurring, assuming
or permitting the existence of the following (liens described below are herein
referred to as "Permitted Liens"):
(i) inchoate Liens with respect to Holdings or any of its
Subsidiaries for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves
have been established in accordance with generally accepted accounting
principles;
(ii) Liens in respect of property or assets of Holdings or any
of its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money,
such as carriers', ware-housemen's, materialmen's, mechanics' and
landlords' liens and other similar Liens arising in the ordinary course
of business, and (x) which do not in the aggregate materially detract
from the value of Holdings' or any of its Subsidiaries' property or
assets or materially impair the use thereof in the operation of the
business of Holdings or its Subsidiaries or (y) which are being contested
in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien;
(iii) Liens of Holdings or its Subsidiaries in existence on the
Effective Date which are listed, and the property subject thereto
described, on Schedule XIII, but only to the respective date, if any, set
forth in such Schedule XIII for the removal and termination of any such
Liens;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to the Security Documents;
(vi) easements, rights-of-way, restrictions, encroachments and
other similar charges or encumbrances on the property of Holdings or any
of its Subsidiaries arising in the ordinary course of business and not
materially interfering with the conduct of the business of Holdings or
any of its Subsidiaries;
(vii) Liens on property of Holdings and its Subsidiaries subject
to, and securing only, Capitalized Lease Obligations to the extent such
Capitalized Lease
0000D4LB.W51 -73-
<PAGE>
Obligations are permitted by Section 9.05(iii); provided that such Liens
only serve to secure the payment of Indebtedness arising under such
Capitalized Lease Obligation and the Lien encumbering the asset giving
rise to the Capitalized Lease Obligation does not encumber any other
asset of Holdings or any of its Subsidiaries;
(viii) Liens (other than any Lien imposed by ERISA) on property of
Holdings or any of its Subsidiaries incurred or deposits made in the
ordinary course of business in connection with (x) workers' compensation,
unemployment insurance and other types of social security or (y) to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); provided
that the aggregate amount of cash and the fair market value of the
property encumbered by Liens described in this clause (viii)(y) shall not
exceed $100,000;
(ix) Liens placed upon equipment or machinery used in the ordinary
course of the business of Holdings or any of its Subsidiaries within 60
days following the time of purchase thereof by Holdings or any of its
Subsidiaries and improvements and accretions thereto to secure
Indebtedness incurred to pay all or a portion of the purchase price
thereof or any Indebtedness incurred to refinance such Indebtedness,
provided that (x) the aggregate principal amount of all Indebtedness
secured by Liens permitted by this clause (ix) does not exceed at any one
time outstanding $100,000 with respect to all machinery and equipment and
(y) in all events, the Lien encumbering the equipment or machinery so
acquired and improvements and accretions thereto does not encumber any
other asset of Holdings or any of its Subsidiaries;
(x) Liens arising from precautionary UCC-1 financing statement
filings regarding operating leases entered into by Holdings or any of its
Subsidiaries in the ordinary course of business;
(xi) inchoate Liens (where there has been no execution or levy and
no pledge or delivery of collateral) arising from and out of judgments or
decrees in existence at such time not constituting an Event of Default;
and
(xii) Liens on assets acquired or assets of Subsidiaries acquired
pursuant to Permitted Secured Seller Notes, provided that the fair market
value of all assets permitted to be encumbered by this clause 9.01 (xii)
shall at no time exceed $5,000,000.
9.02 CONSOLIDATION, MERGER, PURCHASE OR SALE OF ASSETS, ETC.
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs
0000D4LB.W51 -74-
<PAGE>
or enter into any transaction of merger or consolidation, or convey, sell,
lease or otherwise dispose of (or agree to do any of the foregoing at any
future time) all or any part of its property or assets, or enter into any
partnerships, joint ventures or sale-leaseback transactions, or purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets (other than purchases or other acquisitions by Holdings or
any of its Subsidiaries of inventory, materials and equipment in the ordinary
course of business) of any Person, except that:
(i) Capital Expenditures by Holdings and its Subsidiaries shall
be permitted to the extent not in violation of Section 9.08;
(ii) Holdings and its Subsidiaries may sell assets so long as
the aggregate amount of Net Sale Proceeds from such sales pursuant to
this clause (ii) in any one fiscal year do not exceed $100,000;
(iii) each of Holdings and its Subsidiaries may lease (as
lessee) real or personal property to the extent permitted by Sections
9.04 and 9.08;
(iv) investments may be made to the extent permitted by Section
9.06;
(v) each of Holdings and its Subsidiaries may make sales of
inventory in the ordinary course of business;
(vi) the Transaction shall be permitted as contemplated by the
Documents;
(vii) Holdings may effect Permitted Acquisitions in accordance
with the requirements of Section 8.15; and
(viii) so long as Holdings continues to own, directly or
indirectly, the percentages set forth on Schedule IX hereto of each of
its Subsidiaries, (x) the Subsidiaries of Holdings listed on Part A of
Schedule IX hereto shall be permitted to be merged with and into OR
LIQUIDATED INTO J.E. Hanger, Inc., (y) the Subsidiaries of Holdings
listed on Part B of Schedule IX hereto shall be permitted to be merged
with and into or liquidated into Southern, and (z) the Subsidiaries of
Holdings listed on Part C of Schedule IX hereto shall be permitted to
merge with and into OR LIQUIDATED INTO DOBI-Symplex, Inc SO LONG AS AT
THE TIME OF SUCH MERGER OR LIQUIDATION THE SUBSIDIARIES BEING MERGED OR
LIQUIDATED HAVE NO MATERIAL LIABILITIES OF ANY TYPE WHETHER CONTINGENT,
MATURED OR UNMATURED.
To the extent the Required Banks waive the provisions of this Section 9.02
with respect to the sale of any Collateral (to the extent the Required Banks
are permitted to waive such
0000D4LB.W51 -75-
<PAGE>
provisions in accordance with Section 14.12), or any Collateral is sold as
permitted by this Section 9.02, such Collateral shall be sold free and clear
of the Liens created by the Security Documents, and the Agent and Collateral
Agent shall be authorized to take any actions deemed appropriate in order to
effect the foregoing.
9.03 DIVIDENDS. Holdings will not, nor will Holdings permit any of
its Subsidiaries to, declare or pay any Dividends with respect to Holdings or
any of its Subsidiaries, except that (i) any Subsidiary of Holdings may pay
Dividends to Holdings or any Wholly-Owned Subsidiary of Holdings and (ii)
after February 1, 2000 Holdings may pay accrued Dividends on and redeem the
Holdings Preferred Stock in accordance with the terms of such Preferred Stock
as in effect on the date hereof.
9.04 LEASES. Holdings will not incur any expense (including, without
limitation, any property taxes paid as additional rent or lease payments)
under any agreement to rent or lease any real or personal property (or any
extension or renewal thereof) (excluding Capitalized Lease Obligations) and
Holdings will not permit the aggregate expense (including, without limitation,
any property taxes paid as additional rent or lease payments) incurred by
Holdings and its Subsidiaries on a consolidated basis under any agreement to
rent or lease any real or personal property (or any extension or renewal
thereof) (excluding Capitalized Lease Obligations) to exceed at any time
during the period beginning on the Initial Borrowing Date and ending on
December 31, 1996, $2,000,000; or to exceed for any period of four consecutive
fiscal quarters commencing on or after the Initial Borrowing Date and ending
after December 31, 1996 (or, if shorter, the period beginning on the Initial
Borrowing Date and ending on the last day of a fiscal quarter of Holdings
ending after December 31, 1996), in each case taken as one accounting period,
an amount equal to $6,000,000.
9.05 INDEBTEDNESS. Holdings will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(ii) Indebtedness of Holdings under any Interest Rate Protection
or Other Hedging Agreement or under any similar type of agreement to the
extent such is entered into to satisfy the requirements of Section 8.11;
(iii) Indebtedness of Holdings and its Subsidiaries evidenced by
Capitalized Lease Obligations to the extent permitted pursuant to Section
9.08; provided that the aggregate amount of Indebtedness evidenced by
Capitalized Lease Obligations under all Capital Leases outstanding under
this clause (iii) at any one time shall not exceed $100,000;
0000D4LB.W51 -76-
<PAGE>
(iv) Existing Indebtedness of Holdings listed on Schedule XI but
without giving effect to any refinancings, renewals or increases in the
principal amount thereof;
(v) Indebtedness in amounts, and subject to Liens, permitted
under Section 9.01(ix);
(vi) Indebtedness incurred under the Senior Subordinated Notes
and the Senior Subordinated Loan Documents so long as the aggregate
principal amount of Indebtedness outstanding thereunder shall not exceed
$8,000,000 plus additional Indebtedness representing paid-in-kind
interest on the Senior Subordinated Notes in amounts not to exceed the
amount of interest required to be paid on the Senior Subordinated Notes;
(vii) Indebtedness of Holdings evidenced by Permitted Seller
Notes or constituting Permitted Earn-Out Debt issued in amounts not to
exceed, and in accordance with, the requirements of Section 8.15.
9.06 Advances, Investments and Loans. Holdings will not, and will
not permit any of its Subsidiaries to, directly or indirectly lend money or
credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents, except that the following shall be permitted:
(i) Holdings and its Subsidiaries may acquire and hold
receivables owing to any of them, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary terms;
(ii) Holdings may acquire and hold cash and Cash Equivalents;
provided that all such cash or Cash Equivalents shall be held by Holdings
in the Concentration Account in accordance with the terms of the
Concentration Account Consent Letter or in a bank deposit account, as the
case may be; provided further, that all amounts deposited in any bank
account which is not the Concentration Account shall no later than the
close of business on the last Business Day of each week be swept by
Holdings or the applicable Subsidiary into the Concentration Account;
provided further, that at any time that any Revolving Loans or Swingline
Loans are outstanding, the aggregate amount of cash and Cash Equivalents
permitted to be held by Holdings and its Subsidiaries shall not exceed
$2,000,000 for any period of five consecutive days;
0000D4LB.W51 -77-
<PAGE>
(iii) the Borrowers may enter into interest rate protection
agreements to protect to the extent such is entered into to satisfy the
requirements of Section 8.11;
(iv) Holdings and its Subsidiaries may make Capital Expenditures
to the extent permitted by Section 9.08 or purchase replacement assets to
the extent permitted by Section 9.02(ii);
(v) the Transaction shall be permitted in accordance with the
provisions of Section 5;
(vi) Holdings and its Subsidiaries may endorse negotiable
instruments for collection in the ordinary course of business; and
(vii) Holdings and its Subsidiaries may make loans and advances
in the ordinary course of business consistent with past practices to
their respective employees for education-related expenses (including
tuition and room and board), moving, travel and emergency expenses and
other similar expenses, so long as the aggregate principal amount thereof
at any one time outstanding (determined without regard to any write-downs
or write-offs of such loans and advances) shall not exceed $700,000; and
(viii) Holdings may make cash capital contributions to Southern
for the purpose of allowing Southern to make any repayments of B Term
Loans required to be made by it hereunder so long as immediately
following such capital contribution the proceeds thereof are immediately
used by Southern to repay B Term Loans of Southern.
9.07 TRANSACTIONS WITH AFFILIATES. Holdings will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any Affiliate of Holdings' Subsidiaries, other
than transactions by Holdings or any of its Subsidiaries in the ordinary
course of business unless (a) such transaction or series of related
transactions is in writing and on terms that are no less favorable to Holdings
or such Subsidiary, as the case may be, than those that would be available in
a comparable transaction in arm's-length dealings with an unrelated third
party, (b) with respect to any transaction or series of related transactions
involving aggregate value in excess of $1,000,000, Holdings delivers an
officers' certificate to the Agent certifying that such transaction or series
of related transactions complies with clause (a) above and such transaction or
series of related transactions has been approved by a majority of the board of
directors of Holdings, (c) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $2,000,000,
such transaction or series of related transactions has been approved by the
disinterested directors of Holdings (or in the event
0000D4LB.W51 -78-
<PAGE>
there is only one disinterested director, by such disinterested director) and
(d) with respect to any transaction or series of related transactions
involving aggregate payments in excess of $5,000,000, such transaction or
series of related transactions has been approved by the disinterested
directors of Holdings (or in the event there is only one disinterested
director, by such disinterested director) and Holdings delivers to the Agent a
written opinion of an investment banking firm of national standing or other
recognized independent expert with experience appraising the terms and
conditions of the type of transaction or series of related transactions for
which an opinion is required stating that the transaction or series of related
transactions is fair to Holdings or such Subsidiary from a financial point of
view; except that (i) Holdings and its Subsidiaries may effect the
Transaction, (ii) loans and advances made in accordance with Section 9.06(vii)
shall be permitted and (iii) Holdings may pay customary fees to non-officer
directors of Holdings. In no event may any management or similar fees be paid
or payable by Holdings or any of its Subsidiaries to any Person other than
Holdings.
9.08 CAPITAL EXPENDITURES. Holdings will not and will not permit any
of its Subsidiaries to, make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including Capitalized Lease Obligations (collectively, "Capital
Expenditures"), except that (x) during the period (taken as one accounting
period) commencing on the Initial Borrowing Date and ending on Decem-ber 31,
1996, Holdings and its Subsidiaries may make Capital Expenditures (other than
in connection with Permitted Acquisitions) so long as the aggregate amount
thereof does not exceed $100,000 during such period and (y) during any
calendar year thereafter Holdings and its Subsidiaries may make Capital
Expenditures (other than in connection with Permitted Acquisitions) so long as
the aggregate amount thereof does not exceed the amount set forth opposite
such fiscal year below:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
1997 $1,900,000
1998 $2,000,000
1999 $2,100,000
2000 $2,100,000
2001 $2,100,000
2002 $2,200,000
2003 $2,200,000
</TABLE>
(b) In addition to the Capital Expenditures permitted above,
Holdings and its Subsidiaries may make Permitted Acquisitions in accordance
with Section 8.15 in an amount not to exceed the amounts permitted thereby.
0000D4LB.W51 -79-
<PAGE>
9.09 FIXED CHARGE COVERAGE RATIO. Holdings will not permit the Fixed
Charge Coverage Ratio for any period of four consecutive fiscal quarters (or,
if shorter, the period beginning on the Initial Borrowing Date and ending on
the last day of a fiscal quarter of Holdings ended after the Initial Borrowing
Date), in each case taken as one accounting period, to be less than 1.10:1.00.
9.10 INTEREST COVERAGE RATIO. Holdings will not permit the ratio of
its Consolidated EBITDA to its Consolidated Interest Expense for any period of
four consecutive fiscal quarters (or, if shorter, the period beginning on the
Initial Borrowing Date and ending on the last day of a fiscal quarter of
Holdings ended after the Initial Borrowing Date), in each case taken as one
accounting period, ending on a date set forth below to be less than the ratio
set forth opposite such date:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
December 31, 1996 1.75x
March 31, 1997 1.85x
June 30, 1997 2.05x
September 30, 1997 2.30x
December 31, 1997 2.80x
March 31, 1998 2.90x
June 30, 1998 3.05x
September 30, 1998 3.25x
December 31, 1998 3.50x
March 31, 1999 3.60x
June 30, 1999 3.75x
September 30, 1999 3.95x
December 31, 1999 4.25x
March 31, 2000 4.45x
June 30, 2000 4.75x
September 30, 2000 5.10x
December 31, 2000 5.50x
March 31, 2001 5.80x
June 30, 2001 6.00x
September 30, 2001 6.00x
December 31, 2001 6.00x
March 31, 2002 6.00x
June 30, 2002 6.00x
September 30, 2002 6.00x
December 31, 2002 6.00x
March 31, 2003 6.00x
</TABLE>
0000D4LB.W51 -80-
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
June 30, 2003 6.00x
September 30, 2003 6.00x
December 31, 2003 6.00x
</TABLE>
9.11 CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED EBITDA. Holdings will
not permit the ratio of Consolidated Indebtedness as at the end of any fiscal
quarter ended on a date set forth below to Consolidated EBITDA for any period
of four consecutive fiscal quarters (or, if shorter, the period beginning on
the Initial Borrowing Date and ending on the last day of a fiscal quarter
ended after the Initial Borrowing Date), in each case taken as one accounting
period, ending on a date set forth below to be greater than the ratio set
forth opposite such date below:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
December 31, 1996 6.05x
March 31, 1997 5.75x
June 30, 1997 5.10x
September 30, 1997 4.65x
December 31, 1997 3.80x
March 31, 1998 3.70x
June 30, 1998 3.45x
September 30, 1998 3.25x
December 31, 1998 2.90x
March 31, 1999 2.75x
June 30, 1999 2.65x
September 30, 1999 2.55x
December 31, 1999 2.30x
March 31, 2000 2.20x
June 30, 2000 2.10x
September 30, 2000 1.95x
December 31, 2000 1.75x
March 31, 2001 1.65x
June 30, 2001 1.50x
September 30, 2001 1.40x
December 31, 2001 1.25x
March 31, 2002 1.05x
June 30, 2002 1.00x
September 30, 2002 1.00x
</TABLE>
0000D4LB.W51 -81-
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
December 31, 2002 1.00x
March 31, 2003 1.00x
June 30, 2003 1.00x
September 30, 2003 1.00x
December 31, 2003 1.00x
</TABLE>
9.12 MINIMUM CONSOLIDATED NET WORTH. Holdings will not permit its
Consolidated Net Worth at any time during any fiscal quarter set forth below
to be less than the amount set forth opposite such fiscal quarter set forth
below:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED MINIMUM AMOUNT
<S> <C>
December 31, 1996 $37,000,000
March 31, 1997 $37,300,000
June 30, 1997 $37,700,000
September 30, 1997 $38,200,000
December 31, 1997 $39,100,000
March 31, 1998 $39,750,000
June 30, 1998 $40,550,000
September 30, 1998 $41,650,000
December 31, 1998 $42,800,000
March 31, 1999 $43,600,000
June 30, 1999 $44,600,000
September 30, 1999 $45,800,000
December 31, 1999 $47,300,000
March 31, 2000 $48,300,000
June 30, 2000 $49,500,000
September 30, 2000 $51,000,000
December 31, 2000 $52,800,000
March 31, 2001 $53,800,000
June 30, 2001 $55,100,000
September 30, 2001 $56,800,000
December 31, 2001 $59,300,000
March 31, 2002 $60,600,000
June 30, 2002 $62,400,000
September 30, 2002 $64,600,000
December 31, 2002 $68,300,000
March 31, 2003 $70,000,000
</TABLE>
0000D4LB.W51 -82-
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED MINIMUM AMOUNT
<S> <C>
June 30, 2003 $72,200,000
September 30, 2003 $74,900,000
December 31, 2003 $78,300,000
</TABLE>
9.13 CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED NET WORTH. Holdings
will not permit the ratio of Consolidated Indebtedness as at the end of any
fiscal quarter ended on a date set forth below to Consolidated Net Worth as at
the end of such fiscal quarter to be greater than the ratio set forth opposite
such date below:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
December 31, 1996 2.05x
March 31, 1997 2.00x
June 30, 1997 1.95x
September 30, 1997 1.90x
December 31, 1997 1.75x
March 31, 1998 1.70x
June 30, 1998 1.65x
September 30, 1998 1.55x
December 31, 1998 1.45x
March 31, 1999 1.35x
June 30, 1999 1.30x
September 30, 1999 1.20x
December 31, 1999 1.10x
March 31, 2000 1.05x
June 30, 2000 1.00x
September 30, 2000 0.90x
December 31, 2000 0.75x
March 31, 2001 0.70x
June 30, 2001 0.65x
September 30, 2001 0.60x
December 31, 2001 0.60x
March 31, 2002 0.60x
June 30, 2002 0.60x
September 30, 2002 0.60x
December 31, 2002 0.60x
March 31, 2003 0.60x
June 30, 2003 0.60x
September 30, 2003 0.60x
</TABLE>
0000D4LB.W51 -83-
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
December 31, 2003 0.60x
</TABLE>
9.14 MINIMUM EBITDA. Holdings will not permit its Consolidated
EBITDA for any period of four consecutive fiscal quarters (or, if shorter, the
period beginning on the Initial Borrowing Date and ending on the last day of a
fiscal quarter of Holdings ended after the Initial Borrowing Date), in each
case taken as one accounting period, ending on a date set forth below to be
less than the amount set forth opposite such date set forth below:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
December 31, 1996 $3,050,000
March 31, 1997 $6,350,000
June 30, 1997 $10,550,000
September 30, 1997 $15,200,000
December 31, 1997 $17,600,000
March 31, 1998 $17,850,000
June 30, 1998 $18,500,000
September 30, 1998 $19,200,000
December 31, 1998 $20,000,000
March 31, 1999 $20,100,000
June 30, 1999 $20,300,000
September 30, 1999 $20,500,000
December 31, 1999 $20,750,000
March 31, 2000 $20,900,000
June 30, 2000 $21,050,000
September 30, 2000 $21,250,000
December 31, 2000 $21,500,000
March 31, 2001 $21,650,000
June 30, 2001 $21,825,000
September 30, 2001 $22,025,000
December 31, 2001 $22,250,000
March 31, 2002 $22,450,000
June 30, 2002 $22,700,000
September 30, 2002 $22,950,000
December 31, 2002 $23,250,000
March 31, 2003 $23,450,000
June 30, 2003 $23,650,000
</TABLE>
0000D4LB.W51 -84-
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED RATIO
<S> <C>
September 30, 2003 $23,900,000
December 31, 2003 $24,250,000
</TABLE>
9.15 ACCOUNT RECEIVABLE DAYS. Holdings will not permit the number of
Account Receivable Days on the last day of any fiscal quarter to be greater
than 110.
9.16 LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATION OF EXISTING
INDEBTEDNESS; LIMITATION ON MODIFICATIONS OF CERTIFICATE OF INCORPORATION,
BY-LAWS AND CERTAIN OTHER AGREEMENTS; ETC. Holdings will not, and will not
permit any of its Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary or
optional payment or prepayment on or redemption (including pursuant to
any change of control provision) or acquisition for value of (including,
without limitation, by way of depositing with the trustee with respect
thereto money or securities before due for the purpose of paying when
due), any Existing Indebtedness or the Senior Subordinated Notes or make
any other repayments pursuant to the Senior Subordinated Loan Documents;
(ii) amend or modify, or permit the amendment or modification
of, any provision of the Existing Indebtedness, the Documents or the
Senior Subordinated Loan Documents or of any agreement relating to any of
the foregoing;
(iii) materially amend, modify or change its Certificate of
Incorporation (including, without limitation, by the filing or
modification of any certificate of designation) (other than the
certificate of merger with respect to the Merger) or ByLaws, in a manner
adverse to the Banks or any agreement entered into by it, with respect to
its capital stock, or enter into any new agreement with respect to its
capital stock;
(iv) amend, modify or change, terminate, or enter into any new
Share-holders' Agreement, except for such amendments, modifications or
changes which, in the aggregate or individually could not reasonably be
likely to be adverse to any Bank in its capacity as such;
(v) amend, modify or change, terminate or enter into any new Tax
Sharing Agreement; or
0000D4LB.W51 -85-
<PAGE>
(vi) amend, modify or change, or enter into any new Management
Agreement, Employee Benefit Plan or Employment Agreement except if the
aggregate cost to Holdings and its Subsidiaries as a result of such
amendments, modifications, changes to such plans and agreements and new
plans and agreements is not reasonably likely to have a material adverse
effect on the performance, business, property, assets, nature of assets,
liabilities, condition (financial or otherwise) or prospects of Holdings
and its Subsidiaries taken as a whole.
9.17 LIMITATION ON CERTAIN RESTRICTIONS ON SUBSIDIARIES. Holdings
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Subsidiary of Holdings to
(i) pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by Holdings or any
Subsidiary of Holdings, or pay any Indebtedness owed to Holdings or a
Subsidiary of Holdings, (ii) make loans or advances to Holdings or any of
Holdings' Subsidiaries or (iii) transfer any of its properties or assets to
Holdings, except for such encumbrances or restrictions existing under or by
reason of (w) applicable law, (x) this Agreement and the other Credit
Documents, (y) the Senior Subordinated Loan Documents and (z) customary
provisions restricting subletting or assignments of any lease governing a
leasehold interest of Holdings or a Subsidiary of Holdings.
9.18 LIMITATION ON ISSUANCE OF CAPITAL STOCK. (a) Holdings will not
permit any of its Subsidiaries to issue any capital stock (including by way of
sales of treasury stock) or any options or warrants to purchase, or securities
convertible into, capital stock, except (i) for transfers and replacements of
then outstanding shares, (ii) for stock splits, stock dividends and similar
issuances which do not decrease the percentage ownership of any person in any
class of the capital stock of Holdings or such Subsidiary and (iii) upon the
formation of any new Subsidiary as permitted by this Agreement in connection
with Permitted Acquisitions. Any stock issued as permitted by this Section
9.18, if owned by Holdings or any of Holdings' Subsidiaries, shall be
immediately pledged as Collateral and delivered pursuant to the Pledge
Agreement.
(b) Holdings will not issue any capital stock, except for (i)
issuances of Holdings Common Stock (including, without limitation, Permitted
Equity Issuances) where, after giving effect to such issuance, the proceeds
therefrom are applied in accordance with Section 4.02(A)(f) and no Default or
Event of Default will exist under Section 10.10 and (ii) issuances of Seller
Preferred Stock in connection with Permitted Acquisitions.
9.19 BUSINESS. Holdings, will not, and will not permit any of its
Subsidiaries, to engage (directly or indirectly) in any business other than a
Permitted Business.
0000D4LB.W51 -86-
<PAGE>
9.20 LIMITATION ON CREATION OF SUBSIDIARIES. Holdings will not, and
will not permit any of its Subsidiaries to, establish, create or acquire any
new Subsidiary, except Holdings may acquire or form Subsidiaries in connection
with Permitted Acquisitions to the extent otherwise permitted by this
Agreement.
9.21 CONCENTRATION ACCOUNT; BANK DEPOSIT ACCOUNTS. Holdings will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
open, maintain or otherwise have any checking, savings or other deposit
accounts at any bank or other financial institution where cash or Cash
Equivalents is or may be deposited or maintained with any Person, other than
(i) the bank deposit accounts listed on Schedule V hereto or (ii) the
Concentration Account.
Section 10. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
10.01 PAYMENTS. Either Borrower shall (i) default in the payment
when due of any principal of any Loan or any Note or any Unpaid Drawing or
(ii) default, and such default shall continue unremedied for two or more
Business Days, in the payment when due of any interest on any Loan or Note or
Unpaid Drawing, or any Fees or any other amounts owing by it hereunder or
thereunder; or
10.02 REPRESENTATIONS, ETC. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or
in any certificate delivered pursuant hereto or thereto shall prove to be
untrue in any material respect on the date as of which made or deemed made; or
10.03 COVENANTS. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained
in Section 8.01(g)(i), 8.08, 8.11, 8.15, 8.16, 8.17, 8.19 or 9 or (ii) default
in the due performance or observance by it of any other term, covenant or
agreement contained in this Agreement and such default shall continue
unremedied for a period of 30 days after written notice to either Borrower by
the Agent or any Bank; or
10.04 DEFAULT UNDER OTHER AGREEMENTS. Holdings or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Indebtedness referred to in Section 10.01) beyond the period of grace (not
to exceed 10 days), if any, provided in the instrument or agreement under
which such Indebtedness was created, (ii) default in the observance or
performance of any agreement or condition relating to any Indebtedness (other
than the Indebtedness referred to in Section 10.01) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall
0000D4LB.W51 -87-
<PAGE>
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 Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause
(determined without regard to whether any notice is required), any
Indebtedness to become due prior to its stated maturity and such default shall
not have been cured or waived, or (iii) any Indebtedness (other than the
Indebtedness referred to in Section 10.01 and Existing Indebtedness set forth
on Part B of Schedule XI accelerated pursuant to its terms as a direct result
of the Acquisition) of Holdings or any of its Subsidiaries shall be declared
to be due and payable, or required to be prepaid other than by a regularly
scheduled required prepayment, prior to the stated maturity thereof; provided
that it shall not constitute an Event of Default pursuant to this Section
10.04 unless the aggregate amount of all Indebtedness referred to in the
preceding clauses (i) through (iii) above exceeds $100,000 at any one time; or
10.05 BANKRUPTCY, ETC. Holdings or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against Holdings or any of its Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed or discharged, within 60
days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of Holdings or any of its Subsidiaries, or Holdings or any
of its Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to Holdings or any of its Subsidiaries, or there is commenced
against Holdings or any of its Subsidiaries any such proceeding which remains
undismissed or undischarged for a period of 60 days, or Holdings or any of its
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or Holdings or
any of its Subsidiaries suffers any appointment of any custodian or the like
for it or any substantial part of its property to continue undischarged or
unstayed for a period of 60 days; or Holdings or any of its Subsidiaries makes
a general assignment for the benefit of creditors; or any corporate action is
taken by Holdings or any of its Subsidiaries for the purpose of effecting any
of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any Plan
which is subject to Title IV of ERISA shall have had or is likely to have a
trustee appointed to administer such Plan, any Plan which is subject to Title
IV of ERISA is, shall have been or is likely to be terminated or to be the
subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current
0000D4LB.W51 -88-
<PAGE>
Liability, a contribution required to be made with respect to a Plan has not
been timely made, Holdings or any Subsidiary of Holdings or any ERISA
Affiliate has incurred or is likely to incur any liability to or on account of
a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201,
4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on
account of a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or Holdings
or any Subsidiary of Holdings has incurred or is likely to incur liabilities
pursuant to one or more employee welfare benefit plans (as defined in Section
3(1) of ERISA) that provide benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or Plans; (b) there
shall result from any such event or events the imposition of a lien, the
granting of a security interest, or a liability or a material risk of
incurring a liability; and (c) such lien, security interest or liability,
individually, and/or in the aggregate, in the opinion of the Required Banks,
has had, or could reasonably be expected to have, a material adverse effect
upon the business, operations, condition (financial or otherwise) or prospects
of Holdings or any Subsidiary of Holdings; or
10.07 SECURITY DOCUMENTS. At any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full
force and effect or shall cease to give the Collateral Agent for the benefit
of the Secured Creditors the Liens, rights, powers and privileges purported to
be created thereby (including, without limitation, a perfected security
interest in, and Lien on, all of the Collateral), in favor of the Collateral
Agent, superior to and prior to the rights of all third Persons (except as
permitted by Section 7.11), and subject to no other Liens (except as permitted
by Section 7.11), or any Credit Party shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any of the Security Documents and such default shall
continue beyond any grace period specifically applicable thereto pursuant to
the terms of such Security Document; or
10.08 GUARANTIES. At any time after the execution and delivery
thereof, any Guaranty or any provision thereof shall cease to be in full force
or effect as to any Guarantor, or any Guarantor or any Person acting by or on
behalf of any Guarantor shall deny or disaffirm such Guarantor's obligations
under the respective Guaranty, or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the respective Guaranty and such default
shall continue beyond any grace period specifically applicable thereto; or
10.09 JUDGMENTS. One or more judgments or decrees shall be entered
against Holdings or any of its Subsidiaries involving in the aggregate for
Holdings and its Subsidiaries a liability (not paid or fully covered by a
reputable insurance company) and all such judgments or decrees shall not be
satisfied, vacated, discharged or stayed or bonded pending appeal for any
period of 30 consecutive days; or
0000D4LB.W51 -89-
<PAGE>
10.10 CHANGE IN CONTROL. There shall be a Change in Control;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Agent, upon the written request of the
Required Banks, shall by written notice to the Borrowers, take any or all of
the following actions, without prejudice to the rights of the Agent, any Bank
or the holder of any Note to enforce its claims against any Credit Party
(provided that, if an Event of Default specified in Section 10.05 shall occur
with respect to a Borrower, the result which would occur upon the giving of
written notice by the Agent to a Borrower as specified in clauses (i) and (ii)
below shall occur automatically without the giving of any such notice): (i)
declare the Total Commitment terminated, whereupon all Commitments of each
Bank shall forthwith terminate immediately and any Fees shall forthwith become
due and payable without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans and the Notes
and all Obligations owing hereunder and thereunder to be, whereupon the same
shall become, forthwith due and payable without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by each Credit
Party; (iii) terminate any Letter of Credit which may be terminated in
accordance with its terms; (iv) direct Holdings to pay (and Holdings agrees
that upon receipt of such notice, or upon the occurrence of an Event of
Default specified in Section 10.05, it will pay) to the Collateral Agent at
the Payment Office such additional amount of cash, to be held as security by
the Collateral Agent for the benefit of the Banks in a cash collateral account
established and maintained by the Collateral Agent pursuant to a cash
collateral agreement in form and substance satisfactory to the Collateral
Agent, as is equal to the aggregate Stated Amount of all Letters of Credit
then outstanding; (v) exercise any rights or remedies under any of the
Guaranties; and (vi) enforce, as Collateral Agent, all of the Liens and
security interests created pursuant to the Security Documents.
Section 11. DEFINITIONS AND ACCOUNTING TERMS.
11.01 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"A Term Loan" shall have the meaning provided in Section 1.01(a).
"A Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Tranche A Term Loan Commitment," as the same may be (x)
reduced or terminated pursuant to Section 3.03, 4.02 and/or 10 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.12 or 14.04.
0000D4LB.W51 -90-
<PAGE>
"A Term Loan Facility" shall mean the facility evidenced by Total A
Term Loan Commitment.
"A Term Loan Maturity Date" shall mean December 31, 2001.
"A Term Note" shall have the meaning provided in Section 1.05(a)(i).
"A TL Percentage" shall mean, at any time, a fraction (expressed as
a percentage), the numerator of which is equal to the aggregate principal
amount of all A Term Loans outstanding at such time, and the denominator of
which is equal to the aggregate principal amount of all Term Loans and, after
the Acquisition Loan Termination Date, the Acquisition Loans outstanding at
such time.
"Account Receivable Days" shall mean, as of the last day of any
fiscal quarter, the number of account receivable days determined by
multiplying (i) the quotient obtained by dividing (x) the total face amount of
the net account receivables balance of Holdings and its Subsidiaries as of
such last day by (y) the net revenues of Holdings and its Subsidiaries for
such quarter by (ii) 90 days.
"Acknowledgment Agreement" shall mean the Acknowledgment Agreement,
dated the Initial Borrowing Date, executed by Southern as the surviving
corporation of the Merger after the Merger, in the form of Exhibit G.
"Acquisition" shall mean the merger of Newco with and into Southern
pursuant to the Acquisition Documents.
"Acquisition Agreement" shall mean the Agreement and Plan of Merger,
dated July 29, 1996, between Holdings, Newco and Southern as in effect on the
date hereof.
"Acquisition Commitment Percentage" shall mean at any time a
fraction (expressed as a percentage) the numerator of which is the Acquisition
Loan Commitment of such Bank at such time and the denominator of which is the
Total Acquisition Loan Commitment at such time.
"Acquisition Documents" shall mean the Acquisition Agreement and all
other documents entered into or delivered in connection with the Acquisition
Agreement or the Acquisition.
"Acquisition Loan" shall have the meaning provided in Section
1.01(c).
0000D4LB.W51 -91-
<PAGE>
"Acquisition Loan Commitment" shall mean, with respect to each Bank,
the amount set forth opposite such Bank's name in Schedule I hereto directly
below the column entitled "Acquisition Loan Commitment," as the same may be
(x) reduced or terminated from time to time pursuant to Section 3.02, 3.03,
4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to
or from such Bank pursuant to Section 1.12 or 14.04.
"Acquisition Loan Facility" shall mean the facility evidenced by the
Total Acquisition Loan Commitment.
"Acquisition Loan Maturity Date" shall mean the fifth anniversary of
the Initial Borrowing Date.
"Acquisition Loan Termination Date" shall mean the second
anniversary of the Initial Borrowing Date.
"Acquisition Note" shall have the meaning provided in Section
1.05(a)(iii).
"Acquisition TL Percentage" shall mean, after the Acquisition Loan
Termination Date, a fraction (expressed as a percentage), the numerator of
which is equal to the aggregate principal amount of all Acquisition Loans
outstanding at such time and the denominator of which is equal to the
aggregate principal amount of all Term Loans and Acquisition Loans outstanding
at such time.
"Additional Collateral" shall mean all property (whether real or
personal) in which security interests are granted (or purported to be granted)
(and continue to be in effect at the time of determination) pursuant to
Section 8.15 or 8.17.
"Additional Security Documents" shall mean all mortgages, pledge
agreements, security agreements and other security documents entered into
pursuant to Section 8.15 or 8.17 with respect to Additional Collateral.
"Adjusted Consolidated Net Income" for any period shall mean
Consolidated Net Income for such period plus the sum of the amount of all net
non-cash charges (including, without limitation, depreciation, amortization,
deferred tax expense, non-cash interest expense and other non-cash charges)
included in arriving at Consolidated Net Income for such period less the sum
of the amount of all net non-cash gains or losses (exclusive of items
reflected in Adjusted Working Capital) and gains or losses from sales of
assets (other than sales of inventory in the ordinary course of business)
included in arriving at Consolidated Net Income for such period.
0000D4LB.W51 -92-
<PAGE>
"Adjusted Working Capital" shall mean Consolidated Current Assets
(excluding cash, Cash Equivalents and the Total Unutilized Revolving Loan
Commitment) minus Consolidated Current Liabilities.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect
common control with, such Person; provided, however, that for purposes of
Section 9.07, an Affiliate of Holdings shall include any Person that directly
or indirectly (including through limited partner or general partner interests)
owns more than 5% of any class of the capital stock of Holdings and for all
purposes of this Agreement, neither the Agent, the Collateral Agent, any Bank
or any of their respective Affiliates, shall be considered an Affiliate of
Holdings or any of its Subsidiaries. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Affiliate Contracts" shall have the meaning provided in Section
5.05.
"Agent" shall mean Banque Paribas in its capacity as Agent for the
Banks hereunder, and shall include any successor to the Agent appointed
pursuant to Section 12.09.
"Aggregate Unutilized Commitment" with respect to any Bank at any
time shall mean the sum of (i) such Bank's Unutilized Revolving Loan
Commitment at such time, plus (ii) such Bank's Acquisition Loan Commitment at
such time.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.
"Applicable Margin" shall mean a percentage per annum equal to (i)
(A) in the case of A Term Loans, Acquisition Loans, Revolving Loans and
Swingline Loans which are maintained as Base Rate Loans, 1.75% and (B) in the
case of B Term Loans which are maintained as Base Rate Loans, 2.25% and (ii)
(A) in the case of A Term Loans, Acquisition Loans and Revolving Loans which
are maintained as Eurodollar Loans, 2.75% and (B) in the case of B Term Loans
which are maintained as Eurodollar Loans, 3.25%.
"B Term Loan" shall have the meaning provided in Section 1.01(b).
"B Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Tranche B Term Loan Commitment," as the same may be (x)
reduced or terminated
0000D4LB.W51 -93-
<PAGE>
pursuant to Section 3.03, 4.02 and/or 10 or (y) adjusted from time to time as
a result of assignments to or from such Bank pursuant to Section 1.12 or
14.04.
"B Term Loan Facility" shall mean the facility evidenced by the
Total B Term Loan Commitment.
"B Term Loan Maturity Date" shall mean December 31, 2003.
"B Term Note" shall have the meaning provided in Section
1.05(a)(ii).
"B Term Percentage" of either Borrower shall mean at any time a
fraction (expressed as a percentage) the numerator of which is $15,000,000, in
the case of Holdings and $13,000,000, in the case of Southern, as the
surviving corporation of the Merger and the denominator of which is the total
amount of B Term Loans made to both Borrowers on such date.
"B TL Percentage" shall mean, at any time, a fraction (expressed as
a percentage), the numerator of which is equal to the aggregate principal
amount of all B Term Loans outstanding at such time and the denominator of
which is equal to the aggregate principal amount of all Term Loans and, after
the Acquisition Loan Termination Date, the Acquisition Loans outstanding at
such time.
"Bank" shall mean each financial institution listed on Schedule I,
as well as any institution which becomes a "Bank" hereunder pursuant to
Section 14.04.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or to fund
its portion of any unreim-bursed payment under Section 2.04(c) or (ii) a Bank
having notified in writing a Borrower and/or the Agent that it does not intend
to comply with its obligations under Section 1.01 or 2, including in either
case as a result of any takeover of such Bank by any regulatory authority or
agency.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Banque Paribas" shall mean Banque Paribas, a French banking
organization acting through its New York Branch.
"Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of the
Federal Funds Rate and (ii) the Prime Lending Rate.
0000D4LB.W51 -94-
<PAGE>
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) any
Loan designated or deemed designated as such by the Borrower at the time of
the incurrence thereof or conversion thereto.
"Borrower" or "Borrowers" shall mean and include each of Holdings
and Southern, as the surviving corporation of the Merger.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Banks having Commitments with respect to such Tranche (or
from the Swingline Bank in the case of Swingline Loans) on a pro rata basis on
a given date (or resulting from a conversion or conversions on such date)
having in the case of Eurodollar Loans the same Interest Period; provided that
Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part
of the related Borrowing of Eurodollar Loans.
"Borrowing Base" shall mean, as at any date of which the amount
thereof is being determined, an amount equal to the sum of (i) 80% of Eligible
Receivables due in 90 days or less, (ii) 60% of Eligible Receivables due
between 90 and 120 days and (iii) 50% of Eligible Inventory, each as
determined from the Borrowing Base Certificate most recently delivered
pursuant to Section 8.01(k).
"Borrowing Base Certificate" shall have the meaning provided in
Section 8.01(k).
"Borrowing Base Deficiency" shall mean, at any time, the amount, if
any, by which (A) the sum of (x) the aggregate principal amount of outstanding
Revolving Loans and Swingline Loans at such time and (y) the Total Letter of
Credit Outstandings at such time exceeds (B) the Borrowing Base.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall
be in New York City a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close and (ii)
with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) above and which is also a day for trading
by and between banks in the New York interbank Eurodollar market.
"Calculation Period" shall have the meaning provided in Section
8.15(a).
"Capital Expenditures" shall have the meaning provided in Section
9.08.
"Capital Lease," as applied to any Person, shall mean any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with
0000D4LB.W51 -95-
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generally accepted accounting principles, is accounted for as a capital lease
on the balance sheet of that Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations under Capital Leases, in each case taken at the amount thereof
accounted for as Indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank organized under the laws of the
United States, any State thereof or the District of Columbia having, or which
is the principal banking subsidiary of a bank holding company organized under
the laws of the United States, any State thereof, or the District of Columbia
having, capital, surplus and undivided profits aggregating in excess of
$200,000,000 and having a long-term unsecured debt rating of at least "A" or
the equivalent thereof from Standard & Poor's Corporation ("S&P") or "A2" or
the equivalent thereof from Moody's Investors Service, Inc. ("Moody's"), with
maturities of not more than six months from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (ii) above,
(iv) commercial paper issued by any Person incorporated in the United States
rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the
equivalent thereof by Moody's and in each case maturing not more than six
months after the date of acquisition by such Person, (v) investments in money
market funds substantially all of whose assets are comprised of securities of
the types described in clauses (i) through (iv) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time
to time, 42 U.S.C. ss. 9601 et seq.
"Change in Control" means the occurrence of one or more of the
following: (i) any Person, entity or "group" (within the meaning of Section
13(d) and 14(d) of the Securities Exchange Act) shall become the "beneficial
owner" (as defined in Rules 13(d) and 13(d)-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) of 20% or more of any
outstanding class of capital stock of Holdings having ordinary voting power in
the election of directors of Holdings, (ii) Holdings shall cease to own 100%
of the outstanding capital stock of the Borrower or (iii) the Board of
Directors of Holdings shall cease to consist of a majority of Continuing
Directors.
0000D4LB.W51 -96-
<PAGE>
"Claims" shall have the meaning provided in the definition of
"Environmen- tal Claims."
"Clean-Down Period" shall mean any 30 consecutive day period which
shall commence no earlier than November 1 of each year and no later than
January 1 of the following year, during which the outstanding aggregate
principal amount of Revolving Loans and Swingline Loans during the entire such
period does not exceed $1,000,000.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued
thereunder. Section references to the Code are to the Code, as in effect at
the date of this Agreement, and to any subsequent provision of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Mortgaged
Properties, all Additional Collateral and all cash and Cash Equivalents
delivered as collateral pursuant to this Agreement or any other Credit
Document.
"Collateral Agent" shall mean the Agent acting as collateral agent
for the Secured Creditors pursuant to the Security Documents.
"Collective Bargaining Agreements" shall have the meaning provided
in Section 5.05.
"Commitment" shall mean, with respect to each Bank, such Bank's A
Term Loan Commitment, B Term Loan Commitment, Acquisition Loan Commitment, and
Revolving Loan Commitment, if any.
"Commitment Commission" shall have the meaning provided in Section
3.01(a).
"Concentration Account" shall mean Account No. 2001802511 or any
other separate account which may be established and maintained with the
Concentration Account Bank for the benefit of the Secured Creditors by
Holdings and each of its Subsidiaries and in which the Collateral Agent has a
security interest pursuant to the Concentration Account Consent Letter.
0000D4LB.W51 -97-
<PAGE>
"Concentration Account Bank" shall mean Nationsbank, N.A. or such
other bank that may become a Concentration Account Bank in accordance with the
provisions of the Security Agreement.
"Concentration Account Consent Letter" shall have the meaning
provided in Section 8.20.
"Consolidated Current Assets" shall mean the consolidated current
assets of the Borrower and its Subsidiaries, plus the Total Unutilized
Revolving Loan Commitment.
"Consolidated Current Liabilities" shall mean the consolidated
current liabilities of Holdings and its Subsidiaries, but excluding the
current portion of any long-term Indebtedness which would otherwise be
included therein.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income before interest income, Consolidated Interest Expense and provision for
taxes and without giving effect to any extraordinary gains or losses, gains or
losses from sales of assets other than inventory sold in the ordinary course
of business or unrealized foreign exchange gains or losses.
"Consolidated EBITDA" for any period shall mean Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated Net Income for
such period; PROVIDED that for purposes of Section 9.11 and Section
8.15(a)(x), to the extent Consolidated EBITDA is being determined for any
period of less than four consecutive fiscal quarters, the amount of
Consolidated EBITDA to be used for purposes of calculations being made
pursuant to such Sections for the period of determination shall be equal to
the product of the amount of Consolidated EBITDA for such period and a
fraction, the numerator of which is 365 and the denominator of which is the
number of days elapsed during such period.
"Consolidated Indebtedness" shall mean, at any time, all
Indebtedness of Holdings and its Subsidiaries determined on a consolidated
basis (excluding all Indebtedness of the type described in clause (vii) of the
definition thereof, except to the extent amounts are owing with respect
thereto upon the termination of the respective agreement constituting such
Indebtedness) plus any original issue discount attributable to such
Indebtedness.
"Consolidated Interest Expense" shall mean, for any period, the
total consolidated interest expense of Holdings and its Subsidiaries for such
period (calculated without regard to any limitations on the payment thereof)
payable during such period in respect of all Indebtedness of Holdings and its
Subsidiaries, on a consolidated basis, for such period (including, without
duplication, that portion of Capitalized Lease Obligations of Holdings and its
Subsidiaries representing the interest factor for such period).
0000D4LB.W51 -98-
<PAGE>
"Consolidated Net Income" shall mean, for any period, net income of
Holdings and its Subsidiaries for such period determined on a consolidated
basis (after provision for taxes); PROVIDED, HOWEVER, the net income of any
Subsidiary of Holdings, which is not a Wholly-Owned Subsidiary and for which
the investment of Holdings therein is accounted for by the equity method of
accounting, shall have its net income included in the Consolidated Net Income
of Holdings and its Subsidiaries only to the extent of the amount of cash
dividends or distributions paid by such Subsidiary to Holdings.
