<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1994
REGISTRATION NO. 33-51915
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HARTMARX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 36-3217140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 372-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CAREY M. STEIN, ESQ.
EXECUTIVE VICE PRESIDENT, CHIEF ADMINISTRATIVE
OFFICER, SECRETARY AND GENERAL COUNSEL
HARTMARX CORPORATION
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 357-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
CHARLES W. MULANEY, JR., ESQ. FRANCIS J. GERLITS, P.C.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM KIRKLAND & ELLIS
333 WEST WACKER DRIVE 200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60601
(312) 407-0700 (312) 861-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 14, 1994
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
$100,000,000
LOGO
% Senior Subordinated Notes Due 2002
Interest Payable July 15 and January 15 Due , 2002
-----------
The % Senior Subordinated Notes Due 2002 (the "Notes") are not redeemable
prior to , 1998, except that, until , 1997, Hartmarx
Corporation (the "Company") may redeem, at its option, up to $25 million of
the original principal amount of the Notes at the redemption prices set
forth herein plus accrued interest to the date of redemption with the
proceeds of one or more Public Equity Offerings (as defined) or Traco
Warrant Exercises (as defined). On or after , 1998, the Notes
are redeemable at the option of the Company, in whole or in part, at
the redemption prices set forth herein plus accrued interest to the
date of redemption. Upon a Change of Control (as defined), but
subject to the subordination provisions of the Notes, each holder of
Notes may require the Company to repurchase such holder's Notes at
101% of the principal amount thereof plus accrued interest to the
date of repurchase.
The Notes are unsecured, subordinated to all Senior Debt (as defined) of the
Company and effectively subordinated to all indebtedness and accounts
payable of the Company's subsidiaries. At November 30, 1993, after giving
effect to this offering (the "Offering") and the related transactions
described herein, the aggregate amount of Senior Debt and indebtedness
and accounts payable of the Company's subsidiaries that effectively
ranked senior to the Notes would have been approximately $173
million. Such amount is likely to be greater during the Company's
peak borrowing periods. See "Risk Factors--Indebtedness and
Liquidity." The Notes do not rank senior to any outstanding
indebtedness of the Company.
-----------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Discount Company(1)(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note
- ---------------------------------------------------------------------------------------------
Total
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994.
(2) Before deduction of expenses payable by the Company estimated at $600,000.
-----------
The Notes are offered by the several Underwriters when, as and if issued by
the Company and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Notes will be ready
for delivery on or about March , 1994.
CS First Boston Merrill Lynch & Co.
- --------------------------------------------------------------------------------
The date of this Prospectus is March , 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus and
in the 1993 10-K referred to herein under "Incorporation of Certain Documents
by Reference." Unless the context otherwise requires, the terms "Company" and
"Hartmarx" refer to Hartmarx Corporation and its consolidated subsidiaries. The
Company prepares its financial statements on the basis of a fiscal year ending
November 30.
THE COMPANY
Established in 1872, Hartmarx is the largest manufacturer and marketer of
men's suits, sportcoats and slacks ("men's tailored clothing") in the United
States. From this established position, the Company has diversified into the
men's sportswear and women's careerwear and sportswear markets. In fiscal 1993,
the Company's business units that primarily produce men's tailored clothing
represented approximately 66% of the Company's sales.
Substantially all of the Company's products are sold under established brand
names or the private labels of major retailers. The Company owns two of the
most recognized brands in men's tailored clothing: Hart Schaffner & Marx(R),
which was introduced in 1887, and Hickey-Freeman(R), which dates from 1899. The
Company also offers its products under other brands which it owns such as
Sansabelt(R), Kuppenheimer(R), Racquet Club(R) and Barrie Pace(R) and under
license agreements for specified product lines for Tommy Hilfiger(R), Jack
Nicklaus(R), Bobby Jones(R), Austin Reed(R), Gieves & Hawkes(R), KM by
Krizia(TM), MM by Krizia(TM), Henry Grethel(R), Karl Lagerfeld(R), Nino
Cerruti(R), Pierre Cardin(R) and Fumagalli's(R). To broaden the international
distribution of the apparel sold under its owned and licensed trademarks, the
Company has entered into over 35 license or sublicense agreements for specified
product lines with third parties to produce, market and distribute products in
14 countries outside the United States.
The Company believes that the strong brand recognition enjoyed by its
products at both the wholesale and retail level, the breadth of its product
offerings in both price point and fashion direction and the established
relationships it possesses across retail distribution channels are critical
factors which differentiate the Company from its competitors. The Company's
operating groups offer products covering the fashion spectrum (business
professional, American contemporary and British, French and Italian inspired),
which are marketed at different price points to appeal to a broad wholesale and
retail customer base. Recent product developments include the introduction of
men's tailored clothing and prehemmed slacks under a license agreement with
Tommy Hilfiger for Fall 1994, the introduction of casual prehemmed slacks under
the Company's own brand and the continued development and expansion of golf-
inspired sportswear for the premium market under the Bobby Jones(R) brand and
at moderate price points under the Jack Nicklaus(R) label.
The Company's primary wholesale customer base consists of fine specialty and
leading department stores such as Dillard Department Stores, Inc.; Federated
Department Stores, Inc.; R.H. Macy & Co., Inc.; The May Department Stores
Company; The Neiman Marcus Group, Inc.; Nordstrom, Inc.; and J.C. Penney
Company, Inc. This distribution channel accounted for approximately 60% of
sales in fiscal 1993. In order to take advantage of changing consumer trends,
the Company has supplemented its traditional channel of distribution with
value-oriented retailers, direct mail companies, mass merchandisers, golf pro
shops and its own factory-direct-to-consumer retail network and 28 factory
outlet stores. The growing value-oriented channel, which includes outlet and
off-price retailers, mass merchandisers and the Company's own factory-direct-
to-consumer network, represents an increasingly important distribution channel
for the Company.
3
<PAGE>
As a vertically integrated manufacturer and marketer, the Company is
responsible for the design, manufacturing and sourcing of its apparel.
Substantially all of its men's tailored clothing is manufactured in its own
factories, all of which are located in the United States. The Company utilizes
domestic and foreign contract manufacturers to produce its remaining products,
principally men's and women's sportswear, in accordance with Company
specifications and production schedules. The Company believes that this
combination of owned manufacturing and contract sourcing enables it to
efficiently control the pricing, quality and delivery of its products and to
effectively utilize the capital resources allocated to the manufacturing
process. Increased manufacturing efficiencies and ongoing cost savings, coupled
with new sourcing strategies, have enabled the Company to offer apparel with
higher perceived value at similar or lower wholesale prices while maintaining
its margins and high quality standards.
The Company's business is organized around three primary operating groups:
Men's Apparel Group. The Company's largest operating group, the Men's
Apparel Group ("MAG") designs and manufactures substantially all of the
Company's men's tailored clothing (through its Hart Schaffner & Marx
("HSM"), Hickey-Freeman and Intercontinental Branded Apparel business
units) and slacks and sportswear (through its Trans-Apparel Group, Biltwell
and Bobby Jones business units) and markets these products on a wholesale
basis.
Kuppenheimer. Kuppenheimer is the Company's vertically integrated,
factory-direct-to-consumer manufacturing and retail business. Kuppenheimer
manufactures substantially all of its men's tailored clothing in Company-
owned facilities and sells these products exclusively through Kuppenheimer
operated stores.
Women's Apparel Group. The Women's Apparel Group is comprised of Barrie
Pace Ltd. ("Barrie Pace") and International Women's Apparel, Inc. ("IWA").
Barrie Pace is a direct mail company that offers a wide range of apparel
and accessories to the business and professional woman. IWA designs and
sources women's career apparel and sportswear for sale to department and
specialty stores under owned and licensed brand names.
In 1992, the Company implemented a comprehensive operational and financial
restructuring (the "Restructuring") to refocus its business operations around
its profitable core wholesale men's apparel franchise and to restructure its
balance sheet. The operational aspects of the Restructuring included the sale
of Hartmarx Specialty Stores, Inc. ("HSSI"), the Company's principal retail
unit; the discontinuance of its Country Miss retail and manufacturing
operations; the closing of certain Kuppenheimer retail stores not achieving
minimum profitability requirements; the reduction of production capacity which
was no longer required to support reduced retail operations; and the sale or
closing of non-strategic manufacturing businesses which manufactured outerwear
and military and commercial uniforms. The total sales for fiscal 1992 for all
of the businesses and operations sold or discontinued in conjunction with the
Restructuring was approximately $365 million. For additional information
concerning the Company's current relationship with HSSI, see "Risk Factors--
Uncertainties Regarding HSSI and MLR" and "Business--Legal Proceedings."
As part of the Restructuring, the Company's borrowing facilities were
consolidated and extended in maturity, a $35 million seasonal borrowing
facility was added and shares of its common stock and a warrant to purchase its
common stock were sold for $30 million. The Company's financial statements for
fiscal 1992 include restructuring charges of $191 million. See Notes to
Consolidated Financial Statements of the Company included herein and "Risk
Factors--Operational and Financial Restructuring." Concurrently with the
issuance of the Notes, the Company will enter into a New Credit Facility (as
defined herein) and use the proceeds therefrom and the proceeds of the Offering
to repay all outstanding borrowings under its existing credit facilities and
terminate its obligations thereunder. The New Credit Facility will mature in
three years and borrowings under the New Credit Facility will generally bear
interest at the lender's base rate plus 1.50% or LIBOR plus 2.50%. See
"Description of Certain Indebtedness--New Credit Facility."
4
<PAGE>
As a result of the Restructuring, the Company is now focused on those
businesses that have made it an industry leader for most of this century. The
key elements of the Company's strategy are:
. To build on its success as an apparel manufacturer and marketer by
providing branded products to retailers and consumers principally on a
wholesale basis while developing other brands to fill market voids and
repositioning and growing established brands.
. To provide a dynamic mix of apparel products through a broad
merchandising strategy that will include men's tailored clothing, men's
sportswear, women's career apparel and women's sportswear.
. To serve a broad range of retail channels, including fine specialty and
leading department stores, factory-direct-to-consumer stores, value-
oriented retailers, mass merchants and direct mail catalogs.
. To be a leader in technological marketing by providing unparalleled
service to its customers through such programs as Quick Response and
Electronic Data Interchange.
. To expand its presence in the international marketplace by continuing its
international licensing efforts while merchandising, marketing and
producing branded apparel in markets beyond its borders and marketing its
branded products, concepts and expertise through joint ventures,
acquisitions and selling agencies.
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the information
set forth under the caption "Risk Factors," as well as the other information
and data in this Prospectus.
THE OFFERING
NOTES OFFERED......... $100,000,000 aggregate principal amount of % Senior
Subordinated Notes Due 2002.
INTEREST PAYMENT July 15 and January 15, commencing July 15, 1994.
DATES................
OPTIONAL REDEMPTION... The Notes are not redeemable prior to ,
1998, except that, until , 1997, the Company
may redeem, at its option, up to $25 million of
aggregate principal amount of the Notes at the
redemption prices set forth herein plus accrued
interest to the date of redemption with the proceeds of
one or more Public Equity Offerings (as defined) or
Traco Warrant Exercises (as defined). On or after
, 1998, the Notes are redeemable at the
option of the Company, in whole or in part, at the
redemption prices set forth herein plus accrued
interest to the date of redemption. See "Description of
the Notes--Redemption."
CHANGE OF CONTROL..... Upon a Change of Control and subject to the
subordination provisions of the Notes, each Holder of
Notes may require the Company to repurchase such Notes
at 101% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of repurchase.
See "Description of the Notes--Change of Control."
RANKING............... The Notes will be unsecured, subordinated to all
existing and future Senior Debt of the Company and
effectively subordinated to all obligations of the
Company's subsidiaries, including substantially all of
the Company's consolidated trade credit. The Notes will
rank pari passu with any future
5
<PAGE>
Senior Subordinated Debt (as defined) of the Company
and will rank senior to any other subordinated debt of
the Company. At November 30, 1993, after giving effect
to the use of proceeds of the Offering contemplated
hereby and borrowings under the New Credit Facility
described herein to repay existing Senior Debt, the
aggregate amount of Senior Debt outstanding would have
been approximately $143 million and the aggregate
amount of indebtedness and accounts payable of the
Company's subsidiaries that would have effectively
ranked senior to the Notes would have been
approximately $30 million (excluding intercompany debt
and guarantees of Senior Debt by the Company's
subsidiaries). See "Description of the Notes--Ranking."
RESTRICTIVE The indenture under which the Notes will be issued (the
COVENANTS............ "Indenture") will limit (i) the issuance of additional
debt by the Company, (ii) the issuance of debt and
preferred stock by the Company's subsidiaries, (iii)
the payment of dividends on, and redemption of, capital
stock of the Company and its subsidiaries and the
redemption of certain subordinated obligations of the
Company, (iv) restrictions on distributions from
subsidiaries, (v) sales of assets and subsidiary stock,
(vi) transactions with affiliates and (vii)
consolidations, mergers and the transfer of all or
substantially all of the Company's assets. However, all
of these limitations and prohibitions are subject to a
number of important qualifications. See "Description of
the Notes--Certain Covenants."
USE OF PROCEEDS....... The net proceeds from the sale of the Notes and
borrowings under the New Credit Facility will be used
to repay all outstanding borrowings under the Company's
existing credit facilities and such credit facilities
will be terminated. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial
information for the Company for the five fiscal years ended November 30, 1993.
The table also presents certain pro forma consolidated financial data for the
year ended November 30, 1993 which give effect to (i) the Offering, (ii) the
New Credit Facility and (iii) the repayment of amounts outstanding under the
Company's existing credit facilities assuming such transactions were
consummated at the beginning of fiscal 1993 for the income statement and other
data and as of November 30, 1993 for the balance sheet data. The summary
historical and pro forma consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements,
which are included herein.
Reference is also made to the Supplemental Financial Information contained on
page 9 of this Prospectus which presents certain financial data of the Company
for fiscal 1992 and 1993 on an adjusted basis to reflect certain effects of the
Restructuring and other adjustments as described therein.
<TABLE>
<CAPTION>
PRO FORMA(H)
FISCAL YEAR ENDED NOVEMBER 30, YEAR ENDED
----------------------------------------------------------------- NOVEMBER 30,
1989 1990 1991 1992(A) 1993(A) 1993(A)
---------- ---------- ---------- ---------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,296,993 $1,295,840 $1,215,310 $1,053,949 $731,980 $731,980
Gross profit............ 514,412 489,603 434,007 350,304 226,801 226,801
Earnings (loss) before
restructuring charges,
interest and taxes..... 56,193 11,742 (22,702) (14,915) 29,279 29,279
Restructuring and retail
consolidation charges.. -- 77,600 13,500 190,800 -- --
Interest expense........ 28,418 28,952 23,793 21,135 22,869 21,142
Earnings (loss) before
taxes.................. 27,775 (94,810) (59,995) (226,850) 6,410 8,137
Tax provision (benefit). 10,365 (33,265) (21,630) (6,605) 190 241
Net earnings (loss)..... 17,410 (61,545)(b) (38,365)(c) (220,245)(d) 6,220 7,896
Net earnings (loss) per
common share and
equivalent............. .89 (3.11)(b) (1.74)(c) (8.59)(d) .20 .25
Cash dividends per
share.................. 1.175 .90 .60 -- -- --
Average number of common
shares and equivalents. 19,567 19,786 22,056 25,629 31,375 31,375
BALANCE SHEET DATA:
Total assets............ $ 907,965 $ 762,167 $ 739,848 $ 511,959 $405,111 $412,787
Long-term debt.......... 270,969 226,623 105,498 248,713 207,416 217,416
Total debt.............. 376,216 288,130 285,649 314,602 233,113 243,113
Total liabilities....... 547,831 469,629 452,840 441,534 296,114 306,114
Shareholders' equity.... 360,134 292,538 287,008 70,425 108,997 106,673
OTHER DATA:
EBITDA(e)............... $ 87,231 $ (30,639) $ (2,393) $ (178,768) $ 43,386 $ 43,386
Depreciation and
amortization........... 31,038 35,219 33,809 26,947 14,107 14,107
Capital expenditures.... 52,880 21,621 15,488 9,546 5,953 5,953
Ratio of earnings to
fixed charges(f)....... 1.54x (g) (g) (g) 1.20x 1.27x
</TABLE>
- --------
(a) The historical data includes results of operations sold or discontinued
pursuant to the Restructuring, as described elsewhere herein and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in the Notes to the 1993 Consolidated Financial Statements,
which are included herein. See "Risk Factors--Operational and Financial
Restructuring" and "Supplemental Financial Information."
(b) Includes a $51 million, or $2.59 per share, after-tax restructuring charge.
(c) Includes a $8.9 million, or $0.40 per share, after-tax charge to reflect
the consolidation of the Company's retail operations.
(d) Includes a $191 million, or $7.44 per share, after-tax restructuring
charge. See "Risk Factors--Operational and Financial Restructuring."
(e) EBITDA is defined as net income before extraordinary items, interest,
taxes, depreciation and amortization and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of the Company's profitability or liquidity. For fiscal 1990,
1991 and 1992, EBITDA includes non-cash restructuring charges.
7
<PAGE>
(f) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense, net, including amortization of
discount and financing costs and one-third of the operating rental expense
which management believes is representative of the interest component of
rent expense.
(g) Earnings did not cover fixed charges as follows: (in thousands)
Fiscal year ended November 30,
1990: $ 89,907
Fiscal year ended November 30,
1991: $ 59,995
Fiscal year ended November 30,
1992: $226,850
(h) The pro forma 1993 data assume that the Offering and the New Credit
Facility were consummated at the beginning of fiscal 1993 for the income
statement and other data and as of November 30, 1993 for the balance sheet
data, and that the net proceeds therefrom were used to repay amounts
outstanding under the Company's existing debt agreements. The pro forma
1993 data are based on the 1993 historical financial information and have
been adjusted for the effects of: (i) assumed interest rates of 9.75% for
the Notes and 6% for borrowings under the New Credit Facility (LIBOR plus
2.50%), (ii) the incurrence of additional debt under the New Credit
Facility for payment of approximately $7.6 million of fees and expenses
relating to the Notes and the New Credit Facility and approximately $2.4
million of payments associated with the terminated credit facilities, (iii)
the amortization of the $7.6 million of fees and expenses relating to the
Notes and the New Credit Facility over the respective life of each
agreement, (iv) the write-off of approximately $4.0 million of unamortized
fees and payments associated with the terminated credit facilities on
shareholders' equity and (v) the reduction in interest expense as a result
of the new financing arrangements, net of related tax effects. Giving
effect only to the Offering and not the New Credit Facility, the pro forma
1993 ratio of earnings to fixed charges would have been 1.13x.
8
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
The following Supplemental Financial Information for fiscal 1992 and 1993 has
been prepared solely for illustrative purposes from the Company's 1992 and 1993
Consolidated Financial Statements and the internal books and records of the
Company and should be read in conjunction with the "Selected Historical and Pro
Forma Consolidated Financial Information" and the 1992 and 1993 Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus. The
Supplemental Financial Information is intended to reflect certain results of
operations for the Company's continuing businesses and operations after giving
effect to the Restructuring and the other events described below, assuming that
they had occurred at the beginning of fiscal 1992. The Supplemental Financial
Information should not be considered in isolation or as a substitute for
consolidated financial statements prepared in accordance with generally
accepted accounting principles. The Supplemental Financial Information presents
certain financial data for fiscal 1992 and 1993 after eliminating from the 1992
and 1993 Consolidated Financial Statements: (i) the sales and operating results
of certain businesses and operations sold or discontinued as part of the
Restructuring; (ii) the sales and estimated operating results associated with
the Company's transactions with HSSI during fiscal 1992 and 1993; (iii) the
other adjustments described below and (iv) the $191 million charge associated
with the Restructuring. The Supplemental Financial Information does not purport
to represent what the consolidated statement of earnings of the Company would
have been had these businesses and operations been sold or discontinued for the
full 1992 and 1993 fiscal years and does not purport to project the
consolidated statement of earnings of the Company for any subsequent period.
The Supplemental Financial Information is derived from the Company's 1992 and
1993 Consolidated Financial Statements after reflecting the following
adjustments:
(i) The sales and operating results of HSSI have been eliminated from the
1992 Consolidated Financial Statements for all of fiscal 1992 to reflect
the sale of HSSI as part of the Restructuring.
(ii) To reflect the sale or discontinuance of other businesses and
operations principally pursuant to the Restructuring, the sales and
operating results of certain businesses, including Country Miss and certain
non-strategic manufacturing businesses which produced outerwear and
military and commercial uniforms, have been excluded from the 1992 and 1993
Consolidated Financial Statements and the sales by such businesses to HSSI
have been excluded from the HSSI Sales (as defined below).
(iii) Since the sale of HSSI and its subsidiaries in 1992, HSSI has
continued as a significant customer of the Company, although the volume of
purchases by HSSI has been declining. On December 21, 1993, HSSI and 25
affiliates commenced voluntary cases under Chapter 11 of the United States
Bankruptcy Code and are currently operating as debtors-in-possession. As a
result of these circumstances, there can be no assurance that the Company
will have future sales to HSSI. Sales of the Company's continuing
businesses to HSSI (the "HSSI Sales") were approximately $67 million in
fiscal 1992, including approximately $50 million prior to the date HSSI was
sold (September 18, 1992) and $17 million subsequent to such date. In
fiscal 1993, the HSSI Sales were approximately $37 million. To reflect the
uncertainty regarding future sales to HSSI, the Supplemental Financial
Information eliminates from the 1992 and 1993 Consolidated Financial
Statements the HSSI Sales, the estimated gross margin associated with the
HSSI Sales and the estimated variable operating costs directly attributable
to the HSSI Sales. While a reduction of fixed operating costs may be
achievable if sales levels are permanently reduced, the Supplemental
Financial Information assumes that the sudden and complete loss of the HSSI
Sales would not allow for a corresponding reduction of fixed costs in the
short term. Consequently, the Supplemental Financial Information does not
eliminate fixed costs relating to the HSSI Sales. To the extent fixed costs
would have been allocated to the HSSI Sales, the estimated earnings would
be greater than those presented below. See "Risk Factors--Uncertainties
Regarding HSSI and MLR" and "Business--Legal Proceedings."
9
<PAGE>
(iv) The charge related to the Restructuring which has been eliminated
included write-offs and other costs associated with the closing of certain
Kuppenheimer stores and a related production facility. The Supplemental
Financial Information does not include such charges or any other
adjustments relating to Kuppenheimer.
(v) The license agreement between HSM and Christian Dior-New York
providing for the manufacture and marketing of men's tailored clothing
under the Christian Dior(R) brand name was terminated during 1992. As a
result, the sales, estimated gross margin and estimated variable operating
costs attributable to the men's tailored clothing manufactured and sold by
the Company pursuant to such license agreement have been eliminated from
the 1992 Consolidated Financial Statements. See "Business--Legal
Proceedings."
The Supplemental Financial Information does not reflect an adjustment to
historical interest expense for the investment in the sold or discontinued
businesses and operations described above. To the extent interest expense would
have been allocated to the investment in those sold or discontinued businesses
and operations, the estimated earnings would have been greater than those
presented below.
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED SUPPLEMENTAL
FINANCIAL INFORMATION
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------
1992 1993
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales...................................... $672.3 $ 690.1
Earnings before interest,
taxes, depreciation
and amortization (EBITDA)(a).................. $ 32.8 $ 35.2
Earnings before interest
and taxes (EBIT)(a)........................... $ 16.6 $ 21.1
Earnings (loss) before taxes................... $ (4.5) $ (1.8)
</TABLE>
- --------
(a) EBITDA and EBIT are presented because they are generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA and EBIT should not be considered in isolation or
as substitutes for net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as measures of
the Company's profitability or liquidity. For fiscal 1992 and 1993, actual
EBITDA was $(178.8) million and $43.4 million, respectively.
10
<PAGE>
RISK FACTORS
INDEBTEDNESS AND LIQUIDITY
The Company has significant debt service obligations. As of November 30,
1993, after giving effect to the use of proceeds of the Offering contemplated
hereby and borrowings under the New Credit Facility (as defined herein) to
repay Senior Debt, the Company's total indebtedness would have been
approximately $243 million and total shareholders' equity would have been
approximately $105 million, resulting in a total pro forma debt to total
capitalization of 70%. In addition, assuming the closing of the Offering and
the New Credit Facility (collectively, the "Financing Transactions") occurred
on November 30, 1993 and after giving effect to the use of borrowings under the
New Credit Facility to repay Senior Debt, approximately $54 million of
additional borrowing capacity would have been available (subject to the
borrowing base formula) under the Company's New Credit Facility as of November
30, 1993. The Company's borrowing needs are seasonal in nature. The maximum
amount of Senior Debt outstanding during fiscal 1993, assuming the closing of
the Financing Transactions at such time, would have been approximately $196
million as compared to approximately $143 million of Senior Debt that would
have been outstanding as of November 30, 1993, assuming the closing of the
Financing Transactions as of such date. Management believes that amounts
available under the New Credit Facility will be sufficient to meet its peak
borrowing requirements. As of November 30, 1993, assuming the closing of the
Financing Transactions on such date, approximately $123 million of the $143
million of Senior Debt that would have been outstanding would mature within
three years. Such Senior Debt must be refinanced on or before such maturity.
The Company's ability to refinance the New Credit Facility at maturity will
depend on a number of circumstances, including prevailing economic and industry
conditions and the financial condition and operations of the Company and the
businesses it operates, some of which are beyond the Company's control. There
can be no assurance that the Company will be able to refinance the New Credit
Facility at such time. See "Description of Certain Indebtedness."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, debt service requirements, general corporate purposes or other
purposes may be impaired, (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of the Company's interest
expense and principal repayment obligations, (iii) the Company may be more
highly leveraged than certain of its competitors, which may place the Company
at a competitive disadvantage and (iv) the Company may be more vulnerable in
the event of a downturn in its businesses.
The New Credit Facility will contain material restrictions on the operation
of the Company's business, including covenants pertaining to capital
expenditures, asset sales, operating leases, minimum net worth and incurrence
of additional indebtedness, and ratios relating to minimum accounts payable to
inventory, maximum funded debt to EBITDA and minimum fixed charge coverage, as
well as other customary covenants, representations and warranties, funding
conditions and events of default. See "Description of Certain Indebtedness--New
Credit Facility." A breach of one or more of certain covenants under such
agreement could result in an acceleration of the Company's obligations
thereunder, the inability of the Company to borrow additional amounts under the
New Credit Facility to meet seasonal borrowing needs or the suspension of
interest payments on the Notes. In addition, the New Credit Facility will
contain cross-default provisions whereby a default under one of the other
agreements governing the Senior Debt will constitute an event of default under
the New Credit Facility. Any or all of such restrictions, limitations or
contingencies, as well as the Company's significant leverage, could adversely
affect the Company's ability to incur additional indebtedness, make capital
expenditures, take advantage of business opportunities that may arise and
withstand competitive pressures or adverse economic conditions. Assuming the
New Credit Facility is consummated as of March 31, 1994 and the Company's
existing credit facilities are repayed and terminated, the Company would expect
to record an extraordinary pre-tax charge in the second quarter of 1994 of
approximately $4 million, representing the loss from early extinguishment of
debt.
The Company's ability to make interest payments on the Notes and to repay the
Notes at maturity will be dependent on the Company's future operating
performance, which is itself dependent on a number of factors which are beyond
the Company's control, and the ability of the Company to incur additional
indebtedness. Although there can be no assurance that the Company will be able
to raise sufficient funds,
11
<PAGE>
internally or externally, to make such required payments, the Company believes
that, based upon current operations, anticipated growth in working capital
requirements and the amount anticipated to be available for borrowing under the
Company's New Credit Facility, it will be able to meet its obligations as they
come due.
RECENT OPERATING LOSSES
The Company did not report income from continuing operations from fiscal 1990
through fiscal 1992. For the fiscal year ended November 30, 1993, the Company's
pre-tax earnings were $6.4 million compared to a pre-tax loss of $226.9 million
for the same period in fiscal 1992. The pre-tax loss reported in fiscal 1992
included a $190.8 million restructuring charge. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Selected
Historical and Pro Forma Consolidated Financial Information" and "--Operational
and Financial Restructuring." Although the Company reported consolidated pre-
tax earnings for fiscal 1993, conditions in the women's wholesale and men's
direct-to-consumer businesses resulted in operating losses in fiscal 1993 for
the IWA and Kuppenheimer operations. The Company's IWA business unit, which
commenced operations in 1992, has reported operating losses since its
inception. The Company is reviewing the profitability prospects and strategic
direction of, and its options with respect to, IWA, and may in the future
decide to discontinue IWA's product lines or change its distribution channels.
Any such actions, if taken, may have an adverse effect on the Company's results
of operations. IWA represented approximately 4% of the Company's fiscal 1993
net sales.
OPERATIONAL AND FINANCIAL RESTRUCTURING
In 1992, the Company implemented the Restructuring to refocus its business
operations around its profitable core wholesale men's apparel franchise and to
restructure its balance sheet. The operational aspects of the Restructuring
included the sale of HSSI, the Company's principal retail unit; the
discontinuance of its Country Miss retail and manufacturing operations; the
closing of certain Kuppenheimer stores not achieving minimum profitability
requirements; the reduction of production capacity which was no longer required
to support reduced retail operations; and the sale or closing of non-strategic
manufacturing businesses which manufactured outerwear and military and
commercial uniforms. The total sales for fiscal 1992 for all of the businesses
and operations sold or discontinued in conjunction with the Restructuring was
approximately $365 million. The Company's financial statements for fiscal 1992
include restructuring charges of $191 million. See Notes to the Consolidated
Financial Statements of the Company included herein. For additional information
regarding the Company's current relationship with HSSI, see "--Uncertainties
Regarding HSSI and MLR" and "Business--Legal Proceedings."
As part of the Restructuring, in December 1992, the Company consolidated and
extended its borrowing facilities pursuant to which, among other things, (i)
the maturity of $307 million of the Company's outstanding indebtedness was
consolidated and extended until December 30, 1995 pursuant to the terms of a
new secured and guaranteed borrowing facility (the "Override Agreement"), (ii)
an additional seasonal borrowing availability of $35 million was obtained (the
"Bridge Facility") and (iii) certain restrictive covenants with respect to the
Company's indebtedness were added and existing covenants were adjusted to
reflect the condition of the Company following the commencement of such
Restructuring. In addition, the Company raised $30 million through the sale of
shares of its common stock and a warrant to purchase its common stock (the
"Equity Investment") in a private placement to Traco International, N.V.
("Traco"). Concurrently with the issuance of the Notes, the Company anticipates
entering into the New Credit Facility and repaying and terminating its
obligations under the Override Agreement and the Bridge Facility. The New
Credit Facility is conditioned upon the consummation of the sale of the Notes
contemplated hereby. As of November 30, 1993, assuming the closing of the
Financing Transactions and the application of the proceeds thereof,
approximately $54 million of additional borrowing capacity would have been
available under the New Credit Facility (subject to the borrowing base
formula). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Certain Indebtedness."
12
<PAGE>
UNCERTAINTIES REGARDING HSSI AND MLR
HSSI and its subsidiaries were sold to HSSA Group, Ltd. ("HSSA") in 1992 in
connection with the Restructuring for a promissory note of HSSA (the "HSSA
Note") which was secured by a pledge of the common stock of HSSI (the "HSSI
Stock") pursuant to a Stock Pledge Agreement (the "Pledge Agreement"). The
Company believes that HSSA is 100% owned by the three sons of the sole
shareholder of Maurice L. Rothschild & Co. ("MLR") and at least one of the
shareholders of HSSA is also a director of MLR. Following the sale, HSSI has
continued as a significant customer of the Company, although the volume of HSSI
Sales has been declining. HSSI Sales in fiscal 1993 were approximately $37
million (representing 5% of the Company's fiscal 1993 total sales), a decrease
from fiscal 1992 HSSI Sales of approximately $67 million. In connection with
the 1992 sale to HSSA, HSSI agreed to purchase from the Company, in each of the
two twelve-month periods following the closing of the sale, products having an
aggregate wholesale purchase price of at least $35 million.
On December 21, 1993, HSSI and 25 affiliates filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") and are currently operating as debtors-in-possession. Any supply
agreement entered into between the Company and HSSI prior to December 21, 1993
may be deemed an executory contract subject to assumption or rejection by HSSI
under the Bankruptcy Code, and there can be no assurance that HSSI will assume
any such supply agreement if such agreement is deemed an executory contract.
When HSSI's Chapter 11 petitions were filed, HSSI's total outstanding
indebtedness to the Company (excluding its guaranty of the $35 million HSSA
Note) was approximately $4.5 million. MLR has extended credit support to HSSI
and others in connection with purchases from the Company and, as a result, has
total outstanding indebtedness to the Company of approximately $10.6 million
(including interest charges) with respect to such purchases. The foregoing
amounts of indebtedness of HSSI and MLR do not reflect amounts received by the
Company aggregating approximately $4.8 million in November 1993. On February 4,
1994, MLR filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. On the same day, MLR commenced an adversary proceeding against
the Company to recover the $4.8 million payment as a voidable preference under
the Bankruptcy Code, and such proceeding has been dismissed without prejudice.
According to documents filed in HSSI's Chapter 11 cases, MLR asserts a secured
claim against HSSI and its subsidiaries in the approximate amount of $17.5
million, which claim is disputed by HSSI and its subsidiaries.
On November 23, 1993, after the Company determined that certain obligations
under the HSSA Note and related documents had been breached, the Company
exercised certain of its rights under the Pledge Agreement to, among other
things, cause the HSSI Stock to be voted to elect a new Board of Directors. On
November 29, 1993, HSSA filed a complaint for declaratory and preliminary and
permanent injunctive relief against the Company in the Circuit Court of Cook
County, Illinois (the "Circuit Court"), alleging that the Company improperly
and wrongfully seized ownership of HSSI and seeking an order declaring, among
other things, that HSSA is and remains the owner of HSSI. On January 24, 1994,
HSSA was granted leave, subject to pending objections, to file an amended
complaint. The amended complaint seeks actual damages in an unspecified amount
and punitive damages of at least $10 million for, among other things, breach of
contract, tortious interference with contract, and conversion. Also on January
24, 1994, MLR filed a complaint (which was amended on February 4, 1994) against
the Company and six subsidiaries, among others, in the Circuit Court seeking
actual damages of $19 million and punitive damages of over $100 million for
tortious interference with contract and interference with prospective economic
advantage. After consultation with counsel, management of the Company believes
that the Company has meritorious defenses to the actions against the Company
referred to above and that such actions will not have a material adverse effect
on the Company's business or financial condition. For additional information
concerning these and other legal proceedings involving HSSI and the Company,
see "Business--Legal Proceedings."
Under current circumstances, there can be no assurance that the Company will
have any future sales to HSSI, that the Company will be able to collect amounts
owed by HSSI or MLR, that MLR will provide any future credit support to HSSI or
that either HSSI or MLR will continue as a going concern (including as a result
of liquidation). A substantial reduction or loss of sales to HSSI, the
inability of the Company to collect
13
<PAGE>
amounts owed it by HSSI or MLR, the recovery by MLR of the $4.8 million payment
to the Company described above, an adverse determination in the proceedings
against the Company described above or the costs associated with any prolonged
litigation with respect to the above matters may adversely affect the Company's
total revenues or earnings. See "Supplemental Financial Information."
RANKING OF THE NOTES
The operations of the Company are conducted through its operating
subsidiaries and, therefore, the Company is dependent on the earnings and cash
flow of the operating subsidiaries to meet its debt obligations, including its
obligations with respect to the Notes. There are presently no restrictions on
the ability of the Company's subsidiaries to pay dividends on their capital
stock. Because the consolidated operating assets of the Company will be held by
various operating subsidiaries, the Notes will effectively be subordinated to
the claims of creditors of the operating subsidiaries.
The Notes are also subordinated to all existing and future Senior Debt of the
Company, including up to $175 million that can be outstanding under the New
Credit Facility and approximately $22 million outstanding as of November 30,
1993 under other Senior Debt. See "--Indebtedness and Liquidity," "Description
of the Notes--Ranking" and "Description of Certain Indebtedness." In the event
of a bankruptcy proceeding involving the Company, the Company's assets would be
available to pay obligations on the Notes only after all indebtedness of the
Company's subsidiaries and all Senior Debt has been paid in full, and, in such
event, there may not be sufficient assets to pay in full or in part amounts due
on the Notes. Substantially all of the Company's and its subsidiaries' current
assets and intangible assets will secure, and such subsidiaries will guaranty,
the indebtedness under the New Credit Facility. As of November 30, 1993,
assuming the closing of the Financing Transactions on such date and after
giving effect to the use of the proceeds thereof to pay existing credit
facilities, the amount of indebtedness outstanding under the New Credit
Facility would have been approximately $121 million, with approximately $54
million of additional borrowing capacity available (subject to the borrowing
base formula) for future borrowing. See "Use of Proceeds" and "Description of
Certain Indebtedness."
The subordination provisions of the Indenture provide that no payment may be
made by the Company with respect to the Notes upon the occurrence of a default
in the payment or required prepayment of principal of (or premium, if any), or
interest on, certain Senior Debt, until such default shall have been cured or
waived. In addition, upon the occurrence of any other event entitling the
maturity of Senior Debt to be accelerated and receipt by the trustee under the
Indenture of written notice of such occurrence, lenders under the Senior Debt
will be able to block payment on the Notes for specified periods of time. See
"Description of the Notes--Ranking."
COMPETITION
All of the markets in which the Company competes--men's tailored clothing,
men's slacks and sportswear, women's sportswear and women's career apparel--are
highly competitive. The Company's primary competition varies by product, style
and price point. Some of the competitors of the Company's individual business
units are significantly larger and more diversified and have substantially
greater resources than the Company's business units.
The Company's largest product category, men's tailored clothing, is highly
fragmented and characterized by vigorous price and brand competition. According
to the U.S. Department of Commerce, since 1989, the men's and boys' tailored
clothing industry has experienced a decline in both dollar sales and unit
volume. These declines were attributable primarily to the onset of a recession,
which caused retail consumers to curtail or defer their purchases of tailored
clothing. In addition, the impact of the recession on the industry was
exacerbated by a number of other factors, including the significant level of
layoffs among white collar workers, the principal customers for men's tailored
clothing. Moreover, the retailing industry has suffered severe financial
disruptions that have resulted in continuing high levels of price promotion and
discounting. This development placed added pressure on the profit margins
realized by manufacturers of men's tailored clothing. The industry has also
been affected by the relaxation of dress codes by many employers and the long-
term trend toward a more casual lifestyle.
14
<PAGE>
A principal channel of distribution for men's tailored clothing, particularly
outside of large cities, has been small traditional specialty stores. In recent
years, there has been a decline in the number of these stores, caused in large
part by the expansion of department stores and larger specialty store chains
into shopping malls, the growth of factory outlet centers and, especially in
metropolitan markets, the rapid growth of value-priced specialty stores.
Although imports have been a significant factor in the men's tailored
clothing industry in recent years, they have generally been at either the
lowest or the highest retail price points. Imports of men's tailored clothing
are subject to quotas and import duties. The duty on imports of men's and boys'
tailored clothing currently varies depending upon the fabric used and may range
as high as 22%. The recently concluded North American Free Trade Agreement
("NAFTA") provides for the gradual elimination of tariffs and quotas on men's
tailored clothing meeting NAFTA's strict rules of origin. Currently, men's
tailored clothing that is manufactured in Canada but does not meet these strict
rules of origin may be imported into the United States at relatively low tariff
levels subject to specified quotas; any products imported above these quota
levels would be subject to existing tariff rates. The recently consummated
General Agreement on Trade and Tariffs ("GATT") treaty reduces both duties and
quotas for apparel as well as fabric. The net effect on the Company of reduced
tariffs on its foreign competition and on its foreign-sourced finished apparel
and fabric is uncertain at this time.
DEPENDENCE ON BURLINGTON INDUSTRIES
The Company's principal raw material is fabric. In fiscal 1993, the Company
purchased approximately 48% of the total dollar amount of its fabric
requirements from Burlington Industries, Inc. ("Burlington"). Burlington and
certain predecessors have supplied fabric to the Company for over 50 years, and
the Company believes that it is one of Burlington's major customers. While the
Company believes that a variety of alternative sources of supply exist to
satisfy its fabric requirements, the unanticipated, sudden loss of Burlington
as the Company's principal supplier of fabric or a prolonged interruption in
shipments from Burlington could have a material adverse effect on the Company
because of the cost and delay associated with obtaining one or more alternative
sources of supply or with waiting for the end of any such interruption. As is
customary in its industry, the Company has no long-term supply contracts with
Burlington or any of its other suppliers.
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's customers include major United States department and specialty
stores (certain of which are under common ownership and control), mass
merchandisers, value-oriented retailers and direct mail companies. The
Company's top ten customers accounted for approximately 37% of net sales in
fiscal 1993, and the Company's largest customer, Dillard Department Stores,
represented approximately 12% of net sales. No other customer accounted for
more than 7% of net sales in fiscal 1993. A decision by any one of these
customers to substantially decrease the amount of merchandise purchased from
the Company or to cease carrying the Company's products could adversely affect
the Company. See "--Uncertainties Regarding HSSI and MLR."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing market for the Notes and there can be no assurance
regarding the future development of a market for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which such holders may
be able to sell their Notes. If such a market were to develop, the Notes could
trade at prices that may be higher or lower than the initial offering price
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. Each of the
Underwriters has advised the Company that it intends to act as market maker for
the Notes. However, any such market making may be discontinued by each such
Underwriter at any time in its sole discretion. No assurance can be given as to
the liquidity of the trading market for the Notes. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Notes. There
can be no assurance that the market for the Notes will not be subject to
similar disruptions in the future. Any such disruptions may have an adverse
effect on holders of the Notes.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby are
estimated to be approximately $96 million after deduction of estimated
underwriting discounts and expenses. The Company intends to use the net
proceeds from the sale of the Notes contemplated hereby and borrowings under
the New Credit Facility to repay all outstanding borrowings under the Override
Agreement. Concurrently with such repayment, the Company intends to terminate
the Bridge Facility and the Override Agreement. At November 30, 1993, the
Company's Senior Debt consisted of $226.4 million under the Override Agreement
and $6.7 million of other Senior Debt. Borrowings under the Override Agreement
bear interest at prime plus 2% for bank lenders, 10.3% for the insurance
lenders and 9.19% for the ESOP loan guaranteed by the Company. As of November
30, 1993, the weighted average of interest rates was 8.2% per annum under the
Override Agreement. See "Risk Factors--Indebtedness and Liquidity" and
"Description of Certain Indebtedness."
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at November 30, 1993 and the pro forma capitalization of the
Company as of such date as adjusted to give effect to the Offering and
borrowings under the New Credit Facility and the application of the estimated
net proceeds therefrom to repay the indebtedness outstanding under the Override
Agreement. This table should be read in conjunction with "Selected Historical
and Pro Forma Consolidated Financial Information," "Supplemental Financial
Information" and the Consolidated Financial Statements of the Company and Notes
thereto which are included herein.
<TABLE>
<CAPTION>
NOVEMBER 30, 1993
---------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Short-term debt...................................... $ 25.7(a) $ 25.7(b)
====== ======
Long-term debt:(c)
Override Agreement................................. $185.9 $ --
Bridge Facility.................................... -- --
New Credit Facility................................ -- 95.9
Industrial development bonds....................... 20.6(d) 20.6
Notes offered hereby............................... -- 100.0
Other debt, extending to 2007...................... .9 .9
------ ------
Total long-term debt............................. 207.4 217.4
------ ------
Shareholders' equity:
Preferred shares ($1 par value; authorized--
2,500,000; issued--none).......................... -- --
Common stock ($2.50 par value; authorized--
75,000,000; issued--31,951,464)................... 79.9 79.9
Additional paid-in capital......................... 74.3 74.3
Retained earnings.................................. (33.4) (37.4)(e)
Unearned employee benefits......................... (11.8) (11.8)
------ ------
Total shareholders' equity....................... 109.0 105.0
------ ------
Total long-term debt and shareholders' equity.... $316.4 $322.4
====== ======
</TABLE>
- --------
(a) Includes $25 million of borrowings under the Override Agreement.
(b) Includes $25 million of borrowings under the New Credit Facility.
(c) See "Description of Certain Indebtedness."
(d) Includes $15.5 million of industrial development bonds supported by
letters of credit which are a part of the Override Agreement.
(e) Retained earnings declined due to the write-off of unamortized fees
and payments associated with terminated credit facilities.
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
information of the Company for each of the five years ended November 30, 1993.
The table also presents certain pro forma consolidated financial data for the
year ended November 30, 1993 which give effect to (i) the Offering, (ii) the
New Credit Facility and (iii) the repayment of amounts outstanding under the
Company's existing credit facilities assuming such transactions were
consummated at the beginning of fiscal 1993 for the income statement and other
data and as of November 30, 1993 for the balance sheet data.
The pro forma consolidated financial information does not purport to
represent what the Company's results of operations would have been had such
transactions in fact occurred on such date. The pro forma consolidated
financial data are based upon currently available information and upon certain
assumptions that the Company believes to be reasonable, and should be read in
conjunction with the Company's Consolidated Financial Statements, which are
included herein.
<TABLE>
<CAPTION>
PRO FORMA(H)
FISCAL YEAR ENDED NOVEMBER 30, YEAR ENDED
---------------------------------------------------------------- NOVEMBER 30,
1989 1990 1991 1992(A) 1993(A) 1993(A)
---------- ---------- ---------- --------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,296,993 $1,295,840 $1,215,310 1,053,949 $731,980 $731,980
Finance charges,
interest and other
income................. 14,979 14,286 10,761 9,566 5,980 5,980
Cost of goods sold...... 782,581 806,237 781,303 703,645 505,179 505,179
Selling, administrative
and occupancy expenses. 473,198 492,147 467,470 374,785 203,502 203,502
Restructuring and retail
consolidation charges.. -- 77,600 13,500 190,800 -- --
Interest expense........ 28,418 28,952 23,793 21,135 22,869 21,142
Earnings (loss) before
taxes.................. 27,775 (94,810) (59,995) (226,850) 6,410 8,137
Tax provision (benefit). 10,365 (33,265) (21,630) (6,605) 190 241
Net earnings (loss)..... 17,410 (61,545)(b) (38,365)(c) (220,245)(d) 6,220 7,896
Net earnings (loss) per
common share and
equivalent............. .89 (3.11)(b) (1.74)(c) (8.59)(d) .20 .25
Dividends per share..... 1.175 .90 .60 -- -- --
BALANCE SHEET DATA:
Total assets............ $ 907,965 $ 762,167 $ 739,848 $ 511,959 $405,111 $412,787
Current assets.......... 697,661 577,894 578,632 429,773 337,715 339,391
Accounts receivable..... 210,555 132,719 134,748 159,772 120,442 120,442
Inventories............. 473,999 409,599 404,995 216,751 193,818 193,818
Current liabilities..... 276,862 243,006 347,342 192,821 88,698 88,698
Long-term debt.......... 270,969 226,623 105,498 248,713 207,416 217,416
Total debt.............. 376,216 288,130 285,649 314,602 233,113 243,113
Shareholders' equity.... 360,134 292,538 287,008 70,425 108,997 106,673
OTHER DATA:
EBITDA(e)............... $ 87,231 $ (30,639) $ (2,393) $(178,768) $ 43,386 $ 43,386
Depreciation and
amortization........... 31,038 35,219 33,809 26,947 14,107 14,107
Capital expenditures.... 52,880 21,621 15,488 9,546 5,953 5,953
Ratio of earnings to
fixed charges(f)....... 1.54x (g) (g) (g) 1.20x 1.27x
</TABLE>
- --------
(a) The historical data includes results of operations sold or discontinued
pursuant to the Restructuring, as described elsewhere herein and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in the Notes to the 1993 Consolidated Financial Statements,
which are included herein. See "Risk Factors--Operational and Financial
Restructuring" and "Supplemental Financial Information."
(b) Includes a $51 million, or $2.59 per share, after-tax restructuring charge.
(c) Includes an $8.9 million, or $0.40 per share, after-tax charge to reflect
the consolidation of the Company's retail operations.
(d) Includes a $191 million, or $7.44 per share, after-tax restructuring
charge. See "Risk Factors--Operational and Financial Restructuring."
(e) EBITDA is defined as net income before extraordinary items, interest,
taxes, depreciation and amortization and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of the Company's profitability or liquidity. For fiscal 1990,
1991 and 1992, EBITDA includes non-cash restructuring charges.
(f) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense, net, including amortization of
discount and financing costs and one-third of the operating rental expense
which management believes is representative of the interest component of
rent expense.
(g) Earnings did not cover fixed charges as follows: (in thousands)
Fiscal year ended November 30,
1990:$ 89,907
Fiscal year ended November 30,
1991:$ 59,995
Fiscal year ended November 30,
1992:$226,850
17
<PAGE>
(h) The pro forma 1993 data assume that the Offering and the New Credit
Facility were consummated at the beginning of fiscal 1993 for the income
statement and other data and as of November 30, 1993 for the balance sheet
data, and that the net proceeds therefrom were used to repay amounts
outstanding under the Company's existing debt agreements. The pro forma
1993 data are based on the 1993 historical financial information and have
been adjusted for the effects of: (i) assumed interest rates of 9.75% for
the Notes and 6% for borrowings under the New Credit Facility (LIBOR plus
2.50%), (ii) the incurrence of additional debt under the New Credit
Facility for payment of approximately $7.6 million of fees and expenses
relating to the Notes and the New Credit Facility and approximately $2.4
million of payments associated with the terminated credit facilities,
(iii) the amortization of the $7.6 million of fees and expenses relating
to the Notes and the New Credit Facility over the respective life of each
agreement, (iv) the write-off of approximately $4.0 million of unamortized
fees and payments associated with the terminated credit facilities on
shareholders' equity and (v) the reduction in interest expense as a result
of the new financing arrangements, net of related tax effects. Giving
effect only to the Offering and not the New Credit Facility, the pro forma
1993 ratio of earnings to fixed charges would have been 1.13x.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fiscal 1993 results reflect the strengthening of the Company's financial
condition as a result of the Restructuring commenced in 1992 which refocused
the Company's business operations around its profitable core wholesale men's
apparel franchise and restructured its balance sheet. See "Business--
Operational and Financial Restructuring." The Company's continuing businesses
currently comprise: (i) MAG, which designs, manufactures and markets men's
tailored clothing on a wholesale basis, principally through its HSM,
Intercontinental Branded Apparel and Hickey-Freeman business units, and slacks
and sportswear, principally through its Trans-Apparel Group, Biltwell and Bobby
Jones business units; (ii) Kuppenheimer, the vertically integrated factory-
direct-to-consumer manufacturer of popular priced men's tailored clothing whose
products are sold, along with related apparel procured from unaffiliated third
parties, exclusively through Kuppenheimer operated retail stores; and (iii)
Women's Apparel Group, comprised of Barrie Pace, a direct mail business
offering a wide range of apparel and accessories to the business and
professional woman through its catalogs, and IWA, which markets women's career
apparel and sportswear to department and specialty stores under owned and
licensed brand names. For financial reporting purposes, the Company's business
units are identified as the wholesale segment, which principally consists of
MAG and IWA, and the direct-to-consumer ("consumer") segment, which is
principally comprised of Kuppenheimer and Barrie Pace.
RESULTS OF OPERATIONS
Consolidated 1993 sales were $732.0 million compared to $1.054 billion in
1992 and $1.215 billion in 1991. The 1993 sales decline of 30.5% compared to
1992 and the 13.3% decrease in 1992 compared to 1991 were substantially
attributable to the disposition or discontinuance of various businesses as a
result of the Restructuring. Over this period, sales of the Company's
continuing businesses experienced small increases, principally related to the
start-up of IWA and growth at Barrie Pace and in men's tailored clothing
(excluding the HSSI Sales).
Consolidated 1993 pre-tax income was $6.4 million compared to pre-tax losses
of $226.9 million in 1992 and $60.0 million in 1991. Results for 1992
reflected, in addition to $190.8 million of restructuring charges, the
aggregate operating losses associated with businesses sold or discontinued in
connection with the Restructuring. Results for 1991 included a $13.5 million
pre-tax charge taken to consolidate the Company's retail operations. Over this
period, pre-tax earnings for the Company's continuing businesses showed a small
improvement, principally related to reductions in corporate expenses. Net
income for 1993 was $6.2 million or $.20 per share and reflected an effective
tax rate of 3.0%. As discussed below, the Company's deferred tax assets include
significant operating loss carryforwards available to offset future taxable
income, which are substantially offset by valuation allowances due to
uncertainties associated with the realization of such tax benefits. The net
loss for 1992 was $220.2 million or $8.59 per share, which reflected a tax
benefit of 2.9%. The net loss of $38.4 million or $1.74 per share in 1991
reflected a full tax benefit of 36.1%.
Wholesale and Consumer Segments. Wholesale segment sales, which represent
products manufactured by the Company and sold to unaffiliated retailers for
resale to consumers, were $567 million in 1993, $592 million in 1992 and $578
million in 1991. The 4.2% decrease in 1993 as compared to 1992 was
substantially attributable to the sale or closing of non-strategic
manufacturing businesses which manufactured outerwear and commercial and
military uniforms. This decrease in sales was partially offset by a slight
increase in sales of the Company's continuing businesses and by $37 million of
sales to HSSI being reflected in consolidated sales in 1993 compared to $18
million in 1992 which represented only those sales to HSSI subsequent to the
Company's disposition of HSSI in September 1992. Prior to this disposition,
sales to HSSI were considered intercompany and not reflected in consolidated
sales. In 1992, such intercompany sales to HSSI were over $50 million. The 2.5%
increase in wholesale segment sales in 1992 over 1991 was principally
attributable to the introduction of new women's apparel brands and a slight
increase in men's apparel sales, which were attributable to $18 million of
sales to HSSI subsequent to its disposition by the Company. As a result of the
Restructuring, the percentage of wholesale segment sales to consolidated sales
increased to 77.5% in 1993 as compared to 56.2% in 1992 and 47.6% in 1991.
19
<PAGE>
Also as a result of the Restructuring, sales in the consumer segment
(identified for reporting purposes in prior years as the retail segment)
declined to $165 million in 1993 from $462 million in 1992 and $637 million in
1991, and, as a result, represented 22.5% of consolidated sales in 1993
compared to 43.8% in 1992 and 52.4% in 1991. The consumer segment was
principally comprised of the Kuppenheimer and Barrie Pace businesses during
1993. The consumer segment in 1992 and 1991 also included HSSI and the
operations of the Old Mill stores. The 64.3% decrease in 1993 compared to 1992
and the 27.6% reduction in 1992 compared to 1991 were substantially
attributable to the disposition of HSSI and discontinuance of the Old Mill
stores as part of the Restructuring. Barrie Pace continued to experience sales
increases during this period. Kuppenheimer's full year comparable store sales
declined 6% in 1993, 5% in 1992 and 4% in 1991. Consumer segment sales for 1992
reflected declines in comparable store sales at HSSI and Country Miss, prior to
the sale or discontinuance of the stores, of approximately 13% and 9%,
respectively. Consumer segment sales as a percentage of total sales are
expected to decline further in the future, reflecting fewer Kuppenheimer stores
as a result of the Restructuring and the Company's emphasis on its wholesale
businesses.
Wholesale segment earnings before interest and taxes, which include the
manufacturing gross margin on products sold to unaffiliated retailers, were $37
million in 1993, $25 million in 1992 and $27 million in 1991. Men's tailored
clothing represented a substantial portion of segment earnings in each year.
Wholesale segment earnings for 1992 included an $8 million restructuring charge
associated with discontinued businesses. The remaining 1993 increase compared
to 1992 was principally attributable to improvements within the slacks and
sportswear businesses. Also, the operating losses associated with women's
wholesale apparel were reduced in each year.
Consumer segment earnings before interest and taxes include the gross margin
between retail selling price and cost associated with products manufactured by
the Company and products purchased from unaffiliated sources. Consumer segment
earnings were $2.5 million in 1993 compared to losses of $199 million in 1992
and $41 million in 1991. Segment results for 1993 include earnings in the
Barrie Pace catalog business, partially offset by an operating loss at
Kuppenheimer, which was principally attributable to its lower comparable store
sales. Consumer segment results include $168 million in restructuring charges
in 1992 and a $13.5 million provision associated with the consolidation of
retail operations in 1991, actions which followed previous programs to improve
retail operations through selective store closings and expense reductions. In
addition to the non-recurring charges described above, additional factors
contributing to the consumer segment losses in 1992 and 1991 were lower
comparable store sales, high markdowns relative to sales and certain occupancy
and administrative costs which did not decrease proportionately with the lower
sales.
Gross Margins. The consolidated gross margin percentage of sales was 31.0% in
1993, 33.2% in 1992 and 35.7% in 1991, a decline which primarily resulted from
the Company's change in business mix as a result of the Restructuring.
Wholesale sales generally produce a lower gross margin ratio to sales (and
lower selling, administrative and occupancy expenses) compared to the consumer
segment and represented 77.5% of consolidated sales in 1993 compared to 56.2%
in 1992 and 47.6% in 1991. The percentage of wholesale sales to total sales is
expected to increase in 1994 due to fewer stores operated by Kuppenheimer.
While the consolidated ratio of gross margin to sales declined in 1993 compared
to 1992, gross margin in both the wholesale and consumer segments improved
compared to 1992. Current year results included $3.6 million of income
resulting from lower LIFO inventories compared to $3.3 million of LIFO income
in 1992; LIFO income in 1993 produced a .5% favorable impact on gross margin in
1993 compared to a .3% favorable impact in 1992. The consolidated gross margin
percentage decline in 1992 compared to 1991 also reflected lower consumer
segment margins, as wholesale margins were approximately even.
Selling, Administrative and Occupancy Expenses. Selling, administrative and
occupancy expenses represented 27.8% of sales in 1993 compared to 35.6% in 1992
and 38.5% in 1991. Consolidated expenses of $204 million in 1993 declined by
approximately $171 million compared to 1992. The lower dollar level and
percentage of sales ratio of these expenses reflected the disposition of HSSI,
the effect of expense reduction programs in ongoing businesses and the greater
proportion of wholesale business with its lower operating
20
<PAGE>
expense ratio to sales compared to the consumer segment. Both the dollar level
and corresponding ratio to sales are expected to decline further in 1994 from
the reduced level of retail operations compared to 1993. Wholesale segment
operating expenses in 1993 declined in comparison to 1992 principally from
discontinued businesses, although the percentage of sales was approximately the
same. Consumer segment operating expenses declined substantially, both in
dollars and as a percentage of sales in 1993 as compared to 1992, and in 1992
as compared to 1991, reflecting the disposition of HSSI, the wind down of the
Old Mill retail store operations, expense reduction programs in ongoing
businesses and the greater proportion of consolidated sales represented by the
wholesale businesses. Aggregate 1992 expenses of $375 million declined by
approximately $93 million from 1991, attributable to the disposition of HSSI
and closing most of the Old Mill retail stores in 1992.
Advertising expenditures, which are included in Selling, Administrative and
Occupancy Expenses, declined to $20 million in 1993 from $33 million in 1992
and $48 million in 1991, representing 2.7%, 3.1% and 4.0% of consolidated
sales, respectively. The dollar and percentage declines in each year were
principally attributable to the disposition of HSSI and the wind down of the
Old Mill retail stores, although wholesale segment advertising expenditures
also declined both in dollars and as a percentage of sales in each year.
Advertising expenditures applicable to wholesale operations are expected to
increase during 1994 relating to both new and existing brands.
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("FAS 106"), requires the
recognition of an obligation related to employee service pursuant to a
postretirement benefit plan and is mandatory for the Company's fiscal year
ending November 30, 1994. As retiree contributions offset the full cost of the
Company-sponsored medical programs, no transition obligation is expected upon
adoption of FAS 106 and there would be no effect on either net earnings or
shareholders' equity.
Statement of Financial Accounting Standards No. 112, Employers' Accounting
for Postemployment Benefits, requires the recognition of obligations related to
benefits provided by an employer to former or inactive employees after
employment but before retirement, and is mandatory for the Company's fiscal
year ending November 30, 1995. The Company believes that adoption is not
expected to have a material impact on its financial condition.
Other Income. Finance charges, interest and other income aggregated $6.0
million in 1993, $9.6 million in 1992 and $10.8 million in 1991. Other income
was comprised principally of licensing income in 1993, and also included
service charges on the retail receivables of HSSI in 1992 and 1991. The
decrease in each year was principally attributable to the impact of the
receivables sale program, described in the accompanying Notes to Consolidated
Financial Statements, which commenced in June 1990 and terminated in October
1992.
Interest Expense. Interest expense was $23 million in 1993, $21 million in
1992 and $24 million in 1991. The increase of approximately $2 million in 1993
compared to 1992 was attributable to increased interest rates associated with
the Company's refinancing along with higher financing fee amortization. On a
weighted average basis, total borrowing rates increased by approximately 1%;
this rate increase was mitigated by lower average borrowings from reduced
working capital requirements and the $30 million Equity Investment. The
decrease of approximately $3 million in 1992 compared to 1991 reflected a 1.5%
decline in average bank borrowing rates; total borrowings averaged $10 million
higher during 1992 compared to 1991, in part attributable to the termination of
the receivable sale program during 1992.
Income Taxes. The effective tax provision (benefit) rate was 3.0% in 1993,
(2.9)% in 1992 and (36.1)% in 1991. The effective tax rates for 1993 and 1992
reflect the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS 109"), in the 1992 fiscal year.
A substantial portion of the Company's tax assets are reserved by a tax
valuation allowance aggregating $69 million at November 30, 1993. This
valuation allowance reflects the uncertainties associated with the realization
of the available tax benefit of net operating loss carryforwards, after giving
consideration to the
21
<PAGE>
Company's recent operating losses. Although the Company achieved income during
1993 for financial reporting purposes, a tax operating loss resulted from the
reversal of temporary differences associated with the Restructuring. The
realization of the tax benefit arising from $137 million of net operating loss
carryforwards at November 30, 1993 requires the generation of future taxable
income. The net operating loss carryforwards expire in 2008. Approximately $2
million of the valuation allowance offsetting the deferred tax asset,
associated with 1993 pre-tax income for financial reporting, was reversed
during 1993. The 1993 effective tax provision rate was applicable to state
income taxes. Upon the determination that the realization of some or all of the
remaining reserved tax asset is more likely than not, earnings for the
applicable year and shareholders' equity would be increased accordingly.
The 1991 benefit rate reflected the recoverable federal and state income
taxes from the carryback of operating losses to prior years.
CASH FLOW AND FINANCIAL CONDITION
In connection with the Restructuring, the Company consolidated and extended
its borrowing facilities and raised $30 million through the Equity Investment.
See "Business--Operational and Financial Restructuring." Borrowings under the
Override Agreement and Bridge Facility (collectively, "the Agreements")
substantially replaced or amended the provisions of the principal financing
agreements existing as of November 30, 1992, and are secured by substantially
all assets of the Company and its subsidiaries, subject to a priority of up to
$15 million for trade creditors.
At November 30, 1992, total debt was $314.6 million and reflected full
utilization of then available lines. The $307 million Override Agreement
matures December 30, 1995. The Bridge Facility, originally $35 million and
maturing November 30, 1993, was extended by the Company for one year at the $15
million commitment level, which satisfied the $20 million commitment reduction
required as of November 30, 1993 under the Agreements. Additional required
commitment reductions are $10 million on May 31, 1994 and $15 million on each
of November 30, 1994 and May 31, 1995, with the balance expiring December 30,
1995. Additional commitment reductions may be required to the extent of certain
asset sales, equity proceeds and available working capital based on
calculations specified in the Agreements. The Agreements include various
restrictive covenants pertaining to capital expenditures, asset sales,
operating leases, minimum working capital and current ratio, debt leverage,
consolidated tangible net worth, earnings before interest, taxes, depreciation
and amortization and interest coverage. Cash dividends may not be declared or
paid during the term of the Agreements and the Company is prohibited from
purchasing or redeeming its stock, warrants, rights or options, or from making
certain acquisitions or investments without specific lender consent. Any
borrowings under the Bridge Facility would be repaid for a minimum thirty day
period during 1993 and for two thirty day periods in 1994. During 1993, the
Company did not borrow under the Bridge Facility and no other commitment
reductions were required. At November 30, 1993, the Company had $89 million of
borrowing availability under the Agreements.
In January 1994, the Company refinanced certain outstanding industrial
development bonds and executed a commitment letter with respect to the New
Credit Facility. See "Description of Certain Indebtedness."
As indicated in the accompanying Consolidated Statement of Cash Flows, the
net cash provided by operating activities was $30 million in 1993 compared to
net cash used in operating activities of $7 million in 1992 and $11 million in
1991. The cash and cash equivalent balance at November 30, 1993 was $1.5
million, compared to $22.4 million at November 30, 1992 which reflected
approximately $13 million of short-term investments and the full utilization of
then available credit lines. Net accounts receivable of $120.4 million at
November 30, 1993 declined $39.3 million or 24.6% compared to November 30,
1992, principally attributable to the Restructuring, and 1992 receivables
included certain consumer receivables which have subsequently been collected or
written off. The allowance for doubtful accounts decreased to $9.9 million from
$16.0 million in 1992, representing 7.6% of gross receivables in 1993 compared
to 9.1% in 1992; the 1992 reserve
22
<PAGE>
reflected increased requirements for the then remaining consumer receivables.
Inventories of $193.8 million at November 30, 1993 declined $22.9 million or
10.6% from November 30, 1992, attributable to both improvements in ongoing
operations and the completion of inventory liquidations in the Old Mill retail
stores and uniform businesses during fiscal 1993. Inventory turn in continuing
businesses improved.
Recoverable income taxes of $.7 million at November 30, 1993 and $8.2 million
at November 30, 1992 arise from the carryback of operating losses to prior
years. Deferred income taxes were $5.9 million at November 30, 1993 compared to
$5.6 million in 1992. The November 30, 1993 balance reflects a $69 million
valuation allowance ($71 million in 1992) related to a substantial portion of
the tax asset resulting from prior years' operating losses. The Company has and
will continue to assess the necessity for the valuation allowance taking into
consideration such factors as earnings trends and prospects, anticipated
reversal of temporary differences between financial and taxable income, the
expiration or limitations of net operating loss carryforwards and available tax
planning strategies (including the ability to adopt the FIFO inventory
valuation method for those inventories currently valued under the LIFO
valuation method). A future reversal of the valuation allowance in whole or in
part represents a contingent asset which would increase earnings and
shareholders' equity. Also, see discussion under "Income Taxes" above.
At November 30, 1993, net properties were $56.5 million compared to $66.8
million in 1992. The decline principally reflected depreciation expense
exceeding capital additions by approximately $8 million. Capital additions in
1993 were $6.0 million compared to $9.5 million in 1992 which included
additions relating to businesses discontinued pursuant to the Restructuring;
capital additions for 1992 in continuing businesses were $8.1 million. The
Company's current borrowing agreements provide for annual limitations of
capital expenditures, including $9.9 million applicable to 1994. These
limitations are not expected to result in delaying capital expenditures
otherwise planned by the Company. Upon consummation of the New Credit Facility,
the permitted capital expenditures are anticipated to increase from the current
levels. Capital expenditures in the next several years are expected to be
funded from cash generated from operations and principally utilized for
productivity improvements in various manufacturing locations.
The operational aspects of the Restructuring have been substantially
completed. Following the sale of HSSI in September 1992, all of the Old Mill
stores were closed. The store closings associated with Kuppenheimer were
substantially completed by January 1994. Production facilities supporting the
above noted reduced retail operations have been closed or sold along with
facilities related to the rainwear and military and commercial uniform
businesses. At November 30, 1993, approximately $8 million of accrued
restructuring charges were reflected in the accompanying balance sheet,
representing rent, severance and other employee benefits.
At November 30, 1993, total debt of $233.1 million declined by $81.5 million
as compared to November 30, 1992, as a result of the application of proceeds of
the $30 million Equity Investment and approximately $21 million of cash and
equivalents to the reduction of outstanding indebtedness, lower working capital
requirements related to both ongoing and discontinued businesses and lower
capital expenditures. The $25 million of notes payable classified as current at
November 30, 1993 reflects the anticipated seasonal repayments within fiscal
1994. Long-term debt was $207.4 million at November 30, 1993, representing 66%
of the total $316.4 million capitalization, compared to 78% at November 30,
1992; the lower percentage reflected 1993 net earnings, the debt reduction and
equity sales during the year. Total debt, including short- term borrowings and
current maturities, represented 68% of total capitalization at November 30,
1993, compared to 82% at November 30, 1992.
Shareholders' equity of $109.0 million at November 30, 1993 increased $38.6
million during 1993 and represented $3.41 book value per share at year end
compared to $2.72 book value per share at November 30, 1992 ($100.4 million or
$3.18 per share on a pro forma basis reflecting the $30 million from the Equity
Investment and issuance of 5.7 million additional shares). The increase
reflected the net income for the year, the Equity Investment, ongoing equity
sales to employee benefit plans and recognition of previously unearned employee
benefits associated with the Company's Employee Stock Ownership Plan. Dividends
were not paid
23
<PAGE>
in fiscal 1993 or 1992 and dividend payments are prohibited under the current
lending facility. The proposed terms of the Offering and New Credit Facility
restrict the payment of dividends. Consolidated tangible net worth at November
30, 1993, as defined in the current Agreements, was $130 million compared to
$107 million required under the Agreements.
HSSI has continued as a customer of the Company subsequent to its
disposition, although its purchases of the Company's products are declining.
For further information regarding the Company's relationship with HSSI, see
"Risk Factors--Uncertainties Regarding HSSI and MLR" and "Business--Legal
Proceedings." For the two months ended January 31, 1994, HSSI Sales aggregated
$4.8 million and were on a cash-in-advance basis. While there can be no
assurance that a decrease in business with HSSI can be fully replaced in the
next several years, new retail customers have been added and volume with
existing customers has increased in various markets where HSSI operates or has
vacated.
Debt reduction and extension of debt maturities continue to be a priority for
the Company, as demonstrated by the Offering and the New Credit Facility.
Following the Restructuring, the Company has continued to focus its operating
and capital resources principally on its wholesale apparel businesses. The
Company intends to maintain its position as the market leader in men's tailored
clothing, while continuing to expand in men's slacks and sportswear, which
includes the golf-inspired collections under the Jack Nicklaus(R) and Bobby
Jones(R) brands. As anticipated, unit volume with HSSI declined significantly
in 1993 compared to 1992, and further reductions are likely in 1994. The
Company intends to mitigate the impact of reduced volume with HSSI by adding
new customers and increasing volume with existing accounts, as well as by
introducing new brands. Ongoing quick response and electronic data interchange
relationships with major customers, enabling the rapid replenishment of
inventory for selected product styles and enhanced service capabilities, are
expected to continue as an important element of product distribution. The
Company intends to continue its international licensing programs, while
gradually developing merchandising and marketing expertise to sell branded
apparel directly in international markets, which could include joint ventures,
acquisitions and selling agencies.
Conditions in the women's wholesale and men's direct-to-consumer businesses
resulted in operating losses in 1993 for the IWA and Kuppenheimer operations.
As a result, specific marketing and expense reduction actions have been
implemented with the objective of improving results in these businesses. The
Company is reviewing the profitability prospects and strategic direction of the
IWA business, and may discontinue one or more of IWA's product lines or modify
its distribution channels. Kuppenheimer's total sales are expected to decline
due to fewer stores. Its merchandising strategy has been refocused to emphasize
three distinct fashion silhouettes, each having a defined brand identification.
The Company intends to expand the profitable Barrie Pace catalog business
through increasing catalog circulation and by broadening its merchandise mix to
include women's sportswear and more informal career apparel, while continuing
to target the upscale and professional woman.
24
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
The following Supplemental Financial Information for fiscal 1992 and 1993 has
been prepared solely for illustrative purposes from the Company's 1992 and 1993
Consolidated Financial Statements and the internal books and records of the
Company and should be read in conjunction with the "Selected Historical and Pro
Forma Consolidated Financial Information" and the 1992 and 1993 Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus. The
Supplemental Financial Information is intended to reflect certain results of
operations for the Company's continuing businesses and operations after giving
effect to the Restructuring and the other events described below, assuming that
they had occurred at the beginning of fiscal 1992. The Supplemental Financial
Information should not be considered in isolation or as a substitute for
consolidated financial statements prepared in accordance with generally
accepted accounting principles. The Supplemental Financial Information presents
certain financial data for fiscal 1992 and 1993 after eliminating from the 1992
and 1993 Consolidated Financial Statements: (i) the sales and operating results
of certain businesses and operations sold or discontinued as part of the
Restructuring; (ii) the sales and estimated operating results associated with
the Company's transactions with HSSI during fiscal 1992 and 1993; (iii) the
other adjustments described below and (iv) the $191 million charge associated
with the Restructuring. The Supplemental Financial Information does not purport
to represent what the consolidated statement of earnings of the Company would
have been had these businesses and operations been sold or discontinued for the
full 1992 and 1993 fiscal years and does not purport to project the
consolidated statement of earnings of the Company for any subsequent period.
The Supplemental Financial Information is derived from the Company's 1992 and
1993 Consolidated Financial Statements after reflecting the following
adjustments:
(i) The sales and operating results of HSSI have been eliminated from the
1992 Consolidated Financial Statements for all of fiscal 1992 to reflect
the sale of HSSI as part of the Restructuring.
(ii) To reflect the sale or discontinuance of other businesses and
operations principally pursuant to the Restructuring, the sales and
operating results of certain businesses, including Country Miss and certain
non-strategic manufacturing businesses which produced outerwear and
military and commercial uniforms, have been excluded from the 1992 and 1993
Consolidated Financial Statements and the sales by such businesses to HSSI
have been excluded from the HSSI Sales.
(iii) Since the sale of HSSI and its subsidiaries in 1992, HSSI has
continued as a significant customer of the Company, although the volume of
purchases by HSSI has been declining. On December 21, 1993, HSSI and 25
affiliates commenced voluntary cases under Chapter 11 of the United States
Bankruptcy Code and are currently operating as debtors-in-possession. As a
result of these circumstances, there can be no assurance that the Company
will have future sales to HSSI. HSSI Sales were approximately $67 million
in fiscal 1992, including approximately $50 million prior to the date HSSI
was sold (September 18, 1992) and $17 million subsequent to such date. In
fiscal 1993, the HSSI Sales were approximately $37 million. To reflect the
uncertainty regarding future sales to HSSI, the Supplemental Financial
Information eliminates from the 1992 and 1993 Consolidated Financial
Statements the HSSI Sales, the estimated gross margin associated with the
HSSI Sales and the estimated variable operating costs directly attributable
to the HSSI Sales. While a reduction of fixed operating costs may be
achievable if sales levels are permanently reduced, the Supplemental
Financial Information assumes that the sudden and complete loss of the HSSI
Sales would not allow for a corresponding reduction of fixed costs in the
short term. Consequently, the Supplemental Financial Information does not
eliminate fixed costs relating to the HSSI Sales. To the extent fixed costs
would have been allocated to the HSSI Sales, the estimated earnings would
be greater than those presented below. See "Risk Factors--Uncertainties
Regarding HSSI and MLR" and "Business--Legal Proceedings."
25
<PAGE>
(iv) The charge related to the Restructuring which has been eliminated
included write-offs and other costs associated with the closing of certain
Kuppenheimer stores and a related production facility. The Supplemental
Financial Information does not include such charges or any other
adjustments relating to Kuppenheimer.
(v) The license agreement between HSM and Christian Dior-New York
providing for the manufacture and marketing of men's tailored clothing
under the Christian Dior(R) brand name was terminated during 1992. As a
result, the sales, estimated gross margin and estimated variable operating
costs attributable to the men's tailored clothing manufactured and sold by
the Company pursuant to such license agreement have been eliminated from
the 1992 Consolidated Financial Statements. See "Business--Legal
Proceedings."
The Supplemental Financial Information does not reflect an adjustment to
historical interest expense for the investment in the sold or discontinued
businesses and operations described above. To the extent interest expense
would have been allocated to the investment in those sold or discontinued
businesses and operations, the estimated earnings would have been greater than
those presented below.
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED SUPPLEMENTAL
FINANCIAL INFORMATION
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------
1992 1993
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales...................................... $672.3 $ 690.1
Earnings before interest,
taxes, depreciation
and amortization (EBITDA)(a).................. $ 32.8 $ 35.2
Earnings before interest
and taxes (EBIT)(a)........................... $ 16.6 $ 21.1
Earnings (loss) before taxes................... $ (4.5) $ (1.8)
</TABLE>
- --------
(a) EBITDA and EBIT are presented because they are generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA and EBIT should not be considered in isolation
or as substitutes for net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as measures of
the Company's profitability or liquidity. For fiscal 1992 and 1993, actual
EBITDA was $(178.8) million and $43.4 million, respectively.
26
<PAGE>
BUSINESS
GENERAL
Established in 1872, Hartmarx is the largest manufacturer and marketer of
men's tailored clothing in the United States. From this established position,
the Company has diversified into the men's sportswear and women's career
apparel and sportswear markets. In fiscal 1993, the Company's business units
that primarily produce men's tailored clothing represented approximately 66% of
the Company's sales.
Substantially all of the Company's products are sold under established brand
names or the private labels of major retailers. The Company owns two of the
most recognized brands in men's tailored clothing: Hart Schaffner & Marx(R),
which was introduced in 1887, and Hickey-Freeman(R), which dates from 1899. The
Company also offers its products under other brands which it owns such as
Sansabelt(R), Kuppenheimer(R), Racquet Club(R) and Barrie Pace(R) and under
license agreements for specified product lines for Tommy Hilfiger(R), Jack
Nicklaus(R), Bobby Jones(R), Austin Reed(R), Gieves & Hawkes(R), KM by
Krizia(TM), MM by Krizia(TM), Henry Grethel(R), Karl Lagerfeld(R), Nino
Cerruti(R), Pierre Cardin(R) and Fumagalli's(R). To broaden the international
distribution of the apparel sold under its owned and licensed trademarks, the
Company has entered into over 35 license or sublicense agreements for specified
product lines with third parties to produce, market and distribute products in
14 countries outside the United States.
The Company believes that the strong brand recognition enjoyed by its
products at both the wholesale and retail level, the breadth of its product
offerings in both price point and fashion direction and the established
relationships it possesses across retail distribution channels are critical
factors which differentiate the Company from its competitors. The Company's
operating groups offer products covering the fashion spectrum (business
professional, American contemporary and British, French and Italian inspired),
marketed at different price points to appeal to a broad wholesale and retail
customer base. Products range from a top-of-the-line Hickey-Freeman(R) suit
expected to retail at $950 to an upper moderately priced ($525) Hart Schaffner
& Marx(R) suit to a moderately priced ($265) Kuppenheimer(R) suit. This
strategy is also employed in the three men's slacks and sportswear businesses.
Recent product developments include the introduction of tailored clothing and
prehemmed slacks under a license agreement with Tommy Hilfiger for Fall 1994,
the introduction of casual, prehemmed slacks under the Company's own brand and
the continued development and expansion of golf-inspired sportswear for the
premium market under the Bobby Jones(R) brand and at moderate price points
under the Jack Nicklaus(R) label.
The Company's primary wholesale customer base consists of leading department
and fine specialty stores such as Dillard Department Stores, Federated
Department Stores, Macy's, May Department Stores, Neiman Marcus, Nordstrom and
J.C. Penney. This distribution channel accounted for approximately 60% of sales
in fiscal 1993. In order to take advantage of changing consumer trends, the
Company has supplemented its traditional channel of distribution with value-
oriented retailers, direct mail companies, mass merchandisers, golf pro shops
and its own factory-direct-to-consumer retail network and 28 factory outlet
stores. The growing value-oriented channel, which includes outlet and off-price
retailers, mass merchandisers and the Company's own factory-direct-to-consumer
network, represents an increasingly important distribution channel for the
Company. The Company's top ten customers accounted for approximately 37% of net
sales in fiscal 1993, and the Company's largest customer, Dillard Department
Stores, represented approximately 12% of net sales. No other customer accounted
for more than 7% of net sales in fiscal 1993. See "Risk Factors--Dependence on
Certain Customers."
As a vertically integrated manufacturer and marketer, the Company is
responsible for the design, manufacturing and sourcing of its apparel.
Substantially all of its men's tailored clothing is manufactured in its own
factories, all of which are located in the United States. The Company utilizes
domestic and foreign contract manufacturers to produce its remaining products,
principally men's and women's sportswear, in accordance with Company
specifications and production schedules. The Company believes that this
combination of owned manufacturing and contract sourcing enables it to
efficiently control the pricing,
27
<PAGE>
quality and delivery of its products and to effectively utilize the capital
resources allocated to the manufacturing process. Increased manufacturing
efficiencies and ongoing cost savings, coupled with new sourcing strategies,
have enabled the Company to offer apparel with higher perceived value at
similar or lower wholesale prices while maintaining its margins and high
quality standards.
The Company's business is organized around three primary operating groups:
Men's Apparel Group. The Company's largest operating group, MAG designs
and manufactures substantially all of the Company's men's tailored clothing
(through its HSM, Hickey-Freeman and Intercontinental Branded Apparel
business units) and slacks and sportswear (through its Trans-Apparel Group,
Biltwell and Bobby Jones business units) and markets these products on a
wholesale basis.
Kuppenheimer. Kuppenheimer is the Company's vertically integrated,
factory-direct-to-consumer manufacturing and retail business. Kuppenheimer
manufactures substantially all of its men's tailored clothing in Company-
owned facilities and sells these products exclusively through Kuppenheimer
operated stores.
Women's Apparel Group. The Women's Apparel Group is comprised of Barrie
Pace and IWA. Barrie Pace is a direct mail company that offers a wide range
of apparel and accessories to the business and professional woman. IWA
designs and sources women's career apparel and sportswear for sale to
department and specialty stores under owned and licensed brand names.
The Company is a Delaware corporation with its principal executive offices
located at 101 North Wacker Drive, Chicago, Illinois 60606, and its telephone
number is (312) 372-6300.
OPERATIONAL AND FINANCIAL RESTRUCTURING
In 1992, the Company implemented the Restructuring to refocus its business
operations around its profitable core wholesale men's apparel franchise and to
restructure its balance sheet. The operational aspects of the Restructuring
included the sale of the Company's principal retail unit, the downsizing of
other retail and manufacturing operations and the sale or closing of non-
strategic manufacturing businesses. As part of the Restructuring, the Company
also consummated a financial restructuring under which commitments under its
borrowing facilities were increased to cover seasonal borrowing requirements,
its borrowing facilities were consolidated and extended in maturity and shares
of its common stock and a warrant to purchase its common stock were sold
through the Equity Investment.
A major component of the Restructuring was the sale of the Company's
principal retail unit, HSSI, on September 18, 1992. At the time of the sale,
HSSI operated approximately 180 specialty retail stores. Approximately one-half
of the HSSI stores were closed soon after the sale. The Company's fiscal 1993
HSSI Sales were $37 million compared to fiscal 1992 HSSI Sales of $67 million.
See "Risk Factors--Uncertainties Regarding HSSI and MLR."
The Company entered the specialty retail business in 1926 with the
acquisition of Wallachs and subsequently acquired a number of independent
retail businesses. By the late 1980s, the Company operated approximately 500
retail stores primarily selling men's tailored clothing and sportswear. At the
time, the Company believed that the operation of its own retail stores would
broaden the retail distribution channels available to it for its manufactured
goods in addition to ensuring the existence of appropriate retail outlets for
its products in key markets which did not possess other adequate distribution
for men's tailored clothing. Throughout the 1980s, the Company increased its
commitment to apparel retailing. In 1981, the Company acquired Country Miss,
which manufactured and marketed women's sportswear both through major specialty
and department stores and through its owned Old Mill Stores. This acquisition
was followed by the 1982 purchase of Kuppenheimer and the 1985 launch of Barrie
Pace. In 1990, approximately 55% of the Company's consolidated sales were
contributed by its retail operations.
In spite of the significant capital investment made to support additional
retail stores and related modernization programs, the Company experienced a
substantial decline in the earnings of its retail operations, principally HSSI
and Country Miss, between 1986 and 1992. In 1990, the Company implemented
28
<PAGE>
a restructuring principally targeted at HSSI, which included the closing of
under-performing retail stores, the liquidation of excess retail inventories
and the realignment of sales and merchandising functions. The Company's
financial statements for fiscal 1990 include restructuring charges of $77.6
million. This was followed, in 1991, by the decision to combine the
administrative functions of HSSI and Kuppenheimer. While significant cost
reductions were achieved through these 1990 and 1991 actions, comparable store
sales continued to decline at HSSI, Country Miss and, to a lesser extent,
Kuppenheimer. These sales declines resulted in increased operating losses and
negative cash flow, raising overall consolidated borrowings and interest
expense.
Primarily as a result of the operating and financial performance of its
retail businesses, the Company implemented the Restructuring in 1992. The
Company's financial statements for fiscal 1992 include restructuring charges of
$191 million. See Notes to Consolidated Financial Statements of the Company
included herein. In addition to the sale of HSSI, the Restructuring included
the liquidation of Country Miss' 80 retail stores and the three production
facilities supporting those operations, the closing of certain Kuppenheimer
stores not achieving minimum profitability requirements and the reduction of
production capacity which was no longer required to support the reduced retail
operations. The Company also sold or closed non-strategic manufacturing
businesses which produced men's outerwear and military uniforms and, in 1993,
completed the sale of Fashionaire Apparel, a wholly-owned subsidiary that
manufactured uniforms for commercial use. The total fiscal 1992 sales of all
businesses and operations sold or discontinued in conjunction with the
Restructuring were approximately $365 million.
As part of the Restructuring, in December 1992, the Company consolidated and
extended its borrowing facilities pursuant to which, among other things, (i)
the maturity of $307 million of the Company's outstanding indebtedness was
consolidated and extended until December 30, 1995 pursuant to the terms of the
Override Agreement, (ii) an additional seasonal borrowing availability of $35
million was obtained pursuant to the Bridge Facility and (iii) certain
restrictive covenants with respect to the Company's indebtedness were added and
existing covenants were adjusted to reflect the pro forma condition of the
Company following the commencement of such Restructuring. In addition, the
Company raised $30 million through the Equity Investment. The Company
anticipates that the proceeds of the Offering contemplated hereby and
borrowings under the New Credit Facility will be used to repay its borrowings
under the Override Agreement. Concurrently with such repayment, the Company
intends to cancel the Bridge Facility and the Override Agreement. See
"Description of Certain Indebtedness."
COMPANY STRATEGY
As a result of the Restructuring, the Company is now focused on those
businesses that have made it an industry leader for most of this century. The
key elements of the Company's strategy are:
. To build on its success as an apparel manufacturer and marketer by
providing branded products to retailers and consumers principally on a
wholesale basis while developing other brands to fill market voids and
repositioning and growing established brands.
. To provide a dynamic mix of apparel products through a broad
merchandising strategy that will include men's tailored clothing, men's
sportswear, women's career apparel and women's sportswear.
. To serve a broad range of retail channels, including fine specialty and
leading department stores, factory-direct-to-consumer stores, value-
oriented retailers, mass merchants and direct mail catalogs.
. To be a leader in technological marketing by providing unparalleled
service to its customers through such programs as Quick Response and
Electronic Data Interchange. See "--Management Information Systems" for a
more detailed description of these programs.
. To expand its presence in the international marketplace by continuing its
international licensing efforts while merchandising, marketing and
producing branded apparel in markets beyond its borders and marketing its
branded products, concepts and expertise through joint ventures,
acquisitions and selling agencies.
29
<PAGE>
PRODUCTS
The Company's merchandising strategy is to market a wide selection of men's
tailored clothing and slacks and sportswear and women's career apparel and
sportswear across a variety of fashion directions, price points and
distribution channels. In 1993, the Company's business units that primarily
manufacture men's tailored clothing represented approximately 66% of the
Company's sales, while those business units that primarily manufacture men's
sportswear and slacks represented approximately 27%. Men's tailored clothing
and slacks and sportswear are manufactured and marketed by the Company's MAG
and Kuppenheimer operating groups. Women's apparel is principally marketed by
the Company's Women's Apparel Group.
The Company's product line organization and list of major owned and licensed
brand names is set forth below:
OPERATING
GROUPS MEN'S APPAREL GROUP KUPPENHEIMER WOMEN'S APPAREL
GROUP
PRODUCT
GROUPS MEN'S SLACKS /
MEN'S TAILORED SPORTSWEAR MEN'S WOMEN'S CAREER /
CLOTHING TAILORED SPORTSWEAR
CLOTHING
BUSINESS
UNITS
PRINCIPAL TRANS-APPAREL GROUP BARRIE PACE
HART SCHAFFNER & MARX BILTWELL KUPPENHEIMER INTERNATIONAL
BRANDS WOMEN'S APPAREL
HICKEY-FREEMAN BOBBY JONES
INTERCONTINENTAL BRANDED APPAREL
OWNED OWNED OWNED
OWNED SANSABELT(R) KUPPENHEIMER(R) BARRIE PACE(R)
HART SCHAFFNER & MARX(R)
JOHN ALEXANDER(R) STERLING & HUNT(R)
SUBURBANS(R)
HICKEY-FREEMAN(R)
SOUTH SHORE(TM) BRIAR TRADITIONAL
RACQUET CLUB(R) RACQUET CLUB(R) APPAREL(R) LICENSED
CONFEZIONI RISERVA(R) CONFEZIONI RISERVA(R) AUSTIN REED(R)
BIELLA INTERNATIONAL
SOCIETY BRAND, LTD.(R)
COLLECTION(TM) MM BY
GRAHAM & GUNN(R) LICENSED KRIZIA(TM)
JACK NICKLAUS(R) LICENSED
LICENSED TOMMY HILFIGER(R) THE HEISMAN TROPHY
JACK NICKLAUS(R) BOBBY JONES(R) COLLECTION(TM)
TOMMY HILFIGER(R) J.G. HOOK(R)
AUSTIN REED(R) HENRY GRETHEL(R)
GIEVES & HAWKES(R) KM BY KRIZIA(TM)
NINO CERRUTI(R) ROUGH RIDER(TM)
PIERRE CARDIN(R)
FUMAGALLI'S(R)
KM BY KRIZIA(TM)
KARL LAGERFELD(R)
JOHNNY CARSON(R)
ALLYN ST. GEORGE(R)
WIMBLEDON(R)
30
<PAGE>
The following table sets forth the percentage of sales of the Company's
business units that primarily manufacture the product groups listed below for
fiscal 1992, as adjusted, and fiscal 1993:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 30,
-------------------
1992(A) 1993
---------- --------
<S> <C> <C>
Men's Tailored Clothing............................... 69% 66%
Men's Slacks/Sportswear............................... 27% 27%
Women's Career Apparel/Sportswear..................... 4% 7%
-------- --------
Total............................................. 100% 100%
======== ========
</TABLE>
--------
(a) Percentages presented are adjusted as described under
"Supplemental Financial Information."
MEN'S TAILORED CLOTHING
The Company is recognized as the market leader in the men's tailored clothing
industry with a market share believed by management to be approximately 25% of
the estimated $1.5 billion over-$300 retail men's suit market. The Company's
established, well-known brands such as Hart Schaffner & Marx(R) and Hickey-
Freeman(R) are complemented by strong international labels such as Pierre
Cardin(R), Nino Cerruti(R), KM by Krizia(TM), Austin Reed(R) and Karl
Lagerfeld(R).
The Company's strategy is to be a broad-based resource for men's tailored
clothing by offering a wide variety of fashion silhouettes across a range of
price points. The Company's tailored clothing businesses offer products
covering the fashion spectrum (business professional, American contemporary and
British, French and Italian inspired), marketed at different price points to
appeal to a broad wholesale and retail customer base.
Increased manufacturing efficiencies and ongoing cost savings, coupled with
new sourcing strategies, have enabled the Company to offer apparel with greater
perceived value at similar or lower wholesale prices while maintaining its
margins and high quality standards. For example, in 1992 the Company introduced
major collections of all-worsted suits by Hart Schaffner & Marx(R) and Austin
Reed(R) which were anticipated to retail at new, lower price points of $495 and
$395, respectively. Effective for the Fall 1994 selling season, the Tommy
Hilfiger(R) label has been added to this price range. At a slightly lower price
point, the Company's Nino Cerruti(R), Pierre Cardin(R) and Confezioni
Riserva(R) brands continue to be prominent in the over-$300 expected retail
price category. In the popular-priced market, the Company offers tailored
clothing through its Kuppenheimer stores at suit prices that range from $150 to
$285. At the upper end of the men's tailored clothing market, the Hickey-
Freeman(R), Gieves & Hawkes(R), Karl Lagerfeld(R) and Cerruti 1881(R) brands
give the Company a strong market position in the $800 and higher category,
demonstrating these prestigious brands' ability to compete with European
imports.
The following table sets forth by general range of expected retail price
point, the fashion segment and brands for the Company's suits:
<TABLE>
<CAPTION>
EXPECTED RETAIL PRICES
------------------------------------------------------------------------------------------------
UPPER UPPER MODERATE MODERATE POPULAR
FASHION SEGMENT OVER $675 $450-$675 $325-$450 UNDER $325
- --------------------- ------------------ ------------------------ ---------------- -----------------------------------
<S> <C> <C> <C> <C>
BUSINESS PROFESSIONAL Hickey-Freeman(R) Hart Schaffner & Marx(R) Allyn St. George(R)
Graham & Gunn(R) Sterling & Hunt(R)
Kuppenheimer(R)
John Alexander(R)
AMERICAN CONTEMPORARY Hickey-Freeman(R) Tommy Hilfiger(R) Henry Grethel(R) J.G. Hook(R)
Society Brand, Ltd.(R) Johnny Carson(R)
Briar Traditional Apparel(R)
ITALIAN FASHION Cerruti 1881(R) KM by Krizia(TM) Nino Cerruti(R) Confezioni Riserva(R)
Fumagalli's(R) Biella International Collection(TM)
BRITISH FASHION Gieves & Hawkes(R) Austin Reed(R) Racquet Club(R)
FRENCH FASHION Karl Lagerfeld(R) Pierre Cardin(R)
</TABLE>
31
<PAGE>
Hart Schaffner & Marx. The Company's largest business unit, HSM, designs,
manufactures and markets tailored clothing under the Hart Schaffner & Marx(R),
Austin Reed(R), KM by Krizia(TM) and Fumagalli's(R) brands. The Hart Schaffner
& Marx(R) brand, which is owned by the Company and was introduced in 1887, is
one of the best-known men's tailored clothing brands in the United States.
HSM's primary customer base consists of fine specialty and leading department
stores. HSM recently entered into a license agreement to manufacture and market
a line of men's tailored clothing under the Tommy Hilfiger(R) brand name and
expects to deliver its first products for Fall 1994. Tommy Hilfiger is a well-
known American designer of men's clothing. Substantially all of the products
marketed by this operating unit are manufactured in Company-owned facilities.
HSM sponsors Hart Schaffner & Marx University, which is offered to employees
of all retail customers on a year-round basis. Established in 1990, the
University is the apparel industry's first permanent educational facility
designed to enhance the professionalism of today's retail community. A full-
time staff with broad retail apparel industry experience conducts a number of
courses in product presentation methods, tailoring and management skills. To
date, the University has served over 2,500 employees from more than 250
department and specialty stores.
Hickey-Freeman. Hickey-Freeman manufactures and sells premium-quality men's
tailored clothing in both classic American and various European styles under
the Hickey-Freeman(R), Gieves & Hawkes(R), Karl Lagerfeld(R) and Cerruti
1881(R) brands. The Hickey-Freeman(R) brand, which is owned by the Company and
was introduced in 1899, is one of the most established and best-known labels in
this segment of men's tailored clothing. Custom-made suits constitute an
important component of Hickey-Freeman's business and represented approximately
16% of the business unit's sales for fiscal 1993. Hickey-Freeman's primary
customer base consists of fine specialty stores such as Nordstrom, Neiman
Marcus and Saks Fifth Avenue. Its products are expected to retail at higher
prices than the Company's other apparel lines. All Hickey-Freeman garments are
manufactured in Company-owned facilities.
Intercontinental Branded Apparel. Intercontinental Branded Apparel ("IBA")
manufactures men's tailored clothing at moderate price points for department
store and value-oriented retail distribution. It sells both branded and
private-label products in both the updated traditional and fashion contemporary
markets. Branded products represent the majority of IBA's sales under the
following principal names: Pierre Cardin(R), Nino Cerruti(R), Allyn St.
George(R), Confezioni Riserva(R), Racquet Club(R) and Johnny Carson(R).
Substantially all of IBA's products are manufactured by the Company.
Kuppenheimer. Kuppenheimer is a factory-direct-to-consumer manufacturer of
popularly priced men's tailored clothing sold exclusively through its own
retail stores. In these stores, Kuppenheimer also offers a selection of men's
furnishings and sportswear purchased from other manufacturers. The retail price
of Kuppenheimer suits ranges between $150 and $285. Currently, all of the men's
tailored clothing sold by Kuppenheimer is manufactured by the Company.
In 1993, the Company began implementing a strategic and business
restructuring of Kuppenheimer. This included the closing of certain stores not
achieving minimum profitability criteria, the repositioning of its
merchandising strategy to emphasize value-oriented branded products and the
refocusing of its merchandising around three distinct fashion silhouettes and
brands. Kuppenheimer's strategy is to increase its market share of the highly
fragmented, moderately priced tailored clothing market by offering high
quality, popularly priced garments in a specialty store environment.
Kuppenheimer intends to achieve this strategy through further improvements in
manufacturing efficiencies, enhanced national advertising and the continued
development of its three brands introduced in Fall 1993: Sterling & Hunt(R)
(classic styling), Briar Traditional Apparel(R) (contemporary, traditional
styling) and Biella International Collection(TM) (European styling).
By the end of 1994, it is anticipated that Kuppenheimer's store base will be
fewer than 100, a reduction of over 60 since the beginning of 1992. As a result
of the reduction in retail outlets, Kuppenheimer has also reduced its
production capacity, closing one of its manufacturing facilities in 1992 with a
second factory being transferred to another Company business unit that required
additional capacity.
32
<PAGE>
MEN'S SLACKS AND SPORTSWEAR
From its established leadership position in men's tailored clothing, the
Company has developed a strong presence in men's slacks, while also
diversifying into the men's sportswear market. In 1993, the Company's business
units that primarily produce men's slacks and men's sportswear represented
approximately 27% of the Company's sales. Three of the Company's business units
are devoted to the slacks and men's sportswear business: Trans-Apparel Group,
which manufactures slacks and sources and distributes sportswear such as Jack
Nicklaus(R); Biltwell Clothing Company, the Company's opening price point
slacks business; and Bobby Jones, which sources and distributes premier golf-
inspired sportswear.
Trans-Apparel Group. Through Trans-Apparel Group ("TAG"), the Company has
developed a presence in men's sportswear. This business unit manufactures,
sources and distributes slacks, shirts and sweaters across a variety of price
points and distribution channels. Approximately 50% of TAG's sales are branded
slacks sold under the Sansabelt(R) label or traditional waistband slacks sold
under the Racquet Club(R) and KM by Krizia(TM) brands. These branded slacks are
expected to sell at retail prices between $50 and $140 and are sold to better
specialty and department stores. In 1992, the Company introduced its first line
of casual, prehemmed slacks to compete in this growing market. These slacks are
expected to retail for $30-$40 and are positioned in the sportswear departments
of department stores. In July 1994, TAG will begin to deliver tailored slacks
under the Tommy Hilfiger(R) brand. These slacks will sell in better specialty
and department stores at retail prices expected to be between $50 and $75.
Substantially all of TAG's slacks are manufactured in Company-owned facilities.
The balance of TAG's product offerings consists primarily of knit or woven
shirts and sweaters sold under brand names such as KM by Krizia(TM), Henry
Grethel(R) and Jack Nicklaus(R). KM by Krizia(TM), introduced by the Company in
1992, represents an entry into the moderately priced, contemporary sportswear
marketplace and offers an opportunity for marketing Italian designed slacks.
Jack Nicklaus(R) continues to grow rapidly through pro shop distribution. TAG's
sportswear products are generally expected to be in the $40-to-$75 retail price
range and are sourced from contract manufacturers.
TAG's products are sold to specialty, department and chain stores and value-
oriented retailers. Jack Nicklaus(R) apparel is distributed through golf pro
shops. The Company has expanded the distribution of the Jack Nicklaus(R) brand
to 11 countries around the world. Approximately 14% of TAG's fiscal 1993 sales
are through its 17 Sansabelt and 12 factory outlet stores.
Biltwell Clothing Company. Biltwell's principal product line consists of the
Company's opening price point men's slacks which are sold under brand names
such as John Alexander(R), J.G. Hook(R) and Henry Grethel(R), as well as
private labels developed by the Company's customers. Branded products represent
approximately 50% of Biltwell's total sales. The Company's strategy for
Biltwell is to expand further its branded business in the opening price point
slacks market. Biltwell also manufactures men's suits, sportcoats and
womenswear to complement its slacks offerings. Products are sold through a wide
range of distribution channels, including department, value and specialty
stores, as well as direct mail catalogs.
Bobby Jones. The Company competes in the growing golf-inspired sportswear
market with its Bobby Jones(R) apparel. This business unit delivered its first
product line in 1990. The Bobby Jones(R) product line consists primarily of
knit shirts and sweaters, along with coordinating slacks produced by Hickey-
Freeman, as well as contract manufacturers. The primary customer base for Bobby
Jones includes fine specialty and leading department stores, the golf shops of
prestigious golf clubs and resort shops. Bobby Jones(R) products are sourced
from third parties, with a large percentage produced in Italy.
WOMEN'S CAREER APPAREL AND SPORTSWEAR
The Company's current women's apparel business consists of Barrie Pace, a
direct mail company that offers a wide range of apparel and accessories to the
business and professional woman, and IWA, which designs, sources and markets
women's career apparel and sportswear under the Austin Reed(R), Suburbans(R)
and MM by Krizia(TM) labels.
33
<PAGE>
Barrie Pace Ltd. Barrie Pace, which was launched by the Company in 1985, is
the mainstay of its women's apparel business. Targeting the upscale business
and professional woman, Barrie Pace features classic career apparel and
accessories marketed under the Austin Reed(R) label as well as a variety of
other well-known brands. Barrie Pace provides the Company with the opportunity
to utlilize its tailored clothing expertise to expand into career apparel for
women and to benefit from the growth of the direct mail distribution channel.
Barrie Pace distributes over six million catalogs annually and possesses a list
of approximately 150,000 active customers. It received a Silver Award in 1993
from the American Catalog Awards in the category of Apparel over $100. The
Company intends to expand Barrie Pace through increased catalog circulation and
by broadening its merchandise mix to include women's sportswear and more
informal career apparel.
International Women's Apparel. IWA designs, sources, markets and distributes
womenswear to department and specialty stores under the Austin Reed(R),
Suburbans(R) and MM by Krizia(TM) labels. Each of these product lines offers
jackets, pants, skirts, blouses and sweaters, at a broad range of retail
prices. Substantially all of IWA's products are sourced from contract
manufacturers in the United States and throughout the world. The primary
exception is the Austin Reed(R) line of tailored jackets, which is manufactured
in a Company-owned facility. The Company is reviewing the profitability
prospects and strategic direction of, and options with respect to, IWA, and may
in the future decide to discontinue IWA's product lines or change its
distribution channels. Any such actions, if taken, may have an adverse effect
on the Company's results of operations. For additional information regarding
IWA, see "Risk Factors--Recent Operating Losses."
DESIGN, MANUFACTURING AND SOURCING
As a vertically integrated manufacturer and marketer, the Company is
responsible for all aspects of the design, manufacturing and sourcing of its
apparel. Over 80% of the Company's fiscal 1993 sales, including substantially
all of its men's tailored clothing, are derived from products manufactured in
its own production facilities, all of which are located in the United States.
The Company utilizes domestic and foreign contract manufacturers to produce its
remaining products, principally men's and women's sportswear, in accordance
with Company specifications and production schedules. The Company believes that
this combination of owned manufacturing and contract sourcing enables it to
efficiently control the pricing, quality and delivery of its products and to
effectively utilize the capital resources allocated to the manufacturing
process.
The Company is implementing programs to streamline its manufacturing
facilities and make them more cost effective. These programs include a
reduction in the number of Company-operated manufacturing facilities, the shift
of production to lower-cost facilities, an increase in the utilization of
foreign contract manufacturers and the adoption of a variety of productivity
enhancement measures. Increased manufacturing efficiencies and ongoing cost
savings, coupled with new sourcing strategies, have enabled the Company to
maintain or reduce the wholesale prices of its garments while maintaining its
margins and high quality standards.
The design and manufacturing of each of the Company's product lines is
managed by a dedicated design team working closely with their sales and
production counterparts to determine the apparel styles and manufacturing plans
for a given season. These plans are based upon a variety of criteria including
an evaluation of prior years' experiences, current design trends, economic
conditions and management estimates of a product's future performance. The
average cycle time for men's apparel, from fabric selection to the production
and shipment of finished goods, ranges from 18 to 24 months.
The design process for a particular season typically begins with the
development of a color palette and the selection of fabrics for the Company's
various product lines. This is followed by silhouette and product model
development and the production of sample prototypes. Throughout the process,
the design teams are guided by their interpretation of the latest fashion
trends and changes in consumer demand. Once completed, the Company's product
designs are reviewed internally (and, in certain cases, by licensors) to
evaluate their market appeal.
34
<PAGE>
After product models are approved for production, cutting patterns, which are
used to cut the fabric, are made. Once completed, these patterns are
electronically transferred to automatic cutting machines via computer tapes or
discs. Computer-aided design ("CAD") systems are utilized extensively
throughout the new product design and manufacturing process. When coupled with
the Company's computerized automatic cutting machines, this CAD technology
helps systematize production and maximize fabric utilization in the
manufacturing process.
Most of the Company's tailored products are manufactured in three stages.
First, the fabric is generally treated through a "sponging" process prior to
cutting, which reduces the likelihood of fabric shrinkage subsequent to
manufacturing. Second, the fabric is cut into pieces. These pieces are then
sewn together and finished. As is customary for the industry, this production
process is frequently performed in separate facilities to maximize labor
productivity, with the result being that a particular garment produced by the
Company may be assembled at two or, in some cases, three locations.
Men's sportswear and women's career apparel and sportswear are manufactured
under a variety of arrangements with unaffiliated contractors located in the
United States, Asia, Mexico, Central America or Europe. The Company either
supplies fabric to contractors or directs the contractor to purchase raw
materials according to Company specifications. These contractors are monitored
by Company personnel or agents to help ensure that the Company's product
quality standards are satisfied.
RAW MATERIALS
Raw materials, which include fabric, linings, thread, buttons and labels, are
obtained from domestic and foreign sources based on quality, pricing, fashion
trends and availability. The Company's principal raw material is fabric,
including woolens, polyester, cotton and blends of wool and polyester and
cotton and polyester. The Company procures and purchases its raw materials
directly for its owned manufacturing facilities and may also procure and retain
ownership of fabric relating to garments cut and assembled by contract
manufacturers. In other circumstances, fabric is procured by the contract
manufacturer directly but in accordance with the Company's specifications. For
certain of its product offerings, the Company and selected fabric suppliers
jointly develop fabric for the Company's exclusive use. Approximately 25% of
the raw materials purchased by the Company is imported from foreign mills. A
substantial portion of these purchases is denominated in United States dollars.
Purchases from Burlington, the Company's largest fabric supplier, accounted for
48% of the Company's total fabric requirements in fiscal 1993. See "Risk
Factors--Dependence on Burlington Industries" for a discussion of the Company's
purchases of fabric from Burlington. No other supplier accounts for over 6% of
the Company's total raw material requirements. As is customary in its industry,
the Company has no long-term contracts with its suppliers. The Company believes
that a variety of alternative sources of supply is available to satisfy its raw
material requirements.
SEASONALITY AND BACKLOG
The men's tailored clothing business has two principal selling seasons,
spring and fall. Additional lines for the summer and holiday seasons are
marketed in men's and women's sportswear. Men's tailored clothing, especially
at higher price points, generally tends to be less sensitive to frequent shifts
in fashion trends, economic conditions and weather, as compared to men's
sportswear or women's career apparel and sportswear. While there is typically
little seasonality to the Company's sales on a quarterly basis, seasonality can
be affected by a variety of factors, including the mix of advance and fill-in
orders, the distribution of sales across retail trade channels and overall
product mix between traditional and fashion merchandise.
The Company generally receives orders from its wholesale customers
approximately five to seven months prior to shipment. Some of the Company's
operating groups also routinely maintain in-stock positions of
35
<PAGE>
selected inventory in order to fulfill customer orders on a quick response
basis. A summary of the order and delivery cycle for the Company's two primary
selling seasons is illustrated below:
<TABLE>
<CAPTION>
MERCHANDISE SEASON ADVANCE ORDER PERIOD DELIVERY PERIOD
------------------ -------------------- --------------------------------------------------
<S> <C> <C>
Fall December to March June to October (primarily July and August)
Spring June to September December to March (primarily January and February)
</TABLE>
The Company's borrowing needs are typically lowest in July and January.
Financing requirements begin to rise as inventory levels increase in
anticipation of the spring and fall advance order shipping periods. Borrowings
reach their highest levels in April and October, just prior to the collection
of receivables from men's tailored clothing advance order shipments. Sales and
receivables are recorded when inventory is shipped, with payment terms
generally 30 to 60 days from the date of shipment. With respect to the tailored
clothing advance order shipments, customary industry trade terms are 60 days
from the seasonal billing dates of February 15 and August 15.
COMPETITION
All of the markets in which the Company competes--men's tailored clothing,
men's slacks and sportswear, women's sportswear and women's career apparel--are
highly competitive. The Company believes that the strong brand recognition
enjoyed by its products at both the wholesale and retail level, the breadth of
its product offerings in both price point and fashion direction and the
established relationships it possesses across retail distribution channels are
critical factors which differentiate the Company from its competitors. In
addition, the Company believes that its vertically integrated manufacturing
structure allows it to offer high quality products at competitive prices.
The Company believes that it is the largest domestic manufacturer and
marketer of men's tailored clothing as well as men's slacks with expected
retail prices over $50. It competes in these and the other segments of its
business primarily on the basis of its brand names, fashion offerings, quality,
service and price. The Company believes that its competitive position depends
upon its ability to respond effectively to changing consumer demands while
continuing to provide apparel recognized for its consistent styling, quality
and competitive prices.
Although imports have been a significant factor in the men's tailored
clothing industry in recent years, they have generally been offered at either
the lowest or the highest retail price points. The Company believes that a
variety of factors, including the long lead times required for international
shipping and lack of appropriate quality control among foreign manufacturers
(other than certain European manufacturers) have made it impractical for many
foreign manufacturers to import men's tailored clothing products that are
competitive with the Company's products on a price, quality and service basis.
Imports of men's tailored clothing are also subject to quotas and import
duties. The duty on imports of men's and boys' tailored clothing currently
varies depending upon the fabric used and may range as high as 22%. The
recently concluded NAFTA provides for the gradual elimination of tariffs and
quotas on men's tailored clothing meeting NAFTA's strict rules of origin.
Currently, men's tailored clothing that is manufactured in Canada but does not
meet these strict rules of origin may be imported into the United States at
relatively low tariff levels subject to specified quotas; any products imported
above these quota levels would be subject to existing tariff rates. In
addition, the recently completed GATT reduces both duties and quotas for
apparel as well as fabric. The net effect on the Company of reduced tariffs on
its foreign competition and on its foreign-sourced finished apparel and fabric
is uncertain at this time.
CUSTOMER BASE
As a broad-based manufacturer and marketer of apparel, the Company has
focused on the continued diversification of its wholesale customer base to
coincide with changing consumer trends. To effect this strategy, the Company
has supplemented its traditional channel of distribution--department and
specialty
36
<PAGE>
stores--with value-oriented retailers, direct mail companies, mass
merchandisers and its own factory-direct-to-consumer retail channel. The
Company believes that its relationships with major retailers, including the
active involvement of the Company's senior management in the selling process,
are of critical importance to the maintenance of its leading market position.
The Company's primary wholesale customer base consists of fine specialty and
leading department stores such as Dillard Department Stores, Federated
Department Stores, Macy's, May Department Stores, Neiman Marcus, Nordstrom and
J.C. Penney. This distribution channel accounted for approximately 60% of sales
in fiscal 1993. The growing value-oriented channel, which includes outlet and
off-price retailers, mass merchandisers and the Company's own factory-direct-
to-consumer network, represents an increasingly important distribution channel
for the Company. Other distribution channels include direct mail companies,
golf pro shops and the Company's 28 factory outlet stores. The Company's top
ten customers accounted for approximately 37% of net sales in fiscal 1993, and
the Company's largest customer, Dillard Department Stores, represented
approximately 12% of net sales. No other customer accounted for more than 7% of
net sales in fiscal 1993.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that advanced information processing is essential in
order to maintain its competitive position and, as a result, has invested in
computer hardware systems, applications and networks to enhance and speed the
apparel design process and to support the manufacturing, sale and distribution
of its products to its customers. CAD systems are utilized throughout the new
product design and manufacturing process. When coupled with the Company's
computerized automatic cutting machines, this CAD technology helps systematize
production and maximize fabric utilization in the manufacturing process. The
Company provides a variety of information processing services, including quick
response and electronic data interchange ("EDI"), to substantially all of its
major customers, enabling the replenishment of inventory for selected product
styles within 24 to 48 hours after an order is placed electronically. EDI
applications include invoicing, purchase order creation and transmission,
inventory advice, shipping notices, point-of-sale feedback data on retail
transactions and electronic mail.
EMPLOYEES
As of November 30, 1993, the Company had approximately 11,200 employees. A
substantial percentage of nonsupervisory employees engaged in manufacturing and
distribution participate in collective bargaining agreements with the
Amalgamated Clothing and Textile Workers Union in effect through August 1994
and April 1995. The Company considers its employee relations to be
satisfactory.
TRADEMARKS AND LICENSING AGREEMENTS
The Company regards the trademarks it utilizes as valuable strategic assets
which serve to differentiate its products in both the wholesale and retail
marketplace. Approximately 60% of the Company's sales are of garments sold
under trademarks which it owns, while approximately 40% of its sales are of
products designed, manufactured and marketed by the Company under licensing
agreements it has with others and on a private label basis.
The Company utilizes 15 principal owned trademarks, including several which
it believes are among the oldest and most recognized brand names in tailored
clothing. Its Hart Schaffner and Marx(R) and Hickey-Freeman(R) trademarks were
introduced in 1887 and 1899, respectively. Other principal trademarks owned by
the Company include: Sansabelt(R), Kuppenheimer(R), Racquet Club(R) and Barrie
Pace(R). From time to time, the Company develops new trademarks to support the
introduction of new product lines. All of the Company's owned trademarks have
been registered for use in the United States and various countries throughout
the world. The Company vigorously protects its principal trademarks against
infringement.
37
<PAGE>
In addition to the use of its owned trademarks, the Company operates under
license agreements to manufacture and/or distribute certain men's and women's
apparel. The Company believes that access to these trademarks provides it with
an important strategic advantage, enabling the Company to broaden its product
offering through the use of developed, well-recognized brand franchises. These
licenses generally extend for a term of three to five years, with renewal
options based upon achievement of specific sales levels. The agreements further
provide for royalty payments based on a percentage of sales, minimum royalties
and advertising minimums. Several agreements are also subject to termination
upon a change of control and/or a change in certain of the Company's executive
officers. The Company influences all aspects of design, merchandising,
distribution, advertising and promotion of these licensed products with varying
degrees of participation by the licensor. The Company also serves as a
licensing agent for several of its principle licensors, including Jack
Nicklaus, Nino Cerruti and Pierre Cardin. Most of the Company's material
licensing agreements have been in place for over five years, and the Company
believes its relationship with its principal licensors to be excellent. The
Company does not believe that the termination of any single licensing agreement
would have a material adverse effect on the business of the Company taken as a
whole.
To broaden the international distribution of the apparel sold under its owned
and licensed trademarks, the Company has entered into over 35 license or
sublicense agreements for specified product lines with third party licensees to
produce, market and distribute products in 14 countries outside the United
States. These agreements allow the Company to utilize the local market
expertise of its licensees and to enter new geographic territories with minimal
capital requirements.
Set forth below is a summary overview of the Company's licensing agreements
under which the Company is the licensee:
<TABLE>
<CAPTION>
GEOGRAPHIC DATE
PRINCIPAL AREA AVAILABLE LICENSE
LICENSOR/BRAND NAME PRODUCTS UNDER LICENSE BEGAN
------------------------------------ ----------------- -------------------- ------------
<S> <C> <C> <C>
The All England Lawn Tennis Club Men's clothing U.S.A., Mexico 3/7/88
Limited
Wimbledon(R)
Allyn St. George International, Inc. Men's suits and U.S.A. 12/1/82
Allyn St. George(R) sportcoats 12/2/78
(predecessor
agreement)
Asian and Western Classics Men's clothing U.S.A., Canada, 12/20/90
Karl Lagerfeld(R) Mexico
Austin Reed Limited Men's furnishings U.S.A., Puerto Rico, 1/1/87
Austin Reed(R) Panama, Guam
Men's sportswear U.S.A., Puerto Rico, 12/31/86
Panama, Guam 3/16/84
(predecessor
agreement)
Men's clothing U.S.A., Puerto 8/1/72
Rico, Panama, 8/16/67
Guam and, through (predecessor
sublicense, Canada agreement)
Women's clothing U.S.A., Puerto Rico, 1/1/81
Panama, Guam
Cerruti 1881 Paris S.A. Men's clothing U.S.A. 10/15/84
CRR Nino Cerruti Paris(R) Cerruti 1/1/75
1881 Couture(R) (predecessor
agreement)
CRR Nino Cerruti(R) Men's clothing Mexico 10/1/91
10/1/88
(predecessor
agreement)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DATE
PRINCIPAL AREA AVAILABLE LICENSE
LICENSOR/BRAND NAME PRODUCTS UNDER LICENSE BEGAN
--------------------------------- ----------------------- --------------------------- ------------
<S> <C> <C> <C>
The Downtown Athletic Club Men's clothing U.S.A., Canada, 9/1/93
of New York City, Inc. Mexico
The Heisman Trophy Collection(TM)
Gieves & Hawkes International Men's tailored clothing U.S.A. except, 6/1/88
Limited Alaska, Hawaii, Puerto Rico
Gieves & Hawkes(R)
Golden Bear Inc. Men's clothing U.S.A., Mexico, 3/29/83
Jack Nicklaus(R) Puerto Rico 6/1/71
(predecessor
agreement)
Men's and women's U.S.A., Canada, 7/1/90
golf apparel Mexico
Henry E. Grethel Men's clothing No limitation 5/20/87
Henry Grethel(R)
J.G. Hook, Inc. Men's clothing U.S.A., Puerto Rico, 5/1/89
J.G. Hook(R) U.S. Virgin Islands,
Guam
John W. Carson Men's apparel and No limitation 9/4/86
Johnny Carson(R) accessories
Jonesheirs, Inc. Men's and women's U.S.A. and numerous 6/1/88
Bobby Jones(R) clothing specified countries
Krizia S.p.A.
MM by Krizia(TM) Women's clothing U.S.A., Canada, 9/5/91
Mexico
KM by Krizia(TM) Men's clothing U.S.A., Canada, 11/15/90
Mexico
Luciano Franzoni Men's tailored clothing No limitation 10/16/89
Luciano Franzoni(TM)
Omni Sport b.v. Men's clothing U.S.A., Canada, 7/1/92
Fumagalli's(R) Mexico
Rough Rider Co. Men's clothing U.S.A., military 3/1/78
Rough Rider(TM) exchanges worldwide
S.A.R.L. de Gestion Pierre Cardin Men's clothing U.S.A., Colombia 9/1/72
Pierre Cardin(R)
Tommy Hilfiger Licensing, Inc. Men's tailored clothing U.S.A. 6/4/93
Tommy Hilfiger(R)
</TABLE>
PROPERTIES
The Company's principal executive and administrative offices are located in
approximately 45,000 square feet of leased space at 101 North Wacker Drive,
Chicago, Illinois 60606. As of November 30, 1993, the Company operated 25
manufacturing and distribution facilities aggregating approximately 3.3 million
square feet. The Company and its various operations occupy sales offices in New
York City, Chicago, Dallas, Los Angeles and Atlanta totalling approximately
100,000 square feet, all of which is leased. Summary information for each of
the Company's manufacturing and administrative locations is set forth below.
The Company also operates 181 retail or outlet stores with an aggregate area of
approximately 700,000 square feet. Four of such stores (comprising 23,000
square feet) are owned by the Company, and the remaining stores are leased.
39
<PAGE>
The Company believes that its properties are well maintained and its
manufacturing equipment is in good operating condition and sufficient for
current production.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
COMPANY LOCATION USE FOOTAGE LEASED/OWNED
- ---------------- ------------------ -------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Hartmarx Chicago, IL Administrative offices 45,000 Leased
Corporation
Hart Schaffner Chicago, IL Coat sewing, matching 313,000 Owned
& Marx Chicago, IL Administrative offices 67,000 Leased
Des Plaines, IL Fabric storage, sponging, 361,000 Owned
cutting, matching,
warehousing, shipping
Cape Girardeau, MO Cutting, coat sewing 171,000 Owned
Winchester, KY Coat sewing 92,000 Owned
Chaffee, MO Pant sewing, warehousing 78,000 Leased
shipping
Rock Island, IL Coat sewing 43,000 Owned
Rochester, IN Pant sewing 37,000 Owned
Intercontinental Buffalo, NY Administrative offices, 280,000 Leased
Branded fabric storage, sponging,
Apparel cutting, matching,
warehousing, shipping
Buffalo, NY Coat sewing 115,000 Owned
Whiteville, NC Coat sewing 105,000 Owned
Hialeah, FL Coat sewing 44,000 Leased
Dunkirk, NY Pant sewing 35,000 Owned
Trans-Apparel Michigan City, IN Administrative offices, 420,000 Owned
Group fabric storage, cutting,
warehousing, shipping
Anniston, AL Pant sewing 76,000 Leased
Elizabethtown, KY Pant sewing 54,000 Owned
East Chicago, IN Pant sewing 44,000 Leased
Biltwell Farmington, MO Fabric storage, cutting, 75,000 Leased
pant sewing
Farmington, MO Warehousing, shipping 65,000 Owned
St. Louis, MO Administrative offices, 88,000 Leased
coat sewing
Rector, AR Pant sewing 52,000 Owned
Hickey-Freeman Rochester, NY Administrative offices, 223,000 Owned
fabric storage, sponging,
cutting, sewing,
warehousing and shipping
Kuppenheimer Loganville, GA Fabric storage, cutting, 179,000 Owned
coat sewing, matching,
warehousing and shipping
Norcross, GA Administrative offices 59,000 Leased
Wellston, OH Pant sewing 34,000 Leased
International Easton, PA Administrative offices, 220,000 Owned
Women's warehousing and shipping
Apparel
Bobby Jones Rochester, NY Warehousing, shipping 51,000 Leased
</TABLE>
40
<PAGE>
LEGAL PROCEEDINGS
Dior Proceedings. In 1989, HSM and Christian Dior-New York, Inc. ("Dior")
were adverse parties in various lawsuits filed in the Circuit Court of Cook
County, Illinois, arising out of a Trademark License Agreement under which HSM
manufactured and sold apparel products bearing Dior's trademark(s). These
lawsuits were eventually settled and dismissed; however, the settlement
agreement among the parties has been the subject of an unfavorable award
against HSM in a subsequent arbitration proceeding and lawsuit which is
currently being appealed. In addition, HSM has initiated a separate arbitration
proceeding against Dior. It is the opinion of management that neither matter
will have a material effect on the Company's business or financial condition.
Spillyards Litigation. In September 1992, David Spillyards, represented to be
the holder of approximately 1,800 shares of common stock of the Company, filed
a class action complaint in the Circuit Court of Cook County, Illinois, against
the Company, its directors and former director Harvey A. Weinberg. The
complaint claimed that the Company's directors breached certain duties owed to
the Company's shareholders and sought certification as a class action, the
appointment of Mr. Spillyards' counsel as class counsel and related damages.
The complaint, which also included a derivative action, alleged that the
purpose of the sale of the Company's principal retail unit, HSSI, to HSSA, was
to benefit Mr. Weinberg (who was also alleged to have been a director of the
Company at the time of the announcement of the sale). The complaint was
subsequently amended to include additional allegations pertaining to the
ultimate sale of 5,714,286 shares of common stock of the Company and a three-
year warrant for 1,649,600 shares of common stock of the Company to Traco (the
"Traco Agreement"). The complaint, as amended, was dismissed on November 30,
1992 and Mr. Spillyards was given permission by the Court to file another
amended complaint, which was filed on December 28, 1992 (the "Second Amended
Complaint"). The Second Amended Complaint, denominated as a class action and
derivative complaint, again challenged certain aspects of the Traco Agreement
and alleged that the Company made certain misleading representations in its
July 17, 1991 prospectus. After the Company's motion to dismiss the Second
Amended Complaint was granted on June 24, 1993, Mr. Spillyards filed a Third
Amended Complaint (purportedly asserting new issues regarding the Traco
Agreement), which was again dismissed on September 29, 1993. Mr. Spillyards
filed notice of appeals with the Illinois Appellate Court on October 29, 1993,
and December 23, 1993. The appeals were consolidated by court order on February
8, 1994.
HSSI Matters. On September 18, 1992, the Company sold the HSSI Stock to HSSA
for the HSSA Note, in the principal amount of $43 million due September 18,
1994, which was subject to adjustment based on inventories to be taken after
the closing and was subsequently adjusted to $35 million. Pursuant to the
Pledge Agreement, the HSSA Note was secured by a pledge of the HSSI Stock and
HSSI also guaranteed the obligations of HSSA under the HSSA Note.
On November 23, 1993, after the Company determined that certain obligations
under the HSSA Note and related documents had been breached, the Company
exercised certain of its rights under the Pledge Agreement to, among other
things, cause the HSSI Stock to be voted to elect a new Board of Directors.
On November 23, 1993 and December 2, 1993, HSSI filed complaints against MLR
in the Circuit Court, seeking (i) to enjoin MLR from foreclosing under an
inventory credit agreement between HSSI and MLR, pursuant to which MLR provided
credit support to HSSI, (ii) over $4 million in compensatory damages and (iii)
$30 million in punitive damages for, among other things, breach of contract and
conversion. On January 28, 1994, both of these actions were removed by MLR to
federal court to be administered in the HSSI Chapter 11 case.
On November 29, 1993, HSSA filed a complaint for declaratory and preliminary
and permanent injunctive relief against the Company in the Circuit Court,
seeking an order declaring, among other things, that HSSA is and remains the
owner of HSSI. The complaint alleges that the Company improperly and wrongfully
seized ownership of HSSI. HSSA's request for a temporary restraining order in
this regard was
41
<PAGE>
denied and the case remains before the Circuit Court. On January 24, 1994, HSSA
was granted leave, subject to pending objections, to file an amended complaint.
The amended complaint seeks actual damages in an unspecified amount and
punitive damages of at least $10 million for, among other things, breach of
contract, tortious interference with contract, and conversion. The Circuit
Court has reserved ruling on the propriety of the filing of the amended
complaint. Primarily, these theories of liability are based on claims that the
Company unilaterally and wrongfully took the HSSI Stock in the absence of an
event of default and in the absence of any notice to HSSA and failed to dispose
of the HSSI Stock in a commercially reasonable manner, all in breach of the
Company's obligations under the HSSA Note, the Stock Purchase Agreement, the
Pledge Agreement and Part 5 of Article 9 of the Illinois Commercial Code.
On December 3, 1993, HSM and certain other subsidiaries of the Company filed
a complaint against MLR in the Circuit Court seeking damages for goods sold
pursuant to orders of MLR for shipment to HSSI and other retailers to which MLR
provides credit support.
On December 21, 1993, HSSI and 25 affiliates filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of Illinois, Eastern Division (the "Bankruptcy
Court").
On January 19, 1994, the Company filed a complaint against the directors of
HSSA in the Circuit Court seeking damages for wrongfully causing HSSI to make
distributions, returns of capital and compensation and other payments to
principals of HSSA in violation of the HSSA Note. The complaint was dismissed
without prejudice on March 2, 1994.
On January 24, 1994, HSSI filed a complaint in the Bankruptcy Court against
MLR which included many of the claims asserted in the Circuit Court case
described above and which additionally seeks (i) to equitably subordinate the
claim asserted by MLR in HSSI's bankruptcy case and (ii) monetary damages from
the former directors of HSSI and related parties for breach of fiduciary duty.
Also on January 24, 1994, MLR filed a complaint (which was amended on February
4, 1994) against the Company and six subsidiaries, among others, in the Circuit
Court seeking actual damages of $19 million and punitive damages of over $100
million for tortious interference with contract and interference with
prospective economic advantage. These theories of liability are based, in part,
on claims that no default existed under the HSSA Note and that the subsequent
sale of the HSSI Stock was improper because the Company did not give notice of
the time or location of the sale of the HSSI Stock. MLR further alleges that
counsel for the Company conceded in the hearing on HSSA's unsuccessful attempt
to obtain a temporary restraining order that HSSA was entitled to such notice.
On February 4, 1994, MLR filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court and filed an adversary
proceeding against the Company to recover a payment of approximately $4.8
million to the Company as a voidable preference under the Bankruptcy Code. The
preference action was dismissed without prejudice on February 10, 1994.
The Company, HSSI, HSSA and MLR have agreed, under certain conditions, to
forebear from prosecuting their claims in the Chapter 11 cases, the Circuit
Court proceedings and related federal court proceedings described above until
May 15, 1994 in order to facilitate discussions regarding a possible consensual
resolution of the above matters. The agreement may be terminated by any party
upon ten days' written notice and there can be no assurance that any such
resolution will result from such discussions.
After consultation with counsel, management of the Company believes that the
Company has meritorious defenses to the actions against the Company referred to
above and that such actions will not have a material adverse effect on the
Company's business or financial condition. See "Risk Factors--Uncertainties
Regarding HSSI and MLR" for a discussion of certain possible effects of the
above proceedings on the Company.
42
<PAGE>
MANAGEMENT
The executive officers and significant employees of the Company and their
ages as of February 15, 1994 are as follows:
<TABLE>
<CAPTION>
CORPORATE EXECUTIVE
OFFICERS AGE POSITION
--------------------- --- ---------------------------
<S> <C> <C>
Elbert O. Hand 54 Chairman, Chief Executive
Officer and Director
Homi B. Patel 44 President, Chief Operating
Officer and Director
Wallace L. Rueckel 49 Executive Vice President
and Chief Financial Officer
Carey M. Stein 46 Executive Vice President,
Chief Administrative Offi-
cer, Secretary and General
Counsel
Glenn R. Morgan 46 Senior Vice President
and Controller
Frank A. Brenner 65 Vice President, Marketing
Services
James E. Condon 43 Vice President and Trea-
surer
Linda J. Valentine 43 Vice President, Compensa-
tion and Benefits
<CAPTION>
OPERATIONS EXECUTIVES
---------------------
<S> <C> <C>
Thomas G. Bowles 44 President and Chief Operat-
ing Officer, Intercontinen-
tal Branded Apparel
Thomas L. Hall 44 President and Chief Execu-
tive Officer, International
Women's Apparel
Kenneth A. Hoffman 50 President, Men's Apparel
Group; President and Chief
Executive Officer, Hart
Schaffner & Marx
Larry Levy 61 President and Chief Execu-
tive Officer, Kuppenheimer
R. Roydon Ricks 50 President and Chief Operat-
ing Officer, Trans-Apparel
Group
Steven J. Weiner 53 President and Chief Operat-
ing Officer, Hickey-Freeman
Thomas M. Wheeler 41 President and Chief Operat-
ing Officer, Biltwell Com-
pany
Solange Cohen 33 Vice President, Barrie Pace
</TABLE>
CORPORATE EXECUTIVE OFFICERS
ELBERT O. HAND became Chairman and Chief Executive Officer of Hartmarx
Corporation in 1992. In his 29 years with the Company, he has held many
positions including President and Chief Operating Officer from 1987 to 1992 and
President of the Men's Apparel Group from 1982 to 1987. He has been a director
since 1984. He is the former Chairman and currently a director of the American
Apparel Manufacturers Association.
43
<PAGE>
HOMI B. PATEL became President in 1992 and Chief Operating Officer in 1993.
He also serves as Chairman of the Men's Apparel Group. He became a director of
the Company in January 1994. He has been employed by Hartmarx for 14 years,
during which time he has held a variety of management positions. He is
President of the Clothing Manufacturers Association and serves as its chief
labor negotiator.
WALLACE L. RUECKEL became Executive Vice President and Chief Financial
Officer in 1993. Prior to joining the Company, he served as a key financial
officer at Guardian Industries and its affiliates for nine years. He also
worked for Sundstrand Corporation from 1975 to 1984 and for Cummins Engine Co.
from 1967 to 1975.