"Consolidated Net Worth" shall mean, as to any Person, the sum of
its capital stock, capital in excess of par or stated value of shares of its
capital stock, retained earnings and any other account which, in accordance
with generally accepted accounting principles in the United States,
constitutes stockholders equity.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of any such primary obligation or (y) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the holder of such primary obligation against loss
in respect thereof; PROVIDED, however, that the term Contingent Obligation
should not include endorsements of instruments for deposit or collection in
the ordinary course of business. The amount of any Contingent Obligation shall
be deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith.
"Continuing Directors" shall mean, with respect to Holdings, the
directors of Holdings on the Initial Borrowing Date and each other director,
if such other director's nomination for election to the board of directors of
Holdings is recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, each Note, each Notice
of Borrowing, each Notice of Conversion, each Letter of Credit, each Letter of
Credit Request, the Subsidiaries Guaranty, each Security Document and the
Acknowledgement Agreement.
0000D4LB.W51 -99-
<PAGE>
"Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.
"Credit Party" shall mean Holdings and each of its Subsidiaries
other than the Foreign Subsidiaries.
"Debt Agreements" shall have the meaning provided in Section 5.05.
"Debt Termination Documents" shall have the means provided in
Section 5.17(c).
"Default" shall mean any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is then in effect.
"Dividend" with respect to any Person shall mean that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders or authorized or made any other distribution, payment or delivery
of property (other than common stock of such Person) or cash to its
stockholders in their capacity as stockholders, or redeemed, retired,
purchased or otherwise acquired, directly or indirectly, for a consideration
any shares of any class of its capital stock outstanding on or after the
Effective Date (or any options or warrants issued by such Person with respect
to its capital stock), or set aside any funds for any of the foregoing
purposes, or shall have permitted any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock of such Person outstanding on or after the Effective Date (or any
options or warrants issued by such Person with respect to its capital stock).
Without limiting the foregoing, "Dividends" with respect to any Person shall
also include all cash payments made or required to be made by such Person with
respect to any stock appreciation rights, equity incentive plans or any
similar plans or setting aside of any funds for the foregoing purposes.
"Documents" shall mean the Credit Documents, the Acquisition
Documents, the Debt Termination Documents and the Senior Subordinated Loan
Documents.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Effective Date" shall have the meaning provided in Section 14.10.
0000D4LB.W51 -100-
<PAGE>
"Eligible Inventory" shall mean the gross dollar value (valued at
the lower of cost (determined on a first in-first out basis) or market value)
of the inventory of Holdings and its Subsidiaries, which conforms to the
representations and warranties contained in the Security Agreement and at all
times continues to be acceptable to the Collateral Agent in its reasonable
judgment, less (i) any supplies (other than raw materials) spare parts, goods
returned or rejected (except to the extent that such returned or rejected
goods continue to conform to the representations and warranties contained in
the Security Agreement and continue to be acceptable to the Collateral Agent
in its reasonable judgment) by customers and goods returned to suppliers, (ii)
any advance payments made by customers with respect to inventory of Holdings
and its Subsidiaries, (iii) inventory subject to any Lien other than Liens
created under the Security Agreement, (iv) any market reserves maintained by
Holdings and its Subsidiaries and (v) any reserves required by the Collateral
Agent in its reasonable judgment for a special order of goods, market value
declines and bill and hold (deferred shipments) sales.
"Eligible Receivables" shall mean the total face amount of the
receivables of Holdings and its Subsidiaries arising from the sale of
inventory by Holdings or its Subsidiaries in the ordinary course of business
which conform to the representations and warranties contained in the Security
Agreement (including, without limitation, that the Collateral Agent shall have
and maintain a first priority perfected security interest in all such
receivables) and at all times continue to be acceptable to the Collateral
Agent in its reasonable judgment less any returns, discounts, claims, credit
and allowances of any nature (whether issued, owing, granted or outstanding)
and less reserves for any other matter affecting the creditworthiness of
account debtors owing the receivables and excluding (i) bill and hold
(deferred shipment) and consignment transactions, (ii) contracts or sales to
any Affiliate, (iii) all receivables which are not due by their terms or have
not been paid in full within 120 days of the invoice date thereof or which
have been disputed or made subject to set-off, (iv) all receivables from
affiliates, departments or instrumentalities or from any party subject to any
bankruptcy, receivership insolvency or like proceedings by the account debtor,
and (iv) sales to account debtors outside the United States.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution, other "accredited investor" (as defined in Regulation D
of the Securities Act) other than individuals, or a "qualified institutional
buyer" as defined in Rule 144A of the Securities Act.
"Employee Stock Proceeds" shall have the meaning provided in Section
4.02(a)(f).
"Employee Stock Proceeds Payment Period" shall have the meaning
provided in Section 4.02(a)(f).
0000D4LB.W51 -101-
<PAGE>
"Employment Agreements" shall have the meaning provided in Section
5.05.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating
in any way to any violation of, or liability under, any Environmental Law or
any permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (a) any and all Claims
by governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy and rule of common law
now or hereafter in effect (including, without limitation, the EPA guidance on
asbestos abatement and removal) and in each case as amended, and any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including, without limitation, CERCLA;
RCRA; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251
et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 7401 et seq.; the
Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42
U.S.C. ss. 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et
seq.; the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq.; and
any applicable state and local or foreign counterparts or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement, and to any subsequent provisions of
ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with Holdings or a Subsidiary of Holdings would be
deemed to be a "single employer" (i) within the meaning of Section 414(b),
(c), (m) or (o) of the Code or (ii) as a result of Holdings or a Subsidiary of
Holdings being or having been a general partner of such person.
"Eurodollar Loan" shall mean each Loan designated as such by a
Borrower at the time of the incurrence thereof or conversion thereto.
0000D4LB.W51 -102-
<PAGE>
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of (i)
the sum of (a) Adjusted Consolidated Net Income for such period, and (b) the
decrease, if any, in Adjusted Working Capital from the first day to the last
day of such period, minus (ii) the sum of (a) the amount of cash Capital
Expenditures (to the extent not financed with Indebtedness but not in excess
of the amounts permitted pursuant to Section 9.08) made by Holdings and its
Subsidiaries on a consolidated basis during such period, (b) the amount of
permanent principal payments of Indebtedness for borrowed money of Holdings
and its Subsidiaries (other than repayments of Loans); provided that
repayments of Loans shall be deducted in determining Excess Cash Flow if such
repayments were applied to Scheduled Repayments required to be made during
such period, were made as a voluntary prepayment with internally generated
funds (but in the case of a voluntary prepayment of Revolving Loans or
Swingline Loans, only to the extent accompanied by a voluntary reduction to
the Total Revolving Loan Commitment) during such period, and (c) the increase,
if any, in Adjusted Working Capital from the first day to the last day of such
period. In making the foregoing determinations under clause (i)(b) or (ii)(c)
of the immediately preceding sentence, the amount of the Adjusted Working
Capital acquired as a result of each Permitted Acquisition which occurred
during the respective period for which Excess Cash Flow is being determined
shall have been deemed to have been acquired on the first day of such period.
"Excess Cash Flow Payment Period" shall mean (a) the period
commencing on the Initial Borrowing Date and ending on December 31, 1996 and
(b) each calendar year thereafter.
"Existing Indebtedness" shall have the meaning provided in Section
7.22.
"Facing Fee" shall have the meaning provided in Section 3.01(b).
"Federal Funds Rate" shall mean for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds Brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such
day on such transactions received by the Agent from three Federal Funds
brokers of recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 3.01.
0000D4LB.W51 -103-
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"Fixed Charge Coverage Ratio" for any period shall mean the ratio of
(x) Consolidated EBITDA less the amount of all Capital Expenditures made by
Holdings or any of its Subsidiaries for such period to (y) Fixed Charges for
such period.
"Fixed Charges" for any period shall mean the sum of (i)
Consolidated Interest Expense for such period, (ii) the aggregate principal
amount of all scheduled payments of Indebtedness (including the principal
portion of rentals under Capitalized Lease Obligations but excluding repayment
of Revolving Loans not accompanied by a permanent reduction to the Total
Revolving Loan Commitment) required to be made during such period (iii)
payments on Holdings Preferred Stock, including accrued Dividends, and (iv)
taxes paid by Holdings and its Subsidiaries for such period.
"Foreign Subsidiaries" shall mean Hanger Europe N.V., a Belgian
corporation, so long as, in the aggregate, the assets of Foreign Subsidiaries
do not have a fair market value exceeding $100,000.
"Guaranties" shall mean and include each of the Subsidiary
Guaranties executed by the Subsidiaries of Holdings and the Holdings Guaranty.
"Guarantor" shall mean each Subsidiary of Holdings.
"Hazardous Materials" means (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that
contain, dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous waste," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar meaning and regulatory effect, under any applicable Environmental Law;
and (c) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated under applicable Environmental Laws.
"Holdings" shall have the meaning provided in the first paragraph of
this Agreement.
"Holdings Common Stock" shall have the meaning provided in Section
7.14.
"Holdings Guaranty" shall mean the guaranty of Holdings contained in
Section 13 hereof.
"Holdings Preferred Stock" shall have the meaning provided in
Section 7.14.
0000D4LB.W51 -104-
<PAGE>
"Holdings Stock Option Plans" shall mean (i) the Hanger Orthopedic
Group, Inc. Stock Option Plan for Non-Employee Directors and (ii) the Hanger
Orthopedic Group, Inc. 1991 Stock Option Plan.
"Indebtedness" shall mean, as to any Person, without duplication,
(i) all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than trade payables and accrued expenses arising in the
ordinary course of business, (ii) the maximum amount available to be drawn
under all letters of credit issued for the account of such Person and all
unpaid drawings in respect of such letters of credit, (iii) all Indebtedness
of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this
definition secured by any Lien on any property owned by such Person, whether
or not such Indebtedness has been assumed by such Person, (iv) all Capitalized
Lease Obligations of such Person, (v) all obligations of such person to pay a
specified purchase price for goods or services, whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person and (vii) all obligations under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of agreement
entered into with a Person not a Bank.
"Indemnified Matters" shall have the meaning provided in Section
14.01.
"Indemnitees" shall have the meaning provided in Section 14.01.
"Initial Borrowing Date" shall mean the date on which the initial
Credit Event occurs.
"Intellectual Property" shall have the meaning provided in Section
7.21.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection or Other Hedging Agreements" shall have
the meaning provided in the Security Documents.
"Issuing Bank" shall mean Banque Paribas and any Bank which at the
request of Holdings agrees, in such Bank's sole discretion, to become an
Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section
2. The sole Issuing Bank on the Initial Borrowing Date is Banque Paribas.
0000D4LB.W51 -105-
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"L/C Supportable Indebtedness" shall mean (i) obligations of
Holdings or any of its Subsidiaries incurred in the ordinary course of
business with respect to workers compensation, surety bonds and other similar
statutory obligations and (ii) such other obligations of Holdings or any of
its Subsidiaries as are reasonably acceptable to the Issuing Bank and
otherwise permitted to exist pursuant to the terms of this Agreement.
"Leaseholds" of any Person means all the right, title and interest
of such Person as lessee or licensee in, to and under leases or licenses of
land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Cash Collateral Account" shall have the meaning
provided in Section 4.02(A)(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(c).
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan, each Revolving Loan, each
Swingline Loan and each Acquisition Loan.
"Management Agreements" shall have the meaning provided in Section
5.05.
"Mandatory Borrowings" shall have the meaning provided in Section
1.01(f).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Contracts" shall have the meaning provided in Section
5.05.
0000D4LB.W51 -106-
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"Maturity Date" with respect to a Tranche shall mean either the A
Term Loan Maturity Date, the B Term Loan Maturity Date, the Acquisition Loan
Maturity Date, the Revolving Loan Maturity Date or the Swingline Expiry Date,
as the case may be.
"Maximum Swingline Amount" shall mean $2,000,000.
"Merger" shall mean the merger of Newco with, and into, Southern,
with Southern as the surviving corporation thereof, pursuant to the Merger
Documents.
"Merger Documents" shall mean the Acquisition Agreement and all
other documents entered into or delivered in connection with the Acquisition
Agreement or the Merger.
"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans (other
than Swingline Loans), $1,000,000, (ii) for Eurodollar Loans, $2,000,000 and
(iii) for Swingline Loans, $500,000.
"Mortgage" shall have the meaning provided in Section 5.21.
"Mortgage Policies" shall have the meaning provided for in Section
5.21.
"Mortgaged Properties" shall have the meaning provided in Section
5.21.
"Net Sale Proceeds" shall mean for any sale of assets, the gross
cash proceeds (including any cash received by way of deferred payment pursuant
to a promissory note, receivable or otherwise, but only as and when received)
received from such sale, net of reasonable transaction costs (including,
without limitation, attorneys' fees), the amount of such gross cash proceeds
required to be used to permanently repay any Indebtedness which is secured by
the respective assets which were sold, and the estimated marginal increase in
income taxes and any stamp tax which will be payable by Holdings' consolidated
group as a result of such sale.
"Newco" shall have the meaning provided in the first paragraph of
this Agreement.
"Newco Common Stock" shall have the meaning provided in Section
7.14.
"Note" shall mean each A Term Note, each B Term Note, each
Acquisition Note, each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
0000D4LB.W51 -107-
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"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Agent located at 787
Seventh Avenue, New York, New York 10019, Attention: Donald J. Ercole, or such
other office as the Agent may hereafter designate in writing as such to the
other parties hereto.
"Obligations" shall mean all amounts owing to the Agent, the
Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Agent located at 787
Seventh Avenue, New York, New York 10019, Attention: Donald J. Ercole, or such
other office as the Agent may hereafter designate in writing as such to the
other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment at such time; provided that if the Percentage of any
Bank is to be determined after the Total Revolving Loan Commitment has been
terminated, then the Percentages of the Banks shall be determined immediately
prior (and without giving effect) to such termination.
"Permitted Acquisition" shall mean the acquisition by Holdings or
any of its Subsidiaries of assets constituting all or substantially all of a
business, business unit, division or product line of any Person not already a
Subsidiary of Holdings or 100% of the capital stock of any such Person,
although any such acquisition shall only be a Permitted Acquisition so long as
(A) the consideration therefor consists solely of the proceeds of Acquisition
Loans, issuances of Holdings Common Stock, Permitted Seller Notes and
Permitted Earn-Out Debt; (B) the assets acquired, or the business of the
Person whose stock is acquired, shall be in a Permitted Business; (C) those
acquisitions that are structured as asset acquisitions shall be consummated by
Holdings or through a new United States Subsidiary formed by Holdings, which
shall be a Wholly-Owned Subsidiary of Holdings, to effect such acquisition and
(D) those acquisitions that are structured as stock acquisitions shall be
effected through a purchase of 100% of the capital stock of such Person by
Holdings or through a merger between such Person and a newly-formed direct
Wholly-Owned Subsidiary of Holdings, as the case may be, so that after giving
effect to such merger 100% of the capital stock of the surviving corporation
of such merger is owned by Holdings. Notwithstanding anything to the contrary
contained in the immediately preceding
0000D4LB.W51 -108-
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sentence, an acquisition shall be a Permitted Acquisition only if all
requirements of Section 8.15 with respect to Permitted Acquisitions are met
with respect thereto.
"Permitted Acquisition Notice" shall have the meaning provided in
Section 8.15(a).
"Permitted Business" shall mean a line of business in which Holdings
and its Subsidiaries is engaged on the Initial Borrowing Date and reasonably
related extensions thereof.
"Permitted Earn-Out Debt" shall mean Indebtedness of Holdings
incurred in connection with a Permitted Acquisition and in accordance with
Section 8.15, which Indebtedness is not secured by any assets of Holdings or
any of its Subsidiaries (including, without limitation, the assets so
acquired) and is only payable by Holdings upon the passage of time (e.g.
non-compete payments) or in the event certain future performance goals are
achieved with respect to the assets acquired; PROVIDED that such Indebtedness
shall only constitute Permitted Earn-Out Debt to the extent the terms of such
Indebtedness expressly limit the maximum potential liability of Holdings with
respect thereto and all such other terms shall be in form and substance
satisfactory to the Agent provided that Permitted Earn-Out Debt shall not be
incurred unless such incurrence IS PERMITTED PURSUANT TO THE FIRST PARAGRAPH
of Section 6.11 of the Senior Subordinated Loan Agreement.
"Permitted Encumbrance" shall mean, with respect to any Mortgaged
Property, such exceptions to title as are set forth in the title insurance
policy or title commitment delivered with respect thereto, all of which
exceptions must be acceptable, on the date of delivery of such title insurance
policy, to the Agent and the Required Banks.
"Permitted Equity Issuances" shall mean (i) issuances of Holdings
Common Stock by Holdings as consideration in Permitted Acquisitions, but only
to the extent permitted pursuant to Section 8.15 and (ii) issuances of
Holdings Common Stock pursuant to the Holdings Stock Option Plan.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Permitted Secured Seller Notes" shall have the meaning set forth in
the definition of "Permitted Seller Notes."
"Permitted Seller Notes" shall mean notes issued by Holdings to
sellers of stock or assets in a Permitted Acquisition and issued in accordance
with Section 8.15, which notes shall be subordinated, unsecured and
unguaranteed, and shall otherwise be in form and substance satisfactory to the
Agent, PROVIDED that Permitted Seller Notes in an amount not to exceed in the
aggregate, $5,000,000 shall be permitted to be secured
0000D4LB.W51 -109-
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("Permitted Secured Seller Notes") by the assets being acquired, so long as
the fair market value of such assets does not exceed the amount of debt
secured thereby in the aggregate, PROVIDED that Permitted Seller Notes may not
be issued at any time unless such incurrence is permitted pursuant to the
first paragraph of Section 6.11 of the Senior Subordinated Loan Agreement.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan, as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) Holdings, a Subsidiary of Holdings or an ERISA
Affiliate, and each such plan for the five year period immediately following
the latest date on which Holdings, a Subsidiary of Holdings or an ERISA
Affiliate maintained, contributed to or had an obligation to contribute to
such plan.
"Pledge Agreement" shall have the meaning provided in Section 5.07.
"Pledge Agreement Collateral" shall mean all "Collateral" as defined
in the Pledge Agreement.
"Pledged Securities" shall have the meaning assigned that term in
the Pledge Agreement.
"Pledged Stock" shall have the meaning assigned that term in the
Pledge Agreement.
"Prime Lending Rate" shall mean the rate which The Chase Manhattan
Bank announces from time to time as its prime lending rate, the Prime Lending
Rate to change when and as such prime lending rate changes. The Prime Lending
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer by Banque Paribas or The Chase Manhattan
Bank, who may make commercial loans or other loans at rates of interest at,
above or below the Prime Lending Rate.
"Pro Forma Basis" shall mean, with respect to any Permitted
Acquisition, the calculation of the consolidated results of Holdings and its
Subsidiaries otherwise determined in accordance with this Agreement as if the
respective Permitted Acquisition (and all other Permitted Acquisitions
consummated during the respective Calculation Period or thereafter and prior
to the date of determination pursuant to Section 8.15 or other applicable
provision of this Agreement) had been effected on the first day of the
respective Calculation
0000D4LB.W51 -110-
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Period; provided that (A) all calculations of the Consolidated Interest
Expense or Consolidated Indebtedness shall take into account the following
assumptions:
(i) if any Indebtedness is incurred pursuant to the respective
Permitted Acquisition (or was incurred in any other Permitted Acquisition
which occurred during the relevant Calculation Period or thereafter and
prior to the date of determination) then all such Indebtedness shall be
deemed to have been outstanding from the first day of the respective
Calculation Period (and the interest expense associated with such
Indebtedness, shall be determined at the actual rates applicable thereto
or which would have been applicable had such debt been outstanding for
the whole such period and shall be included in determining Consolidated
Interest Expense on such Pro Forma Basis) and all Indebtedness that was
outstanding during the Calculation Period or thereafter and prior to the
date of the Permitted Acquisition but not outstanding on the date of the
Permitted Acquisition shall be deemed to have been repaid in full on the
first day of the Calculation Period; and
(ii) all calculations of Consolidated EBITDA (and the other
components of the definition of Consolidated EBITDA included therein)
shall include only the Consolidated EBITDA of Holdings and its
Subsidiaries (and the other components of the definition of Consolidated
EBITDA included therein) during the relevant Calculation Period and shall
not include any Consolidated EBITDA (or other components) of the Person
or business, division or product line being acquired pursuant to the
Permitted Acquisition unless either (x) such Consolidated EBITDA of the
Person or business, division or product line being acquired has been
audited for the entire Calculation Period by any of the "big six" or
other independent certified public accountants of recognized national
standing, or (y) in the case of calculations based on unaudited financial
statements, the Agent shall be reasonably satisfied with the calculations
of Consolidated EBITDA of such Person or business, division or product
line being acquired pursuant to the respective Permitted Acquisition; and
(iii) if all or any portion of the respective Calculation Period
occurs before the Initial Borrowing Date, then compliance with Sections
9.04 and 9.09 through 9.14, inclusive on a Pro Forma Basis, shall only be
required to be established for the period beginning on the Initial
Borrowing Date and ending on the last day of the respective Calculation
Period; PROVIDED that to the extent a financial covenant calculation
compares a balance sheet item to an income statement item, all
calculations relating to the financial results of the Person or business,
division or product line being acquired pursuant to the Permitted
Acquisition shall, to the extent that such results relate to income
statement items, be multiplied by a fraction (x) the numerator of which
shall be the number of days from the Initial Borrowing Date to the end of
the Calculation Period and (y) the denominator of which shall be the
number of days in the Calculation Period without giving effect to this
clause (C)
0000D4LB.W51 -111-
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which provides that the Calculation Period commences on the Initial
Borrowing Date (and is therefore less than four fiscal quarters).
"Projections" shall have the meaning provided in Section 5.16.
"Purchase Price" shall mean the aggregate purchase price to be paid
for Southern which purchase price shall not exceed $52 million.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December of each calendar year.
"Quoted Rate" shall mean (a) the offered quotation to first-class
banks in the New York interbank Eurodollar market by the Agent for U.S. dollar
deposits of amounts in immediately available funds comparable to the
outstanding principal amount of the Eurodollar Loan of the Agent for which an
interest rate is then being determined with matu-rities comparable to the
Interest Period applicable to such Eurodollar Loan determined as of 10:00 A.M.
(New York time) on the date which is two Business Days prior to the
commencement of such Interest Period, divided (and rounded upward to the next
whole multiple of 1/16 of 1%) by (b) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency funding or liabilities as defined in Regulation D (or any
successor category of liabilities under Regulation D).
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. ss. 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by Holdings or any
Subsidiary of Holdings of any cash insurance proceeds payable by reason of
theft, physical destruction or damage or any other similar event with respect
to any properties or assets of Holdings or any Subsidiary of Holdings
(including, without limitation, business interruption insurance).
"Refinanced Indebtedness" shall have the meaning provided in Section
5.17(b).
"Register" shall have its meaning provided in Section 8.16.
0000D4LB.W51 -112-
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"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Release" means disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing, pouring and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.12.
"Replacement Bank" shall have the meaning provided in Section 1.12.
"Reportable Event" shall mean an event described in Section 4043(c)
of ERISA with respect to a Plan that is subject to Title IV of ERISA other
than those events as to which the 30-day notice period is waived under
subsection .13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 4043.
"Required A Facility Banks" shall mean Banks the sum of whose
outstanding A Term Loans represent an amount greater than 50% of all
outstanding A Term Loans made by all Banks.
"Required Acquisition Facility Banks" shall mean Banks the sum of
whose Acquisition Loan Commitments (or after the termination thereof, the sum
of whose Acquisition Loans) represent an amount greater than 50% of the Total
Acquisition Loan Commitment (or, after the Acquisition Loan Termination Date,
the Banks the sum of whose
0000D4LB.W51 -113-
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outstanding Acquisition Loans represent an amount greater that 50% of all
outstanding Acquisition Loans made by all Banks).
"Required B Facility Banks" shall mean Banks the sum of whose
outstanding B Term Loans represent an amount greater than 50% of the sum of
all outstanding B Term Loans made by all Banks.
"Required Banks" shall mean Banks the sum of whose outstanding Term
Loans, Acquisition Loan Commitments, after the Acquisition Loan Termination
Date, outstanding Acquisition Loans, Revolving Loan Commitments (or after the
termination thereof, the sum of outstanding Revolving Loans and Percentages of
Swingline Loans and Letter of Credit Outstandings), represent an amount
greater than 50% of the sum of all outstanding Term Loans, the Total
Acquisition Loan Commitment, after the Acquisition Loan Termination Date, all
outstanding Acquisition Loans and the Total Revolving Loan Commitment (or
after the termination thereof, the sum of the then total outstanding Revolving
Loans and the aggregate Swingline Loans and Letter of Credit Outstandings).
"Returns" shall have the meaning provided in Section 7.09.
"Revolving Loan Commitment" shall mean, for each Bank, the amount
set forth opposite such Bank's name on Schedule I hereto directly below the
column entitled "Revolving Loan Commitment," as same may be (x) reduced or
terminated from time to time pursuant to Section 3.02, 3.03, 4.02 and/or 10 or
(y) adjusted from time to time as a result of assignments to or from such Bank
pursuant to Section 1.12 or 14.04.
"Revolving Loan Maturity Date" shall mean the fifth anniversary of
the Initial Borrowing Date.
"Revolving Loans" shall have the meaning provided in Section
1.01(d).
"Revolving Note" shall have the meaning provided in Section
1.05(a)(iv).
"Scheduled A Term Loan Repayment" shall have the meaning provided in
Section 4.02(A)(c).
"Scheduled Acquisition Loan Repayment" shall have the meaning
provided in Section 4.02(A)(e).
"Scheduled B Term Loan Repayment" shall have the meaning provided in
Section 4.02(A)(d).
0000D4LB.W51 -114-
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"Scheduled Repayment" shall have the meaning provided in Section
4.02(A)(e).
"SEC" shall have the meaning provided in Section 5.16.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Secured Creditors" shall mean (x) the Banks, the Agent, the
Collateral Agent and (y) any Bank which on the date hereof is, or subsequently
becomes, party to any Interest Rate Protection or Other Hedging Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in Section
5.08.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Documents" shall mean the Pledge Agreement, the Security
Agreement, the Concentration Account Consent Letter, each Additional Security
Document and each Mortgage.
"Seller Preferred Stock" shall mean perpetual preferred stock issued
by Holdings which preferred stock has no mandatory redemption, sinking fund or
similar requirements, pays no cash dividends, has no covenants or voting
rights and is otherwise acceptable in all respects to the Agent provided that
no Seller Preferred Stock may be issued unless permitted pursuant to the first
paragraph of Section 6.11 of the Senior Subordinated Loan Agreement.
"Senior Subordinated Loan Agreement" shall mean the Senior
Subordinated Note Purchase Agreement, dated as of November __, 1996 among
Holdings and the Purchasers listed on the signature pages thereof.
"Senior Subordinated Loan Documents" shall mean and include each of
the documents and other agreements entered into in connection with the
issuance by Holdings of the Senior Subordinated Notes (including, without
limitation, the Senior Subordinated Loan Agreement and all guarantees related
thereto), as in effect on the Initial Borrowing
0000D4LB.W51 -115-
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Date and as the same may be entered into, modified, supplemented or amended
from time to time pursuant to the terms hereof and thereof.
"Senior Subordinated Notes" shall mean Holdings' unsecured 12%
Senior Subordinated Notes due 2010, as in effect on the Initial Borrowing Date
and as the same may be modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.05.
"Southern" shall mean J.E. Hanger, Inc. of Georgia, a Georgia
corporation. References to Southern with respect to periods of time after the
Merger shall be references to Southern, as the surviving corporation of the
Merger.
"Stated Amount" of each Letter of Credit shall, at any time, mean
the maximum amount available to be drawn thereunder at such time (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Subsidiaries Guaranty" shall have the meaning provided in Section
5.10.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one
or more Subsidiaries of such Person and (ii) any partnership, association,
joint venture or other entity in which such Person and/or one or more
Subsidiaries of such Person has more than a 50% equity interest at the time.
"Subsidiary Guarantor" shall mean each Subsidiary of Holdings other
than the Foreign Subsidiaries.
"Swingline Bank" shall mean Banque Paribas, in its capacity as the
maker of Swingline Loans.
"Swingline Expiry Date" shall mean the date which is two Business
Days prior to the Revolving Loan Maturity Date.
"Swingline Loans" shall have the meaning provided in Section
1.01(e).
"Swingline Note" shall have the meaning provided in Section
1.05(a)(v).
0000D4LB.W51 -116-
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"Syndication Termination Date" shall mean the earlier of (x) 180
days after the Initial Borrowing Date or (y) the date on which the Agent, in
its sole discretion, determines (and notifies the Borrowers) that the primary
syndication (and the resultant addition of institutions as Banks pursuant to
Section 14.04) has been completed.
"Tax Sharing Agreements" shall have the meaning provided in Section
5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan Commitment" shall mean each A Term Loan Commitment and
each B Term Loan Commitment, with the Term Loan Commitment of any Bank at any
time to equal the sum of its A Term Loan Commitment and B Term Loan Commitment
as then in effect.
"Term Loans" shall mean the A Term Loans and the B Term Loans.
"Total A Term Loan Commitment" shall mean, at any time, the sum of
the A Term Loan Commitments of each of the Banks.
"Total Acquisition Loan Commitment" shall mean, at any time, the sum
of the Acquisition Loan Commitments of each of the Banks.
"Total B Term Loan Commitment" shall mean, at any time, the sum of
the B Term Loan Commitments of each of the Banks.
"Total Commitment" shall mean, at any time, the sum of the
Commitments of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the sum
of the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
A Term Loan Commitment and the B Term Loan Commitment of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any
time, an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less (y) the sum of (A) the aggregate principal amount of
Revolving Loans and Swingline Loans then outstanding plus (B) the then
aggregate amount of Letter of Credit Outstandings.
"Total Unutilized Acquisition Loan Commitment" shall mean, at any
time, an amount equal to the remainder of the then Total Acquisition Loan
Commitment, less the aggregate principal amount of Acquisition Loans then
outstanding.
0000D4LB.W51 -117-
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"Tranche" shall mean the respective facility and commitments
utilized in making Loans hereunder, with there being five separate Tranches,
I.E., whether A Term Loans, B Term Loans, Acquisition Loans, Revolving Loans
or Swingline Loans.
"Transaction" shall mean collectively, (i) the incurrence of Loans
hereunder on the Initial Borrowing Date, (ii) the consummation of the
Acquisition (including the Merger), (iii) the issuance of the Senior
Subordinated Notes, (iv) the repayment of all Refinanced Indebtedness,
together with all accrued interest, premiums, fees, commissions and expenses
owing in connection therewith, and the termination of all commitments
there-under and (v) the payment of the Transaction Fees and Expenses in
connection therewith.
"Transaction Fees and Expenses" shall mean all fees and expenses
incurred in connection with and arising out of the Transaction and the
transactions contemplated thereby and hereby; PROVIDED, HOWEVER, that the
aggregate amount of such fees and expenses shall not exceed $4,000,000 in the
aggregate.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, I.E., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits
under the Plan as of the close of its most recent plan year exceeds the fair
market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.05(a).
"Unutilized Revolving Loan Commitment" for any Bank, at any time,
shall mean the Revolving Loan Commitment of such Bank at such time less the
sum of (i) the aggregate principal amount of Revolving Loans made by such Bank
and then outstanding and (ii) such Bank's Percentage of the Letter of Credit
Outstandings in respect of Letters of Credit issued under this Agreement.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint
0000D4LB.W51 -118-
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venture or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
Section 12. THE AGENT.
12.01 APPOINTMENT. The Banks hereby designate Banque Paribas as
Agent (for purposes of this Section 12, the term "Agent" shall include Banque
Paribas in its capacity as Collateral Agent pursuant to the Security
Documents) to act as specified herein and in the other Credit Documents. Each
Bank 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 Agreement, the
other Credit Documents and any other instruments and agreements referred to
herein or therein 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. The Agent may perform any of its duties hereunder by or
through its officers, directors, agents or employees.
12.02 NATURE OF DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Security Documents. Neither the Agent nor any of its officers, directors,
agents or employees shall be liable for any action taken or omitted by it or
them hereunder or under any other Credit Document or in connection herewith or
therewith, 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 Agreement or any other
Credit Document a fiduciary relationship in respect of any Bank or the holder
of any Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose
upon the Agent any obligations in respect of this Agreement or any other
Credit Document except as expressly set forth herein.
12.03 LACK OF RELIANCE ON THE AGENT. Independently and without
reliance upon the Agent, each Bank and the holder of each Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of Holdings
and its Subsidiaries in connection with the making and the continuance of the
Loans and the participation in Letters of Credit and the taking or not taking
of any action in connection herewith and (ii) its own appraisal of the
creditworthiness of Holdings and its Subsidiaries and, except as expressly
provided in this Agreement, the Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Bank or the holder
of any Note with any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans, the participation
in the Letters of Credit or at any time or times thereafter. The Agent shall
not be responsible to any Bank or the holder of any Note for any recitals,
statements,
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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, perfection,
priority or sufficiency of this Agreement or any other Credit Document or the
financial condition of Holdings or its Subsidiaries or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any other Credit Document, or
the financial condition of Holdings or its Subsidiaries or the existence or
possible existence of any Default or Event of Default.
12.04 CERTAIN RIGHTS OF THE AGENT. If the Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other
Credit Document, 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 Banks; and the Agent shall not incur liability to any Person
by reason of so refraining. Without limiting the foregoing, no Bank or the
holder of any Note shall have any right of action whatsoever against the Agent
as a result of the Agent acting or refraining from acting hereunder or under
any other Credit Document in accordance with the instructions of the Required
Banks.
12.05 RELIANCE. 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 facsimile message, cablegram,
radiogram, order or other document or telephone message signed, sent or made
by any Person that the Agent believed to be the proper Person, and, with
respect to all legal matters pertaining to this Agreement and any other Credit
Document and its duties hereunder and thereunder, upon advice of counsel
selected by it.
12.06 INDEMNIFICATION. (a) To the extent the Agent is not reimbursed
and indemnified by the Borrowers, the Banks will reimburse and indemnify the
Agent, in proportion to their respective "percentages" as used in determining
the Required Banks, for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, costs, expenses
or disbursements of whatsoever kind or nature which may be imposed on,
asserted against or incurred by the Agent in performing its duties hereunder
or under any other Credit Document, in any way relating to or arising out of
this Agreement or any other Credit Document; provided that no Bank 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.
(b) The Agent shall be fully justified in failing or refusing to
take any action hereunder and under any other Credit Document (except actions
expressly required to be taken by it hereunder or under the Credit Documents)
unless it shall first be indemnified
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to its satisfaction by the Banks pro rata against any and all liability, cost
and expense that it may incur by reason of taking or continuing to take any
such action.
12.07 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its
obligation to make Loans under this Agreement, the Agent shall have the rights
and powers specified herein for a "Bank" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Banks," "Required Banks," "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, and
generally engage in any kind of banking, trust or other business with any
Credit Party or any Affiliate of any Credit Party as if it were not performing
the duties specified herein, and may accept fees and other consideration from
the Borrowers or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Banks.
12.08 HOLDERS. 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, transfer or endorsement thereof, as the case may be, 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 Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of
such Note or of any Note or Notes issued in exchange therefor.
12.09 RESIGNATION BY THE AGENT. (a) The Agent may resign from the
performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice
to each of the Borrowers and the Banks. Such resignation shall take effect
upon the appointment of a successor Agent pursuant to clauses (b) and (c)
below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall
appoint a successor Agent hereunder or thereunder who shall be a commercial
bank or trust company reasonably acceptable to each of the Borrowers (it being
understood and agreed that any Bank is deemed to be acceptable to each of the
Borrowers).
(c) If a successor Agent shall not have been so appointed within
such 15 Business Day period, the Agent, with the consent of each of the
Borrowers, shall then appoint a successor Agent who shall serve as Agent
hereunder or thereunder until such time, if any, as the Banks appoint a
successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to clause (b)
or (c) above by the 30th Business Day after the date such notice of
resignation was given by the Agent, the Agent's resignation shall become
effective and the Banks shall thereafter perform
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all the duties of the Agent hereunder and/or under any other Credit Document
until such time, if any, as the Banks appoint a successor Agent as provided
above.
Section 13. GUARANTY.
13.01 THE GUARANTY. In order to induce the Banks to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings from the proceeds of the Loans and the
issuance of the Letters of Credit, Holdings hereby agrees with the Banks as
follows: Holdings hereby unconditionally and irrevocably guarantees as primary
obligor and not merely as surety the full and prompt payment when due, whether
upon maturity, by acceleration or otherwise, of any and all indebtedness of
Southern to the Banks under this Agreement and the other Credit Documents and
under each Interest Rate Protection or Other Hedging Agreement entered into by
a Bank with Southern. If any or all of the indebtedness of Southern to the
Banks becomes due and payable hereunder or under such other Credit Documents
or Interest Rate Protection or Other Hedging Agreements, Holdings
unconditionally promises to pay such indebtedness to the Banks, or order, on
demand, together with any and all expenses which may be incurred by the Agent
or the Banks in collecting any of the indebtedness. The word "indebtedness" is
used in this Section 13 in its most comprehensive sense and means any and all
advances, debts, obligations and liabilities of Southern arising in connection
with this Agreement or any other Credit Documents or under any Interest Rate
Protection or Other Hedging Agreement with a Bank, in each case, heretofore,
now, or hereafter made, incurred or created, whether voluntarily or
involuntarily, absolute or contingent, liquidated or unliquidated, determined
or undetermined, whether or not such indebtedness is from time to time
reduced, or extinguished and thereafter increased or incurred, whether
Southern may be liable individually or jointly with others, whether or not
recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, and whether or not such indebtedness may be or
hereafter become otherwise unenforceable.
13.02 BANKRUPTCY. Additionally, Holdings unconditionally and
irrevocably guarantees the payment of any and all indebtedness of Southern to
the Banks whether or not due or payable by Southern upon the occurrence of any
of the events specified in Section 10.05, and unconditionally and irrevocably
promises to pay such indebtedness to the Banks, or order, on demand, in lawful
money of the United States.
13.03 NATURE OF LIABILITY. The liability of Holdings hereunder is
exclusive and independent of any security for or other guaranty of the
indebtedness of Southern whether executed by Holdings, any other guarantor or
by any other party, and the liability of Holdings hereunder shall not be
affected or impaired by (a) any direction as to application of payment by
Southern or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to
the
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indebtedness of Southern, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or
increase, decrease or change in personnel by Southern, or (e) any payment made
to the Agent or the Banks on the indebtedness which the Agent or such Banks
repay Southern pursuant to court order in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and Holdings waives
any right to the deferral or modification of its obligations hereunder by
reason of any such proceeding.
13.04 GUARANTY ABSOLUTE. No invalidity, irregularity or
unenforceability of all or any part of the indebtedness guaranteed hereby or
of any security therefor shall affect, impair or be a defense to this
Guaranty, and this Guaranty shall be primary, absolute and unconditional
notwithstanding the occurrence of any event or the existence of any other
circumstances which might constitute a legal or equitable discharge of a
surety or guarantor except payment in full of the indebtedness guaranteed
herein.
13.05 INDEPENDENT OBLIGATION. The obligations of Holdings hereunder
are independent of the obligations of any other guarantor or Southern, and a
separate action or actions may be brought and prosecuted against Holdings
whether or not action is brought against any other guarantor or Southern and
whether or not any other guarantor or Southern be joined in any such action or
actions. Holdings waives, to the fullest extent permitted by law, the benefit
of any statue of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by Southern or other circumstance which
operates to toll any statute of limitations as to Southern shall operate to
toll the statute of limitations as to Holdings.
13.06 AUTHORIZATION. Holdings authorizes the Agent and the Banks
without notice or demand (but upon the agreement and consent of Southern or
its Subsidiaries to the extent otherwise required by the relevant agreement),
and without affecting or impairing its liability hereunder, from time to time
to:
(a) change the manner, place or terms of payment of, and/or change
or extend the time of payment of, renew, increase, accelerate or alter,
any of the indebtedness (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to the indebtedness as so changed, extended, renewed or
altered;
(b) take and hold security for the payment of the indebtedness and
sell, exchange, release, surrender, realize upon or otherwise deal with
in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the indebtedness
or any liabilities (including any of
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those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against Southern
or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors,
Southern or other obligors;
(e) settle or compromise any of the indebtedness, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate
the payment of all or any part thereof to the payment of any liability
(whether due or not) of Southern to its creditors other than the Banks;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of Southern to the Banks regardless of what
liability or liabilities of Holdings or Southern remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or otherwise amend, modify or supplement this
Agreement or any of such other instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
Holdings from its liabilities under this Section 13.
13.07 RELIANCE. It is not necessary for the Agent or the Banks to
inquire into the capacity or powers of Southern or its Subsidiaries or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
13.08 SUBORDINATION. Any indebtedness of Southern now or hereafter
held by Holdings is hereby subordinated to the indebtedness of Southern to the
Agent and the Banks; and such indebtedness of Southern to Holdings, if the
Agent (at the direction of the Required Banks), after an Event of Default has
occurred, so requests, shall be collected, enforced and received by Holdings
as trustee for the Banks and be paid over to the Banks on account of the
indebtedness of Southern to the Banks, but without affecting or impairing in
any manner the liability of Holdings under the other provisions of this
Guaranty. Prior to the transfer by Holdings of any note or negotiable
instrument evidencing any indebted-
0000D4LB.W51 -124-
<PAGE>
ness of Southern to Holdings, Holdings shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination.
13.09 WAIVER. (a) Holdings waives any right to require the Agent or
the Banks to (i) proceed against Southern, any other guarantor or any other
party, (ii) proceed against or exhaust any security held from Southern, any
other guarantor or any other party or (iii) pursue any other remedy in the
Agent's or the Banks' power whatsoever. Holdings waives any defense based on
or arising out of any defense of Southern, any other guarantor or any other
party other than payment in full of the indebtedness, including, without
limitation, any defense based on or arising out of the disability of Southern,
any other guarantor or any other party, or the unenforceability of the
indebtedness or any part thereof from any cause, or the cessation from any
cause of the liability of Southern other than payment in full of the
indebtedness. The Agent and the Banks may, in accordance with the Credit
Documents, at their election, foreclose on any security held by the Agent, the
Collateral Agent or the Banks by one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially reasonable (to
the extent such sale is permitted by applicable law), or exercise any other
right or remedy the Agent and the Banks may have against Southern or any other
party, or any security, without affecting or impairing in any way the
liability of Holdings hereunder except to the extent the indebtedness has been
paid. Holdings waives any defense arising out of any such election by the
Agent and Southern, even though such election operates to impair or extinguish
any right of reimbursement or subrogation or other right or remedy of Holdings
against Southern or any other party or any security.
(b) Holdings waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new
or additional indebtedness. Holdings assumes all responsibility for being and
keeping itself informed of Southern's financial condition and assets, and of
all other circumstances bearing upon the risk of non-payment of the
indebtedness and the nature, scope and extent of the risks which Holdings
assumes and incurs hereunder, and agrees that the Agent and the Banks shall
have no duty to advise Holdings of information known to them regarding such
circumstances or risks.
13.10 GUARANTY CONTINUING. This Guaranty is a continuing one and all
liabilities to which it applies or may apply under the terms hereof shall be
conclusively presumed to have been created in reliance hereon. No failure or
delay on the part of any Bank, of any holder of any Note, or issuer of, or
participant in, any Letter of Credit in exercising any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly specified are cumulative
and not exclusive of any
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rights or remedies which any Bank or any subsequent holder of a Note, or
issuer of, or participant in, a Letter of Credit would otherwise have. No
notice to or demand on Holdings in any case shall entitle Holdings to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Bank or any holder, creator or
purchaser to any other or further action in any circumstances without notice
or demand.
13.11 BINDING NATURE OF GUARANTIES. This Guaranty shall be binding
upon Holdings and its successors and assigns and shall inure to the benefit of
the Bank and their successors and assigns.
13.12 JUDGMENTS BINDING. If claim is ever made upon any Bank, any
subsequent holder of a Note or issuer of, or participant in, any Letter of
Credit for repayment or recovery of any amount or amounts received in payment
or on account of any of the indebtedness and any of the aforesaid payees
repays all or part of said amount by reason of (a) any judgment, decree or
order of any court or administrative body having jurisdiction over such payee
or any of its property, or (b) any settlement or compromise of any such claim
effected by such payee with any such claimant (including Southern) then and in
such event Holdings agrees that any such judgment, decree, order, settlement
or compromise shall be binding upon Holdings, notwithstanding any revocation
hereof or the cancellation of any Note, or other instrument evidencing any
liability of Southern, and Holdings shall be and remain liable to the
aforesaid payees hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by any such payee.
Section 14. MISCELLANEOUS.
14.01 PAYMENT OF EXPENSES, ETC. The Borrowers, jointly and
severally, agree to: (i) whether or not the transactions herein contemplated
are consummated, pay all reasonable out-of-pocket costs and expenses of the
Agent (including, without limitation, the reasonable fees and disbursements of
White & Case and local counsel) in connection with the preparation, execution
and delivery of this Agreement and the other Credit Documents and the
documents and instruments referred to herein and therein and any amendment,
waiver or consent relating hereto or thereto, of the Agent in connection with
its syndication efforts with respect to this Agreement (including, without
limitation, the reasonable fees and disbursements of White & Case) and of the
Agent and each of the Banks in connection with the enforcement of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein (including, without limitation, the reasonable
fees and disbursements of counsel for the Agent and for each of the Banks);
(ii) pay and hold each of the Banks harmless from and against any and all
present and future stamp, excise and other similar taxes with respect to the
foregoing matters and save each of the Banks
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harmless from and against any and all liabilities with respect to or resulting
from any delay or omission (other than to the extent attributable to such
Bank) to pay such taxes; and (iii) defend, protect, indemnify and hold
harmless the Agent and each Bank, and each of their respective officers,
directors, employees, representatives, attorneys and agents (collectively
called the "Indemnitees") from and against any and all liabilities,
obligations (including removal or remedial actions), losses, damages
(including foreseeable and unforeseeable consequential damages and punitive
damages), penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (including reasonable attorneys' and consultants fees and
disbursements) of any kind or nature whatsoever that may at any time be
incurred by, imposed on or assessed against the Indemnitees directly or
indirectly based on, or arising or resulting from, or in any way related to,
or by reason of (a) any investigation, litigation or other proceeding (whether
or not the Agent, the Collateral Agent or any Bank is a party thereto and
whether or not any such investigation, litigation or other proceeding is
between or among the Agent, the Collateral Agent, any Bank, either Borrower or
any third person or otherwise) related to the entering into and/or performance
of this Agreement or any other Credit Document or the use of any Letter of
Credit or the proceeds of any Loans hereunder or the consummation of any
transactions contemplated herein (including, without limitation, the
Transaction) or in any other Credit Document or the exercise of any of their
rights or remedies provided herein or in the other Credit Documents; or, (b)
the actual or alleged generation, presence or Release of Hazardous Materials
on or from, or the transportation of Hazardous Materials to or from, any Real
Property owned or at any time operated by Holdings or any of its Subsidiaries
or; (c) any Environmental Claim relating to Holdings or any of its
Subsidiaries or any Real Property owned or at any time operated by Holdings or
any of its Subsidiaries or; (d) the exercise of the rights of the Agent and of
any Bank under any of the provisions of this Agreement or any other Credit
Document or any Letter of Credit or any Loans hereunder; or (e) the
consummation of any transaction contemplated herein (including, without
limitation, the Transaction) or in any other Credit Document (the "Indemnified
Matters") regardless of when such Indemnified Matter arises, but excluding any
such Indemnified Matter based solely on the gross negligence or willful
misconduct of any Indemnitee.