CAREY M. STEIN became Chief Administrative Officer in 1993. He was named
Executive Vice President in 1992 and General Counsel and Secretary in 1984. He
has worked for the Company for 16 years. He is a member of the American Apparel
Manufacturers Association Legal Committee. He is presently on a medical leave
of absence from the Company.
GLENN R. MORGAN was named Senior Vice President in 1993 and serves as the
Company's Controller and Chief Accounting Officer. He has worked for the
Company for 14 years. He serves on the board of the Financial Management
Committee of the American Apparel Manufacturers Association.
FRANK A. BRENNER became Vice President of Marketing Services in 1983. He has
been employed by Hartmarx for 25 years in a variety of advertising, marketing
and public relations positions.
JAMES E. CONDON became Vice President and Treasurer in 1986. He joined the
Company in 1977 and has been responsible for treasury operations, investor and
financial relationships and pension fund management.
LINDA J. VALENTINE became Vice President of Compensation and Benefits in
1993. She has been employed by Hartmarx for 13 years, during which time she has
held various management positions in compensation and human resources.
OPERATIONS EXECUTIVES
THOMAS G. BOWLES became President of Intercontinental Branded Apparel in 1988
and Chief Operating Officer in 1991. He joined IBA in 1987 as Executive Vice
President of Marketing and Merchandising.
THOMAS L. HALL joined the Company as President and Chief Executive Officer of
International Women's Apparel in 1989. He was formerly President and Chief
Operating Officer of Pyke Manufacturing, a women's apparel manufacturer.
KENNETH A. HOFFMAN became President and Chief Executive Officer of Hart
Schaffner & Marx in 1984 and President of the Company's Men's Apparel Group in
1991. His career at Hartmarx spans 26 years during which he held several
executive positions including President of the predecessor to Intercontinental
Branded Apparel.
LARRY LEVY became President and Chief Executive Officer of Kuppenheimer in
1993. He joined Hartmarx in 1972 and served in various capacities at HSSI,
including Chief Executive Officer of Wallachs in New York and Baskins in
Chicago. Most recently, he was President of Field Bros.
R. ROYDON RICKS was named President and Chief Operating Officer of Trans-
Apparel Group in 1991. Since joining Hartmarx in 1980, Ricks has held several
executive positions for Hart Schaffner & Marx, and was President of the
Company's former Gleneagles outerwear subsidiary.
STEVEN J. WEINER became President and Chief Operating Officer of Hickey-
Freeman in 1992. He joined Hartmarx in 1977 and has worked in several of the
Company's businesses, including Intercontinental Branded Apparel and Hartmarx
International.
THOMAS M. WHEELER was named President and Chief Operating Officer of Biltwell
in 1992. His career with Hartmarx began in 1977 in its former Fashionaire
business, later serving as President and Chief Operating Officer of Hartmarx
Special Markets Group.
SOLANGE COHEN became Vice President of Barrie Pace in 1993. Since joining
Hartmarx in 1984, she has held various positions at Barrie Pace, including
Buyer, Director of Marketing and Merchandise Manager.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the principal terms of certain indebtedness of the
Company does not purport to be complete and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the documents
relating to such indebtedness, copies of which have been filed or incorporated
by reference as exhibits to the Registration Statement of which this Prospectus
forms a part and other documents filed by the Company with the Commission.
OVERRIDE AGREEMENT AND BRIDGE FACILITY
In December 1992, the Company entered into the Override Agreement and the
Bridge Facility with the Company's then principal lenders. The Override
Agreement substantially replaced or amended the provisions of prior agreements
covering the Company's $196 million unsecured borrowing facility with 13 banks,
$45 million of insurance term loans, approximately $38 million of bank term
loans, the ESOP loan guarantee and guarantees related to certain industrial
development bonds having aggregate borrowings of approximately $15 million. In
addition, the Bridge Facility provides for new seasonal borrowings of $35
million. Borrowings under the Override Agreement and the Bridge Facility are
secured by substantially all of the assets of the Company and its subsidiaries,
subject to a priority for certain trade creditors. Borrowings under the
Override Agreement, Bridge Facility and certain other debt extending to 2007
collectively constitute the current "Senior Debt."
The $307 million Override Agreement is in effect through December 30, 1995.
As of November 30, 1993, $226.4 million was outstanding under the Override
Agreement with $73.9 million available thereunder after taking into account
$6.7 million of outstanding letters of credit. The Bridge Facility, originally
$35 million and maturing on November 30, 1993, has been extended by the Company
for one year and provides for a $15 million commitment through November 30,
1994. The sale of the Notes contemplated hereby requires the consent of the
lenders under the Override Agreement and the Bridge Facility. Concurrently with
the sale of the Notes, the Company will enter into the New Credit Facility
described below (the "New Credit Facility"), cancel the Bridge Facility and
repay obligations outstanding under and cancel the Override Agreement. At the
present time, no borrowings are outstanding under the Bridge Facility.
NEW CREDIT FACILITY
The Company has executed a commitment letter (the "Financing Commitment")
with General Electric Capital Corporation as managing agent (the "Managing
Agent") with respect to the New Credit Facility. The Financing Commitment is
subject to, among other things, (i) there being no material adverse change in
the business, assets, revenue, operations, prospects or financial condition of
the Company and its subsidiaries taken as a whole and (ii) definitive
documentation for the New Credit Facility acceptable to the Managing Agent. The
Financing Commitment terminates if the closing of the New Credit Facility is
not consummated on or before April 30, 1994. The description set forth below of
the New Credit Facility is based upon the Form of Credit Agreement (the "Credit
Agreement"), a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary of the
New Credit Facility does not purport to be complete and is subject to, and is
qualified in its entirety by, reference to the Credit Agreement.
The New Credit Facility is a three-year secured revolving credit facility in
an aggregate maximum amount of $175 million, subject to a borrowing base
formula based upon 85% of eligible accounts receivable and 55% of eligible
inventory, subject to certain reserves, including a letter of credit
subfacility of up to $25 million and a swing loan subfacility of up to $15
million. The New Credit Facility will be used to refinance the existing
Override Agreement and Bridge Facility, to finance ongoing working capital and
letter of credit requirements and for general corporate purposes.
The New Credit Facility will be secured by a first priority security interest
in substantially all of the current and certain of the intangible assets of the
Company and its subsidiaries. The New Credit Facility will
45
<PAGE>
include a negative pledge on all assets of the Company and its subsidiaries and
be guaranteed by the subsidiaries of the Company.
Borrowing under the New Credit Facility will be maintained as either base
rate or LIBOR loans, as the Company may elect from time to time, at rates that
are: (i) 1.5% over the greater of (a) a rate based on the weighted average of
rates of the 90-day commercial paper rate or (b) the base rate of a bank to be
selected by the Managing Agent or (ii) 2.5% over LIBOR. The New Credit Facility
will contain certain provisions for the ability of these rates to decline based
upon ratios relating to total debt to EBITDA and debt service coverage.
Outstanding principal amounts under the New Credit Facility will bear interest
at the applicable interest rate plus 2% after the occurrence and during the
continuance of an Event of Default under the Credit Agreement. The New Credit
Facility will require the Company to pay certain customary fees, including (i)
an unused commitment fee (.5% per annum) payable quarterly throughout the term
of the New Credit Facility, (ii) an annual administrative fee ($75,000), (iii)
an annual collateral agent fee ($100,000) and (iv) letter of credit fees.
The Company will be able to prepay base rate loans borrowed under the New
Credit Facility, in whole or in part, subject to certain minimum prepayment
amounts. Base rate loans will be prepayable without penalty. The New Credit
Facility will require the Company to make prepayments in an amount equal to the
net proceeds received from permitted dispositions of assets out of the ordinary
course of business by the Company or its subsidiaries, which prepayments will
not reduce availability to the Company under the Credit Agreement.
The New Credit Facility will contain material restrictions on the operation
of the Company's business, including without limitation covenants pertaining to
(i) capital expenditures, (ii) investments and investments in joint ventures,
(iii) certain junior payments, (iv) fundamental changes and asset sales, (v)
liens and encumbrances, (vi) operating and capital leases, (vii) sale and
lease-back transactions, (viii) sale or discount of receivables, (ix)
transactions with shareholders and affiliates, (x) minimum net worth, (xi)
incurrence of additional indebtedness and (xii) ratios relating to (a) minimum
accounts payable to inventory, (b) maximum total debt to EBITDA and (c) minimum
debt service coverage, as well as other customary covenants, representations
and warranties and funding conditions. The Company does not believe that the
restrictions contained in these financial and operating covenants will cause
significant limitations on the Company's financial flexibility. In addition,
the terms of the New Credit Facility will require the obligations under the New
Credit Facility to be reduced to no more than $135 million for a minimum of 30
consecutive days during the period between April 1 and June 30 during each
calendar year.
The New Credit Facility will contain customary events of default including,
without limitation, (i) the failure to make payments when due, (ii) defaults
under other agreements or instruments of indebtedness in excess of specified
amounts, (iii) noncompliance with covenants, (iv) breaches of representations
and warranties, (v) bankruptcy, (vi) judgments in excess of specified amounts,
(vii) impairment of security interests in collateral, (viii) a material adverse
change in the business or financial condition of the Company and its
subsidiaries taken as a whole, (ix) certain changes of control and (x)
impairment of license agreements.
INDUSTRIAL DEVELOPMENT BONDS
In December 1993, the Company entered into loan agreements with the Indiana
Development Finance Authority ("IDFA") and with the City of Des Plaines,
Illinois ("Des Plaines") relating to economic development refunding revenue
bonds (the "IDBs") issued by IDFA in the amount of $7.5 million (Michigan City
issue) and by Des Plaines in the amount of $8.0 million (Des Plaines issue).
The IDBs refunded economic development revenue bonds issued in connection with
the construction of the Company's Michigan City distribution center and offices
and its Des Plaines Plaza facility. The IDBs bear a fixed coupon of 7.25% and
were issued at a discount to yield 7.50%. The IDBs mature July 1, 2014
(Michigan City issue) and July 1, 2015 (Des Plaines issue). The Company, at its
option, may redeem the IDBs beginning July 1, 2000 at the redemption prices set
forth therein. The IDBs are unsecured obligations of Hartmarx Corporation and
include certain customary covenants, representations and warranties, and events
of default. The IDBs do not contain financial covenants or cross-default
provisions.
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<PAGE>
DESCRIPTION OF THE NOTES
The Notes will be issued under the Indenture, dated as of , 1994,
between the Company and Bank One Wisconsin Trust Company, N.A., as trustee (the
"Trustee"), a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary, which describes certain provisions of the Indenture and the Notes,
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Indenture and the Notes, including the
definitions therein of terms not defined in this Prospectus. As used in
"Description of the Notes," (i) capitalized or defined terms shall have the
meaning ascribed to them herein and (ii) the "Company" shall mean Hartmarx
Corporation and shall not include its subsidiaries.
GENERAL
The Notes will mature on , 2002, and will bear interest at the rate
per annum stated on the cover page hereof from , payable
semiannually in arrears on July 15 and January 15 of each year, commencing July
15, 1994, to the persons who are registered holders thereof at the close of
business on the July 1 or January 1 immediately preceding such interest payment
date. The Trustee will authenticate and deliver Notes for original issue in an
aggregate principal amount of $100 million.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Principal and interest will be payable at the office of
the Trustee, but, at the option of the Company, interest may be paid by check
mailed to the registered holders at their registered addresses. The Notes will
be transferable and exchangeable at the office of the Trustee and will be
issued in fully registered form, without coupons, in denominations of $1,000
and any integral multiple thereof.
REDEMPTION
On or after , 1998, the Notes may be redeemed at the option of the
Company, at any time as a whole, or from time to time in part, on not less than
30 days' nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest (if any) to the date of redemption (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
If redeemed during the 12-month period commencing ,:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998.......................... %
1999.......................... %
2000.......................... %
2001 and thereafter........... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time prior to , 1997, the
Company may redeem, in part and from time to time, with the net proceeds of one
or more Public Equity Offerings or Traco Warrant Exercises, up to $25 million
aggregate principal amount of the Notes, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest (if any) to the date of redemption (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
If redeemed during the 12-month period commencing ,:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1994.......................... %
1995.......................... %
1996.......................... %
</TABLE>
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<PAGE>
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
RANKING
The payment of the principal of, premium (if any) and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the
payment when due of all Senior Debt of the Company in full in cash or cash
equivalents. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "--Defeasance" below
is not subordinate to any Senior Debt or subject to the restrictions described
herein. At November 30, 1993, after giving effect to the use of proceeds from
the sale of the Notes offered hereby and the New Credit Facility to repay
existing Senior Debt, the outstanding Senior Debt of the Company would have
been $143 million. Although the Indenture contains limitations on the amount of
additional Debt which the Company may incur, under certain circumstances the
amount of such Debt could be substantial and, in any case, such Debt may be
Senior Debt. See "--Certain Covenants--Limitation on Debt" below.
The Company is a holding company which derives substantially all of its
income from its Subsidiaries. The Company must rely on dividends or other
intercompany transfers from its Subsidiaries to generate the funds necessary to
meet its debt service and other obligations, including payment of principal and
interest on the Notes. The ability of such Subsidiaries to pay such dividends
or other intercompany transfers is subject to applicable state laws. Claims of
creditors of such Subsidiaries, including trade creditors, secured creditors
and creditors holding guarantees issued by such Subsidiaries, and claims of
holders of Preferred Stock (if any) of such Subsidiaries generally will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of creditors of the Company, including holders of the Notes, even though
such obligations do not constitute Senior Debt. The Notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and holders
of Preferred Stock (if any) of Subsidiaries of the Company. It is anticipated
that certain of the Subsidiaries will guarantee the Company's obligations under
the New Credit Facility. At November 30, 1993, after giving effect to the use
of proceeds from the Notes and the New Credit Facility to repay Senior Debt,
the amount of indebtedness and accounts payable of the Company's Subsidiaries
(excluding intercompany debt and debt guaranteed by the Company's Subsidiaries
which is included in the calculation of Senior Debt) would have been
approximately $30 million, and the Company's Subsidiaries would have had no
Preferred Stock outstanding. Although the Indenture limits the incurrence of
Debt and issuance of Preferred Stock by the Company's Subsidiaries, such
limitation is subject to a number of significant qualifications; moreover, the
Indenture does not impose any limitation on the incurrence by such Subsidiaries
of liabilities that are not considered Debt or Preferred Stock under the
Indenture. See "--Certain Covenants--Limitation on Subsidiary Debt and
Preferred Stock."
"Senior Debt" is defined as (i) Bank Debt; (ii) all obligations consisting of
the principal of and premium (if any) and accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not post-
filing interest is allowed in such proceeding), whether existing on the date of
the Indenture or thereafter incurred, in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which the Company is
responsible or liable; (iii) all Capital Lease Obligations of the Company; (iv)
all obligations of the Company (A) for the reimbursement of any obligor on any
letter of credit, bankers' acceptance or similar credit transaction, (B) under
interest rate swaps, caps, collars, options and similar arrangements and
foreign currency hedges entered into in respect of any obligations described in
clauses (i), (ii) and (iii) or generally to hedge foreign exchange risks, (C)
under receivables financing facilities or (D) issued or assumed as the deferred
purchase price of property or services and all conditional sale obligations of
the Company and all obligations of the Company under any title retention
agreement; (v) all obligations of other persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons for the payment
of which, in either case, the Company is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
agreement which
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<PAGE>
has the economic effect of a guarantee; and (vi) all obligations of the Company
consisting of modifications, renewals, extensions, replacements, refinancings
and refundings of any obligations described in clause (i), (ii), (iii), (iv) or
(v); unless in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Notes. However, Senior Debt will not be
deemed to include (1) any obligation of the Company to any Subsidiary, (2) any
liability for federal, state, local or other taxes owed or owing by the
Company, (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any indebtedness, guarantee or obligation of
the Company (other than the Bank Debt) which is contractually subordinate or
junior in right of payment to any other indebtedness, guarantee or obligation
of the Company or (5) the portion of any Debt issued in violation of the
provisions described under "--Certain Covenants--Limitation on Debt" below.
Only indebtedness of the Company that is Senior Debt will rank senior to the
Notes in accordance with the provisions of the Indenture. The Notes will in all
respects rank pari passu with all other Senior Subordinated Debt of the
Company. The Company has agreed in the Indenture that it will not issue (as
defined in "--Certain Definitions" below), directly or indirectly, any Debt
which is subordinate or junior in ranking in any respect to Senior Debt unless
such Debt is Senior Subordinated Debt or is expressly subordinated in right of
payment to Senior Subordinated Debt. Unsecured Debt is not deemed to be
subordinate or junior to Secured Debt merely because it is unsecured.
The Company may not pay the principal of, premium (if any) or interest on,
the Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Senior Debt is not paid in full in
cash or cash equivalents when due or (ii) any other default on Senior Debt
occurs and the maturity of such Senior Debt is accelerated in accordance with
its terms unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Senior Debt has been paid in full
in cash or cash equivalents. However, the Company may pay the Notes without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representatives of the Designated Senior Debt.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of written notice of
such default from the Representative of such Designated Senior Debt specifying
an election to effect such prohibition (a "Payment Notice") and ending 179 days
thereafter (or earlier if terminated (i) by written notice to the Trustee and
the Company from the Representative which gave such Payment Notice, (ii)
because such default is no longer continuing or (iii) because such Designated
Senior Debt has been repaid in full in cash or cash equivalents).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Debt or the Representative of such
holders has accelerated the maturity of such Designated Senior Debt, the
Company may resume payments on the Notes after the end of such Payment Blockage
Period. Not more than one Payment Notice may be given in any consecutive 360-
day period, irrespective of the number of defaults with respect to Designated
Senior Debt during such period. However, if any Payment Notice within such 360-
day period is given by the Representative of any Designated Senior Debt (other
than the Bank Debt), the Representative of the Bank Debt may give another
Payment Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any consecutive 360-day period.
Upon any payment or distribution of the assets of the Company upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Debt will be
entitled to receive payment in full in cash or cash equivalents before the
holders of the Notes are entitled to receive any payment.
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<PAGE>
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Debt or their Representatives of the acceleration. If any Designated
Senior Debt is outstanding, the Company may not pay the Notes until five days
after such notice is received and, thereafter, may pay the Notes only if the
Indenture otherwise permits the payment at that time.
By reason of such subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company who are holders of Senior Debt
may recover more, ratably, than the holders of the Notes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events each holder of Notes will
have the right to require the Company to repurchase all or any part of such
holder's Notes at a repurchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date): (i) any "person"
or "group" (within the meaning of Section 13(d) of the Exchange Act), together
with any Affiliates or Associates thereof, is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have a beneficial ownership of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of equity securities entitled to vote in the
election of directors of the Company; (ii) liquidation or dissolution of the
Company; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of 66 2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office. A Change of Control will be deemed to have occurred if an event
described in any of the foregoing clauses (i), (ii) or (iii) has occurred,
regardless of whether one of the events in any of the other clauses has also
occurred. Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings
or other recapitalizations, that would not constitute a Change of Control under
the Indenture, but that could increase the amount of indebtedness outstanding
at such time or otherwise affect the Company's capital structure or credit
ratings.
The occurrence of certain of the events which would constitute a Change of
Control may constitute a default under the New Credit Facility and could
constitute a default under the Company's other existing or future indebtedness.
Under the New Credit Facility, the Company is prohibited from repurchasing any
Notes upon a Change of Control. In addition, the exercise by the holders of
their right to require the Company to repurchase the Notes could cause a
default under such indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. The Company's
ability to repurchase the Notes may be limited by applicable subordination
provisions. See "--Ranking." Finally, the Company's ability to pay cash to the
holders of Notes upon a repurchase may be limited by the Company's then
existing financial resources.
Within 30 days following any Change of Control, the Company will mail a
notice to each holder stating (i) that a Change of Control has occurred and
that such holder has the right to require the Company to repurchase all or any
part of such holder's Notes at a repurchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which will be no earlier than 30 days nor later than 60 days
from the date
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<PAGE>
such notice is mailed); and (iv) the instructions, determined by the Company
consistent with the Indenture, that a holder must follow in order to have its
Notes repurchased.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The Change of Control purchase
feature is a result of negotiations between the Company and the Underwriters.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with any
offer required to be made by the Company to repurchase the Notes as a result of
a Change of Control.
The provisions relative to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt. The Company shall not issue, directly or indirectly, any
Debt unless the Consolidated EBITDA Coverage Ratio for the period of the most
recently completed four fiscal quarters of the Company ending at least 45 days
prior to (or, if earlier, the date on which the Company files a quarterly or
annual periodic report under the Exchange Act with the Commission which
includes consolidated financial statements including such quarter) the date
such Debt is issued exceeds 2.0 to 1.0.
Notwithstanding the foregoing, the Company may issue the following Debt: (1)
Debt issued pursuant to the New Credit Facility or any agreement or agreements
which refinance or replace the New Credit Facility, but only to the extent that
the aggregate of all Debt issued or issuable by the Company under the New
Credit Facility and all such refinancing agreements does not exceed the greater
of (A) $175 million and (B) the sum of (x) 55% of the book value of the
inventory of the Company and its Wholly Owned Subsidiaries (other than
Nonrecourse Subsidiaries) and (y) 85% of the book value of the accounts
receivable of the Company and its Wholly Owned Subsidiaries (other than
Nonrecourse Subsidiaries), in each case as determined in accordance with
generally accepted accounting principles (such sum of (x) and (y) is referred
to herein as the "Borrowing Base"); (2) Debt under Capital Lease Obligations
which does not exceed $10 million in the aggregate (less the amount of any Debt
under Capital Lease Obligations of any Subsidiary then outstanding and incurred
pursuant to clause (2) of "--Limitation on Subsidiary Debt and Preferred Stock"
below); (3) Debt owed to and held by a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any transfer of such Debt by such Wholly Owned Subsidiary (other
than to a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the issuance of such Debt by the Company; (4) the Notes and Debt issued in
exchange for, or the proceeds of which are used to refund or refinance, any
Debt permitted by this clause (4); provided, however, that (i) the principal
amount of the Debt so issued shall not exceed the principal amount of the Debt
so exchanged, refunded or refinanced plus an amount no greater than any
prepayment premium due under the terms of the Debt so exchanged, refunded or
refinanced and fees, costs and expenses of issuance of the Debt so issued and
(ii) either (x) the Debt so issued shall not mature prior to the earlier of (A)
the Stated Maturity of the Debt being exchanged, refunded or refinanced and (B)
the first anniversary of the Stated Maturity of the Notes or (y) the portion,
if any, of the Debt so issued that is scheduled to mature on or prior to the
Stated Maturity of the Notes has a weighted average life to maturity at the
time such Debt is incurred that is equal to or greater than the weighted
average life to maturity of the
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portion of the Debt being exchanged, refunded or refinanced that is scheduled
to mature on or prior to the Stated Maturity of the Notes; (5) Debt (other than
Debt described in clause (1), (2), (3) or (4) of this paragraph) outstanding on
the date on which the Notes were originally issued and Debt issued in exchange
for, or the proceeds of which are used to refund or refinance, any Debt
permitted by this clause (5); provided, however, that (i) the principal amount
of the Debt so issued shall not exceed the principal amount of the Debt so
exchanged, refunded or refinanced plus an amount no greater than any prepayment
premium due under the terms of the Debt so exchanged, refunded or refinanced
and fees, costs and expenses of issuance of the Debt so issued and (ii) either
(x) the Debt so issued shall not mature prior to the earlier of (A) the Stated
Maturity of the Debt being exchanged, refunded or refinanced and (B) the first
anniversary of the Stated Maturity of the Notes or (y) the portion, if any, of
the Debt so issued that is scheduled to mature on or prior to the Stated
Maturity of the Notes has a weighted average life to maturity at the time such
Debt is incurred that is equal to or greater than the weighted average life to
maturity of the portion of the Debt being exchanged, refunded or refinanced
that is scheduled to mature on or prior to the Stated Maturity of the Notes;
and (6) Debt in an aggregate principal amount which, together with all other
Debt of the Company then outstanding (other than Debt permitted by clauses (1)
through (5) of this paragraph or the immediately preceding paragraph) does not
exceed $10 million (less the amount of any Subsidiary Debt or Preferred Stock
then outstanding and incurred pursuant to clause (7) of "--Limitation on
Subsidiary Debt and Preferred Stock" below).
Notwithstanding the two immediately preceding paragraphs, the Company shall
not issue any Debt (i) if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Obligations unless such Debt shall be subordinated to the Notes to
at least the same extent as such Subordinated Obligations or (ii) if such Debt
is subordinate or junior in ranking in any respect to any Senior Debt unless
such Debt is Senior Subordinated Debt or is expressly subordinated in right of
payment to Senior Subordinated Debt. In addition, the Company shall not issue
any Secured Debt which is not Senior Debt unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
Secured Debt for so long as such Secured Debt is secured by a Lien. For
purposes of the preceding sentence, the granting of liquidation or other
preferences by the holders of Senior Debt to providers of trade credit to the
Company or any Subsidiary shall not render such trade credit Secured Debt.
Limitation on Subsidiary Debt and Preferred Stock. The Company shall not
permit any Subsidiary to issue, directly or indirectly, any Debt or Preferred
Stock except: (1) (i) any Bank Guarantee, (ii) any guarantee by a Subsidiary of
any Senior Debt permitted to be issued pursuant to "--Limitation on Debt" above
and (iii) Debt or Preferred Stock issued to and held by the Company or a Wholly
Owned Subsidiary; provided, however, that any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such Debt or
Preferred Stock (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the issuance of such Debt or Preferred
Stock by the issuer thereof; (2) Debt under Capital Lease Obligations which
does not exceed $10 million in the aggregate (less the amount of any Debt under
Capital Lease Obligations then outstanding and incurred pursuant to clause (2)
of the second paragraph of "--Limitation on Debt" above); (3) Debt or Preferred
Stock of a Subsidiary issued and outstanding on or prior to the date on which
such Subsidiary was acquired by the Company (other than Debt or Preferred Stock
issued as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company); (4) Debt or Preferred Stock issued and outstanding on
or prior to the date on which the Notes were originally issued (other than Debt
or Preferred Stock described in clause (1), (2) or (3) of this paragraph); (5)
Debt or Preferred Stock issued in exchange for, or the proceeds of which are
used to refund or refinance, Debt or Preferred Stock referred to in clause (2),
(3) or (4) of this paragraph; provided, however, that (i) the principal amount
or liquidation value of such Debt or Preferred Stock so issued shall not exceed
the principal amount or liquidation value of the Debt or Preferred Stock so
refunded or refinanced plus an amount no greater than any prepayment premium
due under the terms of the Debt or Preferred Stock so refunded or refinanced
and reasonable expenses of issuance of the Debt or Preferred Stock so issued
and (ii) either (x) the Debt or Preferred Stock so issued shall not mature
prior to the earlier of (A)
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the Stated Maturity of the Debt or Preferred Stock being exchanged, refunded or
refinanced and (B) the first anniversary of the Stated Maturity of the Notes or
(y) the portion, if any, of the Debt or Preferred Stock so issued that is
scheduled to mature on or prior to the Stated Maturity of the Notes has a
weighted average life to maturity at the time such Debt or Preferred Stock is
issued that is equal to or greater than the weighted average life to maturity
of the portion of the Debt or Preferred Stock being exchanged, refunded or
refinanced that is scheduled to mature on or prior to the Stated Maturity of
the Notes; (6) Nonrecourse Debt of a Nonrecourse Subsidiary issued after the
date of the Indenture to finance the acquisition of new assets acquired by the
Company or its Subsidiaries after such date; provided, however, that if any
such debt thereafter ceases to be Nonrecourse Debt of a Nonrecourse Subsidiary,
then such event will be deemed to constitute the issuance of such Debt by the
issuer thereof; and (7) Debt and Preferred Stock in an aggregate principal
amount which, together with all other Debt and Preferred Stock of Subsidiaries
then outstanding (other than Debt or Preferred Stock permitted by clauses (1)
through (6) of this paragraph) does not exceed $10 million (less the amount of
any Debt then outstanding and incurred pursuant to clause (6) of the second
paragraph of "--Limitation on Debt" above).
Limitation on Restricted Payments. The Company shall not, and shall not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any distribution in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of its Capital
Stock (except dividends or distributions payable solely in its Nonconvertible
Capital Stock or in options, warrants or other rights to purchase its
Nonconvertible Capital Stock and except dividends or distributions payable to
the Company or a Subsidiary which is not a Nonrecourse Subsidiary), (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, a Subsidiary or any direct or indirect parent of the Company,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Affiliate of the Company
or person, other than a Wholly Owned Subsidiary which is not a Nonrecourse
Subsidiary or a person which will become a Wholly Owned Subsidiary which is not
a Nonrecourse Subsidiary as a result of any such Investment (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being hereinafter referred to as a "Restricted
Payment") if at the time the Company or such Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); (2) the Company is not able to issue $1.00 of additional Debt in
accordance with the provisions of the first paragraph under "--Limitation on
Debt" above; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the date on which the Notes were originally
issued would exceed the sum of (a) 50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from , 199
to the end of the most recent fiscal quarter ending at least 45 days prior to
(or, if earlier, the date on which the Company files a quarterly or annual
periodic report under the Exchange Act with the Commission which includes
consolidated financial statements including such quarter) the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (b) the aggregate Net Proceeds received
by the Company from the issue or sale of, or as a capital contribution in
respect of, its Capital Stock (other than Redeemable Stock or Exchangeable
Stock) subsequent to the date on which the Notes were originally issued (other
than an issuance or sale to a Subsidiary or an employee stock ownership plan or
similar trust); (c) the aggregate Net Proceeds received by the Company from the
issue or sale of its Capital Stock (other than Redeemable Stock or Exchangeable
Stock) to an employee stock ownership plan subsequent to , but
(if such employee stock ownership plan incurs any Debt) only to the extent that
any such proceeds are equal to any increase in the Consolidated Net Worth of
the Company resulting from principal repayments made by such employee stock
ownership plan with respect to Debt incurred by it to finance the purchase of
such Capital Stock; and (d) the amount by which Debt of the Company is reduced
on the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the date on which the Notes were originally issued of
any Debt of the Company convertible or exchangeable for Capital Stock (other
than
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Redeemable Stock or Exchangeable Stock) of the Company (less the amount of any
cash, or other property, distributed by the Company upon such conversion or
exchange).
The preceding paragraph shall not prohibit (i) any purchase or redemption of
Capital Stock or Subordinated Obligations of the Company made by exchange for,
or out of the proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Redeemable Stock or Exchangeable Stock and other
than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan); provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and (B) the
Net Proceeds from such sale shall be excluded from clauses (3)(b) and (3)(c) of
the previous paragraph; (ii) any purchase or redemption of Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Debt of the Company; provided, however, that
such Debt (A) shall be subordinated to the Notes and shall be subordinated to
Senior Debt and Senior Subordinated Debt to at least the same extent as the
Subordinated Obligations so exchanged, purchased or redeemed and (B) either (x)
shall not mature prior to the earlier of (1) the Stated Maturity of the
Subordinated Obligations so exchanged, purchased or redeemed and (2) the first
anniversary of the Stated Maturity of the Notes or (y) the portion, if any, of
such Debt that is scheduled to mature on or prior to the Stated Maturity of the
Notes has a weighted average life to maturity at the time such Debt is incurred
that is equal to or greater than the weighted average life to maturity of the
portion of the Subordinated Obligations being exchanged, purchased or redeemed
that is scheduled to mature on or prior to the Stated Maturity of the Notes;
provided further, however, that such purchase or redemption shall be excluded
in the calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations from Net Available Cash to the extent
permitted under "--Limitation on Sales of Assets and Subsidiary Stock" below;
provided, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iv) dividends paid within 60
days after the date of declaration thereof if at such date of declaration such
dividend would have complied with this covenant; provided further, however,
that such dividend shall be included in the calculation of the amount of
Restricted Payments; (v) the redemption by the Company of any rights to
purchase Capital Stock of the Company which rights were issued pursuant to the
Rights Agreement, dated as of January 17, 1986, as amended, for an amount not
to exceed on a per right basis the redemption price of such right at the date
of the Indenture, as adjusted for stock dividends and similar transactions;
provided, however, that such redemption shall be included in the calculation of
the amount of Restricted Payments; (vi) the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of the
Company, options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or
employees (or their estates or beneficiaries under their estates) or by any
employee benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan approved by
the Board of Directors or a committee thereof or under any other agreement
approved by the Board of Directors or a committee thereof under which such
shares of stock or related rights were issued; provided, however, that the
aggregate cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock or related
rights after the date of the Indenture does not exceed $2.5 million in any
fiscal year or $1 million payable to any individual in any fiscal year;
provided further, however, that all such payments shall be included in the
calculation of the amount of Restricted Payments; and (vii) loans or advances
to officers, directors and employees of the Company and its Subsidiaries made
after the date of the Indenture in the ordinary course of business consistent
with past practices for the advancement of travel and other normal business
expenses or relocation expenses; provided, however, that such loans and
advances shall be excluded from the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction
on the ability of any Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Debt or other obligation owed to
the Company, (ii) make any loans or advances to the Company or (iii) transfer
any of its property or assets to the Company, except: (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the date
on which
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the Notes were originally issued; (2) any encumbrance or restriction with
respect to a Subsidiary pursuant to an agreement relating to any Debt issued by
such Subsidiary on or prior to the date on which such Subsidiary became a
Subsidiary or was acquired by the Company (other than Debt issued as
consideration in, or to provide all or any portion of the funds utilized to
consummate, the transaction or series of related transactions pursuant to which
such Subsidiary became a Subsidiary or was acquired by the Company) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement effecting a refinancing of Debt issued pursuant to an agreement
referred to in clause (1) or (2) of this paragraph or contained in any
amendment to an agreement referred to in clause (1) or (2) of this paragraph;
provided, however, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorable to the holders of the
Notes than encumbrances and restrictions contained in such prior agreements;
(4) any such encumbrance or restriction consisting of customary nonassignment
provisions in leases, licenses or other contractual obligations governing
leasehold interests, licenses or contractual rights and entered into in the
ordinary course of business consistent with past practices to the extent such
provisions restrict the transfer of the lease, license or contractual rights or
of customary restrictions on transfer and interim conduct of business of assets
or business entered into in contracts providing for the disposition of such
assets or business; (5) in the case of clause (iii) above, restrictions
contained in agreements relating to purchase money financing arrangements of
Subsidiaries or contained in security agreements securing Debt of the Company
or a Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such purchase money financing arrangements or security
agreements; and (6) encumbrances or restrictions on Nonrecourse Debt of a
Nonrecourse Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Subsidiary to, make any Asset Disposition unless (i)
the Company or such Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value, as determined in good
faith by the Board of Directors (including as to the value of all non-cash
consideration) of the shares and assets subject to such Asset Disposition and,
to the extent that the proceeds of such Asset Dispositions exceed $5 million in
any 12-month period, at least 75% of the consideration thereof received by the
Company or such Subsidiary is in the form of cash or cash equivalents or the
assumption of Debt of the Company or other obligations relating to such assets
and release from all liability on the Debt or other obligations assumed and
(ii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Subsidiary, as the case may be)
(A) first, to the extent the Company elects (or is required by the terms of any
Senior Debt) to prepay, repay or purchase Senior Debt or Debt (other than any
Redeemable Stock) of a Wholly Owned Subsidiary (in each case other than Debt
owed to the Company or an Affiliate of the Company) within 60 days from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), at the Company's
election, to the investment by the Company or any Wholly Owned Subsidiary in
assets to replace the assets that were the subject of such Asset Disposition or
an asset that (as determined by the Board of Directors) will be used in the
business of the Company and the Wholly Owned Subsidiaries existing on the date
of the original issuance of the Notes or in business reasonably related
thereto, in each case within the later of one year from the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), to make an Offer to purchase Notes pursuant to and subject
to the condition of the following paragraph, and (D) fourth, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C), to (x) any investment in the business or operations
of the Company or any Wholly Owned Subsidiary or (y) the prepayment, repayment
or purchase of Debt (other than any Redeemable Stock) of the Company or Debt of
any Subsidiary (other than Debt owed to the Company or an Affiliate of the
Company), in each case within one year from the later of the receipt of such
Net Available Cash and the date the Offer described in the following paragraph
is consummated; provided, however, that in connection with any prepayment,
repayment or purchase of Debt pursuant to clause (A) or (D) above, the Company
shall cause the related loan commitment (if any) to be permanently reduced in
an amount equal to the principal amount so prepaid, repaid or purchased;
provided, further, that the Company shall not be required to reduce the loan
commitment pursuant to clause (A) below
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the greater of (x) $175 million and (y) the Borrowing Base after giving effect
to the transaction giving rise to the obligations under this paragraph.
Notwithstanding the foregoing provisions of this paragraph, (i) the Company and
the Subsidiaries shall not be required to apply any Net Available Cash in
accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this paragraph exceeds $10 million, and (ii) the Company and the
Subsidiaries shall not be required to receive any minimum amount of cash
consideration in the event of a sale of all or substantially all of the assets
or stock of any Subsidiary of the Company which is or has been a Subsidiary of
the Company prior to the date hereof, the revenues of which are derived
primarily from the direct retail sale of apparel. Pending application of Net
Available Cash pursuant to this paragraph, such Net Available Cash shall be
invested in Permitted Investments of the type specified in clauses (i) or (ii)
of the definition of Permitted Investments.
In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (ii)(C) of the previous paragraph, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for the
Notes (the "Offer") at a purchase price of 100% of their principal amount plus
accrued interest to the purchase date in accordance with the procedures
(including prorationing in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the
Notes, the Company shall apply the remaining Net Available Cash in accordance
with clause (ii)(D) of the previous paragraph. The Company shall not be
required to make an Offer for Notes pursuant to this paragraph if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (ii)(A) and (ii)(B) of the previous paragraph) is less than
$5 million for any particular Asset Disposition (which lesser amounts shall not
be carried forward for purposes of determining whether an Offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
Under the New Credit Facility, the Company is prohibited from purchasing any
Notes in connection with an Asset Disposition.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Indenture by virtue thereof.
Limitation on Transactions with Affiliates. The Company shall not, and shall
not permit any Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company or any legal or beneficial owner of 5% or more of any
class of Capital Stock of the Company or with an Affiliate of any such owner
(other than a Wholly Owned Subsidiary or an employee stock ownership plan for
the benefit of the Company's or a Subsidiary's employees) unless (i) the terms
of such business, transaction or series of transactions are (a) set forth in
writing and (b) as favorable to the Company or such Subsidiary as terms that
would be obtainable at the time for a comparable transaction or series of
similar transactions in arm's-length dealings with an unrelated third person
and (ii) the Board of Directors has, by resolution, determined in good faith
that such business or transaction or series of transactions meets the criteria
set forth in (i)(b) above. This paragraph, however, will not prohibit (i) any
dividend, distribution or other transaction permitted under the covenant
described under "--Limitation on Restricted Payments" above or (ii) customary
compensation and employee benefit arrangements entered into with any officer or
director of the Company or of any Subsidiary in their capacity as officer or
director in the ordinary course of business and consistent with past practices.
Securities and Exchange Commission Reports. The Company shall file with the
Trustee and provide the holders of the Notes, within 15 days after it files
them with the Commission, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act,
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the Company shall continue to file with the Commission and provide the Trustee
and holders of the Notes with such annual reports and such information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which are specified
in Sections 13 and 15(d) of the Exchange Act.
SUCCESSOR COMPANY
The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person unless:
(i) the resulting, surviving or transferee person (if not the Company) is
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia and such person expressly assumes by
a supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Indenture and the Notes; (ii) immediately prior to and after giving effect to
such transaction (and treating any Debt which becomes an obligation of the
resulting, surviving or transferee person or any Subsidiary as a result of such
transaction as having been issued by such person or such Subsidiary at the time
of such transaction), no Default has occurred and is continuing; (iii)
immediately after giving effect to such transaction, the resulting, surviving
or transferee person would be able to issue at least $1.00 of Debt pursuant to
the provisions of the first paragraph under "--Limitation on Debt" above; (iv)
immediately after giving effect to such transaction, the resulting, surviving
or transferee person has Consolidated Net Worth in an amount which is not less
than the Consolidated Net Worth of the Company prior to such transaction; and
(v) the Company delivers to the Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. The resulting,
surviving or transferee person will be the successor company. Notwithstanding
the foregoing, the covenant shall not restrict the merger of a Wholly Owned
Subsidiary (other than a Nonrecourse Subsidiary) into the Company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, whether or
not such payment is prohibited by the provisions described under "--Ranking"
above, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "--Ranking" above, (iii) the failure by the Company
to comply for 30 days after notice with any of its obligations under the
covenants described above under "--Successor Company," "--Limitation on Sales
of Assets and Subsidiary Stock" (other than a failure to repurchase Notes) or
"--Change of Control" (other than a failure to repurchase Notes), (iv) the
failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (v) Debt of the Company or any
Significant Subsidiary (other than Nonrecourse Debt of a Nonrecourse
Subsidiary) is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Debt unpaid or accelerated exceeds $10 million (or its foreign
currency equivalent) and such failure continues for 10 days after notice (the
"cross acceleration provision"), (vi) certain events of bankruptcy, insolvency
or reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions") or (vii) any judgment or decree for the payment of money in excess
of $10 million is rendered against the Company or a Significant Subsidiary and
is not discharged and either (A) an enforcement proceeding has been commenced
by any creditor upon such judgment or decree or (B) there is a period of 60
days following such judgment or decree during which such judgment or decree is
not discharged, waived or the execution thereof stayed and, in the case of (B),
such default continues for 10 days after notice (the "judgment default
provision"). However, a default under clauses (iii), (iv), (v) or (vii)(B)
above will not constitute an Event of Default until the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes notify the Company
of the default and the Company does not cure such default within the time
specified after receipt of such notice.
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If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Note or that would involve the Trustee in
personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Note, the
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is in the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of a majority in principal amount of the Notes
then outstanding and any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each holder of an
outstanding Note, no amendment may, among other things, (i) reduce the amount
of Notes whose holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the fixed maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed, (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change to the subordination
provisions of the Indenture that adversely affects the rights of any holder or
(viii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
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Without the consent of any holder of the Notes, the Company and the Trustee
may amend or supplement the Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation of
the obligations of the Company under the Indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes (provided
that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
or in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to make any change to the subordination provisions
of the Indenture that does not adversely affect the rights of any holder of the
Notes, to add guarantees of the Notes, to add to the covenants of the Company
for the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder of the Notes or to comply with any requirement of the
Commission in connection with the qualification of the Indenture under the
Trust Indenture Act of 1939. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Debt then outstanding or in effect unless the holders of
such Senior Debt (required pursuant to the terms of such Senior Debt) consent
to such change.
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Indenture or the Notes or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal security laws, and it is the view of the Commission that such a waiver
is against public policy.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes and
the Indenture ("legal defeasance") except for certain obligations, including
those respecting the defeasance trust and obligation to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. The
Company at any time may terminate its obligations under the covenants described
under "--Certain Covenants" and "--Change of Control," the operation of the
cross acceleration provision, certain of the bankruptcy provisions and the
judgment default provision described under "--Defaults" above and the
limitations contained in clauses (iii) and (iv) described under "--Successor
Company" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in
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clause (iii), (v), (vi) (with respect to any Significant Subsidiary) or (vii)
under "--Defaults" above or because of the failure of the Company to comply
with clause (iii) or (iv) under "--Successor Company" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivering to the Trustee an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or a change in applicable federal income tax law).
CONCERNING THE TRUSTEE
Bank One Wisconsin Trust Company, N.A. is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director
or officer (A) of such specified person, (B) of any subsidiary of such
specified person or (C) of any person described in clause (i) above. For
purposes of this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition") by the Company or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition by a Subsidiary to the Company or by the Company or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or
assets in the ordinary course of business, (iii) a disposition of obsolete or
worn out assets in the ordinary course of business, (iv) a disposition subject
to the covenant described under "--Certain Covenants--Limitation on Restricted
Payments" above and (v) a disposition of receivables pursuant to an accounts
receivable financing facility.
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the date of
each successive scheduled principal payment of such Debt or redemption payment
on such Preferred Stock multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Bank Debt" means any and all amounts payable under or in respect of the New
Credit Facility, including any and all amounts payable in respect of letters of
credit and Interest Rate Protection Agreements included in the obligations
under the New Credit Facility, and all documents, instruments and agreements
executed in connection with the New Credit Facility (and any other agreement or
agreements which refinances or replaces the New Credit Facility in whole or in
part), as amended from time to time, including
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principal, premium (if any), interest, fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, any and all of the foregoing amounts
arising before or after any petition in bankruptcy or for reorganization
relating to the Company whether or not a claim for such amounts is allowed,
avoided or subordinated in such proceedings).
"Bank Guarantee" means, for any Subsidiary, the guarantee by such Subsidiary
of the Bank Debt and any other Debt of any Subsidiary which Debt, directly or
indirectly, guarantees or secures any Bank Debt.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to (or,
if earlier, the date on which the Company files a quarterly or annual periodic
report under the Exchange Act with the Commission which includes consolidated
financial statements including such quarter) the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Subsidiary has issued any Debt since
the beginning of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is
an issuance of Debt, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Debt as if such Debt had been issued on the first day of such period and the
discharge of any other Debt repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Debt as if any such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any Debt of
the Company or any Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Subsidiaries in
connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Debt of such Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such Debt
after such sale), (3) if since the beginning of such period the Company or any
Subsidiary (by merger or otherwise) shall have made an Investment in any
Subsidiary (or any person which becomes a Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the issuance of any Debt), as if such
Investment or acquisition occurred on the first day of such period, and (4) if
since the beginning of such period any person (that subsequently became a
Subsidiary or was merged with or into the Company or any Subsidiary since the
beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment occurred on
the first day of such period. For purposes of this definition, whenever pro
forma
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effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto, and the amount of Consolidated Interest Expense
associated with any Debt issued in connection therewith, the pro forma
calculations shall be determined 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 on such Debt shall
be calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period (taking into account any Interest
Rate Protection Agreement applicable to such Debt to the extent that the
remaining term of such Interest Rate Protection Agreement exceeds 12 months).
"Consolidated Interest Expense" means, for any period and without
duplication, the total interest expense of the Company and its consolidated
Subsidiaries, including (i) interest expense attributable to capital leases,
(ii) amortization of debt discount and debt issuance cost (except to the extent
incurred in connection with the issuance of the Notes), (iii) capitalized
interest, (iv) non-cash interest payments, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under Interest Rate Protection Agreements (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with investments in
discontinued operations and (ix) interest actually paid by the Company or any
of its consolidated subsidiaries under any guarantee of Debt or any other
obligation of any other person.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income or loss of any person if such person is not a
Subsidiary, except that the Company's equity in the net income of any such
person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such person during
such period to the Company or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income of any person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of
such acquisition;
(iii) any net income of any Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to the
Company, except that (A) the Company's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Subsidiary during such period to the Company or another Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(iv) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated
subsidiaries (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any person; or
(v) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" of any person means the total amounts shown on the
balance sheet of such person and its consolidated subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles,
as of the end of the most recent fiscal quarter of such person ending at least
45 days prior to (or, if earlier, the date on which the Company files a
quarterly or annual periodic report under the Exchange Act with the Commission
which includes consolidated financial statements including such quarter) the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of such person
plus (ii) paid-in capital or capital surplus relating to such Capital Stock
plus (iii) any retained earnings or earned surplus less (A) any accumulated
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deficit, (B) any amounts attributable to Redeemable Stock and (C) any amounts
attributable to Exchangeable Stock.
"Debt" of any person means, without duplication,
(i) the principal of and premium (if any) in respect of (A) indebtedness
of such person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such person is responsible or liable;
(ii) all Capital Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such person of a demand for reimbursement following
payment on the letter of credit);
(v) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock or
Exchangeable Stock (but excluding any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means (i) the Bank Debt and (ii) other Senior Debt
that (A) is issued at one time or under a common agreement in an aggregate
outstanding principal amount of at least $25 million and (B) has been
designated Designated Senior Debt in an Officer's Certificate received by the
Trustee.
"EBITDA" for any period means the Consolidated Net Income for such period
(but without giving effect to adjustments, accruals, deductions or entries
resulting from purchase accounting, extraordinary losses or gains and any gains
or losses from any Asset Dispositions), plus the following to the extent
deducted in calculating such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash charges (excluding any such
non-cash charge constituting an extraordinary item of loss or any non-cash
charge which requires an accrual of or a reserve for cash charges for any
future period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company
which is neither Exchangeable Stock nor Redeemable Stock).
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Debt or other obligation of any person
and any obligation, direct or indirect, contingent or otherwise, of such person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of)
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such Debt or other obligation of such person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect the Company or any Subsidiary against fluctuations in
interest rates.
"Investment" in any person means any loan or advance to, any acquisition of
Capital Stock, equity interest, obligation or other security of, or capital
contribution or other investment in, such person. Any subsequent issuance or
transfer of any Capital Stock that results in a Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary shall not be deemed to constitute the making of
a new Investment by the Company to the extent of the Company's then outstanding
Investments therein, except with respect to that portion of such Investment
that was made in connection with or otherwise in anticipation of such issuance
or transfer.
"issue" means issue, assume, guarantee, incur or otherwise become liable for;
provided, however, that any Debt or Capital Stock of a person existing at the
time such person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be issued by such Subsidiary at
the time it becomes a Subsidiary.
"Lien" means any mortgage, pledge, security interest, lien, conditional sale
or other title retention agreement.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Debt or other obligations relating to
such properties or assets or received in any other noncash form) therefrom, in
each case net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, all federal, state, provincial, foreign and
local taxes paid or required to be accrued as a liability under generally
accepted accounting principles as a consequence of such Asset Disposition, and
in each case net of all payments made on any Debt which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
lien upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition, and net of all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition.
"Net Proceeds", with respect to any issuance or sale of Capital Stock, means
the aggregate proceeds of such issuance or sale including the fair market value
of property other than cash (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
resolution) net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"New Credit Facility" means the Credit Agreement, dated as of March , 1994,
among the Company and certain financial institutions named therein as Lenders
and General Electric Capital Corporation as Managing Agent.
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"Nonconvertible Capital Stock" means, with respect to any corporation, any
nonconvertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into nonconvertible common stock of such
corporation; provided, however, that Nonconvertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Nonrecourse Debt" means Debt or that portion of Debt (i) as to which neither
the Company nor its Subsidiaries (other than a Nonrecourse Subsidiary) (A)
provide credit support (including any undertaking, agreement or instrument
which would constitute Debt), (B) is directly or indirectly liable, or (C)
constitute the lender and (ii) no default with respect to which (including any
rights which the holders thereof may have to take enforcement action against a
Nonrecourse Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Debt of the Company or its Subsidiaries to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity.
"Nonrecourse Subsidiary" means a Subsidiary which (i) has not acquired any
assets (other than cash) directly or indirectly from the Company or any
Subsidiary, (ii) only owns properties acquired after the date of the Indenture
and (iii) has no Debt other than Nonrecourse Debt.
"Officer" means the Chairman of the Board, the President, any Vice President,
the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Investments" shall mean (i) short-term obligations of, or fully
guaranteed by, the United States of America; (ii) commercial paper rated A-1 or
better by Standard and Poor's Corporation or P-1 or better by Moody's Investors
Service, Inc.; (iii) deposit accounts maintained in the ordinary course of
business at a bank or trust company which is organized under the laws of the
United States of America or any state thereof having capital, surplus and
undivided profits aggregating in excess of $500,000,000; (iv) certificates of
deposit issued by and time deposits with commercial banks (whether domestic or
foreign) having capital, surplus and undivided profits aggregating in excess of
$500,000,000; (v) deposits maintained as cash collateral with banks and
financial institutions providing cash management services to the Company or its
Wholly Owned Subsidiaries having an aggregate value which is at all times less
than $4 million; (vi) the receipt of notes or other Investments by the Company
or any Subsidiary in settlement of delinquent or defaulted accounts or notes
receivable; and (vii) deposit accounts maintained by the Company or
Subsidiaries under the terms of the Bank Debt. Notwithstanding the foregoing,
the Investments described in clauses (i), (ii) and (iv) above shall constitute
Permitted Investments only to the extent such Investments mature within 90 days
of the date of acquisition thereof.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company for cash pursuant to an effective registration statement
under the Securities Act.
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"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time on or prior to the first anniversary of the Stated Maturity of the
Notes.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Debt.
"Secured Debt" means any Debt of the Company secured by a Lien.
"Senior Subordinated Debt" means the Notes and any other indebtedness,
guarantee or obligation of the Company that specifically provides that such
indebtedness, guarantee or obligation is to rank pari passu with other Senior
Subordinated Debt of the Company and is not subordinated by its terms to any
indebtedness, guarantee or obligation of the Company which is not Senior Debt.
"Significant Subsidiary" means (i) any domestic Subsidiary of the Company
which at the time of determination either (A) had assets which, as of the date
of the Company's most recent quarterly consolidated balance sheet, constituted
at least 3% of the Company's total assets on a consolidated basis as of such
date or (B) had revenues for the 12-month period ending on the date of the
Company's most recent quarterly consolidated statement of income which
constituted at least 3% of the Company's total revenues on a consolidated basis
for such period (each such determination being made in accordance with
generally accepted accounting principles), (ii) any foreign Subsidiary of the
Company which at the time of determination either (A) had assets which, as of
the date of the Company's most recent quarterly consolidated balance sheet,
constituted at least 5% of the Company's total assets on a consolidated basis
as of such date or (B) had revenues for the 12-month period ending on the date
of the Company's most recent quarterly consolidated statement of income which
constituted at least 5% of the Company's total revenues on a consolidated basis
for such period (each such determination being made in accordance with
generally accepted accounting principles) or (iii) any Subsidiary of the
Company which, if merged with all Defaulting Subsidiaries of the Company, would
at the time of determination either (A) have had assets which, as of the date
of the Company's most recent quarterly consolidated balance sheet, would have
constituted at least 10% of the Company's total assets on a consolidated basis
as of such date or (B) have had revenues for the 12-month period ending on the
date of the Company's most recent quarterly consolidated statement of income
which would have constituted at least 10% of the Company's most recent
quarterly consolidated statement of income which would have constituted at
least 10% of the Company's total revenues on a consolidated basis for such
period (each such determination being made in accordance with generally
accepted accounting principles). "Defaulting Subsidiary" means any Subsidiary
of the Company (other than a Nonrecourse Subsidiary) with respect to which an
event described under clause (v), (vi) or (vii) of the first paragraph under
"--Defaults" has occurred and is continuing.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of the Company (whether outstanding
on the date hereof or hereafter incurred) which is subordinate or junior in
right of payment to the Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance
sheet of the Company prepared in accordance with
66
<PAGE>
generally accepted accounting principles, excluding (i) all such tangible
property located outside the United States of America, (ii) all rights,
contracts and other intangible assets of any nature whatsoever and (iii) all
inventories and other current assets.
"Traco Warrant Exercise" means the sale of common stock of the Company for
cash pursuant to any exercise of the three-year Warrant to Purchase 1,649,600
shares of Common Stock issued pursuant to the Purchase Agreement, dated
September 20, 1992, between the Company and Traco.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the Company or another
Wholly Owned Subsidiary.
UNDERWRITING
CS First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriters") have severally agreed to purchase from the
Company the principal amount of Notes set forth below opposite their respective
names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
CS First Boston Corporation............................. $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
------------
Total.............................................. $100,000,000
============
</TABLE>
The Underwriting Agreement between the Company and the Underwriters provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters will be obligated to purchase all of the
Notes if any are purchased.
The Company has been advised by the Underwriters that they propose to offer
the Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not more than % of the principal amount of the Notes; that the
Underwriters and such dealers may allow a discount of not more than % of the
principal amount of the Notes; and that the public offering price and
concession and discount to dealers may be changed.
The Notes will not be listed on any securities exchange. The Notes will be
tradeable in the over-the-counter market, but any such trading may be limited
and sporadic. Each of the Underwriters has advised the Company that it intends
to act as market maker for the Notes. However, any such market making may be
discontinued by each such Underwriter at any time in its sole discretion. No
assurance can be given as to the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
67
<PAGE>
CS First Boston Corporation has provided financial advisory services to the
Company from time to time, including acting as (i) financial advisor in
connection with the sale of HSSI and the Equity Investment and (ii) underwriter
in connection with the public offering of 4,300,100 shares of the common stock
of the Company consummated in July 1991. CS First Boston Corporation has
received customary fees and underwriting commissions in connection with
providing such services.
LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be passed
upon for the Company by Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois, and for the Underwriters by Kirkland & Ellis, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedules incorporated in this
Prospectus by reference to the 1993 10-K have been so incorporated in reliance
upon the report of Price Waterhouse, independent accountants, given upon the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, 13th Floor, New York, New York 10048; and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such reports, proxy statements and other information concerning the Company
also can be inspected at the offices of The New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005, or The Chicago Stock Exchange, Inc.,
440 South LaSalle Street, Chicago, Illinois 60605. The common stock of the
Company, par value $2.50 per share, is listed on each such exchange.
The Company has filed with the Commission a registration statement on Form S-
3 (including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in schedules
and exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit or schedule to the Registration Statement,
reference is made to the exhibit or schedule, as applicable, for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. For further information
pertaining to the Company and the Notes offered hereby, reference is made to
the Registration Statement and the exhibits thereto, which may be examined or
copied at the locations described above.
68
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1993, including the portions of the Company's definitive proxy
statement filed with the Commission on February 28, 1994 incorporated by
reference therein pursuant to Regulation 14A of the Exchange Act (the "1993
10-K") filed by the Company with the Commission (SEC File No. 1-8501) under
the Exchange Act is incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Notes offered hereby shall be deemed
to be incorporated in this Prospectus by reference and to be a part hereof from
the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to Hartmarx Corporation,
101 North Wacker Drive, Chicago, Illinois 60606, Attention: Corporate
Secretary, telephone number (312) 372-6300.
69
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Statement of Earnings for the three years ended November 30,
1993..................................................................... F-3
Consolidated Balance Sheet at November 30, 1992 and 1993.................. F-4
Consolidated Statement of Cash Flows for the three years ended November
30, 1993................................................................. F-5
Consolidated Statement of Shareholders' Equity for the three years ended
November 30, 1993........................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Hartmarx Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Hartmarx Corporation and its subsidiaries at November 30, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Hartmarx Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Chicago, Illinois
January 12, 1994,
except as to the
Legal Proceedings
Note on page F-18
which is as of
February 4, 1994
F-2
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
--------------------------------
1991 1992 1993
---------- ---------- --------
<S> <C> <C> <C>
Net sales..................................... $1,215,310 $1,053,949 $731,980
Finance charges, interest and other income.... 10,761 9,566 5,980
---------- ---------- --------
1,226,071 1,063,515 737,960
---------- ---------- --------
Cost of goods sold............................ 781,303 703,645 505,179
Selling, administrative and occupancy
expenses..................................... 467,470 374,785 203,502
Restructuring and retail consolidation
charges...................................... 13,500 190,800 --
Interest expense.............................. 23,793 21,135 22,869
---------- ---------- --------
1,286,066 1,290,365 731,550
---------- ---------- --------
Earnings (loss) before taxes.................. (59,995) (226,850) 6,410
Tax provision (benefit)....................... (21,630) (6,605) 190
---------- ---------- --------
Net earnings (loss) for the year.............. $ (38,365) $ (220,245) $ 6,220
========== ========== ========
Earnings (loss) per common share and common
share equivalent............................. $ (1.74) $ (8.59) $ .20
========== ========== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
F-3
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000'S OMITTED)
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------
1992 1993
ASSETS --------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............................. $ 22,356 $ 1,507
Accounts receivable, less allowance for doubtful
accounts of $16,022 in 1992 and $9,914 in 1993........ 159,772 120,442
Inventories............................................ 216,751 193,818
Prepaid expenses....................................... 17,179 15,346
Recoverable income taxes............................... 8,158 659
Deferred income taxes.................................. 5,557 5,943
--------- ---------
Total current assets................................. 429,773 337,715
--------- ---------
INVESTMENTS AND OTHER ASSETS............................. 15,340 10,919
--------- ---------
PROPERTIES
Land................................................... 4,006 3,882
Buildings and building improvements.................... 57,790 58,345
Furniture, fixtures and equipment...................... 122,482 114,574
Leasehold improvements................................. 39,099 32,155
--------- ---------
223,377 208,956
Accumulated depreciation and amortization.............. (156,531) (152,479)
--------- ---------
Net properties....................................... 66,846 56,477
--------- ---------
TOTAL ASSETS............................................. $ 511,959 $ 405,111
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks................................. $ 65,000 $ 25,000
Current maturities of long term debt................... 889 697
Accounts payable....................................... 56,016 30,246
Accrued payrolls....................................... 18,517 18,351
Other accrued expenses................................. 52,399 14,404
--------- ---------
Total current liabilities............................ 192,821 88,698
--------- ---------
LONG TERM DEBT, less current maturities.................. 248,713 207,416
--------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized
and unissued.......................................... -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 28,106,439 in 1992 and 31,951,464 in 1993...... 70,266 79,878
Capital surplus........................................ 63,810 74,256
Retained earnings (deficit)............................ (17,758) (33,379)
Unearned employee benefits............................. (12,496) (11,758)
--------- ---------
103,822 108,997
Common shares in treasury, at cost, 2,198,864 in 1992
and none in 1993...................................... (33,397) --
--------- ---------
Shareholders' equity................................... 70,425 108,997
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 511,959 $ 405,111
========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
F-4
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER
30,
-----------------------------
1991 1992 1993
-------- --------- --------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings (loss)........................... $(38,365) $(220,245) $ 6,220
Reconciling items to adjust net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization............... 33,809 26,947 14,107
Loss on sale of subsidiary.................. -- 136,000 --
Changes in:
Accounts receivable:
Sale of receivables..................... (2,000) (58,000) --
Other changes........................... (29) 23,076 42,330
Inventories............................... 4,604 68,944 12,901
Prepaid expenses.......................... 431 (10,215) 1,786
Other assets.............................. 243 (4,280) 4,364
Accounts payable and accrued expenses..... (6,907) 8,541 (61,030)
Taxes on earnings......................... (7,305) 10,439 7,113
Adjustment of properties to net realizable
value...................................... 4,493 11,510 1,901
-------- --------- --------
Net cash provided by (used in) operating
activities................................... (11,026) (7,283) 29,692
-------- --------- --------
Cash Flows from investing activities:
Capital expenditures.......................... (15,488) (9,546) (5,953)
Cash received re disposition, net of
subsidiary cash.............................. -- -- 4,500
-------- --------- --------
Net cash used in investing activities......... (15,488) (9,546) (1,453)
-------- --------- --------
Cash Flows from financing activities:
Increase (decrease) in notes payable to banks. (3,850) 30,796 (80,600)
Increase (decrease) in other long term debt... 2,014 (1,133) (840)
Proceeds from equity sale..................... 38,550 -- 29,880
Proceeds from other equity transactions....... 7,283 2,951 2,472
Payment of dividends.......................... (13,643) -- --
-------- --------- --------
Net cash provided by (used in) financing
activities................................... 30,354 32,614 (49,088)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 3,840 15,785 (20,849)
Cash and cash equivalents at beginning of
year......................................... 2,731 6,571 22,356
-------- --------- --------
Cash and cash equivalents at end of year...... $ 6,571 $ 22,356 $ 1,507
======== ========= ========
Supplemental cash flow information:
Net cash paid (received) during the year for:
Interest expense............................ $ 24,300 $ 22,200 $ 23,800
Income taxes................................ (14,300) (17,000) (6,900)
</TABLE>
(See accompanying notes to consolidated financial statements)
F-5
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
PAR VALUE RETAINED UNEARNED
OF COMMON CAPITAL EARNINGS EMPLOYEE TREASURY
STOCK SURPLUS (DEFICIT) BENEFITS SHARES
--------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1990. $58,889 $42,939 $ 266,841 $(13,850) $(62,281)
Net loss for the year...... (38,365)
Cash dividends:
Common shares, $.60 per
share................... (13,643)
Disposition of 1,020,015
treasury shares........... (7,484) (7,615) 22,382
Issuance of 4,300,100
shares of common stock.... 10,751 27,799
Allocation of unearned
employee benefits......... 645
------- ------- --------- -------- --------
Balance at November 30, 1991. 69,640 63,254 207,218 (13,205) (39,899)
Net loss for the year...... (220,245)
Issuance of 242,822 shares
to employee benefit plans. 607 546
Stock options exercised
(7,815 shares issued upon
exercise of 7,815 $1.00
Director Stock Options)... 19 10
Disposition of 296,493
treasury shares........... (4,731) 6,502
Allocation of unearned em-
ployee benefits........... 709
------- ------- --------- -------- --------
Balance at November 30, 1992. 70,266 63,810 (17,758) (12,496) (33,397)
Net earnings for the year.. 6,220
Issuance of 329,482 shares,
principally to employee
benefit plans............. 823 898 10 3
Private placement of common
stock and warrant......... 8,789 9,548 (21,851) 33,394
Allocation of unearned
employee benefits......... 738
------- ------- --------- -------- --------
Balance at November 30, 1993
............................ $79,878 $74,256 $ (33,379) $(11,758) $ --
======= ======= ========= ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
F-6
<PAGE>
HARTMARX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation--The Company and its subsidiaries ("the Company")
are engaged in the manufacturing and marketing of quality men's and women's
apparel to independent retailers and through owned retail stores and catalogs.
The consolidated financial statements include the accounts of the Company and
all subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
Cash and Cash Equivalents--The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less.
Inventories--Inventories are stated at the lower of cost or market.
Approximately 18% and 23% of the Company's inventories at November 30, 1992 and
1993, respectively, primarily work in process and finished goods, are valued
using the last-in, first-out (LIFO) method. The first-in, first-out (FIFO)
method is used for substantially all raw materials and the remaining
manufacturing and retail inventories.
Property, Plant and Equipment--Properties are stated at cost. Additions,
major renewals and betterments are capitalized; maintenance and repairs which
do not extend asset lives are charged against earnings. Profit or loss on
disposition of properties is reflected in earnings and the related asset costs
and accumulated depreciation are removed from the respective accounts.
Depreciation is generally computed on the straight line method based on useful
lives of 20 to 45 years for buildings, 5 to 20 years for building improvements
and 3 to 15 years for furniture, fixtures and equipment. Leasehold improvements
are amortized over the terms of the respective leases.
Revenue Recognition--Wholesale sales are recognized at the time the order is
shipped. Retail sales, which include sales of merchandise and leased department
income, are net of returns and exclude sales taxes.