14.02 RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by such Bank
(including, without limitation, by branches and agencies of such Bank wherever
located) to or for the credit or the account of each Credit Party against and
on account of the Obligations and liabilities of such Credit Party to such
Bank under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations purchased by
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such Bank pursuant to Section 14.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other
Credit Document, irrespective of whether or not such Bank shall have made any
demand hereunder and although said Obligations, liabilities or claims, or any
of them, shall be contingent or unmatured.
14.03 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to a Borrower, at
its address specified opposite its signature below; if to any Bank, at its
address specified opposite its name below; and if to the Agent, at its Notice
Office; or, as to any Credit Party or the Agent, at such other address as
shall be designated by such party in a written notice to the other parties
hereto and, as to each Bank, at such other address as shall be designated by
such Bank in a written notice to each Borrower and the Agent. All such notices
and communications shall, when mailed, telegraphed, telexed, facsimiled, or
cabled or sent by overnight courier, be effective 3 Business Days after
deposited in the mails, certified, return receipt requested, when delivered to
the telegraph company, cable company or one day following delivery to an
overnight courier, as the case may be, or sent by telex or facsimile device,
except that notices and communications to the Agent shall not be effective
until received by the Agent.
14.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; PROVIDED, HOWEVER, no Credit Party may
assign or transfer any of its rights, obligations or interest hereunder or
under any other Credit Document without the prior written consent of the
Banks; and PROVIDED FURTHER, that although any Bank may transfer, assign or
grant participations in its rights hereunder, such Bank shall remain a "Bank"
for all purposes hereunder (and may not transfer or assign all or any portion
of its Commitments or Loans hereunder except as provided in Section 14.04(b))
and the transferee, assignee or participant, as the case may be, shall not
constitute a "Bank" hereunder; and PROVIDED FURTHER, that no Bank shall
transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan, Note or Letter of Credit (unless
such Letter of Credit is not extended beyond the Revolving Loan Maturity Date)
in which such participant is participating, or reduce the rate or extend the
time of payment of interest or Fees thereon (except in connection with a
waiver of applicability of any post-default increase in interest rates) or
reduce the principal amount thereof, or increase the Commitments in which such
participant is participating over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment shall not constitute a change in the terms
of any Commitment, and that an increase in any Commitment shall be permitted
without the consent of any participant if the parti-cipant's participation is
not increased as a result thereof), (ii) consent to the assignment or
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transfer by any Credit Party of any of its rights and obligations under this
Agreement or (iii) release all or substantially all of the Collateral under
all of the Security Documents (except as expressly provided in the Credit
Documents) supporting the Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the other Credit Documents
(the participant's rights against such Bank in respect of such participation
to be those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by a Borrower hereunder
shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together
with one or more other Banks) may (x) (A) pledge its Loans and/or Notes
hereunder to a Federal Reserve Bank in support of borrowings made by such Bank
from such Federal Reserve Bank or (B) assign all or a portion of its Loans or
Commitments and related outstanding Obligations hereunder to its parent
company, principal office and/or any Affiliate of such Bank which is at least
50% owned by such Bank or its parent company or one or more other Banks or (y)
assign all or a portion equal to at least $5,000,000, of such Loans or
Commitments and related outstanding Obligations hereunder to one or more
Eligible Transferees each of which assignees shall become a party to this
Agreement as a Bank by execution of an assignment and assumption agreement
substantially in the form of Exhibit N (appropriately completed); PROVIDED
that: (i) at such time Schedule I shall be deemed modified to reflect the
Commitments of such new Bank and of the existing Banks; (ii) new Notes will be
issued to such new Bank and to the assigning Bank upon the request of such new
Bank or assigning Bank, such new Notes to be in conformity with the
requirements of Section 1.05 to the extent needed to reflect the revised
Commitments; (iii) the consent of the Agent, which consent shall not be
unreasonably withheld, shall be required in connection with any assignment;
and (iv) the Agent shall receive at the time of each such assignment, from the
assigning Bank, the payment of a non-refundable assignment fee of $3,000. To
the extent of any assignment pursuant to this Section 14.04(b), the assigning
Bank shall be relieved of its obligations hereunder with respect to its
assigned Commitments. No transfer or assignment under this Section 14.04(b)
will be effective until recorded by the Agent on the Register pursuant to
Section 8.16. At the time of each assignment pursuant to this Section 14.04(b)
to a Person which is not already a Bank hereunder and which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
Federal income tax purposes, the respective assignee Bank shall provide to
Holdings or Newco, as the case may be, and the Agent the appropriate Internal
Revenue Service Forms (and, if applicable, a Section 4.04(b)(ii) Certificate)
required by Section 4.04(b).
14.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Agent or any Bank or any holder of any Note in exercising any
right, power or privi- lege hereunder or under any other Credit Document and
no course of dealing between a
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Borrower or any other Credit Party and the Agent or any Bank or the holder of
any Note shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights, powers
and remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the Agent
or any Bank or the holder of any Note would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle any Credit Party to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or any Bank or the holder of
any Note to any other or further action in any circumstances without notice or
demand.
14.06 PAYMENTS PRO RATA. (a) The Agent agrees that promptly after
its receipt of each payment from or on behalf of either Borrower in respect of
any Obligations hereunder, it shall distribute such payment to the Banks PRO
RATA based upon their respective shares, if any, of the Obligations with
respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or
interest on, the Loans, Unpaid Drawings or Fees, of a sum which with respect
to the related sum or sums received by other Banks is in a greater proportion
than the total of such Obligation then owed and due to such Bank bears to the
total of such Obligation then owed and due to all of the Banks immediately
prior to such receipt, then such Bank receiving such excess payment shall
purchase for cash without recourse or warranty from the other Banks an
interest in the Obligations of the respective Credit Party to such Banks in
such amount as shall result in a proportional participation by all the Banks
in such amount; PROVIDED that if all or any portion of such excess amount is
thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
14.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in
the notes thereto or as otherwise disclosed in writing by the Borrowers to the
Banks); PROVIDED that, except as otherwise specifically provided herein, all
computations of Excess Cash Flow and all computations determining compliance
with Sections 9.04 and 9.08 through 9.15, inclusive, including the definitions
used therein, shall utilize accounting principles and policies in conformity
with those used to prepare the historical financial statements for the fiscal
year ended December 31, 1995 delivered to the Banks pursuant to Section 8.01.
0000D4LB.W51 -130-
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(b) All computations of interest and Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.
14.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS
OTHERWISE PROVIDED IN THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS. THE BORROWERS HEREBY IRREVOCABLY DESIGNATE, APPOINT AND EMPOWER CT
CORPORATION SYSTEM WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK,
NEW YORK 10019, AS THEIR DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND
ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED
IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE
AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, AND THE BORROWERS AGREE
TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND FOR THE
PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT UNDER THIS AGREEMENT. THE
BORROWERS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT 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
BORROWERS AT THEIR ADDRESSES SET FORTH OPPOSITE THEIR SIGNATURES BELOW, SUCH
SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF
ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER
JURISDICTION.
0000D4LB.W51 -131-
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(B) THE BORROWERS HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A)
ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM
IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
14.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on 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. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrowers and the Agent.
14.10 EFFECTIVENESS. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrowers and each of the Banks shall
have signed a copy hereof (whether the same or different copies) and shall
have delivered the same to the Agent at its Notice Office or, in the case of
the Banks, shall have given to the Agent telephonic (confirmed in writing),
written or facsimile transmission notice (actually received) in accordance
with Section 14.03 at such office that the same has been signed and mailed to
it.
14.11 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Agreement.
14.12 AMENDMENT OR WAIVER. (a) Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination
is in writing signed by the respective Credit Parties party thereto and the
Required Banks; PROVIDED that no such change, waiver, discharge or termination
shall, without the consent of each Bank (with Obligations of the respective
types being directly affected thereby): (i) extend the final scheduled
maturity of any Loan or Note or extend the stated maturity of any Letter of
Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend
the time of
0000D4LB.W51 -132-
<PAGE>
payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates), or reduce the
principal amount thereof, or increase the Commitments of any Bank over the
amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total
Commitment or a mandatory prepayment shall not constitute an increase of the
Commitment of any Bank, and that an increase in the available portion of any
Commitment of any Bank shall not constitute an increase in the Commitment of
such Bank); (ii) release all or substantially all of the Collateral (except as
expressly provided in the respective Credit Document); (iii) amend, modify or
waive any provision of this Section 14.12; (iv) reduce the percentage
specified in, or otherwise modify, the definition of Required Banks (it being
understood that, with the consent of the Required Banks, additional extensions
of credit pursuant to this Agreement may be included in the determination of
the Required Banks on substantially the same basis as the extensions of Term
Loans, Acquisition Loans, Acquisition Loan Commitments and Revolving Loan
Commitments are included on the Effective Date); or (v) consent to the
assignment or transfer by a Borrower of any of its rights and obligations
under this Agreement; PROVIDED FURTHER, that no such change, waiver, discharge
or termination shall: (t) increase the Commitments of any Bank over the amount
thereof then in effect (it being understood that a waiver of any conditions
precedent, covenants, Defaults or Events of Default or of a mandatory
reduction in the Total Commitment or of a mandatory prepayment shall not
constitute an increase of the Commitment of any Bank, and that an increase in
the available portion of any Commitment of any Bank shall not constitute an
increase in the Commitment of such Bank) without the consent of such Bank; or
(u) without the consent of the Issuing Bank, amend, modify or waive any
provision of Section 2 or alter its rights or obligations with respect to
Letters of Credit; or (v) without the consent of the Agent, amend, modify or
waive any provision of Section 12 or any other provision relating to the
rights or obligations of the Agent; or (w) without the consent of the
Collateral Agent, amend, modify or waive any provision of Section 12 or any
other provision relating to the rights or obligations of the Collateral Agent;
or (x) without the consent of the Required A Facility Banks (A) amend, modify
or waive any of the terms contained in (I) Sections 4.01(v), 4.02(B)(a)(i) or
the definitions of A TL Percentage, B TL Percentage, Acquisition TL Percentage
or Required A Facility Banks to the extent that, in any such case, such
amendment, modification or waiver would alter the application of prepayments
or repayments as between A Term Loans, B Term Loans and Acquisition Loans in a
manner adverse to the A Term Loans or (II) Section 4.02(A)(c); or (y) without
the consent of the Required B Facility Banks (A) amend, modify or waive any of
the terms contained in (I) Sections 4.01(v), 4.02(B)(a)(i) or the definitions
of A TL Percentage, B TL Percentage, Acquisition TL Percentage or Required B
Facility Banks to the extent that, in any such case, such amendment,
modification or waiver would alter the application of prepayments or
repayments as between A Term Loans, B Term Loans and Acquisition Loans in a
manner adverse to the B Term Loans or (II) Section 4.02(A)(d) or (z) without
the consent of the Required Acquisition Facility Banks (A) amend, modify or
waive any of the terms contained in (I) Section 4.01(v), 4.02(B)(a)(i) or
0000D4LB.W51 -133-
<PAGE>
the definitions of A TL Percentage, B TL Percentage, Acquisition TL Percentage
or Required Acquisition Facility Banks to the extent that, in any such case,
such amendment, modification or waiver would alter the application of
prepayments or repayments as between A Term Loans, B Term Loans and
Acquisition Loans in a manner adverse to the Acquisition Loans or (II) Section
4.02(A)(e) or the definition of Acquisition Loan Termination Date.
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
clause (a)(i) through (v), inclusive, of the first proviso to Section
14.12(a), the consent of the Required Banks is obtained but the consent of one
or more of such other Banks whose consent is required is not obtained, then a
Borrower shall have the right to replace each such nonconsenting Bank or Banks
(so long as all non-consenting Banks are so replaced) with one or more
Replacement Banks pursuant to Section 1.13 so long as at the time of such
replacement, each such Replacement Bank consents to the proposed change,
waiver, discharge or termination, PROVIDED that such Borrower shall not have
the right to replace a Bank solely as a result of the exercise of such Bank's
rights (and the withholding of any required consent by such Bank) pursuant to
clauses (t)-(w) of the second proviso to Section 14.12(a).
(c) The obligations or rights of the Swingline Bank with respect to
Swingline Loans, including, without limitation, the terms of any such
Swingline Loans and the obligations of the other Banks to fund Mandatory
Borrowings shall not be amended or modified without the consent of the
Swingline Bank.
(d) Notwithstanding anything to the contrary contained above in this
Section 14.12, the Collateral Agent may (i) enter into amendments to the
Subsidiaries Guaranty and the Security Documents for the purpose of adding
additional Subsidiaries of Holdings (or other Credit Parties) as parties
thereto and (ii) enter into security documents to satisfy the requirements of
Sections 8.15 and 8.17, in each case without the consent of the Required
Banks.
14.13 SURVIVAL. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 14.01 shall survive
the execution and delivery of this Agreement and the Notes and the making and
repayment of the Loans.
14.14 DOMICILE OF LOANS. Each Bank may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of such Bank.
14.15 POST-CLOSING OBLIGATIONS. (a) Notwithstanding anything to the
contrary contained in this Agreement or the other Credit Documents, the
parties hereto acknowledge and agree that the UCC financing statements and
Mortgages delivered by the relevant Credit Party on the Initial Borrowing Date
shall be filed in the appropriate
0000D4LB.W51 -134-
<PAGE>
governmental office within 3 Business Days after the Initial Borrowing Date.
The representations and warranties made in each of the Credit Documents with
respect to the due filing or recording of such financing statements and
Mortgages and the perfection and priority of the security interests under the
Security Documents, and any defaults arising therefrom, shall be waived for
such 3 Business Day period.
(b) The Borrowers hereby acknowledge that in connection with certain
assignments hereof, the Agent or any of the Banks may be required to obtain a
rating of the Obligations and Commitments hereunder of the Borrowers and the
Borrowers hereby consent to such Agent or Bank providing to the respective
rating agency such information regarding the Obligations and creditworthiness
of the Borrowers as is customary practice of such rating agency.
0000D4LB.W51 -135-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
ADDRESS:
HANGER ORTHOPEDIC GROUP, INC.
Attention:
Telephone: ------------------------------------
Facsimile: By:
Title:
JEH ACQUISITION CORPORATION
Attention:
Telephone: ------------------------------------
Facsimile: By:
Title:
787 Seventh Avenue BANQUE PARIBAS,
New York, New York 10019 Individually and as Agent
Attention: Don Ercole
Telephone: (212) 841-2000
Facsimile: (212) 841-2333
------------------------------------
By:
Title:
0000D4LB.W51
<PAGE>
100 Federal Street BANK OF BOSTON
P.O. Box 2016
Mail Stop: 01-08-05
Boston, Massachusetts 02110
Attention: ------------------------------------
Telephone: By:
Facsimile: Title:
Two World Trade Center DEAN WITTER PRIME INTEREST RATE FUND
New York, New York 10048
Attention:
Telephone: ------------------------------------
Facsimile: By:
Title:
2850 West Golf Road FIRST SOURCE FINANCIAL, INC.
5th Floor
Rolling Meadows, Illinois 60008
Attention:
Telephone: ------------------------------------
Facsimile: By:
Title:
Mail Stop: MA BO F04A FLEET NATIONAL BANK
75 State Street
Boston, Massachusetts 02109
Attention:
Telephone: ------------------------------------
Facsimile: By:
Title:
0000D4LB.W51
<PAGE>
Merchant Banking Group IMPERIAL BANK
225 Franklin Street
Suite 2900
Boston, MA 02110
Attention: ------------------------------------
Telephone: By:
Facsimile: Title:
120 South LaSalle Street LASALLE NATIONAL BANK
Chicago, Illinois 60603
Attention:
Telephone:
Facsimile: ------------------------------------
By:
Title:
0000D4LB.W51
EXHIBIT 10(b)
EXECUTION COPY
SENIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
dated as of
November 1, 1996
among
HANGER ORTHOPEDIC GROUP, INC.
and
The Purchasers listed on the
signature pages hereof
505298\0057\02050\969WL85X.NPA
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS.............................. 1
SECTION 1.1. Definitions......................................... 1
SECTION 1.2. Accounting Terms and Determinations................. 17
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS................ 17
SECTION 2.1. Commitments to Purchase Notes....................... 17
SECTION 2.2. Commitments to Warrants............................. 18
SECTION 2.3. The Closing......................................... 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY............................. 18
SECTION 3.1. Incorporation, Standing, etc........................ 18
SECTION 3.2. Capitalization; Ownership........................... 19
SECTION 3.3. Subsidiaries........................................ 20
SECTION 3.4. Qualification....................................... 20
SECTION 3.5. Business and Financial Statements................... 20
SECTION 3.6. Changes, etc........................................ 21
SECTION 3.7. Tax Returns and Payments............................ 21
SECTION 3.8. Debt................................................ 21
SECTION 3.9. Title to Properties; Liens.......................... 22
SECTION 3.10. Litigation......................................... 22
SECTION 3.11. Compliance with Other Instruments.................. 22
SECTION 3.12. Governmental Consents.............................. 23
SECTION 3.13. Permits, Patents, Trademarks, etc.................. 23
SECTION 3.14. Representations in Acquisition Agreement........... 24
SECTION 3.15. Offer of Notes..................................... 24
SECTION 3.16. Federal Reserve Regulations........................ 24
SECTION 3.17. Status Under Certain Federal Statutes.............. 25
SECTION 3.18. Compliance with ERISA.............................. 25
SECTION 3.19. Solvency........................................... 26
SECTION 3.20. Disclosure......................................... 26
SECTION 3.21. Use of Proceeds.................................... 26
SECTION 3.22. Environmental Compliance........................... 26
SECTION 3.23. Note Purchase Agreement............................ 27
ARTICLE IV
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PAGE
REPRESENTATIONS AND WARRANTIES OF PURCHASERS.............. 27
SECTION 4.1. Private Placement................................... 27
SECTION 4.2. Margin Compliance................................... 27
SECTION 4.3. Accredited Investor................................. 27
SECTION 4.4. Source of Funds..................................... 27
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING.................... 28
SECTION 5.1. Conditions to Purchasers' Obligations to Purchase
Notes........................................................ 28
SECTION 5.2. Conditions to Company's Obligations to Issue and
Sell the Notes and to Issue the Warrants..................... 32
ARTICLE VI
COVENANTS............................... 33
SECTION 6.1. Financial Statements, etc........................... 33
SECTION 6.2. Furnishing of Disclosure Information................ 38
SECTION 6.3. Books of Record and Account; ....................... 38
SECTION 6.4. Payment of Taxes and Claims; Tax Consolidation...... 38
SECTION 6.5. Maintenance of Properties; Corporate Existence and
Business..................................................... 39
SECTION 6.6. Insurance........................................... 39
SECTION 6.7. Inspection.......................................... 39
SECTION 6.8. Compliance with Laws, etc........................... 39
SECTION 6.9. Subsidiary Guarantees............................... 40
SECTION 6.10. Limitations on Restricted Payments................. 40
SECTION 6.11. Limitations on Incurrence of Debt and Issuance of
Disqualified Stock....................................... 42
SECTION 6.12. Liens.............................................. 44
SECTION 6.13. Consolidation, Merger, Sale of Assets, etc......... 45
SECTION 6.14. Limitation on Transactions with Affiliates......... 46
SECTION 6.15. Dividend and Other Payment Restrictions Affecting
Subsidiaries................................................. 46
SECTION 6.16. Limitation on Other Senior Subordinated
Indebtedness................................................. 48
SECTION 6.18. Change of Control.................................. 48
SECTION 6.19. Asset Sales........................................ 50
SECTION 6.20. No Restrictive Agreements.......................... 51
SECTION 6.21. Private Placement Numbers.......................... 51
ARTICLE VII
TERMS OF THE NOTES........................... 51
SECTION 7.1. Form of Notes; Issuance of Notes.................... 51
SECTION 7.2. Registration, Transfer, Exchange and Substitution
of Notes..................................................... 51
SECTION 7.3. Payments on the Notes............................... 52
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PAGE
SECTION 7.4. Optional Prepayment................................. 53
SECTION 7.5. Mandatory Prepayments Upon Equity Offerings......... 54
SECTION 7.6. Events of Default; Acceleration of Maturity;
Waiver of Default............................................ 54
SECTION 7.7. Powers and Remedies Cumulative; Delay or Omission
Not Waiver of Default........................................ 56
SECTION 7.8. Waiver of Past Defaults............................. 57
ARTICLE VIII
SUBORDINATION OF NOTES......................... 57
SECTION 8.1. Notes Subordinated to Senior Indebtedness........... 57
SECTION 8.2. Payment Over of Proceeds Upon Dissolution, etc...... 57
SECTION 8.3. No Payment When Senior Indebtedness is in Default... 59
SECTION 8.4. Payment Permitted if No Default..................... 60
SECTION 8.5. Subrogation to Rights of Holders of Senior
Indebtedness................................................. 60
SECTION 8.6. Provisions Solely to Define Relative Rights......... 61
SECTION 8.7. No Waiver of Subordination Provisions............... 61
SECTION 8.8. Notice to Holders of Notes.......................... 61
SECTION 8.9. Reliance of Holders of Senior Indebtedness.......... 62
SECTION 8.10. Reliance on Judicial order or Certificate of
Liquidating Agent............................................ 62
SECTION 8.11. This Article Not to Prevent Events of Default...... 62
SECTION 8.12. Reinstatement...................................... 63
ARTICLE IX
SUBSTITUTION; LIMITATION ON TRANSFERS................. 63
SECTION 9.1. Substitution of Purchasers Prior to Closing Date.... 63
SECTION 9.2. Restrictions on Transfer............................ 63
ARTICLE X
INDEMNIFICATION............................ 64
SECTION 10.1. Indemnification.................................... 64
ARTICLE XI
MISCELLANEOUS............................. 65
SECTION 11.1. Notices............................................ 65
SECTION 11.2. No Waivers; Amendments............................. 66
SECTION 11.3. Survival of Provisions............................. 66
SECTION 11.4. Expenses; Documentary Taxes........................ 66
SECTION 11.5. Termination; Termination Fees...................... 66
SECTION 11.6. Confidentiality.................................... 67
SECTION 11.7. Successors and Assigns............................. 67
SECTION 11.8. NEW YORK LAW....................................... 67
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SECTION 11.9. Counterparts; Effectiveness........................ 67
SECTION 11.10. Entire Agreement.................................. 67
SECTION 11.11. Consent to Jurisdiction........................... 68
ARTICLE XII
SMALL BUSINESS ADMINISTRATION MATTERS................. 68
SECTION 12.1. SBIC Forms......................................... 68
SECTION 12.2. SBIC Information................................... 68
SECTION 12.3. Inspection......................................... 68
SECTION 12.4. Information........................................ 68
SECTION 12.5. Use of Proceeds.................................... 69
SECTION 12.6. Business........................................... 69
SECTION 12.7. Non-Discrimination................................. 69
SECTION 12.8. Company Awareness.................................. 69
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Schedule 3.2 - Capital Stock
Schedule 3.3 - Subsidiaries
Schedule 3.5 - Financial Statements
Schedule 3.8 - Debt
Schedule 3.9 - UCC Financing Statements
Schedule 3.10 - Litigation
Schedule 3.12 - Governmental Consents
Schedule 3.13 - Permits, Patents, Trademarks, etc.
Schedule 3.18 - Multiemployer Plan Contribution Obligations
Schedule 5.1(h) - Consents
Schedule 5.1(l) - Company Projections
Exhibit A - Form of Senior Subordinated Note
Exhibit B - Form of Subsidiary Guaranty Agreement
Exhibit C - Opinion of Freedman, Levy, Kroll & Simonds
505298\0057\02050\969WL85X.NPA
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<PAGE>
SENIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT, dated as of November 1,
1996 among HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (together
with its successors, the "COMPANY") and the Purchasers listed on the signature
pages hereof (the "PURCHASERS").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein,
having the following meanings:
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Debt of any other Person existing at the time such other Person merged with or
into or became a Restricted Subsidiary of such specified Person, including
Debt incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Restricted Subsidiary of such specified
Person and (ii) Debt encumbering any asset acquired by such specified Person.
"ACQUISITION" shall mean the acquisition by the Company of 100% of
the issued and outstanding shares of capital stock of Southern pursuant to the
merger of Newco with and into Southern in accordance with the Acquisition
Agreement.
"ACQUISITION AGREEMENT" shall mean the Agreement and Plan of Merger,
dated as of July 29, 1996, between the Company, Newco and Southern as in
effect on the date hereof.
"ACQUISITION COSTS" shall mean all costs and expenses incurred by
the Company in connection with the Acquisition and the financing thereof,
including, without limitation, (a) payments in respect of the purchase price
pursuant to the Acquisition Agreement; and (b) all fees, commissions and
expenses relating to the Acquisition and the financing thereof (including,
without limitation, investment banking, brokerage, investment advisory,
finder's, accounting, publicity, appraisal, engineering, environmental audit,
legal, syndication, placement, commitment and interest rate hedging fees,
commissions and expenses).
"AFFILIATE" shall mean, with respect to any designated Person, any
other Person that has a relationship with the designated Person whereby either
of such Persons directly or indirectly controls or is controlled by or is
under common control with the other of such Persons, excluding the Purchasers
and the Senior Lenders. The term "control" means the
505298\0057\02050\969WL85X.NPA
<PAGE>
2
possession, directly or indirectly, of the direction of the management or
policies of any Person, whether through ownership of voting securities, by
contract or otherwise.
"AGENT BANK" means Banque Paribas, in its capacity as agent under
the Credit Agreement, and any successor agent thereunder.
"AGREEMENT" shall mean this Senior Subordinated Note Purchase
Agreement, as the same may be amended from time to time.
"ASSET SALE" means:
(a) the sale, conveyance, transfer or other disposition (whether in
a single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary other than in the ordinary course of business (each
referred to in this definition as a "disposition") or
(b) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(i) a disposition of obsolete equipment in the ordinary course
of business;
(ii) the disposition of all or substantially all of the assets
of the Company in a manner permitted pursuant to the provisions
described under Section 6.13 or any disposition that constitutes a
Change of Control pursuant to this Agreement;
(iii) any disposition that is a Restricted Payment or that is a
dividend or distribution permitted under the covenant described
under Section 6.10 or any Investment that is not prohibited
thereunder or any disposition of cash or Cash Equivalents;
(iv) any disposition, or related series of dispositions, of
assets with an aggregate fair market value of less than $1,000,000;
(v) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; and
(vi) foreclosures on assets.
"BASIC DOCUMENTS" shall mean this Agreement, the Subsidiary Guaranty
Agreement, the Acquisition Agreement, the Credit Agreement and Warrants.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in New York City.
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3
"CAPITAL STOCK" means with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock of such Person, including, without limitation,
if such Person is a partnership, partnership interests (whether general or
limited) and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.
"CAPITALIZED LEASE OBLIGATION" shall mean the obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) real and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of the
lessee under GAAP and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one
year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case
with any commercial bank having capital and surplus in excess of $500,000,000,
(iv) repurchase obligations for underlying securities of the types described
in clauses (ii) and (iii) entered into with any financial institution meeting
the qualifications specified in clause (iii) above, (v) commercial paper rated
A-1 or the equivalent thereof by Moody's or S&P and in each case maturing
within one year after the date of acquisition, (vi) investment funds investing
95% of their assets in securities of the types described in clauses (i)-(v)
above, (vii) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's or S&P,
(viii) Indebtedness or Preference Stock issued by Persons with a rating of "A"
or higher from S&P or "A2" or higher from Moody's and (ix) Cash Equivalents,
as defined under the Credit Agreement, as in effect on the Closing Date.
"CHANGE OF CONTROL" shall occur at any time that (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), in a
single transaction or through a series of related transactions, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; (ii) the Company consolidates or merges with or into another
corporation or conveys, transfers or leases all or substantially all of its
assets to any Person, or any corporation consolidates or merges with or into
the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
outstanding Voting Stock of the Company is changed into or exchanged for (x)
Voting Stock of the surviving corporation which is not Disqualified Stock
and/or (y) cash, securities or other property in an amount which could be paid
by the Company as a Restricted Payment and (B) the holders of the Voting Stock
of the Company immediately prior to such transaction own, directly or
indirectly, not less than 50% of the Voting Stock of the surviving corporation
immediately after such transaction, (iii) during any period of two consecutive
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4
years, individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders
of the Company was approved by a vote of at least 50% of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the
Company then in office; or (iv) the Company is liquidated or dissolved or
adopts a plan of liquidation.
"CLOSING" and "CLOSING DATE" shall have the meanings set forth in
Section 2.2(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the shares of common stock, par value $.01
per share, of the Company.
"COMPANY FINANCIAL STATEMENTS" shall have the meaning ascribed to
such term in Section 3.5(b).
"COMPANY PROJECTIONS" shall have the meaning specified in Section
5.1(m).
"CONSOLIDATED" shall mean, with respect to any Person, the
consolidation of the accounts of such Person and its Subsidiaries in
accordance with GAAP, including in the case of the Company and its
Subsidiaries, principles of consolidation consistent with those applied in the
preparation of the Company's financial statements unless the context provides
which Subsidiaries are to be Consolidated.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other noncash charges (excluding any noncash item
that represents an accrual, reserve or amortization of a cash expenditure for
a future period) of such Person and its Restricted Subsidiaries for such
period on a consolidated basis and otherwise determined in accordance with
GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" for any Person for any period
means, without duplication, the aggregate amount of net taxes based on income
or profits for such period of the operations of such Person and its Restricted
Subsidiaries with respect to such period in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period,
the sum of: (a) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (except to
the extent accrued in a prior period), to the extent such expense was deducted
in computing Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments, the interest component of Capitalized
Lease Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such
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5
Person and its Restricted Subsidiaries for such period, whether paid or
accrued, to the extent such expense was deducted in computing Consolidated Net
Income.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise
determined in accordance with GAAP; provided, however, that (i) the Net Income
for such period of any Person that is not a Subsidiary, or is an Unrestricted
Subsidiary, or that is accounted for by the equity method of accounting, shall
be included only to the extent of the amount of dividends or distributions or
other payments paid in cash (or to the extent converted into cash) to the
referent Person or a Wholly Owned Restricted Subsidiary thereof in respect of
such period, (ii) the Net Income of any Person acquired in a pooling of
interests transaction shall not be included for any period prior to the date
of such acquisition and (iii) the Net Income for such period of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of its Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, unless such
restriction with respect to the payment of dividends or in similar
distributions has been legally waived.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (c)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation against loss in
respect thereof.
"CREDIT AGREEMENT" shall mean the Credit Agreement dated as of
November 1, 1996 among the Company, JEH Acquisition Corporation, the banks
from time to time parties thereto and the Agent Bank, together with all
related documents, instruments and agreements executed in connection therewith
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements, documents or instruments may be
amended (including any amendment or restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder
or adding subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Debt under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
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6
"CVCA" shall mean Chase Venture Capital Associates, L.P., a
California limited partnership.
"DEBT" shall mean with respect to any Person, (a) any indebtedness
of such Person, whether or not contingent (i) in respect of borrowed money,
(ii) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof), (iii) representing
the balance deferred and unpaid of the purchase price of any property
(including Capitalized Lease Obligations), except any such balance that
constitutes an accrued expense or trade payable or any other monetary
obligation of a trade creditor (whether or not an Affiliate), or (iv)
representing any Hedging Obligations, if and to the extent any of the
foregoing Debt (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (b) to the extent not otherwise included, any Contingent
Obligations (other than by endorsement of negotiable instruments for
collection in the ordinary course of business) and (c) to the extent not
otherwise included, Debt of another Person secured by a Lien on any asset
owned by such Person (whether or not such Debt is assumed by such Person);
provided, however, that Contingent Obligations incurred in the ordinary course
of business shall be deemed not to constitute Debt.
"DEFAULT" shall mean any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is putable or exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to
a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to November 1, 2004;
provided, however, that if such Capital Stock is either (i) redeemable or
repurchasable solely at the option of such Person or (ii) issued to employees
of the Company or its Subsidiaries or to any plan for the benefit of such
employees, such Capital Stock shall not constitute Disqualified Stock unless
so designated.
"EBITDA" shall mean for any period the Consolidated Net Income for
such period plus the sum of the following for any Person (determined on a
Consolidated basis in accordance with GAAP and without duplication) to the
extent deducted in calculating Consolidated Net Income: (i) Consolidated
Income Tax Expense, (ii) Consolidated Interest Expense, (iii) Consolidated
Depreciation and Amortization Expense and (iv) all other non-cash charges
(excluding any such non-cash charge constituting an extraordinary item or loss
or any non-cash item which require an accrual of or reserve for cash charges
in future
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7
periods) and less any non-cash items which have the effect of increasing
(decreasing in the case of a loss) Consolidated Net Income for such period.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to the environment or the release of any
materials into the environment, including but not limited to those related to
hazardous substances or wastes, air emissions and discharges to waste or
public systems.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" shall mean any sale or issuance after the Closing
Date of equity of the Company or any of its Subsidiaries (other than equity
issued on the Closing Date to the shareholders of Southern in connection with
the Acquisition).
"EQUITY OFFERING PROCEEDS" shall mean 100% of the cash proceeds (net
of underwriting discounts and commissions and all other reasonable costs
associated with such transaction) from any Equity Offering.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 7.6.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time.
"EXISTING DEBT" means Debt of the Company or its Restricted
Subsidiaries in existence on the Closing Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes until such
amounts are repaid.
"EXISTING LOAN DOCUMENTS" shall mean any and all agreements, notes,
pledges, guarantees or other documents governing the Refinanced Indebtedness
(as defined in the Credit Agreement).
"FACILITY LETTER OF CREDIT" shall mean any letter of credit issued
pursuant to the Credit Agreement.
"FINANCIAL STATEMENTS" shall mean the collective reference to the
Southern Financial Statements and the Company Financial Statements.
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8
"FISCAL QUARTER" shall mean the three month period ending on March
31, June 30, September 30 or December 31, as applicable.
"FISCAL YEAR" shall mean the fifty-two week period ending on
December 31.
"FIXED ASSETS" of any Person shall mean any real property, plant or
equipment used by such Person in the ordinary course of its business.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the Company or any
of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Debt
(other than repayments of revolving credit borrowings with respect to which
the related commitment remains outstanding) or issues or redeems Preference
Stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee or redemption of Debt,
or such issuance or redemption of Preference Stock, as if the same had
occurred at the beginning of the applicable four-quarter period. For purposes
of making the computation referred to above, Investments, acquisitions,
dispositions which constitute all or substantially all of an operating unit of
a business and discontinued operations (as determined in accordance with GAAP)
that have been made by the Company or any of its Restricted Subsidiaries,
including all mergers, consolidations and dispositions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be calculated on a pro forma basis
assuming that all such Investments, acquisitions, dispositions, discontinued
operations, mergers, consolidations (and the reduction of any associated fixed
charge obligations and the change in EBITDA resulting therefrom) had occurred
on the first day of the four-quarter reference period and without regard to
clause (ii) of the definition of Consolidated Net Income. If since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Investment,
acquisition, disposition which constitutes all or substantially all of an
operating unit of a business, discontinued operation, merger or consolidation
that would have required adjustment pursuant to this definition, then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
thereto for such period as if such Investment, acquisition, disposition,
discontinued operation, merger or consolidation had occurred at the beginning
of the applicable four-quarter period and without regard to clause (ii) of the
definition of Consolidated Net Income. For purposes of this definition,
whenever pro forma effect is to be given to a transaction, the pro forma
calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest of such Debt shall
be calculated as if the rate in effect on the Calculation Date had been the
applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Debt). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP.
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9
Interest on Debt that may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Company
may designate.
"FIXED CHARGES" shall mean, for any period, the sum of (a)
Consolidated Interest Expense of such Person for such period and (b) all cash
dividend payments (excluding items eliminated in consolidation) on any series
of Preference Stock of such Person.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Closing Date. For the
purposes of this Agreement, the term "consolidated" with respect to any Person
shall mean such Person consolidated with its Restricted Subsidiaries, and
shall not include any Unrestricted Subsidiary.
"GUARANTEE" shall mean, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to
any indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect of
which such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation of a partnership in which such Person
is a general partner, and any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to purchase, repurchase
or otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation or services regardless of the non-delivery
or non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, currency exchange or interest rate cap agreements and currency
exchange or interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange or interest rates.
"INTEREST PAYMENT DATE" shall mean June 30 and December 31 of each
year, commencing June 30, 1997.
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10
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding advances
to customers, commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions of securities issued by any other Person and investments that are
required by GAAP to be classified on the balance sheet of the Company in the
same manner as the other investments included in this definition to the extent
such transactions involve the transfer of cash or other property. For purposes
of the definition of "Unrestricted Subsidiary" and the covenant contained in
Section 6.10, (i) "Investments" shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of a Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to the amount (if positive) equal to (x) the Company's
Investment in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"LIEN" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to or
of such Person under any conditional sale or other title retention agreement
or capital lease with respect to, any property or asset owned or held by such
Person, or the signing or filing of a financing statement which names such
Person as debtor, or the signing of any security agreement authorizing any
other party as the secured party thereunder to file any financing statement.
For the purposes of this Agreement, a Person shall be deemed to be the owner
of any assets which it has placed in trust for the benefit of the holders of
Debt of such Person and such trust shall be deemed to be a Lien if such Debt
is deemed to be extinguished under GAAP but such Person remains legally liable
therefor.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"NET INCOME" of any Person shall mean, for any period, such Person's
after-tax net income determined in accordance with GAAP.
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale,
net of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and brokerage and
sales commissions), and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax
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credits or deductions and any tax sharing arrangements), amounts required to
be applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of Section 6.19(b))
to be paid as a result of such transaction and any deduction of appropriate
amounts to be provided by the Company as a reserve in accordance with GAAP
against any liabilities associated with the asset disposed of in such
transaction and retained by the Company after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or
against any indemnification obligations associated with such transaction.
"NEWCO" shall mean JEH Acquisition Corporation, a corporation
organized and existing under the laws of the State of Georgia and a
wholly-owned subsidiary of the Company.
"NONVOTING STOCK" shall mean the Company's non-voting,
non-convertible Class C Preferred Stock and the Company's non-voting,
non-convertible Class F Preferred Stock, each par value $.01 per share.
"NOTEHOLDERS" or "HOLDERS" shall mean the registered holders from
time to time of the Notes.
"NOTES" shall mean (a) the Company's $8,000,000 aggregate principal
amount of Subordinated Notes originally issued hereunder or (b) any Subsequent
Notes issued hereunder, each substantially in the form of Exhibit A hereto, or
any note delivered in substitution or exchange for any such Note.
"OBLIGATIONS" means any principal, interest, premium, penalties,
fees, expenses, indemnification, reimbursements (including, without
limitation, reimbursement obligations with respect to letters of credit and
bankers' acceptances), damages and other liabilities payable under the
documentation governing any Debt.
"OFFICERS' CERTIFICATE" shall mean for any Person a certificate
executed on behalf of such Person by the Chairman of the Board or its
President or one of its Vice Presidents and its Chief Financial Officer.
"ORIGINAL NOTES" shall have the meaning ascribed to such term in
Section 5.1(a).
"PARI PASSU INDEBTEDNESS" means (a) with respect to the Notes, Debt
which ranks pari passu in right of payment to the Notes and (b) with respect
to the Subsidiary Guaranty Agreement, Debt which ranks pari passu in right of
payment to such Subsidiary Guaranty Agreement.
"PARIBAS PRINCIPAL, INC." means Paribas Principal, Inc.
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12
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
"PERMITTED BUSINESS" shall mean a line of business in which the
Company is engaged on the Closing Date and reasonably related extensions
thereof.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or
any Restricted Subsidiary that in each case is a Permitted Business; (b) any
Investment in cash and Cash Equivalents; (c) any Investment by the Company or
any Restricted Subsidiary of the Company in a Person that is a Permitted
Business if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of the Company or (ii) such Person, in one transaction
or a series of related transactions, is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Restricted Subsidiary of the Company; (d)
any Investment in securities or other assets not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of Section 6.18 or any other disposition of assets not constituting
an Asset Sale; (e) any Investment existing on the Closing Date; (f) any
Investment by Restricted Subsidiaries in other Restricted Subsidiaries and
Investments by Subsidiaries that are not Restricted Subsidiaries in other
Subsidiaries that are not Restricted Subsidiaries; (g) advances to employees
not in excess of $750,000 outstanding at any one time; (h) any Investment
acquired by the Company or any of its Restricted Subsidiaries (i) in exchange
for any other Investment or accounts receivable held by the Company or any
such Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (ii) as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment
in default; (i) Hedging Obligations; (j) loans and advances to officers,
directors and employees for business-related travel expenses, moving expenses
and other similar expenses, in each case incurred in the ordinary course of
business; and (k) Investments the payment for which consists exclusively of
Equity Interests (exclusive of Disqualified Stock) of the Company.
"PERSON" shall mean any individual, corporation, partnership, trust,
joint venture, unincorporated association or other enterprise or any
government or any agency, instrumentality or political subdivision thereof.
"PLAN" shall mean an "employee pension benefit plan" (as defined in
Section 3 of ERISA).
"PREFERENCE STOCK" shall mean with respect to any Person any shares
of such Person which shall be entitled to preference or priority over any
other shares of such Person in respect of either the payment of dividends or
the distribution of assets upon liquidation or both.
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12
"PREFERRED STOCK" shall mean the Company's non-voting,
non-convertible Class C Preferred Stock and the Company's non-voting,
non-convertible Class F Preferred Stock, each par value $.01 per share.
"PURCHASERS" shall mean the Purchasers listed on the signature pages
hereto.
"RELATED PERSON" shall mean any corporation or trade or business
that is a member of the same controlled group of corporations (within the
meaning of section 414(b) of the Code) as the Company or is under common
control (within the meaning of section 414(c) of the Code) with the Company or
is a member of any affiliated service group (within the meaning of section
414(m) of the Code) which includes the Company or is otherwise treated as part
of the controlled group which includes the Company (within the meaning of
section 414(o) of the Code).
"REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the aggregate
of the obligations of the Company to the Senior Lenders and the Agent Bank in
respect of all unreimbursed payments or disbursements made by the Lenders and
the Agent under or in respect of any letters of credit issued pursuant to the
Credit Agreement.
"REPORTABLE EVENT" means an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 4043.
"REQUIRED HOLDERS" shall mean, at any time, Noteholders of at least
50.1% of the aggregate principal amount of the Notes then outstanding.
"REQUIRED LENDERS" shall mean the "Required Banks" under the Credit
Agreement.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Company
which is not an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of "Restricted
Subsidiary."
"RESTRICTED PAYMENT" shall have the meaning set forth in Section
6.10.
"REVOLVING CREDIT COMMITMENT" shall mean the obligation of the
Senior Lenders to make Revolving Credit Loans and issue Facility Letters of
Credit under the Credit Agreement.
"REVOLVING CREDIT LOANS" shall mean the revolving credit loans made
pursuant to the Credit Agreement.
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"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"SECURITY AGREEMENT" shall have the meaning ascribed to such term in
the Credit Agreement.
"SECURITY DOCUMENTS" shall have the meaning ascribed to such term in
the Credit Agreement.
"SENIOR INDEBTEDNESS" shall mean, without duplication, (i) all
Obligations of the Company at any time payable under or in respect of, the
Credit Agreement; (ii) all Debt and other obligations of the Company permitted
to be incurred by the Company under the terms of this Agreement, unless the
instrument under which such Debt is incurred expressly provides that it is on
a parity with or subordinated in right of payment to the Notes; and (iii)
post-petition interest accruing on Indebtedness under (i) and (ii) above, at
the applicable contract rate (including the default rate), after the filing of
a petition initiating any bankruptcy, insolvency or similar proceeding,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding. Notwithstanding the foregoing, the term Senior Indebtedness
shall not include (a) Debt of the Company which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
was without recourse to the Company, (b) any Debt of the Company to an
Affiliate of the Company (including Subsidiaries), (c) any Debt of the Company
incurred in violation of this Agreement, (d) Debt to any officer, director or
employee of the Company, (e) Trade Payables, (f) Debt evidenced by the Notes,
(g) Capital Stock of the Company, (h) any liability for federal, state, or
other taxes owed or owing by the Company and (i) any Debt, guarantee or
obligation of the Company which is subordinate or junior in right to any other
Debt, guarantee or obligation of the Company.
"SENIOR LENDERS" shall mean each of the banks or financial
institutions which have commitments or outstanding amounts under the Credit
Agreement.
"SENIOR LOANS" shall have the meaning ascribed to "Loans" under the
Credit Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Closing Date.
"SOLVENT" shall mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liabilities of such Person on its debts as they become
absolute
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15
and matured, (c) such Person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in a business or a transaction, and is not about to
engage in a business or transaction, for which such Person's property would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged.
"SOUTHERN" shall mean J.E. Hanger Inc. of Georgia, a Georgia
corporation, and its successors.
"SOUTHERN FINANCIAL STATEMENTS" shall have the meaning ascribed to
such term in Section 3.5(a).
"SPECIFIED SENIOR INDEBTEDNESS" shall mean all Senior Indebtedness
from time to time outstanding under the Credit Agreement.
"SUBORDINATED INDEBTEDNESS" means any Debt of the Company which is
by its terms subordinated in right of payment to the Notes.
"S&P" means Standard and Poor's Ratings Group.
"SUBORDINATED OBLIGATIONS" shall mean all Obligations payable under
the documentation governing the Notes, including, without limitation, any
amounts received upon the exercise of rights of recision or other rights of
action (including claims for damages) or otherwise, to the extent relating to
the purchase price of the Notes.
"SUBSEQUENT NOTES" shall have the meaning ascribed to such term in
Section 7.3(c).
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, association, partnership, joint venture, joint adventure or other
business entity whether now existing or hereafter organized or acquired in
which such Person or one or more Subsidiaries of such Person owns sufficient
voting securities to enable it or them (as a group) ordinarily, in the absence
of contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity.
"SUBSIDIARY GUARANTORS" shall mean the Subsidiaries of the Company
from time to time parties to the Subsidiary Guaranty Agreement and their
respective successors.
"SUBSIDIARY GUARANTY AGREEMENT" shall mean the Subsidiary Guaranty
Agreement dated as of November 1 , 1996 among the Subsidiary Guarantors and
the Purchasers listed on the signature pages thereto, substantially in the
form of Exhibit B hereto.
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"TRADE PAYABLES" shall mean accounts payable or any other
indebtedness or monetary obligations to trade creditors created or assumed by
the Company or any Subsidiary of the Company in the ordinary course of
business in connection with the obtaining of materials or services.
"TRANSACTIONS" means the transactions contemplated by the Basic
Documents.
"UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits
under the Plan as of the close of its most recent plan year exceeds the fair
market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the plan.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company
which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
the Company may designate any Subsidiary of the Company (including any
Subsidiary and any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such subsidiary owns any Equity Interests of,
or owns, or holds any Lien on, any property of, any Subsidiary of the Company
(other than any Subsidiary of the Subsidiary to be so designated), provided
that (a) any Unrestricted Subsidiary must be an entity of which shares of the
capital stock or other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may be cast by all
shares or equity interests having ordinary voting power for the election of
directors or other governing body are owned, directly or indirectly, by the
Company, (b) the Company certifies that such designation complies with Section
6.10 and (c) each of (I) the Subsidiary to be so designated and (II) its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Debt pursuant to which the lender has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that, immediately after giving effect
to such designation, the Company could incur at least $1.00 of additional Debt
pursuant to the Fixed Charge Coverage Ratio test described under Section 6.10
on a pro forma basis taking into account such designation.
"VOTING STOCK" means stock of the class or classes pursuant to which
the holders hereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (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).
"WARRANTS" shall mean (a) the Warrant, dated as of November 1, 1996,
between the Company and CVCA and (b) the Warrant, dated as of November 1,
1996, between the Company and Paribas Principal, Inc., each substantially in
the form of Exhibit B hereto, and any Warrants issued upon transfer, division
or combination thereof, or in substitution therefor.
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17
"WARRANTHOLDER" shall mean any person holding a Warrant.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Debt
or Disqualified Stock, as the case may be, at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (x)
the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity,
in respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment, by (b) the then outstanding principal amount or liquidation
preference, as applicable, of such Debt or Disqualified Stock, as the case may
be.
"WHOLLY-OWNED" shall mean, as applied to any Subsidiary, a
Subsidiary all the outstanding shares (other than directors' qualifying
shares, if required by law) of every class of stock of which are at the time
owned by the Company or by one of the Wholly-Owned Subsidiaries or by the
Company and one or more Wholly-Owned Subsidiaries.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person 95% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. (a) Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Noteholders hereunder shall
(unless otherwise disclosed to the Noteholders in writing at the time of
delivery thereof in the manner described in paragraph (b) below) be prepared,
in accordance with GAAP. All calculations made for the purposes of determining
compliance with the provisions of this Agreement shall (except as otherwise
expressly provided herein) be made by application of GAAP applied on a basis
consistent with those used in the preparation of the financial statements
furnished to the Noteholders pursuant to Section 6.1 hereof (or at any time
prior to the delivery of the initial such financial statements, consistent
with those in effect on the date hereof).
(b) To enable the ready and consistent determination of compliance
with the covenants set forth herein, unless otherwise required by law, the
Company will not change the last day of its Fiscal Year, or its Fiscal
Quarters as defined herein.
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS
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18
SECTION 2.1. COMMITMENTS TO PURCHASE NOTES. (a) Upon the basis of
the representations and warranties herein contained of each Purchaser, but
subject to the terms and conditions hereinafter stated, the Company agrees to
issue and sell to each Purchaser listed on the signature pages hereto and each
Purchaser, upon the basis of the representations and warranties herein
contained of the Company, but subject to the terms and conditions hereinafter
stated, agrees severally but not jointly, to purchase from the Company the
principal amount of Notes and set forth below such Purchaser's name on the
signature pages hereof.
(b) The purchase price for the Notes shall, in the case of each
Purchaser, be the principal amount of Notes being purchased by such Purchaser.
SECTION 2.2. COMMITMENTS TO WARRANTS. Upon the basis of the
representations and warranties herein contained of each Purchaser, but subject
to the terms and conditions hereinafter stated, the Company agrees to issue to
each Purchaser listed on the signature pages hereto the Warrants for the
number of shares set forth below such Purchaser's name on the signature pages
hereof.
SECTION 2.3. THE CLOSING. (a) The purchases and sales of the Notes
and the issuance of the Warrants will both take place at a closing (the
"Closing") at the offices of White & Case, 1155 Avenue of the Americas, New
York, New York, at 9:00 a.m., New York City time on November 1, 1996 or on
such other Business Day thereafter as agreed upon by the Company and the
Purchasers. The Company shall notify the Purchasers of the date and time of
the Closing not less than two Business Days prior to the date thereof (or
within such other time period as the parties hereto may agree). The date and
time of Closing are referred to herein as the "Closing Date."
(b) Each Purchaser shall, not later than the Closing Date, deliver
to the Company in immediately available funds an amount equal to the aggregate
purchase price of the Notes being purchased by such Purchaser from the
Company.
(c) At the Closing, the Company shall deliver to each Purchaser, (a)
the Warrants (b) against payment of the purchase price therefor Notes in
definitive form and registered in such names and in such denominations as such
Purchaser shall have requested not later than one Business Day prior to the
Closing Date. The authorized denominations for the Notes are $1,000,000 and
any larger multiple of $100,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to each Purchaser that as
of the date hereof and after giving effect to the Acquisition and the other
transactions contemplated hereby and thereby:
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19
SECTION 3.1. INCORPORATION, STANDING, ETC. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority (i) to own and operate its properties, (ii) to carry on its business
as now conducted and as proposed to be conducted following the Acquisition,
(iii) to enter into the this Agreement, the Acquisition Agreement and the
Subsidiary Guarantee Agreement, (iv) to issue and sell the Notes, (v) to issue
the Warrants and (vi) to carry out the terms of the Basic Documents.
SECTION 3.2. CAPITALIZATION; OWNERSHIP. Immediately following the
Acquisition, the authorized capital stock of the Company will consist of (i)
25,000,000 shares of Common Stock, of which (a) 9,315,634 shares (including
1,000,000 shares issued in connection with the Acquisition) will be
outstanding and validly issued, fully paid and nonassessable, (b) 1,600,000
shares will be reserved for issuance upon exercise of the Warrants, (c)
480,000 shares will be reserved for issuance upon the exercise of options
granted under the Company's 1991 Stock Option Plan at an exercise price of the
market price of Common Stock as of the date hereof, (d) 100,000 shares will be
reserved for issuance upon the exercise of options granted to the Company's
management under the Company's 1991 Stock Option Plan at an exercise price of
the market price of Common Stock as of the date hereof, (e) 153,945 shares
will be reserved for issuance upon the exercise of warrants exercisable
through December 31, 2001 at a price of $4.16 per share, (f) 322,699 shares
will be reserved for issuance upon the exercise of warrants exercisable
through December 31, 2001 at a price of $7.65 per share, (g) 773,950 shares
will be reserved for issuance upon the exercise of options granted under the
Company's 1991 Stock Option Plan at prices ranging from $2.75 to $12.25 per
share, (h) 113,750 shares will be reserved for issuance upon the exercise of
options granted under the Company's 1993 Non-Employee Directors Stock Option
Plan at prices ranging from $3.00 to $6.00 per share and (i) 70,000 shares
will be reserved for issuance upon the exercise of non-qualified options
granted other than pursuant to the Company's 1991 Stock Option Plan or the
Parent's 1993 Non-Employee Directors Stock Option Plan and exercisable at
prices ranging from $3.00 to $12.00 per share; (ii) 300 shares of Class C
Preferred Stock, par value $.01 per share, of which 300 shares will be
outstanding and validly issued to the Persons listed in Schedule 3.2 hereto
and will be fully paid and nonassessable and (iii) 100,000 shares of Class F
Preferred Stock, par value $.01 per share, of which no shares will be
outstanding. Schedule 3.2 hereto lists the Persons who will hold more than 5%
of any class of such capital stock immediately following the Acquisition.
Except as set forth above, no shares of capital stock or other equity
securities of the Company are issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of the Company are, and all shares
which may be issued pursuant to the Company's stock option plans in existence
on the date hereof will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. Except as
set forth above, there are no outstanding bonds, debentures, notes or other
indebtedness or other securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of the Company may vote. Except as set forth
above, there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party or by which any of them is bound
obligating the Company or any of its subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold,
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20
additional shares of capital stock or other equity or voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
SECTION 3.3. SUBSIDIARIES. Schedule 3.3 correctly lists as to each
Subsidiary of the Company (a) its name, (b) the jurisdiction of its
incorporation, (c) the percentage of its issued and outstanding shares owned
by the Company or another such Subsidiary (specifying such other Subsidiary),
and (d) whether it is a Restricted Subsidiary of the Company. Each such
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own and operate its properties and
to carry on its business as now conducted and as proposed to be conducted
following the Acquisition and to enter into the Subsidiary Guaranty Agreement
to which such Subsidiary is a party. All the outstanding shares of capital
stock of each Subsidiary of the Company are validly issued, fully paid and
nonassessable, and all such shares indicated in Schedule 3.3 as owned by the
Company or by any other such Subsidiary are so owned beneficially and of
record by the Company or by such other Subsidiary free and clear of any Lien
except as contemplated hereby. The income of Hanger Europe N.V. during its
previous fiscal year represented less than 5% of the Consolidated Net Income
of the Company.
SECTION 3.4. QUALIFICATION. Each of the Company and its Subsidiaries
is duly qualified and in good standing as a foreign corporation authorized to
do business in each jurisdiction (other than the jurisdiction of its
incorporation) in which its ownership, lease or operation of property or the
conduct of its business as now conducted and as proposed to be conducted
following the Acquisition require such qualification, except those
jurisdictions in which the failure of the Company or such Subsidiary so to
qualify would not, individually or in the aggregate, have a material adverse
effect on the business, operations, affairs, condition, properties or
prospects of the Company or such Subsidiary.
SECTION 3.5. BUSINESS AND FINANCIAL STATEMENTS. (a) Southern has
delivered to the Purchasers complete and correct copies of (i) the audited
balance sheets of Southern as of December 31, 1994 and December 31, 1995 and
the related statements of operations for the Fiscal Years then ended and (ii)
the unaudited historical balance sheet of Southern as of June 30, 1996 and the
related statements of operations and cash flows for the period then ended
(collectively, the "SOUTHERN FINANCIAL STATEMENTS"). Except as disclosed on
Schedule 3.5, to the best knowledge of the Company, the Southern Financial
Statements have been prepared in accordance with GAAP (except as otherwise
specified therein) applied on a consistent basis throughout the periods
specified and present fairly the financial position, results of operations and
cash flows, of Southern as of the respective dates and for the respective
periods specified. The Company Projections are based on good faith estimates
and assumptions which the management of the Company and Southern believe to be
reasonable. In preparing the Company Projections, such estimates and
assumptions have been applied in a consistent manner.
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21
(b) The Company has delivered to the Purchasers complete and correct
copies of (i) the audited balance sheets of the Company as of December 31,
1994 and December 31, 1995 and the related statement of operations and cash
flows for the Fiscal Years then ended and (ii) the unaudited historical
balance sheets of the Company as of March 31, 1996 and June 30, 1996 and the
related statement of operations and cash flows for the period then ended
(collectively, the "COMPANY FINANCIAL STATEMENTS"). Except as disclosed on
Schedule 3.5, to the best knowledge of the Company, the Company Financial
Statements have been prepared in accordance with GAAP (except as otherwise
specified therein) applied on a consistent basis throughout the periods
specified and present fairly the financial position, results of operations and
cash flows, of the Company as of the respective dates and for the respective
periods specified.
(c) The pro forma financial statements of the Company and its
subsidiaries included in the Company's Information Memorandum, dated as of
October 17, 1996, relating to the Transactions, present fairly the information
shown therein, have been prepared in accordance with the SEC's rules and
guidelines with respect to pro forma financial statements and have been
properly compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
SECTION 3.6. CHANGES, ETC. (a) Since June 30, 1996, there has been
no change in the business, operations, affairs, condition, properties or
prospects of the Company and its Subsidiaries which has been materially
adverse to the Company and its Subsidiaries, other than such changes as are
contemplated by or disclosed herein. To the best knowledge of the Company,
after reasonable inquiry and review, since June 30, 1996, there has been no
change in the business, operations, affairs, conditions, properties or
prospects of the Company and its Subsidiaries which has been materially
adverse to the Company and its Subsidiaries, other than such changes as are
contemplated by or disclosed herein.
SECTION 3.7. TAX RETURNS AND PAYMENTS. Each of the Company and its
Subsidiaries and, to the best knowledge of the Company, Southern and its
Subsidiaries has filed all tax returns required by law to be filed by them and
have paid all taxes, assessments and other governmental charges levied upon
each of the Company, Southern and their respective Subsidiaries or any of
their respective properties, assets, income or franchises which are due and
payable. There are no tax liens upon any assets of each of the Company and
Southern and their respective Subsidiaries except for statutory liens for
taxes accruing but not yet due and payable. The charges, accruals and reserves
on the books of the Company, Southern and their respective Subsidiaries in
respect of federal, state or other income taxes for all fiscal periods are
adequate in all material respects, and the Company does not know of any unpaid
assessment for additional federal, state or other income taxes for any period
or any basis for any such assessment.
SECTION 3.8. DEBT. Schedule 3.8 correctly summarizes, as of the date
hereof, all Debt (other than the Notes and the Debt issued under the Credit
Agreement) of the Company and its Subsidiaries (including Southern and its
Subsidiaries) (a) outstanding, or proposed to be outstanding at the Closing
and after giving effect to the Acquisition and the
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22
other transactions contemplated thereby and hereby, or (b) for which the
Company and any of its Subsidiaries has commitments, or will have commitments
at the Closing and after giving effect to the Acquisition and the other
transactions contemplated thereby and hereby. As of the date hereof and after
giving effect to the Acquisition and the other transactions contemplated
thereby and hereby, neither the Company nor any of its Subsidiaries will be in
default with respect to any Debt or any instrument or agreement relating
thereto, and no instrument or agreement applicable to or binding on the
Company or such Subsidiary will contain any restriction on the incurrence by
the Company or any such Subsidiary of Debt except this Agreement and the
Credit Agreement.
SECTION 3.9. TITLE TO PROPERTIES; LIENS. The Company and each
Subsidiary of the Company will have good and, in the case of real property,
marketable title to all property necessary to the conduct of its business, and
none of such properties or assets will be subject to any Liens except such as
are permitted by Section 6.12. At the time of Closing and after giving effect
to the Acquisition, the Company and each Subsidiary of the Company will enjoy
peaceful and undisturbed possession under all leases of real property on which
facilities owned or operated by them are situated, and all such leases will be
valid and subsisting and in full force and effect and no default on the part
of the Company or any Subsidiary of the Company shall exist thereunder. Except
to perfect security interests of the character permitted by Section 6.12, at
the time of the Closing and after giving effect to the Acquisition and the
other transactions contemplated hereby, (i) except as described in Schedule
3.9, no presently effective financing statement under the Uniform Commercial
Code which names the Company or any Subsidiary of the Company as debtor or
lessee will be on file in any jurisdiction in which the Company or any
Subsidiary of the Company will own or lease real property or in which the
inventory of the Company or any Subsidiary of the Company will be located
after the Acquisition or, to the Company's best knowledge, in any other
jurisdiction, except financing statements in respect of Liens which will be
discharged prior to or concurrently with the Acquisition, and (ii) except as
described in Schedule 3.9, neither the Company nor any Subsidiary of the
Company has signed any presently effective financing statement or any
presently effective security agreement authorizing any secured party
thereunder to file any such financing statement.
SECTION 3.10. LITIGATION. Except as described in Schedule 3.10 there
is no action or proceeding pending or, to the knowledge of the Company,
threatened (or any basis therefor known to the Company) or to the best
knowledge of the Company, any investigation which questions the validity of
the Basic Documents, or any action taken or to be taken pursuant to the Basic
Documents, or which is reasonably likely to result, either in any case or in
the aggregate, in any adverse change in the business, operations, condition,
properties or prospects of the Company and its Subsidiaries, taken as a whole,
or in any material liability on the part of the Company or any Subsidiary of
the Company.
SECTION 3.11. COMPLIANCE WITH OTHER INSTRUMENTS. (a) Neither the
execution, delivery or performance by the Company, Southern or any of their
Subsidiaries of any the Basic Documents to which any of them are a party, nor
compliance by any of them with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or
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23
governmental instrumentality, (ii) will conflict with or result in any breach
of any of the terms, covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition or (or the obligation
to create or impose) any Lien (except pursuant to the Credit Agreement) upon
any of the property or assets of the Company, Southern or any of their
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement or loan agreement, or any other agreement, contract or
instrument to which the Company, Southern or their Subsidiaries is a party or
by which it or any of their property or assets is bound or to which they my be
subject or (iii) will violate any provision of the Certificate of
Incorporation of By-Laws (or similar organizational documents) of the Company,
Southern or any of their Subsidiaries.
(b) On the date hereof and after giving effect to the Acquisition
and the other transactions contemplated hereby, neither the Company nor any
Subsidiary of the Company will be in violation of any term of any agreement or
instrument to which it is a party or by which it is bound, or any applicable
law, ordinance, rule or regulation of any governmental authority, or of any
applicable order, judgment or decree of any court, arbitrator or governmental
authority (including, without limitation, any such law, ordinance, rule,
regulation, order, judgment or decree relating to environmental protection and
pollution control, occupational health and safety requirements), the
consequence of any of which violation is reasonably likely to have a material
adverse effect on the business, operations, condition, properties or prospects
of the Company and its Subsidiaries taken as a whole. Neither the execution,
delivery and performance of the Basic Documents nor the consummation of the
Acquisition and the other transactions contemplated hereby or thereby will
result in any violation of or be in conflict with or constitute a default
under any such term or result in the creation of (or impose any obligation on
the Company or any of its Subsidiaries to create) any Lien upon any of the
properties of the Company or any of its Subsidiaries pursuant to any such term
other than the Security Documents; and there are no such terms which, either
in any case or in the aggregate, materially adversely affect, or in the future
is reasonably likely to materially adversely affect, the business, operations,
condition, properties or prospects of the Company and its Subsidiaries taken
as a whole.
SECTION 3.12. GOVERNMENTAL CONSENTS. Except as disclosed in Schedule
3.12, no consent, approval or authorization of, or declaration or filing with,
any governmental authority on the part of the Company or any of its
Subsidiaries is required for the valid execution and delivery of the Basic
Documents, or the consummation of the Acquisition and the other transactions
contemplated thereby or hereby, or the valid offer, issue, sale and delivery
of the Notes pursuant hereto.
SECTION 3.13. PERMITS, PATENTS, TRADEMARKS, ETC. (a) The Company,
together with its Subsidiaries, has a license to use or otherwise has the
right to use, free and clear of pending or threatened Liens, all the material
patents, patent applications, trademarks, service marks, trade names, trade
secrets, copyrights, proprietary information, computer programs, data bases,
licenses, franchises and formulas, or rights with respect to the foregoing
(collectively, "Intellectual Property"), and has obtained all licenses and
other rights of whatever nature, necessary for the present conduct of its
business, without any known conflict with the rights of others which, or the
failure to obtain which, as the case may be, could
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reasonably be expected to have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole.
(b) The Company, together with its Subsidiaries, has the right to
practice under and use all Intellectual Property used in connection with
Southern which Southern had a right to practice under and use immediately
prior to the Acquisition.
(c) Neither the Company nor any of its Subsidiaries has knowledge of
any claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by the Company or any of its Subsidiaries of
any such Intellectual Property has infringed or otherwise violated any
Intellectual Property right of any other Person and that to the best knowledge
of the Company and its Subsidiaries no claim is threatened except for such
claims that could not individually or in the aggregate reasonably be expected
to have a material adverse effect on the performance, business, assets, nature
of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.14. REPRESENTATIONS IN ACQUISITION AGREEMENT. To the best
knowledge of the Company, the representations and warranties made in and
pursuant to the Acquisition Agreement by Southern were true and correct in all
material respects when made, are true and correct in all material respects as
of the date hereof, and will be true and correct in all material respects as
of the Closing, and such representations and warranties made by Southern are
hereby incorporated herein by reference with the same effect as though set
forth herein in their entirety.
SECTION 3.15. OFFER OF NOTES. Neither the Company nor any Person
acting on its behalf has directly or indirectly offered the Notes or any part
thereof or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, anyone other than the Purchasers. Neither the Company nor any Person
acting on its behalf has taken or will take any action which would subject the
issuance and sale of the Notes to the provisions of Section 5 of the
Securities Act, or to the provisions of any state securities law requiring
registration of securities, notification of the issuance or sale thereof or
confirmation of the availability of any exemption from such registration.
SECTION 3.16. FEDERAL RESERVE REGULATIONS. Neither the Company nor
any of its Subsidiaries will, directly or indirectly, use any of the proceeds
of the sale of the Notes or the Warrants, as the case may be, for the purpose,
whether immediate, incidental or ultimate, of buying any "margin stock" or of
maintaining, reducing or retiring any Debt originally incurred to purchase a
stock that is currently any "margin stock", or for any other purpose which
might constitute this transaction a "purpose credit", in each case within the
meaning of Regulation G of the Board of Governors of the Federal Reserve
System (12 C.F.R. 207, as amended), or Regulation U of such board (12 C.F.R.
221, as amended), or otherwise take or permit to be taken any action which
would involve a violation of such
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Regulation G or Regulation U or of Regulation T (12 C.F.R. 220, as amended) or
Regulation X (12 C.F.R. 224, as amended) or any other regulation of such
board. No Debt being reduced or retired out of the proceeds of the sale of the
Notes or the Warrants, as the case may be, was incurred for the purpose of
purchasing or carrying any such "margin stock", and neither the Company nor
any of its Subsidiaries owns or has any present intention of acquiring any
such "margin stock."
SECTION 3.17. STATUS UNDER CERTAIN FEDERAL STATUTES. The Company is
not (a) 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", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, (b) a "public utility", as such term is
defined in the Federal Power Act, as amended, or (c) an "investment company",
or a company "controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended. Neither the Company nor any of
its Subsidiaries is a "rail carrier", or a "person controlled by or affiliated
with a rail carrier", within the meaning of Title 49 U.S.C., and the Company
is not a "carrier" to which 49 U.S.C. ss. 11301(b)(1) is applicable.
SECTION 3.18. COMPLIANCE WITH ERISA. (a) Neither the Company,
Southern nor any of their Subsidiaries has breached the fiduciary rules of
ERISA or engaged in any prohibited transaction with respect to the assets of
any Plan in connection with which the Company, Southern or any of their
Subsidiaries could be subjected to or incur liability in respect of (in the
case of any such breach) a suit for damages or (in the case of any such
prohibited transaction) either a civil penalty assessed under section 502(i)
of ERISA or a tax imposed by section 4975 of this Code, which suit, penalty or
tax, in any case, would be materially adverse to the Company and its
Subsidiaries, taken as a whole.
(b) Neither the Company, Southern nor any Related Person has
incurred nor do any of them expect to incur any liability to the PBGC, other
than for the payment of premiums, or to any Plan, other than for the payment
of contributions in the ordinary course. Each Plan is in compliance in all
material respects with, and has been operated and administered in accordance
with the applicable provisions of, ERISA, the Code and any other applicable
Federal or state law except to the extent the failure to so comply, or to so
operate or administer any such Plan, would not be materially adverse to the
Company and its Subsidiaries, taken as a whole.
(c) Full payment has been timely made of all amounts which the
Company, Southern or any Related Person is required under applicable law, the
terms of each Plan or any applicable collective bargaining agreement to have
paid as contributions to such Plan as of the date hereof and no accumulated
funding deficiency (as defined in section 302 of ERISA or section 412 of the
Code), whether or not waived, has occurred or is expected to occur with
respect to any Plan (other than a Multiemployer Plan or a "multiple employer
Plan"). Neither the Company, Southern nor any Related Person is subject to any
lien arising under ERISA or Section 412(n) of the Code. The present value of
the benefit liabilities (whether or not vested) under each Plan subject to
Title IV of ERISA (other than a Multiemployer Plan or a "multiple employer
Plan") did not exceed the current value of the
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assets of such Plan allocable to such benefit liabilities by more than
$100,000 and the aggregate present value of the benefit liabilities under all
Plans subject to Title IV of ERISA (other than Multiemployer Plans and
"multiple employer Plans") did not exceed the current value of the assets of
such Plans, in all cases, determined as of the end of such Plans' most
recently ended plan year on the basis of actuarial assumptions which would be
used in a termination of such Plan. The terms "benefit liabilities" and
"current value" have the respective meanings specified in section 3 or 4001 of
ERISA, as applicable.
(d) Except as set forth in Schedule 3.18, neither the Company,
Southern nor any Related Person is or has ever been obligated to contribute to
any "multiple employer plan" (within the meaning of section 4063 of ERISA) or
to any Multiemployer Plan.
(e) The execution and delivery of this Agreement and the Subsidiary
Guaranty Agreement, and the issue and sale of the Notes hereunder will not
constitute any transaction which is subject to the prohibitions of section 406
of ERISA or in connection with which a tax could be imposed pursuant to
section 4975 of the Code. The representation by the Company in the preceding
sentence is made in reliance upon and subject to the accuracy of the
representation in Section 4.3 as to the source of the funds used to pay the
purchase price of the Notes purchased by the Purchasers.
SECTION 3.19. SOLVENCY. The Company is, and immediately after the
Closing (after giving effect to the Transactions) will be, Solvent.
SECTION 3.20. DISCLOSURE. Neither this Agreement, the Financial
Statements, the Pro Forma Financial Statements nor any other document,
certificate or instrument delivered to you by or on behalf of the Company in
connection with the transactions contemplated hereby, all such information
taken as a whole, contains (in the case of the Southern Financial Statements,
to the best knowledge of the Company) any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to the
Company which materially adversely affects or in the future is reasonably
likely to have a material adverse effect on the business, operations,
condition, properties or prospects of the Company and its Subsidiaries, taken
as a whole, which has not been set forth herein or in the other documents,
certificates and instruments delivered to the Purchasers by or on behalf of
the Company specifically for use in connection with the transactions
contemplated hereby.
SECTION 3.21. USE OF PROCEEDS. Subject to Section 12.5, the Company
will apply the proceeds of the sale of the Notes solely to refinance Debt
outstanding under the Existing Loan Documents, pay related fees, commissions
and expenses, finance ongoing working capital requirements and other general
corporate purposes of the Company and its Subsidiaries.
SECTION 3.22. ENVIRONMENTAL COMPLIANCE. Each of the Company and its
Subsidiaries has been complying, and to the best knowledge of the Company,
each of Southern and its Subsidiaries has been complying, since its
incorporation with, and, upon consummation of the Acquisition, will be in
compliance with, all Environmental Laws in each
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27
jurisdiction where it has done business, is presently doing business or will
be doing business after the Acquisition and where the consequence of such
violation would have a material adverse effect on the business, operations,
condition, properties or prospects of the Company and its Subsidiaries taken
as a whole.
SECTION 3.23. NOTE PURCHASE AGREEMENT. This Agreement has been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws of general application relating to or affecting the rights and
remedies of creditors and by general principles of equity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser severally, and not jointly, hereby represents and
warrants to the Company as follows:
SECTION 4.1. PRIVATE PLACEMENT. The Notes to be acquired by such
Purchaser pursuant to this Agreement are being acquired for its own account
and not as nominee or agent for any other Person and not for offer or sale in
any manner that would be in violation of the securities laws of the United
States of America or any state thereof, without prejudice, however, to its
right at all times to sell or otherwise dispose of all or any part of said
Notes under a registration under the Securities Act or under an exemption from
such registration available under such Securities Act. The Purchasers
understand that the Notes have not been registered under the Securities Act
and may be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such exemption is required
by law, and that the Company is not required to register the Notes.
SECTION 4.2. MARGIN COMPLIANCE. Such Purchaser is not relying,
directly or indirectly, on any "margin stock" (as defined in Regulation G of
the Federal Reserve Board) as collateral for the Notes.
SECTION 4.3. ACCREDITED INVESTOR. Such Purchaser is an "accredited"
investor within the meaning of Regulation D promulgated under the Securities
Act.
SECTION 4.4. SOURCE OF FUNDS. If any part of the funds to be used to
purchase the Notes constitutes assets of any employee benefit plan within the
meaning of Section 3 of ERISA, such Notes are being purchased pursuant to an
available exemption from the provisions of Section 406 of ERISA and Section
4975 of the Code.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. CONDITIONS TO PURCHASERS' OBLIGATIONS TO PURCHASE
NOTES. The obligation of each Purchaser to purchase the Notes to be purchased
by it hereunder is subject to the satisfaction, at or prior to the Closing
Date, of the following conditions:
(a) NOTES. Such Purchaser shall have received duly executed
certificates representing the Notes being purchased by such
Purchaser pursuant hereto (the "ORIGINAL NOTES").
(b) WARRANTS. Such Purchaser shall have received a duly
executed counterpart of each of the Warrants and the Company shall
have complied with all agreements on its part contained therein and
delivered all documents called for thereunder on or prior to the
Closing Date.
(c) CORPORATE ACTION. Such Purchaser shall have received
certified copies of the charter and by-laws (or equivalent
documents) of the Company and each Subsidiary Guarantor and of all
corporate action taken by the Company and each Subsidiary Guarantor
(including, without limitation, a certificate of the secretary of
the Company and each Subsidiary Guarantor setting forth the
resolutions of its Board of Directors authorizing the transactions
contemplated thereby) authorizing the making and performance of each
of the Basic Documents to which each of the Company and the
Subsidiary Guarantor is a party and (in the case of the Company)
authorizing the issuance of the Notes and the Warrants hereunder.
(d) INCUMBENCY. The Company and each Subsidiary Guarantor shall
have delivered a certificate to each Purchaser in respect of each of
the name and signature of each of the officers (i) who is authorized
to execute on its behalf the Basic Documents to which it is a party
and (ii) who will, until replaced by another officer or officers
duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other
communications in connection with such Basic Documents (and each
Purchaser may conclusively rely on such certificates until it
receives notice in writing from the Company to the contrary).
(e) ACQUISITION AGREEMENT. The Acquisition Agreement shall have
been duly executed and delivered by the Company, as the case may be,
and the other parties thereto and shall be in full force and effect,
and no term or condition has been amended, modified or waived
without the prior written consent of the Purchasers. Such Purchaser
shall have received copies of the Acquisition Agreement, each as
originally executed and delivered by the parties, together with all
exhibits and schedules thereto, and each agreement, certificate,
opinion of counsel or other writing required under the Acquisition
Agreement to be delivered or filed in connection with the
consummation of the Acquisition on or prior to the date hereof, each
of the foregoing documents certified as complete and correct by the
Company.
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(f) ACQUISITION CERTIFICATE. Such Purchaser shall have received
an Officers' Certificate to the effect that: (i) the Acquisition
Agreement as originally executed and delivered by the parties
thereto and delivered to such Purchaser, or any provision thereof,
has not been amended, waived or otherwise modified without the prior
written consent of the Purchasers; and (ii) (x) each of the
conditions precedent to the consummation of the Acquisition
contained in the Acquisition Agreement have been satisfied (or
waived with the prior written consent of the Purchasers), (y) all
governmental and third party authorization, consents, approvals,
exemptions or other actions required in connection with the
Acquisition shall have been duly received or taken; and (z) the
Acquisition has been duly consummated substantially in accordance
with the terms of the Acquisition Agreement.
(g) ADVERSE LITIGATION, ETC. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body
or any other Person or any other legal or administrative proceeding
pending or threatened which (a) seeks to enjoin or otherwise prevent
the consummation of, or to recover any damages or obtain relief as a
result of, the Acquisition or the financing thereof or the other
transactions contemplated hereby, or (b) is related to the
Acquisition, this Agreement, the Subsidiary Guaranty Agreement, any
other Basic Document or the Notes and would, in your reasonable
opinion, have a reasonable likelihood of having a material adverse
effect on either of the parties hereto or any of the transactions
contemplated hereby or thereby.
(h) CONSENTS. Except as set forth in Schedule 5.1(h), all
necessary governmental and third party consents and approvals in
connection with the execution, delivery, performance, validity and
enforceability of each of the Basic Documents have been obtained and
are in full force and effect.
(i) INSURANCE. Such Purchaser shall have received an Officer's
Certificate from the Company dated the Closing Date certifying that
insurance with respect to its properties and business complying with
the provisions of Section 6.6 is in full force and effect.
(j) CREDIT AGREEMENT. The Company and the Senior Lenders shall
have entered into the Credit Agreement, the terms and provisions of
which shall be satisfactory to such Purchaser, and such Purchaser
shall have received a copy of the Credit Agreement certified by the
Company as being complete and correct. The Credit Agreement shall be
in full force and effect as on the date hereof, no term or condition
of the Credit Agreement or any other document or agreement delivered
pursuant to the Credit Agreement shall have been amended, modified
or waived without the prior written consent of the Purchasers, and
the Company shall have borrowed such amounts pursuant to the Credit
Agreement (not exceeding $57,000,000, which together with the
proceeds of the sale of the Notes and the Common Stock shall be
sufficient to consummate the Acquisition). The Senior Lenders shall
have confirmed to the Company that (i) the Closing Date (as defined
in the Credit
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Agreement) has occurred and (ii) the conditions set forth in Section
5 of the Credit Agreement have been fulfilled to their satisfaction.
(k) CAPITALIZATION. Prior to or concurrently with the Closing,
(i) pursuant to the terms of the Acquisition Agreement, the Company
shall have sold to the shareholders of Southern for cash or the fair
market value of contributed property one million shares of Common
Stock for an aggregate of $5,250,000.
(l) FINANCIAL STATEMENTS. Such Purchaser shall have received
copies of (i) the consolidated pro forma balance sheet and pro forma
five-year financial projections of the Company and its Subsidiaries
as at the Closing Date attached hereto as Schedule 5.1(l) (the
"COMPANY PROJECTIONS") giving effect to the issuance and sale of the
Notes, borrowings under the Credit Agreement, the Acquisition, the
other Transactions and the other transactions contemplated hereby,
which Company Projections, pro forma balance sheets and pro forma
financial projections shall be in form and substance satisfactory to
the Purchasers and (ii) the due diligence report by Coopers &
Lybrand relating to the historical financial statements of Southern
and the pro forma financial statements provided by Southern, in form
and substance satisfactory to the Purchasers.
(m) PAYMENT OF ACQUISITION COSTS. Such Purchaser shall have
received evidence satisfactory to such Purchaser that all
Acquisition Costs required to be paid by the Company on or prior to
the Closing Date shall have been paid.
(n) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of (i) the Company contained or incorporated herein, (ii)
Southern contained or incorporated by reference herein and (iii) of
each Subsidiary Guarantor contained or incorporated in the
Subsidiary Guaranty Agreement and otherwise made in writing by or on
behalf of the Company, Southern or any Subsidiary Guarantor in
connection with the transactions contemplated hereby shall be true
and correct when made and on and as of the Closing Date as if made
on and as of such date.
(o) NO DEFAULT. As of the Closing Date and after giving effect
to the Acquisition and the transactions contemplated by the Basic
Documents, no Default shall have occurred and be continuing.
(p) PERFORMANCE OF BASIC DOCUMENTS. The Company and each
Subsidiary shall have performed and complied with all agreements and
conditions required by any of the Basic Documents to be performed or
complied with by it at or prior to the Closing Date.
(q) OFFICERS' CERTIFICATE. Such Purchaser shall have received
an Officers' Certificate from the Company dated the Closing Date (i)
to the effect set forth in subsections (o), (p) and (q) of this
Section and (ii) certifying that after giving effect to the
Acquisition and the other transactions contemplated hereby
(including the sale of the Notes), the Company will be in compliance
with all limitations on the incurrence
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by the Company of Debt contained in any instrument or agreement
applicable to or binding the Company or any of its Subsidiaries.
(r) SOLVENCY CERTIFICATE. Such Purchaser shall have received a
certificate from the chief financial officer or controller of the
Company, in the form of Exhibit K to the Credit Agreement,
supporting the conclusions that, after giving effect to the
Acquisition, the Credit Agreement, this Agreement and the
transactions and financings contemplated thereby, the Company and
its subsidiaries taken as a whole are not insolvent and will not be
rendered insolvent by the Debt to be incurred in connection with the
Acquisition, the Credit Agreement, this Agreement and the
transactions and financings contemplated thereby, will not be left
with unreasonably small capital with which to engage in their
respective businesses and will not have incurred debts beyond their
ability to pay such debts as they mature.
(s) COMPLIANCE WITH REGULATORY MATTERS. The offering and sale
of the Notes to be issued at the Closing, the actions to be taken in
connection with the consummation of the Acquisition on or prior to
the Closing and the other transactions contemplated hereby shall
have complied with all applicable requirements of federal, state and
local laws, including, without limitation, Regulation G of the Board
of Governors of the Federal Reserve System (12 C.F.R. 207, as
amended), Regulation U of such board (12 C.F.R. 221, as amended),
Regulation T of such board (12 C.F.R. 220, as amended) or Regulation
X of such board (12 C.F.R. 224, as amended), and such Purchaser
shall have received evidence thereof satisfactory to it.
(t) COMPLIANCE WITH SECURITIES LAWS. The offering and sale of
the Notes to be issued at the Closing and the other actions taken in
connection with the consummation of the Acquisition shall have
complied with all applicable requirements of Federal and state
securities laws, and such Purchaser shall have received evidence
thereof satisfactory to it.
(u) NO CONTRAVENTION. The purchase of the Notes by any
Purchaser shall not violate any law, rule or regulation applicable
to such Purchaser.
(v) OPINIONS OF COUNSEL. Such Purchaser shall have received an
opinion dated the Closing Date and satisfactory to it of Freedman,
Levy, Kroll & Simonds, counsel to the Company and the Subsidiary
Guarantors, substantially in the form of Exhibit C hereto and
covering such other matters relating to the transactions
contemplated hereby as it may reasonably request. In addition, such
Purchaser shall have received copies of the opinions delivered in
connection with the Acquisition, accompanied by letters from counsel
rendering such opinions stating that such Purchaser is entitled to
rely on such opinions as if they were addressed to such Purchaser.
(w) SUBSIDIARY GUARANTY AGREEMENTS. Such Purchaser shall have
received the Subsidiary Guaranty Agreement, duly executed by each of
the Subsidiary Guarantors party thereto.
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(x) TAX ASSUMPTIONS, ETC. Such Purchaser shall have reviewed
and determined that each of the following is satisfactory to it: (i)
the Company tax assumptions, (ii) the ownership, capital, corporate,
organizational and legal structure of the Company and its
Subsidiaries and (iii) material contracts.
(aa) NO ADVERSE LEGISLATION, ACTION OR DECISION, ETC. No
legislation shall have been enacted by either house of Congress or
by any state legislature, no other action shall have been taken by
any United States or state or local governmental authority, whether
by order, regulation, rule, ruling or otherwise, and no decision
shall have been rendered by any court of competent jurisdiction in
the United States which would materially adversely affect the Notes
or the Warrants being purchased by the Purchasers hereunder as an
investment.
(bb) EXISTING LOAN DOCUMENTS. The Company shall have satisfied
in full all amounts then due and payable under the Existing Loan
Documents and the Company shall have caused all Liens securing and
all Guarantees of the obligations thereunder to be released and
terminated.
(cc) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby
and all documents and instruments incident to such transactions
shall be satisfactory to such Purchaser and its counsel, and such
Purchaser and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as it or
they may reasonably request.
(dd) OTHER DOCUMENTS. Such Purchaser shall have received such
other documents relating to the transactions contemplated hereby or
by any of the Basic Documents as it may reasonably request.
(ee) FEES. The Company shall have paid to the Purchasers, for
their accounts, such other fees as have been agreed to in writing by
the Company and the Purchasers.
SECTION 5.2. CONDITIONS TO COMPANY'S OBLIGATIONS TO ISSUE AND SELL
THE NOTES AND TO ISSUE THE WARRANTS. The obligations of the Company to issue
and sell the Notes and to issue the Warrants pursuant to this Agreement to any
Purchaser are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of such Purchaser
contained herein shall be true and correct in all material respects
on and as of the Closing Date as if made on and as of such date,
except that any such representation or warranty stated to relate to
a specific earlier date will be true and correct as of such earlier
date; and
(b) Such Purchaser shall have performed and complied in all
material respects with all agreements required by this Agreement to
be performed or complied with by such Purchaser at or prior to the
Closing Date.
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ARTICLE VI
COVENANTS
The Company hereby agrees as follows for the benefit of each
Noteholder for so long as any amount is payable with respect to any Note of
which it is the Holder:
SECTION 6.1. FINANCIAL STATEMENTS, ETC. The Company will deliver to
each Noteholder holding Notes on the date hereof so long as such Noteholder or
its nominee shall hold any Notes and to any other Noteholder holding at least
$250,000 outstanding principal amount of Notes at the time outstanding:
(a) as soon as practicable, and in any event within 45 days after
the end of each fiscal month in each Fiscal Year, the consolidated
balance sheet of the Company and the Restricted Subsidiaries as at the
end of such period and the related consolidated statements of income of
the Company and the Restricted Subsidiaries for such period and setting
forth in comparative form the consolidated historical figures for the
corresponding periods of the previous Fiscal Year (or, in the case of the
balance sheet, at the end of the previous Fiscal Year) and the
corresponding figures included in the Company Projections, all in
reasonable detail and certified as complete and correct by the chief
financial officer of the Company and as fairly presenting the financial
condition and results of operation of the Company and its Restricted
Subsidiaries in accordance with GAAP, consistently applied, as at the end
of, and for, such period (subject to normal year-end audit adjustments
and the omission of footnotes), and (ii) as soon as practicable, and in
any event within 45 days after the end of each fiscal month in each
Fiscal Year, the consolidated balance sheet of the Unrestricted
Subsidiaries as at the end of such period and the related consolidated
statements of income and retained earnings and of cash flows of the
Unrestricted Subsidiaries for such period and (in the case of the first
eleven calendar months in any Fiscal Year) for the period from the
beginning of such Fiscal Year to the end of such fiscal month, setting
forth in comparative form the consolidated figures for the corresponding
periods of the previous Fiscal Year (or, in the case of the balance
sheet, at the end of the previous Fiscal Year), all in reasonable detail
and certified as complete and correct by the chief financial officer of
the Company and as fairly presenting the financial condition and results
of operation of the Company and its Unrestricted Subsidiaries in
accordance with GAAP, consistently applied, as at the end of, and for,
such period (subject to normal year-end audit adjustments and the
omission of footnotes);
(b) within 60 days after the end of each of the first three Fiscal
Quarters in each Fiscal Year, the consolidated balance sheet of the
Company and the Restricted Subsidiaries as at the end of such period and
the related consolidated statements of income and retained earnings and
cash flows and changes in financial position of the Company and the
Restricted Subsidiaries for such period and (in the case of the second
and third Fiscal Quarters) for the period from the beginning of the
current
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34
Fiscal Year to the end of such Fiscal Quarter, setting forth in
comparative form the consolidated figures for the corresponding periods
of the previous Fiscal Year (or, in the case of such balance sheet, at
the end of the previous Fiscal Year) and setting forth in each case
comparisons with the Company Projections for the period for which such
financial statements are being provided, all in reasonable detail and
certified as complete and correct by the chief financial officer of the
Company and as fairly presenting the financial condition and results of
operation of the Company and its Restricted Subsidiaries in accordance
with GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments and the omission of
footnotes);
(c) within 120 days after the end of each Fiscal Year, the
consolidated balance sheet of the Company and the Restricted Subsidiaries
as at the end of such year and the related consolidated statements of
income and retained earnings and cash flows and changes in financial
position of the Company and the Restricted Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the consolidated
figures for the previous Fiscal Year, all in reasonable detail and in the
case of such consolidated financial statements, accompanied by an
unqualified report thereon of Coopers & Lybrand or other independent
public accountants of recognized national standing selected by the
Company, which report shall state that such financial statements present
fairly the financial position of the Company and the Restricted
Subsidiaries as at the dates indicated and the results of their
operations and cash flows for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years (except as otherwise
specified in such report) and that the audit by such accountants in
connection with such financial statements has been made in accordance
with generally accepted auditing standards;
(d) within 60 days after the end of each of the first three Fiscal
Quarters in each Fiscal Year, the consolidated balance sheets of the
Unrestricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and cash flows of
the Unrestricted Subsidiaries for such period and (in the case of the
second and third Fiscal Quarters) for the period from the beginning of
the current Fiscal Year to the end of such Fiscal Quarter, setting forth
in comparative form the consolidated figures for the corresponding
periods of the previous Fiscal Year (or, in the case of such balance
sheets, at the end of the previous Fiscal Year), all in reasonable detail
and certified as complete and correct by the chief financial officer of
the Company;
(e) within 120 days after the end of each Fiscal Year, the
consolidated balance sheet of the Unrestricted Subsidiaries as at the end
of such year and the related consolidated statements of income and
retained earnings and cash flows of the Unrestricted Subsidiaries for
such Fiscal Year, setting forth in each case in comparative form the
consolidated figures for the previous Fiscal Year, all in reasonable
detail and in the case of such consolidated financial statements,
accompanied by the report thereon of Coopers & Lybrand or other
independent public accountants of recognized national standing selected
by the Company, which report
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35
shall state that such financial statements present fairly the financial
position of the Unrestricted Subsidiaries as at the dates indicated and
the results of their operations and cash flows for the periods indicated
in conformity with GAAP applied on a basis consistent with prior years
(except as otherwise specified in such report) and that the audit by such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(f) together with each delivery of financial statements pursuant to
subdivisions (b), (c), (d) and (e) above, an Officers' Certificate (i)
stating that the signers have reviewed the terms hereof and of the Notes
and have made, or caused to be made under their supervision, a review of
the transactions and condition of the Company and its Subsidiaries during
the accounting period covered by such financial statements and that such
review has not disclosed the existence during or at the end of such
accounting period, and that the signers do not have knowledge of the
existence as at the date of such Officers' Certificate, of any condition
or event which constitutes a Default or Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken or is taking or
proposes to take with respect thereto, and (ii) demonstrating in
reasonable detail compliance during and at the end of such accounting
period with the restrictions contained in this Agreement;
(g) as soon as available, and in any event within 60 days after the
end of each Fiscal Year, a financial plan of the Company and its
Subsidiaries consisting of the operating budget, proposed capital
expenditures, and projected cash flow and profit and loss statements on a
quarterly and month-by-month basis for the immediately succeeding Fiscal
Year, in form customarily prepared by the Company, such budget and
projections to be accompanied by an Officer's Certificate specifying the
assumptions on which budget and projections were prepared and stating
that such officer has no reason to question the reasonableness of any
material assumptions on which such budget and projections were prepared;
(h) promptly upon receipt thereof, copies of all reports submitted
to the Company by independent public accountants in connection with each
annual, interim or special audit of the books of the Company or any of
its Subsidiaries made by such accountants, including, without limitation,
any comment letter submitted to management by such accountants in
connection with their annual audit and any report as to material
inadequacies in accounting controls (including reports as to the absence
of any such inadequacies) submitted by independent public accountants in
connection with any audit of the Company or any of its Subsidiaries;
(i) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its public security holders (if any) or by
any Subsidiary of the Company to its security holders other than the
Company or another Subsidiary, of all regular and periodic reports and
all registration statements (other than on Form S-8) and prospectuses
filed by the Company or any such Subsidiary with any securities
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<PAGE>
36
exchange or with the SEC or any governmental authority succeeding to any
of its functions, and of all press releases and other written statements
made available generally by the Company or any such Subsidiary to the
public concerning material developments in the business of the Company or
such Subsidiary;
(j) promptly and in any event, within 5 days of any officer of the
Company obtaining knowledge of any condition or event which constitutes a
Default or Event of Default, or that the holder of any Note has given any
notice or taken any other action with respect to a claimed default
hereunder, or that any Person has given any notice to the Company or any
of its Subsidiaries or taken any other action with respect to a claimed
default of the type referred to in Section 7.6(e), an Officers'
Certificate describing the same and the period of existence thereof and
specifying what action the Company has taken or is taking or proposes to
take with respect thereto;
(k) as soon as possible and, in any event, within ten (10) days
after the Company, any Subsidiary of the Company or any Related Person
knows or has reason to know of the occurrence of any of the following, a
certificate of the chief financial officer of the Company setting forth
the full details as to such occurrence and the action, if any that the
Company, such Subsidiary or such Related Party is required or proposes to
take, together with any notices required or proposed to be given to or
filed with or by the Company, the Subsidiary, the Related Party, the
PBGC, a Plan participant of the Plan administrator with respect thereto:
that a Reportable Event has occurred; that an accumulated funding
deficiency, within the meaning of Section 412 of the Code of Section 302
of ERISA, has been incurred or any application may be or has been made
for a waiver or modification of the minimum funding standard (including
any required installment payments) or an extension of any amortization
period under Section 412 of the Code or Section 303 or 304 of ERISA with
respect to a Plan; that any contribution required to be made with respect
to a Plan has not been timely made; that a Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV
of ERISA; that a Plan has an Unfunded Current Liability; that proceedings
may be or have been instituted to terminate or appoint a trustee to
administer a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan; that the Company, any
Subsidiary of the Company or any ERISA Affiliate will or may incur any
liability (including any indirect, contingent, or secondary liability) to
or on account of the termination of or withdrawal from a Plan under
Section 4062, 4063, 4064, 6069, 4201, 4204 or 4212 or ERISA or with
respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the
Code of Section 409 or 502(i) or 502(1) of ERISA or with respect to a
group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code; or that the
Borrower or any Subsidiary of the Borrower may incur any material
liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA)
or any Plan. The company will deliver to each Noteholder a complete copy
of the annual report (on Internal Revenue Service Form 5500-series) of
each Plan (including, to the extent required, the related
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37
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required to be
filed with the Internal Revenue Service. In addition to any certificates
or notices delivered to the Noteholders pursuant to the first sentence
hereof, copies of annual reports and any material notices received by the
Company, any Subsidiary of the Company and any Related Party with respect
to any Plan shall be delivered to the Noteholders no later than ten (10)
days after the date such report has been filed with the Internal Revenue
Services or such notice has been received by the Company, the Subsidiary
or the Related Party, as applicable.