Store Opening/Closing Costs--Non-capital expenditures incurred for new or
remodeled retail stores are expensed upon construction completion. When a store
is closed, the remaining investment in fixtures and leasehold improvements, net
of expected salvage, is charged against earnings; the present value of any
remaining lease liability, net of expected sublease recovery, is also expensed.
Intangibles--Intangible assets are included in "Investments and Other Assets"
at cost, less amortization, which is provided on a straight-line basis over
their economic lives, usually 10 years or less.
Income Taxes--Effective December 1, 1991, the Company adopted Statement of
Financial Accounting Standards No. 109--Accounting for Income Taxes, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Prior to fiscal 1992, the provision (benefit) for income taxes was based on
income and expenses included in the accompanying consolidated statement of
earnings whereby timing differences were classified as deferred tax assets or
liabilities based on the respective tax rates then in effect.
Retirement Plans--The Company and its subsidiaries maintain benefit plans
covering substantially all employees other than those covered by multi-employer
plans. In accordance with Statement of Financial Accounting Standards No. 87--
Employers' Accounting for Pensions, pension expense or income for the Company's
principal defined benefit plan is determined using the projected unit credit
method. Pension
F-7
<PAGE>
expense under each multi-employer plan is based upon a percentage of the
employer's union payroll established by industry-wide collective bargaining
agreements; such pension expenses are funded as accrued.
Retiree Medical Program--Certain health and insurance programs are made
available to non-union retired employees and eligible dependents. Approximately
175 retired employees are currently participating; substantially all non-union
employees employed prior to September 1, 1993 could ultimately remain eligible
upon attaining retirement age while employed by the Company. These retiree
programs, after considering retiree contributions which offset the full cost,
did not have a significant effect on earnings. Statement of Financial
Accounting Standards No. 106--Employers' Accounting for Postretirement Benefits
Other Than Pensions is mandatory for the Company's fiscal year ending November
30, 1994. Adoption of the statement will have no impact on cash flows. Since
the retiree contributions offset the full cost of the available medical
programs, no transition obligation is expected upon adoption and, accordingly,
there would be no effect on either net income or shareholders' equity.
Other Postemployment Benefits--Statement of Financial Accounting Standards
No. 112--Employers' Accounting for Postemployment Benefits requires the
recognition of obligations related to benefits provided by an employer to
former or inactive employees after employment but before retirement, and is
mandatory for the Company's fiscal year ending November 30, 1995. The Company
believes that adoption is not expected to have a material impact on its
financial condition.
Stock Options--When stock options are exercised, common stock is credited for
the par value of shares issued and capital surplus is credited with the
consideration in excess of par. For stock appreciation rights, compensation
expense is recognized on the aggregate difference between the market price of
the Company's stock and the option price only when circumstances indicate that
the right, and not the option, will be exercised. Compensation expense related
to restricted stock awards is recognized over the vesting period. For director
stock options and director deferred stock awards, compensation expense is
recognized at the date the option is granted or the award is made to the
outside director.
Per Share Information--The computation of earnings or loss per share in each
year is based on the weighted average number of common shares outstanding. When
dilutive, stock options and warrants are included as share equivalents using
the treasury stock method. The number of shares used in computing the earnings
(loss) per share was 22,056,000 in 1991, 25,629,000 in 1992 and 31,375,000 in
1993. Primary and fully diluted earnings per share are the same for each of
these years. In July 1991, the Company sold 4.3 million shares of common stock,
pursuant to a public offering. Net proceeds of $38.5 million were used to repay
bank borrowings. Effective December 30, 1992, the Company completed the sale to
an unrelated third party of 5,714,286 shares of its common stock along with a
three year warrant to purchase an additional 1,649,600 shares at an exercise
price of $6.50 per share, for an aggregate price of $30 million. If this
transaction had occurred as of December 1, 1992, the net earnings per share for
the year would have been the same as the reported net earnings of $.20 per
share.
FINANCING
In December 1992, the Company and its subsidiaries entered into new financing
agreements with its principal lenders ("Override Agreement" and "Bridge
Facility", collectively "the Agreements") aggregating $307 million, which
substantially replaced or amended the provisions of prior agreements covering
the Company's $196 million Multiple Option Revolving Credit Facility with 13
banks, $45 million of insurance term loans, $38 million of bank term loans, the
ESOP loan guarantee and guarantees related to certain industrial development
bonds having aggregate borrowings of $15.5 million. The Agreements also
provided for additional seasonal borrowings of up to $35 million during 1993.
At November 30, 1993, $226.4 million of the total $233.1 million debt
outstanding related to borrowings under the provisions of the Agreements.
Borrowings under the Agreements are secured by substantially all assets of the
Company and its subsidiaries, subject to a priority of up to $15 million for
trade creditors.
F-8
<PAGE>
The Override Agreement is in effect through December 30, 1995. The Bridge
Facility, originally $35 million and maturing on November 30, 1993, has been
extended by the Company for one year and currently provides for a $15 million
commitment through November 30, 1994. In addition to the aggregate commitment
reduction of $20 million on November 30, 1993, the Agreements provide for
additional commitment reductions of $10 million on May 31, 1994, $15 million on
November 30, 1994 and May 31, 1995, with the balance expiring on December 30,
1995; additional commitment and principal reductions may be required to the
extent of certain asset sales, equity proceeds and excess working capital based
on calculations specified in the Agreements. Generally, principal payments
apply first to the Bridge Facility and then to the Override Agreement. The
Bridge Facility also requires that borrowings, if any, be repaid for a minimum
30 day period during 1993 and for two 30 day periods in 1994; the Company may
reborrow after these periods. The Company had no borrowings under the Bridge
Facility during 1993. Borrowings under the Override Agreement bear interest at
prime plus 2% for bank lenders, 10.3% for the insurance lenders, and 9.19%
related to the ESOP loan guaranteed by the Company. Borrowings under the Bridge
Facility bear interest at prime plus 1.5%. Fees pertaining to the Agreements
aggregating $3.8 million were paid as of the closing date and certain other
fees principally based on utilization are also payable. An additional $2.4
million is payable at the expiration of the Override Agreement.
The Agreements, as amended, include various restrictive covenants pertaining
to capital expenditures, asset sales, operating leases, minimum working capital
and current ratio, debt leverage, consolidated tangible net worth, interest
coverage and earnings before interest, taxes, depreciation and amortization.
Cash dividends may not be declared or paid during the term of the Agreements
and the Company is prohibited from purchasing or redeeming its stock, warrants,
rights or options, or from making certain acquisitions without lender consent.
The Company is in compliance with the various covenants contained in the
Agreements. At November 30, 1993, working capital and the current ratio, as
defined, were $274.7 million and 5.4, respectively, compared to the minimum
required levels of $261.5 million and 4.9, respectively. Consolidated tangible
net worth, as defined, was approximately $130 million compared to the minimum
required level of $107 million. The ratio of consolidated funded indebtedness
to consolidated tangible net worth, as defined, was 1.8 compared to the maximum
permitted ratio of 2.7.
At November 30, 1992 and 1993, long term debt, less current maturities,
comprised the following (000's omitted):
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Notes payable to banks................................. $234,296 $153,696
Notes payable to insurance companies................... 45,000 45,000
Industrial development bonds........................... 21,355 20,943
ESOP loan guarantee.................................... 12,219 12,219
Other debt, extending to 2003.......................... 1,732 1,255
-------- --------
314,602 233,113
Less--current maturities............................... 65,889 25,697
-------- --------
Long term debt......................................... $248,713 $207,416
======== ========
</TABLE>
The industrial development bonds (IDBs), which mature on varying dates
through 2015, were issued by development authorities for the purchase or
construction of various manufacturing facilities having a carrying value of $13
million at November 30, 1993. Interest rates on the various borrowing
agreements range from 7/8 of 1% to 8.5% (average of 4.1% at November 30, 1992
and 4.4% at November 30, 1993). In January 1994, two IDBs aggregating $15.5
million, associated with the Override Agreement, were refinanced independent of
the Override Agreement. The $7.5 million IDB matures on July 1, 2014, while the
$8.0 million IDB is due on July 1, 2015. The IDBs are callable by the Company
beginning July 1, 2000 at a 3% premium, declining to par on July 1, 2003; the
effective interest rate on these obligations is 7.5%.
Other long term debt includes installment notes and mortgages with interest
rates ranging from 8% to 11.5% per annum. (Average interest rate of 10.3% at
November 30, 1992 and 10.2% at November 30, 1993.)
F-9
<PAGE>
The approximate principal requirements during the next five fiscal years,
including reductions under the Override Agreement, are as follows: $.7 million
in 1994; $.7 million in 1995; $211.5 million in 1996; $.1 million in 1997; $.1
million in 1998.
In January 1994, the Company filed a Registration Statement with respect to a
proposed public offering of $100 million aggregate principal amount of its
senior subordinated notes ("Notes"), due 2002. The ultimate issuance of these
Notes is contingent upon several factors, including a public market environment
acceptable to the Company with respect to interest rates. In addition, the
issuance of the Notes would require the Company to obtain either the consent of
the existing lenders under the Agreements or a new credit facility which, in
conjunction with the subordinated debt issue, would provide sufficient
availability to repay and terminate the Agreements. On January 11, 1994, the
Company executed a commitment letter ("Financing Commitment") with General
Electric Capital Corporation as managing agent ("Managing Agent") with respect
to a proposed new credit facility ("New Credit Facility"). The Financing
Commitment is subject to, among other things, (i) there being no material
adverse change in the business or financial condition of the Company and its
subsidiaries taken as a whole and (ii) definitive documentation for the New
Credit Facility acceptable to the Managing Agent. The Financing Commitment
terminates if, among other things, the Notes are not issued by April 30, 1994.
The New Credit Facility would be a three year secured revolving credit
facility in an aggregate maximum amount of $175 million (including a $25
million letter of credit facility), subject to a borrowing base formula based
upon 85% of eligible accounts receivable and 55% of eligible inventory. The New
Credit Facility would be used to repay borrowings under the Override Agreement
and Bridge Facility, to finance ongoing working capital and letter of credit
requirements and for general corporate purposes. The New Credit Facility would
be secured by a first priority security interest in substantially all of the
current and intangible assets of the Company and its subsidiaries. The New
Credit Facility is expected to include a negative pledge on all assets of the
Company and its subsidiaries, be guaranteed by the subsidiaries of the Company
and contain various restrictive covenants pertaining to net worth, additional
debt incurrence, fixed charge coverage, as well as other customary covenants.
Borrowing under the New Credit Facility would be established as either base
rate or LIBOR loans, as the Company may elect. Base rate loans would be priced
at the greater of (a) a rate based on the weighted average of various 90-day
commercial paper rates or (b) the base rate of a bank to be selected by the
Managing Agent plus 1.50%. LIBOR loans would be priced at LIBOR plus 2.50%.
On December 1, 1988 The Hartmarx Employee Stock Ownership Plan ("ESOP")
borrowed $15 million from a financial institution and purchased from the
Company 620,155 shares of treasury stock at the market value of $24.19 per
share. The loan is guaranteed by the Company and, accordingly, the amount
outstanding has been included in the Company's consolidated balance sheet as a
liability, net of a $.6 million payment made by the Company to the financial
institution holding the ESOP note, and shareholders' equity has been reduced
for the amount representing unearned employee benefits. Company contributions
to the ESOP plus the dividends accumulated on unallocated Company common stock
held by the ESOP are used to repay loan principal and interest. The common
stock is allocated to ESOP participants as the loan principal and interest is
repaid or accrued and amounts reflected as the loan guarantee and unearned
employee benefits are correspondingly reduced. Information related to dividends
received and loan repayments by the ESOP are as follows (000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Dividends received from Hartmarx Corporation........ $ 316 $ -- $ --
====== ====== ======
Principal payments.................................. $ 645 $ 342 $ --
Interest payments................................... 1,072 1,100 1,041
------ ------ ------
Total loan payments made by ESOP.................... $1,717 $1,442 $1,041
====== ====== ======
</TABLE>
As of November 30, 1993, 188,394 shares of common stock have been allocated
to the accounts of the ESOP participants.
F-10
<PAGE>
NOTES PAYABLE TO BANKS
The following summarizes information concerning notes payable to banks (000's
omitted):
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Outstanding at November 30....................... $203,500 $234,296 $153,696
Maximum month end balance during the year........ 229,200 234,296 206,196
Average amount outstanding during the year....... 207,200 213,000 174,300
Weighted daily average interest rate during the
year............................................ 8.5% 7.0% 7.9%
Weighted average interest rate on borrowings at
November 30..................................... 7.7% 7.0% 8.0%
</TABLE>
As more fully discussed in the Financing Note, in December, 1992 the Company
entered into a new three year financing agreement through December 30, 1995. At
November 30, 1993, $25 million of the aggregate $153.7 million of bank
borrowings outstanding was classified as current, representing expected
seasonal repayments within the fiscal 1994 year.
The Company enters into interest rate protection agreements from time to
time, based on management's assessment of market conditions, with several
currently in effect covering $100 million of borrowings. Payments to the
Company would occur to the extent the prime interest rate exceeds 6.0%. The
payments made for the rate protection agreements in effect during each of the
three years ended November 30, 1993 were nominal.
RESTRUCTURING AND RETAIL CONSOLIDATION CHARGES
Consistent with the Company's strategies to concentrate operations around its
profitable manufacturing and wholesale businesses and to refinance its capital
structure, fiscal 1992 third quarter and full year results included pre-tax
restructuring charges aggregating $190.8 million ("the Restructuring"). The
Restructuring comprised the direct costs associated with businesses and
facilities sold or disposed of and included the loss on the sale of stock of
Hartmarx Specialty Stores, Inc. ("HSSI"), the parent company of the Company's
principal retail unit. Restructuring components applicable to other operations
sold or liquidated included impairment of leasehold improvements, fixtures and
other properties, anticipated lease settlement obligations, severance, advisory
fees and costs to liquidate inventories. As further discussed in the Taxes on
Earnings footnote, a tax benefit relating to the restructuring charges was not
recorded. At November 30, 1993, accrued restructuring charges of $8 million
were included in the accrued expense caption in the accompanying balance sheet
($34 million at November 30, 1992) principally relating to lease, severance and
employee benefit obligations.
The operational aspects of the Restructuring have been substantially
implemented. Following the sale of the HSSI business in September, 1992 for a
note due on September 18, 1994, all of the Old Mill stores operated by the
Company's Country Miss subsidiary were closed. The store closings associated
with Kuppenheimer were substantially completed by January, 1994. Production
facilities supporting the above noted operations have been closed or sold along
with facilities related to the rainwear and military and commercial uniform
businesses.
The note received in connection with the sale of HSSI, originally $43
million, was subsequently adjusted to $35 million, including interest, based on
the value of physical inventories. This note has been accounted for on a cash
collection basis. Accordingly, no value was assigned to the note in calculating
the loss on the sale. During 1993, HSSA Group, Ltd., the original direct
obligor of the note, breached certain of its obligations under the note and
ancillary agreements and, on November 23, 1993, the Company exercised certain
of its rights to cause, among other things, the common stock of HSSI to be
voted to elect a new Board of Directors.
F-11
<PAGE>
Fiscal 1991 fourth quarter and full year results included a pre-tax provision
of $13.5 million for expenses associated with the consolidation of certain
retail administrative functions of HSSI and Kuppenheimer, including severance,
lease settlements, and other one time costs.
SALE OF RECEIVABLES
In June 1990, the Company entered into an agreement with an unrelated third
party to sell up to $60 million of undivided interests in a designated pool of
accounts receivable, principally related to revolving charge accounts. The
Company acted as an agent for the purchaser by performing recordkeeping and
collection functions on the interests sold, and was obligated to pay the
purchaser's carrying cost plus fees typical in such transactions, which are
included in the finance charges, interest and other income caption in the
accompanying Consolidated Statement of Earnings for fiscal 1992 and 1991. The
agreement terminated effective October 10, 1992. At November 30, 1992 and 1993,
no sold receivables were outstanding under the program.
INVENTORIES
Inventories at fiscal year end were as follows (000's omitted):
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Raw materials.................................. $ 54,389 $ 52,018 $ 44,370
Work in process................................ 38,408 29,657 26,468
Finished goods................................. 312,198 135,076 122,980
-------- -------- --------
$404,995 $216,751 $193,818
======== ======== ========
</TABLE>
The excess of current cost over LIFO costs for certain inventories was $42.0
million at November 30, 1991, $38.7 million at November 30, 1992 and $35.0
million at November 30, 1993.
TAXES ON EARNINGS
The accompanying financial statements reflect the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS
109"), as of December 1, 1991, the commencement of the Company's 1992 fiscal
year. Previously, accounting for income taxes was based on the provisions of
Accounting Principles Board Opinion No. 11. Among other things, FAS 109
requires an asset and liability approach in the measurement of deferred taxes,
which are adjusted to reflect changes in statutory tax rates, and permits the
recognition of net deferred tax assets subject to an ongoing assessment of
realization.
The net tax provision (benefit) is summarized as follows (000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
-------- ------- -------
<S> <C> <C> <C>
Federal....................................... $ (6,644) $(8,262) $ 2,435
State and local............................... (147) (286) 256
-------- ------- -------
Total current............................... (6,791) (8,548) 2,691
-------- ------- -------
Federal....................................... (14,520) 1,943 (320)
State and local............................... (319) -- (66)
-------- ------- -------
Total deferred.............................. (14,839) 1,943 (386)
-------- ------- -------
Change in valuation allowance................. -- -- (2,115)
-------- ------- -------
Total tax provision (benefit)............. $(21,630) $(6,605) $ 190
======== ======= =======
</TABLE>
A substantial portion of the Company's tax assets are reserved in accordance
with FAS 109. The valuation allowance was recorded upon consideration of the
operating losses incurred during the 1990-1992
F-12
<PAGE>
fiscal years and related uncertainty associated with realization of the tax
benefit of net operating loss carryforwards, which require the generation of
future income from operations. The net tax assets recorded consider amounts
recoverable from carrying back operating losses to prior years and available
tax planning strategies (such as the ability to adopt the FIFO inventory
valuation method for those inventories currently valued under the LIFO
valuation method). During 1993, $2.1 million of the valuation allowance
offsetting the deferred tax asset, associated with 1993 pre-tax income for
financial reporting, was reversed. The valuation allowance offsetting the
deferred tax asset will continue to be evaluated in future periods on an
ongoing basis.
The difference between the tax benefit reflected in the accompanying
statement of earnings and the amount computed by applying the federal statutory
tax rate to the pre-tax income (loss), taking into account the applicability of
enacted tax rate changes, is summarized as follows:
<TABLE>
<CAPTION>
PERCENT OF PRE-
TAX INCOME (LOSS)
---------------------
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Tax benefit computed at statutory rate.................. (34.0)% (34.0)% 34.0%
State and local taxes on earnings, net of federal tax
benefit................................................ (.5) (.1) 1.9
Change in valuation allowance........................... -- 30.8 (34.0)
Other--net.............................................. (1.6) .4 1.1
----- ----- -----
Effective tax rate...................................... (36.1)% (2.9)% 3.0%
===== ===== =====
</TABLE>
At November 30, 1992, the Company had a net deferred tax asset of $5.6
million comprised of deferred tax assets of $103.1 million less deferred tax
liabilities aggregating $26.6 million and a $70.9 million valuation allowance.
The principal deferred tax assets included $9.2 million attributable to Tax
Reform Act of 1986 ("TRA") items (allowance for bad debts, accrued vacation and
capitalization of certain inventory costs for tax purposes), net operating loss
carryforwards of $59.2 million, alternative minimum tax credit carryforwards
("AMT") of $4.0 million, and $23.5 million attributable to expenses deducted in
the financial statements not currently deductible for tax purposes, principally
related to the Restructuring. Deferred tax liabilities included excess tax over
book depreciation of $6.7 million and $8.8 million related to employee
benefits, principally pensions.
At November 30, 1993, the Company had a net deferred tax asset of $5.9
million comprised of deferred tax assets of $93.7 million less deferred tax
liabilities aggregating $18.9 million and a $68.9 million valuation allowance.
The principal deferred tax assets included $9.4 million attributable to TRA
items, net operating loss carryforwards of $48.1 million, AMT credit
carryforwards of $4.0 million, and $31.4 million attributable to expenses
deducted in the financial statements not currently deductible for tax purposes,
including expenses related to the Restructuring. Deferred tax liabilities
included excess tax over book depreciation of $4.2 million and $6.9 million
related to employee benefits, principally pensions.
As of November 30, 1993, the Company had approximately $137 million of tax
net operating loss carryforwards available to offset future income tax
liabilities. In general, such carryforwards must be utilized within fifteen
years of incurring the net operating loss; the loss carryforward expires in
2008. Foreign tax credit carryforwards of $.8 million are also available, the
substantial portion of which expire in 1996. The $4.0 million of AMT tax credit
carryforwards can be carried forward indefinitely.
LEASES
The Company and its subsidiaries lease office, manufacturing,
warehouse/distribution, showroom and retail space, automobiles, computers and
other equipment under various noncancellable operating leases. A number of the
leases contain renewal options ranging up to 10 years. Some retail leases
provide for contingent rental payments, generally based on the sales volume of
the retail unit.
F-13
<PAGE>
At November 30, 1993, total minimum rentals are as follows (000's omitted):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1994............................. $20,569
1995............................. 17,394
1996............................. 12,049
1997............................. 7,736
1998............................. 5,529
Thereafter....................... 5,531
-------
Total minimum rentals due........ $68,808
=======
</TABLE>
Rental expense, including rentals under short term leases, comprised the
following (000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Minimum rentals................................ $64,630 $58,742 $28,440
Contingent rentals............................. 4,916 2,418 112
Sublease income................................ (1,070) (896) (570)
------- ------- -------
Total rental expense......................... $68,476 $60,264 $27,982
======= ======= =======
</TABLE>
Most leases provide for additional payments of real estate taxes, insurance,
and other operating expenses applicable to the property, generally over a base
period level. Total rental expense includes such base period expenses and the
additional expense payments, as part of the minimum rentals.
EMPLOYEE BENEFITS
Pension Plans
The Company participates with other companies in the apparel industry in
making collectively-bargained contributions to pension funds covering most of
its union employees. The contribution rate of applicable payroll is based on
the actuarially recommended amount necessary to fund the costs of the benefits.
Pension costs relating to multi-employer plans were approximately $12 million
in 1991, $10 million in 1992 and $8 million in 1993.
The Multi-Employer Pension Plan Amendment Act of 1980 amended ERISA to
establish funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans, whereupon separate actuarial calculations would be
made to determine the Company's position with respect to multi-employer plans.
The principal Company sponsored pension plan is a non-contributory defined
benefit pension plan covering substantially all eligible non-union employees.
Certain of the Company's subsidiaries have other defined benefit and
contribution plans, in which the aggregate expense was $.6 million in 1991, $.3
million in 1992 and nominal in 1993. Under the principal pension plan,
retirement benefits are a function of years of service and average compensation
levels during the highest five consecutive salary years occurring during the
last ten years before retirement. To the extent that the calculated retirement
benefit under the formula specified in the plan exceeds the maximum allowable
under the provisions of the tax regulations, the excess is provided on an
unfunded basis. Under the provisions of the Omnibus Budget Reconciliation Act
of 1993, the annual compensation limit that can be taken into account for
computing benefits and contributions under qualified plans was reduced from
$235,840 to $150,000, effective as of January 1, 1994.
It is the Company's policy to fund the plans on a current basis to the extent
deductible under existing tax laws and regulations. Such contributions are
intended to provide for benefits attributed to service to date and also for
those expected to be earned in the future.
F-14
<PAGE>
Pension data covering the principal plan for the three years ended November
30, 1993 included the following components in accordance with Statement of
Financial Accounting Standards No. 87--Employers' Accounting for Pensions
(000's omitted):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the
period...................................... $(5,921) $(4,869) $(4,150)
Interest cost on projected benefit
obligation.................................. (7,222) (7,554) (7,607)
Return on plan assets........................ 19,025 15,674 17,452
Net amortization and deferral................ (6,362) (1,438) (3,235)
------- ------- -------
Net periodic pension income (expense)........ $ (480) $ 1,813 $ 2,460
======= ======= =======
</TABLE>
The above amounts do not include periodic pension expense related to the
benefits provided on an unfunded basis of $.2 million in 1991, $.3 million in
1992, and $.6 million in 1993.
The Company sold its Hartmarx Specialty Stores subsidiary ("HSSI") in 1992
and the accrual of further pension benefits related to HSSI employees ceased as
of the sale date. This event qualified as a curtailment under the provisions of
Statement of Financial Accounting Standards No. 88. The projected benefit
obligation exceeded the accumulated benefit obligation for employees of HSSI
and, accordingly, the accompanying financial statements for 1992 reflect an
additional pre-tax pension gain of $5.0 million, which was considered in the
determination of the 1992 restructuring charge.
Plan assets consist primarily of publicly traded common stocks and corporate
debt instruments, and units of certain trust funds administered by the Trustee
of the plan. At November 30, 1993, the plan assets included 519,612 shares of
the Company's stock with a market value of $3.6 million.
The following sets forth the funded status of the principal pension plan at
November 30 (000's omitted):
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------
1992 1993
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.......................................... $(70,571) $(95,341)
Non-vested benefits...................................... (1,105) (949)
-------- --------
Accumulated benefit obligation........................... (71,676) (96,290)
Effect of projected future compensation levels........... (15,497) (16,992)
-------- --------
Projected benefit obligation............................... (87,173) (113,282)
Plan assets, at fair value................................. 125,379 135,013
-------- --------
Plan assets in excess of projected benefit obligation...... 38,206 21,731
Unrecognized net (gain) loss............................... (10,905) 4,653
Unrecognized prior service cost............................ 592 516
Unrecognized net transition asset.......................... (10,723) (7,270)
-------- --------
Prepaid pension cost....................................... $ 17,170 $ 19,630
======== ========
</TABLE>
The weighted average discount rate used in determining the projected benefit
obligation was 8 3/4% in 1992 and 7% in 1993. The assumed rate of increase in
future compensation levels was 6% in 1992 and 5.5% in 1993, and the expected
long term rate of return on the Company sponsored plan assets was 8 3/4% in
1992 and 1993.
Savings Investment and Employee Stock Ownership Plans
The Company offers an employee savings-investment plan, The Hartmarx Savings-
Investment Plan ("SIP"), which is a qualified salary reduction plan under
Section 401(k) of the Internal Revenue Code.
F-15
<PAGE>
Eligible participants in SIP can invest from 1% to 16% of earnings among
several investment alternatives, including a company stock fund. Employees
participating in this plan automatically participate in The Hartmarx Employee
Stock Ownership Plan ("ESOP"). Participation in SIP is required to earn
retirement benefits under the Company's principal pension plan. An employer
contribution is made through the ESOP, based on the employee's level of
participation, and invested in common stock of the Company. While employee
contributions up to 16% of earnings are permitted, contributions in excess of
6% are not subject to an employer contribution. In 1992 and 1993, the employer
contribution was one-fourth of the first 1% contributed by the employee plus
one-twentieth thereafter. During 1991, the employer contribution was one-fourth
of employee's contribution up to the 6% limit. The Company's expense related to
the ESOP is based upon the principal and interest payments on the ESOP loan,
the dividends on unallocated ESOP shares, and the cost and market value of
shares allocated to employees' accounts. The Company's annual expense, which
approximates the Company's annual contributions, was $2.8 million in 1991, $2.1
million in 1992 and $2.2 million in 1993. At November 30, 1993, the assets of
SIP and ESOP funds had a market value of approximately $39.1 million, of which
approximately $17.4 million was invested in 2,491,059 shares of the Company's
common stock.
Health Care and Postretirement Benefits
Certain of the Company's subsidiaries make contributions to multi-employer
union health and welfare funds pursuant to collective bargaining agreements.
These payments are based upon wages paid to the Company's active union
employees.
Health and insurance programs are also made available to non-union active and
retired employees and their eligible dependents. Retirees, who elect to receive
the coverage, make contributions which offset the full cost of the retiree
program. Statement of Financial Accounting Standards No. 106--Employers'
Accounting for Postretirement Benefits Other than Pensions requires the
recognition of an obligation related to employee service pursuant to a
postretirement benefit plan and is mandatory for the Company's fiscal year
ending November 30, 1994. Adoption of the statement will have no impact on cash
flows. Since the retiree contributions offset the full cost of the available
medical programs, no transition obligation is expected upon adoption and,
accordingly, there would be no effect on either net income or shareholders'
equity.
EQUITY SALE
On September 21, 1992, the Company entered into an agreement with Traco
International, N.V., a Netherlands Antilles Corporation ("Traco"), pursuant to
which Traco agreed to purchase 5,714,286 shares of common stock of the Company
and receive a three-year warrant to purchase an additional 1,649,600 shares of
common stock of the Company at an exercise price of $6.50 per share, for an
aggregate purchase price of $30 million. The agreement was completed effective
as of December 30, 1992. Traco is also party to an agreement with the Company
providing representation on the Company's Board of Directors and restricting
Traco's rights to acquire, sell and vote the Company's shares.
STOCK PURCHASE RIGHTS
A dividend of one Right per common share was distributed to stockholders of
record January 31, 1986, and effective July 12, 1989, the Agreement governing
the Rights was amended. Each common share, adjusted for the May 1986 3-for-2
stock split, now represents .6667 Right. Each Right, expiring January 31, 1996,
continues to represent a right to buy from the Company 1/100th of a share of
Series B Junior Participating Preferred Stock, $1.00 par value, at a price of
$120. This dividend distribution of the Rights was not taxable to the Company
or its stockholders.
Separate certificates for Rights will not be distributed, nor will the Rights
be exercisable, unless a person or group acquires 15 percent or more, or
announces an offer to acquire 15 percent or more, of the Company's
F-16
<PAGE>
common shares. Following an acquisition of 15 percent or more of the Company's
common shares (a "Stock Acquisition"), each Right holder, except the 15 percent
or more stockholder, has the right to receive, upon exercise, common shares
valued at TWICE the then applicable exercise price of the Right (or, under
certain circumstances, cash, property or other Company securities), unless the
15 percent or more stockholder has offered to acquire all of the outstanding
shares of the Company under terms that a majority of the independent directors
of the Company have determined to be fair and in the best interest of the
Company and its stockholders. Similarly, unless certain conditions are met, if
the Company engages in a merger or other business combination following a Stock
Acquisition where it does not survive or survives with a change or exchange of
its common shares or if 50 percent or more of its assets, earning power or cash
flow is sold or transferred, the Rights will become exercisable for shares of
the acquiror's stock having a value of TWICE the exercise price (or, under
certain circumstances, cash or property). The Rights are not exercisable,
however, until the Company's right of redemption described below has expired.
Generally, Rights may be redeemed for $.033 cents each (in cash, common
shares or other consideration the Company deems appropriate) until the earlier
of (i) the tenth day following public announcement that a 15 percent or greater
position has been acquired in the Company's stock or (ii) the final expiration
of the Rights. In connection with the previously discussed sale of 5.7 million
shares of common stock and three year warrant to purchase an additional 1.6
million shares ("stock sale"), the Agreement governing the Rights was amended
to exclude the stock sale from qualifying as an event which would give rise to
the distribution or exercisability of the Rights. Until exercise, a Right
holder, as such, has no rights as a stockholder of the Company.
At the annual meeting in April 1993, a majority of the stockholders voted in
favor of a non-binding stockholder proposal calling for either the submission
of the Rights Plan to a binding shareholder vote or a redemption of the Rights.
However, the Company's current financing agreements prohibit the purchase or
redemption of the Rights.
STOCK OPTION PLANS
The Company has stock option plans under which officers and key employees may
be granted options to purchase the Company's common stock at prices equal to
the fair market value at date of grant. Generally, options under the 1982 and
1985 Stock Option Plans are exercisable to the extent of 25% each year
(cumulative) from the second through the fifth year, and expire ten years after
date of grant; however, all or any portion of the shares granted are
exercisable during the period beginning one year after date of grant for
participants employed by the Company for at least five years. A portion of the
options granted under the 1988 Stock Option Plan have exercise provisions
similar to the other plans; the remaining grants become exercisable over a
three to five year period based upon the achievement of company-wide
performance goals. Under certain circumstances, the vesting may be accelerated.
All options expire ten years after date of grant under the Plans.
The 1982, 1985 and 1988 Plans also provide for the discretionary grant of
stock appreciation rights in conjunction with the option, which allows the
holder a combination of stock and cash equal to the gain in market price from
the grant until its exercise; the cash payment is limited to one-half of the
gain. Under certain circumstances, the entire gain attributable to rights
granted under the 1988 Plan may be paid in cash. When options and stock
appreciation rights are granted in tandem, the exercise of one cancels the
other. The 1985 and 1988 Plans provide for the discretionary grant of
restricted stock awards which allows the holder to obtain full ownership rights
subject to terms and conditions specified at the time each award is granted.
The 1988 Plan provides for an annual grant of Director Stock Options (DSO) to
outside members of the Board of Directors at market value on the date of grant.
In addition, each outside director may make an irrevocable election to receive
a DSO in lieu of all or part of his or her retainer. The number of whole shares
to be granted is based on the annual retainer divided by the market value minus
one dollar and the exercise
F-17
<PAGE>
price is $1. Each outside director is also eligible for an annual grant of a
Director Deferred Stock Award (DDSA) equal to 150 DDSA units, with a unit equal
to one share of the Company's common stock; DDSA units are payable in shares of
common stock upon death, disability or termination of service. Dividend
equivalents may be earned on qualifying DSO and DDSA units and allocated to
directors' respective accounts in accordance with the terms of the Plan. During
fiscal 1993, 23,336 DSO were granted, no DSO were exercised and 64,132 DSO were
outstanding at November 30, 1993.
Stock options outstanding at November 30, 1993 included 265,989 shares
granted in tandem with stock appreciation rights. Activity for 1992 included
the October 14th grant of 326,500 stock options at $5.25 per share, which
exceeded the market price of $3.83 per share, to employees who agreed to the
cancellation of 1,035,606 options granted to them from 1983 through 1992. In
general, one-third of these options are exercisable on each of the first three
anniversaries of the grant date. Options for 503,140 shares were exercisable at
November 30, 1993 at prices ranging from $5.25 to $30.81. At November 30, 1993,
2,012,161 shares were reserved for options and restricted stock awards granted
or to be granted including 496,181 shares for future stock options and/or
restricted stock awards (958,770 at November 30, 1992).
Information regarding stock option activity for the three years ended
November 30, 1993 is as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
---------- ----------------
<S> <C> <C>
Balance at November 30, 1990................ 1,532,750 $ 6.00 to $31.62
Granted................................... 326,000 $ 7.31 to $12.50
Expired or terminated..................... (86,166) $10.81 to $31.62
----------
Balance at November 30, 1991................ 1,772,584 $ 6.00 to $31.62
Granted................................... 458,655 $ 5.25 to $ 7.25
Expired or terminated..................... (1,342,798) $ 6.00 to $31.62
----------
Balance at November 30, 1992................ 888,441 $ 5.25 to $30.81
Granted................................... 368,000 $ 6.88 to $ 7.06
Expired or terminated..................... (230,650) $ 5.25 to $30.81
----------
Balance at November 30, 1993................ 1,025,791 $ 5.25 to $30.81
==========
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in certain litigation described under the caption
"Business--Legal Proceedings." The Company believes that it has meritorious
defenses to the actions against the Company referred to under such caption and
that such actions will not have a material adverse effect on the Company's
financial condition.
F-18
<PAGE>
OPERATING SEGMENT INFORMATION
The Company is engaged in the business of manufacturing and marketing apparel
to unaffiliated retailers (identified below as the wholesale segment) and
directly to consumers through its owned retail stores and catalogs (identified
below as the direct-to-consumer segment and previously called the retail
segment). Information on the Company's wholesale and direct-to-consumer
operations for the three years ended November 30, 1993 is summarized as follows
(in millions):
<TABLE>
<CAPTION>
1991
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.......... $578.0 $637.3 -- $1,215.3
Earnings (loss) before taxes............. 27.2 (41.2) (46.0) (60.0)
Gross assets at year end................. 328.0 372.7 39.1 739.8
Depreciation and amortization............ 9.6 23.6 0.6 33.8
Property additions....................... 7.2 8.2 0.1 15.5
<CAPTION>
1992
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.......... $592.3 $461.6 -- $1,053.9
Earnings (loss) before taxes............. 24.8 (198.5) (53.2) (226.9)
Gross assets at year end................. 367.4 98.4 46.2 512.0
Depreciation and amortization............ 10.8 15.8 0.3 26.9
Property additions....................... 4.2 5.3 -- 9.5
<CAPTION>
1993
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.......... $567.3 $164.7 -- $ 732.0
Earnings (loss) before taxes............. 36.8 2.5 (32.9) 6.4
Gross assets at year end................. 313.4 73.3 18.4 405.1
Depreciation and amortization............ 9.1 4.9 0.1 14.1
Property additions....................... 5.3 0.6 -- 5.9
</TABLE>
The largest customer represents approximately 12% of consolidated sales in
1993. The wholesale segment reflects products sold to unaffiliated retailers
for resale to consumers, principally from the Men's Apparel Group. The direct-
to-consumer segment reflects sales to end consumers through owned retail stores
and catalogs, comprised of products manufactured by the Company's subsidiaries
as well as products purchased from unaffiliated sources. In 1993, approximately
76% of Kuppenheimer's sales and 6% of Barrie Pace catalog sales represented
products manufactured by the Company. Prior to the disposition of HSSI to an
unaffiliated third party in September, 1992, sales of those products
manufactured by certain of the Company's subsidiaries and sold by HSSI were
reported in the direct-to-consumer segment upon their ultimate sale to
consumers. Direct-to-consumer segment sales for 1992 included approximately
$250 million related to sales made by HSSI prior to its disposition and $34
million related to the Old Mill stores.
Wholesale segment earnings before taxes reflect the manufacturing gross
margin associated with products sold to unaffiliated retailers. The earnings
(loss) before taxes of the direct-to-consumer segment reflect the gross margin
between retail selling price and cost associated with products manufactured by
the Company and those purchased from unaffiliated sources. Segment results for
1992 include pre-tax restructuring charges of $190.8 million, principally
attributable to the disposition and liquidation of retail operations. Direct-
to-consumer segment assets reflect the disposition of HSSI during 1992. The
direct-to-consumer segment results for 1991 include the $13.5 million of
expenses provided for the retail consolidation.
F-19
<PAGE>
Operating expenses incurred by the Company in generating sales are charged
against the respective segment's sales; indirect operating expenses are
allocated to the segments benefited. Segment results exclude any allocation of
general corporate expense, interest expense or income taxes.
Adjustments of earnings before taxes consist of interest expense and general
corporate expenses. Adjustments of gross assets are for cash, recoverable
income taxes and corporate properties, investments and other assets.
Adjustments of depreciation and amortization and net property additions are for
corporate properties.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE ANY SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 16
Capitalization............................................................ 16
Selected Historical and Pro Forma Consolidated Financial Information...... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Supplemental Financial Information........................................ 25
Business.................................................................. 27
Management................................................................ 43
Description of Certain Indebtedness....................................... 45
Description of the Notes.................................................. 47
Underwriting.............................................................. 67
Legal Matters............................................................. 68
Experts................................................................... 68
Available Information..................................................... 68
Incorporation of Certain Documents by Reference........................... 69
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
$100,000,000
% Senior Subordinated Notes
Due 2002
----------------------
PROSPECTUS
----------------------
CS First Boston
Merrill Lynch & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GRAPHICS APPENDIX
1. Page 2 and the two fold-out pages between page 2 and page 3 of the
Prospectus contain various photographs of certain of the Company's product
lines.
2. The inside back cover of the Prospectus contains various photographs of
certain historical product lines of the Company.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the Notes being registered,
other than underwriting discounts and commissions. All amounts except the
Commission registration fee and the NASD filing fee are estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 34,483
NASD Filing Fee................................................. 10,500
Printing and Engraving Expenses................................. 200,000
Accounting Fees and Expenses.................................... 100,000
Legal Fees and Expenses......................................... 150,000
Blue Sky Fees and Expenses...................................... 10,000
Trustee's Fees and Expenses..................................... 20,000
Rating Agency Fees.............................................. 25,000
Miscellaneous................................................... 50,017
--------
Total....................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware (the "GCLD") and Article
EIGHTH of the Company's Restated Certificate of Incorporation provide for the
indemnification of any person who was, is or is threatened to be made a party
to any action because such person is or was a director, officer, employee or
agent of the Company, or served another enterprise at the request of the
Company, against reasonable expenses (including attorneys' fees) and, except as
to an action by or in the right of the Company whereby such person is found
liable to the Company, judgments, fines and reasonable settlement payments in
connection with such actions.
The Bylaws of the Company provide for indemnification of its officers and
directors to the fullest extent permitted by the GCLD. The Company has entered
into indemnification agreements (ratified by its shareholders) with each member
of its Board of Directors to provide them with specific contractual assurance
of indemnification, rights to advance reimbursement of related expenses and
certain other protections not specifically provided under Delaware law.
Directors' rights under the Indemnification Agreements are not exclusive of
other rights they have under the Company's Bylaws or Restated Certificate of
Incorporation or under Delaware law.
The GCLD authorizes the purchase of indemnification insurance by the Company.
The Company currently maintains a policy insuring, subject to certain
exceptions, its directors and officers and the directors and officers of its
subsidiaries against liabilities that may be incurred by such persons acting in
such capacities.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
Exhibit 1 *Form of Underwriting Agreement.
Exhibit 4-C *Form of % Senior Subordinated Notes due 2002 of Hartmarx
Corporation (included as part of Exhibit 4-D).
Exhibit 4-D *Form of Indenture, dated as of March , 1994, between the
Company and Bank One Wisconsin Trust Company, N.A., Trustee,
relating to the % Senior Subordinated Notes due 2002 of
Hartmarx Corporation.
Exhibit 4-E *Form of Credit Agreement, dated as of March , 1994, among the
Company, the Lenders listed therein and General Electric Capital
Corporation, as Managing Agent and Collateral Agent.
Exhibit 5 Opinion of Skadden, Arps, Slate, Meagher & Flom as to the legality
of the Notes.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges of Hartmarx
Corporation.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
Exhibit 23-A *Consent of Price Waterhouse.
Exhibit 23-B Consent of Skadden, Arps, Slate, Meagher & Flom (included as part
of Exhibit 5).
Exhibit 24 Power of Attorney of directors and certain officers of Hartmarx
Corporation, included on signature page.
Exhibit 25 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Bank One Wisconsin Trust Company, N.A.,
as Trustee under the Senior Subordinated Notes Indenture.
</TABLE>
- --------
*Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934), that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON MARCH 11, 1994.
Hartmarx Corporation
/s/ Wallace L. Rueckel
By: _________________________________
Wallace L. Rueckel
Executive Vice President and Chief
Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*Elbert O. Hand
- ------------------------------------
Elbert O. Hand Director, Chairman of the
Board and Chief Executive
Officer (Principal
Executive Officer) March 11, 1994
/s/ Wallace L. Rueckel
- ------------------------------------
Wallace L. Rueckel Executive Vice President and
Chief Financial Officer
(Principal Financial
Officer) March 11, 1994
*Glenn R. Morgan
- ------------------------------------
Glenn R. Morgan Senior Vice President and
Controller (Principal
Accounting Officer) March 11, 1994
*A. Robert Abboud
- ------------------------------------
A. Robert Abboud Director March 11, 1994
*Letitia Baldrige
- ------------------------------------
Letitia Baldrige Director March 11, 1994
*Jeffrey A. Cole
- ------------------------------------
Jeffrey A. Cole Director March 11, 1994
*Raymond F. Farley
- ------------------------------------
Raymond F. Farley Director March 11, 1994
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*Donald P. Jacobs
- ------------------------------------
Donald P. Jacobs Director March 11, 1994
*Miles L. Marsh
- ------------------------------------
Miles L. Marsh Director March 11, 1994
*Charles Marshall
- ------------------------------------
Charles Marshall Director March 11, 1994
*Charles K. Olson
- ------------------------------------
Charles K. Olson Director March 11, 1994
*Talat M. Othman
- ------------------------------------
Talat M. Othman Director March 11, 1994
*Homi B. Patel
- ------------------------------------
Homi B. Patel Director March 11, 1994
*Stuart L. Scott
- ------------------------------------
Stuart L. Scott Director March 11, 1994
*Sam F. Segnar
- ------------------------------------
Sam F. Segnar Director March 11, 1994
</TABLE>
/s/ Wallace L. Rueckel
*By:______________________
Wallace L. Rueckel,
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------- ------------------- ----------
<C> <S> <C>
Exhibit 1 Form of Underwriting Agreement.
Exhibit 4-C Form of % Senior Subordinated Notes due 2002 of
Hartmarx Corporation (included as part of Exhibit
4-D).
Exhibit 4-D Form of Indenture, dated as of March , 1994,
between the Company and Bank One Wisconsin Trust
Company, N.A., Trustee, relating to the %
Senior Subordinated Notes due 2002 of Hartmarx
Corporation.
Exhibit 4-E Form of Credit Agreement, dated as of March , 1994,
among the Company, the Lenders listed therein and
General Electric Capital Corporation, as Managing
Agent and Collateral Agent.
Exhibit 5 Opinion of Skadden, Arps, Slate, Meagher & Flom as
to the legality of the Notes.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges of
Hartmarx Corporation.
Exhibit 23-A Consent of Price Waterhouse.
Exhibit 23-B Consent of Skadden, Arps, Slate, Meagher & Flom
(included as part of Exhibit 5).
Exhibit 24 Power of Attorney of directors and certain officers
of Hartmarx Corporation, included on signature
page.
Exhibit 25 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Bank One
Wisconsin Trust Company, N.A., as Trustee under the
Senior Subordinated Notes Indenture.
</TABLE>
II-5
<PAGE>
Draft 3/11/94
$100,000,000
HARTMARX CORPORATION
__% Senior Subordinated Notes Due 2002
UNDERWRITING AGREEMENT
----------------------
March __, 1994
CS First Boston Corporation
Merrill Lynch & Co.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
c/o CS First Boston Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Dear Sirs:
1. Introductory. Hartmarx Corporation, a Delaware corporation
-------------
("Company"), proposes to issue and sell $100,000,000 principal amount of its __%
Senior Subordinated Notes due 2002 ("Securities") to be issued under an
indenture, dated as of March __, 1994 ("Indenture"), between the Company and
Bank One Wisconsin Trust Company, National Association, as Trustee, and
concurrently therewith enter into the New Credit Facility (as defined in the
Registration Statement), and hereby agrees with the several Underwriters named
in Schedule A hereto ("Underwriters") as follows:
2. Representations and Warranties of the Company. The Company
----------------------------------------------
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 33-51915), including a form of
prospectus, relating to the Securities has been filed with the Securities and
Exchange Commission ("Commission") and either (i) has been declared effective
under the Securities Act of 1933 ("Act") and is not proposed to be amended or
(ii) is proposed to be amended by amendment or post-effective amendment. If the
Company does not propose to amend such registration statement and if any post-
effective amendment to such registration statement has been filed with the
Commission prior to the execution and delivery of this Agreement, the most
recent such amendment has been declared effective by the Commission. For
purposes of this Agreement,
<PAGE>
"Effective Time" means (i) if the Company has advised you that it does not
propose to amend such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto (if
any) filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission, or (ii) if the Company has advised you that it
proposes to file an amendment or post-effective amendment to such registration
statement, the date and time as of which such registration statement, as amended
by such amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. "Effective Date" means the date of the Effective
Time. Such registration statement, as amended at the Effective Time, including
all material incorporated by reference therein and including all information (if
any) deemed to be a part of such registration statement as of the Effective Time
pursuant to Rule 430A(b) under the Act, is hereinafter referred to as the
"Registration Statement," and the form of prospectus relating to the Securities,
as first filed with the Commission pursuant to and in accordance with Rule
424(b) ("Rule 424(b)") under the Act or (if no such filing is required) as
included in the Registration Statement, including all material incorporated by
reference in such prospectus, is hereinafter referred to as the "Prospectus."
(b) If the Effective Time is prior to the execution and delivery of
this Agreement: (i) on the Effective Date, the Registration Statement
conformed in all respects to the requirements of the Act, the Trust Indenture
Act of 1939 ("Trust Indenture Act") and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) on
the date of this Agreement, the Registration Statement conforms, and at the time
of filing of the Prospectus pursuant to Rule 424(b), the Registration Statement
and the Prospectus will conform, in all material respects to the requirements of
the Act, the Trust Indenture Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. If the
Effective Time is subsequent to the execution and delivery of this Agreement:
on the Effective Date, the Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act, the Trust
Indenture Act and the Rules and Regulations, and neither of such documents will
include any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. The two preceding sentences do not apply to statements
in or omissions from the Registration Statement or Prospectus based upon written
information furnished to the Company by any Underwriter through you specifically
for use therein.
-2-
<PAGE>
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, except where failure to be so qualified or be in
good standing would not have a material adverse effect on the condition,
financial or otherwise, earnings, operations or business of the Company and its
subsidiaries, taken as a whole ("Material Adverse Effect").
(d) Each subsidiary of the Company that is a "significant
subsidiary" (as defined in Rule 1-02 of Regulation S-X of the Commission) (each
of the foregoing being referred to herein as a "Significant Subsidiary") has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has all corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, except
where the failure to be so qualified or be in good standing would not have a
Material Adverse Effect; all of the issued and outstanding capital stock of each
Significant Subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any mortgage, pledge, lien, encumbrance, claim
or equity (collectively, "Liens"), other than Liens securing the Override
Agreement and Bridge Facility (each as defined in the Registration Statement),
which Liens will be released at the closing of the New Credit Facility, and
Liens securing the New Credit Facility.
(e) Except as set forth in the Company's 1993 Annual Report on Form
10-K, the Company does not have any subsidiaries or other entities of which it
owns any equity securities or securities convertible into equity securities, nor
are there any joint ventures or partnerships through which it presently conducts
business nor does the Company currently have plans to conduct business in such a
manner.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
-3-
<PAGE>
(g) There are no contracts, agreements or understandings between the
Company and any natural person, corporation, partnership, trust, firm,
association or other entity, whether acting in an individual, fiduciary or other
capacity (a "Person") granting such Person the right to require the Company to
include any securities of the Company owned or to be owned by such Person in
the securities registered pursuant to the Registration Statement.
(h) Except as described in the Prospectus (including the documents
incorporated by reference therein) the Company and its Significant Subsidiaries
own or possess all licenses or other rights to use the patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks, trade names and proprietary knowledge
(hereinafter collectively referred to as "Proprietary Rights") presently
employed by them in connection with the operation of their businesses, in each
case where the failure to own, possess or have rights to use such Proprietary
Rights, singly or in the aggregate, would have a Material Adverse Effect.
Neither the Company nor any of its Significant Subsidiaries (i) has received any
notice of infringement of or conflict with asserted rights of others with
respect to any Proprietary Rights, (ii) is aware of the assertion by others of
any rights inconsistent with the Company's Proprietary Rights, and (iii) is
aware of any facts which it believes would render any of its Proprietary Rights
invalid, in each case for clauses (i), (ii), or (iii), which singly or in the
aggregate, would have a Material Adverse Effect.
(i) The consolidated financial statements included or incorporated by
reference in the Registration Statement and the Prospectus comply in all
material respects with the requirements of the Act and the Rules and
Regulations, present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates indicated and the consolidated results
of their operations for the periods specified and have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis; and the related supporting schedules included or incorporated by
reference in the Registration Statement present fairly the information required
to be stated therein in compliance in all material respects with the applicable
Rules and Regulations. The financial information and statistical data set forth
in the
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<PAGE>
Prospectus under the captions "Selected Historical and Pro Forma Consolidated
Financial Information" and "Capitalization" are fairly stated in all material
respects in relation to the consolidated financial statements of the Company
from which they have been derived. The financial information and statistical
data set forth in the Prospectus under the caption "Supplemental Financial
Information" have been prepared as described therein. The pro forma financial
information included in the Registration Statement presents fairly the
information shown therein, has been properly compiled on the pro forma bases
described therein, and the adjustments used in the preparation of the Company's
pro forma financial statements are appropriate to give effect to the
transactions or circumstances referred to therein.
(j) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (i) there has been no material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the assets, earnings or business of the Company and its
subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business, (ii) there have been no transactions entered into by the Company or
any of its Significant Subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its subsidiaries,
taken as a whole, (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on its capital stock and (iv) there has
not been any change in the capital stock (other than issuances of capital stock
upon exercise of options and under employee stock option or benefit plans, in
each case which plans were in effect or outstanding on the date of this
Agreement) of the Company or any of its subsidiaries or any material change in
the long-term debt of the Company and its subsidiaries, taken as a whole.
(k) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter, or (ii) in violation of any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or other authority applicable to it, where such violation would have a
Material Adverse Effect, or (iii) in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or its property may be bound which defaults, singly or
in the aggregate, would have a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action on the part of the Company and, except with respect to certain
indebtedness described in the Prospectus, which indebtedness will be repaid in
full with the proceeds of the sale of the Securities to you and will not be
outstanding thereafter, will not conflict with or constitute or result in a
breach or violation of, or default under, or result in the creation or
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<PAGE>
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Company or any of
its subsidiaries is subject, which, singly or in the aggregate, is reasonably
likely to be material to the Company and its subsidiaries, taken as a whole, nor
will such action result in any violation of the provisions of the charter or by-
laws of the Company or any applicable law, any rule, regulation or order of any
governmental agency or authority or any decree or order of any court having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, the violation of which, singly or in the aggregate, is reasonably
likely to be material to the Company and its subsidiaries, taken as a whole; and
the Company has full power and authority to authorize, issue and sell the
Securities as contemplated by this Agreement.
(l) The Company and its Significant Subsidiaries have good title to
all properties owned by them, free and clear of all Liens and defects except
those that are described in the Prospectus or that do not, singly or in the
aggregate, have a Material Adverse Effect.
(m) Other than as described in the Prospectus, no labor dispute with
the employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent which, singly or in the aggregate, would
have a Material Adverse Effect.
(n) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any of
its subsidiaries, which is required to be disclosed in the Registration
Statement or the Prospectus (other than as disclosed therein), or (assuming
completion of the offering) which would have a Material Adverse Effect or which
would materially and adversely affect the properties or assets thereof, taken as
a whole, or which would materially and adversely affect the consummation of this
Agreement; all pending legal or governmental proceedings to which the Company or
any subsidiary is a party or of which any of their property is the subject which
are not described in the Prospectus, including ordinary routine litigation
incidental to the business, would not, considered in the aggregate, have a
Material Adverse Effect.
(o) No authorization, approval or consent of, or registration or
qualification with, any Person or any court or governmental authority or agency
is necessary in connection with the issuance or sale of the Securities by the
Company or the consummation of the other transactions contemplated by this
Agreement, except such as may be required under the Act and have been or will be
obtained prior to the Closing Date (as defined below), as appli-
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cable, and such as may be required under the Rules and Regulations or other
federal, state or foreign securities laws.
(p) The Company (i) is in compliance with any and all applicable
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (collectively, "Environmental Laws"), (ii)
has received all permits, licenses or other approvals required under applicable
Environmental Laws to conduct its business and (iii) is in compliance with all
terms and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and condition of
such permits, licenses or approvals would not, singly or in the aggregate, have
a Material Adverse Effect.
(q) The Company and its subsidiaries possess all licenses,
certificates, authorities or permits issued by the appropriate governmental or
regulatory agencies or authorities that are necessary to enable them to own,
lease and operate their respective properties and to carry on their respective
businesses as presently conducted and which are material to the Company and its
subsidiaries, taken as a whole, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such license, certificate, authority or permit which,
singly or in the aggregate, would have a Material Adverse Effect.
(r) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), related to doing business
with the government of Cuba or with any person or any affiliate located in Cuba.
(s) On the date the Registration Statement was first filed with the
Commission, and on the Effective Date, the Company met the conditions for use of
Form S-3 under the Act.
3. Purchase, Sale and Delivery of Securities. On the basis of the
------------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set
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<PAGE>
forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to purchase from the Company, at a purchase
price of __% of the principal amount thereof plus accrued interest from _______
__, 1994 to the Closing Date, the respective principal amounts of Securities set
forth opposite the names of the Underwriters in Schedule A hereto.
The Company will deliver the Securities to you for the accounts of the
Underwriters at the office of CS First Boston Corporation, Park Avenue Plaza,
New York, New York 10055, against payment of the purchase price by wire transfer
of immediately available funds to the account or accounts designated by the Com-
any at the office of Skadden, Arps, Slate, Meagher & Flom, 333 West Wacker
Drive, Chicago, Illinois 60606, at 10:00 A.M., Chicago time, on March __, 1994,
or at such other time not later than seven full business days thereafter as you
and the Company determine, such time being herein referred to as the "Closing
Date." The Company will pay to you an amount equal to your cost of purchasing
such immediately available funds for one day which will be equal to the federal
funds rate in effect on the Closing Date plus the premium required to be paid by
you for such funds. The Securities so to be delivered will be in definitive
fully registered form, in such denominations and registered in such names as you
request and will be made available for checking and packaging at the above
office of CS First Boston Corporation at least 24 hours prior to the Closing
Date.
4. Offering by Underwriters. It is understood that the several
-------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
----------------------------------
several Underwriters that:
(a) If the Effective Time is prior to the execution and delivery of
this Agreement, the Company will file the Prospectus with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable and if
consented to by you, subparagraph (4)) of Rule 424(b) not later than the earlier
of (A) the second business day following the execution and delivery of this
Agreement or (B) the fifth business day after the Effective Date. The Company
will advise you promptly of any such filing pursuant to Rule 424(b).
(b) The Company will advise you promptly of any proposal to amend or
supplement the registration statement as filed or the related prospectus or the
Registration Statement or the Prospectus and will not effect such amendment or
supplementation without your consent (which consent will not be unreasonably
withheld or delayed); and the Company will also advise you promptly of the
effectiveness of the Registration Statement (if the Effective Time is subsequent
to the execution and delivery of this Agreement) and of any amendment or
supplementation of the Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of the
Registration Statement and
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<PAGE>
will use its best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company promptly will prepare and file with the
Commission an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance. Neither your
consent to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence, "Availability
Date" means the 45th day after the end of the fourth fiscal quarter following
the fiscal quarter that includes the Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year, "Availability
Date" means the 90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to you copies of the Registration
Statement (three of which will be signed and will include all exhibits), each
related preliminary prospectus, the Prospectus and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as you reasonably request.
(f) The Company will arrange for the qualification of the Securities
for sale and the determination of their eligibility for investment under the
laws of such jurisdictions as you designate and will continue such
qualifications in effect so long as required for the distribution thereof;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not already so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject.
(g) During the period of five years hereafter, the Company will
furnish to you and, upon request, to each of the other Underwriters, as soon as
practicable after the end of each fiscal year, a copy of its annual report to
stockholders for such year,
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<PAGE>
and the Company will furnish to you (i) as soon as available, a copy of each
report or definitive proxy statement of the Company filed with the Commission
under the Securities Exchange Act of 1934 ("Exchange Act") or mailed to
stockholders, and (ii) from time to time, such other information concerning the
Company as you may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement and will reimburse the Underwriters for
any reasonable expenses (including reasonable fees and disbursements of counsel)
incurred by them in connection with qualification of the Securities for sale and
determination of their eligibility for investment under the laws of such
jurisdictions as you designate and the printing of memoranda relating thereto,
for any fees charged by investment rating agencies for the rating of the
Securities, for the filing fee of the National Association of Securities
Dealers, Inc., relating to the Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
6. Conditions of the Obligations of the Underwriters. The
--------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Securities
will be subject to the accuracy of the representations and warranties on the
part of the Company herein, to the accuracy of the statements of Company
officers made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions
precedent:
(a) You shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and delivery of
this Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time is subsequent to the execution and delivery of this Agreement,
shall be prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to the Effective Time), of
Price Waterhouse confirming that they are independent public accountants within
the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating in effect that:
(i) in their opinion the consolidated financial statements of the
Company audited by them and included or incorporated by reference in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act, the Exchange Act and the
related published Rules and Regulations thereunder with respect to
registration statements on Form S-3;
(ii) on the basis of a reading of the latest available interim
financial information of the Company and inquiries of officials of the
Company who have responsibility for
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<PAGE>
financial and accounting matters regarding the specific items for which
representations are requested below, nothing came to their attention that
caused them to believe that:
(A) at the date of the latest available interim financial data
read by such accountants, or at a subsequent specified date not more
than five days prior to the date of this Agreement, there was any
change in the capital stock or any increase in short-term indebtedness
or long-term debt of the Company and its consolidated subsidiaries or,
at the date of the latest available interim financial data read by
such accountants, there was any decrease in consolidated net current
assets or shareholders' equity, as compared with amounts shown on the
latest balance sheet included in the Registration Statement; or
(B) for the period from the closing date of the latest income
statement included in the Registration Statement to the closing date
of the latest available interim financial data read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year, in consolidated net sales,
gross profit, operating earnings, net earnings or net earnings per
common share;
except in all cases for changes, increases or decreases which the
Registration Statement discloses have occurred or may occur or which are
described in such letter, and
(iii) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) contained in the Registration Statement
(in each case to the extent that such dollar amounts and percentages are
derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries and a reading of such
general accounting records and have found such dollar amounts and
percentages to be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to the
execution and delivery of this Agreement, "Registration Statement" shall mean
the registration statement as proposed to be amended by the amendment or post-
effective amendment to be filed shortly prior to the Effective Time, and
"Prospectus" shall mean the prospectus included in the Registration Statement.
All financial statements and schedules included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statement for purposes of this subsection.
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<PAGE>
(b) If the Effective Time is not prior to the execution and delivery
of this Agreement, the Effective Time shall have occurred not later than 10:00
P.M., New York time, on the date of this Agreement or such later date as shall
have been consented to by you. If the Effective Time is prior to the execution
and delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall be pending or shall have been instituted or,
to the knowledge of the Company or you, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in the business or properties of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters including you, materially impairs the investment quality of the
Securities; (ii) any downgrading in the rating of any debt securities of the
Company by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public announcement
that any such organization has under surveillance or review its rating of any
debt securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible downgrad-
ing, of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by Federal or New York authorities; or (v)
any outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity or emergency if, in the judgment of a majority in
interest of the Underwriters including you, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the
Securities.
(d) You shall have received an opinion, dated the Closing Date, of
Skadden, Arps, Slate, Meagher & Flom, special counsel for the Company, to the
effect that:
(i) The Company has been organized and is existing and in good
standing as a corporation under the laws of the State of Delaware and has
the corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing in
the State of Illinois;
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<PAGE>
(ii) Each Significant Subsidiary of the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
the state(s) set forth opposite its name in the attached schedule; and to
such counsel's knowledge, after due inquiry, the Company, directly or
through subsidiaries, is the registered owner of all of the issued and
outstanding capital stock of each Significant Subsidiary;
(iii) Except as described in the Prospectus, such counsel is not
aware of any legal or governmental proceedings pending or threatened to
which the Company or any subsidiary is a party or to which any of their
respective properties or assets are subject that are required to be
described in the Registration Statement or the Prospectus and are not
described therein, or which seek to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the
Securities;
(iv) The descriptions in the Registration Statement and Prospectus
under the headings (A) "Risk Factors--Uncertainties Regarding HSSI and MLR"
and "Business--Legal Proceedings" present accurate summaries of such legal
proceedings in all material respects and (B) "Description of Certain
Indebtedness" and "Description of the Notes" are accurate as to legal
matters in all material respects; and such counsel do not know of any
contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required;
(v) To the knowledge of such counsel after due inquiry, there are
no contracts, agreements or understandings known to such counsel between
the Company and any Person granting such Person the right to require the
Company to include any securities of the Company owned or to be owned by
such Person in the securities registered pursuant to the Registration
Statement;
(vi) The Securities have been duly authorized by requisite
corporate action on the part of the Company and executed and delivered by
the Company to the Trustee and, when authenticated by the Trustee in
accordance with the provisions of the Indenture, and delivered to and paid
for by the Underwriters in accordance with the terms of this Agreement,
will be valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except that the enforcement
thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (B) general
principles of equity (regardless of whether
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<PAGE>
enforceability is considered in a proceeding at law or in equity) and the
discretion of the court before which any proceeding therefor may be
brought;
(vii) The Securities and the Indenture conform in all material
respects to the description thereof contained in the Prospectus;
(viii) The Indenture has been duly authorized by requisite
corporate action on the part of the Company and executed and delivered by
the Company and, when executed and delivered by the Trustee (assuming the
due authorization, execution and delivery by the Trustee), will constitute
a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except that the enforcement
thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in
a proceeding at law or in equity) and the discretion of the court before
which any proceeding therefor may be brought;
(ix) To such counsel's knowledge, no consent, approval,
authorization or order of, or filing with, any United States governmental
agency or body or any United States court is required for the consummation
of the transactions contemplated by this Agreement in connection with the
issuance or sale of the Securities by the Company, except (A) the regi
stration under the Act of the Securities, (B) the qualification of the
Indenture under the Trust Indenture Act and (C) such as may be required
under state securities laws, provided that the foregoing opinion is limited
--------
to such consents, approvals, authorizations, orders and filings, which,
in such counsel's experience, are normally applicable to public
offerings of securities of the type contemplated hereby;
(x) The execution, delivery and performance of the Indenture and
this Agreement and the issuance and sale of the Securities and compliance
with the terms and provisions thereof will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under (A) the certificate of incorporation or by-laws of the Company or any
subsidiary, (B) any agreement or instrument to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound or
to which any of the properties of the Company or any subsidiary is subject
and which has been specifically identified to such counsel by officers of
the Company pursuant to a certificate attached to such opinion as an
agreement or instrument which is material to the business or financial
condition of the Company and its subsidiaries taken as a whole or (C) to
such counsel's
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<PAGE>
knowledge, any statute, any rule, regulation or order of any governmental
agency or body or any court having jurisdiction over the Company or any of
its subsidiaries or any of their properties; provided that the foregoing
opinion in this clause (C) is limited to such statutes, rules,
regulations or orders, which, in such counsel's experience, are normally
applicable to public offerings of securities of the type contemplated
hereby; and the Company has the requisite corporate power and corporate
authority to issue and sell the Securities as contemplated by this
Agreement;
(xi) The Registration Statement was declared effective under the
Act and the Indenture was qualified under the Trust Indenture Act as of the
date and time specified in such opinion (provided that in rendering such
opinion, such counsel may state that they relied solely upon the oral
advice of the staff of the Commission to the effect that the Registration
Statement has become effective and the Indenture has been so qualified),
the Prospectus either was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date specified
therein or was included in the Registration Statement (as the case may be),
and, to the best of the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement or any part thereof has
been issued and no proceedings for that purpose have been instituted or are
pending or contemplated by the Commission under the Act, and the
Registration Statement and the Prospectus, and each amendment and
supplement thereto, as of their respective effective or issue dates,
appears on its face to be appropriately responsive in all material respects
with the requirements of the Act, the Trust Indenture Act and the Rules and
Regulations (except that in each case such counsel need express no opinion
as to the financial statements and schedules and other financial or
statistical data included therein, excluded therefrom or incorporated by
reference therein or the contents of any exhibits to the Registration
Statement or the contents of the Statement of Eligibility and Qualification
of the Trustee on Form T-1);
(xii) On the Effective Date, the Company met the conditions for use
of Form S-3 under the Act; and
(xiii) This Agreement has been duly authorized by requisite
corporate action on the part of the Company and executed and delivered by
the Company.