(l) promptly upon the occurrence of any of the following events, an
Officers' Certificate describing such event: (i) the Company or any
Subsidiary of the Company shall have filed any amendment to its charter
documents or changed its jurisdiction of incorporation, or (ii) the
Company or any Subsidiary of the Company shall have changed its corporate
name, or (iii) the Company or any Subsidiary of the Company shall have
changed its principal place of business or its chief executive offices,
or (iv) the Company or any Subsidiary of the Company shall have become a
party to any suit, action or proceeding which, if adversely determined,
would have a materially adverse effect on the business, operations,
condition, properties or prospects of the Company and its Subsidiaries
taken as a whole, or (v) the Company or any of its Subsidiaries shall
have opened or closed other than in the ordinary course of business any
material place of business, or (vi) any strike, walkout, work stoppage or
other material employee disruption relating to any plant or facility
owned or leased by the Company or any of its Subsidiaries, or the
expiration of any labor contract to which the Company or any of its
Subsidiaries is a party or by which it is bound (unless there exists a
new labor contract in substitution therefor), or (vii) the Company or any
of its Subsidiaries shall have obtained knowledge that any of its
insurance policies will be cancelled or not renewed and such cancellation
or failure to renew could have a material adverse effect on the business,
operations, condition, properties or prospects of the Company or any of
its Subsidiaries (unless there exists, or the Company or such Subsidiary
reasonably expects to obtain upon such policy's termination, a similar
insurance policy in substitution therefor);
(m) as soon as practicable and in any event no later than December
31, 1996, a copy of the unaudited balance sheet of the Company at the
time of the Closing after giving effect to the Acquisition and the other
transactions contemplated hereby, certified as fairly presenting the
condition of the Company in all material respects (subject to year end
adjustments and the omission of footnotes) by the chief financial officer
of the Company;
(n) on or before April 15 of each year and at such other times as
any holder of Notes may reasonably request, a statement setting forth the
amount, if any, of any distribution with respect to any stock of the
Company made or deemed to be made pursuant to the Code during the
calendar year preceding such year that constitutes a dividend within the
meaning of section 316 of the Code, and promptly after request the
certification referred to in Treasury Regulations ss. 1.897-2(h) to the
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<PAGE>
38
effect that the interest of such holder in the Company is not a United
States real property interest;
(o) within 5 days after receipt by the Company of a written request
from any Noteholder holding Notes on the date hereof, so long as such
Noteholder or its nominee shall be a Noteholder, or any other holder of
at least $1,000,000 principal amount of Notes at the time outstanding,
the Company shall request, and promptly upon receipt thereof, provide to
all holders of the Notes, the most current statement of withdrawal
liability from each Multiemployer Plan PROVIDED that the Company shall
not be obligated to request or deliver such statement for any
Multiemployer Plan more than once in any Fiscal Year; and
(p) with reasonable promptness, such other information and data with
respect to the Company or any Subsidiary as from time to time may be
reasonably requested.
SECTION 6.2. FURNISHING OF DISCLOSURE INFORMATION. For so long as
the Company is subject to the reporting requirements of Section 13 or 15 of
the Exchange Act, the Company covenants that it will file reports required to
be filed by it under Section 13(a) or 15(d) of the Exchange Act and the rules
and regulations adopted by the SEC thereunder, that if it ceases to be so
required to file such reports, it will upon the request of any Noteholder (i)
make publicly available such information as is necessary to permit sales
pursuant to Rule 144 under the Securities Act, (ii) deliver such information
to a prospective purchaser as is necessary to permit sales pursuant to Rule
144A under the Securities Act and it will take such further action as any
Noteholder may reasonably request, and (iii) take such further action that is
reasonable in the circumstances, in each case, to the extent required from
time to time to enable such Noteholder to sell its Notes without registration
under the Securities Act within the limitation of the exemptions provided by
(x) Rule 144 under the Securities Act, as such Rule may be amended from time
to time, (y) Rule 144A under the Securities Act, as such Rule may be amended
from time to time, or (z) any similar rules or regulations hereafter adopted
by the SEC. Upon the request of any Noteholder, the Company will deliver to
such Noteholder a written statement as to whether it has complied with such
requirements.
SECTION 6.3. BOOKS OF RECORD AND ACCOUNT; RESERVES. The Company
will, and will cause each of its Subsidiaries to, keep proper books of record
and account and set aside appropriate reserves, all in accordance with GAAP.
SECTION 6.4. PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. (a) The
Company will, and will cause each of its Subsidiaries to, pay all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income
or profits when the same become due and payable as shown on the return
therefor as prepared in good faith by the Company, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for
sums which have become due and payable and which by law have or might become a
Lien upon any of its properties or assets, PROVIDED that no such charge or
claim need be paid if being
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39
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if such reserves or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor.
(b) The Company will not consent to or permit the filing of or be a
party to any consolidated income tax return on behalf of itself or, in the
case of the Company, on behalf of any of its Subsidiaries with any Person
(other than a consolidated return of the Company and the Subsidiaries of the
Company).
SECTION 6.5. MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE AND
BUSINESS. The Company will maintain or cause to be maintained in good repair,
working order and condition all material properties used or useful in the
business of the Company and its Subsidiaries and from time to time will make
or cause to be made all appropriate repairs, renewals, replacements and
improvements thereof in order that such business may be conducted in the
ordinary course. The Company will at all times preserve and keep in full force
and effect its corporate existence, and rights and franchises material to its
business, and those of each of its Subsidiaries. The Company will not, and
will not permit, any of its Subsidiaries to engage in any business other than
a Permitted Business.
SECTION 6.6. INSURANCE. The Company will, and will cause each of its
Subsidiaries to, carry and maintain in full force and effect at all times with
financially sound and reputable insurers (or, as to workers' compensation or
similar insurance, in an insurance fund or by self-insurance authorized by the
jurisdiction in which its operations are carried on) insurance against such
other risks as are customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated.
Such insurance may be subject to co-insurance, deductibility or similar
clauses which, in effect, result in self-insurance of certain losses, PROVIDED
that such self-insurance is in accord with the practices of corporations
similarly situated and adequate insurance reserves are maintained in
connection with such self-insurance.
SECTION 6.7. INSPECTION. The Company will permit any authorized
representatives designated by each Noteholder holding Notes on the date
hereof, so long as such Noteholder or its nominee shall be a Noteholder, or by
any other Noteholder holding at least $1,000,000 in principal amount of Notes
at the time outstanding, without expense to the Company, to visit and inspect
any of the properties of the Company or any of its Subsidiaries, including its
and their books of account, and to make copies and take extracts therefrom,
and to discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants (and by this provision the Company
authorizes such accountants to discuss with such representatives the affairs,
finances and accounts of the Company and its Subsidiaries, whether or not the
Company is present), all at such reasonable times and as often as may be
reasonably requested.
SECTION 6.8. COMPLIANCE WITH LAWS, ETC. The Company covenants that
it will, and will cause each of its Subsidiaries to, comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, the noncompliance with which could reasonably be
expected to have a material adverse effect on the business,
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40
financial condition, assets, properties or operations of the Company and its
Subsidiaries taken as a whole.
SECTION 6.9. SUBSIDIARY GUARANTEES. The Company shall cause each
Person that becomes a Restricted Subsidiary of the Company after the Closing
Date (if such Person guarantees Obligations arising under the Credit
Agreement) to execute and deliver to each Noteholder the Subsidiary Guaranty
Agreement pursuant to which such Restricted Subsidiary shall become a
Subsidiary Guarantor and shall guarantee on a senior subordinated basis the
obligations of the Company under the Notes hereunder. Such Subsidiary Guaranty
Agreement shall be appropriately completed, accompanied by such corporate or
partnership resolutions, as the case may be, authorizing the execution and
delivery of the Subsidiary Guaranty Agreement and evidence as to its due
execution. Notwithstanding the foregoing, Hanger Europe N.V. shall not be
required to execute and deliver to each Noteholder a Subsidiary Guaranty
Agreement.
SECTION 6.10. LIMITATIONS ON RESTRICTED PAYMENTS. The Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on
account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (other than (1) dividends or distributions by the Company payable in
Equity Interests (other than Disqualified Stock) of the Company or (2)
dividends or distributions by a Restricted Subsidiary of the Company so long
as, in the case of any dividend or distribution payable on or in respect of
any class or series of securities issued by a Subsidiary other than a Wholly
Owned Subsidiary, the Company or a Restricted Subsidiary of the Company
receives at least its pro rata share of such dividend or distribution in
accordance with its Equity Interests in such class or series of securities);
(ii) purchase, redeem, defease or otherwise acquire or retire for value any
Equity Interests of the Company; (iii) make any principal payment on, or
redeem, repurchase, defease or otherwise acquire or retire for value in each
case, prior to any scheduled repayment, or maturity, any Subordinated
Indebtedness; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "RESTRICTED PAYMENTS"), unless, at the time of such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of additional
Debt under the provisions of the first paragraph of Section 6.11; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the Closing Date (including Restricted Payments permitted by clause (i)
below of the next succeeding paragraph, but excluding all other Restricted
Payments permitted by the next succeeding paragraph), is less than the sum of
(U) 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the fiscal quarter that first begins after the
Closing Date to the end of the Company's most recently ended fiscal quarter
for which
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internal financial statements are available at the time of such Restricted
Payment (or, in the case such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (V) 100% of the aggregate net cash
proceeds and the fair market value, as determined in good faith by the Board
of Directors, of marketable securities received by the Company since the
Closing Date from the issue or sale of Equity Interests (including Retired
Capital Stock (as defined below)), or debt securities of the Company that have
been converted into such Equity Interests of the Company (other than Refunding
Capital Stock (as defined below) or Equity Interests or convertible debt
securities of the Company sold to a Restricted Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (W) 100% of the aggregate amounts contributed to the
capital of the Company, plus (X) 100% of the aggregate amounts received in
cash and the fair market value of marketable securities (other than Restricted
Investments) received from (i) the sale or other disposition of Restricted
Investments made by the Company and its Restricted Subsidiaries or (ii) a
dividend from, or the sale of the stock of, an Unrestricted Subsidiary, plus
(Y) other Restricted Payments in an aggregate amount not to exceed $5,000,000.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at the date of declaration such payment
would have complied with the provisions of this Agreement;
(ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests (the "Retired Capital Stock") or
Subordinated Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary
of the Company) of Equity Interests of the Company (other than any
Disqualified Stock) (the "Refunding Capital Stock");
(iii) the redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness of the Company made by
exchange for, or out of the proceeds of the substantially concurrent
sale of, new Debt of the Company so long as (A) the principal amount
of such new Debt does not exceed the principal amount of the
Subordinated Indebtedness being so redeemed, repurchased, acquired
or retired for value (plus the amount of any premium required to be
paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired),
(B) such Debt is subordinated to Senior Indebtedness and the Notes
at least to the same extent as such Subordinated Indebtedness so
purchased, exchanged, redeemed, repurchased, acquired or retired for
value, (C) such Debt has a final scheduled maturity date later than
the final scheduled maturity date of the Notes and (D) such Debt has
a Weighted Average Life to Maturity equal to or greater than the
remaining Weighted Average Life to Maturity of the Notes; and
(iv) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a
portion of the exercise price of such options;
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42
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii) and (iv), no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof; and provided further that for purposes of
determining the aggregate amount expended for Restricted Payments in
accordance with clause (c) of the immediately preceding paragraph, only the
amounts expended under clause (i) shall be included.
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted
Subsidiary to become a Restricted Subsidiary except pursuant to the last
sentence of the definition any Restricted Subsidiary as an Unrestricted
Subsidiary, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid) in the Subsidiary so designated
will be deemed to be Restricted Payments in an amount equal to the book value
of such Investment at the time of such designation. Such designation will only
be permitted if a Restricted Payment in such amount would be permitted at such
time and if such Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Unrestricted Subsidiaries will not be subject to any of the
restrictive covenants set forth in this Agreement.
SECTION 6.11. LIMITATIONS ON INCURRENCE OF DEBT AND ISSUANCE OF
DISQUALIFIED STOCK. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" and correlatively, an "incurrence" of) any
Debt (including Acquired Debt) or any shares of Disqualified Stock; provided,
however, that the Company may incur Debt or issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date of
such incurrence would have been at least 2.00 to 1.00 determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Debt had been incurred or the Disqualified Stock had been
issued, as the case may be, and the application of proceeds had occurred at
the beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence (i) by the Company and Southern of Debt under the
Credit Agreement and the issuance of letters of credit thereunder (with
letters of credit being deemed to have a principal amount equal to the
face amount thereof) up to an aggregate principal amount of $90,000,000
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving and acquisition
loans and letters of credit under the Credit Agreement made after the
Closing Date, if any (excluding any principal repayments or commitment
reductions to the extent refinanced at the time of payment under a
replaced Credit Agreement); PROVIDED that Southern shall be limited to
the incurrence of $44,000,000 of Debt under the Credit Agreement;
PROVIDED, FURTHER that the amount of Debt permitted to be incurred
pursuant to the Credit Agreement by the Company in accordance with this
clause (a) shall be in addition to any Indebtedness permitted to be
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43
incurred under the Credit Agreement in reliance on, and in accordance
with, clause (i) of this Section 6.11;
(b) the obligations of the Restricted Subsidiaries and the Company
incurred in connection with guarantees entered into in connection with
the Credit Agreement;
(c) Existing Indebtedness;
(d) the incurrence by the Company of Debt represented by the Notes
and the obligations of the Restricted Subsidiaries under the Subsidiary
Guaranty Agreement;
(e) Debt incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including
without limitation letters of credit in respect of workers' compensation
claims or self-insurance, or other Debt with respect to reimbursement
type obligations regarding workers' compensation claims;
(f) Debt arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
Guarantees of Debt incurred by any Person acquiring all or any portion of
such business, assets or a Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of
all such Debt shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection
with such disposition;
(g) Debt of the Company to a Restricted Subsidiary and Debt of a
Restricted Subsidiary to the Company or another Restricted Subsidiary;
provided however, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of
any such Debt (except to the Company or a Restricted Subsidiary) shall be
deemed, in each case to be an incurrence of Debt at the time the
Restricted Subsidiary ceased to be a Restricted Subsidiary;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(i) Debt not otherwise permitted hereunder in an amount under this
clause (i) not to exceed $10,000,000 at any one time;
(j) Debt or Disqualified Stock of Persons that are acquired by the
Company or any of its Restricted Subsidiaries or merged into a Restricted
Subsidiary in accordance with the terms of this Agreement; provided that
such Debt or Disqualified Stock is not incurred in contemplation of such
acquisition or merger; and provided further that the Fixed Charge
Coverage Ratio for the Company and its Restricted Subsidiaries for the
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most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of such
transaction would have been at least 2.00 to 1.00 determined on a pro
forma basis, as if such transaction had occurred at the beginning of such
four-quarter period and such Debt or Disqualified Stock and the EBITDA of
such merged or acquired Person had been included for all purposes in such
pro forma calculation;
(k) any Guarantee by the Company of Debt or other obligations of any
of its Restricted Subsidiaries so long as the incurrence of such Debt
incurred by such Restricted Subsidiary is permitted under the terms of
the Indenture;
(l) Debt (including Capitalized Lease Obligations) incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Debt then outstanding
and incurred pursuant to this clause (l) (including any refinancing
thereof), does not exceed $5,000,000;
(m) Indebtedness in respect of Hedging Obligations to establish a
fixed or maximum interest rate for an aggregate notional amount of at
least 50% of the outstanding principal amount of the Term Loans for a
period of at least three years; and
(n) the incurrence by the Company or any of its Restricted
Subsidiaries of Debt which serves to refund, refinance or restructure any
Debt incurred as permitted under the first paragraph of this covenant or
any other Debt incurred as permitted under the first paragraph of this
covenant and clauses (c), (d) and (j) above, or any Debt issued to so
refund, refinance or restructure such Debt including additional Debt
incurred to pay premiums and fees in connection therewith (the
"REFINANCING INDEBTEDNESS") prior to its respective maturity; provided
however that such Refinancing Indebtedness (a) has a Weighted Average
Life to Maturity at the time such Refinancing Indebtedness is incurred
which is not less than the remaining Weighted Average Life to Maturity of
Debt being refunded or refinanced and (b) to the extent such Refinancing
Indebtedness refinances Subordinated Indebtedness or Pari Passu
Indebtedness, such Refinancing Indebtedness is subordinated or pari passu
to the Notes at least to the same extent as the Debt being refinanced or
refunded; and provided further that subclauses (a) and (b) of this clause
(k) will not apply to any refunding or refinancing of any Senior
Indebtedness.
SECTION 6.12. LIENS. The Company will not directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations
under any Pari Passu Indebtedness or Subordinated Indebtedness on any asset or
property of the Company or such Restricted Subsidiary, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
unless the Notes are equally and ratably secured with the obligations so
secured or until such time as such obligations are no longer secured by a
Lien.
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The Restricted Subsidiaries of the Company will not, directly or
indirectly, create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness of
such Restricted Subsidiary on any asset or property of such Restricted
Subsidiary or any income or profits therefrom, or assign or convey any right
to receive income therefrom, unless the Guarantee of such Restricted
Subsidiary under the Subsidiary Guaranty Agreement is equally and ratably
secured with the obligations so secured or until such time as such obligations
are no longer secured by a Lien.
SECTION 6.13. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The
Company may not consolidate or merge with or into or wind up into (whether or
not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, any Person unless
(i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws of
the United States, any state thereof, the District of Columbia, or any
territory thereof; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of the Company under this Agreement
and the Notes pursuant to documents or instruments in form reasonably
satisfactory to the Required Holders under this Agreement and the Notes; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) the Company or any Person formed by or surviving any such consolidation
or merger, or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Debt pursuant to the Fixed Charge Coverage Ratio
test set forth in the covenant described under Section 6.11. Notwithstanding
the foregoing clauses (iii) and (iv), (a) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (b) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction.
Each Subsidiary Guarantor shall not, and the Company will not permit
a Subsidiary Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Subsidiary Guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless (i) such Subsidiary Guarantor is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (such Subsidiary Guarantor or such Person, as the case may be, being
herein called the "Successor Guarantor"); (ii) the Successor Guarantor (if
other than such Subsidiary Guarantor) expressly assumes all the obligations of
such Subsidiary Guarantor under the Subsidiary Guaranty Agreement pursuant to
documents or instruments in form reasonably satisfactory to the
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Required Holders; (iii) immediately after such transaction no Default or Event
of Default exists; and (iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such documents (if any) comply with this
Agreement. The Successor Guarantor will succeed to, and be substituted for,
such Subsidiary Guarantor under this Agreement and the Subsidiary Guaranty
Agreement.
SECTION 6.14. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate of the Company
(other than the Company or a Wholly Owned Restricted Subsidiary) unless (a)
such transaction or series of related transactions is in writing and on terms
that are no less favorable to the Company or such Restricted Subsidiary, as
the case may be, than those that would be available in a comparable
transaction in arm's-length dealings with an unrelated third party, (b) with
respect to any transaction or series of related transactions involving
aggregate value in excess of $1,000,000, the Company delivers an Officers'
Certificate to the Noteholders certifying that such transaction or series of
related transactions complies with clause (a) above and such transaction or
series of transactions has been approved by a majority of the board of
directors of the Company, (c) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $2,000,000,
such transaction or series of related transactions has been approved by the
Disinterested Directors of the Company (or in the event there is only one
Disinterested Director, by such Disinterested Director) and (d) with respect
to any transaction or series of related transactions involving aggregate
payments in excess of $5,000,000, such transaction or series of related
transactions has been approved by the Disinterested Directors of the Company
(or in the event there is only one Disinterested Director, by such
Disinterested Director) and the Company delivers to the Noteholders a written
opinion of an investment banking firm of national standing or other recognized
independent expert with experience appraising the terms and conditions of the
type of transaction or series of related transactions for which an opinion is
required stating that the transaction or series of related transactions is
fair to the Company or such Restricted Subsidiary from a financial point of
view; PROVIDED, HOWEVER, that the provision with respect to clause (d) above
shall not apply to (A) any transaction with an officer or director of the
Company entered into in the ordinary course of business (including
compensation or employee benefit arrangements with any officer or director of
the Company) or (B) any agreements, transactions or series of related
transactions in existence on the date of this Agreement and any renewal or
extension thereof under substantially the same terms as the original terms.
SECTION 6.15. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability
of any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in,
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or measured by, its profits or (ii) pay any Debt owed to the Company or
any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries, except (in each case) for
such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the
Closing Date, including pursuant to the Credit Agreement and its related
documentation;
(2) this Agreement and the Notes;
(3) by reason of customary non-assignment or subletting provisions
in leases entered into in the ordinary course of business and consistent
with past practices;
(4) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions acquired;
(5) applicable law or any applicable rule, regulation or order;
(6) Existing Indebtedness and Debt or Capital Stock of Restricted
Subsidiaries that are acquired by or merged with or into the Company or
any of its Restricted Subsidiaries after the Issuance Date; provided that
such Debt or Capital Stock is in existence at the time of such
acquisition and was not incurred, assumed or issued in contemplation of
such acquisition or merger;
(7) other Debt permitted to be incurred subsequent to the Closing
Date pursuant to Section 6.11; provided that any such restrictions are
ordinary and customary with respect to the type of Debt being incurred
(under the relevant circumstances);
(8) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Restricted Subsidiary pursuant
to agreement that has been entered into for the sale or disposition of
all or substantially all of the Capital Stock or assets of such
Subsidiary;
(9) secured Debt otherwise permitted to be incurred pursuant to the
covenants described under Section 6.11 and Section 6.12 that limit the
right of the debtor to dispose of the assets securing such Debt;
(10) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
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(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through (11) above, provided that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are, in the good
faith judgment of the Company's Board of Directors, no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the dividend or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, placement or refinancing.
SECTION 6.16. LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS.
The Company will not, directly or indirectly, incur any Debt (including
Acquired Debt) that is subordinate in right of payment to any Debt of the
Company unless such Debt is either (a) Pari Passu Indebtedness or (b)
subordinate in right of payment to the Notes, in the same manner and at least
to the same extent as the Notes are subordinate to Senior Indebtedness.
SECTION 6.17. LIMITATION ON PREFERENCE STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not permit any of its Restricted Subsidiaries
to issue, directly or indirectly, any Preference Stock, except (i) Preference
Stock issued to and held by the Company or a Wholly Owned Restricted
Subsidiary, except that any subsequent issuance or transfer of any Capital
Stock which results in any Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or any transfer of such Preference Stock to
a Person no a Wholly Owned Restricted Subsidiary will be deemed an issuance of
Preference Stock; (ii) Preference Stock issued by a Person prior to the time
(a) such Person became a Restricted Subsidiary of the Company, (b) such person
merges with or into a Restricted Subsidiary or (c) another person merges with
or into such Person (in a transaction in which such Person becomes a
Restricted Subsidiary), in each case if such Preference Stock was not issued
in anticipation of such transaction; and (iii) Preference Stock issued in
exchange for, or the proceeds of which are used to refund Debt or refinance
Preference Stock issued pursuant to clauses (i) or (ii) (other than
Disqualified Stock); provided that (a) the liquidation value of such
Preference Stock so issued shall not exceed the principal amount or the
liquidation value of the Debt or Preference Stock, as the case may be, so
refunded or refinanced and (b) the Preference Stock so issued (i) shall have a
stated maturity not earlier than the stated maturity of the Debt or Preference
Stock being refunded or refinanced and (2) shall have a Weighted Average Life
to Maturity equal to or greater than the remaining Weighted Average Life to
Maturity of the Debt or Preference Stock being refinanced or refunded.
SECTION 6.18. CHANGE OF CONTROL. (a) Upon the occurrence of a Change
of Control, the Company will make an offer to purchase all or any part (equal
to $1,000 or an integral multiple thereof) of the Notes pursuant to the offer
described below (the "Change of Control Offer") at a price in cash (the
"Change of Control Payment") equal to 100% of the aggregate principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase. Within 30 days following any Change of Control, the Company will
mail a
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notice to each Noteholder with the following information: (1) a Change of
Control Offer is being made pursuant to the covenant entitled "Change of
Control," and that all Notes properly tendered pursuant to such Change of
Control Offer will be accepted for payment; (2) the purchase price and the
purchase date, which will be no earlier than 30 days nor later than 60 days
from the date such notice is mailed, except as may be otherwise required by
applicable law (the "Change of Control Payment Date"); (3) any Note not
properly tendered will remain outstanding and continue to accrue interest; (4)
unless the Company defaults in the payment of the Change of Control Payment,
all Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest on the Change of Control Payment Date; (5)
Noteholders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed,
and at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date; (6)
Noteholders will be entitled to withdraw their tendered Notes and their
election to require the Company to purchase such Notes, provided, that the
Company receives, not later than the close of business on the last day of the
offer period, a telegram, telex, facsimile transmission or letter setting
forth the name of the Noteholder, the principal amount of Notes tendered for
purchase, and a statement that such Holder is withdrawing his tendered Notes
and his election to have such Notes purchased; and (7) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof.
(b) Prior to complying with the provisions of this covenant, but in
any event within 30 days following a Change of Control, the Company will
either repay all outstanding amounts under the Credit Agreement or offer to
repay in full all outstanding amounts under the Credit Agreement and repay the
obligations held by each lender who has accepted such offer or obtain the
requisite consents, if any, under the Credit Agreement to permit the
repurchase of the Notes required by this covenant.
(c) The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws or regulations are applicable in connection
with the repurchase of the Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Agreement, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations hereunder.
On the Change of Control Payment Date, the Company will, to the
extent permitted by law, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit an
amount equal to the aggregate Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) cancel the Notes so accepted
together with an Officers' Certificate stating that such Notes or portions
thereof have been tendered to and purchased by the Company. The Company will
promptly mail to each Noteholder the Change of Control Payment for such Notes,
and the Company will promptly mail to each Noteholder a new Note equal in
principal amount to any
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unpurchased portion of the Notes surrendered, if any, provided, that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
SECTION 6.19. ASSET SALES. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist
an Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value (as determined in good faith by the Company) of
the assets sold or otherwise disposed of and (y) at least 75% of the proceeds
from such Asset Sale when received consists of cash or Cash Equivalents;
provided that, the amount of (a) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes) that are assumed by the transferee of any such
assets and (b) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to
the extent of the cash received), shall be deemed to be cash for the purposes
of this provision.
(b) Within 365 days after the Company's or any Restricted
Subsidiary's receipt of the Net Proceeds of any Asset Sale, the Company or
such Restricted Subsidiary may apply the Net Proceeds from such Asset Sale, at
its option, (i) to permanently reduce Obligations under the Credit Agreement
(and, if applicable, to correspondingly reduce commitments with respect
thereto) or other Senior Indebtedness or Pari Passu Indebtedness, (ii) to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets in each case, used or useful in a Permitted Business or (iii)
to an investment in properties or assets that replace the properties and
assets that are the subject of such Asset Sale. Pending the final application
of any such Net Proceeds, the Company or such Restricted Subsidiary may
temporarily reduce Indebtedness under a revolving credit facility, if any, or
otherwise invest such Net Proceeds in Cash Equivalents. Any Net Proceeds from
the Asset Sale that are not invested as provided and within the time period
set forth in the first sentence of this paragraph will be deemed to constitute
"EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds
$5,000,000, the Company shall make an offer to all Noteholders (an "ASSET SALE
OFFER") to purchase the maximum principal amount of Notes, that is an integral
multiple of $1,000, that may be purchased out of the Excess Proceeds at an
offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date fixed for the
closing of such offer. The Company will commence an Asset Sale Offer with
respect to Excess Proceeds within ten business days after the date that Excess
Proceeds exceeds $5,000,000 by mailing a notice to the Noteholders. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Notes surrendered by Noteholders thereof exceeds the amount of
Excess Proceeds, the Company shall select the Notes to be purchased in the
manner described below in paragraph (c). Upon completion of any such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
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(c) If less than all of the Notes are to be redeemed in an Asset
Sale Offer at any time, selection of such Notes for redemption will be made by
the Company on a pro rata basis, by lot or by such other method as the Company
shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Notes of $1,000 or less shall
be redeemed in part.
(d) Notices of an Asset Sale Offer shall be mailed by first class
mail, postage prepaid, at least 30 but not more than 60 days before the
purchase date to each Noteholder to be purchased or redeemed at such
Noteholder's registered address. If any Note is to be purchased or redeemed in
part only, any notice of purchase or redemption that relates to such Note
shall state the portion of the principal amount thereof that has been or is to
be purchased or redeemed. A new Note in principal amount equal to the
unpurchased portion of any Note purchased in part will be issued in the name
of the Noteholder thereof upon cancellation of the original Note. On and after
the purchase date, unless the Company defaults in payment of the purchase or
redemption price, interest shall cease to accrue on Notes or portions thereof
purchased.
SECTION 6.20. NO RESTRICTIVE AGREEMENTS. Except for the Credit
Agreement, the Company will not and will not permit any of its Subsidiaries to
enter into any agreement that would restrict or prohibit the amendment,
modification, waiver or termination of this Agreement, the Notes, the Warrants
or the Subsidiary Guaranty Agreement.
SECTION 6.21. PRIVATE PLACEMENT NUMBERS. Upon request by any
Purchaser, the Company shall obtain for the Notes a Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau.
ARTICLE VII
TERMS OF THE NOTES
SECTION 7.1. FORM OF NOTES; ISSUANCE OF NOTES. The Notes shall be in
registered form in the form of Exhibit A hereto and shall be transferrable in
accordance with the limitations set forth in this Agreement.
SECTION 7.2. REGISTRATION, TRANSFER, EXCHANGE AND SUBSTITUTION OF
NOTES. (a) The Company shall keep at its principal office a register (the
"REGISTER") in which shall be entered the names and addresses and account
numbers of the registered holders of the Notes and particulars of the
respective Notes held by them and of all transfers of such Notes. References
to the "NOTEHOLDER" or "HOLDER" shall mean the Person listed in the Register
as the payee of any Note unless the payee shall have presented such Note to
the Company for transfer and the transferee shall have been entered in the
Register as a subsequent holder. The ownership of the Notes shall be proved by
the Register. For the purpose of paying interest and principal and all other
amounts due on the Notes, the Company shall be entitled to rely on the names
and addresses in the Register.
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(b) If any Note is presented at the Company's office for the purpose
of transfer or exchange (accompanied in the case of a transfer by a written
instrument of transfer duly executed by or on behalf of the Noteholder), the
Company, at its own expense, will deliver in exchange one or more new Notes in
any authorized denominations, as requested by the Noteholder, of like tenor
and aggregate unpaid principal amount. Any Note or Notes issued in the
transfer or exchange shall carry the same rights to interest (unpaid and to
accrue) carried by the Note or Notes so exchanged or transferred so that there
will not be any loss or gain of interest on the Note or Notes surrendered.
(c) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note, and upon surrender and
cancellation of such Note, if mutilated, the Company will pay any unpaid
principal and interest (and any prepayment charge) then or theretofore due and
payable on such Note and will deliver in lieu of such Note a new Note of like
tenor for any remaining balance.
SECTION 7.3. PAYMENTS ON THE NOTES. (a) The Company shall pay the
principal amount of the Notes and all accrued but unpaid interest on such
amount to the Noteholder on November 1, 2004 (the "MATURITY DATE").
(b) Interest on the Notes will accrue at the rate of 8% per annum
and will be payable on each June 30 and December 31, commencing June 30, 1997,
to the Noteholders of record of Notes at the close of business on the June 15
and December 15 preceding such Interest Payment Dates. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the Closing Date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
(c) Interest payable on any Interest Payment Date (except on the
Maturity Date) may be paid by the Company to the Noteholders either (i)
entirely in cash in the amount of 8.00% per annum of the unpaid principal
amount of the Notes on such Interest Payment Date OR, at the option of the
Company, (ii) in a combination of (A) cash in an amount at least equal to the
3.2% per annum of the unpaid principal amount of the Notes (inclusive of
Subsequent Notes) on such Interest Payment Date AND (B) newly-issued Notes
(each, a "SUBSEQUENT NOTE") issued to the Noteholders in an aggregate
principal amount equal to the remaining amount of accrued interest on the
Notes for such period (inclusive of Subsequent Notes) on such Interest Payment
Date. Interest payable on the Maturity Date shall only be payable in cash.
(d) Interest on principal of, premium, if any, and interest on the
Notes that is not paid when due shall accrue from and including the date the
same became due to but excluding the date the same is paid in full at the rate
per annum which is 2% above the otherwise applicable interest rate on the
Notes ("DEFAULT INTEREST"). Default Interest shall be payable on demand to the
Noteholders either (i) entirely in cash OR at the option of the Company (ii)
in a combination of (A) cash in an amount at least equal to 40% of Default
Interest and (B) Subsequent Notes issued to the Noteholders in an aggregate
principal amount equal to the remaining amount of the Default Interest
(inclusive of Subsequent Notes).
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(e) All payments on the Notes shall be made by wire transfer of
immediately available funds by 11:00 am on the date when due to the account of
the Noteholder at a bank in the United States specified in writing by the
Noteholder to the Company or in the case of a Purchaser to the account
specified beneath such Purchaser's name on the signature pages hereof (or to
such other account as such Purchaser may specify in writing to the Company)
and shall be in lawful funds of the United States of America; PROVIDED that
the Noteholders must surrender Notes to the Company to collect principal
payments.
(f) All payments made by the Company hereunder or under any Note
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature or hereafter imposed by any taxing jurisdiction or
by any political subdivision or taxing authority thereof or therein with
respect to such payments, and all interest, penalties or similar liabilities
assessed with respect thereto. If any taxes are so levied or imposed, the
Company agrees to pay the full amount of such taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under
this Agreement or any Note after withholding or deduction for or on account of
any taxes, will not be less than the amount provided for herein or in such
Note. If any amounts are payable in respect of taxes pursuant to the preceding
sentence, the Company agrees to reimburse each Noteholder, upon the written
request of such Noteholder, for taxes imposed on or measured by the net income
or net profits of such Noteholder pursuant to the laws of the jurisdiction in
which such Noteholder is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such
Noteholder is organized or in which the principal office or applicable lending
office of such Noteholder is located and for any withholding of taxes as such
Noteholder shall determine are payable by, or withheld from, such Noteholder,
in respect of such amounts so paid to or on behalf of such Noteholder pursuant
to the preceding sentence and in respect of any amounts paid to or on behalf
of such Noteholder pursuant to this sentence.
(g) Each Noteholder that is not a United States person for U.S.
federal income tax purposes agrees to deliver to the Company on or prior to
the Closing Date, or in the case of a Noteholder that is an assignee or
transferee of an interest under this Agreement, on the date of such
Assignment, (i) two accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001 (or successor forms) certifying to such
Noteholder's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any note. All Noteholders a party to this Agreement or any Assignment
shall provide additional original signed copies of Form 4224 or 1001 when a
lapse in time or a change in circumstances renders the previously filed forms
inaccurate or obsolete, or said Noteholders shall notify the Company and the
Agent of its inability to deliver such forms or certificates.
SECTION 7.4. OPTIONAL PREPAYMENT. The Company may, at any time, at
its option on not less than 30 and not more than 60 Business Days' notice to
each Noteholder, prepay the Notes in whole but not in part at a price equal to
the principal amount of such Notes outstanding with accrued but unpaid
interest through the date of prepayment (in cash).
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At least two and not more than five Business Days prior to the date of
prepayment specified in the Company's notice, the Company will give each
Noteholder further written notice specifying the amount (if any) payable on
such date with respect to such principal amount to be prepaid.
SECTION 7.5. MANDATORY PREPAYMENTS UPON EQUITY OFFERINGS. Upon the
repayment in full of all Obligations under the Credit Agreement and permanent
reduction of all lending commitments under the Credit Agreement to zero or to
the extent permitted by the Credit Agreement, in the event that the Company
shall complete an Equity Offering, the Company shall, within two Business Days
after receipt of any related Equity Offering Proceeds, apply, or cause to be
applied, such Equity Offering Proceeds to prepay on a pro rata basis the
principal amount of the Notes which is equal to the amount of such Equity
Offering Proceeds. The Notes to be prepaid pursuant to this Section 7.5 shall
be prepaid at the principal amount of such Notes together with interest
accrued to the date of prepayment.
SECTION 7.6. EVENTS OF DEFAULT; ACCELERATION OF MATURITY; WAIVER OF
DEFAULT. In case one or more of the following events (each an "EVENT OF
DEFAULT") (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body or otherwise) shall have occurred and
be continuing:
(a) if the Company shall default in the payment of any principal or
premium, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration
or otherwise; or
(b) if the Company shall default in the payment of any interest on
any Note or on any other amount payable under this Agreement for more
than 30 days after the same becomes due and payable; or
(c) if the Company shall default in the performance of or compliance
with any term contained herein other than those referred to above in this
Section 7.6, and such default shall not have been remedied within 40 days
after receipt by the Company of written notice of such default from any
holders representing 25% in aggregate principal amount of the Notes; or
(d) if any representation or warranty made by or on behalf of the
Company or any Subsidiary Guarantor herein or in the Subsidiary Guaranty
Agreement, as the case may be, shall be false on the date as of which it
was made except to the extent such falsehood does not have a material
adverse effect on the business, operations, affairs, condition,
properties or prospects of the Company or such Subsidiary Guarantor; or
(e) (i) there shall have occurred one or more defaults by the
Company or any of its Restricted Subsidiaries (as principal or as
guarantor or other surety) in the payment of the principal of (or
premium, if any) on any Debt aggregating at least
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$1,000,000 or more when the same becomes due and payable at its final
maturity or (ii) Debt of the Company or any of its Restricted
Subsidiaries aggregating $1,000,000 or more shall have been accelerated
or otherwise declared due and payable prior to its maturity (which
acceleration or declaration is not rescinded, annulled or otherwise cured
within 20 days of receipt by the Company or such Restricted Subsidiary of
notice of any such acceleration, declaration or demand); or
(f) if the Company or any Significant Subsidiary shall (i) admit in
writing its inability to pay its debts as they become due, (ii) file, or
consent by answer or otherwise to the filing against it of, a petition
for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, (iii) make any general assignment for
the benefit of its creditors, (iv) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, or
(v) take corporate action for the purpose of any of the foregoing; or
(g) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or any
Significant Subsidiary of the Company a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect to
any substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution or winding-up if any such petition shall be filed against the
Company or any Significant Subsidiary of the Company and such petition is
not controverted within 15 days or is not discharged or dismissed within
60 days; or
(h) if a final judgment which, with other outstanding final
judgments against the Company or its Significant Subsidiaries exceeds
$5,000,000 shall be entered against the Company or any Significant
Subsidiary of the Company and if, within 60 days after entry thereof,
such judgment shall not have been discharged or execution thereof stayed
pending appeal, or if, within 60 days after the expiration of any such
stay, such judgment shall not have been discharged; or
(i) Cessation of all or any portion of the Subsidiary Guaranty
Agreement to be in full force and effect or the declaration of all or any
portion of the Subsidiary Guaranty Agreement to be null and void and
unenforceable or the finding that all or any portion of such Subsidiary
Guaranty Agreement is invalid or the denial of any Subsidiary Guarantor
of its liability under the Subsidiary Guarantee Agreement (other than by
reason of release of a Subsidiary Guarantor in accordance with its
terms).
then, and in each and every such case (other than an Event of Default with
respect to the Company specified in subsections (f) or (g) hereof), unless the
principal of all of the Notes shall have already become due and payable, the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (the
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56
"ACCELERATION NOTICE"), may declare the Notes to be due and payable
immediately, and upon any such declaration there shall become immediately due
and payable an amount (the "DEFAULT AMOUNT") equal to the sum of the entire
principal amount of the Notes plus interest accrued thereon; PROVIDED that, so
long as any Specified Senior Indebtedness is outstanding, such declaration
shall not become effective until the earlier of (i) 15 days after delivery of
the Acceleration Notice to the Company if at such time the Default or Event of
Default which gave rise to the Acceleration Notice has not been cured or
waived, and (ii) acceleration of any Specified Senior Indebtedness. If an
Event of Default specified in subsection (f) or (g) occurs, the Default Amount
on the Notes shall become and be immediately due and payable without any
declaration or other act on the part of any Noteholder.
The provision, however, is subject to the condition that if at any
time after the principal of the Notes shall have been so declared due and
payable, and before any judgment or decree for the payment of the moneys due
shall have been obtained or entered as hereinafter provided, the Company shall
pay or shall deposit in trust for the benefit of the Noteholders a sum
sufficient to pay all matured installments of interest upon all the Notes and
the principal of any and all Notes which shall have become due otherwise than
by acceleration (with interest upon such principal and, to the extent that
payment of such interest is enforceable under applicable law, on overdue
installments of interest, at the same rate as the rate of interest specified
herein, to the date of such payment or deposit), and if any and all Events of
Default under this Note, other than the non-payment of the principal of the
Notes which shall have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then and in every such case
the Required Holders, by written notice to the Company, may waive all defaults
and rescind and annul such declaration and its consequences, but no such
waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
The Company shall promptly upon receipt of an Acceleration Notice
provide written notice to the Agent Bank of the receipt of such Acceleration
Notice. Failure to deliver such notice shall not affect the validity of the
notice delivered by the Noteholders in accordance with the provisions referred
to above.
SECTION 7.7. POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER OF DEFAULT. No right or remedy herein conferred upon or reserved to the
Noteholders 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.
No delay or omission of the Noteholders to exercise any right or
power accruing upon any Event of Default occurring and continuing as aforesaid
shall impair any such right or power or shall be construed to be a waiver of
any such Event of Default or an acquiescence therein; and every power and
remedy given by the Notes or by law may be exercised from time to time, and as
often as shall be deemed expedient, by the Noteholders.
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SECTION 7.8. WAIVER OF PAST DEFAULTS. Prior to the declaration of
the acceleration of maturity of the Notes as provided in Section 7.6, the
Required Holders may on behalf of the Holders of all the Notes waive any past
Default or Event of Default hereunder and its consequences, except a Default
in the payment of principal of or interest on any of the Notes. In the case of
any such waiver, the Company and the Holders of the Notes shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Default or impair any right consequent
thereon.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Note; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
ARTICLE VIII
SUBORDINATION OF NOTES
SECTION 8.1. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS. Any term or
provision of this Agreement or the Notes to the contrary notwithstanding, the
Company covenants and agrees, and each holder of any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, by its
acceptance thereof, shall be deemed likewise to have covenanted and agreed,
that, to the extent and in the manner hereinafter set forth in this Article
VIII, the Subordinated Obligations are hereby expressly made subordinate and
subject in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness of the Company and shall not be
subordinated to any indebtedness of the Company other than Senior Indebtedness
of the Company.
SECTION 8.2. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. (a)
Upon any payment, distribution or transfer of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
(i) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization, readjustment, composition or other similar case
or proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (ii) any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy proceedings, or (iii) any assignment
for the benefit of creditors or any other marshalling of assets and
liabilities of the Company, then.and in any such event:
(1) all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full in cash or cash equivalents before any
payment is made on account of the Subordinated Obligations, or to acquire
any of the Notes for cash or property; and
(2) any payment, distribution or transfer of assets of the Company
of any kind or character, whether in cash, property or securities, to
which the holders of the
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Notes would be entitled but for the provisions hereof, including any
such payment, distribution or transfer which may be payable or
deliverable by reason of the payment of any other Debt of the
Company being subordinated to the payment of the Notes (except for
any such payment, distribution or transfer of equity or debt
securities, the payment of which debt securities is subordinated, to
at least the same extent as provided in this Article VIII with
respect to the Notes, to the payment of all Senior Indebtedness and
to any securities issued in respect of such Senior Indebtedness then
outstanding and which equity or debt securities are not redeemable
or payable until one year after the maturity of the Senior
Indebtedness, as such maturity may have been extended in the case or
proceeding referred to in this Section 8.2 and after the maturity of
any such securities issued in respect of Senior Indebtedness) shall
be paid by the liquidating trustee or agent or other person making
such payment, distribution or transfer, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly
to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture
under which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior
Indebtedness, to the extent necessary to make payment in full in
cash or cash equivalents of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment, distribution
or transfer to the holders of such Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing, the holder of
any Note shall have received any such payment, distribution or transfer of
assets of the Company of any kind or character, whether in cash, property or
securities (other than the securities referred to in the parenthetical of the
foregoing subclause (2)), including any such payment, distribution or transfer
which may be payable, deliverable or transferrable by reason of the payment of
any other Debt of the Company being subordinated to the payment of the Notes,
before all Senior Indebtedness is paid in full in cash or cash equivalents or
payment thereof provided for, then and in such event such payment,
distribution or transfer shall be paid over, delivered or transferred
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment, distribution or
transfer 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 in cash or cash equivalents, after giving effect to any
concurrent payment, distribution or transfer to or for the holders of Senior
Indebtedness.
(c) The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its properties and assets as
an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions set forth in Section 6.13 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 Article VIII if the corporation formed by such
consolidation or into which the Company is merged or the corporation which
acquires by conveyance or transfer such properties and assets as an entirety,
or substantially as an entirety, as the case may be, shall, as a part of
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such consolidation, merger, conveyance or transfer, comply with the conditions
set forth in Section 6.13.
(d) Any term or provision of this Section 8.2 to the contrary
notwithstanding, if any case or proceeding referred to above is commenced by
or against the Company, and if the holders of the Notes do not file a proper
claim or proof of claim in the form required in such case or proceeding prior
to 30 days before the expiration of time to file such claims or proofs or fail
to respond to any objection of any party or applicable order in such case or
proceeding in a timely manner, then so long as any Senior Indebtedness remains
outstanding, any holder of Senior Indebtedness is hereby authorized and
empowered (in its own name or in the name of any holder of the Notes or
otherwise), but shall have no obligation, to file such proof of claim or
respond to such objection or order on behalf of such holders of the Notes, as
their interests may appear.