In addition, counsel shall state that they have participated in conferences
with officers and other representatives of the Company, counsel employed by the
Company, representatives of the independent public accountants for the Company,
representatives of the Underwriters and counsel for the Underwriters, at which
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed and, although such counsel is not passing upon,
and does not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained
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in the Registration Statement or the Prospectus and have not made any
independent check or verification thereof, on the basis of the foregoing, no
facts have come to such counsel's attention that lead them to believe that
either the Registration Statement, at the time such Registration Statement
became effective, and each amendment thereto, as of its effective date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or the Prospectus as of the date of this Agreement or as of the
Closing Date, and each amendment or supplement thereto as of its issue date,
contained an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (except that in each case such
counsel need express no opinion as to the financial statements and schedules and
other financial or statistical data included therein, excluded therefrom or
incorporated by reference therein or the contents of any exhibits to the
Registration Statement or the contents of the Statement of Eligibility and
Qualification of the Trustee on Form T-1).
(e) You shall have received an opinion, dated the Closing Date, of
the Assistant General Counsel of the Company, to the effect that:
(i) The Company is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which it owns or
leases substantial properties or in which the conduct of its business
requires such qualifications;
(ii) Each Significant Subsidiary of the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required; and to such
counsel's knowledge, after due inquiry, all of the issued and outstanding
capital stock of each significant subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and, except with respect to
indebtedness described in the Prospectus (including the documents
incorporated by reference therein), is free and clear of any mortgage,
pledge, lien, encumbrance, claim or equity;
(iii) To the best of such counsel's knowledge, the Company is not
in violation of any law, administrative regulation, ordinance or order of
any court or governmental agency, arbitration panel or other authority
applicable to it the result of which would have a Material Adverse Effect;
and
(iv) Except as described in the Prospectus (including the documents
incorporated by reference therein), such counsel is not aware of (A) any
notice of infringement of or conflict with asserted rights of others with
respect to any Proprietary Rights, (B) the assertion by others of any
rights
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inconsistent with the Proprietary Rights, or (C) any facts which such
counsel believes would render any of the Proprietary Rights invalid, in
each case, which singly or in the aggregate, would have a Material Adverse
Effect.
(f) You shall have received from Kirkland & Ellis, counsel for the
Underwriters, such opinion or opinions, dated the Closing Date, with respect to
the valid existence of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as you may
require, and the Company shall have furnished to such counsel such documents as
they request for the purpose of enabling them to pass upon such matters.
(g) You shall have received a certificate of the Company, dated the
Closing Date, executed on behalf of the Company by the President or any Vice
President and a principal financial or accounting officer of the Company in
which such officers, to the best of their knowledge after reasonable
investigation, shall state that the representations and warranties of the
Company in this Agreement are true and correct, that the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date, that no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or, to the Company's
knowledge, are contemplated by the Commission and that, subsequent to the date
of the most recent financial statements in the Prospectus, there has been no
material adverse change in the financial position or results of operations of
the Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(h) You shall have received a letter, dated the Closing Date, of Price
Waterhouse which meets the requirements of subsection (a) of this Section,
except that the specified date referred to in such subsection will be a date not
more than five days prior to the Closing Date for the purposes of this
subsection.
(i) The Company, the lenders named therein as lenders and General Electric
Capital Corporation, as managing agent, shall have entered into the New Credit
Facility, and the New Credit Facility shall not have been amended or modified.
All documentation relating to the New Credit Facility shall be in form and
substance satisfactory to you and your counsel, and you shall have received
evidence that the New Credit Facility has been consummated without waiver of any
term thereof.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you reasonably request.
7. Indemnification and Contribution.
---------------------------------
-17-
<PAGE>
(a) The Company will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you specifically for use therein; and
provided, further, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased the Securities, to the extent that any
such loss, claim, damage or liability of such Underwriter results from the fact
that there was not sent or given to such person if required by law so to have
been delivered, at or prior to the written confirmation of the sale of such
Securities to such person, a copy of the Prospectus (excluding any documents
incorporated therein by reference) if the Company had previously furnished
copies thereof to such Underwriter and if such Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to which
the Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
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 by such Underwriter through you specifically for use
therein, and will
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<PAGE>
reimburse any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
-19-
<PAGE>
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by references to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omissions. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon
the same terms and conditions, to each Person, if any, who controls any
Underwriter within the meaning of the Act, and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed the Registration Statement and to each Person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
------------------------
their obligations to purchase Securities hereunder and the aggregate principal
amount of the Securities that such defaulting Underwriter or Underwriters agreed
but failed to purchase does not exceed 10% of the total principal amount of the
Securities, you may make arrangements satisfactory to the Company for the
purchase of such Securities by other Persons, including any of the Underwriters,
but if no such arrangements are made by the Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Securities that such defaulting
Underwriters agreed but failed to purchase. If any Underwriter or Underwriters
so default and the aggregate principal amount of the Securities with
-20-
<PAGE>
respect to which such default or defaults occur exceeds 10% of the total
principal amount of the Securities and arrangements satisfactory to you and the
Company for the purchase of such Securities by other Persons are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company, except as provided in
Section 9. As used in this Agreement, the term "Underwriter" includes any
Person substituted for an Underwriter under this Section. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
----------------------------------------------------
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect. If the purchase of the Securities by the Underwriters is not
consummated for any reason other than solely because of the termination of this
Agreement pursuant to Section 8 or the occurrence of any event specified in
clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
counsel) reasonably incurred by them in connection with the offering of the
Securities.
10. Notices. All communications hereunder will be in writing and, if sent
--------
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
you, c/o CS First Boston Corporation, Park Avenue Plaza, New York, N.Y. 10055,
Attention: Investment Banking Department--New Issue Processing Group, or, if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at 101 North Wacker Drive, 23rd Floor, Chicago, Illinois 60606, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
Person will have any right or obligation hereunder.
12. Representation of Underwriters. You will act for the several
-------------------------------
Underwriters in connection with this financing, and any
-21-
<PAGE>
action under this Agreement taken by you jointly or by CS First Boston
Corporation will be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
---------------
accordance with, the laws of the State of New York.
* * * * *
-22-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us one of the counter-parts hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
HARTMARX CORPORATION
By:___________________________
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
CS FIRST BOSTON CORPORATION
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: CS FIRST BOSTON CORPORATION
By:__________________________________
Name:
Title:
-23-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER SECURITIES
----------- ------------
<S> <C>
CS First Boston Corporation............ $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................... $
------------
Total.................... $100,000,000
============
</TABLE>
<PAGE>
================================================================================
HARTMARX CORPORATION
__% Senior Subordinated Notes Due 2002
---------------------------------
INDENTURE
Dated as of March __, 1994
---------------------------------
Bank One Wisconsin Trust Company, NA,
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.1 Definitions.................................................. 1
SECTION 1.2 Other Definitions............................................ 15
SECTION 1.3 Incorporation by Reference of Trust Indenture Act............ 16
SECTION 1.4 Rules of Construction........................................ 16
ARTICLE 2
The Securities
SECTION 2.1 Form and Dating.............................................. 17
SECTION 2.2 Execution and Authentication................................. 17
SECTION 2.3 Registrar and Paying Agent................................... 18
SECTION 2.4 Paying Agent To Hold Money in Trust.......................... 18
SECTION 2.5 Securityholder Lists......................................... 19
SECTION 2.6 Transfer and Exchange........................................ 19
SECTION 2.7 Replacement Securities....................................... 20
SECTION 2.8 Outstanding Securities....................................... 20
SECTION 2.9 Temporary Securities......................................... 20
SECTION 2.10 Cancellation................................................. 21
SECTION 2.11 Defaulted Interest........................................... 21
ARTICLE 3
Redemption
SECTION 3.1 Notices to Trustee........................................... 21
SECTION 3.2 Selection of Securities To Be Redeemed....................... 22
SECTION 3.3 Notice of Redemption......................................... 22
SECTION 3.4 Effect of Notice of Redemption............................... 23
SECTION 3.5 Deposit of Redemption Price.................................. 23
SECTION 3.6 Securities Redeemed in Part.................................. 23
ARTICLE 4
Covenants
SECTION 4.1 Payment of Securities........................................ 23
SECTION 4.2 SEC Reports.................................................. 23
SECTION 4.3 Limitation on Debt........................................... 24
SECTION 4.4 Limitation on Debt and Preferred Stock of Subsidiaries....... 26
SECTION 4.5 Limitation on Restricted Payments............................ 28
-i-
<PAGE>
TABLE OF CONTENTS (cont'd)
-----------------
Page
----
SECTION 4.6 Limitation on Restrictions on Distributions from
Subsidiaries................................................. 31
SECTION 4.7 Limitation on Sales of Assets and Subsidiary Stock........... 32
SECTION 4.8 Limitation on Transactions with Affiliates................... 35
SECTION 4.9 Change of Control............................................ 36
SECTION 4.10 Compliance Certificate....................................... 37
ARTICLE 5
Successor Company
SECTION 5.1 When Company May Merge or Transfer Assets.................... 38
ARTICLE 6
Defaults and Remedies
SECTION 6.1 Events of Default............................................ 39
SECTION 6.2 Acceleration................................................. 41
SECTION 6.3 Other Remedies............................................... 41
SECTION 6.4 Waiver of Past Defaults...................................... 41
SECTION 6.5 Control by Majority.......................................... 42
SECTION 6.6 Limitation on Suits.......................................... 42
SECTION 6.7 Rights of Holders To Receive Payment......................... 42
SECTION 6.8 Collection Suit by Trustee................................... 43
SECTION 6.9 Trustee May File Proofs of Claim............................. 43
SECTION 6.10 Priorities................................................... 43
SECTION 6.11 Undertaking for Costs........................................ 44
SECTION 6.12 Waiver of Stay or Extension Laws............................. 44
ARTICLE 7
Trustee
SECTION 7.1 Duties of Trustee............................................ 44
SECTION 7.2 Rights of Trustee............................................ 45
SECTION 7.3 Individual Rights of Trustee................................. 46
SECTION 7.4 Trustee's Disclaimer......................................... 46
SECTION 7.5 Notice of Defaults........................................... 46
SECTION 7.6 Reports by Trustee to Holders................................ 47
SECTION 7.7 Compensation and Indemnity................................... 47
SECTION 7.8 Replacement of Trustee....................................... 47
SECTION 7.9 Successor Trustee by Merger.................................. 48
SECTION 7.10 Eligibility; Disqualification................................ 49
SECTION 7.11 Preferential Collection of Claims Against Company............ 49
-ii-
<PAGE>
TABLE OF CONTENTS (cont'd)
-----------------
Page
----
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.1 Discharge of Liability on Securities; Defeasance............. 49
SECTION 8.2 Conditions to Defeasance..................................... 50
SECTION 8.3 Application of Trust Money................................... 52
SECTION 8.4 Repayment to Company......................................... 52
SECTION 8.5 Indemnity for Government Obligations......................... 52
SECTION 8.6 Reinstatement................................................ 52
ARTICLE 9
Amendments
SECTION 9.1 Without Consent of Holders................................... 52
SECTION 9.2 With Consent of Holders...................................... 53
SECTION 9.3 Compliance with Trust Indenture Act.......................... 54
SECTION 9.4 Revocation and Effect of Consents and Waivers................ 54
SECTION 9.5 Notation on or Exchange of Securities........................ 55
SECTION 9.6 Trustee To Sign Amendments................................... 55
SECTION 9.7 Payment for Consent.......................................... 55
ARTICLE 10
Subordination
SECTION 10.1 Agreement To Subordinate..................................... 56
SECTION 10.2 Liquidation, Dissolution, Bankruptcy......................... 56
SECTION 10.3 Default on Senior Debt....................................... 56
SECTION 10.4 Acceleration of Payment of Securities........................ 57
SECTION 10.5 When Distribution Must Be Paid Over.......................... 58
SECTION 10.6 Payment Permitted If No Default.............................. 58
SECTION 10.7 Subrogation.................................................. 58
SECTION 10.8 Relative Rights.............................................. 58
SECTION 10.9 Subordination May Not Be Impaired by Company................. 59
SECTION 10.10 Rights of Trustee and Paying Agent........................... 59
SECTION 10.11 Distribution or Notice to Representative..................... 59
SECTION 10.12 Article 10 Not To Prevent Events of Default or Limit Right
To Accelerate................................................ 60
SECTION 10.13 Trustee Not Fiduciary for Holders of Senior Debt............. 60
SECTION 10.14 Trust Moneys Not Subordinated................................ 60
SECTION 10.15 Trustee Entitled To Rely..................................... 60
SECTION 10.16 Trustee To Effectuate Subordination.......................... 61
SECTION 10.17 Reliance by Holders of Senior Debt on Subordination
Provisions................................................... 61
-iii-
<PAGE>
TABLE OF CONTENTS (cont'd)
-----------------
Page
----
ARTICLE 11
Miscellaneous
SECTION 11.1 Trust Indenture Act Controls................................. 61
SECTION 11.2 Notices...................................................... 61
SECTION 11.3 Communication by Holders with Other Holders.................. 62
SECTION 11.4 Certificate and Opinion as to Conditions Precedent........... 62
SECTION 11.5 Statements Required in Certificate or Opinion................ 63
SECTION 11.6 When Securities Disregarded.................................. 63
SECTION 11.7 Rules by Trustee, Paying Agent and Registrar................. 63
SECTION 11.8 Legal Holidays............................................... 63
SECTION 11.9 Governing Law................................................ 64
SECTION 11.10 No Recourse Against Others................................... 64
SECTION 11.11 Successors................................................... 64
SECTION 11.12 Multiple Originals........................................... 64
SECTION 11.13 Table of Contents; Headings.................................. 64
EXHIBIT A - Form of Security
-iv-
<PAGE>
INDENTURE dated as of March __, 1994, between HARTMARX
CORPORATION, a Delaware corporation (the "Company"), and Bank One
Wisconsin Trust Company, NA, a national banking association (the
"Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's __% Senior
Subordinated Notes Due 2002 (the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.1 Definitions.
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director or
officer (A) of such specified person, (B) of any subsidiary of such specified
person or (C) of any person described in clause (i) above. For purposes of this
definition, control of a person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such person whether by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries,
including any disposition by means of a merger, consolidation or similar
transaction, other than (i) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property or assets in the ordinary course of business, (iii) a disposition of
obsolete or worn out assets in the ordinary course of business, (iv) a
disposition subject to Section 4.5 and (v) a disposition of receivables pursuant
to an accounts receivable financing facility.
"Average Life" means, as of the date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the date
of each successive scheduled principal payment of such Debt or redemption
payment on such Preferred Stock multiplied by the amount of such payment by (ii)
the sum of all such payments.
-1-
<PAGE>
"Bank Debt" means any and all amounts payable under or in respect of
the New Credit Facility, including any and all amounts payable in respect of
letters of credit and Interest Rate Protection Agreements included in the
obligations under the New Credit Facility, and all documents, instruments and
agreements executed in connection with the New Credit Facility (and any other
agreement or agreements which refinances or replaces the New Credit Facility in
whole or in part), as amended from time to time, including principal, premium
(if any), interest, fees, charges, expenses, reimbursement obligations,
guarantees and all other amounts payable thereunder or in respect thereof
including, without limitation, any and all of the foregoing amounts arising
before or after any petition in bankruptcy or for reorganization relating to
the Company whether or not a claim for such amounts is allowed, avoided or
subordinated in such proceedings.
"Bank Guarantee" means, for any Subsidiary, the guarantee by such
Subsidiary of the Bank Debt and any other Debt of any Subsidiary which Debt,
directly or indirectly, guaranties or secures any Bank Debt.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock, including any Preferred Stock.
"Change of Control" means the occurrence of any of the following
events:
(i) any "person" or "group" (within the meaning of Section 13(d)
of the Exchange Act), together with any Affiliates or Associates thereof,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
-2-
<PAGE>
a beneficial ownership of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
voting power of equity securities entitled to vote in the election of
directors of the Company;
(ii) liquidation or dissolution of the Company; or
(iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66-2/3% of the directors of the Company
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office. A Change of Control will be
deemed to have occurred if an event described in any of the foregoing
clauses (i), (ii) or (iii) has occurred, regardless of whether one of the
events in any of the other clauses has also occurred.
"Company" means the party named as such in this Indenture until a
successor replaces it in accordance with the terms hereof and, thereafter, means
the successor and, for purposes of any provision contained herein and required
by the TIA, each other obligor on the indenture securities.
"Consolidated EBITDA Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the Reference Period
to (ii) Consolidated Interest Expense for the Reference Period; provided,
however, that (1) if the Company or any Subsidiary has issued any Debt since the
beginning of such period that remains outstanding or if the transaction giving
rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an
issuance of Debt, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such Debt
as if such Debt had been issued on the first day of such period and the
discharge of any other Debt repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Debt as if any such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period the Company or any Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to
-3-
<PAGE>
any Debt of the Company or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing Subsidiaries
in connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Debt of such Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such Debt after
such sale), (3) if since the beginning of such period the Company or any
Subsidiary (by merger or otherwise) shall have made an Investment in any
Subsidiary (or any person which becomes a Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the issuance of any Debt), as if such Investment or
acquisition occurred on the first day of such period, and (4) if since the
beginning of such period any person (that subsequently became a Subsidiary or
was merged with or into the Company or any Subsidiary since the beginning of
such period) shall have made any Asset Disposition or any Investment that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition or Investment occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Debt issued in connection therewith, the pro forma calculations shall be
determined 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 on such Debt shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Protection Agreement applicable to
such Debt to the extent that the remaining term of such Interest Rate Protection
Agreement exceeds 12 months).
"Consolidated Interest Expense" means, for any period and without
duplication, the total interest expense of the Company and its consolidated
Subsidiaries, including (i) interest expense attributable to capital leases,
(ii) amortization of debt discount and debt issuance cost (except to the extent
incurred in connection with the issuance of the Securities), (iii) capitalized
interest, (iv) non-cash interest payments, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under Interest Rate Protection Agreements (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by persons other than the Company or a Wholly Owned
Subsidiary,
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(viii) interest incurred in connection with investments in discontinued
operations and (ix) interest actually paid by the Company or any of its
consolidated subsidiaries under any guarantee of Debt or any other obligation of
any other person.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income or loss of any person if such person is not a
Subsidiary, except that the Company's equity in the net income of any such
person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such person during
such period to the Company or a Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Subsidiary, to the limitations contained in clause (iii) below);
(ii) any net income of any person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Subsidiary if such Subsidiary is subject
to restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to the
Company, except that (A) the Company's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Subsidiary during such period to the Company or another Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Subsidiary
for such period shall be included in determining such Consolidated Net
Income;
(iv) any gain or loss realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated
subsidiaries (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any person; or
(v) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" of any person means the total amounts shown
on the balance sheet of such person and its consol-
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<PAGE>
idated subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles, as of the end of the most recent
fiscal quarter of such person ending at least 45 days prior to (or, if earlier,
the date on which the Company files a quarterly or annual periodic report under
the Exchange Act with the Commission which includes consolidated financial
statements including such quarter) the taking of any action for the purpose of
which the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of such person plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit, (B) any amounts attributable
to Redeemable Stock and (C) any amounts attributable to Exchangeable Stock.
"Debt" of any person means, without duplication,
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such person is responsible or liable;
(ii) all Capital Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such person and all obligations of such person under any title retention
agreement (but excluding trade accounts payable and other accrued expenses
arising in the ordinary course of business);
(iv) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (i) through (iii)
above) entered into in the ordinary course of business of such person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such person of a demand for reimbursement
following payment on the letter of credit);
(v) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock or
Exchangeable Stock (but excluding any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other persons and all dividends of other persons for the payment of
which, in either case, such person
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is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; and
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Debt" means (i) the Bank Debt and (ii) other Senior
Debt that (A) is issued at one time or under a common agreement in an aggregate
outstanding principal amount of at least $25,000,000 and (B) has been designated
Designated Senior Debt in an Officers' Certificate received by the Trustee.
"EBITDA" for any period means the Consolidated Net Income for such
period (but without giving effect to adjustments, accruals, deductions or
entries resulting from purchase accounting, extraordinary losses or gains and
any gains or losses from any Asset Dispositions), plus the following to the
extent deducted in calculating such Consolidated Net Income: (i) income tax
expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash charges (excluding any such non-
cash charge constituting an extraordinary item of loss or any non-cash charge
which requires an accrual of or a reserve for cash charges for any future
period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations thereunder.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company which
is neither Exchangeable Stock nor Redeemable Stock).
"Guarantee" means any obligation, contingent or otherwise, of any
person directly or indirectly guaranteeing any Debt or other obligation of any
person and any obligation, direct or indirect, contingent or otherwise, of such
person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or
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<PAGE>
to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Subsidiary against
fluctuations in interest rates.
"Investment" in any person means any loan or advance to, any
acquisition of Capital Stock, equity interest, obligation or other security of,
or capital contribution or other investment in, such person. Any subsequent
issuance or transfer of any Capital Stock that results in a Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary shall not be deemed to
constitute the making of a new Investment by the Company to the extent of the
Company's then outstanding Investments therein, except with respect to that
portion of such Investment that was made in connection with or otherwise in
anticipation of such issuance or transfer.
"issue" means issue, assume, guarantee, incur or otherwise become
liable for; provided, however, that any Debt or Capital Stock of a person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary.
"Lien" means any mortgage, pledge, security interest, lien,
conditional sale or other title retention agreement.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Debt or other obligations relating to
such properties or assets or received in any other non-cash form) therefrom, in
each case net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, all federal, state, provincial, foreign and
local taxes paid or required to be accrued as a liability under generally
accepted accounting principles as a consequence of such Asset Disposition, and
in each case net of all payments made on any Debt which is secured by any
assets subject to such Asset Disposition, in accor-
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<PAGE>
dance with the terms of any lien upon or other security agreement of any kind
with respect to such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be repaid out
of the proceeds from such Asset Disposition, and net of all distributions and
other payments required to be made to minority interest holders in Subsidiaries
or joint ventures as a result of such Asset Disposition.
"Net Proceeds," with respect to any issuance or sale of Capital Stock,
means the aggregate proceeds of such issuance or sale including the fair market
value of property other than cash (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
resolution) net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"New Credit Facility" means the Credit Agreement, dated as of March
__, 1994, among the Company and certain financial institutions named therein as
Lenders and General Electric Capital Corporation, as Managing Agent, as amended,
restated, replaced, refinanced, supplemented or otherwise modified from time to
time.
"Nonconvertible Capital Stock" means, with respect to any corporation,
any nonconvertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into nonconvertible common stock of such
corporation; provided, however, that Nonconvertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Nonrecourse Debt" means Debt or that portion of Debt (i) as to which
neither the Company nor its Subsidiaries (other than a Nonrecourse Subsidiary)
(A) provide credit support (including any undertaking, agreement or instrument
which would constitute Debt), (B) is directly or indirectly liable, or (C)
constitute the lender and (ii) no default with respect to which (including any
rights which the holders thereof may have to take enforcement action against a
Nonrecourse Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Debt of the Company or its Subsidiaries to declare a default
on such other Debt or cause the payment thereof to be accelerated or payable
prior to its Stated Maturity.
"Nonrecourse Subsidiary" means a Subsidiary which (i) has not acquired
any assets (other than cash) directly or indirectly from the Company or any
Subsidiary, (ii) only owns properties acquired after the date of this Indenture
and (iii) has no Debt other than Nonrecourse Debt.
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"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Investments" shall mean (i) short-term obligations of, or
fully guaranteed by, the United States of America; (ii) commercial paper rated
A-1 or better by Standard and Poor's Corporation or P-1 or better by Moody's
Investors Service, Inc.; (iii) deposit accounts maintained in the ordinary
course of business at a bank or trust company which is organized under the laws
of the United States of America or any state thereof having capital, surplus and
undivided profits aggregating in excess of $500,000,000; (iv) certificates of
deposit issued by and time deposits with commercial banks (whether domestic or
foreign) having capital, surplus and undivided profits aggregating in excess of
$500,000,000; (v) deposits maintained as cash collateral with banks and
financial institutions providing cash management services to the Company or its
Wholly Owned Subsidiaries having an aggregate value which is at all times less
than $4,000,000; (vi) the receipt
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of notes or other Investments by the Company or any Subsidiary in settlement of
delinquent or defaulted accounts or notes receivable; and (vii) deposit accounts
maintained by the Company or Subsidiaries under the terms of the Bank Debt.
Notwithstanding the foregoing, the Investments described in clauses (i), (ii)
and (iv) above shall constitute Permitted Investments only to the extent such
Investments mature within 90 days of the date of acquisition thereof.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company for cash pursuant to an effective registration
statement under the Securities Act.
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of the
Stated Maturity of the Securities or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated Maturity
of the Securities.
"Reference Period", with respect to any computation of the
Consolidated EBITDA Coverage Ratio, means the most recent four consecutive
fiscal quarters ending at least 45 days prior to (or, if earlier, the date on
which the Company files a quarterly or annual periodic report under the Exchange
Act with the Commission which includes consolidated financial statements
including such quarter) the date of determination of the Consolidated EBITDA
Coverage Ratio.
"Reorganization Securities" means shares of stock of the Company, or
its successor, as reorganized, or other equity or debt securities of the Company
or any other person provided for by a plan of reorganization, the payment of
which is subordinated, at least to the same extent as the Securities, to the
payment of all Senior Debt which may at the time be outstanding and the
principal of which is due no earlier than the principal of the Securities;
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provided that the legal, equitable and contractual rights of the holders of the
Senior Debt are not impaired thereby or the holders of the Senior Debt, or their
agents or representatives, as the case may be, shall have approved such plan of
reorganization.
"Representative" means the trustee, agent or representative (if any)
for an issue of Senior Debt.
"SEC" means the Securities and Exchange Commission.
"Secured Debt" means any Debt of the Company secured by a Lien.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder.
"Senior Debt" means:
(i) all Bank Debt;
(ii) all obligations consisting of the principal of and premium
(if any) and accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to the Company whether or not post-filing interest is allowed in
such proceeding), whether existing on the date of the Indenture or
thereafter incurred, in respect of (A) indebtedness of the Company for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which the Company is
responsible or liable;
(iii) all Capital Lease Obligations of the Company;
(iv) all obligations of the Company (A) for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (B) under interest rate swaps, caps, collars, options and
similar arrangements and foreign currency hedges entered into in respect of
any obligations described in clauses (i), (ii) and (iii) or generally to
hedge foreign exchange risks, (C) under receivables financing facilities
or (D) issued or assumed as the deferred purchase price of property or
services and all conditional sale obligations of the Company and all
obligations of the Company under any title retention agreement;
(v) all obligations of other persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons for the
payment of which, in either case, the
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Company is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any agreement which has the
economic effect of a guarantee; and
(vi) all obligations of the Company consisting of modifications,
renewals, extensions, replacements, refinancings and refundings of any
obligations described in clause (i), (ii), (iii), (iv) or (v);
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Securities. However, Senior Debt will not be deemed
to include (1) any obligation of the Company to any Subsidiary, (2) any
liability for federal, state, local or other taxes owed or owing by the Company,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any indebtedness, guarantee or obligation of
the Company (other than the Bank Debt) which is contractually subordinate or
junior in right of payment to any other indebtedness, guarantee or obligation of
the Company or (5) the portion of any Debt issued in violation of Section 4.3.
"Senior Subordinated Debt" means the Securities and any other
indebtedness, guarantee or obligation of the Company that specifically provides
that such indebtedness, guarantee or obligation is to rank pari passu with other
Senior Subordinated Debt of the Company and is not subordinated by its terms to
any indebtedness, guarantee or obligation of the Company which is not Senior
Debt.
"Significant Subsidiary" means (i) any domestic Subsidiary of the
Company which at the time of determination either (A) had assets which, as of
the date of the Company's most recent quarterly consolidated balance sheet,
constituted at least 3% of the Company's total assets on a consolidated basis as
of such date or (B) had revenues for the 12-month period ending on the date of
the Company's most recent quarterly consolidated statement of income which
constituted at least 3% of the Company's total revenues on a consolidated basis
for such period (each such determination being made in accordance with
generally accepted accounting principles), (ii) any foreign Subsidiary of the
Company which at the time of determination either (A) had assets which, as of
the date of the Company's most recent quarterly consolidated balance sheet,
constituted at least 5% of the Company's total assets on a consolidated basis as
of such date or (B) had revenues for the 12-month period ending on the date of
the Company's most recent quarterly consolidated statement of income which
constituted at least 5% of the Company's total revenues on a consolidated basis
for such period (each such determination being made in accordance with generally
accepted accounting principles) or (iii) any
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Subsidiary of the Company which, if merged with all Defaulting Subsidiaries of
the Company, would at the time of determination either (A) have had assets
which, as of the date of the Company's most recent quarterly consolidated
balance sheet, would have constituted at least 10% of the Company's total assets
on a consolidated basis as of such date or (B) have had revenues for the
12-month period ending on the date of the Company's most recent quarterly
consolidated statement of income which would have constituted at least 10% of
the Company's most recent quarterly consolidated statement of income which would
have constituted at least 10% of the Company's total revenues on a consolidated
basis for such period (each such determination being made in accordance with
generally accepted accounting principles). "Defaulting Subsidiary" means any
Subsidiary of the Company (other than a Nonrecourse Subsidiary) with respect to
which an event described under clause (5), (6), (7) or (8) of Section 6.1 has
occurred and is continuing.
"Stated Maturity" means, with respect to any Security, the date
specified in such Security as the fixed date on which the principal of such
Security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
Security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the date hereof or hereafter incurred) which is subordinate or
junior in right of payment to the Securities.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment
and leasehold interests and improvements which would be reflected on a balance
sheet of the Company prepared in accordance with generally accepted accounting
principles, excluding (i) all such tangible property located outside the United
States of America, (ii) all rights, contracts and other intangible assets of any
nature whatsoever and (iii) all inventories and other current assets.
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"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S.C. (S)(S)77aaa-77bbbb), as in effect from time to time.
"Traco Warrant Exercise" means the sale of common stock of the Company
for cash pursuant to any exercise of the three-year Warrant to Purchase
1,649,000 shares of Common Stock issued pursuant to the Purchase Agreement,
dated September 20, 1992, between the Company and Traco International, N.V.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the terms hereof and, thereafter, means
the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly Owned Subsidiary.
SECTION 1.2 Other Definitions.
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Bankruptcy Law".................................................... 6.1
"covenant defeasance option"........................................ 8.1(b)
"Custodian"......................................................... 6.1
"Event of Default".................................................. 6.1
"legal defeasance option"........................................... 8.1(b)
"Legal Holiday"..................................................... 11.8
"Offer"............................................................. 4.7(b)
"Offer Amount"...................................................... 4.7(c)
"Offer Period"...................................................... 4.7(c)
"pay the Securities"................................................ 10.3
"Paying Agent"...................................................... 2.3
"Payment Blockage Period"........................................... 10.3
"Payment Notice".................................................... 10.3
"Purchase Date"..................................................... 4.7(c)
</TABLE>
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<TABLE>
<S> <C>
"Registrar"......................................................... 2.3
"Restricted Payment"................................................ 4.5
</TABLE>
SECTION 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.4 Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(3) "or" is not exclusive;
(4) "including" means including, without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured debt shall not be deemed to be subordinate or
junior to secured debt merely by virtue of its nature as unsecured debt;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the
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issuer dated such date prepared in accordance with generally accepted
accounting principles and accretion of principal on such security shall be
deemed to be the issuance of Debt; and
(8) the principal amount of any Redeemable Stock shall be (i)
the maximum liquidation value of such Redeemable Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Redeemable Stock, whichever is greater.
ARTICLE 2
The Securities
SECTION 2.1 Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the Company is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). Each Security shall be dated the date of its
authentication. The terms of the Securities set forth in Exhibit A are part of
the terms of this Indenture.
SECTION 2.2 Execution and Authentication. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and deliver Securities for original
issue in an aggregate principal amount of not more than $100,000,000, upon a
written order of the Company signed by two officers or by an Officer and either
an Assistant Treasurer or an Assistant Secretary of the Company. Such order
shall specify the amount of the Securities to be authenticated and the date on
which the original issue of Securities is to be authenticated. The aggregate
principal amount of Securities outstanding at any time may not exceed that
amount except as provided in Section 2.7.
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The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $_________ and integral multiples thereof.
SECTION 2.3 Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.7. The
Company or any Subsidiary or Affiliate may act as Paying Agent, Registrar,
co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.4 Paying Agent To Hold Money in Trust. Prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money
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held by it to the Trustee and to account for any funds disbursed by the Paying
Agent. Upon complying with this Section, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
SECTION 2.5 Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least ten
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.6 Transfer and Exchange. The Securities shall be issued
in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(1)
(or any successor provision) of the Uniform Commercial Code are met. When
Securities are presented to the Registrar or a co-registrar with a request to
exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested if the same
requirements are met. To permit registration of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Securities at the
Registrar's or co-registrar's request. The Company may require payment of a sum
sufficient to pay all taxes, assessments or other governmental charges in
connection with any exchange pursuant to Sections 2.9, 3.6 or 9.5. The Company
shall not be required to make and the Registrar need not register transfers or
exchanges of Securities selected for redemption (except, in the case of
Securities to be redeemed in part, the portion thereof not to be redeemed) or
any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt
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and will be entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
SECTION 2.7 Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 (or any successor provision) of the Uniform Commercial Code are
met and the Holder satisfies any other reasonable requirements of the Trustee.
If required by the Trustee or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a Security is
replaced. The Company and the Trustee may charge the Holder for their expenses
in replacing a Security.
Every replacement Security is an obligation of the Company.
SECTION 2.8 Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those cancelled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser. In such an
event, the replacement securities will not be deemed outstanding and not
entitled to any rights hereunder.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
to be redeemed or maturing, as the case may be, and the Paying Agent is not
prohibited from paying such money to the Securityholders on that date pursuant
to the terms of this Indenture, then on and after that date such Securities
cease to be outstanding for all purposes of this Indenture and interest on them
ceases to accrue.
SECTION 2.9 Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate
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definitive Securities and deliver them in exchange for temporary Securities.
SECTION 2.10 Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver cancelled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancellation.
SECTION 2.11 Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest, to the extent lawful, at the rate
borne by the Securities) in any lawful manner. The Company may pay the
defaulted interest to the persons who are Securityholders on a subsequent
special record date, which date shall be at least five Business Days prior to
the payment date. The Trustee, in consultation with the Company, shall fix or
cause to be fixed any such special record date and payment date, and, at least
15 days before any such special record date the Company shall mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
ARTICLE 3
Redemption
----------
SECTION 3.1 Notices to Trustee. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not less than 15 days after the date of notice to the Trustee.
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SECTION 3.2 Selection of Securities To Be Redeemed. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The Trustee
shall make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or an integral
multiple of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.3 Notice of Redemption. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities (or portion thereof) called for redemption
ceases to accrue on and after the redemption date; and
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
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SECTION 3.4 Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.5 Deposit of Redemption Price. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all Securities
to be redeemed on that date other than Securities or portions of Securities
called for redemption which have been delivered by the Company to the Trustee
for cancellation.
SECTION 3.6 Securities Redeemed in Part. On the redemption date,
upon surrender of a Security that is redeemed in part, the Company shall execute
and the Trustee shall authenticate for the Holder (at the Company's expense) a
new Security equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE 4
Covenants
---------
SECTION 4.1 Payment of Securities. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholder on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.2 SEC Reports. The Company shall file with the Trustee
and provide Securityholders, within 15 days after it files them with the SEC,
copies of its annual report and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstand-
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ing that the Company may not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
continue to file with the SEC and provide the Trustee and Securityholders with
such annual reports and such information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which are specified in Sections 13 and 15(d) of the Exchange Act as
long as the Securities remain outstanding. The Company also shall comply with
the other provisions of TIA (S)314(a).
SECTION 4.3 Limitation on Debt.
(a) The Company shall not issue, directly or indirectly, any Debt
unless the Consolidated EBITDA Coverage Ratio (as shown by a consolidated pro
forma income statement of the Company and its consolidated subsidiaries for the
Reference Period after giving effect to (i) the issuance of such Debt and (if
applicable) the application of the net proceeds thereof to refinance other Debt
as if such Debt was issued and the application of such proceeds occurred at the
beginning of the Reference Period, (ii) the issuance and retirement of any other
Debt since the last day of the most recent fiscal quarter covered by such income
statement as if such Debt was issued or retired at the beginning of the
Reference Period and (iii) the acquisition or disposition of any company or
business acquired or disposed of by the Company since the first day of the
Reference Period, including any acquisition or disposition which will be
consummated substantially contemporaneously with the issuance of such Debt, as
if such acquisition or disposition occurred at the beginning of the Reference
Period) exceeds 2.0 to 1.0.
(b) Notwithstanding Section 4.3(a), the Company may issue the
following Debt:
(1) Debt issued pursuant to the New Credit Facility or any
agreement or agreements which refinance or replace the New Credit Facility,
in whole or in part, but only to the extent that the aggregate of all Debt
issued or issuable by the Company under all such refinancing agreements
does not exceed the greater of (A) $175,000,000 and (B) the sum of (x) 55%
of the book value of the inventory of the Company and its Wholly Owned
Subsidiaries (other than Nonrecourse Subsidiaries) and (y) 85% of the book
value of the accounts receivable of the Company and its Wholly Owned
Subsidiaries (other than Nonrecourse Subsidiaries), in each case as deter
mined in accordance with generally accepted accounting principles (such sum
of (x) and (y) is referred to herein as the "Borrowing Base");
(2) Debt under Capital Lease Obligations which does not exceed
$10,000,000 in the aggregate (less the amount of any Debt under Capital
Lease Obligations of any Subsidiary
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then outstanding and incurred pursuant to clause (2) of Section 4.4).
(3) Debt owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any transfer of such Debt by such Wholly Owned
Subsidiary (other than to a Wholly Owned Subsidiary) shall be deemed, in
each case, to constitute the issuance of such Debt by the Company;
(4) the Securities and Debt issued in exchange for, or the
proceeds of which are used to refund or refinance, any Debt permitted by
this clause (4); provided, however, that (i) the principal amount of the
Debt so issued shall not exceed the principal amount of the Debt being
exchanged, refunded or refinanced plus an amount no greater than any
prepayment premium due under the terms of the Debt being exchanged,
refunded or refinanced and fees, costs and expenses of issuance of the Debt
so issued and (ii) either (x) the Debt so issued shall not mature prior to
the earlier of (A) the Stated Maturity of the Debt being exchanged,
refunded or refinanced and (B) the first anniversary of the Stated Maturity
of the Securities or (y) the portion, if any, of the Debt so issued that is
scheduled to mature on or prior to the Stated maturity of the Securities
has a weighted average life to maturity at the time such Debt is incurred
that is equal to or greater than the weighted average life to maturity of
the portion of the Debt being exchanged, refunded or refinanced that is
scheduled to mature on or prior to the Stated Maturity of the Securities;
(5) Debt (other than Debt described in clause (1), (2), (3) or
(4) of this Section) outstanding on the date on which the Securities were
originally issued and Debt issued in exchange for, or the proceeds of which
are used to refund or refinance, any Debt permitted by this clause (5);
provided, however, that (i) the principal amount of the Debt so issued
shall not exceed the principal amount of the Debt being exchanged, refunded
or refinanced plus an amount no greater than any prepayment premium due
under the terms of the Debt being exchanged, refunded or refinanced and
fees, costs and expenses of issuance of the Debt so issued and (ii) either
(x) the Debt so issued shall not mature prior to the earlier of (A) the
Stated Maturity of the Debt being exchanged, refunded or refinanced and (B)
the first anniversary of the Stated Maturity of the Securities or (y) the
portion, if any, of the Debt so issued that is scheduled to mature on or
prior to the Stated Maturity of the Securities has a weighted average life
to maturity at the time such Debt is incurred that is equal to or greater
than the weighted average life to maturity of the
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portion of the Debt being exchanged, refunded or refinanced that is
scheduled to mature on or prior to the Stated Maturity of the Securities;
and
(6) Debt in an aggregate principal amount which, together with
all other Debt of the Company then outstanding (other than Debt permitted
by clauses (1) through (5) of this Section and in Section 4.3(a)) does not
exceed $10,000,000 (less the amount of any Subsidiary Debt or Preferred
Stock then outstanding and incurred pursuant to clause (7) of Section 4.4).
(c) Notwithstanding Sections 4.3(a) and 4.3(b), the Company shall not
issue any Debt (i) if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations unless such Debt shall be subordinated to the Securities to at least
the same extent as such Subordinated Obligations or (ii) if such Debt is
subordinate or junior in ranking in any respect to any Senior Debt unless such
Debt is Senior Subordinated Debt or is expressly subordinated in right of
payment to Senior Subordinated Debt. In addition, the Company shall not issue
any Secured Debt which is not Senior Debt unless contemporaneously therewith
effective provision is made to secure the Securities equally and ratably with
such Secured Debt for so long as such Secured Debt is secured by a Lien. For
purposes of the preceding sentence, the granting of liquidation or other
preferences by the holders of Senior Debt to providers of trade credit to the
Company or any Subsidiary shall not render such trade credit Secured Debt.
SECTION 4.4 Limitation on Debt and Preferred Stock of Subsidiaries.
The Company shall not permit any Subsidiary to issue, directly or indirectly,
any Debt or Preferred Stock except:
(1) (i) any Bank Guarantee, (ii) any guarantee by a Subsidiary
of any Senior Debt permitted to be issued pursuant to Section 4.3 and (iii)
Debt or Preferred Stock issued to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such Debt or
Preferred Stock (other than to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the issuance of such Debt or
Preferred Stock by the issuer thereof;
(2) Debt under Capital Lease Obligations which does not exceed
$10,000,000 in the aggregate (less the amount of any Debt under Capital
Lease Obligations then outstanding and incurred pursuant to Section
4.3(b)(2);
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(3) Debt or Preferred Stock of a Subsidiary issued and
outstanding on or prior to the date on which such Subsidiary was acquired
by the Company (other than Debt or Preferred Stock issued as consideration
in, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Subsidiary became a Subsidiary or was acquired by
the Company);
(4) Debt or Preferred Stock issued and outstanding on or prior
to the date on which the Securities were originally issued (other than Debt
or Preferred Stock described in clause (1), (2) or (3) of this Section);
(5) Debt or Preferred Stock issued in exchange for, or the
proceeds of which are used to refund or refinance, Debt or Preferred Stock
referred to in clause (2), (3) or (4) of this Section; provided, however,
that (i) the principal amount or liquidation value of such Debt or
Preferred Stock so issued shall not exceed the principal amount or
liquidation value of the Debt or Preferred Stock so refunded or refinanced
plus an amount no greater than any prepayment premium due under the terms
of the Debt or Preferred Stock so refunded or refinanced and reasonable
expenses of issuance of the Debt or Preferred Stock so issued and (ii)
either (x) the Debt or Preferred Stock so issued shall not mature prior to
the earlier of (A) the Stated Maturity of the Debt or Preferred Stock being
exchanged, refunded or refinanced and (B) the first anniversary of the
Stated Maturity of the Securities or (y) the portion, if any, of the Debt
or Preferred Stock so issued that is scheduled to mature on or prior to the
Stated Maturity of the Securities has a weighted average life to maturity
at the time such Debt or Preferred Stock is incurred or issued that is
equal to or greater than the weighted average life to maturity of the
portion of the Debt or Preferred Stock being exchanged, refunded or
refinanced that is scheduled to mature on or prior to the Stated Maturity
of the Securities;
(6) Nonrecourse Debt of a Nonrecourse Subsidiary issued after
the date of this Indenture to finance the acquisition of new assets
acquired by the Company or its Subsidiaries after such date; provided,
however, that if any such debt thereafter ceases to be Nonrecourse Debt of
a Nonrecourse Subsidiary, then such event will be deemed to constitute the
issuance of such Debt by the issuer thereof; and
(7) Debt and Preferred Stock in an aggregate principal amount
which, together with all other Debt and Preferred Stock of Subsidiaries
then outstanding (other than Debt or Preferred Stock permitted by clauses
(1) through (6) of this Section) does not exceed $10,000,000 (less the
amount
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of any Debt then outstanding and incurred pursuant to Section 4.3(b)(6).
SECTION 4.5 Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Subsidiary,
directly or indirectly, to (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any distribution
in connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of its Capital Stock (except dividends or
distributions payable solely in its Nonconvertible Capital Stock or in options,
warrants or other rights to purchase its Nonconvertible Capital Stock and except
dividends or distributions payable to the Company or a Subsidiary which is not a
Nonrecourse Subsidiary), (ii) purchase, redeem or otherwise acquire or retire
for value any Capital Stock of the Company, a Subsidiary or any direct or
indirect parent of the Company, (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Affiliate of the Company or person, other than a Wholly Owned Subsidiary
which is not a Nonrecourse Subsidiary or a person which will become a Wholly
Owned Subsidiary which is not a Nonrecourse Subsidiary as a result of any such
Investment (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being hereinafter
referred to as a "Restricted Payment") if at the time the Company or such
Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company is not able to issue $1.00 of additional Debt in
accordance with the provisions of Section 4.3(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the date on which the Securities were originally
issued would exceed the sum of
(a) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from ________ __, 1994 to
the end of the most recent fiscal quarter ending at least 45 days
prior to (or, if earlier, the date on which the Company files a
quarterly or annual periodic report under the Exchange Act with the
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Commission which includes consolidated financial statements including
such quarter) the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(b) the aggregate Net Proceeds received by the Company from
the issue or sale of, or as a capital contribution in respect of, its
Capital Stock (other than Redeemable Stock or Exchangeable Stock)
subsequent to the date on which the Securities were originally issued
(other than an issuance or sale to a Subsidiary or an employee stock
ownership plan or similar trust);
(c) the aggregate Net Proceeds received by the Company from
the issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) to an employee stock ownership plan subsequent to
__________, but (if such employee stock ownership plan incurs any
Debt) only to the extent that any such proceeds are equal to any
increase in the Consolidated Net Worth of the Company resulting from
principal repayments made by such employee stock ownership plan with
respect to Debt incurred by it to finance the purchase of such Capital
Stock; and
(d) the amount by which Debt of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other
than by a Subsidiary) subsequent to the date on which the Securities
were originally issued of any Debt of the Company convertible or
exchangeable for Capital Stock (other than Redeemable Stock or
Exchangeable Stock) of the Company (less the amount of any cash, or
other property, distributed by the Company upon such conversion or
exchange).
(b) The provisions of Section 4.5(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Redeemable Stock or Exchangeable Stock and other than Capital Stock
issued or sold to a Subsidiary or an employee stock ownership plan);
provided, however, that (A) such purchase or redemption shall be excluded
in the calculation of the amount of Restricted Payments and (B) the Net
Proceeds from such sale shall be excluded from clauses (3)(b) and (3)(c) of
Section 4.5(a);
(ii) any purchase or redemption of Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Debt of the Company; provided, however,
that such Debt (A) shall be
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subordinated to the Securities and shall be subordinated to Senior Debt and
Senior Subordinated Debt to at least the same extent as the Subordinated
Obligations so exchanged, purchased or redeemed and (B) either (x) shall
not mature prior to the earlier of (1) the Stated Maturity of the
Subordinated Obligations so exchanged, purchased or redeemed and (2) the
first anniversary of the Stated Maturity of the Securities or (y) the
portion, if any, of the Debt that is scheduled to mature on or prior to the
Stated Maturity of the Securities has a weighted average life to maturity
at the time such Debt is incurred that is equal to or greater than the
weighted average life to maturity of the portion of the Subordinated
Obligations being exchanged, purchased or redeemed that is scheduled to
mature on or prior to the Stated Maturity of the Securities; provided
further, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from
Net Available Cash to the extent permitted by Section 4.7; provided,
however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this Section; provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(v) the redemption by the Company of any rights to purchase
Capital Stock of the Company which rights were issued pursuant to the
Rights Agreement, dated as of January 17, 1986, as amended, for an amount
not to exceed on a per right basis the redemption price of such right at
the date of the Indenture, as adjusted for stock dividends and similar
transactions; provided, however, that such redemption shall be included in
the calculation of the amount of Restricted Payments;
(vi) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options on
any such shares or related stock appreciation rights or similar securities
held by officers or employees or former officers or employees (or their
estates or beneficiaries under their estates) or by any employee benefit
plan, upon death, disability, retirement or termination of employment or
pursuant to the terms of any employee benefit plan approved by the Board of
Directors or a committee thereof or under any other agreement approved by
the Board of Directors or a committee thereof under which such shares of
stock or related rights were issued; provided,
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however, that the aggregate cash consideration paid for such purchase,
redemption, acquisition, cancellation or other retirement of such shares of
Capital Stock or related rights after the date of the Indenture does not
exceed $2,500,000 in any fiscal year or $1,000,000 payable to any
individual in any fiscal year; provided further, however, that all such
payments shall be included in the calculation of the amount of Restricted
Payments; and
(vii) loans or advances to officers, directors and employees of
the Company and its Subsidiaries made after the date of this Indenture in
the ordinary course of business consistent with past practices for the
advancement of travel and other normal business expenses or relocation
expenses; provided, however, that such loans and advances shall be excluded
from the calculation of the amount of Restricted Payments.
SECTION 4.6 Limitation on Restrictions on Distributions from
Subsidiaries. The Company shall not, and shall not permit any Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends
or make any other distributions on its Capital Stock or pay any Debt or other
obligation owed to the Company, (ii) make any loans or advances to the Company
or (iii) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the date on which the Securities were
originally issued;
(2) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Debt issued by such Subsidiary on
or prior to the date on which such Subsidiary became a Subsidiary or was
acquired by the Company (other than Debt issued as consideration in, or to
provide all or any portion of the funds utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company) and
outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Debt issued pursuant to an agreement referred to
in clause (1) or (2) of this Section or contained in any amendment to an
agreement referred to in clause (1) or (2) of this Section; provided,
however, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorable to the holders of
the Securities than encumbrances and restrictions contained in such prior
agreements;
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(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases, licenses or other contractual
obligations governing leasehold interests, licenses or contractual rights
and entered into in the ordinary course of business consistent with past
practices to the extent such provisions restrict the transfer of the lease,
license or contractual rights or of customary restrictions on transfer of
assets or business and interim conduct of business entered into in
contracts providing for the disposition of such assets or business;
(5) in the case of clause (iii) above, restrictions contained in
agreements relating to purchase money financing arrangements of
Subsidiaries or contained in security agreements securing Debt of the
Company or a Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such purchase money financing
arrangements or security agreements; and
(6) encumbrances or restrictions on Nonrecourse Debt of a
Nonrecourse Subsidiary.
SECTION 4.7 Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Subsidiary to,
make any Asset Disposition unless (i) the Company or such Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors (including
as to the value of all non-cash consideration) of the shares and assets subject
to such Asset Disposition and, to the extent that the proceeds of such Asset
Dispositions exceed $5,000,000 in any 12-month period, at least 75% of the
consideration thereof received by the Company or such Subsidiary is in the form
of cash or cash equivalents or the assumption of Debt of the Company or other
obligations relating to such assets and release from all liability on the Debt
or other obligations assumed and (ii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company (or such
Subsidiary, as the case may be) (A) first, to the extent the Company elects (or
is required by the terms of any Senior Debt) to prepay, repay or purchase Senior
Debt or Debt (other than any Redeemable Stock) of a Wholly Owned Subsidiary (in
each case other than Debt owed to the Company or an Affiliate of the Company)
within 60 days from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (B) second, to the extent of the balance of
such Net Available Cash after application in accordance with clause (A), at the
Company's election, to the investment by the Company or any Wholly Owned
Subsidiary in assets to replace the assets that were the subject of such Asset
Disposition or an asset that (as determined by the Board of Directors) will be
used in the business of the Company and the
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Wholly Owned Subsidiaries existing on the date of the original issuance of the
Securities or in business reasonably related thereto, in each case within the
later of one year from the date of such Asset Disposition or the receipt of such
Net Available Cash; (C) third, to the extent of the balance of such Net
Available Cash after application and in accordance with clauses (A) and (B), to
make an Offer to purchase Securities pursuant to and subject to the condition of
Section 4.7(b), and (D) fourth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and (C), to
(x) any investment in the business or operations of the Company or any Wholly
Owned Subsidiary or (y) the prepayment, repayment or purchase of Debt (other
than any Redeemable Stock) of the Company or Debt of any Subsidiary (other than
Debt owed to the Company or an Affiliate of the Company), in each case within
one year from the later of the receipt of such Net Available Cash and the date
the Offer described in Section 4.7(b) is consummated; provided, however, that in
connection with any prepayment, repayment or purchase of Debt pursuant to clause
(A) or (D) above, the Company shall cause the related loan commitment (if any)
to be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased; provided, further, that the Company shall not be required
to reduce the loan commitment pursuant to clause (A) below the greater of (x)
$175,000,000 and (y) the Borrowing Base after giving effect to the transaction
giving rise to the obligations under this Section 4.7(a). Notwithstanding the
foregoing provisions of this Section, (i) the Company and the Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this Section
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions which is not applied in accordance with this Section exceeds
$10,000,000, and (ii) the Company and the Subsidiaries shall not be required to
receive any minimum amount of cash consideration in the event of a sale of all
or substantially all of the assets or stock of any Subsidiary of the Company
which is or has been a Subsidiary of the Company prior to the date hereof, the
revenues of which are derived primarily from the direct retail sale of apparel.
Pending application of Net Available Cash pursuant to this Section, such Net
Available Cash shall be invested in Permitted Investments of the type specified
in clauses (i) or (ii) of the definition of Permitted Investments.
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to Section 4.7(a)(ii)(C), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
plus accrued interest to the Purchase Date in accordance with the procedures
(including prorationing in the event of oversubscription) set forth in Section
4.7(c). If the aggregate purchase price of Securities tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the
Securities, the Company shall apply the remaining Net Available Cash in
accordance with Section
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4.7(a)(ii)(D). The Company shall not be required to make an Offer for Securities
pursuant to this Section if the Net Available Cash available therefor (after
application of the proceeds as provided in Section 4.7(a)(ii)(A) and (B)) is
less than $5,000,000 for any particular Asset Disposition (which lesser amounts
shall not be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) (1) Promptly, and in any event within one year after the later
of the date of each Asset Disposition as to which the Company must make an Offer
or the receipt of Net Available Cash therefrom, the Company shall be obligated
to deliver to the Trustee and send, by first-class mail to each Holder, a
written notice stating that the Holder may elect to have his Securities
purchased by the Company either in whole or in part (subject to prorationing as
hereinafter described in the event the Offer is oversubscribed) in integral
multiples of $1,000 of principal amount, at the applicable purchase price. The
notice shall specify a purchase date not less than 30 days nor more than 60 days
after the date of such notice (the "Purchase Date") and shall contain
information concerning the business of the Company which the Company in good
faith believes will enable such Holders to make an informed decision (which at a
minimum will include (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company, the most
recent subsequently filed Quarterly Report on Form 10-Q and any Current Report
on Form 8-K of the Company filed subsequent to such Quarterly Report, other
than Current Reports describing Asset Dispositions otherwise described in the
offering materials (or corresponding successor reports), (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such Reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.7(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) in immediately available funds an amount equal to the Offer Amount to be
held for payment in accordance with the provisions of this Section. Upon the
expiration of the period for which the Offer remains open (the "Offer Period"),
the Company shall deliver to the Trustee the Securities or portions thereof
which have been properly tendered to
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and are to be accepted by the Company. The Trustee shall, on the Purchase Date,
mail or deliver payment to each tendering Holder in the amount of the purchase
price. In the event that the aggregate purchase price of the securities
delivered by the Company to the Trustee is less than the Offer Amount, the
Trustee shall deliver the excess to the Company immediately after the expiration
of the Offer Period.
(3) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least ten Business Days prior to the
Purchase Date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than three Business Days prior to the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company will also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an agent, mails or delivers payment therefor to the surrendering
Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.8 Limitation on Transactions with Affiliates. The
Company shall not, and shall not permit any Subsidiary to, conduct any business
or enter into any transaction or series of similar transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any
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Affiliate of the Company or any legal or beneficial owner of 5% or more of any
class of Capital Stock of the Company or with an Affiliate of any such owner
(other than a Wholly Owned Subsidiary or an employee stock ownership plan for
the benefit of the Company's or a Subsidiary's employees) unless (i) the terms
of such business, transaction or series of transactions are (a) set forth in
writing and (b) as favorable to the Company or such Subsidiary as terms that
would be obtainable at the time for a comparable transaction or series of
similar transactions in arm's-length dealings with an unrelated third person
and (ii) the Board of Directors has, by resolution, determined in good faith
that such business or transaction or series of transactions meets the criteria
set forth in (i)(b) above. This Section, however, will not prohibit (1) any
dividend, distribution or other transaction permitted under Section 4.5 or (2)
customary compensation and employee benefit arrangements entered into with any
officer or director of the Company or of any Subsidiary in their capacity as
officer or director in the ordinary course of business and consistent with past
practices.
SECTION 4.9 Change of Control.
(a) Upon a Change of Control, each Holder shall have the right to
require that the Company repurchase such Holder's Securities at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the terms contemplated in Section
4.9(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's Securities
at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to such Change of
Control);
(3) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed); and
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(4) the instructions determined by the Company, consistent with
this Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate election form duly completed, to the
Company at the address specified in the notice at least 10 Business Days prior
to the purchase date. Holders will be entitled to withdraw their election if
the Trustee or the Company receives not later than three Business Days prior to
the purchase date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.10 Compliance Certificate. The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as officers of the Company they would normally have
knowledge of any Default by the Company and whether or not the signers know of
any Default that occurred during such period. If they do, the certificate shall
describe the Default, its status and what action the Company is taking or
proposes to take with respect thereto. The Company also shall comply with TIA
(S) 314(a)(4).
ARTICLE 5
Successor Company
-----------------
SECTION 5.1 When Company May Merge or Transfer Assets. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all its assets to, any person, unless:
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(i) the resulting, surviving or transferee person (if not the
Company) shall be a person organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia and
such person shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of the Company under the Securities and this Indenture;
(ii) immediately prior to and after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
resulting, surviving or transferee person or any Subsidiary as a result of
such transaction as having been issued by such person or such Subsidiary at
the time of such transaction), no Default shall have occurred and be
continuing;
(iii) immediately after giving effect to such transaction, the
resulting, surviving or transferee person would be able to issue at least
$1.00 of Debt pursuant to Section 4.3(a); provided, however, that the
Consolidated EBITDA Coverage Ratio of the resulting, surviving or
transferee person for the Reference Period shall be calculated on a pro
forma basis as if the transaction occurred at the beginning of the
Reference Period;
(iv) immediately after giving effect to such transaction, the
resulting, surviving or transferee person shall have Consolidated Net Worth
in an amount which is not less than the Consolidated Net Worth of the
Company prior to such transaction; and
(v) 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 supplemental indenture (if any)
comply with this Indenture.
The resulting, surviving or transferee person shall be the successor
Company and shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture, but the predecessor
Company in the case of a conveyance, transfer or lease shall not be released
from the obligation to pay the principal of and interest on the Securities.
Notwithstanding the foregoing, this Section shall not restrict the
merger of a Wholly Owned Subsidiary (other than a Nonrecourse Subsidiary) into
the Company.
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ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.1 Events of Default. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, whether or not such payment
shall be prohibited by Article 10, and such default continues for a period
of 30 days;
(2) the Company (i) defaults in the payment of the principal of
any Security when the same becomes due and payable at its Stated Maturity,
upon redemption, upon declaration or otherwise, whether or not such payment
shall be prohibited by Article 10 or (ii) fails to redeem or purchase
Securities when required pursuant to this Indenture or the Securities,
whether or not such redemption or purchase shall be prohibited by Article
10;
(3) the Company fails to comply with Section 4.7 (other than a
failure described in (2) above), 4.9 (other than a failure described in (2)
above) or 5.1 and such failure continues for 30 days after the notice
specified below;
(4) the Company fails to comply with any of its agreements in
the Securities or this Indenture (other than those referred to in (1), (2)
or (3) above) and such failure continues for 60 days after the notice
specified below;
(5) Debt of the Company or any Significant Subsidiary (other than
Nonrecourse Debt of a Nonrecourse Subsidiary) is not paid within any
applicable grace period after final maturity or is accelerated by the
holders thereof because of a default, the total amount of such Debt unpaid
or accelerated exceeds $10,000,000 or its foreign currency equivalent and
such default continues for 10 days after the notice specified below;
(6) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case;
(b) consents to the entry of an order for relief against it
in an involuntary case;
(c) consents to the appointment of a Custodian of it or for
any substantial part of its property; or
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(d) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(7) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(b) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(c) orders the winding up or liquidation of the Company or
any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 30 days; or
(8) any judgment or decree for the payment of money in excess of
$10,000,000 is rendered against the Company or any Significant Subsidiary
and is not discharged and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following such judgment or decree during which such
judgment or decree is not discharged, waived or the execution thereof
stayed and, in the case of (B), such default continues for 10 days after
the notice specified below.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
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.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (3), (4), (5) or (8)(B) is not an Event of
Default until the Trustee or the Holders of at least 25% in principal amount of
the Securities notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such Notice. Such
Notice must specify
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the Default, demand that it be remedied and state that such notice is a "Notice
of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default under clause (3), (4), (5) or (8), its status and what action
the Company is taking or proposes to take with respect thereto.
SECTION 6.2 Acceleration. If an Event of Default (other than an
Event of Default specified in Section 6.1(6) or (7) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in principal amount of the Securities by notice to the Company
and the Trustee, may declare the principal of and accrued interest on all the
Securities to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default specified
in Section 6.1(6) or (7) with respect to the Company occurs, the principal of
and interest on all the Securities shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Securityholders. The Holders of a majority in principal amount of the
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.3 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.4 Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section 9.2 cannot be amended without the consent of each
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Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.5 Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.1, that the Trustee determines is unduly prejudicial to the
rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.6 Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that
an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7 Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates,
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shall not be impaired or affected without the consent of such Holder.
SECTION 6.8 Collection Suit by Trustee. If an Event of Default in
payment of interest or principal specified in Section 6.1(1) or (2) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid (together with interest on such unpaid interest to the
extent lawful) and the amounts provided for in Section 7.7.
SECTION 6.9 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.7.
SECTION 6.10 Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to holders of Senior Debt to the extent required by
Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any such
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the [COMPANY/TRUSTEE] shall mail to each Securityholder and
the [TRUSTEE/COMPANY] a notice that states the record date, the payment date and
amount to be paid.
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SECTION 6.11 Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more
than 10% in principal amount of the Securities then outstanding.
SECTION 6.12 Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
Trustee
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SECTION 7.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and
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opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.2 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
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(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect of any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.3 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.4 Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.5 Notice of Defaults. If a Default occurs and is
continuing and if it is known to [THE CORPORATE TRUST DIVISION OF] the Trustee,
the Trustee shall mail to each Securityholder and to the Company notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of, premium, if any, or interest on any Security (including
payments pursuant to the redemption provisions of such Security), the Trustee
may withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
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SECTION 7.6 Reports by Trustee to Holders. As promptly as
practicable after each ________ __ beginning with the ________ __ following the
date of this Indenture, and in any event prior to ________ __ in each year, the
Trustee shall mail to each Securityholder a brief report dated as of ________ __
that complies with TIA (S) 313(a). The Trustee also shall comply with TIA
(S) 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed by the Company with the SEC and each stock exchange (if any) on
which the Securities are listed. The Company agrees to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.7 Compensation and Indemnity. The Company shall pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including attorneys' fees) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall
not relieve the Company of its obligations hereunder. The Company shall defend
the claim and the Trustee may have separate counsel and the Company shall pay
the fees and expenses of such counsel. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(6) or (7) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.8 Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a
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majority in principal amount of the Securities may remove the Trustee by so
notifying the Trustee and may appoint a successor Trustee. The Company may
remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least a majority in principal amount of the Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9 Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to
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the trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee and deliver such
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 7.10 Eligibility; Disqualification. The Trustee shall at
all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S) 310(b), including the optional provision permitted by the second sentence of
TIA (S) 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA (S) 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA (S) 310(b)(1) are met.
SECTION 7.11 Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.1 Discharge of Liability on Securities; Defeasance.
(a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.7) for
cancellation or (ii) all outstanding Securities have become due and payable and
the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity all outstanding Securities, including interest thereon (other than
Securities replaced pursuant to Section 2.7), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Sections 8.1(c) and 8.6, cease to be of further effect. The Trustee
shall acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
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(b) Subject to Sections 8.1(c), 8.2 and 8.6, the Company at any time
may terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.2, 4.3,
4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 5.1 (iii) and 5.1(iv) and the operation of
Sections 6.1(3), 6.1(5), 6.1(6) (with respect to any Significant Subsidiary),
6.1(7) (with respect to any Significant Subsidiary) and 6.1(8) ("covenant
defeasance option"). The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Section 6.1(3),
6.1(5), 6.1(6) (with respect to any Significant Subsidiary), 6.1(7) (with
respect to any Significant Subsidiary) or 6.1(8) or because of the failure of
the Company to comply with Section 5.1(iii) or 5.1(iv).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7, 7.8, 8.4, 8.5 and 8.6
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.7, 8.4 and 8.5 shall survive.
SECTION 8.2 Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations for the payment of principal and
interest on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts (but, in the case of the legal defeasance option only, not
more than such amounts) as will be sufficient to pay principal and interest
when due on all the Securities to maturity or redemption, as the case may
be;
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(3) 123 days pass after the deposit is made and during the 123-
day period no Default specified in Section 6.1(6) or (7) with respect to
the Company occurs which is continuing at the end of the period;
(4) no Default has occurred and is continuing on the date of
such deposit and after giving effect thereto;
(5) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(6) the Company delivers to the Trustee an Opinion of Counsel to
the effect that the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(7) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an opinion of counsel of nationally
recognized standing stating that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling, or (ii)
since the date of this Indenture there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Securityholders
will not recognize income, gain or loss for federal income tax purposes as
a result of such defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(8) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an opinion of counsel of nationally
recognized standing to the effect that the Securityholders will not
recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred; and
(9) the Company delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Securities as contemplated by this
Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
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SECTION 8.3 Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and Securities so held in trust are not subject to Article 10.
SECTION 8.4 Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.5 Indemnity for Government Obligations. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.6 Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8.
ARTICLE 9
Amendments
SECTION 9.1 Without Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in
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registered form for purposes of Section 163(f) of the Internal Revenue
Code of 1986, as amended, or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Internal
Revenue Code of 1986, as amended;
(4) to make any change in Article 10 that would limit or
terminate the benefits available to any holder of Senior Debt (or
Representatives therefor) under Article 10;
(5) to add guarantees with respect to the Securities;
(6) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company;
(7) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the Trust Indenture Act; or
(8) to make any change that does not adversely affect the rights
of any Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Debt then
outstanding or in effect unless the holders of such Senior Debt or their
authorized Representative (required pursuant to the terms of such Senior Debt to
give consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.2 With Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. However, without the consent of each Securityholder
affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or extend the time for payment of
interest on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
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(4) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may or shall be
redeemed;
(5) make any Security payable in money other than that stated in
the Security;
(6) impair the right of any Securityholder to receive payment of
principal of and interest on or with respect to such Holder's
Securities;
(7) make any change in Article 10 that adversely affects the
rights of any Securityholder under Article 10;
(8) make any change in Section 6.4 or 6.7 or the second sentence
of this Section; or
(9) make any change that adversely affects the requirement of
the Company to purchase the Securities in accordance with the terms
thereof and this Indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Debt then
outstanding or in effect unless the holders of such Senior Debt or their
authorized Representative (required pursuant to the terms of such Senior Debt to
give consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.3 Compliance with Trust Indenture Act. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4 Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or
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waiver becomes effective. After an amendment or waiver becomes effective, it
shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those persons who were Securityholders at such
record date (or their duly designated proxies), and only those persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.5 Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6 Trustee to Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
SECTION 9.7 Payment for Consent. Neither the Company, any
Affiliate of the Company nor any Subsidiary shall, directly or indirectly, pay
or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Securities
unless such consideration is offered to be paid or agreed to be paid to all
Holders which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
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ARTICLE 10
Subordination
-------------
SECTION 10.1 Agreement to Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that the indebtedness evidenced
by the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article 10 (subject to the provisions of Section 8.1),
to the prior payment in full of all Senior Debt and that the subordination is
for the benefit of and enforceable by the holders of Senior Debt. The
Securities shall in all respects rank pari passu with all other Senior
Subordinated Debt of the Company and only indebtedness of the Company which is
Senior Debt shall rank senior to the Securities in accordance with the
provisions set forth herein. All provisions of this Article 10 shall be subject
to Section 10.14.
SECTION 10.2 Liquidation, Dissolution, Bankruptcy. Upon any payment
or distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, insolvency, reorganization, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Debt shall be entitled to receive payment
in full in cash or cash equivalents (including, without limitation, cash
collateralization in accordance with the terms of such Senior Debt of any
outstanding contingent obligations thereunder such as letters of credit) of
the Senior Debt before Securityholders shall be entitled to receive any
payment of principal of, or premium, if any, or interest on the Securities;
and
(2) until the Senior Debt is paid in full in cash or cash
equivalents (including, without limitation, cash collateralization in
accordance with the terms of such Senior Debt of any outstanding contingent
obligations thereunder such as letters of credit), any distribution to
which Securityholders would be entitled but for this Article 10 shall be
made to holders of Senior Debt as their interests may appear, except that
Securityholders may receive Reorganization Securities.
SECTION 10.3 Default on Senior Debt. The Company may not pay the
principal of, premium, if any, or interest on, the Securities or make any
deposit pursuant to Section 8.1 and may not repurchase, redeem or otherwise
retire any Securities (collectively, "pay the Securities") if (i) any Senior
Debt is not paid in full in cash or cash equivalents (including, without
limitation, cash collateralization in accordance with the terms of such Senior
Debt of any outstanding contingent obligations thereunder such as
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letters of credit) when due or (ii) any other default on Senior Debt occurs and
the maturity of such Senior Debt is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Debt has been paid in full in
cash or cash equivalents (including, without limitation, cash collateralization
in accordance with the terms of such Senior Debt of any outstanding contingent
obligations thereunder such as letters of credit); provided, however, that the
Company may pay the Securities without regard to the foregoing if the Company
and the Trustee receive written notice approving such payment from the
Representatives of the Designated Senior Debt. During the continuance of any
default (other than a default described in clause (i) or (ii) of the preceding
sentence) with respect to any Designated Senior Debt pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration) or the expiration of
any applicable grace periods, the Company may not pay the Securities for a
period (a "Payment Blockage Period") commencing upon the receipt by the Company
and the Trustee of written notice of such default from the Representative of
such Designated Senior Debt specifying an election to effect a Payment Blockage
Period (a "Payment Notice") and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from the Representative who gave such Payment Notice, (ii) because
the default giving rise to such Payment Notice is no longer continuing or (iii)
by repayment in full in cash or cash equivalents (including, without limitation,
cash collateralization in accordance with the terms of such Senior Debt of any
outstanding contingent obligations thereunder such as letters of credit) of such
Designated Senior Debt). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this Section), unless the holders of such Designated Senior
Debt or the Representative of such holders shall have accelerated the maturity
of such Designated Senior Debt, the Company may resume payments on the
Securities after such Payment Blockage Period expires or is otherwise
terminated. Not more than one Payment Notice may be given in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Debt during such period; provided, however, that if any
Payment Notice within such 360-day period is given by the Representative of any
Designated Senior Debt (other than the Bank Debt), the Representative of the
Bank Debt may give another Payment Notice within such period; provided further,
however, that in no event may the total number of days during which any Payment
Blockage Period or Periods is in effect exceed 179 days in the aggregate during
any consecutive 360-day period.
SECTION 10.4 Acceleration of Payment of Securities. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the
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holders of the Designated Senior Debt (or their Representatives) of the
acceleration. If any Designated Senior Debt is outstanding, the Company may not
pay the Securities until five days after such notice is received and,
thereafter, may pay the Securities only if this Article 10 otherwise permits the
payment at that time.
SECTION 10.5 When Distribution Must Be Paid Over. If a distribution
is made to Securityholders that because of this Article 10 should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Debt and pay it over to them or their designees as
their interests may appear.
SECTION 10.6 Payment Permitted If No Default. Subject to Sections
10.2 and 10.3, nothing contained in this Article 10 or elsewhere in this
Indenture or in any of the Securities shall prevent (a) the Company at any time
from making payments at any time of the principal or interest, if any, as the
case may be, in respect of the Securities, or (b) the application by the Trustee
of any moneys deposited with it hereunder to the payment of or on account of the
principal or interest, if any, as the case may be, in respect of the Securities
or the retention of such payment by the Holders if, at the time of such
application by the Trustee, it did not have notice that such payment would have
been prohibited by the provisions of this Article 10.
SECTION 10.7 Subrogation. After all Senior Debt is paid in full in
cash or cash equivalents (including, without limitation, cash collateralization
in accordance with the terms of such Senior Debt of any outstanding contingent
obligations thereunder such as letters of credit) and until the Securities are
paid in full, Securityholders shall be subrogated to the rights of holders of
Senior Debt (without any duty on the part of the holders of the Senior Debt to
warrant, create, effectuate, preserve or protect such subrogation) to receive
distributions applicable to Senior Debt. A distribution made under this Article
10 to holders of Senior Debt which otherwise would have been made to
Securityholders is not, as between the Company and Securityholders, a payment by
the Company on Senior Debt.
SECTION 10.8 Relative Rights. This Article 10 defines the relative
rights of Securityholders and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of, premium, if any, and interest on the Securities in accordance
with their terms;
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(2) impair, as among the Company, its creditors other than the
holders of Senior Debt, and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders
of the Securities the principal and interest, if any, as the case may be,
in respect of the Securities as and when the same shall become due and
payable in accordance with their terms;
(3) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than holders
of Senior Debt; or
(4) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default, subject to the rights of holders of
Senior Debt to receive distributions otherwise payable to Securityholders.
SECTION 10.9 Subordination May Not Be Impaired by Company. No right
of any holder of Senior Debt to enforce the subordination of the indebtedness
evidenced by the Securities shall be impaired by any act or failure to act by
the Company or any Securityholder or by its respective failure to comply with
this Indenture.
SECTION 10.10 Rights of Trustee and Paying Agent. Notwithstanding
Section 10.3, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice that payments may not be made under this Article 10. The
Company, the Registrar or co-registrar, the Paying Agent, a Representative or a
holder of Senior Debt may give the notice; provided, however, that, if an issue
of Senior Debt has a Representative, only the Representative may give the
notice.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. The Registrar
and co-registrar and the Paying Agent may do the same with like rights. The
Trustee shall be entitled to all the rights set forth in this Article 10 with
respect to any Senior Debt which may at any time be held by it, to the same
extent as any other holder of Senior Debt, and nothing in Article 7 shall
deprive the Trustee of any of its rights as such holder. Nothing in this Article
10 shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 7.7.
SECTION 10.11 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative (if any).
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SECTION 10.12 Article 10 Not to Prevent Events of Default or Limit
Right to Accelerate. The failure to make a payment pursuant to the Securities
by reason of any provision in this Article 10 shall not be construed as
preventing the occurrence of a Default. Subject to Section 10.4, nothing in
this Article 10 shall have any effect on the right of the Securityholders or the
Trustee to accelerate the maturity of the Securities.
SECTION 10.13 Trustee Not Fiduciary for Holders of Senior Debt. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt and shall not be liable to any such holders if it shall in good faith
mistakenly pay over or distribute to Holders of Securities or to the Company or
to any other person cash, property or securities to which any holders of Senior
Debt shall be entitled by virtue of this Article 10 or otherwise. The Trustee
shall not be charged with knowledge of the existence of Senior Debt or of any
facts that would prohibit any payment hereunder or that would permit the
resumption of any such payment unless a Trust Officer of the Trustee shall have
received notice to that effect at the address of the Trustee set forth in
Section 11.2. With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants or obligations as
are specifically set forth in this Indenture and no implied covenants or
obligations with respect to holders of Senior Debt shall be read into this
Indenture against the Trustee.
SECTION 10.14 Trust Moneys Not Subordinated. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article 8 by the Trustee for
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Debt or subject to the
restrictions set forth in this Article 10, and neither the Trustee nor the
Securityholders shall be obligated to pay over any such amount to the Company or
any holder of Senior Debt of the Company or any other creditor of the Company.
SECTION 10.15 Trustee Entitled to Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.2
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior Debt
for the purpose of ascertaining the persons entitled to participate in such
payment or distribution, the holders of the Senior Debt and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article 10. In the event that the Trustee determines, in good
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faith, that evidence is required with respect to the right of any person as a
holder of Senior Debt to participate in any payment or distribution pursuant to
this Article 10, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such person, the extent to which such person is entitled to participate in such
payment or distribution and other facts pertinent to the rights of such person
under this Article 10, and, if such evidence is not furnished, the Trustee may
defer any payment to such person pending judicial determination as to the right
of such person to receive such payment. The provisions of Sections 7.1 and 7.2
shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article 10.
SECTION 10.16 Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Debt as provided in this Article 10 and appoints the Trustee as attorney-
in-fact for any and all such purposes.
SECTION 10.17 Reliance by Holders of Senior Debt on Subordination
Provisions. Each Securityholder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold or fund, or to continue to hold or
fund, such Senior Debt and such holder of Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold and fund, or in continuing to hold and fund, such Senior
Debt.
ARTICLE 11
Miscellaneous
-------------
SECTION 11.1 Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.2 Notices. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
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if to the Company:
Hartmarx Corporation
101 North Wacker Drive
23rd Floor
Chicago, Illinois 60606
Attention: Corporate Secretary
if to the Trustee:
Bank One Wisconsin Trust Company, National
Association
831 North Grand Avenue
Waukesha, Wisconsin 53186
Attention: Corporate Trust Division
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.3 Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture and the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 11.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the
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opinion of such counsel, all such conditions precedent have been complied
with; provided, however, that with respect to matters of law, an Officers'
Certificate may be based upon an Opinion of Counsel.
SECTION 11.5 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such covenant or condition has been complied with.
; provided, however, that with respect to matters of law, an Officers'
Certificate may be based upon an Opinion of Counsel.
SECTION 11.6 When Securities Disregarded. In determining whether
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 11.7 Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 11.8 Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
State of New York or in the state in which the Trustee has its principal
business office. If a payment
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date is a Legal Holiday, payment shall be made on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening period.
If a regular record date is a Legal Holiday, the record date shall not be
affected.
SECTION 11.9 Governing Law. This Indenture and the Securities shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10 No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11 Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12 Multiple Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13 Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
* * * * *
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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
HARTMARX CORPORATION
By______________________________________
Title
Attest:
____________________________________
Title:
BANK ONE WISCONSIN TRUST COMPANY, NA
By______________________________________
Title
Attest:
____________________________________
Title:
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EXHIBIT A
[FORM OF FACE OF SECURITY]
No. $
__% Senior Subordinated Note Due 2002
HARTMARX CORPORATION, a Delaware corporation, promises to pay to or
registered assigns, the principal sum of Dollars on __________ __, 2002.
Interest Payment Dates: July 15 and January 15.
Record Dates: July 1 and January 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
HARTMARX CORPORATION
By______________________________________
President
______________________________________
Assistant Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
BANK ONE WISCONSIN TRUST [SEAL]
COMPANY, NA
as Trustee, certifies that this is
one of the Securities referred to
in the Indenture.
By________________________________
Authorized Signatory
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[FORM OF REVERSE SIDE OF SECURITY]
__% Senior Subordinated Note Due 2002
1. Interest.
Hartmarx Corporation, a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above. The Company will pay
interest semiannually on January 15 and July 15 of each year. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from ___________ __, 1994. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal at the rate borne by the Securities, and
it shall pay interest on overdue installments of interest at the same rate to
the extent lawful.
2. Method of Payment.
The Company will pay interest on the Securities to the persons who are
registered holders of Securities at the close of business on the July 1 or
January 1 next preceding the interest payment date even if Securities are
cancelled after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. The Paying Agent may mail an interest check to a
Holder's registered address.
3. Paying Agent and Registrar.
Initially, Bank One Wisconsin Trust Company, NA ("Trustee"), will act
as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar or co-registrar without notice. The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture.
The Company issued the Securities under an Indenture dated as of March
__, 1994 ("Indenture"), between the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
(S)(S) 77aaa-77bbbb) as in
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effect on the date of the Indenture (the "Act"). Capitalized terms used herein
and not defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the Act for a statement of those terms.
The Securities are general unsecured obligations of the Company
limited to $100,000,000 aggregate principal amount (subject to Section 2.7 of
the Indenture). The Indenture imposes certain limitations on the issuance of
Debt by the Company, the issuance of Debt and preferred stock by the
Subsidiaries, the payment of dividends and other distributions and acquisitions
or retirements of the Company's Capital Stock and Subordinated Obligations, the
sale or transfer of assets and Subsidiary stock, transactions with Affiliates,
the merger or consolidation of the Company and the sale of all or substantially
all the assets of the Company. In addition, the Indenture limits the ability of
the Company and the Subsidiaries to restrict distributions and dividends from
Subsidiaries.
5. Optional Redemption.
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to __________ __, 1998. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest (if any) to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date):
Optional
Redemption
Period Percentage
------ ----------
From ________ __, 1998 through _______ __, 1999 _____%
From ________ __, 1999 through _______ __, 2000 _____%
From ________ __, 2000 through _______ __, 2001 _____%
From ________ __, 2001 and thereafter 100.00%
Notwithstanding the foregoing, at any time prior to ___________, 1997,
the Company may redeem, in part and from time to time, with the net proceeds of
one or more Public Equity Offerings or Traco Warrant Exercises, up to
$25,000,000 aggregate principal amount of the Securities, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest (if any) to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
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Optional
Redemption
Period Percentage
------ ----------
From ________ __, 1994 through _______ __, 1995 _____%
From ________ __, 1995 through _______ __, 1996 _____%
From ________ __, 1996 through _______ __, 1997 _____%
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000. If money sufficient
to pay the redemption price of and accrued interest on all Securities (or
portions thereof) to be redeemed on the redemption date is deposited with the
Paying Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. Change of Control Provisions.
Upon a Change of Control, any Holder of Securities will have the right
to cause the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price equal to 101% of the principal amount of the
Securities to be repurchased plus accrued interest to the date of repurchase as
provided in, and subject to the terms of, the Indenture.
8. Subordination.
The Securities are subordinated to Senior Debt, as defined in the
Indenture. To the extent provided in the Indenture, Senior Debt must be paid in
full in cash or cash equivalents (including, without limitation, cash
collateralization in accordance with the terms of such Senior Debt of any
outstanding contingent obligations thereunder such as letters of credit) before
the Securities may be paid. The Company agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things,
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to furnish appropriate endorsements or transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of 15 days before a
selection of Securities to be redeemed or 15 days before an interest payment
date.
10. Persons Deemed Owners.
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Defeasance.
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment; Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to comply with the Act or to add additional covenants or surrender Company
rights, or to make certain changes in the subordination provisions, or to make
any change that does not adversely affect the rights of any Securityholder.
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14. Defaults and Remedies.
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
securities, upon declaration or otherwise, or failure by the Company to redeem
or purchase Securities when required; (iii) failure by the Company to comply
with other agreements in the Indenture or the Securities, in certain cases
subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace period after final maturity) of other Debt of
the Company or any Significant Subsidiary if the amount accelerated (or so
unpaid) exceeds $10,000,000 and continues for 10 days after the required notice
to the Company; (v) certain events of bankruptcy or insolvency with respect to
the Company or any Significant Subsidiary; and (vi) certain judgments or decrees
for the payment of money in excess of $10,000,000. If an Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency with respect to the
Company are Events of Default which will result in the Securities being due and
payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
15. Trustee Dealings with the Company.
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its affiliates and may otherwise deal with the Company
or its affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
or the Trustee shall not have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such
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obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Authentication.
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act).
19. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST
AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT
THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: HARTMARX
CORPORATION, 101 NORTH WACKER DRIVE, 23RD FLOOR, CHICAGO, ILLINOIS 60606,
ATTENTION: CORPORATE SECRETARY.
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________________________________________________________________________________
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date:__________________ Your Signature:________________________________________
________________________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
-73-
<PAGE>
================================================================================
CREDIT AGREEMENT
DATED AS OF MARCH __, 1994
AMONG
HARTMARX CORPORATION,
AS BORROWER,
THE LENDERS LISTED HEREIN,
AS LENDERS,
GENERAL ELECTRIC CAPITAL CORPORATION
AS MANAGING AGENT AND
COLLATERAL AGENT,
AND
THE BANK OF NEW YORK,
AND
CONTINENTAL BANK, N.A.,
AS CO-AGENTS
================================================================================
<PAGE>
HARTMARX CORPORATION
CREDIT AGREEMENT
TABLE OF CONTENTS
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SECTION 1.
DEFINITIONS............................. 2
1.1 Certain Defined Terms............................................. 2
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement...................................... 25
1.3 Other Definitional Provisions..................................... 26
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS............ 26
2.1 Commitments; Loans; Notes......................................... 26
2.2 Interest on the Loans............................................. 32
2.3 Fees.............................................................. 36
2.4 Prepayments and Reductions in Commitments; General Provisions
Regarding Payments................................................ 37
2.5 Use of Proceeds................................................... 40
2.6 Special Provisions Governing LIBOR Rate Loans..................... 40
2.7 Increased Costs; Taxes; Capital Adequacy.......................... 43
2.8 Obligation of Lenders and Issuing Lenders to Mitigate............. 46
2.9 Affected Lenders.................................................. 47
SECTION 3.
LETTERS OF CREDIT.......................... 48
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein............................................ 48
3.2 Letter of Credit Fees............................................. 50
3.3 Drawings and Reimbursement of Amounts Drawn Under Letters of
Credit............................................................ 51
3.4 Obligations Absolute.............................................. 54
3.5 Indemnification; Nature of Issuing Lenders' Duties................ 55
3.6 Increased Costs and Taxes Relating to Letters of Credit........... 56
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(i)
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SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT.............. 57
4.1 Conditions to Initial Loans....................................... 57
4.2 Conditions to All Loans........................................... 61
4.3 Conditions to Letters of Credit................................... 63
SECTION 5.
BORROWER'S REPRESENTATIONS AND WARRANTIES................ 63
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries...................................................... 63
5.2 Authorization of Borrowing, etc................................... 64
5.3 Financial Condition............................................... 66
5.4 No Material Adverse Change; No Restricted Junior Payments......... 66
5.5 Title to Properties; Liens........................................ 66
5.6 Litigation; Adverse Facts......................................... 66
5.7 Payment of Taxes.................................................. 67
5.8 Performance of Agreements; Materially Adverse Agreements.......... 67
5.9 Governmental Regulation........................................... 68
5.10 Securities Activities............................................. 68
5.11 Employee Benefit Plans............................................ 68
5.12 Certain Fees...................................................... 68
5.13 Environmental Protection.......................................... 68
5.14 Employee Matters.................................................. 70
5.15 Solvency.......................................................... 70
5.16 Inventory......................................................... 70
5.17 Genuineness of Accounts........................................... 70
5.18 Representations Concerning Credit and Collection Policy........... 72
5.19 Representations Concerning Cash Management System................. 72
5.20 Intellectual Property............................................. 72
5.21 Disclosure........................................................ 73
SECTION 6.
BORROWER'S AFFIRMATIVE COVENANTS..................... 73
6.1 Financial Statements and Other Reports............................ 73
6.2 Corporate Existence, etc.......................................... 79
6.3 Payment of Taxes and Claims; Tax Consolidation.................... 79
6.4 Maintenance of Properties; Insurance.............................. 79
6.5 Inspection; Lender Meeting........................................ 80
6.6 Compliance with Laws, etc......................................... 80
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(ii)
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6.7 Environmental Matters................................ 80
6.8 Borrowing Base Certificates; Operating Reports....... 81
6.9 Receivables Reporting; Other Requirements............ 82
6.10 Cash Management System............................... 83
SECTION 7.
BORROWER'S NEGATIVE COVENANTS.......... 85
7.1 Indebtedness......................................... 85
7.2 Liens and Related Matters............................ 86
7.3 Investments; Joint Ventures.......................... 88
7.4 Contingent Obligations............................... 89
7.5 Restricted Junior Payments........................... 90
7.6 Financial Covenants.................................. 91
7.7 Restriction on Fundamental Changes; Asset Sales...... 93
7.8 Consolidated Capital Expenditures.................... 94
7.9 Restriction on Leases................................ 95
7.10 Sales and Lease-Backs................................ 95
7.11 Sale or Discount of Receivables...................... 95
7.12 Transactions with Shareholders and Affiliates........ 96
7.13 Disposal of Subsidiary Stock......................... 96
7.14 Conduct of Business.................................. 96
7.15 Amendments of Related Documents; License Agreements.. 96
7.16 Fiscal Year.......................................... 97
7.17 Designated Senior Debt............................... 98
SECTION 8.
EVENTS OF DEFAULT............... 98
8.1 Failure to Make Payments When Due.................... 98
8.2 Default in Other Agreements.......................... 98
8.3 Breach of Certain Covenants.......................... 99
8.4 Breach of Warranty................................... 99
8.5 Other Defaults Under Loan Documents.................. 99
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. 99
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc... 99
8.8 Judgments and Attachments............................ 100
8.9 Dissolution.......................................... 100
8.10 Employee Benefit Plans............................... 100
8.11 Impairment of Collateral; Failure of Security........ 100
8.12 Material Adverse Effect.............................. 101
8.13 Change of Control.................................... 101
</TABLE>
(iii)
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<TABLE>
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SECTION 9.
AGENT................................ 102
9.1 Appointment..................................................... 102
9.2 Powers; General Immunity........................................ 102
9.3 Representations and Warranties; No Responsibility for Appraisal
of Creditworthiness............................................. 104
9.4 Right to Indemnity.............................................. 104
9.5 Payee of Note Treated as Owner.................................. 104
9.6 Successor Agent and Swing Line Lender........................... 105
9.7 Collateral Documents............................................ 105
SECTION 10.
MISCELLANEOUS.............................. 106
10.1 Assignments and Participations in Loans and Letters of Credit... 106
10.2 Expenses........................................................ 108
10.3 Indemnity....................................................... 109
10.4 Set-Off; Security Interest in Deposit Accounts.................. 110
10.5 Ratable Sharing................................................. 110
10.6 Amendments and Waivers.......................................... 111
10.7 Independence of Covenants....................................... 112
10.8 Notices......................................................... 112
10.9 Survival of Representations, Warranties and Agreements.......... 112
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative........... 112
10.11 Marshalling; Payments Set Aside................................. 113
10.12 Severability.................................................... 113
10.13 Obligations Several; Independent Nature of Lenders' Rights...... 113
10.14 Headings........................................................ 113
10.15 Applicable Law.................................................. 113
10.16 Successors and Assigns.......................................... 114
10.17 Consent to Jurisdiction and Service of Process.................. 114
10.18 Waiver of Jury Trial............................................ 114
10.19 Confidentiality................................................. 115
10.20 Counterparts; Effectiveness..................................... 115
10.21 Intercompany Note Collateral.................................... 116
Signature pages........................................................ S-1
</TABLE>
(iv)
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV FORM OF REVOLVING NOTE
IV-A FORM OF SWING LINE NOTE
V FORM OF COMPLIANCE CERTIFICATE
VI FORM OF OPINION OF BORROWER COUNSEL
VII FORM OF OPINION OF O'MELVENY & MYERS
VIII FORM OF ASSIGNMENT AND ACCEPTANCE
IX FORM OF AUDITOR'S LETTER
X FORM OF LETTER FROM PROCESS AGENT
XI FORM OF GUARANTY
XII FORM OF PLEDGE AND SECURITY AGREEMENT
XII-A FORM OF TRADEMARK ASSIGNMENT
XIII FORM OF COLLATERAL ACCESS AGREEMENT
XIV FORM OF CASH MANAGEMENT LETTER
XV FORM OF BORROWING BASE CERTIFICATE
XVI FORM OF INTERCOMPANY NOTE
XVII FORM OF FINANCIAL CONDITION CERTIFICATE
XVIII FORM OF INTERCOMPANY NOTE SECURITY AGREEMENT
(v)
<PAGE>
SCHEDULES
1.1A ELIGIBLE ACCOUNTS
1.1B ELIGIBLE INVENTORY
1.1C EXCLUDED ACCOUNTS
1.1D EXISTING LETTERS OF CREDIT
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
5.1 SUBSIDIARIES OF BORROWER; COLLATERAL MATTERS
5.6 LITIGATION
5.13 ENVIRONMENTAL MATTERS
5.18 CREDIT AND COLLECTION POLICY
5.19 CASH MANAGEMENT SYSTEM
5.20 INTELLECTUAL PROPERTY; LICENSE AGREEMENTS
6.8 OPERATING REPORTS
7.2 EXISTING LIENS
7.3 EXISTING INVESTMENTS
(vi)
<PAGE>
HARTMARX CORPORATION
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of March __, 1994 and entered into by and
among HARTMARX CORPORATION, a Delaware corporation (``BORROWER''), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to
herein as a ``LENDER'' and collectively as ``LENDERS''), GENERAL ELECTRIC
CAPITAL CORPORATION (``GE CAPITAL''), as managing agent for Lenders (in such
capacity, including its successors and assigns, ``MANAGING AGENT'') and as
collateral agent for Lenders (in such capacity, including its successors and
assigns, ``COLLATERAL AGENT'') and THE BANK OF NEW YORK and CONTINENTAL BANK,
N.A., as co-agents for Lenders (in such capacity, ``CO-AGENTS'').
R E C I T A L S
---------------
WHEREAS, Borrower desires that Lenders extend certain credit facilities to
Borrower for the repayment and termination of the Existing Credit Facilities
(such term and other capitalized terms used in these recitals without definition
having the meanings set forth in subsection 1.1 of this Agreement) and for
working capital and general corporate purposes as set forth herein;
WHEREAS, the Existing Credit Facilities constitute enforceable debt
obligations of Borrower and each of the direct and indirect wholly-owned
Subsidiaries of Borrower (collectively, together with any direct or indirect
wholly-owned Subsidiaries of the Borrower which may hereafter be created or
acquired, the ``OPERATING SUBSIDIARIES'') and the repayment of the Existing
Credit Facilities and the provision of working capital credit as provided for
herein will directly benefit Borrower and such Operating Subsidiaries.
WHEREAS, each of the Operating Subsidiaries desire to guaranty the
obligations of Borrower hereunder pursuant to the Guaranty; and
WHEREAS, Borrower and the Operating Subsidiaries desire to secure their
respective obligations hereunder and under the other Loan Documents by granting
to Collateral Agent on behalf of Lenders a first priority security interest in
their respective accounts receivable (excluding third party credit card
receivables which are non-recourse to Borrower or any Operating Subsidiary),
inventory, cash, intercompany notes and intangible assets all as set forth in
the Pledge and Security Agreement and other Collateral Documents;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Lenders, Managing Agent and
Collateral Agent hereby agree as follows:
1
<PAGE>
SECTION 1.
DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
The following terms used in this Agreement shall have the following
meanings:
``ACCOUNT DEBTOR'' means any Person who is or who may become obligated to
Borrower or any of its Operating Subsidiaries under, with respect to, or on
account of, an Account.
``ACCOUNTS'' means all accounts, accounts receivable, other receivables and
rights to payment of every nature, contract rights, chattel paper, instruments,
documents and notes, whether now owned or hereafter acquired by Borrower or any
of its Subsidiaries and whether or not earned by performance; provided that, for
purposes of subsection 5.17 herein, ``ACCOUNTS'' shall mean ``accounts'' as such
term is defined in the UCC.
``ADJUSTED LIBOR RATE'' means, for any Interest Rate Determination Date
with respect to a LIBOR Rate Loan, the rate per annum obtained by dividing (i)
the offered quotation (rounded upward to the nearest 1/16 of one percent) to
first class banks in the London interbank LIBOR market by Reference Lender for
U.S. dollar deposits of amounts in same day funds comparable to the principal
amount of the LIBOR Rate Loan of Reference Lender for which the Adjusted LIBOR
Rate is then being determined with maturities comparable to the Interest Period
for which such Adjusted LIBOR Rate will apply as of approximately [_____ a.m.
(__________ time)] on such Interest Rate Determination Date by (ii) a
percentage equal to 100% minus the stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable on such Interest Rate
Determination Date to any member bank of the Federal Reserve System in respect
of ``Eurocurrency liabilities'' as defined in Regulation D (or any successor
category of liabilities under Regulation D).
``AFFECTED LENDER'' has the meaning assigned to that term in subsection
2.6C.
``AFFILIATE'', as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, ``control'' (including, with
correlative meanings, the terms ``controlling'', ``controlled by'' and ``under
common control with''), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting securities
or by contract or otherwise.
``AGENT'' means GE Capital in its capacity as Managing Agent and Collateral
Agent, and The Bank of New York and Continental Bank, N.A., in their respective
capacities as Co-Agents, hereunder and under the other Loan Documents and also
means and includes any successor Agent appointed pursuant to subsection 9.6.
2
<PAGE>
``AGREEMENT'' means this Credit Agreement dated as of March __, 1994.
``APPLICABLE MARGIN'' has the meaning assigned to that term in subsection
2.2A.
``ASSET SALE'' means the sale by Borrower or any of its Subsidiaries to any
Person other than Borrower or any of its wholly-owned Subsidiaries of (i) any of
the capital stock of any of their respective Subsidiaries, (ii) substantially
all of the assets of any division or line of business or product brands of
Borrower or any of its Subsidiaries, or (iii) any other assets (whether tangible
or intangible) of Borrower or any of its Subsidiaries outside of the ordinary
course of business; provided that Asset Sales shall not include the sale in the
ordinary course of business by Borrower or any of its Subsidiaries of any
machinery or equipment which is obsolete or no longer useful in the business of
such Person.
``ASSIGNMENT AND ACCEPTANCE'' means an Assignment and Acceptance entered
into by a Lender and an Eligible Assignee, and accepted by Agent, in
substantially the form of Exhibit VIII annexed hereto.
``AUDITOR'S LETTER'' means a letter substantially in the form of Exhibit IX
annexed hereto delivered to Lenders by Price Waterhouse pursuant to subsection
4.1D.
``BACKSTOP LC'' means the standby letter of credit issued by Issuing Lender
on the Closing Date to support reimbursement obligations under the Existing
Letters of Credit.
``BANKRUPTCY CODE'' means Title 11 of the United States Code entitled
``Bankruptcy'', as now and hereafter in effect, or any successor statute.
``BORROWER'' has the meaning assigned to that term in the introduction to
this Agreement.
``BORROWING BASE'' shall mean, as of any date of determination, the sum of
(i) 85% of the dollar value of Eligible Accounts (less such reserves against
such Eligible Accounts as Collateral Agent in its reasonable business discretion
elects to establish) and (ii) 55% of the cost of Eligible Inventory determined
at the lower of cost or market (on a first-in, first-out basis) (less such
reserves against such Eligible Inventory as Collateral Agent in its reasonable
business discretion elects to establish including, without limitation, reserves
for markdowns and shrinkage). Collateral Agent, at any time shall be entitled
to (i) establish and increase or decrease reserves against Eligible Accounts and
Eligible Inventory, (ii) reduce any advance rate set forth above, or restore
such advance rate to any level equal to or below the advance rate stated, and
(iii) impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in the definitions of ``Eligible Account'' and ``Eligible
Inventory'' in each case in the exercise of its reasonable business discretion.
Collateral Agent may, but shall not be required to, rely on each Borrowing Base
Certificate and any other schedules or reports delivered to Collateral Agent in
connection herewith in determining the then eligibility of Accounts and
Inventory. Reliance thereon by Collateral Agent from time to time shall not be
deemed to limit the right of Collateral Agent to revise advance rates or
standards of eligibility as provided herein.
3
<PAGE>
``BORROWING BASE CERTIFICATE'' means a certificate substantially in the
form of Exhibit XV annexed hereto delivered by Borrower to Collateral Agent and
Lenders pursuant to subsection 6.8.
``BRIDGE FACILITY'' means the Senior Bridge Loan and Letter of Credit
Agreement, dated as of December 30, 1992, as amended through the Closing Date
among certain of the Borrower's Subsidiaries as borrowers and guarantors, the
Borrower and certain other Subsidiaries of the Borrower as guarantors, certain
financial institutions named therein, National Westminster Bank PLC, New York
Branch, as agent, and The First National Bank of Chicago, as co-Agent and as
Collateral Agent.
``BUSINESS DAY'' means (i) for all purposes other than as covered by clause
(ii) below, any day excluding Saturday, Sunday and any day which is a legal
holiday under the laws of the State of New York or Illinois or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close, and (ii) with respect to all notices,
determinations, fundings and payments in connection with the Adjusted LIBOR Rate
or any LIBOR Rate Loans, any day that is a Business Day described in clause (i)
above and that is also a day for trading by and between banks in Dollar deposits
in the London interbank market.
``CAPITAL LEASE'', as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
``CASH'' means money, currency or a credit balance in a Deposit Account.
``CASH EQUIVALENTS'' means (i) marketable securities issued or directly and
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within 90 days from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within 90 days from the date of acquisition
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.;
(iii) commercial paper maturing no more than 90 days from the date of creation
thereof and, at the time of acquisition, having a rating of at least A-1 from
Standard & Poor's Corporation or at least P-1 from Moody's Investors Service,
Inc.; (iv) certificates of deposit or bankers' acceptances maturing within 90
days from the date of acquisition thereof issued by any Lender or any commercial
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia having unimpaired capital and surplus of not
less than $500,000,000 (each Lender and each such commercial bank herein called
a ``CASH EQUIVALENT BANK''); (v) time deposits having a maturity of 90 days or
less with any Cash Equivalent Bank (whether such deposit is with such Cash
Equivalent Bank or any other Cash Equivalent Bank) and (vi) balances maintained
in Deposit Accounts included in the Cash Management System and in Excluded
Accounts.
4
<PAGE>
``CASH MANAGEMENT SYSTEM'' means the system of Deposit Accounts (other than
Excluded Accounts) of Borrower and its Subsidiaries pursuant to which all
Receipts of Borrower and its Subsidiaries are collected and distributed all as
described in Schedule 5.19 annexed hereto, as it may be modified from time to
time in accordance with the terms hereof.
``CASH MANAGEMENT LETTERS'' means each of the letter agreements among
Borrower, its Operating Subsidiaries (if applicable), the financial institutions
at which Deposit Accounts are located pursuant to the Cash Management System and
Collateral Agent in each case substantially in the form of Exhibit XIV annexed
hereto with such changes as are acceptable to Collateral Agent, pursuant to
which Collateral Agent may, in accordance with subsection 6.10, give notice to
such financial institutions to redirect funds from such Deposit Accounts to the
Collection Account.
``CASH PROCEEDS'' means, with respect to any Asset Sale, Cash payments
(including any Cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale.
``CHANGE OF CONTROL'' means any of the following events: (i) any person or
any two or more persons acting in concert within the meaning of Section 13(d) of
the Exchange Act is or becomes the ``beneficial owner'' (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person or Persons shall be
deemed to have beneficial ownership of all shares that any such Person or
Persons has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than [40%]
of the total voting power of equity securities entitled to vote in the election
of directors of the Borrower; or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Borrower (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
the Borrower was approved by a vote of 66-2/3% of the directors of the Borrower
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
Borrower then in office. A Change of Control will be deemed to have occurred if
an event described in any of the foregoing clauses (i) or (ii) has occurred,
regardless of whether one of the events in any of the other clauses has also
occurred.
``CLOSING DATE'' means the date on or before April 30, 1994, on which the
initial Loans are made.
``CO-AGENTS'' has the meaning assigned that term in the introduction to
this Agreement.
``COLLATERAL'' shall mean the ``Collateral'' covered by the Pledge and
Security Agreement and Trademark Assignment and any other property, now existing
or hereafter acquired, that may at any time be or become subject to a security
interest or Lien in favor of Collateral Agent to secure the Obligations.
5
<PAGE>
``COLLATERAL ACCESS AGREEMENTS'' means any landlord waivers, landlord
confirmations, mortgagee waivers, bailee letters or any similar acknowledgment
agreements of any warehousemen, or processor in possession of Inventory, in each
case substantially in the form of Exhibit XIII annexed hereto with such changes
thereto as are acceptable to Collateral Agent.
``COLLATERAL ACCOUNT'' means the Collateral Account established by Borrower
pursuant to the Pledge and Security Agreement pursuant to which Borrower may
pledge cash to Collateral Agent to secure the obligations of Borrower to
reimburse Issuing Lender for payments made under one or more Letters of Credit
as provided in Section 8.
``COLLATERAL AGENT'' has the meaning assigned to that term in the
introduction to this Agreement.
``COLLATERAL DOCUMENTS'' shall mean the Pledge and Security Agreement, the
Trademark Assignment, the Collateral Access Agreements, the Cash Management
Letters, any other security agreements, pledge agreements, assignments,
financing statements or other agreement, document or certificate pursuant to
which Collateral Agent obtains or perfects a security interest in or Lien on
Collateral and the Intercompany Note Security Agreement.
``COLLECTION ACCOUNT'' means the Collection Account maintained by
Collateral Agent pursuant to the Pledge and Security Agreement, pursuant to
which all funds on deposit in the Deposit Accounts included in the Cash
Management System may be directed by Collateral Agent in accordance with
subsection 6.10.
``COMMERCIAL LETTER OF CREDIT'' means any letter of credit or similar
instrument issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by Borrower or
any of its Subsidiaries in the ordinary course of business of Borrower or such
Subsidiary.
``COMMERCIAL PAPER RATE'' means, as of any date of determination, (i) the
most recent published annual new yield on 90-day (or the range of days including
the nearest to 90 days) commercial paper (or the average of such yields if more
than one is published) placed directly by GE Capital or (ii) if there is no such
commercial paper placed directly by GE Capital, the most recent annual return on
90 day commercial paper (or the average of such yields if more than one is
published) placed by dealers, as quoted either in the Federal Reserve Rate
Report which customarily appears in the Friday issue of the Wall Street Journal
(Eastern edition) under ``Money Rates'', or, in the event such report shall not
so appear, in such other nationally recognized publication as Managing Agent
may, from time to time, specify to Borrower.
``COMMITMENT'' means any of the Revolving Loan Commitment or Swing Line
Loan Commitment, and ``COMMITMENTS'' means such commitments of all Lenders and
Swing Line Lender in the aggregate.
6
<PAGE>
``COMMITMENT TERMINATION DATE'' means the date which is the three year
anniversary of the Closing Date.
``COMPLIANCE CERTIFICATE'' means a certificate substantially in the form of
Exhibit V annexed hereto delivered to Managing Agent and Lenders by Borrower
pursuant to subsection 6.1(iv).
``CONSOLIDATED ADJUSTED EBITDA'' means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Cash
Interest Expense and, (iii) to the extent utilized in the calculation of
Consolidated Net Income (a) provisions for taxes based on income, (b) total
depreciation expense, (c) total amortization expense, and (d) other non-cash
items reducing Consolidated Net Income less other non-cash items increasing
Consolidated Net Income (as provided in the definition thereof), all of the
foregoing as determined on a consolidated basis for Borrower and its
Subsidiaries in conformity with GAAP.
``CONSOLIDATED CAPITAL EXPENDITURES'' means, for any period, the aggregate
of all expenditures (whether paid in cash or other consideration or accrued as a
liability and including that portion of Capital Leases which is capitalized on
the consolidated balance sheet of Borrower and its Subsidiaries) by Borrower and
its Subsidiaries during that period that, in conformity with GAAP, are included
in ``additions to property, plant or equipment'' or comparable items reflected
in the consolidated statement of cash flows of Borrower and its Subsidiaries but
excluding, however, any expenditures made from the proceeds of insurance or
condemnation awards.
``CONSOLIDATED CASH INTEREST EXPENSE'' means, for any period, total
interest expense paid in cash (including that portion attributable to Capital
Leases in accordance with GAAP and capitalized interest) of Borrower and its
Subsidiaries on a consolidated basis with respect to all outstanding
Indebtedness of Borrower and its Subsidiaries, but excluding, however, any
amounts referred to in subsection 2.3 payable to any Agent or Lenders on or
before the Closing Date and extraordinary amounts paid in respect of the
Existing Credit Facilities and the Existing EDBs on the Closing Date related to
the prepayment and refinancing of such debt and any amortization of discount and
deferred financing costs (until paid).
``CONSOLIDATED DEBT SERVICE'' means, for any period, the sum, without
duplication, of (i) Consolidated Cash Interest Expense and (ii) principal
payments (constituting amounts which may not be reborrowed) on Consolidated
Total Debt (other than the Obligations), including, without limitation,
mandatory principal payments in respect of Capital Leases, all as determined on
a consolidated basis for Borrower and its Subsidiaries in conformity with GAAP,
but excluding, however, any of the foregoing with respect to the Existing Credit
Facilities to the extent paid on the Closing Date.
``CONSOLIDATED DEBT SERVICE COVERAGE RATIO'' means, for any period, the
ratio of (i) the difference for such period between (y) Consolidated Adjusted
EBITDA and (z) Consolidated Capital Expenditures to (ii) Consolidated Debt
Service for such period.
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``CONSOLIDATED LEVERAGE RATIO'' means, for any period, the ratio of (i)
Consolidated Total Debt as of the end of such period to (ii) Consolidated
Adjusted EBITDA for such period.
``CONSOLIDATED NET INCOME'' means, for any period, the net income (or loss)
of Borrower and its Subsidiaries on a consolidated basis for such period taken
as a single accounting period determined in conformity with GAAP; provided that
there shall be excluded (i) the income (or loss) of any Person (other than a
Subsidiary of Borrower) in which any other Person (other than Borrower or any of
its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Borrower or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Borrower or is
merged into or consolidated with Borrower or any of its Subsidiaries or that
Person's assets are acquired by Borrower or any of its Subsidiaries, (iii) the
income of any Subsidiary of Borrower to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (iv) any after-tax gains or losses
attributable to Asset Sales (other than Asset Sales for consideration of
$100,000 or less in any one instance or $500,000 or less in the aggregate for
any Fiscal Year) or returned surplus assets of any Pension Plan, and (v) (to the
extent not included in clauses (i) through (iv) above) any net extraordinary
gains or net non-cash extraordinary losses.
``CONSOLIDATED NET WORTH'' means, as at any date of determination, the sum
of the capital stock and additional paid-in capital plus retained earnings (or
minus accumulated deficits) of Borrower and its Subsidiaries on a consolidated
basis determined in conformity with GAAP.
``CONSOLIDATED RENTAL PAYMENTS'' means, for any period, the aggregate
amount of all rents paid or payable by Borrower and its Subsidiaries on a
consolidated basis during that period under all Operating Leases to which
Borrower or any of its Subsidiaries is a party as lessee.
``CONSOLIDATED TOTAL DEBT'' means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Borrower and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
``CONSOLIDATED TRADE SUPPORT RATIO'' means, as of any date of
determination, the percentage obtained by dividing (i) the aggregate amount of
trade accounts payable of Borrower and its Operating Subsidiaries (whether or
not such accounts payable are due as of such date of determination) by (ii) the
aggregate dollar amount of all Inventory determined on a first-in, first-out
basis in accordance with GAAP.
``CONTINGENT OBLIGATION'', as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such
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obligation of another that such obligation of another 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 (in whole or in part)
against loss in respect thereof, (ii) with respect to any letter of credit
issued for the account of that Person or as to which that Person is otherwise
liable for reimbursement of drawings, or (iii) under Interest Rate Agreements
and Currency Agreements. Contingent Obligations shall include, without
limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of such Person for the obligation of another
through any agreement (contingent or otherwise) (x) 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 (y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclauses
(x) or (y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
``CONTRACTUAL OBLIGATION'', as applied to any Person, means any provision
of any Security issued by that Person or of any material indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
``CREDIT AND COLLECTION POLICY'' means, with respect to Borrower and the
Operating Subsidiaries, those credit, collection, customer relations and service
policies, as they currently exist as set forth in Schedule 5.18 hereto, as such
policies may be amended, modified or supplemented from time to time in
accordance with the terms hereof.
``CREDIT PARTY'' means each of Borrower and each Operating Subsidiary.
``CURRENCY AGREEMENT'' means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement designed to protect Borrower or any of its Subsidiaries
against fluctuations in currency values.
``DEFAULTED ACCOUNT'' means an Account that is written off Borrower's or
one of its Operating Subsidiary's books as uncollectible in accordance with the
Credit and Collection Policy.
``DEPOSIT ACCOUNT'' means a demand, time, savings, passbook or like account
with a bank, savings and loan association, credit union or like organization,
other than an account evidenced by a negotiable certificate of deposit.
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``DOLLARS'' and the sign ``$'' mean the lawful money of the United States
of America.
``ELIGIBLE ACCOUNTS'' has the meaning set forth in Schedule 1.1A annexed
hereto.
``ELIGIBLE ASSIGNEE'' means (A) (i) a commercial bank organized under the
laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (iii) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided that (x) such bank is
acting through a branch or agency located in the United States or (y) such bank
is organized under the laws of a country that is a member of the Organization
for Economic Cooperation and Development or a political subdivision of such
country; and (iv) any other entity which is an ``accredited investor'' (as
defined in Regulation D under the Securities Act) which extends credit or buys
loans as one of its businesses including, but not limited to, insurance
companies, mutual funds and lease financing companies, in each case (under
clauses (i) through (iv) above) that is acceptable to Managing Agent and has
agreed to make Revolving Loans in accordance with the terms hereof and (B) any
Lender and any Affiliate of any Lender; provided that (y) no Affiliate of
Borrower, and (z) without the consent of Borrower, no Person engaged in
factoring or any Affiliate thereof, shall be an Eligible Assignee.
``ELIGIBLE INVENTORY'' has the meaning set forth in Schedule 1.1B annexed
hereto.
``EMPLOYEE BENEFIT PLAN'' means any ``employee benefit plan'' as defined in
Section 3(3) of ERISA which is, or was at any time during the past five years,
maintained or contributed to by Borrower or any Persons who are or were, at the
relevant time, its ERISA Affiliates and with respect to which the Borrower could
have any liability.
``ENVIRONMENTAL CLAIM'' means any accusation, allegation, notice of
violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any governmental authority or any Person for any
damage, including, without limitation, personal injury (including sickness,
disease or death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the environment,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with Hazardous Materials and relating to Borrower, any of
its Subsidiaries, any of their respective Affiliates or any Facility.
``ENVIRONMENTAL LAWS'' means all statutes, ordinances, orders, rules,
regulations, plans, policies or decrees and the like relating to (i)
environmental matters, including, without limitation, those relating to fines,
injunctions, penalties, damages, contribution, cost recovery compensation,
losses or injuries resulting from the Release or threatened Release of Hazardous
Materials, (ii) the generation, use, storage, transportation or disposal of
Hazardous Materials, or (iii) occupational safety and health, industrial
hygiene, land use or the protection of human, plant or animal health or welfare,
in any manner applicable to Borrower or any of its Subsidiaries or any of their
respective properties, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act
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(42 U.S.C. (S) 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
(S) 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S) 1251
et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. (S) 136 et seq.), the Occupational Safety and Health
Act (29 U.S.C. (S) 651 et seq.) and the Emergency Planning and Community Right-
to-Know Act (42 U.S.C. (S) 11001 et seq.), each as amended or supplemented, and
any analogous future or present local, state and federal statutes and
regulations promulgated pursuant thereto, each as in effect as of the date of
determination.
``ERISA'' means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
``ERISA AFFILIATE'', as applied to any Person, means (i) any corporation
which is, or was at the relevant time, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at the relevant time, a member; (ii) any trade
or business (whether or not incorporated) which is, or was at the relevant time,
a member of a group of trades or businesses under common control within the
meaning of Section 414(c) of the Internal Revenue Code of which that Person is,
or was at any time, a member; and (iii) any member of an affiliated service
group within the meaning of Section 414(m) or (o) of the Internal Revenue Code
of which that Person, any corporation described in clause (i) above or any trade
or business described in clause (ii) above is, or was at the relevant time, a
member.
``ERISA EVENT'' means (i) a ``reportable event'' within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution (other than
contributions that are being contested in good faith and as to which adequate
reserves have been provided for in accordance with GAAP) to a Multiemployer
Plan; (iii) the provision by the administrator of any Pension Plan pursuant to
Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal
by Borrower or any of its ERISA Affiliates from any Pension Plan with two or
more contributing sponsors or the termination of any such Pension Plan resulting
in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by
the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any
event or condition which would constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
(vi) the imposition of liability on Borrower or any of its ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vii) the withdrawal by Borrower or any of its ERISA
Affiliates in a complete or partial withdrawal (within the meaning of Sections
4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential
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liability therefor, or the receipt by Borrower or any of its ERISA Affiliates of
notice from any Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or
has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an
act or omission which could reasonably be expected to give rise to the
imposition on Borrower or any of its ERISA Affiliates of fines, penalties, taxes
or related charges under Chapter 43 of the Internal Revenue Code or under
Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee
Benefit Plan; (ix) the assertion of a material claim (other than routine claims
for benefits) against any Employee Benefit Plan other than a Multiemployer Plan
or the assets thereof, or against Borrower or any of its ERISA Affiliates in
connection with any such Employee Benefit Plan; (x) receipt from the Internal
Revenue Service of notice of the failure of any Pension Plan (or any other
Employee Benefit Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue
Code, or the failure of any trust forming part of any Pension Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code;
or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
``ESOP LOAN DOCUMENTS'' means (i) that certain Term Loan Agreement dated as
of December 1, 1988 between Hartmarx Employee Stock Ownership Plan Trust and
Wachovia Bank and Trust Company, N.A., as amended, (ii) Guaranty of Hartmarx
Corporation dated as of December 1, 1988, in favor of Wachovia Bank and Trust
Company, N.A., as amended, (iii) documents set forth in (i) and (ii) herein, as
modified, amended, revised, financed and/or refinanced pursuant to the Override
Facility, and (iv) any and all amendments, replacements, refinancings and
modifications, from time to time, of the documents set forth in (i), (ii) and
(iii) herein in accordance with the terms hereof.
``EVENT OF DEFAULT'' means each of the events set forth in Section 8.
``EXCHANGE ACT'' means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
``EXCHANGE RATE'' means, on any date when an amount expressed in a currency
other than Dollars is to be determined with respect to any Letter of Credit, the
nominal rate of exchange of Issuing Lender in the New York foreign exchange
market for the purchase by Issuing Lender (by cable transfer) of such currency
in exchange for Dollars at 12:00 noon (New York time) one Business Day prior to
such date (or otherwise in accordance with the normal practice of Issuing
Lender), expressed as a number of units of such currency per one Dollar.
``EXCLUDED ACCOUNTS'' means the Deposit Accounts described in Schedule 1.C
annexed hereto. [Note: to include payroll and disbursement accounts and other
accounts in which no Receipts may be deposited.]
``EXCLUDED PLANS'' means, collectively, the Glasgow Manufacturing Company
Pension Plan, effective as of June 1, 1985 and (ii) Patterson-Fletcher Past
Service Pension Plan, effective as of January 1, 1976.
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``EXISTING CREDIT FACILITIES'' shall mean, collectively, (i) the Override
Facility, (ii) the Bridge Facility, (iii) all agreements, documents and
instruments pursuant to which any interest in collateral is granted or purported
to be granted, created evidenced or perfected pursuant to any of the Override
Facility or Bridge Facility, including without limitation, all deeds of trust,
mortgages, security agreements, pledge agreements, assignments, licenses,
landlord consents and releases, financing statements, fixture filings,
registrations or similar documents and (iv) all ancillary agreements as to which
any holder of any of the obligations evidenced by the Override Facility or
Bridge Facility is a party or a beneficiary and all other agreements,
instruments, documents and certificates including promissory notes, consents,
assignments, contracts, and notices delivered in connection with any of the
foregoing or the transactions contemplated thereby, in each case as any of the
foregoing may be in effect as of the Closing Date.
``EXISTING EDBS'' means, collectively, (A) those certain loan agreements
each dated as of December 1, 1993 (i) between Borrower and the Indiana
Development Finance Authority relating to $7,500,000 in principal amount of
economic development bonds due July 1, 2014 (Michigan City Issue) and (ii)
between Borrower and the City of Des Plaines, Illinois relating to $8,000,000 in
principal amount of economic development bonds due July 1, 2015 (Des Plaines
issue), each bearing a fixed coupon of 7.25% per annum and issued at a discount
to yield 7.50% per annum; (B) that certain Loan Agreement dated December 1, 1984
between Rector Sportswear Corporation and the City of Rector, Arkansas relating
to $1,000,000 in principal amount of industrial development revenue bonds due
December 1, 1996; (C) that certain Loan Agreement dated September 1, 1987
between Thorngate, Ltd. and the Industrial Development Authority of the County
of Cape Girardeau, Missouri relating to $1,750,000 in principal amount of
industrial development revenue bonds due September 1, 2007; (D) that certain
Loan Agreement dated September 1, 1987 between Walton Manufacturing Company and
the Development Authority of Walton County relating to $2,500,000 in principal
amount of industrial development revenue bonds due September 1, 2007; and (E)
that certain Loan Agreement dated March 1, 1981 between Winchester Clothing
Company and the City of Winchester (Kentucky) relating to $1,500,000 in
principal amount of industrial building revenue bonds due March 1, 1996.
``EXISTING LETTERS OF CREDIT'' means the letters of credit outstanding
prior to, and with an expiration date later than, the Closing Date under the
Existing Credit Facilities and listed on Schedule 1.1D annexed hereto.
``FACILITIES'' means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon) now,
hereafter or heretofore owned, leased, operated or used by Borrower or any of
its Subsidiaries or any of their respective predecessors or Affiliates.
``FASHIONAIRRE RELATED ASSETS'' means collectively, (i) that certain
promissory note dated _______________, 1993 made by _______________________, a
___________________ corporation, to the order of Borrower in the original
principal amount of [$___________], (ii) any and all shares of capital stock of
[Fashionairre Apparel] that may from time to time be owned by Borrower or any of
its Subsidiaries, (iii) any property or assets owned by [Fashionairre] and its
Subsidiaries from time to time and (iv) any property or assets received from the
sale, disposition or other transfer of, in exchange for, in respect of or with
respect to the distributions on any of the foregoing (whether pursuant to a plan
of reorganization or otherwise), in each case as the same has been and may be in
the future amended, modified, supplemented, restated, substituted for or
refunded from time to time.
``FILE TAPE'' means, as to each day, the various software created and
maintained or otherwise utilized by the Borrower and its Operating Subsidiaries
in accordance with their usual and customary practice and encoded pursuant to
the programming in use by Borrower and its Operating Subsidiaries as of the
Closing Date, as such software may be modified from time to time, with
information that includes, as to Borrower and each Operating
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Subsidiary, the name, address, telephone number and account number of each
Account Debtor of such Person and the aggregate outstanding balance, as of such
day, of the Accounts owing from each Account Debtor.
``FINANCIAL STANDBY LETTER OF CREDIT'' means any Standby Letter of Credit
which is not a Nonfinancial Standby Letter of Credit.
``FISCAL YEAR'' means the fiscal year or fiscal period of Borrower and its
Subsidiaries, as the case may be, ending on or about the last Business Day of
November of each calendar year. For purposes of this Agreement, any particular
Fiscal Year shall be designated by reference to the calendar year in which such
Fiscal Year ends.
``FUNDING DATE'' means the date of the funding of a Loan.
``GAAP'' means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, in each case as the same are applicable to the circumstances as of
the date of determination.
``GE CAPITAL'' has the meaning assigned to that term in the introduction to
this Agreement.
``GOVERNMENTAL AUTHORIZATION'' means any permit, license, authorization,
directive, consent order or consent decree of or from any federal, state or
local governmental authority, agency or court.
``GUARANTY'' means the Guaranty to be executed and delivered by each
Operating Subsidiary on the Closing Date, substantially in the form of Exhibit
XI annexed hereto.
``HAZARDOUS MATERIALS'' means (i) any chemical, material or substance at
any time defined as or included in the definition of ``hazardous substances'',
``hazardous wastes'', ``hazardous materials'', ``extremely hazardous waste'',
``restricted hazardous waste'', ``infectious waste'', ``toxic substances'' or
any other formulations intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, ``TCLP toxicity'' or ``EP
toxicity'' or words of similar import under any applicable Environmental Laws or
publications promulgated pursuant thereto; (ii) any oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources; (iv) any flammable
substances or explosives; (v) any radioactive materials; (vi) asbestos in any
form; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million; (ix) pesticides; and (x) any
other chemical, material or
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substance, exposure to which is prohibited, limited or regulated by any
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any Persons in the vicinity of the
Facilities.
``HSSI'' means HSSI, Incorporated, a Delaware corporation, and its
successors.
``HSSI'' Related Assets'' means collectively, (i) that certain promissory
note dated September 18, 1992 made by HSSI Group, Ltd., an Illinois corporation,
to the order of Borrower in the original principal amount of $43,000,000, (ii)
any and all shares of capital stock of HSSI that may from time to time be owned
by Borrower or any of its Subsidiaries, (iii) that certain promissory note
dated November ____, 1993 made by Caredon Realty, Inc., an Illinois corporation,
to the order of Borrower in the original principal amount of [$____________],
(iv) any property or assets owned by HSSI and its Subsidiaries from time to time
and (v) any property or assets received from the sale, disposition or other
transfer of, in exchange for, in respect of or with respect to the distributions
on any of the foregoing (whether pursuant to a plan of reorganization or
otherwise), in each case as the same has been and may be in the future amended,
modified, supplemented, restated, replaced, substituted for or refunded from
time to time.
``INDEBTEDNESS'', as applied to any Person, means (i) all indebtedness for
borrowed money, (ii) that portion of obligations with respect to Capital Leases
that is properly classified as a liability on a balance sheet in conformity with
GAAP, (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
(excluding any such obligations incurred under ERISA), which purchase price is
(a) due more than six months from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written instrument, and
(v) all indebtedness secured by any Lien on any property or asset owned or held
by that Person regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is nonrecourse to the credit of that Person.
Obligations under Interest Rate Agreements and Currency Agreements constitute
Contingent Obligations and not Indebtedness.
``INDEMNITEE'' has the meaning assigned to that term in subsection 10.3.
``INDEX RATE'' means, at any time, the higher of (x) the Prime Rate or (y)
the Commercial Paper Rate.
``INDEX RATE LOANS'' means Loans bearing interest at rates determined by
reference to the Index Rate as provided in subsection 2.2A.
``INITIAL SYNDICATION PERIOD'' means the period commencing January 11, 1994
and ending on the two month anniversary of the Closing Date.
``INTELLECTUAL PROPERTY'' means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Borrower and its Subsidiaries as currently conducted
that are material to the financial condition, business or operations of Borrower
and its Subsidiaries, taken as a whole including, without limitation, any of the
foregoing licensed to Borrower or any of its Subsidiaries by other Persons.
``INTERCOMPANY NOTE SECURITY AGREEMENT'' means that certain Intercompany
Note Security Agreement substantially in the form of Exhibit XVIII annexed
hereto, entered into between the Operating Subsidiaries as grantors and Borrower
as security party.
``INTERCOMPANY NOTES'' means the promissory notes issued by Borrower and
each Operating Subsidiary to evidence intercompany Indebtedness, in the form of
Exhibit XVI annexed hereto.
``INTEREST PAYMENT DATE'' means (i) with respect to any Index Rate Loan,
each March 31, June 30, September 30 and December 31 of each year, commencing on
the first such date to occur after the Closing Date, and (ii) with respect to
any LIBOR Rate Loan, the last day of each Interest Period applicable to such
Loan; provided that in the case of each Interest Period of longer than three
months, ``INTEREST PAYMENT DATE'' shall also include the date that is three
months after the commencement of such Interest Period.
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``INTEREST PERIOD'' has the meaning assigned to that term in subsection
2.2B.
``INTEREST RATE AGREEMENT'' means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Borrower or any of its Subsidiaries
against fluctuations in interest rates.
``INTEREST RATE DETERMINATION DATE'' means each date for calculating the
Adjusted LIBOR Rate for purposes of determining the interest rate in respect of
an Interest Period. The Interest Rate Determination Date shall be the second
Business Day prior to the first day of the related Interest Period for a LIBOR
Rate Loan.
``INTERNAL REVENUE CODE'' means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
``INVENTORY'' shall mean any ``inventory,'' as such term is defined in the
UCC, now or hereafter owned or acquired by Borrower or any of its Subsidiaries,
wherever located, and, in any event, including all inventory, merchandise, goods
and other personal property which are held by or on behalf of Borrower or any of
its Subsidiaries for sale or lease or are furnished or are to be furnished under
a contract of service or which constitute raw materials, work in process, or
materials used or consumed or to be used or consumed in Borrower's or such
Subsidiaries', as the case may be, business, or in the processing, packaging,
advertising, promotion, delivery or shipping of the same, and all finished
goods.
``INVESTMENT'' means (i) any direct or indirect purchase or other
acquisition by Borrower or any of its Subsidiaries of, or of a beneficial
interest in, stock or other Securities of any other Person (other than a
Subsidiary of Borrower or such Subsidiary, as the case may be), or (ii) any
direct or indirect loan, advance (other than advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital contribution by Borrower or any of
its Subsidiaries to any other Person other than an Operating Subsidiary of
Borrower, including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business. The amount of any Investment shall be
the original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.
``ISSUING LENDER'' means __________________________________________.
``JOINT VENTURE'' means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
``LENDER'' and ``LENDERS'' means the persons identified as ``Lenders'' and
listed on the signature pages of this Agreement (and includes Swing Line Lender
and Issuing Lender), together with their successors and permitted assigns
pursuant to subsection 10.1.
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``LETTER OF CREDIT'' or ``LETTERS OF CREDIT'' means Commercial Letters of
Credit and Standby Letters of Credit issued or to be issued by Issuing Lender
for the account of Borrower pursuant to subsection 3.1.
``LETTER OF CREDIT USAGE'' means, as at any date of determination, the sum
of (i) the maximum aggregate undrawn amount which is or at any time thereafter
may become available for drawing under all Letters of Credit then outstanding
plus (ii) the aggregate amount of all drawings under Letters of Credit honored
by Issuing Lender and not theretofore reimbursed by Borrower (whether such
reimbursement is out of the proceeds of Loans pursuant to subsection 3.3B or
otherwise). For purposes of this definition, any amount described in clause (i)
or (ii) of the preceding sentence which is denominated in a currency other than
Dollars shall be valued based on the applicable Exchange Rate for such currency
as of the applicable date of determination.
``LIBOR RATE LOANS'' means Loans bearing interest at rates determined by
reference to the Adjusted LIBOR Rate as provided in subsection 2.2A.
``LICENSE AGREEMENTS'' has the meaning assigned that term in subsection
5.20.
``LIEN'' means any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing.
``LOAN DOCUMENTS'' means (i) this Agreement, (ii) the Notes, (iii) the
Letters of Credit (and any applications for, or reimbursement agreements or
other documents or certificates executed by Borrower in favor of Issuing Lender
relating to, the Letters of Credit), (iv) any Interest Rate Agreement consisting
of an interest rate swap permitted pursuant to subsection 7.4(ii)(a) between
Borrower and any Lender or an Affiliate thereof, (v) the Guaranty and (vi) the
Collateral Documents.
``LOAN EXPOSURE'' means, with respect to any Lender as of any date of
determination (i) prior to the termination of the Commitments, that Lender's
Revolving Loan Commitment and (ii) after the termination of the Revolving Loan
Commitments, the sum of (a) the aggregate outstanding principal amount of the
Loans of that Lender plus (b) in the event that Lender is Issuing Lender, the
aggregate amount of all drawings under Letters of Credit honored by that Lender
and not theretofore reimbursed by Borrower (in each case net of any
participations purchased by other Lenders in the applicable Letters of Credit)
plus (c) the aggregate amount of all participations purchased by that Lender in
any drawings under Letters of Credit honored by Issuing Lenders and not
theretofore reimbursed by Borrower plus (d) the aggregate amount of all
participations purchased by that Lender in any outstanding Swing Line Loans plus
(e) in the case of Swing Line Lender, the aggregate outstanding principal amount
of all Swing Line Loans offered by Swing Line Lender for participation by
Lenders hereunder (net of any participations therein purchased by other
Lenders).
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``LOANS'' means one or more of the Revolving Loans or Swing Line Loans or
any combination thereof.
``MANAGING AGENT'' has the meaning assigned to that term in the
introduction to this Agreement.