SECTION 8.3. NO PAYMENT WHEN SENIOR INDEBTEDNESS IS IN DEFAULT. In
the event that (a) any payment with respect to any Obligations with respect to
any Specified Senior Indebtedness is not made when due (whether at maturity,
by acceleration or otherwise) (a "SENIOR PAYMENT DEFAULT"), or (b) unless the
foregoing clause (a) shall apply, any other default occurs and is continuing
with respect to Specified Senior Indebtedness permitting the holders of such
Specified Senior Indebtedness to declare such Specified Senior Indebtedness
due and payable prior to the date on which it would otherwise have become due
and payable (a "NON-PAYMENT DEFAULT"), then no direct or indirect payment by
or on behalf of the Company or any Subsidiary Guarantor or from any of the
Company's assets, any judgments or any other sources (in cash, property or
securities or by set-off or otherwise, other than the payment, distribution or
transfer of equity or debt securities, the payment of which debt securities is
subordinated, at least to the same extent as provided in this Article VIII
with respect to the Notes, to the payment of all Senior Indebtedness and to
any securities issued in respect of such Senior Indebtedness) shall be made or
agreed to be made on account of the principal of, or premium, if any, or
interest on or other amounts with respect to any Subordinated Obligations, or
as a sinking fund for Subordinated Obligations, or in respect of any
redemption, retirement, purchase or other acquisition or defeasance of any
Subordinated Obligations (x) in case of a Senior Payment Default described in
clause (a), unless and until such defaulted Senior Indebtedness shall have
been paid in the amount then due or discharged or until the holders of such
Senior Indebtedness or their agents have waived in writing the benefits of
this Section 8.3 in respect of such Senior Payment Default, or (y) in case of
any non-payment default specified in clause (b), from the earlier of the date
the Company receives written notice of such non-payment default from the
Required Lenders or the Agent Bank (a "BLOCKAGE NOTICE") until the earlier of
(1) 179 days after such date and (2) the date, if any, on which the Specified
Senior Indebtedness to which such non-payment default relates is discharged or
such non-payment default is waived (and no other non-payment default is then
in existence) in writing by the holders of such Specified Senior Indebtedness
or otherwise cured (the "BLOCKAGE PERIOD"), PROVIDED, HOWEVER, that (i) only
one Blockage Notice may be given during any one 360-day period and (ii) a
further Blockage Notice relating to the same or any other non-payment default
which had given rise to, or had occurred and was continuing during, any prior
Blockage Period shall not be effective for purposes of this clause (y) unless
such non-payment default shall in the interim have been cured or waived for a
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period of at least 90 consecutive days. At the expiration of a Blockage Period
the Company shall, subject to foregoing provisions, promptly pay to the
holders of the Notes all amounts which it would have been obligated to pay
during such period but for the operation of such provisions.
In the event that, notwithstanding the foregoing, any payment,
distribution or transfer shall be collected or received by the holder of any
Note, in contravention of the foregoing provisions of this Section 8.3, then
and in such event such payment, distribution or transfer shall be paid over
and delivered forthwith to the Agent Bank on behalf of the holders of
Specified Senior Indebtedness or to the holders of Senior Indebtedness, in
either case, for application to the payment of Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness remaining
unpaid in full in cash or cash equivalents, after giving effect to any
concurrent payment, distribution or transfer to or for the holders of Senior
Indebtedness and until so paid over and delivered, the same shall be held in
trust by any such holder of a Note as the property of the holders of such
Senior Indebtedness.
The provisions of this Section 8.3 shall not apply to any payment
with respect to which Section 8.2 would be applicable.
SECTION 8.4. PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in
this Article VIII or elsewhere in this Agreement or in any of the Notes shall
prevent the Company, at any time except during the pendency of any case or
proceeding referred to in Section 8.2 or under the conditions described in
Section 8.3, from making payments on the scheduled payment dates or thereafter
at any time of the Subordinated Obligations.
SECTION 8.5. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS. Upon the payment in full in cash or cash equivalents of all
Senior Indebtedness, the holders of the Notes shall be subrogated (equally and
ratably with the holders of all Debt of the Company which by its express terms
is subordinated to Senior Indebtedness of the Company to the same extent as
the Notes are subordinated and which is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to
receive payments, distributions or transfers of cash, property and securities
applicable to the Senior Indebtedness until the principal of and interest on
the Notes shall be paid in full. For purposes of such subrogation, (a) no
payments, distributions or transfers to the holders of Senior Indebtedness of
any cash, property or securities to which the holders of the Notes would be
entitled except for the provisions of this Article VIII, and no payments over
pursuant to the provisions of this Article VIII to the holders of Senior
Indebtedness by holders of the Notes, shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the holders of the
Notes, be deemed to be a payment, distribution or transfers by the Company to
or on account of the Senior Indebtedness, and (b) no payments, distributions
or transfers of cash, property or securities to or for the benefit of the
holders of the Notes pursuant to the subrogation provision of this Article
VIII, which would otherwise have been paid to the holders of Senior
Indebtedness, shall be deemed to be a payment by the Company to or for the
account of the Notes.
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In the event that, notwithstanding the foregoing, any payment,
distribution or transfer shall be collected or received by any holder of
Senior Indebtedness to which the Noteholders would otherwise have been
entitled under this Section 8.5, then and in such case, the Noteholders shall
be entitled to receive from such holders of Senior Indebtedness any payments,
distributions or transfer received by such holders of Senior Indebtedness in
excess of the amount required to make payment in full of such Senior
Indebtedness.
SECTION 8.6. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The
provisions of this Article VIII are solely and are intended solely for the
purpose of defining the relative rights of the holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article VIII or elsewhere in this Agreement or in the Notes
is intended to or shall (a) impair, as among the Company, its creditors other
than holders of Senior Indebtedness and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of and interest on the Notes 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 Notes and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the holder of any Note from exercising all remedies otherwise
permitted by this Agreement (including without limitation Section 7.6 hereof)
and by applicable law upon default under this Agreement, subject to the rights
under this Article VIII of the holders of Senior Indebtedness, under the
conditions specified in Sections 8.2 and 8.3, to receive cash, property and
securities otherwise payable or deliverable to such holder.
SECTION 8.7. 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 act or failure
to act by any such holder, or by any non-compliance by the Company with the
terms, provisions and covenants of this Agreement, regardless of any knowledge
thereof any such holder may have or be otherwise charged with. The holders of
Senior Indebtedness may release, sell or exchange or enforce any security
thereof or Guarantee thereof or elect any right or remedy, or delay in
enforcing or release any right or remedy and otherwise deal freely with the
Company and any guarantor, all without notice to the holders of Notes and all
without affecting the liabilities and obligation of the holders of the Notes.
SECTION 8.8. NOTICE TO HOLDERS OF NOTES. The Company shall give
prompt written notice to each holder of any Note of any fact known to the
Company which would prohibit the making of any payment to it in respect of the
Notes. Notwithstanding the provisions of this Article VIII or any other
provision of this Agreement (but without however limiting any rights of the
holders of Senior Indebtedness under this Article VIII to recover from
Noteholders any payment made to such Noteholder which it is not entitled to
retain under this Article VIII), (a) no holder of any Note shall be charged
with knowledge of the existence of any facts which would prohibit the making
of any payment to it in respect of the Notes, unless and until such holder
shall have received written notice thereof from the Company, or a holder of
Senior Indebtedness or from any trustee, fiduciary or agent therefor;
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and, (b) prior to the receipt of any such written notice absent actual
knowledge thereof, each such holder of the Notes shall be entitled in all
respects to assume that no such facts exist.
Each holder of any Note shall be entitled to rely (provided such
holder is acting reasonably and in good faith) on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor). In the event that such holder reasonably
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, distribution or transfer pursuant to this Article VIII, such holder
may request such Person to furnish evidence to the reasonable satisfaction of
such holder as to the amount of Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment,
distribution or transfer and any other facts pertinent to the rights of such
Person under this Article VIII, and if such evidence is not furnished, such
holder may defer any payment to such Person until such evidence is furnished.
SECTION 8.9. RELIANCE OF HOLDERS OF SENIOR INDEBTEDNESS. Each
Noteholder by its acceptance thereof shall be deemed to acknowledge and agree
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
creation of Subordinated Obligations, to acquire and hold, or to continue to
hold, such Senior Indebtedness, and such holder of Senior Indebtedness shall
be deemed conclusively to have relied on such subordination provision in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.
SECTION 8.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT. Upon any payment, distribution or transfer of assets of the
Company referred to in this Article VIII, the holders of the Notes 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, distribution or transfer, delivered to the holders
of Notes, for the sole purpose of ascertaining the Persons receiving such
payment, distribution or transfer, the holders of Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid, distributed or transferred thereon and all other facts
pertinent thereto or to this Article VIII. Nothing contained in this Section
8.10 shall affect the respective substantive rights of the holders of the
Notes and the holders of Senior Indebtedness under this Article VIII.
SECTION 8.11. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The
failure to make a payment on account of principal of or interest on the Notes
by reason of any provision of this Article will not be construed as preventing
the occurrence of an Event of Default.
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63
SECTION 8.12. REINSTATEMENT The agreements contained in this Article
VIII shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by a holder of Senior Indebtedness upon any bankruptcy
or similar proceeding of the Company or any of its Subsidiaries, all as though
such payment had not been made.
ARTICLE IX
SUBSTITUTION; LIMITATION ON TRANSFERS
SECTION 9.1. SUBSTITUTION OF PURCHASERS PRIOR TO CLOSING DATE. If
(i) any Purchaser (a "DEFAULTING PURCHASER") shall not purchase all or part of
the Notes such Defaulting Purchaser has agreed to purchase hereunder, and (ii)
one or more other Persons satisfactory to the Company is willing to assume the
obligations of such Defaulting Purchaser under this Agreement, then the
obligations of such Defaulting Purchaser to purchase Notes pursuant to this
Agreement may be assumed by such other Person by executing and delivering a
copy of this Agreement (or, if such other Person is already a Purchaser under
this Agreement, by executing and delivering an amended signature page of this
Agreement with the amount of Notes to be purchased hereunder appropriately
increased) and documents and representations satisfactory to the Company for
the purpose of assuring the Company that the purchase of Notes hereunder by
such Person hereunder will not result in a violation of any provision of
applicable law. The assumption by such other Person of the obligations of a
Defaulting Purchaser pursuant to this Section 9.1 shall not constitute a
waiver of any rights the Company may have against such Defaulting Purchaser
that has defaulted in its obligations under this Agreement.
SECTION 9.2. RESTRICTIONS ON TRANSFER. No Purchaser or Noteholder
shall dispose of all or any part of the Notes (other than pursuant to an
effective registration statement under the Securities Act or a sale or other
disposition made pursuant to Rule 144 or Rule 144A) unless, if requested by
the Company, such Purchaser or Noteholder, as the case may be, delivers to the
Company an opinion of counsel (who may be in-house counsel), reasonably
satisfactory in form and substance to the Company, that an exemption from
registration under the Securities Act is available. In the case of sales or
other dispositions pursuant to Rule 144 or Rule 144A, if requested by the
Company, such holder will deliver certificates evidencing compliance with Rule
144 or Rule 144A, reasonably satisfactory in form and substance to the
Company. Each certificate for the Notes issued to a Purchaser or to a
subsequent transferee shall, unless at such time as the same is no longer
required under the applicable requirements of the Securities Act, shall bear
the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED
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<PAGE>
64
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501 (a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO HANGER ORTHOPEDIC GROUP, INC. (THE
"COMPANY"), OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE COMPANY A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE COMPANY), (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE HEREOF, THE NOTEHOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT."
ARTICLE X
INDEMNIFICATION
SECTION 10.1. INDEMNIFICATION.
The Company agrees to indemnify and hold harmless each Purchaser or
Noteholder, its directors, officers, employees, Affiliates and each Person, if
any, who controls such Purchaser or Noteholder within the meaning of the
Securities Act or the Exchange Act (any and all of whom are referred to as the
"INDEMNIFIED PARTY") from and against any and all losses, claims, damages and
liabilities, joint or several (including all reasonable legal fees and other
expenses reasonably incurred by any Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim, action or
proceeding, whether or not resulting in any liability), to which such
Indemnified Party may become subject (whether or not such Indemnified Party is
a party thereto) under any applicable federal, state
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<PAGE>
65
or local law or otherwise caused by or arising out of, or allegedly caused by
or arising out of, the Basic Documents or any transaction contemplated hereby
or thereby (including without limitation, the Acquisition), other than losses,
claims, damages or liabilities resulting from any representation made by such
Purchaser or Noteholder in Article IV.
Promptly after receipt by an Indemnified Party of notice of any
claim, action or proceeding with respect to which an Indemnified Party is
entitled to indemnity hereunder, such Indemnified Party will notify the
Company of such claim or the commencement of such action or proceeding,
provided that the failure of an Indemnified Party to give notice as provided
herein shall not relieve the Company of its obligations under this Section
10.1 with respect to such Indemnified Party, except to the extent that the
Company is actually prejudiced by such failure. The Company will assume the
defense of such claim, action or proceeding and will employ counsel
satisfactory to the Indemnified Party and will pay the fees and expenses of
such counsel. Notwithstanding the preceding sentence, the Indemnified Party
will be entitled, at the expense of the Company, to employ counsel separate
from counsel for the Company and for any other party in such action if the
Indemnified Party reasonably determines that a conflict of interest or other
reasonable basis exists which makes representation by counsel chosen by the
Company not advisable. The Company further agrees to reimburse each
Indemnified Party for all legal or other expenses (including, without
limitation, fees and expenses of counsel) incurred by the Indemnified Party in
connection with investigating, defending or participating in any such loss,
claim, damage, liability or action or other proceeding (whether or not such
Indemnified Party is a party to any action or proceeding out of which such
expenses arise), including, without limitation, the Indemnified Party
appearing as a witness in any action or proceeding brought against the Company
or any of its Subsidiaries (or any of its officers, directors or employees).
In the event that the foregoing indemnity is unavailable or
insufficient to hold an Indemnified Party harmless, then the Company shall
contribute to amounts paid or payable by such Indemnified Party in respect of
such losses, claims, damages, liabilities and expenses in such proportion as
appropriately reflects the relative benefits received by, and fault of, the
Company on the one hand and such Indemnified Party on the other hand in
connection with matters as to which such losses, claims, damages, liabilities
or expenses relate and other equitable considerations. The agreement of the
Company in this paragraph shall be in addition to any liability the Company
may otherwise have.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party at its address or
facsimile number set forth on the signature pages hereof, or such other
address or facsimile number as such party may hereinafter specify to the party
giving such notice. Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is transmitted to the
facsimile number referred to in
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<PAGE>
66
this Section 11.1 and a telephone call that confirms the receipt of the
facsimile is made or received or, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or, (iii) if given by any other means, when delivered
at the address referred to in this Section 11.1.
SECTION 11.2. NO WAIVERS; AMENDMENTS. (a) No failure or delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed
by the Company and the Required Holders; PROVIDED that no such amendment or
waiver shall, unless signed by all of the Purchasers or the Noteholders, as
the case may be, (i) except as provided in Section 9.1, change the amount of
any Notes to be purchased by any Purchaser pursuant to this Agreement, (ii)
extend the period of time during which the Purchasers shall be obligated to
purchase Notes pursuant to this Agreement, (iii) change the number of
Purchasers or the Noteholders, as the case may be, that shall be required for
the Purchasers or the Noteholders, as the case may be, or any of them to take
any action under this Section 11.2(b) or any other provision of this
Agreement, (iv) reduce the rate or amount or extend the time for payment of
interest or premium, if any, on any Note, (v) reduce the principal amount of
or extend the fixed maturity of any Notes or alter the redemption provisions
with respect thereto or (vi) make any Note payable in money or property other
than as stated herein.
SECTION 11.3. SURVIVAL OF PROVISIONS. The representations and
warranties, covenants and agreements contained in this Agreement shall survive
beyond the Closing Date and the issuance of the Notes.
SECTION 11.4. EXPENSES; DOCUMENTARY TAXES. The Company agrees to pay
all fees and disbursements of each Purchaser (including reasonable fees and
expenses of counsel) in connection with the purchase and sale of the Notes as
contemplated by this Agreement or any amendments thereto and the fees and
disbursements of each Noteholder (including reasonable fees and expenses of
counsel) in connection with this Agreement, the Notes, the Subsidiary Guaranty
Agreement, the Warrants or any waiver or consent under, or any amendment of
any of, the foregoing or any enforcement action relating thereto. In addition,
the Company agrees to pay any and all stamp, transfer and other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, any Notes or the issuance or transfer of the
Notes.
SECTION 11.5. TERMINATION; TERMINATION FEES. (a) This Agreement may
be terminated by the Company and the Required Purchasers by mutual agreement
at any time prior to the Closing Date. This Agreement will terminate
automatically at 5:00 p.m. on November 1, 1996 unless all conditions to the
Purchasers' obligations hereunder are satisfied or waived by such date.
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<PAGE>
67
(b) Upon termination of this Agreement, the Company hereby agrees to
pay the Purchasers the fees and expenses which are payable pursuant to Section
11.4 hereof.
SECTION 11.6. CONFIDENTIALITY. Each Noteholder agrees that it will
use reasonable efforts not to disclose without the prior consent of the
Company (other than to its investment advisers, employees, auditors or counsel
or to another Noteholder) any information with respect to the Company or any
Subsidiary which is furnished pursuant to Section 6.1 and which is designated
by the Company to such Noteholder in writing as confidential, PROVIDED that it
may disclose any such information (a) as has become generally available to the
public, (b) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having
or claiming to have jurisdiction over such Noteholder, (c) as may be required
or appropriate in response to any summons or subpoena or in connection with
any litigation or as otherwise required by law, (d) to the extent that such
Noteholder believes it appropriate in order to protect its investment in the
Notes or Warrants or in order to comply with any law, order, regulation or
ruling applicable to such Noteholder, (e) to the prospective transferee in
connection with any contemplated transfer of any of the Notes or Warrants by
such Noteholder, or (f) upon the request or demand of any regulatory agency or
authority having jurisdiction over such Noteholder and PROVIDED FURTHER that
the Company agrees that such Noteholder will not be liable for damages to the
Company unless any such information is disclosed as a result of such
Noteholder's gross negligence or willful misconduct.
SECTION 11.7. SUCCESSORS AND ASSIGNS. (a) All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall inure to the benefit of the respective successors and assigns of
the parties hereto including the holders from time to time of the Notes or
Warrants whether so expressed or not, except that the Company may not assign
or transfer any of its rights or obligations under this Agreement.
(b) All provisions hereunder purporting to give rights to the
Purchasers shall extend to and include those entities receiving the beneficial
interest of the Notes at the Closing Date.
SECTION 11.8. NEW YORK LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. Each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Agreement.
SECTION 11.9. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 11.10. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, written or oral, relating to the
subject matter hereof.
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68
SECTION 11.11. CONSENT TO JURISDICTION. The Company hereby
irrevocably consents to the nonexclusive jurisdiction of the courts of the
State of New York and of any federal court located in such state over each of
them in connection with any action or proceeding arising out of or relating to
this Agreement and, to the fullest extent permitted by law, further agrees
(and shall not contest) that the proper venue for filing and maintaining any
such action or proceeding shall be in the State of New York. In any such
action or proceeding, the Company waives personal service of any summons,
complaint or other process or notice and agrees that service by first class
mail, return receipt requested, to the Company at its address for notices
hereunder, or any other form of service provided for in the New York civil
practice law and rules then in effect shall constitute good and sufficient
service or notice upon such person or entity.
ARTICLE XII
SMALL BUSINESS ADMINISTRATION MATTERS
SECTION 12.1. SBIC FORMS. On the date hereof, the Purchasers shall
have received from the Company fully executed Small Business Administration
Forms 480 and 652 (together with Small Business Administration Form 1031, the
"SBA Forms").
SECTION 12.2. SBIC INFORMATION. All information set forth in the SBA
Forms regarding the Company and its Affiliates is accurate and complete.
Copies of such forms have been, on or prior to the date hereof (or within 20
days of closing in the case of Form 1031), completed and executed by the
Company and delivered to the Purchasers.
SECTION 12.3. INSPECTION. The Company covenants and agrees that it
will permit the Purchasers and their permitted transferees and their
representatives (including without limitation, examiners from the Small
Business Administration) to inspect the properties of the Company and to
examine and make extracts and copies from the books and records of the Company
during normal business hours (including, without limitation, for purposes of
verifying the certifications and representations made by the Company in the
SBA Forms and this Note Purchase Agreement and in verifying compliance with
the covenants contained in this Note Purchase Agreement).
SECTION 12.4. INFORMATION. In addition, the Company covenants and
agrees to provide to the Noteholders any other information which the
Noteholders reasonably requests, including without limitation, at least
annually, sufficient financial and other information necessary to allow the
Noteholder to evaluate the financial condition of the Company for the purpose
of valuing the Noteholder's interest in the Company, to determine the
continued eligibility of the Company under the Small Business Investment Act
of 1958, as amended (the "SBIA") and the regulations thereunder, including
Title 13, Code of Federal Regulations, Section 121.301, and to verify the use
of the proceeds received by the Company from the purchase of the shares. All
such information shall be certified by the President, Chief Executive Officer,
Treasurer or Chief Financial Officer of the Company. Within 20 days of the
date hereof, the Company shall have provided the Purchasers a completed Small
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<PAGE>
69
Business Administration Form 1031. Promptly after the end of each fiscal year
of the Company (and in any event prior to February 28 of each year), the
Company shall provide to the Purchasers a written assessment in form and
substance satisfactory to the Purchasers of the economic impact of the
financing assistance provided to the Company by the Purchasers, specifying the
full time equivalent jobs created or retained, and the impact of the financing
on the revenues and profits of the business and on taxes paid by the business
and its employees. Upon the request of any Purchaser the Company will also
provide all information requested by such Purchaser in order for it to prepare
and file SBA Form 468 and any other information requested or required by any
governmental agency asserting jurisdiction over such Purchaser.
SECTION 12.5. USE OF PROCEEDS. The Company agrees that it will not
use the proceeds from the sale of the Notes for any purpose that would be a
violation of Section 1- 07.720 of Title 13 of the Code of Federal Regulations.
SECTION 12.6. BUSINESS. For a period of one year following the date
hereof, the Company will not change its business activity if such change would
render the Company ineligible to receive financial assistance from a Small
Business Investment Company under the Small Business Act and the regulations
thereunder.
SECTION 12.7. NON-DISCRIMINATION. The Company will at all times
comply with the nondiscrimination requirements of 13 C.F.R., Parts 112, 113
and 117.
SECTION 12.8. COMPANY AWARENESS. The Company acknowledges its
awareness that the Purchasers are Federal licensees under the Small Business
Investment Act of 1958, as amended.
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70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers (or, in the case of
parties that are not corporations, other authorized persons), as of the date
first above written.
HANGER ORTHOPEDIC GROUP, INC.
By ______________________________
Title:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.,
a California limited partnership
By: Chase Capital Partners, its general partner
By: ______________________________
Title: General Partner
Principal Amount of Notes: $4,000,000.00
Address: c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Attention: Dr. Mitchell Blutt
Telephone: 212-622-3100
Telecopier: 212-622-3101
PARIBAS PRINCIPAL, INC.
By: ______________________________
Title:
Principal Amount of Notes: $4,000,000.00
Address: 787 Seventh Avenue
New York, NY 10019
Attention: Donald J. Ercole
Telephone: 212-841-2540
Telecopier: 212-841-2363
505298\0057\02050\969WL85X.NPA
EXHIBIT 10(c)
EXECUTION COPY
WARRANT
TO PURCHASE COMMON STOCK OF
HANGER ORTHOPEDIC GROUP, INC.
Issuance Date: November 1, 1996
Number of Shares of Common Stock:
800,000 (subject to adjustment)
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS.................................................... 1
ARTICLE 2. EXERCISE OF WARRANT............................................ 5
2.1 Manner of Exercise........................................... 5
2.2 Exercise Price............................................... 6
2.3 Payment of Taxes............................................. 7
2.4 Fractional Shares............................................ 7
2.5 Continued Validity........................................... 7
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION, ADDITIONAL
WARRANTS............................................ 7
3.1 Transfer .................................................... 7
3.2 Division and Combination..................................... 7
3.3 Expenses .................................................... 8
3.4 Maintenance of Books......................................... 8
ARTICLE 4. REDUCTION IN NUMBER OF ISSUABLE SHARES OF WARRANT
STOCK............................................................. 8
4.1 Share Reduction.............................................. 8
4.2 Pro Rata Effect.............................................. 8
4.3 New Warrants................................................. 8
ARTICLE 5. ADJUSTMENTS.................................................... 8
5.1 Stock Splits, Combinations, etc.............................. 8
5.2 Reclassification, Combinations, Mergers, etc................. 9
5.3 Issuance of Options or Convertible Securities................ 10
5.4 Dividends and Distributions.................................. 10
5.5 Self-Tenders................................................. 11
5.6 Issuance of Additional Shares of Common Stock................ 11
5.7 Certain Distributions........................................ 12
5.8 Consideration Received....................................... 12
5.9 Deferral or Exclusion of Certain Adjustments................. 12
5.10 Changes in Options and Convertible Securities............... 12
5.11 Expiration of Options and Convertible Securities............ 12
5.12 Other Adjustments........................................... 13
5.13 Other Action Affecting Common Stock......................... 13
ARTICLE 6. NOTICES TO WARRANT HOLDERS..................................... 13
6.1 Notice of Adjustments........................................ 13
6.2 Notice of Certain Corporate Action........................... 14
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<PAGE>
PAGE
ARTICLE 7. NO IMPAIRMENT.................................................. 14
ARTICLE 8. COMMON STOCK; RESERVATION AND AUTHORIZATION
OF REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY........................................ 14
ARTICLE 9. TAKING OF RECORD; STOCK AND WARRANT
TRANSFER BOOKS....................... 15
ARTICLE 10. RESTRICTIONS ON TRANSFERABILITY............................... 15
10.1 Restrictive Legend.......................................... 15
10.2 Restriction on Transfers.................................... 16
10.3 Listing on Securities Exchange or NASDAQ.................... 16
ARTICLE 11. REGISTRATION RIGHTS........................................... 17
11.1 Incidental Registrations.................................... 17
11.2 Registration on Request..................................... 18
11.3 Registration Procedures..................................... 19
11.5 Rule 144.................................................... 25
11.6 Selection of Counsel........................................ 25
11.7 Holdback Agreement.......................................... 25
ARTICLE 12. LOSS OR MUTILATION............................................ 25
ARTICLE 13. OFFICE OF THE COMPANY......................................... 26
ARTICLE 14. FINANCIAL AND BUSINESS INFORMATION............................ 26
ARTICLE 15. LIMITATION OF LIABILITY....................................... 26
ARTICLE 16. MISCELLANEOUS................................................. 27
16.1 Nonwaiver and Expenses...................................... 27
16.2 Notice Generally............................................ 27
16.3 Successors and Assigns...................................... 27
16.4 Amendment................................................... 28
16.5 Severability................................................ 28
16.6 Headings.................................................... 28
16.7 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE............ 28
16.8 MUTUAL WAIVER OF JURY TRIAL................................. 28
EXHIBIT A SUBSCRIPTION FORM
EXHIBIT B ASSIGNMENT FORM
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<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH
THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE
SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER AND
THIS WARRANT.
WARRANT
TO PURCHASE 800,000 SHARES OF
COMMON STOCK (SUBJECT TO ADJUSTMENT) OF
HANGER ORTHOPEDIC GROUP, INC.
THIS IS TO CERTIFY THAT, for value received, PARIBAS PRINCIPAL INC.
(the "INITIAL HOLDER"), or its registered assigns, is the owner of eight
hundred thousand (800,000) Warrants (as hereinafter defined), which entitle
the Holder (as hereinafter defined), at any time prior to the Expiration Date
(as hereinafter defined), to purchase from HANGER ORTHOPEDIC GROUP, INC., a
Delaware corporation (the "COMPANY"), eight hundred thousand (800,000) shares
of Common Stock (as hereinafter defined and such number subject to adjustment
as provided herein), in whole or in part, including fractional parts, all on
the terms and conditions and pursuant to the provisions hereinafter set forth.
ARTICLE 1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued by the Company after the Issuance Date, other than the
Warrant Stock.
"AFFILIATE" shall mean, as to any Person, (i) any other Person
directly or indirectly controlling, controlled by, or under common
control with such Person or (ii) any director, officer or partner of such
Person or any Person specified in clause (i) above.
"AGGREGATE EXERCISE PRICE" shall mean, with respect to the exercise
of all or a portion of the Warrant, the Exercise Price multiplied by the
number of shares of Warrant Stock purchased upon such exercise.
"BUSINESS DAY" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the
State of New York or the State of Maryland.
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<PAGE>
2
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other
federal securities laws.
"COMMON STOCK" shall mean the collective reference to the common
stock of the Company, par value $.01 per share, as constituted on the
Issuance Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof in
which the shares of Common Stock are converted into a new class of
capital stock and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 5.2) received by or
distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 5.2.
"CONVERTIBLE SECURITIES" shall have the meaning set forth in Section
5.3 hereof.
"CVCA" shall mean Chase Venture Capital Associates, L.P., a
California limited partnership.
"DEMAND PARTY" shall mean any other Holder or Holders that, either
individually or in aggregate with all other Holders with whom it is
acting together to demand registration, own(s) at least 50% of the total
number of Registrable Securities (whether in the form of Warrants or
Warrant Stock).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time
to time.
"EXERCISE PERIOD" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"EXERCISE PRICE" shall have the meaning set forth in Section 2.2
hereof.
"EXPIRATION DATE" shall mean the date which is the eighth
anniversary of the Issuance Date.
"FAIR VALUE" shall mean, with respect to the valuation of any
evidences of indebtedness, other securities, properties, assets, options,
warrants or subscription or purchase rights, the fair market value
thereof as determined in good faith by the Board of Directors of the
Company and, if required by the Majority Holders, supported by an opinion
from an investment banking firm acceptable to the Majority Holders, which
approval shall not be unreasonably withheld, of such Valuation
Properties; PROVIDED, HOWEVER that the Fair Value of any Notes tendered
in connection with any exercise of this Warrant pursuant to Section 2.1
shall be equal to the principal amount of such tendered Notes plus any
accrued and unpaid interest or other obligations owed in respect thereof.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"HOLDER" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose or the
Person holding any Warrant Stock, including, without limitation, in each
case, transferees thereof.
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3
"ISSUANCE DATE" shall mean November 1, 1996.
"MAJORITY HOLDERS" shall mean the Holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Common Stock
then receivable upon exercise of all Warrants.
"MARKET PRICE" shall mean, as of any exercise date or other relevant
date, the average of the per share closing prices of a share of Common
Stock for the 10 consecutive Trading Days immediately preceding such date
on the principal national securities exchange in the United States on
which the shares of Common Stock are listed or admitted to trading, or if
not listed or admitted to trading on any national securities exchange on
such Trading Day, on the National Association of Securities Dealers
Automated Quotations National Market System, or if the shares of Common
Stock are not listed or admitted to trading on any national securities
exchange or quoted on such National Market System on such Trading Day,
the average of the closing bid and asked prices of a share of Common
Stock in the over-the-counter market on such Trading Day as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company. If the Common Stock is not quoted or listed by any such
organization, exchange or market, the Market Price of the Common Stock as
of such exercise or other relevant date shall be determined in good faith
by the Board of Directors of the Company.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor entity thereto.
"NASDAQ" shall mean the National Association of Securities Dealers
Automatic Quotation System.
"NOTES" the 8.00% Senior Subordinated Notes issued pursuant to the
Note Purchase Agreement.
"NOTE PURCHASE AGREEMENT" shall mean the Senior Subordinated Note
Purchase Agreement, dated as of November 1, 1996, among the Company, CVCA
and Paribas.
"OPTIONS" shall have the meaning set forth in Section 5.3 hereof.
"OUTSTANDING" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or
for the account of the Company or any Subsidiary, and shall include all
shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"PARIBAS" shall mean Paribas Principal, Inc.
"PERMITTED ISSUANCES" shall mean the issuance of shares of Common
Stock upon exercise of rights to acquire shares of Common Stock
exercisable pursuant to options held by employees or directors under
stock option plans which may from time to time be adopted by the Company
after the Issuance Date.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation,
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4
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division,
agency, body or department thereof).
"REGISTRABLE SECURITIES" shall mean (i) the Warrants and (ii) the
Warrant Stock. As to any particular Registrable Securities, once issued,
such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale by the Holder of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such
registration statement, (ii) such securities shall have been distributed
to the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise
transferred, new certificates for such securities not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such securities shall not require registration
or qualification of such securities under the Securities Act or any state
securities or blue sky law then in force, or (iv) such securities shall
have ceased to be Outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with Article 11 of this Agreement,
including, without limitation, (i) all Commission and stock exchange or
NASD registration and filing fees (including, if applicable, the fees and
expenses of any "qualified independent underwriter," as such term is
defined in Schedule E to the By-laws of the NASD, and of its counsel),
(ii) all fees and expenses of complying with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities),
(iii) all printing, messenger and delivery expenses, (iv) all fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange pursuant to clause (viii) of
Section 11.3 and all rating agency fees, (v) the fees and disbursements
of counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, (vi)
the reasonable fees and disbursements of counsel selected pursuant to
Section 11.6 hereof by the Holders of the Registrable Securities being
registered to represent such Holders in connection with each such
registration, (vii) any fees and disbursements of underwriters
customarily paid by the issuers or sellers of securities, including
liability insurance if the Company so desires or if the underwriters so
require, and the reasonable fees and expenses of any special experts
retained in connection with the requested registration, but excluding
underwriting discounts and commissions and certain transfer taxes, if
any, and (viii) other reasonable out-of-pocket expenses of Holders
(PROVIDED that such expenses shall not include expenses of counsel other
than those provided for in clause (vi) above).
"RESPONSIBLE OFFICER" shall mean the chief executive officer of the
Company, the president of the Company or the chief financial officer of
the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SUBSIDIARY" shall mean any corporation of which an aggregate of
more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned of record or beneficially by the Company and/or one or
more other Subsidiaries of the Company.
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5
"TENDER OFFER" shall mean any public offer to substantially all
holders of Common Stock to purchase at least 50% of the Common Stock at
the time outstanding.
"TRADING DAY" shall mean each weekday other than any day on which
any Common Stock is not traded on any national securities exchange, on
NASDAQ or in the over-the-counter market.
"TRANSFER" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
or transfer of a beneficial interest thereof within the meaning of the
Securities Act (excluding any transfer to an Affiliate of the Initial
Holder).
"WARRANT STOCK" shall mean all shares of Common Stock issued or
issuable upon the exercise hereof, including any such shares of Common
Stock transferred to any transferee of such Holder.
"WARRANTS" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this
Warrant. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock
for which they may be exercised.
ARTICLE 2. EXERCISE OF WARRANT
2.1 MANNER OF EXERCISE. At any time and from time to time from and
after the Issuance Date and until 5:00 P.M., New York time, on the Expiration
Date, Holder may exercise this Warrant, on any Business Day, for all or any
part of the number of shares of the Common Stock issuable hereunder; PROVIDED
that Holder may not exercise this Warrant if after giving effect to such
exercise the total number of shares of Common Stock issued upon exercise
hereof would exceed the product of:
(i) (a) 0.45, if such date of exercise is on or prior to November 1,
1997; or
(b) 0.50, if such date of exercise is on or prior to May 1, 1998
but after November 1, 1997; or
(c) 1.00, if such date is after May 1, 1998; times
(ii) the total number of shares of Common Stock issuable upon
exercise hereof as of the Issuance Date (as such number of
shares shall have been adjusted pursuant to Article 5
immediately prior to such exercise).
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 7700 Old Georgetown Road,
Bethesda, Maryland 20814 or at the office or agency designated by the Company
pursuant to Article 13, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock
to which the exercise shall relate and (ii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of
this Warrant as Exhibit A (the "SUBSCRIPTION FORM"), duly executed by Holder
or its agent or attorney.
Upon receipt by the Company of (a) this Warrant and (b) the
Subscription Form with the applicable box checked thereon, the Company shall
issue the number of shares of Common Stock set forth in the next paragraph.
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<PAGE>
6
To the extent Holder has checked the box on the Subscription Form
contemplating payment of either (x) the Aggregate Exercise Price in cash or
(y) pursuant to the surrender by Holder of Notes having a Fair Value equal to
the Aggregate Exercise Price in connection with an exercise hereof, then upon
payment, by certified or official bank check payable to the order of the
Company or by wire transfer of immediately available funds to an account
designated by the Company, of the Aggregate Exercise Price for the shares of
Warrant Stock to be purchased pursuant to the exercise of the Warrant, the
Company shall, as promptly as practicable, and in any event within two (2)
Business Days thereafter, execute or cause to be executed and deliver or cause
to be delivered to Holder a certificate or certificates representing the
aggregate number of shares of Common Stock issuable upon such exercise. To the
extent Holder has checked the box on the Subscription Form by which Holder
elects not to pay the Aggregate Exercise Price in cash and instead to make
such payment by way of Warrant surrender, the Company shall, as promptly as
practicable, and in any event within two (2) Business Days thereafter, (i)
execute or cause to be executed and deliver or cause to be delivered to Holder
a certificate or certificates representing the aggregate number of shares of
Common Stock to be issued to Holder upon such "cashless" exercise and (ii)
cancel the number of shares of Warrant Stock issuable upon exercise of this
Warrant having an aggregate value (based on the Market Price at the time of
exercise minus the Exercise Price) equal to the Aggregate Exercise Price for
the number of shares described in clause (i) above.
In either case, the stock certificate or certificates so delivered
shall be in such denomination or denominations as such Holder shall request in
the Subscription Form and shall be registered in the name of Holder or,
subject to Article 10, such other name as shall be designated in the
Subscription Form.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and Holder or
any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
notice is received by the Company.
If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the Warrant Stock issued upon such exercise, deliver to Holder a new Warrant
evidencing the right of Holder to receive the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such exercise less
the number of shares issued pursuant to such exercise of this Warrant and/or,
where applicable, less the number of shares surrendered in non-cash payment in
connection with such exercise, which new Warrant shall in all respects (other
than number of shares) be identical to this Warrant.
2.2 EXERCISE PRICE. Subject to adjustment as hereinafter set forth,
the price payable upon exercise hereof (the "Exercise Price"), with respect to
each share of Common Stock, shall be:
(a) with respect to 335,150 shares of Common Stock (the "SECTION
2.2(A) WARRANT STOCK") issuable upon exercise hereof, $6.375; and
(b) with respect to 464,850 shares of Common Stock (the "SECTION
2.2(B) WARRANT STOCK") issuable upon exercise hereof, $4.00865.
2.3 PAYMENT OF TAXES. All shares of Common Stock issuable upon the
exercise of this Warrant shall be validly issued, fully paid and nonassessable
and shall have been issued free from any preemptive or similar right and shall
be free and clear of any lien, claim or similar charge or restriction. The
Company shall pay all expenses in connection with, and all documentary, stamp
or similar issue or transfer taxes, if any, and all other taxes and other
governmental charges that may be
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<PAGE>
7
imposed with respect to, the issue and delivery of this Warrant, and all
shares of capital stock and other securities or property issuable or
deliverable upon the exercise of this Warrant, and shall indemnify and hold
any Holder, its directors, agents, general and limited partners and Affiliates
from any taxes, interest and penalties which may become payable by any of such
Persons as a result of the failure or delay by the Company to pay such taxes
or charges. The Company shall not be required, however, to pay any tax or
other charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder and its Affiliates.
2.4 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of Warrants. If any fraction
of a share of Common Stock would be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay to the Holder of the
Warrant an amount in cash equal to such fraction multiplied by the
then-current Market Price per share of Common Stock. For the purposes of this
Section 2.3, the date from which the Market Price of Common Stock shall be
computed shall be the date on which notice is received by the Company pursuant
to Section 2.1.
2.5 CONTINUED VALIDITY. A Holder of shares of Warrant Stock shall
continue to be entitled with respect to such shares to all rights and subject
to all obligations to which it would have been entitled or subject as Holder
of this Warrant under Articles 10, 11, 14 and 16 of this Warrant.
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION, ADDITIONAL WARRANTS
3.1 TRANSFER. Subject to compliance with Article 10, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to
in Section 2.1 or the office or agency designated by the Company pursuant to
Article 13, together with a written assignment of this Warrant substantially
in the form of Exhibit B hereto duly executed by Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable pursuant to
Section 2.3 upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall, subject to Article 10, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned in compliance with Article 10, may be exercised by a new
Holder for the receipt of shares of Common Stock without having a new Warrant
issued. If requested by the Company, a new Holder shall acknowledge in
writing, in form reasonably satisfactory to the Company, such Holder's
continuing obligations under Articles 10 and 16.
3.2 DIVISION AND COMBINATION. Subject to Article 10, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Article 10, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant
or Warrants in exchange for the Warrant or Warrants to be divided or combined
in accordance with such notice.
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8
3.3 EXPENSES. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes not payable by the Company pursuant to
Section 2.3) the new Warrant or Warrants under this Article 3.
3.4 MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration or transfer of the
Warrants.
ARTICLE 4. REDUCTION IN NUMBER OF ISSUABLE SHARES OF WARRANT STOCK
4.1 SHARE REDUCTION. If, prior to May 1, 1998, the Company shall
have repaid in full all amounts borrowed pursuant to the Note Purchase
Agreement on or prior to the dates set forth in clause (i) below, then the
number of shares of Common Stock issuable upon exercise of this Warrant as of
the close of business on the date of such repayment shall be reduced (but not
below zero) by that number of shares which is equal to the product of: (i)
0.55, if such date of repayment is on or prior to November 1, 1997, or 0.50,
if such date of repayment is on or prior to May 1, 1998 but after November 1,
1997; and (ii) the total number of shares of Common Stock issuable upon
exercise hereof as of the Issuance Date (as such number of shares shall have
been adjusted pursuant to Article 5 prior to such close of business).
4.2 PRO RATA EFFECT. Any reduction in shares pursuant to Section 4.1
shall be applied to reduce the number of shares of Section 2.2(a) Warrant
Stock and Section 2.2(b) Warrant Stock then issuable, pro rata, based on the
relative number of shares in each such category then issuable (but not then
issued) upon exercise of this Warrant. No reduction in shares pursuant to
Section 4.2 shall have any effect on any Section 2.2(a) Warrant Stock and/or
Section 2.2(b) Warrant Stock issued prior to such reduction.
4.3 NEW WARRANTS. Upon any reduction pursuant to this Article 4, the
Company (at its own expense and subject to Section 2.3) will deliver to Holder
a new Warrant evidencing the rights of Holder to receive the number of shares
of Common Stock upon exercise of this Warrant less the number of shares to
which such reduction relates, which new Warrant shall in all respects (other
than number of shares) be identical to this Warrant.
ARTICLE 5. ADJUSTMENTS
The Exercise Price and the number of shares of Common Stock for
which this Warrant is exercisable shall be subject to adjustment from time to
time as set forth in this Article 5. The Company shall give each Holder notice
of any event described below which requires an adjustment pursuant to this
Article 5 at the time of such event. At any time and from time to time, the
Company shall promptly, without any action required of the Holders, cause the
appropriate adjustment or adjustments (to the extent that more than one event
requiring an adjustment has occurred since the last adjustment made) to be
made pursuant to this Article 5 in respect of each Warrant outstanding.
5.1 STOCK SPLITS, COMBINATIONS, ETC.. In case the Company shall
hereafter (A) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Additional Common Stock or of
capital stock of any other class), (B) subdivide its outstanding shares of
Common Stock or (C) combine its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such action shall be adjusted so that the Holder of any Warrant thereafter
exercised shall be entitled to receive the number of shares of Capital Stock
of the Company which such Holder would have owned immediately following such
action had such Warrant been exercised immediately prior thereto. An
adjustment made pursuant to this
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9
paragraph shall become effective immediately after the record date in the case
of a dividend and shall become effective 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 paragraph, the Holder of any Warrant
thereafter exercised shall become entitled to receive shares of two or more
classes of Capital Stock of the Company, the Board of Directors of the Company
shall in good faith determine the allocation of the adjusted Exercise Price
between or among shares of such classes of Capital Stock.
5.2 RECLASSIFICATION, COMBINATIONS, MERGERS, ETC.. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in Section 5.1 above and
other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other Capital Stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value or as a result of a
subdivision or combination)) or in case of any sale or conveyance to another
corporation of all or substantially all of the assets of the Company, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company or such a successor or purchasing corporation, as the
case may be, shall forthwith make lawful and adequate provision whereby the
Holder of such Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock issuable upon exercise of such Warrant immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance and
enter into a supplemental warrant agreement so providing. Such provisions
shall include provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 5. If the
issuer of securities deliverable upon exercise of Warrants under the
supplemental warrant agreement is an Affiliate of the formed, surviving or
transferee corporation, that issuer shall join in the supplemental warrant
agreement. The above provisions of this Section 5.2 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant Agreement to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of the Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article 5. For purposes of
this Section 5.2 "shares of stock and other securities" of a successor or
acquiring corporation shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 5.2 shall similarly
apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
5.3 ISSUANCE OF OPTIONS OR CONVERTIBLE SECURITIES In the event the
Company shall, at any time or from time to time after the date hereof, issue,
sell, distribute or otherwise grant in any
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10
manner (including by assumption) to all holders of the Common Stock any rights
to subscribe for or to purchase, or any warrants or options for the purchase
of, Common Stock or any stock or securities convertible into or exchangeable
for Common Stock (any such rights, warrants or options being herein called
"OPTIONS" and any such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") or any Convertible Securities (other
than upon exercise of any Option), whether or not such Options or the rights
to convert or exchange such Convertible Securities are immediately
exercisable, and the price per share at which Common Stock is issuable upon
the exercise of such Options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (i) the aggregate amount, if
any, received or receivable by the Company as consideration for the issuance,
sale, distribution or granting of such Options or any such Convertible
Security, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise of all such Options or upon
conversion or exchange of all such Convertible Securities, plus, in the case
of Options to acquire Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the conversion or exchange of
all such Convertible Securities, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of all such Options or upon the
conversion or exchange of all such Convertible Securities or upon the
conversion or exchange of all Convertible Securities issuable upon the
exercise of all such Options) shall be less than the Market Price per share of
Common Stock on the record date for the issuance, sale, distribution or
granting of such Options (any such event being herein called a "DISTRIBUTION")
then, effective upon such Distribution, the Exercise Price shall be reduced to
the price (calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Exercise Price in effect immediately prior to such
Distribution by a fraction, the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding (exclusive of any treasury
shares) immediately prior to such Distribution multiplied by the Market Price
per share of Common Stock on the date of such Distribution plus (ii) the
consideration, if any, received by the Company upon such Distribution, and the
denominator of which shall be the product of (A) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the Market Price per share of Common Stock
on the record date for such Distribution. For purposes of the foregoing, the
total maximum number of shares of Common Stock issuable upon exercise of all
such Options or upon conversion or exchange of all such Convertible Securities
or upon the conversion or exchange of the total maximum amount of the
Convertible Securities issuable upon the exercise of all such Options shall be
deemed to have been issued as of the date of such Distribution and thereafter
shall be deemed to be outstanding and the Company shall be deemed to have
received as consideration therefor such price per share, determined as
provided above. Except as provided in Sections 5.9 and 5.10 below, no
additional adjustment of the Exercise Price shall be made upon the actual
exercise of such Options or upon conversion or exchange of the Convertible
Securities or upon the conversion or exchange of the Convertible Securities
issuable upon the exercise of such Options.