``MARGIN STOCK'' has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
``MATERIAL ADVERSE EFFECT'' means (i) a material adverse effect upon the
business, operations, properties, assets, financial condition or prospects of
Borrower and its Subsidiaries, taken as a whole, or (ii) the material impairment
of any of the Collateral or the impairment of the ability of any Credit Party to
perform any of their material obligations under the Loan Documents, or of any
Agent or Lenders to enforce, the Obligations.
``MULTIEMPLOYER PLAN'' means an Employee Benefit Plan that is a
``multiemployer plan'', as defined in Section 3(37) of ERISA.
``NET CASH PROCEEDS'' means, with respect to any Asset Sale, Cash Proceeds
of such Asset Sale net of bona fide direct costs of sale including, without
limitation, (i) income taxes reasonably estimated to be actually payable as a
result of such Asset Sale within two years of the date of such Asset Sale and
(ii) payment of the outstanding principal amount of, premium or penalty, if any,
and interest on any Indebtedness (other than the Loans) required to be repaid
under the terms thereof as a result of such Asset Sale.
``NONFINANCIAL STANDBY LETTER OF CREDIT'' means any Standby Letter of
Credit issued in support of insurance obligations of Borrower or its
Subsidiaries which is classified as a nonfinancial standby letter of credit by
Issuing Lender upon the issuance thereof hereunder; provided that any such
Nonfinancial Standby Letter of Credit shall automatically be deemed to be a
Financial Letter of Credit immediately upon any law, regulation or governmental
official requiring Issuing Lender or any other Lender to designate such
Nonfinancial Standby Letter of Credit (or any credit exposure with respect
thereto) as a financial letter of credit (or exposure with respect to a
financial letter of credit).
``NOTES'' means one or more of the Revolving Notes or Swing Line Notes or
any combination thereof.
``NOTICE OF BORROWING'' means a notice substantially in the form of Exhibit
I annexed hereto delivered by Borrower to Managing Agent pursuant to subsection
2.1B with respect to a proposed borrowing.
``NOTICE OF CONVERSION/CONTINUATION'' means a notice substantially in the
form of Exhibit II annexed hereto delivered by Borrower to Managing Agent
pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.
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``NOTICE OF ISSUANCE OF LETTER OF CREDIT'' means a notice substantially in
the form of Exhibit III annexed hereto delivered by Borrower to Issuing Lender
pursuant to subsection 3.1B(i) with respect to the proposed issuance of a
Letter of Credit.
``OBLIGATIONS'' means all obligations of every nature of each Credit Party
from time to time owed to any Agent, Lenders or any of them under the Loan
Documents, whether for principal, interest, reimbursement of amounts drawn under
Letters of Credit, fees, expenses, indemnification or otherwise.
``OFFICER'S CERTIFICATE'' means, as applied to any corporation, a
certificate executed on behalf of such corporation by any of its chairman of the
board (if an officer), president, one of its senior vice presidents, chief
financial officer or its treasurer (if a senior officer); provided that every
Officer's Certificate with respect to the compliance with a condition precedent
to the making of any Loans hereunder shall include (i) a statement that the
officer making or giving such Officer's Certificate has read such condition and
any definitions or other provisions contained in this Agreement relating
thereto, (ii) a statement that, to the best knowledge of the signer, such
officer has made or has caused to be made such examination or investigation as
is reasonably necessary to enable such officer to express an informed opinion as
to whether or not such condition has been complied with, and (iii) a statement
as to whether, to the best knowledge of the signer, such condition has been
complied with in all material respects.
``OPERATING LEASE'' means, as applied to any Person, any lease (including,
without limitation, leases that may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) that is not a Capital Lease other
than any such lease under which that Person is the lessor.
``OPERATING SUBSIDIARIES'' has the meaning assigned that term in the
introduction to this Agreement.
``OVERRIDE AGREEMENT'' means the Override Agreement, dated as of December
30, 1992, as amended through the Closing Date, among the Borrower and certain of
the Borrower's Subsidiaries named therein as borrowers, the Hartmarx Employee
Stock Ownership Plan Trust, certain financial institutions named therein as
lenders and The First National Bank of Chicago, as MOF agent for certain Lenders
and as collateral agent for all of the lenders.
``PAYMENT OFFICE'' means ______________________________.
``PBGC'' means the Pension Benefit Guaranty Corporation (or any successor
thereto).
``PENSION PLAN'' means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA other than Excluded Plans.
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``PERMITTED ENCUMBRANCES'' means the following types of Liens (other than
any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA):
(i) Liens for taxes, assessments or governmental charges or claims
the payment of which is not, at the time, required by subsection 6.3;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet 60 days past
due and with respect to which no enforcement action has been taken or being
contested in good faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or 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);
(iv) any attachment or judgment Lien not constituting an Event of
Default under subsection 8.8;
(v) Liens consisting of deposit arrangements securing obligations in
connection with banking services of the Borrower and its Subsidiaries which
constitute Cash Equivalents of the type described in clauses (iv) and (v)
of the definition thereof;
(vi) deposits or pledges for the purpose of securing an appeal, stay
or discharge in the course of legal proceedings; provided that such
deposits or pledges do not secure judgments constituting an Event of
Default under subsection 8.8;
(vii) leases or subleases granted to others not interfering in any
material respect with the ordinary conduct of the business of Borrower or
any of its Subsidiaries;
(viii) easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of Borrower or any of its Subsidiaries;
(ix) any (a) interest or title of a lessor or sublessor under any
lease permitted by subsection 7.9, (b) restriction or encumbrance that the
interest or title of such lessor or sublessor may be subject to, or (c)
subordination of the interest of
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the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (b);
(x) Liens on Inventory and documents of title securing Existing
Letters of Credit constituting trade letters of credit and other trade
letters of credit permitted pursuant to subsection 7.4(vii)(B); provided
that such Lien attaches only to the Inventory and documents of title that
are the subject of such trade letters of credit;
(xi) Liens arising from filing UCC financing statements relating
solely to leases permitted by this Agreement; and
(xii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods.
``PERSON'' means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, Joint Ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
``PLEDGE AND SECURITY AGREEMENT'' shall mean the Pledge and Security
Agreement, in substantially the form of Exhibit XII annexed hereto entered into
between Collateral Agent, Borrower and the Operating Subsidiaries.
``POTENTIAL EVENT OF DEFAULT'' means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
``PRIME RATE'' means the rate that Reference Lender announces from time to
time as its prime lending rate, as in effect from time to time. The Prime Rate
is a reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Reference Lender, Managing Agent or any other
Lender may make commercial loans or other loans at rates of interest at, above
or below the Prime Rate.
``PRO RATA SHARE'' means, with respect to each Lender, the percentage
obtained by dividing (x) the Loan Exposure of that Lender by (y) the aggregate
Loan Exposure of all Lenders, as such percentage may be adjusted by assignments
permitted pursuant to subsection 10.1. The initial Pro Rata Share of each
Lender is set forth opposite the name of that Lender in Schedule 2.1 annexed
hereto.
``RECEIPTS'' shall mean all cash, Cash Equivalents, checks, notes, drafts
and any items of payment or collection received, by or on behalf of Borrower and
its Operating Subsidiaries, or by any officers, employees or agents of such
Borrower or Operating Subsidiary or other Persons acting for or in concert with
such Borrower or Operating Subsidiary to make collections on such Borrower's or
Operating Subsidiary's behalf in connection with or in any way relating to such
Borrower or Operating Subsidiary or the operation of such Borrower's or
Operating Subsidiary's business, including, without
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limitation, any proceeds received from (i) any sales of, or loans against,
Accounts of Borrower or any Operating Subsidiary (other than the Loans and
Letters of Credit pursuant to this Agreement), (ii) any disposition of assets or
issuance or sale of stock or equity securities by any Borrower, (iii) the
issuance or sale of Indebtedness by Borrower or any Operating Subsidiary (other
than the Obligations and other Indebtedness permitted by this Agreement), (iv)
insurance policies (other than liability insurance payable directly or
indirectly to a third party) maintained by Borrower or any Operating Subsidiary,
whether or not Collateral Agent is an additional insured or named as loss payee
thereunder and (v) the successful prosecution (including any settlement) of any
claims, actions or other litigation or proceeding by or on behalf of or against
Borrower or any Operating Subsidiary; it being understood and agreed that
nothing contained in this definition shall in any respect be deemed to permit
any transactions by Borrower or any Operating Subsidiary otherwise restricted or
prohibited by this Agreement.
``REFERENCE LENDER'' means ______________________________.
``REFUNDED SWING LINE LOANS'' has the meaning assigned to that term in
subsection 2.1A(ii).
``REGULATION D'' means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
``REIMBURSEMENT DATE'' has the meaning assigned to that term in subsection
3.3B.
``RELATED DOCUMENTS'' means, collectively, (i) the Senior Subordinated
Notes, (ii) the Subordinated Note Indenture, (iii) the Traco Documents, (iv) the
Existing EDBs and (v) the ESOP Loan Documents.
``RELEASE'' means any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials into the indoor or outdoor environment
(including, without limitation, the abandonment or disposal of any barrels,
containers or other closed receptacles containing any Hazardous Materials), or
into or out of any Facility, including the movement of any Hazardous Material
through the air, soil, surface water, groundwater or property.
``REQUISITE LENDERS'' means Lenders having or holding 51% or more of the
aggregate Loan Exposure of all Lenders.
``RESTRICTED JUNIOR PAYMENT'' means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of Borrower
now or hereafter outstanding, except a dividend payable solely in shares of
stock to the holders of such shares, (ii) any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of stock of Borrower now or hereafter
outstanding, (iii) any payment made to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire shares of any class
of stock of Borrower now or hereafter outstanding, (iv) any payment or
prepayment of principal of,
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premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment
with respect to, any Subordinated Indebtedness and (v) any Investment other than
an Investment permitted pursuant to subsection 7.3.
``REVOLVING LOAN COMMITMENT'' means the commitment of a Lender to make
Revolving Loans to Borrower pursuant to subsection 2.1A(i), and ``REVOLVING LOAN
COMMITMENTS'' means such commitments of all Lenders in the aggregate.
``REVOLVING LOANS'' means the Loans made by Lenders to Borrower pursuant to
subsection 2.1A(i).
``REVOLVING NOTES'' means (i) the promissory notes of Borrower issued
pursuant to subsection 2.1D on the Closing Date and (ii) any promissory notes
issued by Borrower pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Lenders, in each case substantially in the form of Exhibit IV
annexed hereto.
``SECURITIES'' means any stock, shares, partnership interests, voting trust
certificates, certificates of interest or participation in any profit-sharing
agreement or arrangement, options, warrants, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as ``securities'' or any
certificates of interest, shares or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.
``SECURITIES ACT'' means the Securities Act of 1933, as amended from time
to time, and any successor statute.
``SENIOR SUBORDINATED NOTES'' means those certain __% Senior Subordinated
Notes due 2002 in the initial aggregate principal amount of $100,000,000, issued
by Borrower pursuant to the Subordinated Note Indenture.
``SOLVENT'' means, with respect to any Person, that as of the date of
determination (i) the then fair saleable value of the property of such Person is
(y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
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``STANDBY LETTER OF CREDIT'' means the Backstop LC and any other standby
letter of credit or similar instrument issued for the purpose of supporting (i)
Indebtedness of Borrower or any of its Subsidiaries in respect of industrial
revenue or development bonds or financings, (ii) workers' compensation
liabilities of Borrower or any of its Subsidiaries, (iii) the obligations of
third party insurers of Borrower or any of its Subsidiaries arising by virtue of
the laws of any jurisdiction requiring third party insurers, (iv) obligations
with respect to Capital Leases or Operating Leases of Borrower or any of its
Subsidiaries, and (v) performance, payment, deposit or surety obligations of
Borrower or any of its Subsidiaries, in any case if required by law or
governmental rule or regulation or in accordance with custom and practice in the
industry; provided that Standby Letters of Credit (other than the Backstop LC)
may not be issued for the purpose of supporting (a) trade payables or (b)
Indebtedness constituting ``antecedent debt'' (as that term is used in Section
547 of the Bankruptcy Code).
``SUBORDINATED INDEBTEDNESS'' means (i) the Indebtedness of Borrower
evidenced by the Senior Subordinated Notes and (ii) any other Indebtedness of
Borrower subordinated in right of payment to the Obligations pursuant to
documentation containing maturities, amortization schedules, covenants,
defaults, remedies, subordination provisions and other material terms in form
and substance satisfactory to Managing Agent and Requisite Lenders.
``SUBORDINATED NOTE INDENTURE'' means that certain Indenture dated as of
March __, 1994 between Borrower and Bank One Wisconsin Trust Company, N.A., as
trustee.
``SUBSIDIARY'' means, with respect to any Person, any corporation,
partnership, association, joint venture or other business entity of which more
than 50% of the total voting power of shares of stock or other ownership
interests entitled (without regard to the occurrence of any contingency) to vote
in the election of the Person or Persons (whether directors, managers, trustees
or other Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof; provided, however,
that for the purposes of the representations, covenants, defaults and other
provisions contained in this Agreement and the other Loan Documents, HSSI shall
not be considered a Subsidiary of Borrower or any of its Subsidiaries until
such time, if any, as HSSI's financial condition and results of operations
shall be required to be consolidated on the consolidated financial statements
of Borrower and its Subsidiaries in accordance with GAAP.
``SWING LINE LENDER'' means GE Capital, or any Person serving as a
successor Managing Agent hereunder, in its capacity as Swing Line Lender
hereunder.
``SWING LINE LOAN COMMITMENT'' means the commitment of Swing Line Lender to
make Swing Line Loans to Borrower pursuant to subsection 2.1A(ii).
``SWING LINE LOANS'' means the Loans made by Swing Line Lender to Borrower
pursuant to subsection 2.1A(ii).
``SWING LINE NOTE'' means (i) the promissory note of Borrower issued
pursuant to subsection 2.1D on the Closing Date and (ii) any promissory note
issued by Borrower to any successor Agent and Swing Line Lender pursuant to the
last sentence of subsection 9.6B, in each case substantially in the form of
Exhibit IV-A annexed hereto.
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``TAX'' or ``TAXES'' means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by any
federal, state or local governmental authority or any political subdivision or
taxing authority thereof, on whomsoever and wherever imposed, levied, collected,
withheld or assessed; provided that ``TAX ON THE OVERALL NET INCOME'' of a
Person shall be construed as a reference to a tax imposed by the jurisdiction in
which that Person's principal office (and/or, in the case of a Lender, its
lending office) is located or by any political subdivision or taxing authority
thereof or in which that Person is deemed to be doing business on all or part of
the net income, profits or gains of that Person (whether worldwide, or only
insofar as such income, profits or gains are considered to arise in or to relate
to a particular jurisdiction, or otherwise).
``TOTAL UTILIZATION OF COMMITMENTS'' means, as at any date of
determination, the sum of (i) the aggregate principal amount of all outstanding
Loans (other than Loans made for the purpose of repaying any Refunded Swing Line
Loans reimbursing the Issuing Lender for any amount drawn under any Letter of
Credit but not yet so applied) plus (ii) the Letter of Credit Usage plus (iii)
the aggregate principal amount of all outstanding Swing Line Loans.
``TRACO DOCUMENTS'' means collectively, (i) that certain Securities
Purchase Agreement dated as of September 20, 1992 between Borrower and Traco
International, N.V., a Netherlands Antilles corporation (``TRACO'') and its
successors and assigns, (ii) that certain Stockholder's Agreement dated as of
September 20, 1992 between Borrower and Traco as amended by that certain
Amendment to Stockholder's Agreement dated September 30, 1992 and (iii) that
certain Warrant to Purchase Common Stock issued by Borrower in favor of Traco
pursuant to and in the form attached to the Securities Purchase Agreement
referred to in clause (i) above.
``TRADEMARK ASSIGNMENT'' means that certain Trademark Security Agreement in
substantially the form of Exhibit XII-A annexed hereto entered into between
Collateral Agent, Borrower and the Operating Subsidiaries.
``UCC'' shall mean the Uniform Commercial Code of the jurisdiction with
respect to which such term is used, as in effect from time to time.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER
AGREEMENT.
Except as otherwise expressly provided in this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
delivered by Borrower to Lenders pursuant to clauses (i), (ii), (iii) and (xiii)
of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the
time of such preparation (and delivered together with the reconciliation
statements provided for in subsection 6.1(v)). Calculations in connection with
the definitions, covenants and other provisions of this Agreement shall utilize
accounting principles and policies in conformity with those used to prepare the
financial statements referred to in subsection 5.3. If any changes in
accounting principles from those used in the preparation of the financial
statements referred to in subsection 5.3
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are hereafter required or permitted by the rules, regulations, pronouncements
and opinions of the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants (or successors thereto or agencies
with similar functions) and are adopted by the Borrower with the agreement of
its independent certified public accountants and such changes result in a change
of the components of the calculation of any of the definitions, covenants or
other provisions referred to in the immediately preceding sentence, Borrower,
Managing Agent and Lenders agree to enter into negotiations in order to amend
such provisions so as to equitably reflect such changes with the desired result
that the criteria for evaluating financial condition of Borrower and its
Subsidiaries shall be the same after such changes as if such changes had not
been made; provided, however, that no change in GAAP that would affect the
components of the calculation of any of such definitions, covenants or other
provisions shall be given effect in such calculations until such provisions are
amended, in a manner satisfactory to Managing Agent and Requisite Lenders, to
reflect such change in accounting principles.
1.3 OTHER DEFINITIONAL PROVISIONS.
References to ``Sections'' and ``subsections'' shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. Any reference herein or in any other Loan Document to any agreement,
document or instrument, including, without limitation, this Agreement, the
Notes, the other Loan Documents and the Related Documents and any schedules or
exhibits thereto, unless expressly noted otherwise, shall be a reference to each
such agreement, document or instrument as the same may be amended, restated,
supplemented or otherwise modified prior to the date hereof and from time to
time hereafter to the extent permitted hereunder or under the applicable Loan
Document.
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; LOANS; NOTES.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrower herein set
forth, each Lender hereby severally agrees, subject to the limitations set forth
below with respect to the maximum amount of Loans permitted to be outstanding
from time to time, to make the Revolving Loans described in subsection 2.1A(i)
and Swing Line Lender hereby agrees to make the Swing Line Loans described in
subsection 2.1A(ii).
(i) Revolving Loans. Each Lender severally agrees to lend to
Borrower from time to time during the period from the Closing Date to but
excluding the Commitment Termination Date an aggregate amount not exceeding
its Pro Rata Share of the aggregate amount of the Revolving Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
original amount of each Lender's
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Revolving Loan Commitment is set forth opposite its name on Schedule 2.1
annexed hereto and the aggregate original amount of the Revolving Loan
Commitments is $175,000,000; provided that the Revolving Loan Commitments
of Lenders shall be adjusted to give effect to any assignments of the
Revolving Loan Commitments pursuant to subsection 10.1B; and provided,
further that the amount of the Revolving Loan Commitments shall be reduced
from time to time by the amount of any reductions thereto made pursuant to
subsections 2.4A(ii) and 2.4A(iii). Each Lender's Revolving Loan
Commitment shall expire on the Commitment Termination Date and all
Revolving Loans and all other amounts owed hereunder with respect to the
Revolving Loans and the Revolving Loan Commitments shall be paid in full no
later than that date; provided that each Lender's Revolving Loan Commitment
shall expire immediately and without further action on April 30, 1994 if
the initial Loans are not made on or before that date. Amounts borrowed
under this subsection 2.1A(i) may be repaid and reborrowed to but excluding
the Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Loans and the Revolving Loan Commitments shall be subject to the
following limitations in the amounts and during the periods indicated:
(a) in no event shall the Total Utilization of Commitments at
any time exceed the lesser of (i) Revolving Loan Commitments and (ii)
the Borrowing Base, in each case as then in effect; and
(b) for 30 consecutive days during the period commencing on
April 1 and ending on June 30 of each calendar year, the Total
Utilization of Commitments shall not exceed $135,000,000.
(ii) Swing Line Loans. Swing Line Lender hereby agrees, subject to
the limitations set forth below with respect to the maximum amount of Swing
Line Loans permitted to be outstanding from time to time, to make a portion
of the Revolving Loan Commitments available to Borrower from time to time
during the period from the Closing Date to but excluding the Commitment
Termination Date by making Swing Line Loans to Borrower in an aggregate
amount not exceeding the amount of the Swing Line Loan Commitment to be
used for the purposes identified in subsection 2.5A, notwithstanding the
fact that such Swing Line Loans, when aggregated with Swing Line Lender's
outstanding Revolving Loans and Swing Line Lender's Pro Rata Share of the
Letter of Credit Usage then in effect, may exceed Swing Line Lender's
Revolving Loan Commitment. The original amount of the Swing Line Loan
Commitment is $15,000,000; provided that the amount of the Swing Line Loan
Commitment is subject to reduction as provided in clause (c) of the next
paragraph. The Swing Line Loan Commitment shall expire on the Commitment
Termination Date and all Swing Line Loans and all other amounts owed
hereunder with respect to the Swing Line Loans shall be paid in full no
later than that date; provided that the Swing Line Loan Commitment shall
expire immediately and without further action on April 30, 1994 if the
initial Revolving Loans are not made
27
<PAGE>
on or before that date. Amounts borrowed under this subsection 2.1A(ii)
may be repaid and reborrowed to but excluding the Commitment Termination
Date. Without limiting any of the foregoing, Borrower and Lenders
acknowledge and agree that Swing Line Lender may, in its sole discretion
and without any obligation to do so, make Swing Line Loans (i) from time to
time in an amount sufficient to pay to Managing Agent and Lenders any
principal, interest, fees and expenses required hereunder which are not
paid when due; provided that Borrower shall be deemed to have submitted an
appropriate Notice of Borrowing therefor and the proceeds of such Swing
Line Loan shall not be advanced to Borrower but shall be paid directly to
Managing Agent for application in accordance with the terms hereof and (ii)
at any time upon the request of Borrower and in the sole discretion of
Swing Line Lender and in any amount determined by Swing Line Lender in its
sole discretion (regardless of whether an Event of Default shall have
occurred and be continuing or Borrower would not be entitled to borrow
hereunder upon submission of an appropriate Notice of Borrowing therefor);
provided further that anything to the contrary in this Agreement and the
other Loan Documents notwithstanding, Swing Line Loans made pursuant to the
preceding sentence shall constitute Swing Line Loans for all purposes
hereunder, including, without limitation, for purposes of complying with
limitations set by the Commitments and the Borrowing Base, the making of
Refunded Swing Line Loans and the purchase of participations therein by
Lenders in accordance with the terms hereof.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to
the following limitations in the amounts and during the periods indicated:
(a) in no event shall the Total Utilization of Commitments at
any time exceed the lesser of (i) the Revolving Loan Commitments and
(ii) the Borrowing Base, in each case as then in effect; and
(b) for 30 consecutive days during the period commencing on
April 1 and ending on June 30 of each calendar year, the Total
Utilization of the Commitments shall not exceed $135,000,000; and
(c) any reduction of the Revolving Loan Commitments made
pursuant to subsections 2.4A(ii) or 2.4A(iii) which reduces the
aggregate Revolving Loan Commitments to an amount less than the then
current amount of the Swing Line Loan Commitment shall result in an
automatic corresponding reduction of the Swing Line Loan Commitment to
the amount of the Revolving Loan Commitments, as so reduced, without
any further action on the part of Borrower, Managing Agent or Swing
Line Lender.
With respect to any Swing Line Loans which have not been voluntarily
prepaid by Borrower pursuant to subsection 2.4A(i), Swing Line Lender may,
at any time in its sole and absolute discretion, and, in any event, shall,
on the Business Day after such Swing Line Loan was made, deliver to
Managing Agent (with a copy to Borrower), no later than 12:00 Noon (New
York time) at least one Business Day in
28
<PAGE>
advance of the proposed Funding Date, a notice (which shall be deemed to be
a Notice of Borrowing given by Borrower) requesting Lenders to make
Revolving Loans that are Index Rate Loans on such Funding Date in an amount
equal to the amount of such Swing Line Loans (the ``REFUNDED SWING LINE
LOANS'') outstanding on the date such notice is given which Swing Line
Lender requests Lenders to prepay. Anything contained in this Agreement to
the contrary notwithstanding, (i) the proceeds of such Revolving Loans made
by Lenders other than Swing Line Lender shall be immediately delivered by
Managing Agent to Swing Line Lender (and not to Borrower) and applied to
repay a corresponding portion of the Refunded Swing Line Loans and (ii) on
the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share
of the Refunded Swing Line Loans shall be deemed to be paid with the
proceeds of a Revolving Loan made by Swing Line Lender, and such portion of
the Swing Line Loans deemed to be so paid shall no longer be outstanding as
Swing Line Loans and shall no longer be due under the Swing Line Note of
Swing Line Lender but shall instead constitute part of Swing Line Lender's
outstanding Revolving Loans and shall be due under the Revolving Note of
Swing Line Lender. If any portion of any such amount paid (or deemed to be
paid) to Swing Line Lender should be recovered by or on behalf of Borrower
from Swing Line Lender in bankruptcy, by assignment for the benefit of
creditors or otherwise, the loss of the amount so recovered shall be
ratably shared among all Lenders in the manner contemplated by subsection
10.5.
If, as a result of any bankruptcy or similar proceeding with respect
to Borrower, Revolving Loans are not made pursuant to this subsection
2.1A(ii) in an amount sufficient to repay any amounts owed to Swing Line
Lender in respect of any outstanding Swing Line Loans, each Lender shall be
deemed to, and hereby agrees to, have purchased a participation in such
outstanding Swing Line Loans in an amount equal to its Pro Rata Share of
the unpaid amount together with accrued interest thereon. Upon one
Business Day's notice from Swing Line Lender, each Lender shall deliver to
Swing Line Lender an amount equal to its respective participation in same
day funds at the office of Swing Line Lender located at the Payment Office.
In order to evidence such participation each Lender agrees to enter into a
participation agreement at the request of Swing Line Lender in form and
substance reasonably satisfactory to all parties. In the event any Lender
fails to make available to Swing Line Lender the amount of such Lender's
participation as provided in this paragraph, Swing Line Lender shall be
entitled to recover such amount on demand from such Lender together with
interest thereon at the Index Rate.
Anything contained herein to the contrary notwithstanding, (i) each
Lender's obligation to make Revolving Loans for the purpose of repaying any
Refunded Swing Line Loans pursuant to the second preceding paragraph and
each Lender's obligation to purchase a participation in any unpaid Swing
Line Loans pursuant to the immediately preceding paragraph shall be
absolute and unconditional and shall not be affected by any circumstance,
including without limitation (a) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against
29
<PAGE>
Swing Line Lender, Borrower or any other Person for any reason whatsoever;
(b) the occurrence or continuation of an Event of Default or a Potential
Event of Default; (c) any adverse change in the business, operations,
properties, assets, financial condition or prospects of Borrower or any of
its Subsidiaries; (d) any breach of this Agreement or any other Loan
Document by any party thereto; or (e) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing; provided
that such obligations of each Lender are subject to the condition that (x)
Swing Line Lender believed in good faith that all conditions under Section
4 to the making of the applicable Refunded Swing Line Loans or other unpaid
Swing Line Loans, as the case may be, were satisfied at the time such
Refunded Swing Line Loans or unpaid Swing Line Loans were made, (y) such
Lender had actual knowledge, by receipt of any notices required to be
delivered to Lenders pursuant to subsection 6.1(ix) or otherwise, that any
such condition had not been satisfied and such Lender failed to notify
Swing Line Lender and Agent in writing that it had no obligation to make
Revolving Loans until such condition was satisfied (any such notice to be
effective as of the date of receipt thereof by Swing Line Lender and
Managing Agent), or (z) the satisfaction of any such condition not
satisfied had been waived by Requisite Lenders prior to or at the time such
Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and
(ii) Swing Line Lender shall not be obligated to make any Swing Line Loans
if it has elected not to do so after the occurrence and during the
continuation of a Potential Event of Default or Event of Default.
B. BORROWING MECHANICS. Loans made on any Funding Date (other than
Revolving Loans made pursuant to a request by Swing Line Lender pursuant to
subsection 2.1A(ii) for the purpose of repaying any Refunded Swing Line Loans
or Loans made pursuant to subsection 3.3B for the purpose of reimbursing Issuing
Lender for the amount of a drawing under a Letter of Credit issued by it) shall
be in an aggregate minimum amount of $3,000,000 and integral multiples of
$1,000,000 in excess of that amount; provided that (a) Loans made on any Funding
Date as LIBOR Rate Loans with a particular Interest Period shall be in an
aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount and (b) Swing Line Loans made on any Funding Date (other
than Swing Line Loans made in accordance with the final sentence of the first
paragraph of subsection 2.1A(ii)) shall be in an aggregate minimum amount of
$500,000 and integral multiples of $1,000 in excess of that amount. Whenever
Borrower desires that Swing Line Lender make a Swing Line Loan, it shall deliver
to Managing Agent a Notice of Borrowing no later than 12:00 Noon (New York time)
on the proposed Funding Date. Whenever Borrower desires that Lenders make
Revolving Loans it shall deliver a Notice of Borrowing to Managing Agent no
later than 12:00 Noon (New York time) at least three Business Days in advance of
the proposed Funding Date (in the case of a LIBOR Rate Loan), or at least one
Business Day in advance of the proposed Funding Date (in the case of an Index
Rate Loan in excess of $10,000,000 in the aggregate) or no later than 10:00 A.M.
(New York time) on the proposed Funding Date (in the case of an Index Rate Loan
of $10,000,000 or less in the aggregate). The Notice of Borrowing shall specify
(i) the proposed Funding Date (which shall be a Business Day), (ii) the amount
of Loans requested, (iii) in the case of Swing Line Loans and Revolving Loans
made on the Closing Date, that such Loans shall be Index Rate Loans, (iv) in the
case of Revolving Loans not made on the Closing Date, whether such Loans shall
be Index Rate Loans or LIBOR Rate Loans, and (v) in the case
30
<PAGE>
of any Loans requested to be made as LIBOR Rate Loans, the initial Interest
Period requested therefor. Loans may be continued as or converted into Index
Rate Loans and LIBOR Rate Loans in the manner provided in subsection 2.2D. In
lieu of delivering the above-described Notice of Borrowing, Borrower may give
Managing Agent telephonic notice by the required time of any proposed borrowing
under this subsection 2.1B; provided that such notice shall be promptly
confirmed in writing by delivery of a Notice of Borrowing to Managing Agent.
Neither Managing Agent nor any Lender shall incur any liability to Borrower
in acting upon any telephonic notice referred to above that Managing Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized to borrow on behalf of Borrower or for otherwise acting in
good faith under this subsection 2.1B, and upon funding of Loans by Lenders in
accordance with this Agreement pursuant to any such telephonic notice Borrower
shall have effected Loans hereunder.
Borrower shall notify Managing Agent prior to the funding of any Loans in
the event that any of the matters to which Borrower is required to certify in
the applicable Notice of Borrowing is no longer true and correct in any material
respect as of the applicable Funding Date, and the acceptance by Borrower of the
proceeds of any Loans shall constitute a re-certification by Borrower, as of the
applicable Funding Date, as to the matters to which Borrower is required to
certify in the applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Borrowing for a LIBOR Rate Loan (or telephonic notice in lieu thereof) shall
be irrevocable on and after the related Interest Rate Determination Date, and
Borrower shall be bound to make a borrowing in accordance therewith.
C. DISBURSEMENT OF FUNDS. All Loans under this Agreement shall be made
by Lenders simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in that other Lender's obligation to make a Revolving Loan
requested hereunder nor shall the Revolving Loan Commitment of any Lender be
increased or decreased as a result of a default by any other Lender in that
other Lender's obligation to make a Revolving Loan requested hereunder.
Promptly after receipt by Managing Agent of a Notice of Borrowing pursuant to
subsection 2.1B (or telephonic notice in lieu thereof), Managing Agent shall
notify each Lender or Swing Line Lender, as the case may be, of the proposed
borrowing. Each Lender shall make the amount of its Revolving Loan available to
Managing Agent, and Swing Line Lender shall make the amount of its Swing Line
Loan available to Managing Agent not later than 12:00 Noon (New York time) on
the applicable Funding Date, in each case in same day funds, at the Payment
Office. Except as provided in subsection 2.1(A)(ii) or subsection 3.3B with
respect to Revolving Loans used to repay Refunded Swing Line Loans or to
reimburse Issuing Lender for the amount of a drawing under a Letter of Credit
issued by it, upon satisfaction or waiver of the applicable conditions precedent
specified in subsections 4.1 (in the case of Loans made on the Closing Date) and
4.2 (in the case of all Loans), Managing Agent shall make the proceeds of such
Loans available to Borrower on the applicable Funding Date by causing an amount
of same day
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<PAGE>
funds equal to the proceeds of all such Loans received by Managing Agent from
Lenders or Swing Line Lenders, as the case may be, to be credited to such
account or accounts of Borrower as Borrower shall designate from time to time
pursuant to its Notice of Borrowing.
Unless Managing Agent shall have been notified by any Lender prior to the
Funding Date for any Loans that such Lender does not intend to make available to
Managing Agent the amount of such Lender's Loan requested on such Funding Date,
Managing Agent may assume that such Lender has made such amount available to
Managing Agent on such Funding Date and Managing Agent may, in its sole
discretion, but shall not be obligated to, make available to Borrower a
corresponding amount on such Funding Date. If such corresponding amount is not
in fact made available to Managing Agent by such Lender, Managing Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from such Funding Date until the
date such amount is paid to Managing Agent, at the Index Rate. If such Lender
does not pay such corresponding amount forthwith upon Managing Agent's demand
therefor, Managing Agent shall promptly notify Borrower and Borrower shall
immediately pay such corresponding amount to Managing Agent together with
interest thereon, for each day from such Funding Date until the date such amount
is paid to Managing Agent, at the rate payable under this Agreement for Index
Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any
Lender from its obligation to fulfill its Commitment hereunder or to prejudice
any rights that Borrower may have against any Lender as a result of any default
by such Lender hereunder.
D. NOTES. Borrower shall execute and deliver on the Closing Date (i) to
each Lender (or to Managing Agent for that Lender) a Revolving Note
substantially in the form of Exhibit IV annexed hereto to evidence that Lender's
Revolving Loans, in the principal amount of that Lender's Revolving Loan
Commitment and with other appropriate insertions, and (ii) to Swing Line Lender
(or to Managing Agent for Swing Line Lender) a Swing Line Note substantially in
the form of Exhibit IV-A annexed hereto to evidence Swing Line Lender's Swing
Line Loans, in the principal amount of the Swing Line Loan Commitment and with
other appropriate insertions.
2.2 INTEREST ON THE LOANS.
---------------------
A. RATE OF INTEREST. Subject to the provisions of subsections 2.2E and
2.6, each Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Index Rate or the Adjusted LIBOR Rate, as the
case may be. Subject to the provisions of subsection 2.7, each Swing Line Loan
shall bear interest on the unpaid principal amount thereof from the date made
through maturity (whether by acceleration or otherwise) at a rate determined by
reference to the Index Rate. The applicable basis for determining the rate of
interest with respect to any Revolving Loan shall be selected by Borrower
initially at the time a Notice of Borrowing is given with respect to such
Revolving Loan pursuant to subsection 2.1B. The basis for determining the
interest rate with respect to any Loan may be changed from time to time pursuant
to subsection 2.2D. If on any day
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<PAGE>
a Loan is outstanding with respect to which notice has not been delivered to
Managing Agent in accordance with the terms of this Agreement specifying the
applicable basis for determining the rate of interest, then for that day that
Loan shall bear interest determined by reference to the Index Rate.
Subject to the provisions of subsections 2.2E and 2.6, the Loans shall bear
interest through maturity as follows:
(i) if an Index Rate Loan (including a Swing Line Loan), then at the
sum of the Index Rate plus the Applicable Margin per annum; or
(ii) if a LIBOR Rate Loan, then at the sum of the Adjusted LIBOR Rate
plus the Applicable Margin per annum.
The "APPLICABLE MARGIN" for each Index Rate Loan and LIBOR Rate Loan
shall be the percentage set forth below for that type of Loan based upon both
(i) the Consolidated Debt Service Coverage Ratio and (ii) the Consolidated
Leverage Ratio, each as calculated in accordance with subsection 7.6 for the
applicable period (it being understood that in the event Borrower is in
compliance with one ratio and not the other, the Applicable Margin shall be
determined by reference to the ratio resulting in the highest Applicable
Margin):
<TABLE>
<CAPTION>
APPLICABLE MARGIN
---------------------
CONSOLIDATED
DEBT SERVICE CONSOLIDATED INDEX LIBOR
COVERAGE RATIO LEVERAGE RATIO RATE LOAN RATE LOAN
-------------- -------------- --------- ---------
<S> <C> <C> <C>
Less than 2.00:1.00 Greater than
4.50:1.00 1.50% 2.50%
- -------------------------------------------------------------------
Greater than or Less than or
equal to 2.00:1.00 equal to 4.50:1.00 1.25% 2.25%
- -------------------------------------------------------------------
Greater than or Less than or
equal to 2.25:1.00 equal to 4.00:1.00 1.00% 2.00%
- -------------------------------------------------------------------
Greater than or Less than or
equal to 2.50:1.00 equal to 3.50:1.00 0.75% 1.75%
- ------------------------------------------------------------------
Greater than or Less than or
equal to 3.00:1.00 equal to 3.00:1.00 0.50% 1.50%
==================================================================
</TABLE>
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<PAGE>
The Applicable Margin shall be adjusted, to the extent required, on the
date of delivery of each Compliance Certificate delivered pursuant to subsection
6.1(iv) such adjustment to remain in effect until the next date of delivery of a
Compliance Certificate (and related financial information required at such time
pursuant to subsection 6.1) pursuant to subsection 6.1(iv); provided that with
respect to the period from the Closing Date through the first anniversary of the
Closing Date, the Applicable Margin shall be 1.50% for Index Rate Loans and
2.50% for LIBOR Rate Loans; provided further that without limiting any Event of
Default or Potential Event of Default that may result therefrom, in the event
Borrower does not deliver any Compliance Certificate required pursuant to
subsection 6.1(iv) by the date specified therefor, then the Applicable Margin
shall automatically be adjusted to the highest rate set forth above during the
period commencing on the date such Compliance Certificate was required to be
delivered and expiring on the actual date of delivery thereof.
B. INTEREST PERIODS. In connection with each LIBOR Rate Loan, Borrower
may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
``INTEREST PERIOD'') to be applicable to such LIBOR Rate Loan, which Interest
Period shall be, at Borrower's option, a one, two, three or six month period;
provided that:
(i) the initial Interest Period for any LIBOR Rate Loan shall
commence on the Funding Date in respect of such Loan, in the case of a Loan
initially made as a LIBOR Rate Loan, or on the date specified in the
applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a LIBOR Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a LIBOR Rate Loan continued as such pursuant to a Notice of
Conversion/Continuation, each successive Interest Period shall commence on
the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that 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;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (v) of this subsection 2.2B, end on the last Business Day
of a calendar month;
(v) no Interest Period with respect to any portion of the Loans shall
extend beyond the Commitment Termination Date;
(vi) there shall be no more than 8 Interest Periods relating to LIBOR
Rate Loans outstanding at any time; and
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<PAGE>
(vii) in the event Borrower fails to specify an Interest Period for
any LIBOR Rate Loan in the applicable Notice of Borrowing or Notice of
Conversion/Continuation, Borrower shall be deemed to have selected an
Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, Borrower shall have the option (i) to convert at any time all or any part
of its outstanding Loans equal to $5,000,000 and integral multiples of
$1,000,000 in excess of that amount from Loans bearing interest at a rate
determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis or (ii) upon the expiration of
any Interest Period applicable to a LIBOR Rate Loan, to continue all or any
portion of such Loan equal to $5,000,000 and integral multiples of $1,000,000 in
excess of that amount as a LIBOR Rate Loan; provided, however, that a LIBOR Rate
Loan may only be converted on the expiration date of an Interest Period
applicable thereto; and provided, further that no Loan may be made as or
converted into a Index Rate Loan during the period from December 24 of any year
to and including January 7 of the immediately succeeding year for the purpose of
investing in securities bearing interest at a rate determined by reference to
any other basis for the purpose of arbitrage or speculation.
Borrower shall deliver a Notice of Conversion/Continuation to Managing
Agent no later than 3:00 P.M. (New York time) at least one Business Day in
advance of the proposed conversion date (in the case of a conversion to a Index
Rate Loan), and at least three Business Days in advance of the proposed
conversion/continuation date (in the case of a conversion to, or a continuation
of, a LIBOR Rate Loan). A Notice of Conversion/Continuation shall specify (i)
the proposed conversion/continuation date (which shall be a Business Day), (ii)
the amount and type of the Loan to be converted/continued, (iii) the nature of
the proposed conversion/continuation, (iv) in the case of a conversion to, or a
continuation of, a LIBOR Rate Loan, the requested Interest Period, and (v) in
the case of a conversion to, or a continuation of a LIBOR Rate Loan, that no
Potential Event of Default or Event of Default has occurred and is continuing.
In lieu of delivering the above-described Notice of Conversion/Continuation,
Borrower may give Managing Agent telephonic notice by the required time of any
proposed conversion/continuation under this subsection 2.2D; provided that such
notice shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Managing Agent on or before the proposed
conversion/continuation date.
Neither Managing Agent nor any Lender shall incur any liability to Borrower
in acting upon any telephonic notice referred to above that Managing Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized to act on behalf of Borrower or for otherwise acting in good
faith under this subsection 2.2D, and upon conversion or continuation of the
applicable basis for determining the interest rate with respect to any Loans in
accordance with this Agreement pursuant to any such
35
<PAGE>
telephonic notice Borrower shall have effected a conversion or continuation, as
the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Conversion/Continuation for conversion to, or continuation of, a LIBOR Rate
Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after
the related Interest Rate Determination Date, and Borrower shall be bound to
effect a conversion or continuation in accordance therewith.
E. DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default and upon notice to Borrower from Collateral Agent or Requisite
Lenders, the outstanding principal amount of all Loans and, to the extent
permitted by applicable law, any interest payments thereon not paid when due and
any fees and other amounts then due and payable hereunder, shall thereafter bear
interest (including post-petition interest in any proceeding under the
Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a
rate that is 2% per annum in excess of the interest rate otherwise payable under
this Agreement with respect to the applicable Loans (or, in the case of any such
fees and other amounts, at a rate which is 2% per annum in excess of the
interest rate otherwise payable under this Agreement for Index Rate Loans);
provided that, in the case of LIBOR Rate Loans, upon the expiration of the
Interest Period in effect at the time any such increase in interest rate is
effective such LIBOR Rate Loans, as the case may be, shall thereupon become
Index Rate Loans and shall thereafter bear interest payable upon demand at a
rate which is 2% per annum in excess of the interest rate otherwise payable
under this Agreement for Index Rate Loans. Payment or acceptance of the
increased rates of interest provided for in this subsection 2.2E is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of
Managing Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed on
the basis of a 360-day year, in each case for the actual number of days elapsed
in the period during which it accrues. In computing interest on any Loan, the
date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Index Rate Loan being converted
from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such
Index Rate Loan, shall be included, and the date of payment of such Loan or the
expiration date of an Interest Period applicable to such Loan or, with respect
to a Index Rate Loan being converted to a LIBOR Rate Loan, the date of
conversion of such Index Rate Loan to such LIBOR Rate Loan shall be excluded;
provided that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan.
2.3 FEES.
A. COMMITMENT FEES. Borrower agrees to pay to Managing Agent, for
distribution to each Lender in proportion to that Lender's Pro Rata Share,
commitment fees for the period from and including the Closing Date to and
excluding the Commitment Termination Date equal to the average of the daily
excess of the Revolving Loan Commitments
36
<PAGE>
over the sum of (i) the aggregate principal amount of Revolving Loans
outstanding (but not any Swing Line Loans outstanding) plus (ii) the Letter of
Credit Usage multiplied by 1/2 of 1% per annum, such commitment fees to be
calculated on the basis of a 360-day year and the actual number of days elapsed
and to be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing on the first such date to occur after the
Closing Date, and on the Commitment Termination Date.
B. ANNUAL ADMINISTRATIVE FEE. Borrower agrees to pay to Managing Agent
an annual administrative fee in the amount of $75,000, payable quarterly in
advance on the Closing Date and on each three month anniversary thereof.
C. COLLATERAL AGENT FEE. Borrower agrees to pay to Collateral Agent an
annual collateral agent's fee equal to $100,000 per year, payable quarterly in
advance on the Closing Date and each three month anniversary thereof.
D. OTHER FEES. Borrower agrees to pay to each Agent such other fees in
the amounts and at the times separately agreed upon between Borrower and such
Agent.
2.4 PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; GENERAL PROVISIONS REGARDING
PAYMENTS.
A. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS.
(i) Voluntary Prepayments. Borrower may, upon written or telephonic
notice to Agent on or prior to 12:00 Noon (New York time) on the date of
prepayment, which notice, if telephonic, shall be promptly confirmed in
writing, at any time and from time to time prepay any Swing Line Loan on
any Business Day in whole or in part in an aggregate minimum amount of
$500,000 and integral multiples of $1,000 in excess of that amount.
Borrower may, upon not less than one Business Day's prior written or
telephonic notice, in the case of Index Rate Loans, and three Business
Days' prior written or telephonic notice, in the case of LIBOR Rate Loans,
in each case confirmed in writing to Managing Agent (which notice Managing
Agent will promptly transmit by telegram, telex or telephone to each
Lender), at any time and from time to time prepay any Loans on any Business
Day in whole or in part in an aggregate minimum amount of $3,000,000 and
integral multiples of $1,000,000 in excess of that amount; provided,
however, that a LIBOR Rate Loan may only be prepaid in whole or in part in
an aggregate minimum amount of $5,000,000 and $1,000,000 in excess of that
amount and may only be prepaid on the expiration of the Interest Period
applicable thereto. Notice of prepayment having been given as aforesaid,
the principal amount of the Loans specified in such notice shall become due
and payable on the prepayment date specified therein. Any such voluntary
prepayment shall be applied as specified in subsection 2.4A(iv).
(ii) Voluntary Reductions of Commitments. Borrower may, upon not
less than three Business Days' prior written or telephonic notice confirmed
in writing to Managing Agent (which notice Managing Agent will promptly
transmit by telegram,
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telex or telephone to each Lender), at any time and from time to time
terminate in whole or permanently reduce in part, without premium or
penalty, the Commitments in an amount up to the amount by which the
Commitments would otherwise exceed the Total Utilization of Commitments at
the time of such proposed termination or reduction; provided that any such
partial reduction of the Commitments shall be in an aggregate minimum
amount of $5,000,000 and integral multiples of $1,000,000 in excess of that
amount. Borrower's notice to Managing Agent shall designate the date
(which shall be a Business Day) of such termination or reduction and the
amount of any partial reduction, and such termination or reduction of the
Commitments shall be effective on the date specified in Borrower's notice
and shall reduce the Commitment of each Lender proportionately to its Pro
Rata Share.
(iii) Mandatory Prepayments and Mandatory Reductions of Commitments.
(a) Prepayments and Reductions from Asset Sales. No later than
the second Business Day following the date of receipt by Borrower or
any of its Subsidiaries of Cash Proceeds of any Asset Sale, Borrower
shall prepay the Loans, and the Revolving Loan Commitments shall be
permanently reduced to the extent required by the proviso set forth
below, in an amount equal to the Net Cash Proceeds of such Asset Sale.
Concurrently with any prepayment of the Loans and/or reduction of the
Revolving Loan Commitments pursuant to this subsection 2.4A(iii)(a),
Borrower shall deliver to Managing Agent an Officer's Certificate
demonstrating the derivation of the Net Cash Proceeds of the
correlative Asset Sale from the gross sales price thereof. In the
event that Borrower shall, at any time after receipt of Cash Proceeds
of any Asset Sale requiring a prepayment of Loans and/or a reduction
of the Revolving Loan Commitments pursuant to this subsection
2.4A(iii)(a), determine that the prepayments and/or reductions of the
Loans and/or the Revolving Loan Commitments previously made in respect
of such Asset Sale were in an aggregate amount less than that required
by the terms of this subsection 2.4A(iii)(a), Borrower shall promptly
make an additional prepayment of the Loans, and the Revolving Loan
Commitments shall be permanently reduced, in the manner described
above in an amount equal to the amount of any such deficit, and
Borrower shall concurrently therewith deliver to Managing Agent an
Officer's Certificate demonstrating the derivation of the additional
Net Cash Proceeds resulting in such deficit. Any mandatory
prepayments or reductions of the Loans and/or the Revolving Loan
Commitments pursuant to this subsection 2.4A(iii)(a) shall be applied
as specified in subsection 2.4A(iv); provided however that the
Revolving Loan Commitments shall only be reduced in an amount equal to
the Net Cash Proceeds of such Asset Sale only to the extent that such
amount (or portion thereof) would otherwise be required to be applied
to payment, redemption or repurchase in respect of the Senior
Subordinated Notes.
(b) Prepayments Due to Reductions or Restrictions of Commit-
ments. Borrower shall from time to time prepay the Loans to the extent
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necessary (1) so that the Total Utilization of Commitments shall not
at any time exceed the lesser of (i) the Revolving Loans Commitments
and (ii) the Borrowing Base, in each case then in effect and (2) to
give effect to the limitations set forth in clause (b) of the second
paragraph of each of subsections 2.1A(i) and (ii). Any such mandatory
prepayments shall be applied as specified in subsection 2.4A(iv).
(iv) Application of Prepayments. Any prepayment of the Loans shall
be applied first to repay any Swing Line Loans to the full extent thereof
and second to Revolving Loans which are Index Rate Loans to the full extent
thereof before application to LIBOR Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by Borrower
pursuant to subsection 2.6D.
B. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by Borrower of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in same day funds and without defense, setoff or
counterclaim, free of any restriction or condition, and delivered to
Managing Agent not later than [3:00 P.M. (New York time)] on the date due
at its office located at the Payment Office for the account of Lenders;
funds received by Managing Agent after that time on such due date shall be
deemed to have been paid by Borrower on the next succeeding Business Day.
(ii) Application of Payments to Principal and Interest. All payments
in respect of the principal amount of any Loan shall include payment of
accrued interest on the principal amount being repaid or prepaid, and all
such payments shall be applied to the payment of interest before
application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
payments shall be apportioned among all outstanding Loans to which such
payments relate, in each case proportionately to Lenders' respective Pro
Rata Shares. Managing Agent shall promptly distribute to each Lender, at
its primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request, its Pro
Rata Share of all such payments received by Managing Agent and the
commitment fees of such Lender when received by Managing Agent pursuant to
subsection 2.3. Notwithstanding the foregoing provisions of this
subsection 2.4B(iii), if, pursuant to the provisions of subsection 2.6C,
any Notice of Conversion/Continuation is withdrawn as to any Affected
Lender or if any Affected Lender makes Index Rate Loans in lieu of its Pro
Rata Share of any LIBOR Rate Loans, Managing Agent shall give effect
thereto in apportioning payments received thereafter.
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(iv) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before disposing of
the Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; provided
that the failure to make (or any error in the making of) a notation of any
Loan made under such Note shall not limit or otherwise affect the
obligations of Borrower hereunder or under such Note with respect to any
Loan or any payments of principal or interest on such Note.
2.5 USE OF PROCEEDS.
A. LOANS. The proceeds of the initial Revolving Loans in an amount not
to exceed $_________, together with other funds available to Borrower, shall be
applied by Borrower to repay all obligations and terminate all commitments in
respect of the Existing Credit Facilities. Any excess proceeds of the initial
Revolving Loans and the proceeds of any subsequent Revolving Loans or Swing Line
Loans shall be applied by Borrower for working capital and general corporate
purposes, which may include the making of inter-company loans to any Operating
Subsidiaries, in accordance with subsection 7.1(iv), for their own working
capital and general corporate purposes.
B. MARGIN REGULATIONS. No portion of the proceeds of any borrowing under
this Agreement shall be used by Borrower or any of its Subsidiaries in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate the Exchange Act, in each case as in effect on the date or dates of
such borrowing and such use of proceeds.
2.6 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to LIBOR Rate Loans as to the
matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 10:00 A.M. (New York time) on each Interest Rate Determination Date,
Managing Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the LIBOR Rate Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to Borrower and each
Lender.
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B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Managing Agent shall have determined (which determination shall be final and
conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any LIBOR Rate Loans, that by reason of
circumstances affecting the interbank LIBOR market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted LIBOR Rate, Managing Agent
shall on such date give notice (by telecopy or by telephone confirmed in
writing) to Borrower and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted, to LIBOR Rate Loans until such time as
Managing Agent notifies Borrower and Lenders that the circumstances giving rise
to such notice no longer exist and (ii) any Notice of Borrowing or Notice of
Conversion/Continuation given by Borrower with respect to the Loans in respect
of which such determination was made shall be deemed to be rescinded by
Borrower.
C. ILLEGALITY OR IMPRACTICABILITY OF LIBOR RATE LOANS. In the event that
on any date any Lender shall have determined (which determination, absent
manifest error, shall be final and conclusive and binding upon all parties
hereto but shall be made only after consultation with Borrower and Managing
Agent) that the making, maintaining or continuation of its LIBOR Rate Loans (i)
has become unlawful as a result of compliance by such Lender in good faith with
any law, treaty, governmental rule, regulation, guideline or order (or would
conflict with any such treaty, governmental rule, regulation, guideline or order
not having the force of law even though the failure to comply therewith would
not be unlawful) or (ii) has become impracticable, or would cause such Lender
material hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank LIBOR market, or
the position of such Lender in that market, then, and in any such event, such
Lender shall be an ``AFFECTED LENDER'' and it shall on that day give notice (by
telecopy or by telephone confirmed in writing) to Borrower and Managing Agent of
such determination (which notice Managing Agent shall promptly transmit to each
other Lender). Thereafter (a) the obligation of the Affected Lender to make
Loans as, or to convert Loans to, LIBOR Rate Loans shall be suspended until such
notice shall be withdrawn by the Affected Lender, (b) to the extent such
determination by the Affected Lender relates to a LIBOR Rate Loan then being
requested by Borrower pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, the Affected Lender shall make such Loan as (or convert
such Loan to, as the case may be) an Index Rate Loan, (c) the Affected Lender's
obligation to maintain its outstanding LIBOR Rate Loans (the ``AFFECTED
LOANS''), shall be terminated at the earlier to occur of the expiration of the
Interest Period then in effect with respect to the Affected Loans or when
required by law, and (d) the Affected Loans shall automatically convert into
Index Rate Loans on the date of such termination. Notwithstanding the
foregoing, to the extent a determination by an Affected Lender as described
above relates to a LIBOR Rate Loan then being requested by Borrower pursuant to
a Notice of Borrowing or a Notice of Conversion/Continuation, Borrower shall
have the option, subject to the provisions of subsection 2.6D, to rescind such
Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by
giving notice (by telecopy or by telephone confirmed in writing) to Managing
Agent of such rescission on the date on which the Affected Lender gives notice
of its determination as described above (which notice of rescission Managing
Agent shall
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promptly transmit to each other Lender). Except as provided in the immediately
preceding sentence, nothing in this subsection 2.6C shall affect the obligation
of any Lender other than an Affected Lender to make or maintain Loans as, or to
convert Loans to LIBOR Rate Loans in accordance with the terms of this
Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Borrower shall compensate each Lender, upon written request by that Lender
(which request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation, any
interest paid by that Lender to lenders of funds borrowed by it to make or carry
its LIBOR Rate Loans (after accounting for any income received by the Lender in
connection with its redeployment of such funds) and any loss, expense or
liability sustained by that Lender in connection with the liquidation or re-
employment of such funds) which that Lender may sustain: (i) if for any reason
(other than a default by that Lender) a borrowing of any LIBOR Rate Loan does
not occur on a date specified therefor in a Notice of Borrowing or a telephonic
request for borrowing, or a conversion to or continuation of any LIBOR Rate Loan
does not occur on a date specified therefor in a Notice of Conversion/
Continuation or a telephonic request for conversion or continuation, (ii) if any
prepayment or conversion of any of its LIBOR Rate Loans occurs on a date that is
not the last day of an Interest Period applicable to that Loan, (iii) if any
prepayment of any of its LIBOR Rate Loans is not made on any date specified in a
notice of prepayment given by Borrower, or (iv) as a consequence of any other
default by Borrower in the repayment of its LIBOR Rate Loans when required by
the terms of this Agreement.
E. BOOKING OF LIBOR RATE LOANS. Any Lender may make, carry or transfer
LIBOR Rate Loans at, to, or for the account of any of its branch offices or the
office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF LIBOR RATE LOANS. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant LIBOR Rate Loans through the purchase of a LIBOR deposit bearing
interest at the rate obtained pursuant to clause (i) of the definition of
Adjusted LIBOR Rate in an amount equal to the amount of such LIBOR Rate Loan and
having a maturity comparable to the relevant Interest Period and through the
transfer of such LIBOR deposit from an offshore office of that Lender to a
domestic office of that Lender in the United States of America; provided,
however, that each Lender may fund each of its LIBOR Rate Loans in any manner it
sees fit and the foregoing assumptions shall be utilized only for the purposes
of calculating amounts payable under this subsection 2.6 and under subsection
2.7A.
G. LIBOR RATE LOANS AFTER DEFAULT. After the occurrence of and during
the continuation of a Potential Event of Default or an Event of Default, (i)
Borrower may not elect to have a Loan be made or continued (beyond the
applicable Interest Period therefor) as, or converted to, a LIBOR Rate Loan
after the expiration of any Interest Period then in effect for that Loan and
(ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or
Notice of Conversion/Continuation given by Borrower with respect to a requested
borrowing or conversion/continuation that has not yet occurred shall be deemed
to be rescinded by Borrower.
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2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
----------------------------------------
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions
of subsection 2.7B, in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any change after the date hereof in any law,
treaty or governmental rule, regulation or order, or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or any determination of
a court or governmental authority, in each case that becomes effective after the
date hereof, or compliance by such Lender with any guideline, request or
directive issued or made after the date hereof by any central bank or other
governmental or quasi-governmental authority (whether or not having the force of
law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
for the account of, or advances or loans by, or other credit extended by,
or any other acquisition of funds by, the applicable lending office of such
Lender (other than any such reserve or other requirements with respect to
LIBOR Rate Loans that are reflected in the definition of Adjusted LIBOR
Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the interbank LIBOR market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Borrower shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to Borrower (with a copy to Managing
Agent) a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Lender under this subsection
2.7A, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
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B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. Provided that all documentation,
if any, then required to be delivered by any Lender or Agent pursuant to
subsection 2.7B(iii) has been delivered, all sums payable by Borrower
under this Agreement and the other Loan Documents shall be paid free and
clear of and (except to the extent required by law) without any deduction
or withholding on account of any Tax (other than a Tax on the overall net
income of any Lender) imposed, levied, collected, withheld or assessed by
or within the United States of America or any political subdivision in or
of the United States of America or any other jurisdiction from or to which
a payment is made by or on behalf of Borrower or by any federation or
organization of which the United States of America or any such jurisdiction
is a member at the time of payment.
(ii) Grossing-up of Payments. If Borrower or any other Person is
required by law to make any deduction or withholding on account of any such
Tax from any sum paid or payable by Borrower to Managing Agent or any
Lender under any of the Loan Documents:
(a) Borrower shall notify Managing Agent of any such requirement
or any change in any such requirement as soon as Borrower becomes
aware of it;
(b) Borrower shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to
pay is imposed on Borrower) for its own account or (if that liability
is imposed on Managing Agent or such Lender, as the case may be) on
behalf of and in the name of Managing Agent or such Lender;
(c) the sum payable by Borrower in respect of which the relevant
deduction, withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of that
deduction, withholding or payment, Managing Agent or such Lender, as
the case may be, receives on the due date a net sum equal to what it
would have received had no such deduction, withholding or payment been
required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required by
clause (b) above to pay, Borrower shall deliver to Managing Agent
evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to any
Lender under clause (c) above except to the extent that any change after
the date hereof (in the case of each Lender listed on the signature pages
hereof) or after the date of the
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Assignment and Acceptance pursuant to which such Lender became a Lender (in
the case of each other Lender) in any such requirement for a deduction,
withholding or payment as is mentioned therein shall result in an increase
in the rate of such deduction, withholding or payment from that in effect
at the date of this Agreement or at the date of such Assignment and
Acceptance, as the case may be, in respect of payments to such Lender.
(iii) U.S. Tax Certificates. Each Lender that is organized under the
laws of any jurisdiction other than the United States or any state or other
political subdivision thereof shall deliver to Managing Agent for
transmission to Borrower, on or prior to the Closing Date (in the case of
each Lender listed on the signature pages hereof) or on the date of the
Assignment and Acceptance pursuant to which it becomes a Lender (in the
case of each other Lender), and at such other times as may be necessary in
the determination of Borrower or Managing Agent (each in the reasonable
exercise of its discretion), such certificates, documents or other
evidence, properly completed and duly executed by such Lender (including,
without limitation, Internal Revenue Service Form 1001 or Form 4224 or any
other certificate or statement of exemption required by Treasury
Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor
thereto) to establish that such Lender is not subject to deduction or
withholding of United States federal income tax under Section 1441 or 1442
of the Internal Revenue Code or otherwise (or under any comparable
provisions of any successor statute) with respect to any payments to such
Lender of principal, interest, fees or other amounts payable under any of
the Loan Documents. Borrower shall not be required to pay any additional
amount to any such Lender under clause (c) of subsection 2.7B(ii) if such
Lender shall have failed to satisfy the requirements of the immediately
preceding sentence; provided that if such Lender shall have satisfied such
requirements on the Closing Date (in the case of each Lender listed on the
signature pages hereof) or on the date of the Assignment and Acceptance
pursuant to which it became a Lender (in the case of each other Lender),
nothing in this subsection 2.7B(iii) shall relieve Borrower of its
obligation to pay any additional amounts pursuant to clause (c) of
subsection 2.7B(ii) in the event that, as a result of any change in
applicable law, such Lender is no longer properly entitled to deliver
certificates, documents or other evidence at a subsequent date establishing
the fact that such Lender is not subject to withholding as described in the
immediately preceding sentence.
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability of any law, rule or
regulation (or any provision thereof) regarding capital adequacy, or any change
therein or in the interpretation or administration thereof, in each case after
the date hereof, by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Loans or
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Commitment or Letters of Credit or participations therein or other obligations
hereunder with respect to the Loans or the Letters of Credit to a level below
that which such Lender or such controlling corporation could have achieved but
for such adoption, effectiveness, phase-in, applicability, change or compliance
(taking into consideration the policies of such Lender or such controlling
corporation with regard to capital adequacy), then from time to time, within
five Business Days after receipt by Borrower from such Lender of the statement
referred to in the next sentence, Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such controlling
corporation on an after-tax basis for such reduction. Such Lender shall deliver
to Borrower (with a copy to Managing Agent) a written statement, setting forth
in reasonable detail the basis of the calculation of such additional amounts,
which statement shall be conclusive and binding upon all parties hereto absent
manifest error.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE.
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may
be, becomes aware of the occurrence of an event or the existence of a condition
that would cause such Lender to become an Affected Lender or that would entitle
such Lender or Issuing Lender to receive payments under subsection 2.7 or
subsection 3.6, it will, to the extent not inconsistent with the internal
policies of such Lender or Issuing Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Commitment of such Lender or the affected Loans or Letters of Credit of such
Lender or Issuing Lender through another lending or letter of credit office of
such Lender or Issuing Lender, or (ii) take such other measures as such Lender
or Issuing Lender may deem reasonable, if as a result thereof the circumstances
which would cause such Lender to be an Affected Lender would cease to exist or
the additional amounts which would otherwise be required to be paid to such
Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be
materially reduced and if, as determined by such Lender or Issuing Lender in its
sole discretion, the making, issuing, funding or maintaining of such Commitment
or Loans or Letters of Credit through such other lending or letter of credit
office or in accordance with such other measures, as the case may be, would not
otherwise materially adversely affect such Commitment or Loans or Letters of
Credit or the interests of such Lender or Issuing Lender; provided that such
Lender or Issuing Lender will not be obligated to utilize such other lending or
letter of credit office pursuant to this subsection 2.8 unless Borrower agrees
to pay all incremental expenses incurred by such Lender or Issuing Lender as a
result of utilizing such other lending or letter of credit office as described
in clause (i) above. A certificate as to the amount of any such expenses
payable by Borrower pursuant to this subsection 2.8 (setting forth in reasonable
detail the basis for requesting such amount) submitted by such Lender or Issuing
Lender to Borrower (with a copy to Managing Agent) shall be conclusive absent
manifest error.
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2.9 AFFECTED LENDERS.
If the Borrower is obligated to pay to any Lender any additional amount
under subsections 2.6 or 2.7 hereof, and such Lender is unable or unwilling to
mitigate such amounts in accordance with subsection 2.8, the Borrower may, if no
Event of Default or Potential Event of Default then exists, replace such Lender
with an Eligible Assignee acceptable to the Managing Agent, and such Lender
hereby agrees to be so replaced subject to the following:
(a) The obligations of the Borrower hereunder to the Lender to be
replaced (including such increased or additional costs incurred by such
Lender through the date such Lender is replaced hereunder) shall be paid in
full to such Lender concurrently with such replacement;
(b) The replacement Lender shall be a bank or other financial
institution that is not subject to such increased costs which caused the
Borrower's election to replace any Lender hereunder, and each such
replacement Lender shall execute and deliver to the Managing Agent an
Assignment and Acceptance and such other documentation satisfactory to the
Managing Agent pursuant to which such replacement Lender is to become a
party hereto, with a Commitment equal to that of the Lender being replaced
and shall make Loans in the aggregate principal amount equal to the
aggregate outstanding principal amount of the Loans of the Lender being
replaced;
(c) Upon such execution of such documents referred to in clause (b)
and repayment of the amount referred to in clause (a), the replacement
Lender shall be a ``Lender'' with a Commitment as specified hereinabove and
the Lender being replaced shall cease to be a ``Lender'' hereunder, except
with respect to such provisions under this Credit Agreement, which
expressly survive the termination of this Agreement as to such replaced
Lender;
(d) The Managing Agent shall reasonably cooperate in effectuating the
replacement of any Lender under this subsection 2.9, but at no time shall
the Managing Agent be obligated to initiate any such replacement;
(e) Any Lender replaced under this subsection 2.9 shall be replaced
at the Borrower's sole cost and expense and at no cost or expense to any
Agent or any of the Lenders; and
(f) If Borrower proposes to replace any Lender pursuant to this
subsection 2.9 because the Lender seeks reimbursement under either
subsection 2.6 or 2.7, then it must also replace any other Lender who seeks
similar levels or reimbursement (as a percentage of such Lender's
Commitment) under such subsections or, if the amount of the Commitment any
replacement Lender is willing to commit to exceeds the aggregate of the
Commitments of each such Lender seeking such reimbursement, to reduce the
Commitment of each such Lender seeking reimbursement pro rata to the extent
of such excess.