5.4 DIVIDENDS AND DISTRIBUTIONS. In the event the Company shall, at
any time or from time to time after the date hereof, distribute to all the
holders of Common Stock any dividend or other distribution of cash, evidences
of its indebtedness, other securities or other properties or assets (in each
case other than (i) dividends payable in Additional Common Stock, Options or
Convertible Securities and (ii) any cash dividend from current or retained
earnings), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then (A) the Exercise Price shall be decreased
to a price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the Market Price per share of Common
Stock on the record date for such distribution less the sum of (X) the cash
portion, if any, of such distribution per share of Common Stock outstanding
(exclusive of any treasury shares) on the record date for such distribution
plus (Y) the then fair market value (as determined in good faith by the Board
of Directors of the Company) per share of Common Stock outstanding (exclusive
of any treasury shares) on the record date for such distribution of that
portion, if any, of such distribution consisting of evidences of indebtedness,
other securities, properties,
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11
assets, options, warrants or subscription or purchase rights, and the
denominator of which shall be such Market Price per share of Common Stock and
(B) the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be increased to a number determined by multiplying the number of
shares of Common Stock so purchasable immediately prior to the record date for
such distribution by a fraction, the numerator of which shall be the Exercise
Price in effect immediately prior to the adjustment required by clause (A) of
this sentence and the denominator of which shall be the Exercise Price in
effect immediately after such adjustment. The adjustments required by this
Section 5.4 shall be made whenever any such distribution occurs retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
5.5 SELF-TENDERS. In case of the consummation of a tender or
exchange offer (other than an odd-lot tender offer) made by the Company or any
subsidiary of the Company for all or any portion of the Common Stock to the
extent that the cash and value of any other consideration included in such
payment per share of Common Stock exceeds the first reported sales price per
share of Common Stock on the trading day next succeeding the Expiration Time,
the Exercise Price shall be reduced so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to
the Expiration Time by a fraction the numerator of which shall be the number
of shares of Common Stock outstanding (including any tendered or exchanged
shares) at the Expiration Time multiplied by the first reported sales price of
the Common Stock on the trading day next succeeding the Expiration Time, and
the denominator shall be the sum of (A) the fair market value (determined by
the Board of Directors of the Company, whose determination shall be conclusive
and described in a resolution of the Board of Directors) of the aggregate
consideration payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all shares
validly tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as the
"PURCHASED SHARES") and (B) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) on the Expiration Time and the
first reported sales price of the Common Stock on the trading day next
succeeding the Expiration Time, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration Time.
5.6 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If at any time
the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock for consideration in an amount per
Additional Share of Common Stock less than the Market Price, then the number
of shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product obtained by multiplying the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
issue or sale by a fraction (A) the numerator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or sale, and
(B) the denominator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, and (2) the
aggregate consideration received from the issuance or sale of the Additional
Shares of Common Stock divided by the Market Price. For the purposes of this
Section 5.6, the date as of which the Market Price per share of Common Stock
shall be computed shall be the earlier of (a) the date on which the Company
shall enter into a firm contract for the issuance of such Additional Shares of
Common Stock or (b) the date of actual issuance of such Additional Shares of
Common Stock. Notwithstanding the foregoing, no adjustment shall be made under
this Section for issuances of Additional Shares of Common Stock (i) with
respect to Permitted Issuances or (ii) upon exercise of the Warrants.
5.7 CERTAIN DISTRIBUTIONS. If the Company shall pay a dividend or
make any other distribution payable in Options or Convertible Securities,
then, for purposes of Section 5.3 above, such Options or Convertible
Securities shall be deemed to have been issued or sold without consideration.
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12
5.8 CONSIDERATION RECEIVED. If any shares of Common Stock, Options
or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board
of Directors of the Company). If any Options shall be issued in connection
with the issuance and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration; PROVIDED, HOWEVER, that if such
Options have an exercise price equal to or greater than the Market Price of
the Common Stock on the date of issuance of such Options, then such Options
shall be deemed to have been issued for consideration equal to such exercise
price.
5.9 DEFERRAL OR EXCLUSION OF CERTAIN ADJUSTMENTS. No adjustment to
the Exercise Price (including the related adjustment to the number of shares
of Common Stock purchasable upon the exercise of each Warrant) shall be
required hereunder unless such adjustment, together with other adjustments
carried forward as provided below, would result in an increase or decrease of
at least one percent (1%) of the Exercise Price; PROVIDED that any adjustments
which by reason of this Section 5.9 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. No
adjustment need be made for a change in the par value of the Common Stock. All
calculations under this Article shall be made to the nearest 1/1,000 of one
cent or to the nearest 1/1000th of a share, as the case may be. No adjustment
to the Exercise Price shall be made at any time hereunder in connection with
the issuance by the Company of a warrant to purchase 35,000 shares of Common
Stock at an exercise price of $2.44 pursuant to the warrant agreement, dated
as of November 1, 1996, among Hanger Orthopedic Group, Inc., J.E. Hanger, Inc.
of Georgia and Wade L. Harghausen.
5.10 CHANGES IN OPTIONS AND CONVERTIBLE SECURITIES. If the exercise
price provided for in any Options referred to in Section 5.3 above, the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in Section 5.3 above, or the rate at
which any Convertible Securities referred to in Section 5.3 above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Article 5), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock
so purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
5.11 EXPIRATION OF OPTIONS AND CONVERTIBLE SECURITIES. If, at any
time after any adjustment to the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall have been made pursuant to Sections
5.3 or 5.10 above or this Section 5.11, any Options or Convertible Securities
shall have expired unexercised, the number of such shares so purchasable
shall, upon such expiration, be readjusted and shall thereafter be such as
they would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only shares of
Common Stock deemed to have been issued in connection with such Options or
Convertible Securities were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or Convertible Securities and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale, distribution or
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13
granting of all such Options or Convertible Securities, whether or not
exercised; PROVIDED that no such readjustment shall have the effect of
decreasing the number of such shares so purchasable by an amount (calculated
by adjusting such decrease to account for all other adjustments made pursuant
to this Article 5 following the date of the original adjustment referred to
above) in excess of the amount of the adjustment initially made in respect of
the issuance, sale, distribution or granting of such Options or Convertible
Securities.
5.12 OTHER ADJUSTMENTS. In the event that at any time, as a result
of an adjustment made pursuant to this Article 5, the Holders shall become
entitled to receive any securities of the Company other than shares of Common
Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
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 the shares
of Common Stock contained in this Article 5.
5.13 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Article 5, then the number of
shares of Common Stock or other stock for which this Warrant is exercisable
shall be adjusted in such manner as may be equitable in the circumstances. If
the Company shall at any time and from time to time issue or sell (i) any
shares of any class of common stock other than Common Stock, (ii) any
evidences of its indebtedness, shares of stock or other securities which are
convertible into or exchangeable for such shares of common stock, with or
without the payment of additional consideration in cash or property or (iii)
any warrants or other rights to subscribe for or purchase any such shares of
common stock or any such evidences, shares of stock or other securities, then
in each such case such issuance shall be deemed to be of, or in respect of,
Common Stock for purposes of this Article 5; PROVIDED, HOWEVER, that, without
limiting the generality of the foregoing, if the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of, common stock other
than Common Stock, including shares of non-voting common stock, then the
number of shares of Common Stock for which this Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the aggregate number of shares of such common stock and of Common Stock which
a record holder of the same number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the occurrence of such event would
own or be entitled to receive after the happening of such event.
ARTICLE 6. NOTICES TO WARRANT HOLDERS
6.1 NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, and the Exercise Price payable
therefor, shall be adjusted pursuant to Article 5, the Company shall forthwith
prepare a certificate to be executed by a member of the Board of Directors or
one of its executive officers, setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of
Directors of the Company determined the fair market value of any evidences of
indebtedness. other securities, properties, assets, options, warrants or
subscription or purchase rights), specifying the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 5.2, 5.12 or 5.13) describing the number and kind of any
other shares of stock or property for which this Warrant is exercisable. In
the event that the Majority Holders shall challenge any of the calculations
set forth in such certificate within 20 days after the Company's notification
thereof, the Company shall retain a firm of independent certified public
accountants of national standing selected by the Company and reasonably
acceptable to the Majority Holders, to prepare and execute a certificate
verifying the
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14
method by which the adjustment was calculated, the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 5.2, 5.12 or 5.13) describing the number and kind of any
other shares of stock or property for which this Warrant is exercisable. The
Company shall promptly cause a signed copy of any certificate prepared
pursuant to this Section 6.1 to be delivered to each Holder in accordance with
Section 16.2. The Company shall keep at its office or agency designated
pursuant to Article 13 copies of all such certificates and cause the same to
be available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
6.2 NOTICE OF CERTAIN CORPORATE ACTION. The Holder of any Warrant
shall be entitled to the same rights to receive notice of corporate action as
any holder of Common Stock.
ARTICLE 7. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant,
and (b) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
ARTICLE 8. COMMON STOCK; RESERVATION AND AUTHORIZATION OF
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY
From and after the Issuance Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant in accordance with the terms of such Warrant, shall be validly
issued, fully paid and nonassessable and shall have been issued free from any
preemptive or similar right and shall be free and clear of any lien, claim or
similar charge or restriction.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable, the
Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
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15
If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Article 11) before such shares may be so issued, the Company will
in good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered.
ARTICLE 9. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Article 5 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day. The Company will not at any time close its
stock transfer books or Warrant transfer books so as to result in preventing
or delaying the exercise or transfer of any Warrant.
ARTICLE 10. RESTRICTIONS ON TRANSFERABILITY
10.1 RESTRICTIVE LEGEND. (a) Except as otherwise provided in this
Article 10, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
transferee of any such certificate, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND ARE SUBJECT TO CERTAIN PROVISIONS SPECIFIED IN A CERTAIN WARRANT
DATED NOVEMBER 1, 1996, ORIGINALLY ISSUED BY HANGER ORTHOPEDIC GROUP,
INC. (THE "WARRANT"), AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR
ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE
RESTRICTED BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS THEREUNDER AND THE WARRANT. A COPY OF THE
FORM OF SAID WARRANT IS ON FILE WITH THE SECRETARY OF HANGER ORTHOPEDIC
GROUP, INC. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY THE PROVISIONS OF SUCH WARRANT."
(b) Except as otherwise provided in this Article 10, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED
WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED
BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES
AND REGULATIONS THEREUNDER AND THIS WARRANT."
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16
10.2 RESTRICTION ON TRANSFERS. (a) Subject to Section 10.2(b) below,
prior to any Transfer of any Warrants or any shares of Warrant Stock (other
than a Transfer by a Holder to the Company), the Holder of such Warrants or
Warrant Stock shall deliver notice of such Transfer to the Company. Upon the
Company's receipt of such notice, such Holder shall be entitled to Transfer
such Warrants or such Warrant Stock in compliance with the Securities Act.
Each certificate, if any, evidencing such shares of Warrant Stock issued upon
such Transfer shall bear the restrictive legend set forth in Section 10.1(a),
and each Warrant issued upon such Transfer shall bear the restrictive legend
set forth in Section 10.1(b), unless such legend is not required in order to
ensure compliance with the Securities Act.
(b) Notwithstanding any other provision of this Warrant, the
restrictions imposed by this Article 10 upon transferability of the Warrants
and the Warrant Stock and the legend requirements of Section 10.1, shall
terminate as to any particular Warrant or share of Warrant Stock when and so
long as such security shall have been effectively registered under the
Securities Act and disposed of pursuant thereto. Whenever the restrictions
imposed by this Article 10 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company, at
the expense of the Company, a new Warrant bearing the following legend in
place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THIS WARRANT CONTAINED IN
ARTICLE 10 HEREOF TERMINATED ON ____________, ____, AND ARE OF NO FURTHER
FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions
imposed by this Article 10 shall terminate as to any share of Warrant Stock,
as hereinabove provided, the Holder thereof shall be entitled to receive from
the Company, at the Company's expense, a new certificate representing such
Common Stock not bearing the restrictive legend set forth in Section 10.1(a).
(c) Notwithstanding anything in this Warrant to the contrary, in the
event of a Tender Offer, the restrictive legends referred to in Sections
9.1(a) and 9.1(b) may be omitted from any Warrants or Warrant Stock sold by a
Holder to the maker of the Tender Offer.
10.3 LISTING ON SECURITIES EXCHANGE OR NASDAQ. If the Company shall
list any shares of Common Stock on any securities exchange or on NASDAQ, it
will, at its expense, list thereon, maintain and, when necessary, increase
such listing of, all shares of Common Stock issued or, to the extent
permissible under the applicable securities exchange or NASDAQ rules, issuable
upon the exercise of this Warrant so long as any shares of Common Stock shall
be so listed during any such Exercise Period.
10.4 COVENANT REGARDING CONSENTS. The Company hereby covenants to
use its best efforts upon request of one or more Holders to seek any waivers
or consents, or to take any other action required, to effectuate the exercise
of this Warrant by any Holder.
ARTICLE 11. REGISTRATION RIGHTS
11.1 INCIDENTAL REGISTRATIONS. (a) RIGHT TO INCLUDE REGISTRABLE
SECURITIES. If the Company at any time after the date hereof proposes to
register its Common Stock (or any security which is convertible into or
exchangeable or exercisable for Common Stock) under the Securities Act
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17
(other than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own
account, in a manner which would permit registration of Registrable Securities
for sale to the public under the Securities Act, it will, at each such time,
give prompt written notice to all Holders of Registrable Securities of its
intention to do so and of such Holders' rights under this Section 11.1. Upon
the written request of any such Holder made within 15 days after the receipt
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder), the Company will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the Holders
thereof, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered; PROVIDED that (i) if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with
the proposed registration of the securities to be sold by it, the Company may,
at its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), and (ii) if such registration involves an underwritten offering,
all Holders of Registrable Securities requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to the Company, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in
combined primary and secondary offerings. If a registration requested pursuant
to this Section 11.1(a) involves an underwritten public offering, any Holder
of Registrable Securities requesting to be included in such registration may
elect, in writing prior to the effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration. Nothing in this Section 11.1 shall operate
to limit the right of Holder to (i) request the registration of Warrant Stock
issuable upon exercise of Warrants held by such Holder notwithstanding the
fact that at the time of request, such Holder holds only Warrants or (ii)
request the registration at one time of both Warrants and Warrant Stock.
(b) EXPENSES. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 11.1.
(c) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant
to this Section 11.1 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, so as to be likely to have an adverse
effect on the price, timing or distribution of the Securities offered in such
offering as contemplated by the Company (other than the Registrable
Securities), then the Company will include in such registration (i) first,
100% of the securities the Company proposes to sell and (ii) second, to the
extent of the number of Registrable Securities requested to be included in
such registration which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, the number of
Registrable Securities which the Holders have requested to be included in such
registration, such amount to be allocated pro rata among all requesting
Holders on the basis of the relative number of shares of Registrable
Securities then held by each such Holder (provided that any shares thereby
allocated to any such Holder that exceed such Holder's request will be
reallocated among the remaining requesting Holders in like manner).
11.2 REGISTRATION ON REQUEST. (a) REQUEST BY THE DEMAND PARTY. At
any time, upon the written request of the Demand Party requesting that the
Company effect the registration under the Securities Act of all or part of
such Demand Party's Registrable Securities and specifying the amount and
intended method of disposition thereof, the Company will promptly give written
notice of such
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requested registration to all other Holders of such Registrable Securities,
and thereupon will, as expeditiously as possible, use its best efforts to
effect the registration under the Securities Act of:
(i) such Registrable Securities which the Company has been so
requested to register by the Demand Party; and
(ii) all other Registrable Securities as are to be registered at the
request of a Demand Party and which the Company has been requested to
register by any other Holder thereof by written request given to the
Company within 15 days after the giving of such written notice by the
Company (which request shall specify the amount and intended method of
disposition of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered; PROVIDED, that, unless Holders of a majority of the Registrable
Securities held by Holders consent thereto in writing, the Company shall not
be obligated to file a registration statement relating to any registration
request under this Section 11.2(a) (x) within a period of nine months after
the effective date of any other registration statement relating to any
registration request under this Section 11.2(a) which was not effected on Form
S-3 (or any successor or similar short-form registration statement) or
relating to any registration effected under Section 11.1, or (y) if with
respect thereto the managing underwriter, the Commission, the Securities Act
or the rules and regulations thereunder, or the form on which the registration
statement is to be filed, would require the conduct of an audit other than the
regular audit conducted by the Company at the end of its fiscal year, in which
case the filing may be delayed until the completion of such regular audit
(unless the Holders of the Registrable Securities to be registered agree to
pay the expenses of the Company in connection with such an audit other than
the regular audit). Nothing in this Section 11.2 shall operate to limit the
right of Holder to (i) request the registration of Warrant Stock issuable upon
exercise of Warrants held by such Holder notwithstanding the fact that at the
time of request, such Holder holds only Warrants or (ii) request the
registration at one time of both Warrants and Warrant Stock.
(b) REGISTRATION STATEMENT FORM. If any registration requested
pursuant to this Section 11.2 which is proposed by the Company to be effected
by the filing of a registration statement on Form S-3 (or any successor or
similar short-form registration statement) shall be in connection with an
underwritten public offering, and if the managing underwriter shall advise the
Company in writing that, in its opinion, the use of another form of
registration statement is of material importance to the success of such
proposed offering, then such registration shall be effected on such other
form.
(c) EXPENSES. The Company will pay all Registration Expenses in
connection with the first two (2) registrations of each class or series of
Registrable Securities pursuant to this Section 11.2 upon the written request
of any of the Holders; PROVIDED that the Company will pay Registration
Expenses in connection with an additional two (2) such registrations if the
Company shall have not repaid in full all amounts borrowed pursuant to the
Note Purchase Agreement on or prior to May 1, 1998; PROVIDED, FURTHER that any
requested registration by Holder of both Warrants and Warrant Stock at one
time shall only count as one registration. All expenses for any subsequent
registrations of Registrable Securities pursuant to this Section 11.2 shall be
paid pro rata by the Company and all other Persons (including the Holders)
participating in such registration on the basis of the relative number of
Warrants or shares of Warrant Stock, as the case may be, of each such person
whose Registrable Securities are included in such registration.
(d) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 11.2 will not be deemed to have been effected unless
it has become effective and all of the Registrable
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Securities registered thereunder have been sold; PROVIDED that if, within 180
days after it has become effective, the offering of Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental agency
or court, such registration will be deemed not to have been effected.
(e) SELECTION OF UNDERWRITERS. If a requested registration pursuant
to this Section 11.2 involves an underwritten offering, the Holders of a
majority of the Registrable Securities which are held by Holders and which the
Company has been requested to register shall have the right to select the
investment banker or bankers and managers to administer the offering;
PROVIDED, HOWEVER, that such investment banker or bankers and managers shall
be reasonably satisfactory to the Company.
(f) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration
pursuant to this Section 11.2 involves an underwritten offering and the
managing underwriter advises the Company in writing that, in its opinion, the
number of securities requested to be included in such registration (including
securities of the Company which are not Registrable Securities) exceeds the
number which can be sold in such offering, the Company will include in such
registration only the Registrable Securities requested to be included in such
registration. In the event that the number of Registrable Securities requested
to be included in such registration exceeds the number which, in the opinion
of such managing underwriter, can be sold, the number of such Registrable
Securities to be included in such registration shall be allocated pro rata
among all requesting Holders on the basis of the relative number of
Registrable Securities then held by each such Holder (provided that any shares
thereby allocated to any such Holder that exceed such Holder's request shall
be reallocated among the remaining requesting Holders in like manner). In the
event that the number of Registrable Securities requested to be included in
such registration is less than the number which, in the opinion of the
managing underwriter, can be sold, the Company may include in such
registration the securities the Company proposes to sell up to the number of
securities that, in the opinion of the underwriter, can be sold.
(g) ADDITIONAL RIGHTS. If the Company at any time grants to any
other holders of capital stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of capital stock on
terms more favorable to such holders than the terms set forth in this Section
11.2, the terms of this Section 11.2 shall be deemed amended or supplemented
to the extent necessary to provide the Holders such more favorable rights and
benefits.
11.3 REGISTRATION PROCEDURES. If and whenever the Company is
required to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Agreement,
the Company will, as expeditiously as possible:
(i) prepare and, in any event within 120 days after the end of the
period within which a request for registration may be given to the
Company, file with the Commission a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, PROVIDED, HOWEVER, that the
Company may discontinue any registration of its securities which is being
effected pursuant to Section 11.1 at any time prior to the effective date
of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of 270 days and to comply
with the provisions of the Securities Act, the Exchange Act and the rules
and regulations of the Commission thereunder with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended
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methods of disposition by the seller or sellers thereof set forth in
such registration statement; PROVIDED that before filing a
registration statement or prospectus, or any amendments or
supplements thereto, the Company will furnish to counsel selected
pursuant to Section 11.6 hereof by the Holders of the Registrable
Securities covered by such registration statement to represent such
Holders, copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel;
(iii) furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits filed therewith,
including any documents incorporated by reference), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such
seller may reasonably request in order to facilitate the disposition of
the Registrable Securities by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration in such jurisdictions as each
seller shall reasonably request, and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the requirements
of this clause (iv), it would not be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) notify each seller of any such Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act within the
appropriate period mentioned in clause (ii) of this Section 11.3, of the
Company's becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing, and at the request of
any such seller, prepare and furnish to such seller a reasonable number
of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable (but not more than
eighteen months) after the effective date of the registration statement,
an earnings statement which shall satisfy the provisions of Section 11(a)
of the Securities Act and the rules and regulations promulgated
thereunder;
(viii) (A) if such Registrable Securities are Warrant Stock, use its
best efforts to list such Registrable Securities on any securities
exchange on which the Common Stock is then
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21
listed if such Registrable Securities are not already so listed and if
such listing is then permitted under the rules of such exchange; (B) if
such Registrable Securities are Warrants, upon the reasonable request of
sellers of a majority of such Registrable Securities, use its best
efforts to list the Warrants and, if requested, the Warrant Stock
underlying the Warrants, notwithstanding that at the time of request such
sellers hold only Warrants, on any securities exchange so requested, if
such Registrable Securities are not already so listed, and if such
listing is then permitted under the rules of such exchange; (C) and use
its best efforts to provide a transfer agent and registrar for such
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement;
(ix) enter into such customary agreements (including an underwriting
agreement in customary form), which may include indemnification
provisions in favor of underwriters and other persons in addition to, or
in substitution for the provisions of Section 11.4 hereof, and take such
other actions as sellers of a majority of such Registrable Securities or
the underwriters, if any, reasonably requested in order to expedite or
facilitate the disposition of such Registrable Securities;
(x) obtain a "cold comfort" letter or letters from the Company's
independent public accounts in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or
sellers of a majority of shares of such Registrable Securities shall
reasonably request (provided that Registrable Securities constitute at
least 25% of the securities covered by such registration statement);
(xi) make available for inspection by any seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with
such registration statement;
(xii) notify counsel (selected pursuant to Section 11.6 hereof) for
the Holders of Registrable Securities included in such registration
statement and the managing underwriter or agent, immediately, and confirm
the notice in writing (i) when the registration statement, or any
post-effective amendment to the registration statement, shall have become
effective, or any supplement to the prospectus or any amendment
prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request of the Commission to amend the
registration statement or amend or supplement the prospectus or for
additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the registration
statement for offering or sale in any jurisdiction, or of the institution
or threatening of any proceedings for any of such purposes;
(xiii) make every reasonable effort to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the use of any preliminary
prospectus and, if any such order is issued, to obtain the withdrawal of
any such order at the earliest possible moment;
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(xiv) if requested by the managing underwriter or agent or any
Holder of Registrable Securities covered by the registration statement,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or agent or such
Holder reasonably requests to be included therein, including, without
limitation, with respect to the number of Registrable Securities being
sold by such Holder to such underwriter or agent, the purchase price
being paid therefor by such underwriter or agent and with respect to any
other terms of the underwritten offering of the Registrable Securities to
be sold in such offering; and make all required filings of such
prospectus supplement or post-effective amendment as soon as practicable
after being notified of the matters incorporated in such prospectus
supplement or post-effective amendment;
(xv) cooperate with the Holders of Registrable Securities covered by
the registration statement and the managing underwriter or agent, if any,
to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing securities to be sold under
the registration statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
agent, if any, or such Holders may request;
(xvi) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriter or agent an opinion or opinions
from counsel for the Company in customary form and in form, substance and
scope reasonably satisfactory to such Holders, underwriters or agents and
their counsel; and
(xvii) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings
required to be made with the NASD.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company with such
information regarding such seller and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind
described in clause (vi) of this Section 11.3, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by clause
(vi) of this Section 11.3, and, if so directed by the Company, such Holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in clause (ii) of this Section 11.3 shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to clause (vi) of this Section 11.3 and including the date
when each seller of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by clause (vi) of this Section 11.3.
11.4 INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the
event of any registration of any securities of the Company under the
Securities Act pursuant to Section 11.1 or 10.2, the Company will, and it
hereby does, indemnify and hold harmless, to the extent permitted by law, the
seller of any Registrable Securities covered by such registration statement,
each affiliate of such seller and their respective directors and officers or
general and limited partners (including any
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23
director, officer, affiliate, employee, agent and controlling Person of any of
the foregoing), each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act (collectively, the "INDEMNIFIED PARTIES"), against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including reasonable attorney's fees and reasonable expenses of
investigation) to which such Indemnified Party may become subject under the
Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof, whether
or not such Indemnified Party is a party thereto) arise out of or are based
upon (a) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (b)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (in the case of
a prospectus, in light of the circumstances under which they were made) not
misleading, and the Company will reimburse such Indemnified Party for any
legal or any other expenses reasonably incurred by it in connection with
investigating or defending against any such loss, claim, liability, action or
proceeding; PROVIDED that the Company shall not be liable to any Indemnified
Party in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any Indemnified Party and shall survive the transfer
of such securities by such seller.
(b) INDEMNIFICATION BY THE SELLER. The Company may require, as a
condition to including any Registrable Securities in any registration
statement filed in accordance with Section 11.3 herein, that the Company shall
have received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities or any underwriter to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 11.4) the Company and all other
prospective sellers with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from such registration statement,
any preliminary, final or summary prospectus contained therein, or any
amendment or supplement, if such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such seller or underwriter specifically stating that it is for use
in the preparation of such registration statement, preliminary, final or
summary prospectus or amendment or supplement, or a document incorporated by
reference into any of the foregoing. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any of the prospective sellers, or any of their respective affiliates,
directors, officers or controlling Persons and shall survive the transfer of
such securities by such seller. In no event shall the liability of any selling
Holder of Registrable Securities hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an Indemnified
Party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 11.4, such Indemnified Party will, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; PROVIDED that the
failure of the Indemnified Party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
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24
subdivisions of this Section 11.4, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an Indemnified Party, unless in such Indemnified
Party's reasonable judgment a conflict of interest between such Indemnified
Party and indemnifying parties may exist in respect of such claim, the
indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the indemnifying party to such
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 11.4 from the indemnifying party is unavailable to an Indemnified
Party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and Indemnified Parties in connection
with the actions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and Indemnified Parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by, or
relates to information supplied by, such indemnifying party or Indemnified
Parties, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such action. The amount paid or payable
by a party under this Section 11.4 as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 11.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section 11.4 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
(f) NON-EXCLUSIVITY. The obligations of the parties under this
Section 11.4 shall be in addition to any liability which any party may
otherwise have to any other party.
11.5 RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
Holder of Registrable Securities, make publicly available such information),
and it will
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take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such Rule may be amended from time to time,
or (ii) any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder of Registrable Securities, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements. Notwithstanding anything contained in this Section 11.5,
the Company may, with the consent of the Majority Holders, deregister under
Article 12 of the Exchange Act if it then is permitted to do so pursuant to
the Exchange Act and the rules and regulations thereunder.
11.6 SELECTION OF COUNSEL. In connection with any registration of
Registrable Securities pursuant to Sections 11.1 and 11.2 hereof, the Holders
of a majority of the Registrable Securities covered by any such registration
may select one counsel to represent all Holders of Registrable Securities
covered by such registration; PROVIDED, HOWEVER, that in the event that the
counsel selected as provided above is also acting as counsel to the Company in
connection with such registration, the remaining Holders shall be entitled to
select one additional counsel to represent all such remaining Holders.
11.7 HOLDBACK AGREEMENT. If any such registration shall be in
connection with an underwritten public offering, each Holder of Registrable
Securities agrees not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the Securities Act, of any equity securities
of the Company, or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each case, other than
as part of such underwritten public offering), within 7 days before, or such
period not to exceed 180 days as the underwriting agreement may require (or
such lesser period as the managing underwriters may permit) after, the
effective date of such registration (except as part of such registration), and
the Company hereby also so agrees and agrees to cause each other holder of any
equity security, or of any security convertible into or exchangeable or
exercisable for any equity security, of the Company purchased from the Company
(at any time other than in a public offering) to so agree.
11.8 SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Article 11 were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed that they shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Article 11 and to enforce specifically the terms and provisions thereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which they may be entitled at law or in
equity.
ARTICLE 12. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written agreement of the Holder shall be sufficient
indemnity) and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like
tenor to such Holder (without expense to the Holder); PROVIDED, in the case of
mutilation, no indemnity shall be required if this Warrant in identifiable
form is surrendered to the Company for cancellation.
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ARTICLE 13. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
ARTICLE 14. FINANCIAL AND BUSINESS INFORMATION
The Company will deliver to CVCA and Paribas (so long as the CVCA
and Paribas hold any Warrant) and to each subsequent holder of a Warrant
representing at least 25% of the Warrant Shares:
(a) so long as the Note Purchase Agreement is in effect, all
financial statements, projections, certificates and other information required
to be delivered to the "Purchasers" pursuant to Section 6.1 of the Note
Purchase Agreement, the terms of which are incorporated herein by reference
and deemed to be a part hereof, which statements, projections, certificates
and other information will be delivered at such times as they are required to
be delivered to the "Purchasers" under the Note Purchase Agreement;
(b) from and after such time as the Note Purchase Agreement is no
longer in effect, all financial statements, projections, certificates and
other information required to be delivered by the Company and its Subsidiaries
to their senior lenders; and
(c) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company generally sends to its stockholders.
Except as otherwise required by law or judicial order or decree or
by any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under this Article 14
will maintain the confidentiality of all nonpublic information obtained by it
hereunder which the Company has reasonably designated as proprietary or
confidential in nature; provided that each such Person may disclose such
information in connection with the sale or transfer or proposed sale or
transfer of any Warrant Shares if such Person's transferee (or proposed
transferee) agrees in writing to be bound by the provisions of this paragraph.
ARTICLE 15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder hereof to receive shares of Common Stock, and no enumeration herein of
the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for any value subsequently assigned to the Common
Stock or as a stockholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company. Notwithstanding any other
provision of this Agreement, neither the general partners nor limited partners
of a Holder, nor any future general partners or limited partners of a Holder,
shall have any personal liability for performance of any obligation of a
Holder under this Agreement in excess of the respective capital contribution
of such general partner and limited partners to such Holder.
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ARTICLE 16. MISCELLANEOUS
16.1 NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder hereof shall
operate as a waiver of such right or otherwise prejudice such Holder's rights,
powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to the Holder hereof such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by such Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
16.2 NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to any Holder, at its last known address appearing on the
books of the Company maintained for such purpose.
(b) If to the Company at:
Hanger Orthopedic Group, Inc.
7700 Old Georgetown Road
Bethesda, Maryland 20814
Attention: Richard A. Stein
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three (3) Business Days
after the same shall have been deposited in the United States mail. Failure or
delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to the person designated above to
receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other
communication.
16.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section
3.1 and Articles 10 and 12, this Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant, and shall be enforceable by any such Holder. Without limitation
to the foregoing, in the event that a Holder distributes or otherwise
transfers any shares of the Registrable Securities to any of its present or
future general or limited partners, the Company hereby acknowledges that the
registration rights granted pursuant to Article 11 of this Agreement shall be
transferred to such partner or partners on a pro rata basis, and that at or
after the time of any such distribution or transfer, any such partner or group
of partners may designate a Person to act on its behalf in delivering any
notices or making any requests hereunder.
16.4 AMENDMENT. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of the
Company and holders of Warrants
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exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then receivable upon exercise of all Warrants whether or not then
exercisable, provided that no such Warrant may be modified or amended in a
manner which is adverse to the CVCA or Paribas or any of its successors or
assigns, so long as such Person holds any Warrants or Warrant Stock, without
the prior written consent of such Person.
16.5 SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Warrant.
16.6 HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16.7 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
THE COMPANY CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO
JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE, IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. THE
PARTIES AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY. SERVICE OF PROCESS
ON THE COMPANY OR HOLDER IN ANY ACTION ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY IN ACCORDANCE WITH THE
PROCEDURES AND REQUIREMENTS SET FORTH IN SECTION 16.2.
16.8 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES),
THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS AGREEMENT.
505298\0057\02050\96AXKNAK.WAR
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon.
Dated: November 1, 1996
HANGER ORTHOPEDIC GROUP, INC.
By /s/RICHARD A. STEIN
--------------------------
Name: Richard A. Stein
Title: Vice President
505298\0057\02050\96AXKNAK.WAR
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of the accompanying Warrant
exercises such Warrant for _______ shares of Section 2.2(__) Warrant Stock(1)
of Hanger Orthopedic Group, Inc., all on the terms and conditions specified in
such Warrant and
[ ] herewith tenders payment of either (x) the Aggregate Exercise Price
in cash or (y) pursuant to the surrender by Holder of Notes having a
Fair Value equal to the Aggregate Exercise Price for the number of
shares of Common Stock specified above to the order of Hanger
Orthopedic Group, Inc. in the amount of $_________ in accordance
with the terms hereof; or
[ ] elects not to pay the Aggregate Exercise Price with respect to the
shares of Common Stock specified above and, in lieu thereof, elects
to surrender this Warrant (or the relevant portion thereof) in
exchange for such number of shares of Common Stock having an
aggregate value (based on the Market Price on the date hereof minus
the Exercise Price) equal to the Aggregate Exercise Price for the
number of shares requested for exercise above. ________ 1 Specify
the number of shares of Section 2.2(a) Warrant Stock and/or Section
2.2(b) Warrant Stock being exercised hereby.
-------------------------------
(1) Specify the number of shares of Section 2.2(a) Warrent Stock and/or
Section 2.2(b) Warrent Stock being exercised hereby.
505298\0057\02050\96AXKNAK.WAR
<PAGE>
2
The undersigned requests that certificates for [all] [_________ of]
the shares of Common Stock to be received pursuant hereto (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________________________________________, whose address is
________________________________________ [add any additional names and
addresses together with the number of shares of Common Stock (and any
securities or other property issuable upon such exercise) to be issued to such
person or entity)], and, if such shares of Common Stock shall not include all
of the shares of Common Stock issuable as provided in this Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned.
------------------------------
(Name of Registered Owner)
------------------------------
(Signature of Registered Owner)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
505298\0057\02050\96AXKNAK.WAR
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock, adjusted as of the date of this assignment as provided
in the Warrant, set forth below:
NO. OF SHARES OF
NAME AND ADDRESS OF ASSIGNEE COMMON STOCK
and does hereby irrevocably constitute and appoint _____________________
attorney-in-fact to register such transfer on the books of Hanger Orthopedic
Group, Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated: _______________________________
Print
Name: _______________________________
Signature: __________________________
Witness: ____________________________
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
505298\0057\02050\96AXKNAK.WAR
<PAGE>
EXECUTION COPY
WARRANT
TO PURCHASE COMMON STOCK OF
HANGER ORTHOPEDIC GROUP, INC.
Issuance Date: November 1, 1996
Number of Shares of Common Stock:
800,000 (subject to adjustment)
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS.................................................... 1
ARTICLE 2. EXERCISE OF WARRANT............................................ 5
2.1 Manner of Exercise........................................... 5
2.2 Exercise Price............................................... 6
2.3 Payment of Taxes............................................. 7
2.4 Fractional Shares............................................ 7
2.5 Continued Validity........................................... 7
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION, ADDITIONAL
WARRANTS....................................................... 7
3.1 Transfer .................................................... 7
3.2 Division and Combination..................................... 7
3.3 Expenses .................................................... 8
3.4 Maintenance of Books......................................... 8
ARTICLE 4. REDUCTION IN NUMBER OF ISSUABLE SHARES OF WARRANT
STOCK............................................................. 8
4.1 Share Reduction.............................................. 8
4.2 Pro Rata Effect.............................................. 8
4.3 New Warrants................................................. 8
ARTICLE 5. ADJUSTMENTS.................................................... 8
5.1 Stock Splits, Combinations, etc.............................. 8
5.2 Reclassification, Combinations, Mergers, etc................. 9
5.3 Issuance of Options or Convertible Securities................ 10
5.4 Dividends and Distributions.................................. 10
5.5 Self-Tenders................................................. 11
5.6 Issuance of Additional Shares of Common Stock................ 11
5.7 Certain Distributions........................................ 12
5.8 Consideration Received....................................... 12
5.9 Deferral or Exclusion of Certain Adjustments................. 12
5.10 Changes in Options and Convertible Securities............... 12
5.11 Expiration of Options and Convertible Securities............ 12
5.12 Other Adjustments........................................... 13
5.13 Other Action Affecting Common Stock......................... 13
ARTICLE 6. NOTICES TO WARRANT HOLDERS..................................... 13
6.1 Notice of Adjustments........................................ 13
6.2 Notice of Certain Corporate Action........................... 14
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<PAGE>
PAGE
ARTICLE 7. NO IMPAIRMENT.................................................. 14
ARTICLE 8. COMMON STOCK; RESERVATION AND AUTHORIZATION
OF REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY....................................... 14
ARTICLE 9. TAKING OF RECORD; STOCK AND WARRANT
TRANSFER BOOKS....................... 15
ARTICLE 10. RESTRICTIONS ON TRANSFERABILITY............................... 15
10.1 Restrictive Legend.......................................... 15
10.2 Restriction on Transfers.................................... 16
10.3 Listing on Securities Exchange or NASDAQ.................... 16
ARTICLE 11. REGISTRATION RIGHTS........................................... 17
11.1 Incidental Registrations.................................... 17
11.2 Registration on Request..................................... 18
11.3 Registration Procedures..................................... 19
11.5 Rule 144.................................................... 25
11.6 Selection of Counsel........................................ 25
11.7 Holdback Agreement.......................................... 25
ARTICLE 12. LOSS OR MUTILATION............................................ 25
ARTICLE 13. OFFICE OF THE COMPANY......................................... 26
ARTICLE 14. FINANCIAL AND BUSINESS INFORMATION............................ 26
ARTICLE 15. LIMITATION OF LIABILITY....................................... 26
ARTICLE 16. MISCELLANEOUS................................................. 27
16.1 Nonwaiver and Expenses...................................... 27
16.2 Notice Generally............................................ 27
16.3 Successors and Assigns...................................... 27
16.4 Amendment................................................... 28
16.5 Severability................................................ 28
16.6 Headings.................................................... 28
16.7 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE............ 28
16.8 MUTUAL WAIVER OF JURY TRIAL................................. 28
EXHIBIT A SUBSCRIPTION FORM
EXHIBIT B ASSIGNMENT FORM
505298\0057\02050\96AXKLE3.WAR
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH
THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE
SECURITIES ACT OF 1933, AS AMENDED, THE RULES AND REGULATIONS THEREUNDER AND
THIS WARRANT.
WARRANT
TO PURCHASE 800,000 SHARES OF
COMMON STOCK (SUBJECT TO ADJUSTMENT) OF
HANGER ORTHOPEDIC GROUP, INC.
THIS IS TO CERTIFY THAT, for value received, CHASE VENTURE CAPITAL
ASSOCIATES, L.P., a California limited partnership (the "INITIAL HOLDER"), or
its registered assigns, is the owner of eight hundred thousand (800,000)
Warrants (as hereinafter defined), which entitle the Holder (as hereinafter
defined), at any time prior to the Expiration Date (as hereinafter defined),
to purchase from HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the
"COMPANY"), eight hundred thousand (800,000) shares of Common Stock (as
hereinafter defined and such number subject to adjustment as provided herein),
in whole or in part, including fractional parts, all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
ARTICLE 1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued by the Company after the Issuance Date, other than the
Warrant Stock.
"AFFILIATE" shall mean, as to any Person, (i) any other Person
directly or indirectly controlling, controlled by, or under common
control with such Person or (ii) any director, officer or partner of such
Person or any Person specified in clause (i) above.
"AGGREGATE EXERCISE PRICE" shall mean, with respect to the exercise
of all or a portion of the Warrant, the Exercise Price multiplied by the
number of shares of Warrant Stock purchased upon such exercise.
"BUSINESS DAY" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the
State of New York or the State of Maryland.
505298\0057\02050\96AXKLE3.WAR
<PAGE>
2
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other
federal securities laws.
"COMMON STOCK" shall mean the collective reference to the common
stock of the Company, par value $.01 per share, as constituted on the
Issuance Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof in
which the shares of Common Stock are converted into a new class of
capital stock and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 5.2) received by or
distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 5.2.
"CONVERTIBLE SECURITIES" shall have the meaning set forth in Section
5.3 hereof.
"CVCA" shall mean Chase Venture Capital Associates, L.P., a
California limited partnership.
"DEMAND PARTY" shall mean any other Holder or Holders that, either
individually or in aggregate with all other Holders with whom it is
acting together to demand registration, own(s) at least 50% of the total
number of Registrable Securities (whether in the form of Warrants or
Warrant Stock).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time
to time.
"EXERCISE PERIOD" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"EXERCISE PRICE" shall have the meaning set forth in Section 2.2
hereof.
"EXPIRATION DATE" shall mean the date which is the eighth
anniversary of the Issuance Date.
"FAIR VALUE" shall mean, with respect to the valuation of any
evidences of indebtedness, other securities, properties, assets, options,
warrants or subscription or purchase rights, the fair market value
thereof as determined in good faith by the Board of Directors of the
Company and, if required by the Majority Holders, supported by an opinion
from an investment banking firm acceptable to the Majority Holders, which
approval shall not be unreasonably withheld, of such Valuation
Properties; PROVIDED, HOWEVER that the Fair Value of any Notes tendered
in connection with any exercise of this Warrant pursuant to Section 2.1
shall be equal to the principal amount of such tendered Notes plus any
accrued and unpaid interest or other obligations owed in respect thereof.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"HOLDER" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose or the
Person holding any Warrant Stock, including, without limitation, in each
case, transferees thereof.
505298\0057\02050\96AXKLE3.WAR
<PAGE>
3
"ISSUANCE DATE" shall mean November 1, 1996.
"MAJORITY HOLDERS" shall mean the Holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Common Stock
then receivable upon exercise of all Warrants.
"MARKET PRICE" shall mean, as of any exercise date or other relevant
date, the average of the per share closing prices of a share of Common
Stock for the 10 consecutive Trading Days immediately preceding such date
on the principal national securities exchange in the United States on
which the shares of Common Stock are listed or admitted to trading, or if
not listed or admitted to trading on any national securities exchange on
such Trading Day, on the National Association of Securities Dealers
Automated Quotations National Market System, or if the shares of Common
Stock are not listed or admitted to trading on any national securities
exchange or quoted on such National Market System on such Trading Day,
the average of the closing bid and asked prices of a share of Common
Stock in the over-the-counter market on such Trading Day as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company. If the Common Stock is not quoted or listed by any such
organization, exchange or market, the Market Price of the Common Stock as
of such exercise or other relevant date shall be determined in good faith
by the Board of Directors of the Company.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor entity thereto.
"NASDAQ" shall mean the National Association of Securities Dealers
Automatic Quotation System.
"NOTES" the 8.00% Senior Subordinated Notes issued pursuant to the
Note Purchase Agreement.
"NOTE PURCHASE AGREEMENT" shall mean the Senior Subordinated Note
Purchase Agreement, dated as of November 1, 1996, among the Company, CVCA
and Paribas.
"OPTIONS" shall have the meaning set forth in Section 5.3 hereof.
"OUTSTANDING" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or
for the account of the Company or any Subsidiary, and shall include all
shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"PARIBAS" shall mean Paribas Principal, Inc.
"PERMITTED ISSUANCES" shall mean the issuance of shares of Common
Stock upon exercise of rights to acquire shares of Common Stock
exercisable pursuant to options held by employees or directors under
stock option plans which may from time to time be adopted by the Company
after the Issuance Date.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation,
505298\0057\02050\96AXKLE3.WAR
<PAGE>
4
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division,
agency, body or department thereof).
"REGISTRABLE SECURITIES" shall mean (i) the Warrants and (ii) the
Warrant Stock. As to any particular Registrable Securities, once issued,
such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale by the Holder of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such
registration statement, (ii) such securities shall have been distributed
to the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise
transferred, new certificates for such securities not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such securities shall not require registration
or qualification of such securities under the Securities Act or any state
securities or blue sky law then in force, or (iv) such securities shall
have ceased to be Outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with Article 11 of this Agreement,
including, without limitation, (i) all Commission and stock exchange or
NASD registration and filing fees (including, if applicable, the fees and
expenses of any "qualified independent underwriter," as such term is
defined in Schedule E to the By-laws of the NASD, and of its counsel),
(ii) all fees and expenses of complying with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities),
(iii) all printing, messenger and delivery expenses, (iv) all fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange pursuant to clause (viii) of
Section 11.3 and all rating agency fees, (v) the fees and disbursements
of counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, (vi)
the reasonable fees and disbursements of counsel selected pursuant to
Section 11.6 hereof by the Holders of the Registrable Securities being
registered to represent such Holders in connection with each such
registration, (vii) any fees and disbursements of underwriters
customarily paid by the issuers or sellers of securities, including
liability insurance if the Company so desires or if the underwriters so
require, and the reasonable fees and expenses of any special experts
retained in connection with the requested registration, but excluding
underwriting discounts and commissions and certain transfer taxes, if
any, and (viii) other reasonable out-of-pocket expenses of Holders
(PROVIDED that such expenses shall not include expenses of counsel other
than those provided for in clause (vi) above).
"RESPONSIBLE OFFICER" shall mean the chief executive officer of the
Company, the president of the Company or the chief financial officer of
the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SUBSIDIARY" shall mean any corporation of which an aggregate of
more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned of record or beneficially by the Company and/or one or
more other Subsidiaries of the Company.
505298\0057\02050\96AXKLE3.WAR
<PAGE>
5
"TENDER OFFER" shall mean any public offer to substantially all
holders of Common Stock to purchase at least 50% of the Common Stock at
the time outstanding.
"TRADING DAY" shall mean each weekday other than any day on which
any Common Stock is not traded on any national securities exchange, on
NASDAQ or in the over-the-counter market.
"TRANSFER" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
or transfer of a beneficial interest thereof within the meaning of the
Securities Act (excluding any transfer to an Affiliate of the Initial
Holder).
"WARRANT STOCK" shall mean all shares of Common Stock issued or
issuable upon the exercise hereof, including any such shares of Common
Stock transferred to any transferee of such Holder.
"WARRANTS" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this
Warrant. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock
for which they may be exercised.
ARTICLE 2. EXERCISE OF WARRANT
2.1 MANNER OF EXERCISE. At any time and from time to time from and
after the Issuance Date and until 5:00 P.M., New York time, on the Expiration
Date, Holder may exercise this Warrant, on any Business Day, for all or any
part of the number of shares of the Common Stock issuable hereunder; PROVIDED
that Holder may not exercise this Warrant if after giving effect to such
exercise the total number of shares of Common Stock issued upon exercise
hereof would exceed the product of:
(i) (a) 0.45, if such date of exercise is on or prior to November 1,
1997; or
(b) 0.50, if such date of exercise is on or prior to May 1, 1998
but after November 1, 1997; or
(c) 1.00, if such date is after May 1, 1998; times
(ii) the total number of shares of Common Stock issuable upon
exercise hereof as of the Issuance Date (as such number of
shares shall have been adjusted pursuant to Article 5
immediately prior to such exercise).
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 7700 Old Georgetown Road,
Bethesda, Maryland 20814 or at the office or agency designated by the Company
pursuant to Article 13, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock
to which the exercise shall relate and (ii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of
this Warrant as Exhibit A (the "SUBSCRIPTION FORM"), duly executed by Holder
or its agent or attorney.
Upon receipt by the Company of (a) this Warrant and (b) the
Subscription Form with the applicable box checked thereon, the Company shall
issue the number of shares of Common Stock set forth in the next paragraph.
505298\0057\02050\96AXKLE3.WAR
<PAGE>
6
To the extent Holder has checked the box on the Subscription Form
contemplating payment of either (x) the Aggregate Exercise Price in cash or
(y) pursuant to the surrender by Holder of Notes having a Fair Value equal to
the Aggregate Exercise Price in connection with an exercise hereof, then upon
payment, by certified or official bank check payable to the order of the
Company or by wire transfer of immediately available funds to an account
designated by the Company, of the Aggregate Exercise Price for the shares of
Warrant Stock to be purchased pursuant to the exercise of the Warrant, the
Company shall, as promptly as practicable, and in any event within two (2)
Business Days thereafter, execute or cause to be executed and deliver or cause
to be delivered to Holder a certificate or certificates representing the
aggregate number of shares of Common Stock issuable upon such exercise. To the
extent Holder has checked the box on the Subscription Form by which Holder
elects not to pay the Aggregate Exercise Price in cash and instead to make
such payment by way of Warrant surrender, the Company shall, as promptly as
practicable, and in any event within two (2) Business Days thereafter, (i)
execute or cause to be executed and deliver or cause to be delivered to Holder
a certificate or certificates representing the aggregate number of shares of
Common Stock to be issued to Holder upon such "cashless" exercise and (ii)
cancel the number of shares of Warrant Stock issuable upon exercise of this
Warrant having an aggregate value (based on the Market Price at the time of
exercise minus the Exercise Price) equal to the Aggregate Exercise Price for
the number of shares described in clause (i) above.
In either case, the stock certificate or certificates so delivered
shall be in such denomination or denominations as such Holder shall request in
the Subscription Form and shall be registered in the name of Holder or,
subject to Article 10, such other name as shall be designated in the
Subscription Form.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and Holder or
any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
notice is received by the Company.
If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the Warrant Stock issued upon such exercise, deliver to Holder a new Warrant
evidencing the right of Holder to receive the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such exercise less
the number of shares issued pursuant to such exercise of this Warrant and/or,
where applicable, less the number of shares surrendered in non-cash payment in
connection with such exercise, which new Warrant shall in all respects (other
than number of shares) be identical to this Warrant.
2.2 EXERCISE PRICE. Subject to adjustment as hereinafter set forth,
the price payable upon exercise hereof (the "Exercise Price"), with respect to
each share of Common Stock, shall be:
(a) with respect to 335,150 shares of Common Stock (the "SECTION
2.2(A) WARRANT STOCK") issuable upon exercise hereof, $6.375; and
(b) with respect to 464,850 shares of Common Stock (the "SECTION
2.2(B) WARRANT STOCK") issuable upon exercise hereof, $4.00865.
2.3 PAYMENT OF TAXES. All shares of Common Stock issuable upon the
exercise of this Warrant shall be validly issued, fully paid and nonassessable
and shall have been issued free from any preemptive or similar right and shall
be free and clear of any lien, claim or similar charge or restriction. The
Company shall pay all expenses in connection with, and all documentary, stamp
or similar issue or transfer taxes, if any, and all other taxes and other
governmental charges that may be
505298\0057\02050\96AXKLE3.WAR
<PAGE>
7
imposed with respect to, the issue and delivery of this Warrant, and all
shares of capital stock and other securities or property issuable or
deliverable upon the exercise of this Warrant, and shall indemnify and hold
any Holder, its directors, agents, general and limited partners and Affiliates
from any taxes, interest and penalties which may become payable by any of such
Persons as a result of the failure or delay by the Company to pay such taxes
or charges. The Company shall not be required, however, to pay any tax or
other charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder and its Affiliates.
2.4 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of Warrants. If any fraction
of a share of Common Stock would be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay to the Holder of the
Warrant an amount in cash equal to such fraction multiplied by the
then-current Market Price per share of Common Stock. For the purposes of this
Section 2.3, the date from which the Market Price of Common Stock shall be
computed shall be the date on which notice is received by the Company pursuant
to Section 2.1.
2.5 CONTINUED VALIDITY. A Holder of shares of Warrant Stock shall
continue to be entitled with respect to such shares to all rights and subject
to all obligations to which it would have been entitled or subject as Holder
of this Warrant under Articles 10, 11, 14 and 16 of this Warrant.
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION, ADDITIONAL WARRANTS
3.1 TRANSFER. Subject to compliance with Article 10, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to
in Section 2.1 or the office or agency designated by the Company pursuant to
Article 13, together with a written assignment of this Warrant substantially
in the form of Exhibit B hereto duly executed by Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable pursuant to
Section 2.3 upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall, subject to Article 10, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned in compliance with Article 10, may be exercised by a new
Holder for the receipt of shares of Common Stock without having a new Warrant
issued. If requested by the Company, a new Holder shall acknowledge in
writing, in form reasonably satisfactory to the Company, such Holder's
continuing obligations under Articles 10 and 16.
3.2 DIVISION AND COMBINATION. Subject to Article 10, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Article 10, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant
or Warrants in exchange for the Warrant or Warrants to be divided or combined
in accordance with such notice.
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8
3.3 EXPENSES. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes not payable by the Company pursuant to
Section 2.3) the new Warrant or Warrants under this Article 3.
3.4 MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration or transfer of the
Warrants.
ARTICLE 4. REDUCTION IN NUMBER OF ISSUABLE SHARES OF WARRANT STOCK
4.1 SHARE REDUCTION. If, prior to May 1, 1998, the Company shall
have repaid in full all amounts borrowed pursuant to the Note Purchase
Agreement on or prior to the dates set forth in clause (i) below, then the
number of shares of Common Stock issuable upon exercise of this Warrant as of
the close of business on the date of such repayment shall be reduced (but not
below zero) by that number of shares which is equal to the product of: (i)
0.55, if such date of repayment is on or prior to November 1, 1997, or 0.50,
if such date of repayment is on or prior to May 1, 1998 but after November 1,
1997; and (ii) the total number of shares of Common Stock issuable upon
exercise hereof as of the Issuance Date (as such number of shares shall have
been adjusted pursuant to Article 5 prior to such close of business).
4.2 PRO RATA EFFECT. Any reduction in shares pursuant to Section 4.1
shall be applied to reduce the number of shares of Section 2.2(a) Warrant
Stock and Section 2.2(b) Warrant Stock then issuable, pro rata, based on the
relative number of shares in each such category then issuable (but not then
issued) upon exercise of this Warrant. No reduction in shares pursuant to
Section 4.2 shall have any effect on any Section 2.2(a) Warrant Stock and/or
Section 2.2(b) Warrant Stock issued prior to such reduction.
4.3 NEW WARRANTS. Upon any reduction pursuant to this Article 4, the
Company (at its own expense and subject to Section 2.3) will deliver to Holder
a new Warrant evidencing the rights of Holder to receive the number of shares
of Common Stock upon exercise of this Warrant less the number of shares to
which such reduction relates, which new Warrant shall in all respects (other
than number of shares) be identical to this Warrant.
ARTICLE 5. ADJUSTMENTS
The Exercise Price and the number of shares of Common Stock for
which this Warrant is exercisable shall be subject to adjustment from time to
time as set forth in this Article 5. The Company shall give each Holder notice
of any event described below which requires an adjustment pursuant to this
Article 5 at the time of such event. At any time and from time to time, the
Company shall promptly, without any action required of the Holders, cause the
appropriate adjustment or adjustments (to the extent that more than one event
requiring an adjustment has occurred since the last adjustment made) to be
made pursuant to this Article 5 in respect of each Warrant outstanding.
5.1 STOCK SPLITS, COMBINATIONS, ETC.. In case the Company shall
hereafter (A) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Additional Common Stock or of
capital stock of any other class), (B) subdivide its outstanding shares of
Common Stock or (C) combine its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such action shall be adjusted so that the Holder of any Warrant thereafter
exercised shall be entitled to receive the number of shares of Capital Stock
of the Company which such Holder would have owned immediately following such
action had such Warrant been exercised immediately prior thereto. An
adjustment made pursuant to this
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9
paragraph shall become effective immediately after the record date in the case
of a dividend and shall become effective 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 paragraph, the Holder of any Warrant
thereafter exercised shall become entitled to receive shares of two or more
classes of Capital Stock of the Company, the Board of Directors of the Company
shall in good faith determine the allocation of the adjusted Exercise Price
between or among shares of such classes of Capital Stock.
5.2 RECLASSIFICATION, COMBINATIONS, MERGERS, ETC.. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in Section 5.1 above and
other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other Capital Stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value or as a result of a
subdivision or combination)) or in case of any sale or conveyance to another
corporation of all or substantially all of the assets of the Company, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company or such a successor or purchasing corporation, as the
case may be, shall forthwith make lawful and adequate provision whereby the
Holder of such Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock issuable upon exercise of such Warrant immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance and
enter into a supplemental warrant agreement so providing. Such provisions
shall include provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 5. If the
issuer of securities deliverable upon exercise of Warrants under the
supplemental warrant agreement is an Affiliate of the formed, surviving or
transferee corporation, that issuer shall join in the supplemental warrant
agreement. The above provisions of this Section 5.2 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant Agreement to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of the Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article 5. For purposes of
this Section 5.2 "shares of stock and other securities" of a successor or
acquiring corporation shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 5.2 shall similarly
apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
5.3 ISSUANCE OF OPTIONS OR CONVERTIBLE SECURITIES In the event the
Company shall, at any time or from time to time after the date hereof, issue,
sell, distribute or otherwise grant in any
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10
manner (including by assumption) to all holders of the Common Stock any rights
to subscribe for or to purchase, or any warrants or options for the purchase
of, Common Stock or any stock or securities convertible into or exchangeable
for Common Stock (any such rights, warrants or options being herein called
"OPTIONS" and any such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") or any Convertible Securities (other
than upon exercise of any Option), whether or not such Options or the rights
to convert or exchange such Convertible Securities are immediately
exercisable, and the price per share at which Common Stock is issuable upon
the exercise of such Options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (i) the aggregate amount, if
any, received or receivable by the Company as consideration for the issuance,
sale, distribution or granting of such Options or any such Convertible
Security, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise of all such Options or upon
conversion or exchange of all such Convertible Securities, plus, in the case
of Options to acquire Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the conversion or exchange of
all such Convertible Securities, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of all such Options or upon the
conversion or exchange of all such Convertible Securities or upon the
conversion or exchange of all Convertible Securities issuable upon the
exercise of all such Options) shall be less than the Market Price per share of
Common Stock on the record date for the issuance, sale, distribution or
granting of such Options (any such event being herein called a "DISTRIBUTION")
then, effective upon such Distribution, the Exercise Price shall be reduced to
the price (calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Exercise Price in effect immediately prior to such
Distribution by a fraction, the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding (exclusive of any treasury
shares) immediately prior to such Distribution multiplied by the Market Price
per share of Common Stock on the date of such Distribution plus (ii) the
consideration, if any, received by the Company upon such Distribution, and the
denominator of which shall be the product of (A) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the Market Price per share of Common Stock
on the record date for such Distribution. For purposes of the foregoing, the
total maximum number of shares of Common Stock issuable upon exercise of all
such Options or upon conversion or exchange of all such Convertible Securities
or upon the conversion or exchange of the total maximum amount of the
Convertible Securities issuable upon the exercise of all such Options shall be
deemed to have been issued as of the date of such Distribution and thereafter
shall be deemed to be outstanding and the Company shall be deemed to have
received as consideration therefor such price per share, determined as
provided above. Except as provided in Sections 5.9 and 5.10 below, no
additional adjustment of the Exercise Price shall be made upon the actual
exercise of such Options or upon conversion or exchange of the Convertible
Securities or upon the conversion or exchange of the Convertible Securities
issuable upon the exercise of such Options.
5.4 DIVIDENDS AND DISTRIBUTIONS. In the event the Company shall, at
any time or from time to time after the date hereof, distribute to all the
holders of Common Stock any dividend or other distribution of cash, evidences
of its indebtedness, other securities or other properties or assets (in each
case other than (i) dividends payable in Additional Common Stock, Options or
Convertible Securities and (ii) any cash dividend from current or retained
earnings), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then (A) the Exercise Price shall be decreased
to a price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the Market Price per share of Common
Stock on the record date for such distribution less the sum of (X) the cash
portion, if any, of such distribution per share of Common Stock outstanding
(exclusive of any treasury shares) on the record date for such distribution
plus (Y) the then fair market value (as determined in good faith by the Board
of Directors of the Company) per share of Common Stock outstanding (exclusive
of any treasury shares) on the record date for such distribution of that
portion, if any, of such distribution consisting of evidences of indebtedness,
other securities, properties,
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11
assets, options, warrants or subscription or purchase rights, and the
denominator of which shall be such Market Price per share of Common Stock and
(B) the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be increased to a number determined by multiplying the number of
shares of Common Stock so purchasable immediately prior to the record date for
such distribution by a fraction, the numerator of which shall be the Exercise
Price in effect immediately prior to the adjustment required by clause (A) of
this sentence and the denominator of which shall be the Exercise Price in
effect immediately after such adjustment. The adjustments required by this
Section 5.4 shall be made whenever any such distribution occurs retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
5.5 SELF-TENDERS. In case of the consummation of a tender or
exchange offer (other than an odd-lot tender offer) made by the Company or any
subsidiary of the Company for all or any portion of the Common Stock to the
extent that the cash and value of any other consideration included in such
payment per share of Common Stock exceeds the first reported sales price per
share of Common Stock on the trading day next succeeding the Expiration Time,
the Exercise Price shall be reduced so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to
the Expiration Time by a fraction the numerator of which shall be the number
of shares of Common Stock outstanding (including any tendered or exchanged
shares) at the Expiration Time multiplied by the first reported sales price of
the Common Stock on the trading day next succeeding the Expiration Time, and
the denominator shall be the sum of (A) the fair market value (determined by
the Board of Directors of the Company, whose determination shall be conclusive
and described in a resolution of the Board of Directors) of the aggregate
consideration payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all shares
validly tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as the
"PURCHASED SHARES") and (B) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) on the Expiration Time and the
first reported sales price of the Common Stock on the trading day next
succeeding the Expiration Time, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration Time.
5.6 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If at any time
the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock for consideration in an amount per
Additional Share of Common Stock less than the Market Price, then the number
of shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product obtained by multiplying the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
issue or sale by a fraction (A) the numerator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or sale, and
(B) the denominator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, and (2) the
aggregate consideration received from the issuance or sale of the Additional
Shares of Common Stock divided by the Market Price. For the purposes of this
Section 5.6, the date as of which the Market Price per share of Common Stock
shall be computed shall be the earlier of (a) the date on which the Company
shall enter into a firm contract for the issuance of such Additional Shares of
Common Stock or (b) the date of actual issuance of such Additional Shares of
Common Stock. Notwithstanding the foregoing, no adjustment shall be made under
this Section for issuances of Additional Shares of Common Stock (i) with
respect to Permitted Issuances or (ii) upon exercise of the Warrants.
5.7 CERTAIN DISTRIBUTIONS. If the Company shall pay a dividend or
make any other distribution payable in Options or Convertible Securities,
then, for purposes of Section 5.3 above, such Options or Convertible
Securities shall be deemed to have been issued or sold without consideration.
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5.8 CONSIDERATION RECEIVED. If any shares of Common Stock, Options
or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board
of Directors of the Company). If any Options shall be issued in connection
with the issuance and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration; PROVIDED, HOWEVER, that if such
Options have an exercise price equal to or greater than the Market Price of
the Common Stock on the date of issuance of such Options, then such Options
shall be deemed to have been issued for consideration equal to such exercise
price.
5.9 DEFERRAL OR EXCLUSION OF CERTAIN ADJUSTMENTS. No adjustment to
the Exercise Price (including the related adjustment to the number of shares
of Common Stock purchasable upon the exercise of each Warrant) shall be
required hereunder unless such adjustment, together with other adjustments
carried forward as provided below, would result in an increase or decrease of
at least one percent (1%) of the Exercise Price; PROVIDED that any adjustments
which by reason of this Section 5.9 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. No
adjustment need be made for a change in the par value of the Common Stock. All
calculations under this Article shall be made to the nearest 1/1,000 of one
cent or to the nearest 1/1000th of a share, as the case may be. No adjustment
to the Exercise Price shall be made at any time hereunder in connection with
the issuance by the Company of a warrant to purchase 35,000 shares of Common
Stock at an exercise price of $2.44 pursuant to the warrant agreement, dated
as of November 1, 1996, among Hanger Orthopedic Group, Inc., J.E. Hanger, Inc.
of Georgia and Wade L. Harghausen.
5.10 CHANGES IN OPTIONS AND CONVERTIBLE SECURITIES. If the exercise
price provided for in any Options referred to in Section 5.3 above, the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in Section 5.3 above, or the rate at
which any Convertible Securities referred to in Section 5.3 above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Article 5), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock
so purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
5.11 EXPIRATION OF OPTIONS AND CONVERTIBLE SECURITIES. If, at any
time after any adjustment to the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall have been made pursuant to Sections
5.3 or 5.10 above or this Section 5.11, any Options or Convertible Securities
shall have expired unexercised, the number of such shares so purchasable
shall, upon such expiration, be readjusted and shall thereafter be such as
they would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only shares of
Common Stock deemed to have been issued in connection with such Options or
Convertible Securities were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or Convertible Securities and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale, distribution or
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granting of all such Options or Convertible Securities, whether or not
exercised; PROVIDED that no such readjustment shall have the effect of
decreasing the number of such shares so purchasable by an amount (calculated
by adjusting such decrease to account for all other adjustments made pursuant
to this Article 5 following the date of the original adjustment referred to
above) in excess of the amount of the adjustment initially made in respect of
the issuance, sale, distribution or granting of such Options or Convertible
Securities.
5.12 OTHER ADJUSTMENTS. In the event that at any time, as a result
of an adjustment made pursuant to this Article 5, the Holders shall become
entitled to receive any securities of the Company other than shares of Common
Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
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 the shares
of Common Stock contained in this Article 5.
5.13 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Article 5, then the number of
shares of Common Stock or other stock for which this Warrant is exercisable
shall be adjusted in such manner as may be equitable in the circumstances. If
the Company shall at any time and from time to time issue or sell (i) any
shares of any class of common stock other than Common Stock, (ii) any
evidences of its indebtedness, shares of stock or other securities which are
convertible into or exchangeable for such shares of common stock, with or
without the payment of additional consideration in cash or property or (iii)
any warrants or other rights to subscribe for or purchase any such shares of
common stock or any such evidences, shares of stock or other securities, then
in each such case such issuance shall be deemed to be of, or in respect of,
Common Stock for purposes of this Article 5; PROVIDED, HOWEVER, that, without
limiting the generality of the foregoing, if the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of, common stock other
than Common Stock, including shares of non-voting common stock, then the
number of shares of Common Stock for which this Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the aggregate number of shares of such common stock and of Common Stock which
a record holder of the same number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the occurrence of such event would
own or be entitled to receive after the happening of such event.
ARTICLE 6. NOTICES TO WARRANT HOLDERS
6.1 NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, and the Exercise Price payable
therefor, shall be adjusted pursuant to Article 5, the Company shall forthwith
prepare a certificate to be executed by a member of the Board of Directors or
one of its executive officers, setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of
Directors of the Company determined the fair market value of any evidences of
indebtedness. other securities, properties, assets, options, warrants or
subscription or purchase rights), specifying the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 5.2, 5.12 or 5.13) describing the number and kind of any
other shares of stock or property for which this Warrant is exercisable. In
the event that the Majority Holders shall challenge any of the calculations
set forth in such certificate within 20 days after the Company's notification
thereof, the Company shall retain a firm of independent certified public
accountants of national standing selected by the Company and reasonably
acceptable to the Majority Holders, to prepare and execute a certificate
verifying the
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method by which the adjustment was calculated, the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 5.2, 5.12 or 5.13) describing the number and kind of any
other shares of stock or property for which this Warrant is exercisable. The
Company shall promptly cause a signed copy of any certificate prepared
pursuant to this Section 6.1 to be delivered to each Holder in accordance with
Section 16.2. The Company shall keep at its office or agency designated
pursuant to Article 13 copies of all such certificates and cause the same to
be available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
6.2 NOTICE OF CERTAIN CORPORATE ACTION. The Holder of any Warrant
shall be entitled to the same rights to receive notice of corporate action as
any holder of Common Stock.
ARTICLE 7. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant,
and (b) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
ARTICLE 8. COMMON STOCK; RESERVATION AND AUTHORIZATION OF
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY
From and after the Issuance Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant in accordance with the terms of such Warrant, shall be validly
issued, fully paid and nonassessable and shall have been issued free from any
preemptive or similar right and shall be free and clear of any lien, claim or
similar charge or restriction.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable, the
Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
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If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Article 11) before such shares may be so issued, the Company will
in good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered.
ARTICLE 9. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Article 5 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day. The Company will not at any time close its
stock transfer books or Warrant transfer books so as to result in preventing
or delaying the exercise or transfer of any Warrant.
ARTICLE 10. RESTRICTIONS ON TRANSFERABILITY
10.1 RESTRICTIVE LEGEND. (a) Except as otherwise provided in this
Article 10, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
transferee of any such certificate, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND ARE SUBJECT TO CERTAIN PROVISIONS SPECIFIED IN A CERTAIN WARRANT
DATED NOVEMBER 1, 1996, ORIGINALLY ISSUED BY HANGER ORTHOPEDIC GROUP,
INC. (THE "WARRANT"), AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR
ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE
RESTRICTED BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS THEREUNDER AND THE WARRANT. A COPY OF THE
FORM OF SAID WARRANT IS ON FILE WITH THE SECRETARY OF HANGER ORTHOPEDIC
GROUP, INC. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY THE PROVISIONS OF SUCH WARRANT."
(b) Except as otherwise provided in this Article 10, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR ENCUMBERED
WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED
BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933, AS AMENDED, THE RULES
AND REGULATIONS THEREUNDER AND THIS WARRANT."
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10.2 RESTRICTION ON TRANSFERS. (a) Subject to Section 10.2(b) below,
prior to any Transfer of any Warrants or any shares of Warrant Stock (other
than a Transfer by a Holder to the Company), the Holder of such Warrants or
Warrant Stock shall deliver notice of such Transfer to the Company. Upon the
Company's receipt of such notice, such Holder shall be entitled to Transfer
such Warrants or such Warrant Stock in compliance with the Securities Act.
Each certificate, if any, evidencing such shares of Warrant Stock issued upon
such Transfer shall bear the restrictive legend set forth in Section 10.1(a),
and each Warrant issued upon such Transfer shall bear the restrictive legend
set forth in Section 10.1(b), unless such legend is not required in order to
ensure compliance with the Securities Act.
(b) Notwithstanding any other provision of this Warrant, the
restrictions imposed by this Article 10 upon transferability of the Warrants
and the Warrant Stock and the legend requirements of Section 10.1, shall
terminate as to any particular Warrant or share of Warrant Stock when and so
long as such security shall have been effectively registered under the
Securities Act and disposed of pursuant thereto. Whenever the restrictions
imposed by this Article 10 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company, at
the expense of the Company, a new Warrant bearing the following legend in
place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THIS WARRANT CONTAINED IN
ARTICLE 10 HEREOF TERMINATED ON ____________, ____, AND ARE OF NO FURTHER
FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions
imposed by this Article 10 shall terminate as to any share of Warrant Stock,
as hereinabove provided, the Holder thereof shall be entitled to receive from
the Company, at the Company's expense, a new certificate representing such
Common Stock not bearing the restrictive legend set forth in Section 10.1(a).
(c) Notwithstanding anything in this Warrant to the contrary, in the
event of a Tender Offer, the restrictive legends referred to in Sections
9.1(a) and 9.1(b) may be omitted from any Warrants or Warrant Stock sold by a
Holder to the maker of the Tender Offer.
10.3 LISTING ON SECURITIES EXCHANGE OR NASDAQ. If the Company shall
list any shares of Common Stock on any securities exchange or on NASDAQ, it
will, at its expense, list thereon, maintain and, when necessary, increase
such listing of, all shares of Common Stock issued or, to the extent
permissible under the applicable securities exchange or NASDAQ rules, issuable
upon the exercise of this Warrant so long as any shares of Common Stock shall
be so listed during any such Exercise Period.
10.4 COVENANT REGARDING CONSENTS. The Company hereby covenants to
use its best efforts upon request of one or more Holders to seek any waivers
or consents, or to take any other action required, to effectuate the exercise
of this Warrant by any Holder.
ARTICLE 11. REGISTRATION RIGHTS
11.1 INCIDENTAL REGISTRATIONS. (a) RIGHT TO INCLUDE REGISTRABLE
SECURITIES. If the Company at any time after the date hereof proposes to
register its Common Stock (or any security which is convertible into or
exchangeable or exercisable for Common Stock) under the Securities Act
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17
(other than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own
account, in a manner which would permit registration of Registrable Securities
for sale to the public under the Securities Act, it will, at each such time,
give prompt written notice to all Holders of Registrable Securities of its
intention to do so and of such Holders' rights under this Section 11.1. Upon
the written request of any such Holder made within 15 days after the receipt
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder), the Company will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the Holders
thereof, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered; PROVIDED that (i) if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with
the proposed registration of the securities to be sold by it, the Company may,
at its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), and (ii) if such registration involves an underwritten offering,
all Holders of Registrable Securities requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to the Company, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in
combined primary and secondary offerings. If a registration requested pursuant
to this Section 11.1(a) involves an underwritten public offering, any Holder
of Registrable Securities requesting to be included in such registration may
elect, in writing prior to the effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration. Nothing in this Section 11.1 shall operate
to limit the right of Holder to (i) request the registration of Warrant Stock
issuable upon exercise of Warrants held by such Holder notwithstanding the
fact that at the time of request, such Holder holds only Warrants or (ii)
request the registration at one time of both Warrants and Warrant Stock.
(b) EXPENSES. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 11.1.
(c) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant
to this Section 11.1 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, so as to be likely to have an adverse
effect on the price, timing or distribution of the Securities offered in such
offering as contemplated by the Company (other than the Registrable
Securities), then the Company will include in such registration (i) first,
100% of the securities the Company proposes to sell and (ii) second, to the
extent of the number of Registrable Securities requested to be included in
such registration which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, the number of
Registrable Securities which the Holders have requested to be included in such
registration, such amount to be allocated pro rata among all requesting
Holders on the basis of the relative number of shares of Registrable
Securities then held by each such Holder (provided that any shares thereby
allocated to any such Holder that exceed such Holder's request will be
reallocated among the remaining requesting Holders in like manner).
11.2 REGISTRATION ON REQUEST. (a) REQUEST BY THE DEMAND PARTY. At
any time, upon the written request of the Demand Party requesting that the
Company effect the registration under the Securities Act of all or part of
such Demand Party's Registrable Securities and specifying the amount and
intended method of disposition thereof, the Company will promptly give written
notice of such
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18
requested registration to all other Holders of such Registrable Securities,
and thereupon will, as expeditiously as possible, use its best efforts to
effect the registration under the Securities Act of:
(i) such Registrable Securities which the Company has been so
requested to register by the Demand Party; and
(ii) all other Registrable Securities as are to be registered at the
request of a Demand Party and which the Company has been requested to
register by any other Holder thereof by written request given to the
Company within 15 days after the giving of such written notice by the
Company (which request shall specify the amount and intended method of
disposition of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered; PROVIDED, that, unless Holders of a majority of the Registrable
Securities held by Holders consent thereto in writing, the Company shall not
be obligated to file a registration statement relating to any registration
request under this Section 11.2(a) (x) within a period of nine months after
the effective date of any other registration statement relating to any
registration request under this Section 11.2(a) which was not effected on Form
S-3 (or any successor or similar short-form registration statement) or
relating to any registration effected under Section 11.1, or (y) if with
respect thereto the managing underwriter, the Commission, the Securities Act
or the rules and regulations thereunder, or the form on which the registration
statement is to be filed, would require the conduct of an audit other than the
regular audit conducted by the Company at the end of its fiscal year, in which
case the filing may be delayed until the completion of such regular audit
(unless the Holders of the Registrable Securities to be registered agree to
pay the expenses of the Company in connection with such an audit other than
the regular audit). Nothing in this Section 11.2 shall operate to limit the
right of Holder to (i) request the registration of Warrant Stock issuable upon
exercise of Warrants held by such Holder notwithstanding the fact that at the
time of request, such Holder holds only Warrants or (ii) request the
registration at one time of both Warrants and Warrant Stock.
(b) REGISTRATION STATEMENT FORM. If any registration requested
pursuant to this Section 11.2 which is proposed by the Company to be effected
by the filing of a registration statement on Form S-3 (or any successor or
similar short-form registration statement) shall be in connection with an
underwritten public offering, and if the managing underwriter shall advise the
Company in writing that, in its opinion, the use of another form of
registration statement is of material importance to the success of such
proposed offering, then such registration shall be effected on such other
form.
(c) EXPENSES. The Company will pay all Registration Expenses in
connection with the first two (2) registrations of each class or series of
Registrable Securities pursuant to this Section 11.2 upon the written request
of any of the Holders; PROVIDED that the Company will pay Registration
Expenses in connection with an additional two (2) such registrations if the
Company shall have not repaid in full all amounts borrowed pursuant to the
Note Purchase Agreement on or prior to May 1, 1998; PROVIDED, FURTHER that any
requested registration by Holder of both Warrants and Warrant Stock at one
time shall only count as one registration. All expenses for any subsequent
registrations of Registrable Securities pursuant to this Section 11.2 shall be
paid pro rata by the Company and all other Persons (including the Holders)
participating in such registration on the basis of the relative number of
Warrants or shares of Warrant Stock, as the case may be, of each such person
whose Registrable Securities are included in such registration.
(d) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 11.2 will not be deemed to have been effected unless
it has become effective and all of the Registrable
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19
Securities registered thereunder have been sold; PROVIDED that if, within 180
days after it has become effective, the offering of Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental agency
or court, such registration will be deemed not to have been effected.
(e) SELECTION OF UNDERWRITERS. If a requested registration pursuant
to this Section 11.2 involves an underwritten offering, the Holders of a
majority of the Registrable Securities which are held by Holders and which the
Company has been requested to register shall have the right to select the
investment banker or bankers and managers to administer the offering;
PROVIDED, HOWEVER, that such investment banker or bankers and managers shall
be reasonably satisfactory to the Company.
(f) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration
pursuant to this Section 11.2 involves an underwritten offering and the
managing underwriter advises the Company in writing that, in its opinion, the
number of securities requested to be included in such registration (including
securities of the Company which are not Registrable Securities) exceeds the
number which can be sold in such offering, the Company will include in such
registration only the Registrable Securities requested to be included in such
registration. In the event that the number of Registrable Securities requested
to be included in such registration exceeds the number which, in the opinion
of such managing underwriter, can be sold, the number of such Registrable
Securities to be included in such registration shall be allocated pro rata
among all requesting Holders on the basis of the relative number of
Registrable Securities then held by each such Holder (provided that any shares
thereby allocated to any such Holder that exceed such Holder's request shall
be reallocated among the remaining requesting Holders in like manner). In the
event that the number of Registrable Securities requested to be included in
such registration is less than the number which, in the opinion of the
managing underwriter, can be sold, the Company may include in such
registration the securities the Company proposes to sell up to the number of
securities that, in the opinion of the underwriter, can be sold.
(g) ADDITIONAL RIGHTS. If the Company at any time grants to any
other holders of capital stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of capital stock on
terms more favorable to such holders than the terms set forth in this Section
11.2, the terms of this Section 11.2 shall be deemed amended or supplemented
to the extent necessary to provide the Holders such more favorable rights and
benefits.
11.3 REGISTRATION PROCEDURES. If and whenever the Company is
required to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Agreement,
the Company will, as expeditiously as possible:
(i) prepare and, in any event within 120 days after the end of the
period within which a request for registration may be given to the
Company, file with the Commission a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, PROVIDED, HOWEVER, that the
Company may discontinue any registration of its securities which is being
effected pursuant to Section 11.1 at any time prior to the effective date
of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of 270 days and to comply
with the provisions of the Securities Act, the Exchange Act and the rules
and regulations of the Commission thereunder with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended
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20
methods of disposition by the seller or sellers thereof set forth in such
registration statement; PROVIDED that before filing a registration
statement or prospectus, or any amendments or supplements thereto, the
Company will furnish to counsel selected pursuant to Section 11.6 hereof
by the Holders of the Registrable Securities covered by such registration
statement to represent such Holders, copies of all documents proposed to
be filed, which documents will be subject to the review of such counsel;
(iii) furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits filed therewith,
including any documents incorporated by reference), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such
seller may reasonably request in order to facilitate the disposition of
the Registrable Securities by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration in such jurisdictions as each
seller shall reasonably request, and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the requirements
of this clause (iv), it would not be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) notify each seller of any such Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act within the
appropriate period mentioned in clause (ii) of this Section 11.3, of the
Company's becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing, and at the request of
any such seller, prepare and furnish to such seller a reasonable number
of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable (but not more than
eighteen months) after the effective date of the registration statement,
an earnings statement which shall satisfy the provisions of Section 11(a)
of the Securities Act and the rules and regulations promulgated
thereunder;
(viii) (A) if such Registrable Securities are Warrant Stock, use its
best efforts to list such Registrable Securities on any securities
exchange on which the Common Stock is then
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21
listed if such Registrable Securities are not already so listed and if
such listing is then permitted under the rules of such exchange; (B) if
such Registrable Securities are Warrants, upon the reasonable request of
sellers of a majority of such Registrable Securities, use its best
efforts to list the Warrants and, if requested, the Warrant Stock
underlying the Warrants, notwithstanding that at the time of request such
sellers hold only Warrants, on any securities exchange so requested, if
such Registrable Securities are not already so listed, and if such
listing is then permitted under the rules of such exchange; (C) and use
its best efforts to provide a transfer agent and registrar for such
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement;
(ix) enter into such customary agreements (including an underwriting
agreement in customary form), which may include indemnification
provisions in favor of underwriters and other persons in addition to, or
in substitution for the provisions of Section 11.4 hereof, and take such
other actions as sellers of a majority of such Registrable Securities or
the underwriters, if any, reasonably requested in order to expedite or
facilitate the disposition of such Registrable Securities;
(x) obtain a "cold comfort" letter or letters from the Company's
independent public accounts in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or
sellers of a majority of shares of such Registrable Securities shall
reasonably request (provided that Registrable Securities constitute at
least 25% of the securities covered by such registration statement);
(xi) make available for inspection by any seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with
such registration statement;
(xii) notify counsel (selected pursuant to Section 11.6 hereof) for
the Holders of Registrable Securities included in such registration
statement and the managing underwriter or agent, immediately, and confirm
the notice in writing (i) when the registration statement, or any
post-effective amendment to the registration statement, shall have become
effective, or any supplement to the prospectus or any amendment
prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request of the Commission to amend the
registration statement or amend or supplement the prospectus or for
additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the registration
statement for offering or sale in any jurisdiction, or of the institution
or threatening of any proceedings for any of such purposes;
(xiii) make every reasonable effort to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the use of any preliminary
prospectus and, if any such order is issued, to obtain the withdrawal of
any such order at the earliest possible moment;
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22
(xiv) if requested by the managing underwriter or agent or any
Holder of Registrable Securities covered by the registration statement,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or agent or such
Holder reasonably requests to be included therein, including, without
limitation, with respect to the number of Registrable Securities being
sold by such Holder to such underwriter or agent, the purchase price
being paid therefor by such underwriter or agent and with respect to any
other terms of the underwritten offering of the Registrable Securities to
be sold in such offering; and make all required filings of such
prospectus supplement or post-effective amendment as soon as practicable
after being notified of the matters incorporated in such prospectus
supplement or post-effective amendment;
(xv) cooperate with the Holders of Registrable Securities covered by
the registration statement and the managing underwriter or agent, if any,
to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing securities to be sold under
the registration statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
agent, if any, or such Holders may request;
(xvi) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriter or agent an opinion or opinions
from counsel for the Company in customary form and in form, substance and
scope reasonably satisfactory to such Holders, underwriters or agents and
their counsel; and
(xvii) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings
required to be made with the NASD.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company with such
information regarding such seller and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind
described in clause (vi) of this Section 11.3, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by clause
(vi) of this Section 11.3, and, if so directed by the Company, such Holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in clause (ii) of this Section 11.3 shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to clause (vi) of this Section 11.3 and including the date
when each seller of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by clause (vi) of this Section 11.3.
11.4 INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the
event of any registration of any securities of the Company under the
Securities Act pursuant to Section 11.1 or 10.2, the Company will, and it
hereby does, indemnify and hold harmless, to the extent permitted by law, the
seller of any Registrable Securities covered by such registration statement,
each affiliate of such seller and their respective directors and officers or
general and limited partners (including any
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23
director, officer, affiliate, employee, agent and controlling Person of any of
the foregoing), each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act (collectively, the "INDEMNIFIED PARTIES"), against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including reasonable attorney's fees and reasonable expenses of
investigation) to which such Indemnified Party may become subject under the
Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof, whether
or not such Indemnified Party is a party thereto) arise out of or are based
upon (a) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (b)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (in the case of
a prospectus, in light of the circumstances under which they were made) not
misleading, and the Company will reimburse such Indemnified Party for any
legal or any other expenses reasonably incurred by it in connection with
investigating or defending against any such loss, claim, liability, action or
proceeding; PROVIDED that the Company shall not be liable to any Indemnified
Party in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any Indemnified Party and shall survive the transfer
of such securities by such seller.
(b) INDEMNIFICATION BY THE SELLER. The Company may require, as a
condition to including any Registrable Securities in any registration
statement filed in accordance with Section 11.3 herein, that the Company shall
have received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities or any underwriter to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 11.4) the Company and all other
prospective sellers with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from such registration statement,
any preliminary, final or summary prospectus contained therein, or any
amendment or supplement, if such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such seller or underwriter specifically stating that it is for use
in the preparation of such registration statement, preliminary, final or
summary prospectus or amendment or supplement, or a document incorporated by
reference into any of the foregoing. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any of the prospective sellers, or any of their respective affiliates,
directors, officers or controlling Persons and shall survive the transfer of
such securities by such seller. In no event shall the liability of any selling
Holder of Registrable Securities hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an Indemnified
Party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 11.4, such Indemnified Party will, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; PROVIDED that the
failure of the Indemnified Party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
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24
subdivisions of this Section 11.4, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an Indemnified Party, unless in such Indemnified
Party's reasonable judgment a conflict of interest between such Indemnified
Party and indemnifying parties may exist in respect of such claim, the
indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the indemnifying party to such
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 11.4 from the indemnifying party is unavailable to an Indemnified
Party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and Indemnified Parties in connection
with the actions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and Indemnified Parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by, or
relates to information supplied by, such indemnifying party or Indemnified
Parties, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such action. The amount paid or payable
by a party under this Section 11.4 as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 11.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section 11.4 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
(f) NON-EXCLUSIVITY. The obligations of the parties under this
Section 11.4 shall be in addition to any liability which any party may
otherwise have to any other party.
11.5 RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
Holder of Registrable Securities, make publicly available such information),
and it will
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25
take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such Rule may be amended from time to time,
or (ii) any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder of Registrable Securities, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements. Notwithstanding anything contained in this Section 11.5,
the Company may, with the consent of the Majority Holders, deregister under
Article 12 of the Exchange Act if it then is permitted to do so pursuant to
the Exchange Act and the rules and regulations thereunder.
11.6 SELECTION OF COUNSEL. In connection with any registration of
Registrable Securities pursuant to Sections 11.1 and 11.2 hereof, the Holders
of a majority of the Registrable Securities covered by any such registration
may select one counsel to represent all Holders of Registrable Securities
covered by such registration; PROVIDED, HOWEVER, that in the event that the
counsel selected as provided above is also acting as counsel to the Company in
connection with such registration, the remaining Holders shall be entitled to
select one additional counsel to represent all such remaining Holders.
11.7 HOLDBACK AGREEMENT. If any such registration shall be in
connection with an underwritten public offering, each Holder of Registrable
Securities agrees not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the Securities Act, of any equity securities
of the Company, or of any security convertible into or exchangeable or
exercisable for any equity security of the Company (in each case, other than
as part of such underwritten public offering), within 7 days before, or such
period not to exceed 180 days as the underwriting agreement may require (or
such lesser period as the managing underwriters may permit) after, the
effective date of such registration (except as part of such registration), and
the Company hereby also so agrees and agrees to cause each other holder of any
equity security, or of any security convertible into or exchangeable or
exercisable for any equity security, of the Company purchased from the Company
(at any time other than in a public offering) to so agree.
11.8 SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Article 11 were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed that they shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Article 11 and to enforce specifically the terms and provisions thereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which they may be entitled at law or in
equity.
ARTICLE 12. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written agreement of the Holder shall be sufficient
indemnity) and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like
tenor to such Holder (without expense to the Holder); PROVIDED, in the case of
mutilation, no indemnity shall be required if this Warrant in identifiable
form is surrendered to the Company for cancellation.
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<PAGE>
26
ARTICLE 13. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
ARTICLE 14. FINANCIAL AND BUSINESS INFORMATION
The Company will deliver to CVCA and Paribas (so long as the CVCA
and Paribas hold any Warrant) and to each subsequent holder of a Warrant
representing at least 25% of the Warrant Shares:
(a) so long as the Note Purchase Agreement is in effect, all
financial statements, projections, certificates and other information required
to be delivered to the "Purchasers" pursuant to Section 6.1 of the Note
Purchase Agreement, the terms of which are incorporated herein by reference
and deemed to be a part hereof, which statements, projections, certificates
and other information will be delivered at such times as they are required to
be delivered to the "Purchasers" under the Note Purchase Agreement;
(b) from and after such time as the Note Purchase Agreement is no
longer in effect, all financial statements, projections, certificates and
other information required to be delivered by the Company and its Subsidiaries
to their senior lenders; and
(c) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company generally sends to its stockholders.
Except as otherwise required by law or judicial order or decree or
by any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under this Article 14
will maintain the confidentiality of all nonpublic information obtained by it
hereunder which the Company has reasonably designated as proprietary or
confidential in nature; provided that each such Person may disclose such
information in connection with the sale or transfer or proposed sale or
transfer of any Warrant Shares if such Person's transferee (or proposed
transferee) agrees in writing to be bound by the provisions of this paragraph.
ARTICLE 15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder hereof to receive shares of Common Stock, and no enumeration herein of
the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for any value subsequently assigned to the Common
Stock or as a stockholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company. Notwithstanding any other
provision of this Agreement, neither the general partners nor limited partners
of a Holder, nor any future general partners or limited partners of a Holder,
shall have any personal liability for performance of any obligation of a
Holder under this Agreement in excess of the respective capital contribution
of such general partner and limited partners to such Holder.
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27
ARTICLE 16. MISCELLANEOUS
16.1 NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder hereof shall
operate as a waiver of such right or otherwise prejudice such Holder's rights,
powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to the Holder hereof such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by such Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
16.2 NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to any Holder, at its last known address appearing on the
books of the Company maintained for such purpose.
(b) If to the Company at:
Hanger Orthopedic Group, Inc.
7700 Old Georgetown Road
Bethesda, Maryland 20814
Attention: Richard A. Stein
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three (3) Business Days
after the same shall have been deposited in the United States mail. Failure or
delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to the person designated above to
receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other
communication.
16.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section
3.1 and Articles 10 and 12, this Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant, and shall be enforceable by any such Holder. Without limitation
to the foregoing, in the event that a Holder distributes or otherwise
transfers any shares of the Registrable Securities to any of its present or
future general or limited partners, the Company hereby acknowledges that the
registration rights granted pursuant to Article 11 of this Agreement shall be
transferred to such partner or partners on a pro rata basis, and that at or
after the time of any such distribution or transfer, any such partner or group
of partners may designate a Person to act on its behalf in delivering any
notices or making any requests hereunder.
16.4 AMENDMENT. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of the
Company and holders of Warrants
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28
exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then receivable upon exercise of all Warrants whether or not then
exercisable, provided that no such Warrant may be modified or amended in a
manner which is adverse to the CVCA or Paribas or any of its successors or
assigns, so long as such Person holds any Warrants or Warrant Stock, without
the prior written consent of such Person.
16.5 SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Warrant.
16.6 HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16.7 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
THE COMPANY CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO
JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE, IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. THE
PARTIES AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY. SERVICE OF PROCESS
ON THE COMPANY OR HOLDER IN ANY ACTION ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY IN ACCORDANCE WITH THE
PROCEDURES AND REQUIREMENTS SET FORTH IN SECTION 16.2.
16.8 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES),
THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon.
Dated: November 1, 1996
HANGER ORTHOPEDIC GROUP, INC.
By /s/RICHARD A. STEIN
----------------------
Name: Richard A. Stein
Title: Vice President
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EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of the accompanying Warrant
exercises such Warrant for _______ shares of Section 2.2(__) Warrant Stock(1)
of Hanger Orthopedic Group, Inc., all on the terms and conditions specified in
such Warrant and
[ ] herewith tenders payment of either (x) the Aggregate Exercise Price
in cash or (y) pursuant to the surrender by Holder of Notes having a
Fair Value equal to the Aggregate Exercise Price for the number of
shares of Common Stock specified above to the order of Hanger
Orthopedic Group, Inc. in the amount of $_________ in accordance with
the terms hereof; or
[ ] elects not to pay the Aggregate Exercise Price with respect to the
shares of Common Stock specified above and, in lieu thereof, elects
to surrender this Warrant (or the relevant portion thereof) in
exchange for such number of shares of Common Stock having an
aggregate value (based on the Market Price on the date hereof minus
the Exercise Price) equal to the Aggregate Exercise Price for the
number of shares requested for exercise above. -------- 1 Specify
the number of shares of Section 2.2(a) Warrant Stock and/or Section
2.2(b) Warrant Stock being exercised hereby.
-------------------------------
(1) Specify the number of shares of Section 2.2(a) Warrent Stock and/or
Section 2.2(b) Warrent Stock being exercised hereby.
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2
The undersigned requests that certificates for [all] [_________ of]
the shares of Common Stock to be received pursuant hereto (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________________________________________, whose address is
________________________________________ [add any additional names and
addresses together with the number of shares of Common Stock (and any
securities or other property issuable upon such exercise) to be issued to such
person or entity)], and, if such shares of Common Stock shall not include all
of the shares of Common Stock issuable as provided in this Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned.
---------------------------------
(Name of Registered Owner)
---------------------------------
(Signature of Registered Owner)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock, adjusted as of the date of this assignment as provided
in the Warrant, set forth below:
NO. OF SHARES OF
NAME AND ADDRESS OF ASSIGNEE COMMON STOCK
and does hereby irrevocably constitute and appoint _____________________
attorney-in-fact to register such transfer on the books of Hanger Orthopedic
Group, Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated: _______________________________
Print
Name: _______________________________
Signature: __________________________
Witness: ____________________________
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
505298\0057\02050\96AXKLE3.WAR