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SECTION 3.
LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
THEREIN.
A. LETTERS OF CREDIT. In addition to Borrower requesting that
Lenders make Revolving Loans pursuant to subsection 2.1A(i) and Swing Line
Lender making Swing Line Loans pursuant to subsection 2.1A(ii), Borrower may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Closing Date to but excluding the Commitment
Termination Date, that Issuing Lender issue Letters of Credit for the account of
Borrower (and on behalf of the Borrower or any Operating Subsidiary) for the
purposes specified in the definitions of Commercial Letters of Credit and
Standby Letters of Credit. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, Issuing Lender shall issue such Letters of Credit in
accordance with the provisions of this subsection 3.1; provided that Borrower
shall not request that Issuing Lender issue (and Issuing Lender shall not
issue):
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Commitments would exceed the lesser of (a) the
Revolving Loan Commitments or (b) the Borrowing Base, in each case as then
in effect;
(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed $25,000,000;
(iii) any Letter of Credit, if after giving effect to such issuance
the Total Utilization of Commitments would exceed $135,000,000 during the
30-day period required for compliance with subsections 2.1A(i)(b) and
2.1A(ii)(b);
(iv) any Standby Letter of Credit having an expiration date later
than the earlier of (a) the Commitment Termination Date and (b) the date
which is one year from the date of issuance of such Standby Letter of
Credit; provided that the immediately preceding clause (b) shall not
prevent Issuing Lender from agreeing that a Standby Letter of Credit will
automatically be extended for one or more successive periods not to exceed
one year each unless Issuing Lender elects not to extend for any such
additional period; provided, further that Issuing Lender shall deliver a
written notice to Managing Agent setting forth the last day on which
Issuing Lender may give notice that it will not extend such Standby Letter
of Credit (the ``NOTIFICATION DATE'' with respect to such Standby Letter
of Credit) at least ten Business Days prior to such Notification Date; and
provided, further that, unless Requisite Lenders otherwise consent, Issuing
Lender shall give notice that it will not extend such Standby Letter of
Credit if it has knowledge that an Event of Default has occurred and is
continuing on such Notification Date;
(v) any Commercial Letter of Credit having an expiration date (a)
later than the earlier of (X) the Commitment Termination Date and (Y) the
date which
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is 180 days from the date of issuance of such Commercial Letter of Credit
or (b) that is otherwise unacceptable to Issuing Lender in its reasonable
discretion; or
(vi) any Letter of Credit denominated in a currency other than
Dollars if the aggregate Credit Exposure with respect to all such
denominated Letters of Credit would exceed [$10,000,000] at such time.
B. MECHANICS OF ISSUANCE.
(i) Notice of Issuance. Whenever Borrower desires the issuance of a
Letter of Credit, it shall deliver to Issuing Lender (with a copy to
Managing Agent) a Notice of Issuance of Letter of Credit no later than
__:00 A.M. (________ time) at least ______ Business Days (in the case of
Standby Letters of Credit), or ____ Business Days (in the case of
Commercial Letters of Credit), or in each case such shorter period as may
be agreed to by the Issuing Lender in any particular instance, in advance
of the proposed date of issuance. The Notice of Issuance of Letter of
Credit shall specify (a) the proposed date of issuance (which shall be a
Business Day), (b) the face amount of the Letter of Credit, in Dollars
(which amount, in the case of a drawing under a Letter of Credit which is
denominated in a currency other than Dollars, shall be calculated by
reference to the applicable Exchange Rate), as quoted by the Issuing Lender
to Borrower in connection with such Letter of Credit, (c) the expiration
date of the Letter of Credit, (d) the name and address of the beneficiary,
and (e) the verbatim text of the proposed Letter of Credit or the proposed
terms and conditions thereof, including a precise description of any
documents and the verbatim text of any certificates to be presented by the
beneficiary which, if presented by the beneficiary prior to the expiration
date of the Letter of Credit, would require the Issuing Lender to make
payment under the Letter of Credit; provided that the Issuing Lender, in
its sole discretion, may require changes in the text of the proposed Letter
of Credit or any such documents or certificates; and provided, further that
no Letter of Credit shall require payment against a conforming draft to be
made thereunder on the same business day (under the laws of the
jurisdiction in which the office of the Issuing Lender to which such draft
is required to be presented is located) that such draft is presented if
such presentation is made after 10:00 A.M. (in the time zone of such office
of the Issuing Lender) on such business day; provided still further that
Issuing Lender shall not be obligated to issue any Letter of Credit
denominated in a foreign currency which in the judgment of Issuing Lender
is not readily and freely available: provided further that anything to the
contrary in this Agreement notwithstanding, Borrower may, with Issuing
Lender's consent, deliver a Notice of Issuance of Letter of Credit
electronically to Issuing Lender, in which such event Borrower shall be
deemed for all purposes hereunder and the other Loan Documents to have
delivered a written Notice of Issuance of Letter of Credit hereunder.
Borrower shall notify the Issuing Lender and Managing Agent prior to
the issuance of any Letter of Credit in the event that any of the matters
to which Borrower is required to certify in the applicable Notice of
Issuance of Letter of Credit is no longer materially true and correct as of
the proposed date of issuance of such Letter of Credit, and upon the
issuance of any Letter of Credit Borrower shall be deemed to have
re-certified, as of the date of such issuance, as to the matters to which
Borrower is required to certify in the applicable Notice of Issuance of
Letter of Credit.
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(ii) Notification to Lenders. Promptly after receipt of a Notice of
Issuance of Letter of Credit, (a) Managing Agent shall notify each Lender
of the proposed issuance of such Letter of Credit, and the amount of such
Lender's respective participation therein, determined in accordance with
subsection 3.1C, and (b) Managing Agent shall deliver to each other Lender
a copy of such Notice of Issuance of Letter of Credit.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in
accordance with subsection 10.6) of the conditions set forth in subsection
4.3, the Issuing Lender shall issue the requested Letter of Credit in
accordance with the Issuing Lender's standard operating procedures, and
upon its issuance of such Letter of Credit the Issuing Lender shall
promptly notify Managing Agent and each Lender of such issuance, which
notice shall be accompanied by a copy of such Letter of Credit.
(iv) Reports to Lenders. Within 15 days after the end of each month
ending after the Closing Date, so long as any Letter of Credit shall have
been outstanding during such month, Issuing Lender shall deliver to each
other Lender a report setting forth the average for such month of the daily
maximum amount available to be drawn under the Letters of Credit issued by
Issuing Lender that were outstanding during such month and a copy of the
same shall be delivered to Borrower.
C. LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT. Immediately
upon the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby agrees to, have irrevocably purchased from the Issuing Lender a
participation in such Letter of Credit and drawings thereunder in an amount
equal to such Lender's Pro Rata Share of the maximum amount which is or at any
time may become available to be drawn thereunder.
3.2 LETTER OF CREDIT FEES.
Borrower agrees to pay the following amounts to Issuing Lender with respect
to Letters of Credit issued by it:
(i) with respect to each Financial Standby Letter of Credit, (a) a
fronting fee equal to 0.25% of the aggregate maximum amount available to be
drawn under such Financial Standby Letter of Credit and (b) a letter of
credit fee equal to the Applicable Margin that would be applicable to LIBOR
Rate Loans made during such period (regardless of whether LIBOR Rate Loans
are in fact made during such period), changing as and when such Applicable
Margin changes, multiplied by the average daily maximum amount available to
be drawn under such Financial Standby Letter of Credit, in each case
payable in arrears on and through each March 31, June 30, September 30 and
December 31 of each year and computed on the basis of a 360-day year for
the actual number of days elapsed;
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(ii) with respect to each Nonfinancial Standby Letter of Credit, (a) a
fronting fee equal to 0.25% of the aggregate maximum amount available to be
drawn under such Nonfinancial Standby Letter of Credit and (b) a letter of
credit fee equal to the Applicable Margin that would be applicable to LIBOR
Rate Loans made during such period (regardless of whether LIBOR Rate Loans
are in fact made during such period), changing as and when such Applicable
Margin changes, less 0.50% per annum multiplied by the average daily
maximum amount available to be drawn under such Nonfinancial Standby Letter
of Credit, in each case payable in arrears on and through each March 31,
June 30, September 30 and December 31 of each year and computed on the
basis of a 360-day year for the actual number of days elapsed;
(iii) with respect to each Commercial Letter of Credit, (a) a
fronting fee equal to 0.25% (or a minimum of $500.00, if greater, or such
other amount as may be agreed upon between Borrower and Issuing Lender from
time to time) of the aggregate maximum amount available to be drawn under
such Commercial Letter of Credit and (b) a letter of credit fee equal to
0.75% of the aggregate maximum amount available to be drawn under such
Commercial Letter of Credit, in each case payable on the date of issuance
of such Commercial Letter of Credit; and
(iv) with respect to the issuance, amendment or transfer of each
Letter of Credit and each drawing made thereunder (without duplication of
the fees payable under clauses (i) and (ii) above), documentary and
processing charges in accordance with Issuing Lender's standard schedule
for such charges in effect at the time of such issuance, amendment,
transfer or drawing, as the case may be.
Promptly upon receipt by Issuing Lender of any amount described in clause
(i)(b), (ii)(b) or (iii)(b) of this subsection 3.2, Issuing Lender shall
distribute to each other Lender its Pro Rata Share of such amount.
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO REQUESTS FOR
DRAWINGS. In determining whether to honor any request for drawing under any
Letter of Credit by the beneficiary thereof, the Issuing Lender shall be
responsible only to determine that the documents and certificates required to be
delivered under such Letter of Credit have been delivered and that they comply
on their face with the requirements of such Letter of Credit.
B. REIMBURSEMENT BY BORROWER OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
In the event Issuing Lender has determined to honor a request for drawing under
a Letter of Credit issued by it, Issuing Lender shall immediately notify
Borrower and Managing Agent, and Borrower shall reimburse Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the ``REIMBURSEMENT DATE'') in an amount in Dollars (which amount, in
the case of a drawing under a Letter of Credit which is denominated in a
currency other than Dollars, shall be calculated by reference to the applicable
Exchange Rate on the date of such drawing) in same day funds equal to the amount
of such drawing; provided that, anything contained in this Agreement to the
contrary
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notwithstanding, (i) unless Borrower shall have notified Managing Agent and
Issuing Lender prior to __:00 A.M. (__________ time) on the date of such drawing
that Borrower intends to reimburse Issuing Lender for the amount of such drawing
with funds other than the proceeds of Loans, Borrower shall be deemed to have
given a timely Notice of Borrowing to Managing Agent requesting Lenders to make
Loans that are Index Rate Loans on the Reimbursement Date in an amount equal to
the amount of such drawing and (ii) subject to satisfaction or waiver of the
conditions specified in subsection 4.2B, Lenders shall, on the Reimbursement
Date, make Loans that are Index Rate Loans in the amount of such drawing, the
proceeds of which shall be applied directly by Managing Agent to reimburse
Issuing Lender for the amount of such drawing; and provided, further that if for
any reason proceeds of Loans are not received by Issuing Lender on the
Reimbursement Date in an amount in Dollars (which amount, in the case of a
drawing under a Letter of Credit which is denominated in a currency other than
Dollars, shall be calculated by reference to the applicable Exchange Rate on the
date of such drawing) equal to the amount of such drawing, Borrower shall
reimburse Issuing Lender, on demand, in an amount in same day funds equal to the
excess of the amount of such drawing over the aggregate amount of such Loans, if
any, which are so received. Nothing in this subsection 3.3B shall be deemed to
relieve any Lender from its obligation to make Loans on the terms and conditions
set forth in this Agreement, and Borrower shall retain any and all rights it may
have against any Lender resulting from the failure of such Lender to make such
Loans under this subsection 3.3B.
C. PAYMENT BY LENDERS OF UNREIMBURSED DRAWINGS UNDER LETTERS OF CREDIT.
(i) Payment by Lenders. In the event that Borrower shall fail for
any reason to reimburse Issuing Lender as provided in subsection 3.3B in an
amount (calculated, in the case of a drawing under a Letter of Credit
denominated in a currency other than Dollars, by reference to the
applicable Exchange Rate on the date of such drawing) equal to the amount
of any drawing honored by Issuing Lender under a Letter of Credit issued by
it, Issuing Lender shall promptly notify each other Lender of the
unreimbursed amount of such drawing and of such other Lender's respective
participation therein based on such Lender's Pro Rata Share. Each Lender
shall make available to Issuing Lender an amount equal to its respective
participation; in Dollars and in same day funds, at the office of Issuing
Lender specified in such notice, not later than __:00 A.M. (__________
time) on the first business day (under the laws of the jurisdiction in
which such office of Issuing Lender is located) after the date notified by
Issuing Lender. In the event that any Lender fails to make available to
Issuing Lender on such business day the amount of such Lender's
participation in such Letter of Credit as provided in this subsection 3.3C,
Issuing Lender shall be entitled to recover such amount on demand from such
Lender together with interest thereon at the rate customarily used by
Issuing Lender for the correction of errors among banks for three Business
Days and thereafter at the Index Rate. Nothing in this subsection 3.3C
shall be deemed to prejudice the right of any Lender to recover from
Issuing Lender any amounts made available by such Lender to Issuing Lender
pursuant to this subsection 3.3C in the event that it is determined by the
final judgment of a court of competent jurisdiction
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that the payment with respect to a Letter of Credit by Issuing Lender in
respect of which payment was made by such Lender constituted gross
negligence or willful misconduct on the part of Issuing Lender.
(ii) Distribution to Lenders of Reimbursements Received From
Borrower. In the event Issuing Lender shall have been reimbursed by other
Lenders pursuant to subsection 3.3C(i) for all or any portion of any
drawing honored by Issuing Lender under a Letter of Credit issued by it,
Issuing Lender shall distribute to each other Lender which has paid all
amounts payable by it under subsection 3.3C(i) with respect to such drawing
such other Lender's Pro Rata Share of all payments subsequently received by
Issuing Lender from Borrower in reimbursement of such drawing when such
payments are received. Any such distribution shall be made to a Lender at
its primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request.
D. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
(i) Payment of Interest by Borrower. Borrower agrees to pay to
Issuing Lender, with respect to drawings made under any Letters of Credit
issued by it, interest on the amount paid by Issuing Lender in respect of
each such drawing from the date of such drawing to but excluding the date
such amount is reimbursed by Borrower (including any such reimbursement out
of the proceeds of Loans pursuant to subsection 3.3B) at a rate equal to
(a) for the period from the date of such drawing to but excluding the
Reimbursement Date, the rate then in effect under this Agreement with
respect to Loans that are Index Rate Loans or, if higher, LIBOR Rate Loans
and (b) thereafter, a rate which is 2% per annum in excess of the rate of
interest otherwise payable under this Agreement with respect to Loans that
are Index Rate Loans or, if higher, LIBOR Rate Loans. Interest payable
pursuant to this subsection 3.3D(i) shall be computed on the basis of a
360-day year for the actual number of days elapsed in the period during
which it accrues and shall be payable on demand or, if no demand is made,
on the date on which the related drawing under a Letter of Credit is
reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender. Promptly
upon receipt by Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i), (a) Issuing Lender shall distribute to each other
Lender, out of the interest received by Issuing Lender in respect of the
period from the date of the applicable drawing under a Letter of Credit
issued by Issuing Lender to but excluding the date on which Issuing Lender
is reimbursed for the amount of such drawing (including any such
reimbursement out of the proceeds of Loans pursuant to subsection 3.3B),
the amount that such other Lender would have been entitled to receive in
respect of the letter of credit fee that would have been payable in respect
of such Letter of Credit for such period pursuant to subsection 3.2 if no
drawing had been made under such Letter of Credit, and (b) in the event
Issuing Lender shall have been reimbursed by other Lenders pursuant to
subsection 3.3C(i) for all or any portion of such drawing, Issuing Lender
shall distribute to each other Lender which has paid all amounts
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payable by it under subsection 3.3C(i) with respect to such drawing such
other Lender's Pro Rata Share of any interest received by Issuing Lender in
respect of that portion of such drawing so reimbursed by other Lenders for
the period from the date on which Issuing Lender was so reimbursed by other
Lenders to and including the date on which such portion of such drawing is
reimbursed by Borrower. Any such distribution shall be made to a Lender at
its primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request.
3.4 OBLIGATIONS ABSOLUTE.
The obligation of Borrower to reimburse Issuing Lender for drawings made
under the Letters of Credit issued by it and to repay any Loans made by Lenders
pursuant to subsection 3.3B and the obligations of Lenders under subsection
3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances including,
without limitation, the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right
which Borrower or any Lender may have at any time against a beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), Issuing Lender or other Lender or any other
Person or, in the case of a Lender, against Borrower, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Borrower or one
of its Subsidiaries and the beneficiary for which any Letter of Credit was
procured);
(iii) any draft, demand, certificate or 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) payment by Issuing Lender under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does
not comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Borrower or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or
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(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
provided, in each case, that payment by Issuing Lender under the applicable
Letter of Credit shall not have constituted gross negligence or willful
misconduct of Issuing Lender or its officers, employees or agents under the
circumstances in question (as determined by a final judgment of a court of
competent jurisdiction).
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Borrower hereby agrees to protect, indemnify, pay and save
harmless Issuing Lender and its officers, employees or agents from and against
any and all claims, demands, liabilities, damages, losses, and reasonable
costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel) which Issuing Lender may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any Letter of Credit by
Issuing Lender, other than as a result of (a) the gross negligence or willful
misconduct of Issuing Lender or its officers, employees or agents as determined
by a final judgment of a court of competent jurisdiction or (b) subject to the
following clause (ii), the wrongful dishonor by Issuing Lender of a proper
demand for payment made under any Letter of Credit issued by it or (ii) the
failure of Issuing Lender to honor a drawing under any such Letter of Credit as
a result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or governmental authority (all such acts
or omissions herein called ``GOVERNMENTAL ACTS'').
B. NATURE OF ISSUING LENDERS' DUTIES. As between Borrower and Issuing
Lender, Borrower assumes all risks of the acts and omissions of, or misuse of
the Letters of Credit issued by Issuing Lender by, the respective beneficiaries
of such Letters of Credit. In furtherance and not in limitation of the
foregoing, Issuing Lender shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of any such Letter
of Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any such Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective for
any reason; (iii) failure of the beneficiary of any such Letter of Credit to
comply fully with any conditions required in order to draw upon such Letter of
Credit; (iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) errors in interpretation of technical terms; (vi)
any loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of Issuing Lender, including
without limitation any Governmental Acts, and none of the above shall affect or
impair, or prevent the vesting of, any of Issuing Lender's rights or powers
hereunder.
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In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by Issuing Lender under or in connection with the Letters of
Credit issued by it or any documents and certificates delivered thereunder, if
taken or omitted in good faith, shall not put Issuing Lender under any resulting
liability to Borrower.
Notwithstanding anything to the contrary contained in this subsection 3.5,
Borrower shall retain any and all rights it may have against Issuing Lender and
its officers, employees or agents for any liability arising solely out of the
gross negligence or willful misconduct of Issuing Lender or its officers,
employees or agents, as determined by a final judgment of a court of competent
jurisdiction.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
In the event that Issuing Lender or any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any change after the date hereof in any law,
treaty or governmental rule, regulation or order, or any change therein or in
the interpretation, administration or application thereof (including the
introduction of any new law, treaty or governmental rule, regulation or order),
or any determination of a court or governmental authority, in each case that
becomes effective after the date hereof, or compliance by Issuing Lender or any
Lender with any guideline, request or directive issued or made after the date
hereof by any central bank or other governmental or quasi-governmental authority
(whether or not having the force of law):
(i) subjects Issuing Lender or such Lender (or its applicable lending
or letter of credit office) to any additional Tax (other than any Tax on
the overall net income of Issuing Lender or such Lender) with respect to
the issuing or maintaining of any Letters of Credit or the purchasing or
maintaining of any participations therein or any other obligations under
this Section 3, whether directly or by such being imposed on or suffered by
Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by Issuing Lender or
participations therein purchased by any Lender; or
(iii) imposes any other condition on or affecting Issuing Lender or
such Lender (or its applicable lending or letter of credit office)
regarding this Section 3 or any Letter of Credit or any participation
therein;
and the result of any of the foregoing is to increase the cost to Issuing Lender
or such Lender of agreeing to issue, issuing or maintaining any Letter of Credit
or agreeing to purchase, purchasing or maintaining any participation therein or
to reduce any amount received or receivable by Issuing Lender or such Lender (or
its applicable lending or letter
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of credit office) with respect thereto; then, in any case, Borrower shall
promptly pay to Issuing Lender or such Lender, upon receipt of the statement
referred to in the next sentence, such additional amount or amounts as may be
necessary to compensate Issuing Lender or such Lender for any such increased
cost or reduction in amounts received or receivable hereunder. Issuing Lender
or such Lender shall deliver to Borrower a written statement, setting forth in
reasonable detail the basis for calculating the additional amounts owed to
Issuing Lender or such Lender under this subsection 3.6, which statement shall
be conclusive and binding upon all parties hereto absent manifest error.
SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters of
Credit hereunder are subject to the satisfaction of the following conditions.
4.1 CONDITIONS TO INITIAL LOANS.
The obligations of Lenders to make any Loans to be made on the Closing Date
are, in addition to the conditions precedent specified in subsection 4.2,
subject to prior or concurrent satisfaction of the following conditions:
A. BORROWER AND OPERATING SUBSIDIARY DOCUMENTS. On or before the Closing
Date, Borrower and each Operating Subsidiary shall deliver or cause to be
delivered to Lenders (or to Managing Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel)
the following, each, unless otherwise noted, dated the Closing Date:
(i) Certified copies of its Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of
the State of its incorporation and each other state in which it is
qualified as a foreign corporation to do business, each dated a recent date
prior to the Closing Date;
(ii) Copies of its Bylaws, certified as of the Closing Date by its
corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of this Agreement and the other
Loan Documents to which it is a party, certified as of the Closing Date by
its corporate secretary or an assistant secretary as being in full force
and effect without modification or amendment;
(iv) Signature and incumbency certificates of its officers executing
this Agreement and the other Loan Documents;
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(v) Executed originals of this Agreement, the Notes (duly executed in
accordance with subsection 2.1D, drawn to the order of each Lender and
Swing Line Lender and with appropriate insertions) and the other Loan
Documents; and
(vi) Such other documents as any Agent, Issuing Lender or Swing Line
Lender may reasonably request.
B. SECURITY INTERESTS. Each Credit Party shall have taken or caused to
be taken (and Collateral Agent shall have received satisfactory evidence
thereof) such actions in such a manner so that Collateral Agent has a valid and
perfected first priority security interest (subject to the Liens permitted
hereunder) as of such date in the entire Collateral (to the extent required by
the Collateral Documents). Such actions shall include, without limitation, (i)
delivery of appropriate Lien, judgment and tax searches as Managing Agent shall
request in all applicable jurisdictions for the Credit Parties in form and
substance satisfactory to Collateral Agent, (ii) delivery to Collateral Agent of
the Intercompany Note duly endorsed in blank, all in form and substance
satisfactory to Collateral Agent and delivery to Collateral Agent of all other
instruments (duly endorsed where appropriate) evidencing the Collateral, (iii)
filing of Uniform Commercial Code financing statements and the Trademark
Assignment, as to the Collateral for all jurisdictions as Managing Agent shall
request as may be necessary or desirable to perfect Lenders security interests
in the Collateral, (iv) delivery to Collateral Agent of Collateral Access
Letters for all Inventory locations and (v) delivery of all other evidence
reasonably satisfactory to Collateral Agent that all other filings, recordings
and other actions Collateral Agent deems necessary or advisable to establish,
preserve and perfect the first priority Liens granted to Collateral Agent on
behalf of Lenders shall have been made.
C. CASH MANAGEMENT SYSTEM. The Cash Management System shall be in place
in form and substance satisfactory to Managing Agent, and Collateral Agent shall
have received Cash Management Letters from each financial institution at which a
Deposit Account (other than an Excluded Account) is located pursuant to the Cash
Management System, all in form and substance satisfactory to Collateral Agent.
[Discuss level of compliance at Closing.]
D. DELIVERY OF COMPLIANCE CERTIFICATE. Borrower shall have delivered to
Managing Agent a Compliance Certificate substantially in the form of Exhibit V
annexed hereto, dated as of the Closing Date and calculated to give effect to
the initial funding under this Agreement and the other transactions on the
Closing Date, demonstrating compliance with the covenants set forth in this
Agreement as of the Closing Date.
E. EVIDENCE OF INSURANCE. Collateral Agent shall have received an
Officer's Certificate of Borrower setting forth a schedule of insurance with
respect to each of the insurance policies required to be maintained hereunder,
and Collateral Agent shall be satisfied that the nature and scope of these
insurance policies meet the requirements of subsection 6.4, each such
insurance policy shall name Collateral Agent on behalf of Lenders as loss payee
and/or additional insured, as appropriate and Collateral Agent shall have
received an original certificate of insurance from or on behalf of the issuer of
each such policy.
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F. SENIOR SUBORDINATED NOTES. On or before the Closing Date, Borrower
shall have issued the Senior Subordinated Notes resulting in net proceeds of not
less than $__________, and shall deliver to Managing Agent on the Closing Date
an Officer's Certificate to that effect, all in form and substance satisfactory
to Managing Agent.
G. RELATED DOCUMENTS; LICENSE AGREEMENTS. On the Closing Date, (i)
Managing Agent shall have received copies of executed or conformed copies of the
Related Documents (including, without limitation, the amendment or refinancing
of the ESOP Loan Documents which shall be satisfactory in form and substance to
Requisite Lenders) and License Agreements and any amendments, modifications or
waivers thereto on or prior to the Closing Date the terms and conditions of
which shall be reasonably satisfactory to Managing Agent, (ii) the Related
Documents and material License Agreements shall be in full force and effect,
(iii) no Credit Party shall be in default in any material respect thereunder,
and (iv) Managing Agent shall have received an Officer's Certificate in form and
substance satisfactory to Managing Agent from Borrower to the effect set forth
in clauses (i), (ii) and (iii) above.
H. TERMINATION OF EXISTING CREDIT FACILITIES. Prior to or concurrently
with the funding of the initial Loans under this Agreement, Borrower shall repay
all principal and interest on outstanding loans and other obligations owed under
or related to the Existing Credit Facilities, including without limitation all
fees, expenses and other costs arising thereunder, and shall terminate the
obligation to lend or make other extensions of credit under the provisions of
the Existing Credit Facilities; provided that the Existing Letters of Credit may
continue to remain outstanding as provided in subsection 7.4(v) in accordance
with the terms hereof. Concurrently with such repayment, any Liens granted to
secure any obligations under or with respect to the Existing Credit Facilities
(including, without limitation, the Existing Letters of Credit but excluding
Permitted Encumbrances permitted pursuant to clause (x) of the definition
thereof) or the documents delivered thereunder, shall be released. All lenders
(or an authorized agent on their behalf) under the Existing Credit Facilities
shall have delivered written acknowledgements of such terminations and releases
in form and substance satisfactory to Collateral Agent. All of the foregoing
shall be accomplished in form and substance satisfactory to Collateral Agent.
I. DELIVERY OF EXISTING LETTERS OF CREDIT. On or before the Closing
Date, Borrower shall deliver to Issuing Lender, copies of all Existing Letters
of Credit certified as true, correct and complete pursuant to an Officer's
Certificate of Borrower.
J. EXISTING INDEBTEDNESS. As of the Closing Date and after giving effect
to the repayment and termination of the Existing Credit Facilities in accordance
with the terms hereof, the aggregate Indebtedness of Borrower and its
subsidiaries (other than Indebtedness in respect of the Obligations, the Senior
Subordinated Notes and the ESOP Loan Documents) shall not exceed $23,200,000
and all such Indebtedness (other than as set forth in Schedule 7.2 annexed
hereto) shall be unsecured.
K. PROJECTIONS. On or before the Closing Date, Managing Agent shall have
received, in form and substance satisfactory to Managing Agent, the financial
plans described in subsection 6.1(xiii).
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L. COLLATERAL REVIEW; BORROWING BASE. On or before the Closing Date,
Managing Agent shall have received an updated review and analysis of all
Collateral and verification of the Borrowing Base, all in form and substance
satisfactory to Managing Agent.
M. CREDIT AVAILABILITY. As of the Closing Date, and after giving effect
to all transactions on the Closing Date, Managing Agent shall be satisfied that
Borrower has a minimum of at least $15,000,000 available to be drawn under the
Revolving Loan Commitments as of such date.
N. DELIVERY OF FINANCIAL CONDITION CERTIFICATE. On or before the making
of the initial Loans, each Credit Party shall have delivered a Financial
Condition Certificate, substantially in the form of Exhibit XVII annexed hereto
with appropriate attachments demonstrating that, after giving effect to the
consummation of the transactions on the Closing Date (including incurrence of
the Obligations) each Credit Party is Solvent.
O. OPINIONS OF CREDIT PARTY'S COUNSEL. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of Skadden, Arps, Slate, Meagher & Flom, counsel for
the Credit Parties, in form and substance satisfactory to Managing Agent and its
counsel, dated as of the Closing Date and setting forth substantially the
matters in the opinions designated in Exhibit VI annexed hereto and as to such
other matters as Managing Agent acting on behalf of Lenders may reasonably
request, (ii) special counsel for the Credit Parties qualified in such
jurisdictions, as requested by Managing Agent, (other than the jurisdictions
covered in the opinion of Skadden, Arps, Slate, Meagher & Flom) in which a
Credit Party is incorporated or where Collateral Documents for the Credit
Parties are being filed or recorded, setting forth substantially the matters in
the opinions designated in Exhibit VI annexed hereto with respect to such Credit
Parties and Collateral Documents and as to such other matters as Managing Agent,
acting on behalf of Lenders, may reasonably request and (iii) evidence
satisfactory to Managing Agent that each Credit Party has requested each such
counsel to deliver such opinions to Lenders.
P. OPINIONS OF MANAGING AGENT'S COUNSEL. Lenders shall have received
originally executed copies of one or more favorable written opinions of
O'Melveny & Myers, counsel to Managing Agent, dated as of the Closing Date,
substantially in the form of Exhibit VII annexed hereto and as to such other
matters as Managing Agent acting on behalf of Lenders may reasonably request.
Q. DELIVERY OF SUBORDINATED NOTE INDENTURE OPINIONS OF COUNSEL. On or
before the Closing Date, Lenders and their counsel shall have received
originally executed copies of the favorable written opinion of Skadden, Arps,
Slate, Meagher & Flom, dated as of the Closing Date, as to the matters specified
in the Subordinated Note Indenture, and such opinion of counsel shall be
accompanied by a reliance letter or shall state that Lenders are entitled to
rely thereon.
R. AUDITOR'S LETTER. Managing Agent shall have received an executed
Auditor's Letter.
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S. ACCEPTANCE BY PROCESS MANAGING AGENT. Managing Agent shall have
received a letter substantially in the form of Exhibit X annexed hereto from the
initial agent for service of process designated by Borrower in subsection 10.17.
T. FINANCING FEES. All fees (excluding fees of counsel, accountants and
other professionals other than underwriters and investment advisors) paid in
connection with the issuance of Senior Subordinated Notes and the repayment and
termination of the Existing Credit Facilities shall not exceed $6,500,000 and,
on or before the Closing Date, Borrower shall have delivered to Managing Agent
an Officer's Certificate to such effect.
U. EXPENSES. Borrower shall have paid to Managing Agent for distribution
as appropriate, all reimbursable costs and expenses incurred through the Closing
Date in accordance with subsection 10.2.
V. FEES. Borrower shall have paid to Managing Agent, for distribution
(as appropriate) to Managing Agent and Lenders, the fees payable on the Closing
Date referred to in subsection 2.3.
W. NO MATERIAL ADVERSE EFFECT. Since November 30, 1993, no Material
Adverse Effect (in the sole opinion of Managing Agent) shall have occurred.
X. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Borrower
shall have delivered to Managing Agent an Officer's Certificate, in form and
substance satisfactory to Managing Agent, to the effect that the representations
and warranties in Section 5 hereof are true, correct and complete in all
material respects on and as of the Closing Date to the same extent as though
made on and as of that date and that Borrower shall have performed in all
material respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before the
Closing Date except as otherwise disclosed to and agreed to in writing by
Managing Agent and Requisite Lenders.
Y. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Managing Agent,
acting on behalf of Lenders, and its counsel in accordance with this subsection
4.1 shall be satisfactory in form and substance to Managing Agent and such
counsel, and Managing Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as Managing Agent
may reasonably request.
4.2 CONDITIONS TO ALL LOANS.
The obligations of each Lender to make Loans on each Funding Date (which,
other than with respect to clauses (ii), (iii) and (iv) below shall not include
conversions to, or continuations of, LIBOR Rate Loans in a principal amount not
exceeding the then outstanding principal amount of Loans at such time) are
subject to the following further conditions precedent:
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A. Managing Agent shall have received before that Funding Date, in
accordance with the provisions of subsection 2.1B, a copy of an originally
executed Notice of Borrowing, in each case signed by the chairman, chief
executive officer, president, executive vice president, senior vice president,
chief financial officer, chief accounting officer or the treasurer of Borrower
or by any executive officer of Borrower designated by any of the above-described
officers on behalf of Borrower in a writing delivered to Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Loan Documents shall be true, correct and complete in all material
respects on and as of that Funding Date to the same extent as though made
on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true, correct and complete
in all material respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute an Event of Default or a Potential Event of
Default;
(iii) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain such Lender from
making the Loans to be made by it on that Funding Date;
(iv) The making of the Loans requested on such Funding Date shall not
violate any law including, without limitation, Regulation G, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System; and
(v) There shall not be pending or, to the knowledge of Borrower,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Borrower or any of its Subsidiaries or any
property of Borrower or any of its Subsidiaries that has not been disclosed
by Borrower in writing pursuant to subsection 5.6 or 6.1(x) prior to the
making of the last preceding Loans (or, in the case of the initial Loans,
prior to the execution of this Agreement), and there shall have occurred no
development not so disclosed in any such action, suit, proceeding,
governmental investigation or arbitration so disclosed, that, in either
event, in the opinion of Agent or of Requisite Lenders, would be expected
to have a Material Adverse Effect; and no injunction or other restraining
order shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to
any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of,
the transactions contemplated by this Agreement or the making of Loans
hereunder.
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4.3 CONDITIONS TO LETTERS OF CREDIT.
The issuance of any Letter of Credit hereunder is subject to the following
conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit, Issuing
Lender and Managing Agent shall have received, in accordance with the provisions
of subsection 3.1B(i), an originally executed Notice of Issuance of Letter of
Credit, in each case signed by the chief executive officer, the chief financial
officer or the treasurer of Borrower or by any executive officer of Borrower
designated by any of the above-described officers on behalf of Borrower in a
writing delivered to Issuing Lender and Managing Agent, together with all other
information specified in subsection 3.1B(i) and such other documents or
information as Issuing Lender may reasonably require in connection with the
issuance of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
SECTION 5.
BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make the
Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other
Lenders to purchase participations therein, Borrower represents and warrants to
each Lender, on the date of this Agreement, on each Funding Date and on the date
of issuance of each Letter of Credit, that the following statements are true,
correct and complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. Each Credit Party is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation except for Subsidiaries of Borrower, which after the Closing
Date, may not be in good standing if such failure has not had and will not have
a Material Adverse Effect. Each Credit Party has all requisite corporate power
and authority to own and operate its properties, to carry on its business as now
conducted and as proposed to be conducted, to enter into the Loan Documents and
Related Documents to which it is a party, to carry out the transactions
contemplated thereby and, in the case of Borrower, to issue and pay the Notes.
B. QUALIFICATION AND GOOD STANDING. Each Credit Party is qualified to do
business and in good standing in every jurisdiction necessary to carry out its
business and
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operations, except in jurisdictions where the failure to be so qualified or in
good standing has not had and will not have a Material Adverse Effect.
C. CONDUCT OF BUSINESS. Borrower and its Subsidiaries are engaged only
in the businesses permitted to be engaged in pursuant to subsection 7.14.
D. SUBSIDIARIES. All of the Subsidiaries of Borrower as of the Closing
Date are identified in Part One of Schedule 5.1 annexed hereto. The capital
stock of each of the Subsidiaries of Borrower identified in Part One of Schedule
5.1 annexed hereto is duly authorized, validly issued, fully paid and
nonassessable and none of such capital stock constitutes Margin Stock. Part One
of Schedule 5.1 annexed hereto correctly sets forth the ownership interest of
Borrower in each of its Subsidiaries identified therein as of the Closing Date.
E. COLLATERAL MATTERS. Other than as may be supplemented by written
notices delivered to Collateral Agent pursuant to the Pledge and Security
Agreement:
(i) the chief executive office and principal place of business of
each Credit Party is as set forth in Part Two of Schedule 5.1 annexed
hereto;
(ii) the office where each Credit Party keeps its records concerning
Accounts and all originals of all chattel paper which evidence any Accounts
are located at the addresses specified for such Credit Party in Part Three
of Schedule 5.1 annexed hereto;
(iii) all Inventory of each Credit Party is located on the premises
specified for such Credit Party on Part Four of Schedule 5.1 annexed hereto
(or is in transit thereto) and except as specified in Part Four of Schedule
5.1 annexed hereto, no such Inventory is stored with a bailee, warehouseman
or similar party;
(iv) other than as set forth in Part Five of Schedule 5.1 annexed
hereto, no Credit Party does any business under any fictitious business
names or tradenames or has done business under any fictitious business
names or tradenames during the five years preceding the Closing Date.
5.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of
the Loan Documents and Related Documents and the issuance, delivery and payment
of the Notes have been duly authorized by all necessary corporate action on the
part of each applicable Credit Party.
B. NO CONFLICT. The execution, delivery and performance by each Credit
Party of the Loan Documents and the Related Documents, the issuance, delivery
and payment of the Notes (in the case of Borrower) and the consummation of the
transactions contemplated by the Loan Documents and Related Documents do not and
will not (i) violate any
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provision of any law or any governmental rule or regulation applicable to
Borrower or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of Borrower or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on
Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of
(excluding, however, Accounts of Borrower or its Subsidiaries which by their
terms purport to prohibit the assignment thereof without the consent of the
Account Debtor in respect thereof, except as the same may be rendered
ineffective by applicable law) or constitute (with due notice or lapse of time
or both) a default under any material Contractual Obligation of Borrower or any
of its Subsidiaries, (iii) result in or require the creation or imposition of
any Lien upon any of the properties or assets of Borrower or any of its
Subsidiaries (other than any Liens created under any of the Loan Documents in
favor of Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Borrower or any of its Subsidiaries, except for such approvals or
consents which will be obtained on or before the Closing Date and disclosed in
writing to Lenders.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by each
Credit Party of the Loan Documents and Related Documents, the issuance, delivery
and payment of the Notes and the consummation of the transactions contemplated
by the Loan Documents and Related Documents do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body (other than any of the foregoing to the extent required under applicable
securities laws in connection with the Senior Subordinated Notes, all of which
have been received or made, as the case may be, and as may be required in
connection with the Traco Documents) and other than filings expressly
contemplated by the Loan Documents.
D. BINDING OBLIGATION. Each of the Loan Documents and Related Documents has
been duly executed and delivered by each Credit Party party thereto and is the
legally valid and binding obligation of such Credit Party, enforceable against
such Credit Party in accordance with its respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by general equitable
principles whether enforcement is sought in equity or at law.
E. VALID ISSUANCE OF SENIOR SUBORDINATED NOTES. Borrower has the corporate
power and authority to issue the Senior Subordinated Notes. The Senior
Subordinated Notes, when issued and paid for, will be the legally valid and
binding obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by general equitable principles whether enforcement is
sought in equity or at law. The Loans, Letters of Credit and all other
Obligations hereunder are and will be within the definition of ``Senior Debt''
included in such provisions. The Senior Subordinated Notes, when issued and
sold, will either (a) have been registered or qualified under applicable federal
and state securities laws or (b) be exempt from registration thereunder.
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5.3 FINANCIAL CONDITION.
Borrower has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited
consolidated balance sheet of Borrower and its Subsidiaries as at November
30, 1993 and the related consolidated statements of income, stockholders'
equity and cash flows of Borrower and its Subsidiaries for the Fiscal Year
then ended and (ii) the unaudited consolidated and consolidating balance
sheets of Borrower and its Subsidiaries as at January 31, 1994 and the
related unaudited consolidated and consolidating statements of income and
consolidated cash flows of Borrower and its Subsidiaries for the two months
then ended. All such statements were prepared in conformity with GAAP and
fairly present the financial position (on a consolidated and, where
applicable, consolidating basis) of the entities described in such
financial statements as at the respective dates thereof and the results of
operations and cash flows (on a consolidated and, where applicable,
consolidating basis) of the entities described therein for each of the
periods then ended, subject, in the case of any such unaudited financial
statements, to changes resulting from audit and normal year-end
adjustments. Borrower does not (and will not following the funding of the
initial Loans) have any Contingent Obligation, contingent liability or
liability for taxes, long-term lease or unusual forward or long-term
commitment that is not reflected in the foregoing financial statements or
the notes thereto and which in any such case is material in relation to the
business, operations, properties, assets, financial condition or prospects
of Borrower or any of its Subsidiaries.
5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
Since November 30, 1993, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect. Neither Borrower nor any of its Subsidiaries has directly
or indirectly declared, ordered, paid or made, or set apart any sum or
property for, any Restricted Junior Payment or agreed to do so except as
permitted by subsection 7.5.
5.5 TITLE TO PROPERTIES; LIENS.
Borrower and its Subsidiaries have good, sufficient and legal title to
all of their respective properties and assets reflected in the financial
statements referred to in subsection 5.3 or in the most recent financial
statements delivered pursuant to subsection 6.1, except for assets
disposed of since the date of such financial statements in the ordinary
course of business or as otherwise permitted prior to the Closing Date
under the Existing Credit Facilities or, after the Closing Date, as
otherwise permitted under subsection 7.7 and except for imperfections of
title which individually or in the aggregate would not have a Material
Adverse Effect. Except as permitted by this Agreement, all such properties
and assets are free and clear of Liens.
5.6 LITIGATION; ADVERSE FACTS.
Except as set forth in Schedule 5.6 annexed hereto, there is no
action, suit, proceeding, arbitration or governmental investigation
(whether or not purportedly on behalf of Borrower or any of its
Subsidiaries) at law or in equity or before or by any federal, state,
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municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, pending or, to the
knowledge of Borrower, threatened against or affecting Borrower or any of
its Subsidiaries or any property of Borrower or any of its Subsidiaries
that has had, or could reasonably be expected to result in, a Material
Adverse Effect. Neither Borrower nor any of its Subsidiaries is (i) in
violation of any applicable law that has had, or could reasonably be
expected to result in, a Material Adverse Effect or (ii) subject to or in
default with respect to any final judgment, writ, injunction, decree, rule
or regulation of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that has had, or could reasonably be
expected to result in, a Material Adverse Effect. There are no labor
controversies pending, or to the knowledge of Borrower threatened, which
has had, or could reasonably be expected to result in, a Material Adverse
Effect.
5.7 PAYMENT OF TAXES.
Except to the extent permitted by subsection 6.3, all tax returns and
reports of Borrower and its Subsidiaries required to be filed by any of
them have been timely filed, and all taxes, assessments, fees and other
governmental charges upon Borrower and its Subsidiaries and upon their
respective properties, assets, income, businesses and franchises which are
due and payable have been paid when due and payable except for nonmaterial
state and local tax returns which Borrower reasonably believes are not
required to be filed because of jurisdictional or other limitations and the
nonfiling of which would not result in a Material Adverse Effect or a Lien
on any Collateral not permitted by Subsection 7.2. Borrower knows of no
proposed tax assessment against Borrower or any of its Subsidiaries which
is not being actively contested by Borrower or such Subsidiary in good
faith and by appropriate proceedings; provided that such reserves or other
appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made or provided therefor.
5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.
A. Neither Borrower nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its material Contractual Obligations, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default, except in any case where the consequences,
direct or indirect, of such default or defaults, if any, would not have a
Material Adverse Effect.
B. Neither Borrower nor any of its Subsidiaries is a party to or is
otherwise subject to any agreement or instrument or any charter or other
internal restriction which has had, or could reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect.
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5.9 GOVERNMENTAL REGULATION.
Neither Borrower nor any of its Subsidiaries is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act (to the extent applicable to the transactions
contemplated hereby) or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which in any case may limit its ability
to incur Indebtedness or which may otherwise render all or any portion of the
Obligations unenforceable.
5.10 SECURITIES ACTIVITIES.
Neither Borrower nor any of its Subsidiaries is engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
5.11 EMPLOYEE BENEFIT PLANS.
A. Borrower and each of its ERISA Affiliates are in substantial
compliance with all applicable provisions and requirements of ERISA and the
regulations and published interpretations thereunder with respect to each
Employee Benefit Plan.
B. No ERISA Event has occurred with respect to which Borrower has any
outstanding liability and no such ERISA Event is reasonably expected to occur.
C. As of the most recent valuation date for any Pension Plan, the amount
of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), does not exceed $1,000,000.
5.12 CERTAIN FEES.
No broker's or finder's fee or commission will be payable with respect to
this Agreement or any of the transactions contemplated hereby, and Borrower
hereby indemnifies Lenders against, and agrees that it will hold Lenders
harmless from, any claim, demand or liability for any such broker's or finder's
fees claiming by, through or under any Credit Party alleged to have been
incurred in connection herewith or therewith and any expenses (including
reasonable fees, expenses and disbursements of counsel) arising in connection
with any such claim, demand or liability.
5.13 ENVIRONMENTAL PROTECTION.
Except as set forth in Schedule 5.13 annexed hereto:
(i) the operations of Borrower and each of its Subsidiaries
(including, without limitation, all operations and conditions at or in the
Facilities (to the best knowledge of Borrower to the extent of Facilities
not currently owned, operated or
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used by Borrower or its Subsidiaries)) comply in all material respects with
all Environmental Laws except where the failure to comply could not
reasonably be expected to have a Material Adverse Effect;
(ii) Borrower and each of its Subsidiaries have obtained all
Governmental Authorizations under Environmental Laws necessary to their
respective operations, and Borrower and each of its Subsidiaries are in
compliance with all material terms and conditions of such Governmental
Authorizations except where the failure to comply could not reasonably be
expected to have a Material Adverse Effect;
(iii) neither Borrower nor any of its Subsidiaries has received (a)
any notice or claim to the effect that it is or may be liable to any Person
as a result of or in connection with any Hazardous Materials or (b) any
letter or request for information under Section 104 of the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. (S)
9604) or comparable state laws, and, to the best of Borrower's knowledge,
none of the operations of Borrower or any of its Subsidiaries is the
subject of any federal or state investigation relating to or in connection
with any Hazardous Materials at any Facility or at any other location;
(iv) none of the operations of Borrower or any of its Subsidiaries is
subject to any judicial or administrative proceeding alleging the violation
of or liability under any Environmental Laws which if adversely determined
could reasonably be expected to have a Material Adverse Effect;
(v) neither Borrower nor any of its Subsidiaries nor any of their
respective Facilities or operations are subject to any outstanding written
order or agreement with any governmental authority or private party
relating to (a) any Environmental Laws or (b) any Environmental Claims;
(vi) neither Borrower nor any of its Subsidiaries has received any
notice that it is or may be materially liable as the result of any Release
of any Hazardous Materials by Borrower or any of its Subsidiaries;
(vii) none of Borrower's or any of its Subsidiaries' operations
involves the generation, transportation, treatment, storage or disposal of
hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state
equivalent;
(viii) no Hazardous Materials exist on, under or about any Facility
in a manner that has a reasonable possibility of giving rise to an
Environmental Claim having a Material Adverse Effect, and neither Borrower
nor any of its Subsidiaries, nor, to the best knowledge of Borrower, any
predecessor of Borrower or any of its Subsidiaries has filed any notice
under any Environmental Law indicating past or present treatment or Release
of Hazardous Materials at any Facility, that has a reasonable possibility
of giving rise to an Environmental Claim having a Material Adverse Effect;
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(ix) neither Borrower nor any of its Subsidiaries nor, to the best
knowledge of Borrower, any of their respective predecessors has disposed of
any Hazardous Materials in a manner that has a reasonable possibility of
giving rise to an Environmental Claim having a Material Adverse Effect;
(x) no underground storage tanks or surface impoundments are on or at
any Facility; and
(xi) no Lien in favor of any Person relating to or in connection with
any Environmental Claim has been filed or has been attached to any
Facility.
5.14 EMPLOYEE MATTERS.
There is no strike or work stoppage in existence or threatened
involving Borrower or any of its Subsidiaries that could reasonably be
expected to have a Material Adverse Effect.
5.15 SOLVENCY.
Borrower and each of its Subsidiaries is and, upon the incurrence of
any Obligations by Borrower on any date on which this representation is
made, will be, Solvent.
5.16 INVENTORY.
Except as disclosed in the information provided to Collateral Agent by
Borrower under subsection 6.8 or otherwise disclosed to Collateral Agent in
writing, with respect to all Inventory:
(a) Collateral Agent may rely upon all statements, warranties, or
representations made in any Borrowing Base Certificate or other written
report regarding Inventory delivered hereunder by Borrower in determining
which items of Inventory are to be deemed Eligible Inventory;
(b) No such Inventory is subject to any Lien whatsoever, except for
Liens of Collateral Agent hereunder and Permitted Encumbrances; and
(c) No such Inventory has been consigned to any Person (other than
consignment by a Credit Party to another Credit Party).
5.17 GENUINENESS OF ACCOUNTS.
Except as disclosed to Collateral Agent in the information provided to
Managing Agent under subsection 6.8 or otherwise disclosed to Collateral
Agent in writing, with respect to Accounts of Borrower and each Operating
Subsidiary as of the date of such information and as disclosed therein:
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(a) Collateral Agent may rely upon all statements, warranties or
representations made in any Borrowing Base Certificate or other report
regarding Accounts delivered hereunder by Borrower in determining which
Accounts are to be deemed Eligible Accounts;
(b) All such Accounts are genuine, are in all material respects what
they purport to be, are not evidenced by a judgment, and are not evidenced
by more than one, if any, executed original instrument, which original has
been delivered or made available to Collateral Agent and Borrower has no
knowledge of any fact or circumstance that would impair the validity or
collectibility thereof including, without limitation, any setoffs,
counterclaims or disputes (except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditor's rights generally or by general equitable
principles whether enforcement is sought in equity or at law).
(c) All such Accounts arise from bona fide transactions completed
substantially in accordance with the terms and provisions contained in any
documents related thereto and no such Account has been assigned (other than
Defaulted Accounts assigned for collection) or pledged to any other Person
other than Collateral Agent;
(d) The amounts of the face values shown on any Borrowing Base
Certificate or other report regarding Accounts delivered hereunder and all
invoices and statements delivered to Collateral Agent with respect to any
such Account are actually and absolutely owing to Borrower or such
Operating Subsidiaries, as the case may be (except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditor's rights generally or by general
equitable principles whether enforcement is sought in equity or at law),
and are not contingent for any reason, other than discounts or allowances
allowed by such Borrower in the ordinary course of business for prompt
payment or volume purchases, all of which discounts or allowances have been
made in conformity with the applicable Credit and Collection Policy or
otherwise disclosed to Collateral Agent;
(e) All Account Debtors, to Borrower's best knowledge had the
capacity to contract at the time any contract or other document giving rise
to such Account was executed;
(f) The goods giving rise to any such Account are not, and were not
at the time of the sale thereof, subject to any Lien, claim, encumbrance or
security interest, except for Permitted Encumbrances, Liens in favor of
carriers of the goods in the ordinary course of Borrower's or such
Operating Subsidiaries' business and Liens in favor of Collateral Agent;
and
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(g) None of the Accounts is or, prior to becoming a Defaulted Account,
will be, evidenced by (i) an ``instrument'' (as defined in the UCC) or (ii)
``chattel paper'' (as defined in the UCC).
5.18 REPRESENTATIONS CONCERNING CREDIT AND COLLECTION POLICY.
The summary of the Credit and Collection Policy attached hereto as Schedule
5.18 is accurate and complete in all material respects as of the Closing
Date and does not omit to state any material fact necessary to make the
statements set forth therein not misleading. There has been no change to
the Credit and Collection Policy since November 30, 1993 except such
changes as have been disclosed to Managing Agent in writing and approved by
Managing Agent.
5.19 REPRESENTATIONS CONCERNING CASH MANAGEMENT SYSTEM.
The summary of the Cash Management System attached hereto as Schedule 5.19
is accurate and complete in all material respects as of the Closing Date
and does not omit to state any material fact necessary to make the
statements set forth therein not misleading. Neither Borrower nor any
Operating Subsidiary owns any Deposit Account which is not described in
Schedule 5.19 or otherwise permitted pursuant to subsections 6.10 or 7.3 or
as otherwise permitted pursuant to this Agreement. There has been no
change to the Cash Management System (other than as permitted by subsection
6.10) since the Closing Date except such changes as have been disclosed to
Managing Agent in writing and approved by Managing Agent. A Cash
Management Letter covering each Deposit Account (other than Excluded
Accounts) included in the Cash Management System has been delivered to
Collateral Agent.
5.20 INTELLECTUAL PROPERTY
A. The Credit Parties own, or are licensed to use or otherwise have the
lawful right to use, the Intellectual Property and all such registered
Intellectual Property is fully protected and duly and properly registered,
filed or issued in the appropriate office and jurisdictions for such
registrations, filing or issuances. All registered Intellectual Property
and the Credit Party holding rights therein is described in Schedule 5.20
annexed hereto. Each of the license agreements (together with any such
agreements entered into after the Closing Date, the ``LICENSE AGREEMENTS'')
pursuant to which any Credit Party has rights to use material Intellectual
Property as of the Closing Date is set forth in Schedule 5.20 annexed
hereto. Each Credit Party is in compliance with the material terms of each
License Agreement to which it is a party and each such License Agreement is
in full force and effect the failure of which would result in a Material
Adverse Effect or an Event of Default hereunder.
B. No material claim has been asserted by any Person with respect to the
use of any such Intellectual Property, or challenging or questioning the
validity or effectiveness of any such Intellectual Property which could
reasonably be expected to result in a Material Adverse Effect. To
Borrower's knowledge, the use of such Intellectual Property by each Credit
Party does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liabilities
on the part
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of any Credit Party that could reasonably be expected to result in a Material
Adverse Effect. The consummation of the transactions contemplated by this
Agreement will not in any material manner or to any material extent impair the
ownership of (or the license to use, as the case may be) any of such
Intellectual Property by any Credit Party.
5.21 DISCLOSURE.
No representation or warranty of Borrower or any of its Subsidiaries
contained in any Loan Document or in any other document, certificate or written
statement furnished to Lenders by or on behalf of Borrower or any of its
Subsidiaries for use in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact (known to Borrower, in the case of any document not furnished by
it) necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. Any
projections and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by Borrower to be
reasonable at the time made, it being recognized by Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results. There is no fact known (or which should upon the
reasonable exercise of diligence be known) to Borrower (other than matters of a
general economic nature) that has had, or could reasonably be expected to result
in, a Material Adverse Effect and that has not been disclosed herein or in such
other documents, certificates and statements furnished to Lenders for use in
connection with the transactions contemplated hereby.
SECTION 6.
BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as the Commitments hereunder
shall remain in effect and until payment in full of all of the Loans and other
Obligations and the cancellation, expiration or cash collateralization in
accordance with the terms hereof of all Letters of Credit, unless Requisite
Lenders shall otherwise give prior written consent, Borrower shall perform, and
shall cause each of its Subsidiaries to perform, all covenants in this Section
6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
Borrower will maintain, and cause each of its Subsidiaries to maintain, a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Borrower will deliver to Managing Agent and Lenders:
(i) Monthly Financials: as soon as available and in any event within
20 days after the end of each month ending after the Closing Date, (a) the
consolidated and consolidating balance sheets of Borrower and its
Subsidiaries as at the end
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of such month and the related consolidated and consolidating statements of
income and consolidated statement of cash flows of Borrower and its
Subsidiaries for such month and for the period from the beginning of the
then current Fiscal Year to the end of such month, setting forth in each
case in comparative form the corresponding figures for the corresponding
periods of the previous Fiscal Year and the corresponding figures from the
consolidated plan and financial forecast for the current Fiscal Year
delivered pursuant to subsection 6.1(xiii), to the extent prepared on a
monthly basis, all in reasonable detail and certified by the chief
financial officer, chief accounting officer, controller or treasurer of
Borrower that they fairly present the financial condition of Borrower and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments, and (b) a
report on all Intercompany Note transactions for each day in such month as
customarily prepared by Borrower.
(ii) Quarterly Financials: as soon as available and in any event
within 45 days after the end of each of the first three fiscal quarters of
each Fiscal Year, the consolidated and consolidating balance sheets of
Borrower and its Subsidiaries as at the end of such fiscal quarter and the
related consolidated and consolidating statements of income and
consolidated statement of cash flows of Borrower and its Subsidiaries for
such fiscal quarter and for the period from the beginning of the then
current Fiscal Year to the end of such fiscal quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding
figures from the consolidated plan and financial forecast for the current
Fiscal Year delivered pursuant to subsection 6.1(xiii), all in reasonable
detail and certified by the chief financial officer, chief accounting
officer, controller or treasurer of Borrower that they fairly present the
financial condition of Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal year-
end adjustments;
(iii) Year-End Financials: as soon as available and in any event
within 90 days after the end of each Fiscal Year, (a) the consolidated and
consolidating balance sheets of Borrower and its Subsidiaries as at the end
of such Fiscal Year and the related consolidated and consolidating
statements of income, and consolidated statement of stockholders' equity
and cash flows of Borrower and its Subsidiaries for such Fiscal Year,
setting forth in each case in comparative form the corresponding figures
for the previous Fiscal Year and the corresponding figures from the
consolidated plan and financial forecast delivered pursuant to subsection
6.1(xiii) for the Fiscal Year covered by such financial statements, all in
reasonable detail and certified by the chief financial officer, chief
accounting officer, controller or treasurer of Borrower that they fairly
present the financial condition of Borrower and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated and (b) in the case of such consolidated
financial statements, a report thereon of Price Waterhouse or other
independent certified public accountants of recognized national standing
selected by Borrower and satis-
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factory to Managing Agent, which report shall be unqualified, shall express
no doubts about the ability of Borrower and its Subsidiaries to continue as
a going concern, and shall state that such consolidated financial
statements fairly present the consolidated financial position of Borrower
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the examination
by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards;
(iv) Officer's and Compliance Certificates: together with each
delivery of financial statements of Borrower and its Subsidiaries pursuant
to subdivisions (i), (ii) and (iii) above, (a) an Officer's Certificate of
Borrower stating that the signer has reviewed the terms of this Agreement
and has made, or caused to be made under such officer's supervision, a
review in reasonable detail of the transactions and condition of Borrower
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 signer does not have
knowledge of the existence as at the date of such Officer's Certificate, of
any condition or event that constitutes an Event of Default or Potential
Event of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
Borrower has taken, is taking and proposes to take with respect thereto;
and (b) a Compliance Certificate demonstrating in reasonable detail
compliance for such applicable accounting periods with the restrictions
contained in Section 7;
(v) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of Borrower and its Subsidiaries
delivered pursuant to subdivisions (ii) or (iii) of this subsection 6.1
will differ in any material respect from the consolidated financial
statements that would have been delivered pursuant to such subdivisions had
no such change in accounting principles and policies been made, then (a)
together with the first delivery of financial statements pursuant to
subdivision (ii) or (iii) of this subsection 6.1 following such change,
consolidated financial statements of Borrower and its Subsidiaries for (y)
the current Fiscal Year to the effective date of such change and (z) the
two full Fiscal Years immediately preceding the Fiscal Year in which such
change is made, in each case prepared on a pro forma basis as if such
change had been in effect during such periods, and (b) together with each
delivery of financial statements pursuant to subdivision (ii) or (iii) of
this subsection 6.1 following such change, a written statement of the chief
accounting officer or chief financial officer of Borrower setting forth the
differences which would have resulted in the calculation of the covenants
set forth in Section 7 if such financial statements had been prepared
without giving effect to such change.
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(vi) Accountants' Certification: together with each delivery of
consolidated financial statements of Borrower and its Subsidiaries pursuant
to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit examination has included a review of the terms of this
Agreement and the other Loan Documents as they relate to accounting matters
and (b) stating whether, in connection with their audit examination, any
condition or event that constitutes an Event of Default or Potential Event
of Default has come to their attention and, if such a condition or event
has come to their attention, specifying the nature and period of existence
thereof; provided that such accountants shall not be liable by reason of
any failure to obtain knowledge of any such Event of Default or Potential
Event of Default that would not be disclosed in the course of their audit
examination.
(vii) Accountants' Reports: copies of all reports submitted to
Borrower by independent certified public accountants in connection with
each annual, interim or special audit of the financial statements of
Borrower and its Subsidiaries made by such accountants, including, without
limitation, any comment letter submitted by such accountants to management
in connection with their annual audit shall be made available for review by
Managing Agent promptly after its request therefor;
(viii) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Borrower to its
security holders or by any Subsidiary of Borrower generally to its security
holders other than Borrower or another Subsidiary of Borrower, (b) all
regular and periodic reports and all effective registration statements
(other than on Form S-8 or a similar form) and effective prospectuses, if
any, filed by Borrower or any of its Subsidiaries with any securities
exchange or with the Securities and Exchange Commission or any governmental
or private regulatory authority, and (c) all press releases and other
statements made available generally by Borrower or any of its Subsidiaries
to the public concerning material developments in the business of Borrower
or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any executive or senior
officer of Borrower obtaining knowledge (a) of any condition or event that
constitutes an Event of Default or Potential Event of Default, or becoming
aware that any Lender has given any notice (other than to Agent) or taken
any other action with respect to a claimed Event of Default or Potential
Event of Default, (b) that any Person has given any notice to Borrower or
any of its Subsidiaries or taken any other action with respect to a
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claimed default or event or condition of the type referred to in subsection
8.2, (c) of any condition or event required to be disclosed in a current
report filed by Borrower with the Securities and Exchange Commission on
Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date
hereof) concurrently with the filing of such Form 8-K by Borrower or (d) of
the occurrence of any event or change that has caused or evidences, either
in any case or in the aggregate, a Material Adverse Effect, an Officer's
Certificate specifying the nature and period of existence of such
condition, event or change, or specifying the notice given or action taken
by any such Person and the nature of such claimed Event of Default,
Potential Event of Default, default, event or condition, and what action
Borrower has taken, is taking and proposes to take with respect thereto;
(x) Litigation or Other Proceedings: promptly upon any executive or
senior officer of Borrower obtaining knowledge of (X) the institution of,
or non-frivolous threat of, any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Borrower or any of its Subsidiaries or any
property of Borrower or any of its Subsidiaries (collectively,
``PROCEEDINGS'') not previously disclosed in writing by Borrower to Lenders
or (Y) any material development in any Proceeding that, in any case:
(1) if adversely determined, has a reasonable possibility of
giving rise to an Event of Default or a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Borrower to enable Lenders and their counsel to
evaluate such matters;
(xi) ERISA Events: promptly upon an executive or senior officer of
Borrower becoming aware (a) of the occurrence of or forthcoming occurrence
of any ERISA Event, a written notice specifying the nature thereof, what
action Borrower or any of its ERISA Affiliates has taken, is taking or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of Labor or the
PBGC with respect thereto and (b) of the complete or partial withdrawal by
any employer (within the meaning of Section 4203 or 4205 of ERISA) from the
Clothing Retirement Fund of the Amalgamated Insurance Fund, a written
notice containing such information concerning the identity of the employer
and the magnitude of the withdrawal liability of which any officer of
Borrower is aware;
(xii) ERISA Notices: with reasonable promptness, copies of (a) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by Borrower or any of its Subsidiaries with the Internal Revenue
Service with respect to each Pension Plan; (b) all notices received by
Borrower or any of its Subsidiaries from a Multiemployer Plan sponsor
concerning an ERISA Event; (c)
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commencing with the information with respect to 1993, after the information
becomes available under Section 4221(e) of ERISA, and annually thereafter
during the term of this Agreement, an estimate of the withdrawal liability
Borrower or any of its ERISA Affiliates would incur upon a complete
withdrawal (within the meaning of Section 4203 of ERISA) from the Clothing
Retirement Fund of the Amalgamated Insurance Fund (the ``FUND'') during the
year following the year for which the most recent actuarial valuation has
been performed and submitted to the Trustees of the Fund, an Actuarial
Valuation and Review for the Fund and a Report on Employer Withdrawal
Liability for the Fund; and (d) such other documents or governmental
reports or filings relating to any Employee Benefit Plan as Agent shall
reasonably request;
(xiii) Financial Plans: on or before the Closing Date, and thereafter
as soon as practicable and in any event no later than 30 days prior to the
beginning of each Fiscal Year preliminary copies of, and as soon as
available and, in any event, by February 15 of the following Fiscal Year,
final copies of, a consolidated and consolidating plan and financial
forecast for the next succeeding Fiscal Years on a month by month basis
through the Commitment Termination Date, including without limitation (a)
forecasted consolidated and consolidating balance sheets and forecasted
consolidated and consolidating statements of income and consolidated cash
flows of Borrower and its Subsidiaries for each such Fiscal Year, together
with pro forma Compliance Certificates with respect to the covenants set
forth in subsection 7.6 for each such Fiscal Year and an explanation of the
material assumptions on which such forecasts are based, (b) forecasted
consolidated and consolidating statements of income and consolidated cash
flows of Borrower and its Subsidiaries for each month of the first such
Fiscal Year, together with an explanation of the material assumptions on
which such forecasts are based and (c) such other information and
projections as any Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to
Agent outlining all material insurance coverage maintained as of the date
of such report by Borrower and its Subsidiaries and all material insurance
coverage planned to be maintained by Borrower and its Subsidiaries in the
immediately succeeding Fiscal Year;
(xv) Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of Borrower or any of its Subsidiaries or by
independent consultants, with respect to significant environmental matters
at any Facility or which relate to an Environmental Claim which could
result in a Material Adverse Effect;
(xvi) Board of Directors: with reasonable promptness (but in any
event no earlier than such information is generally made public), written
notice of any change in the Board of Directors of Borrower; and
(xvii) Other Information: with reasonable promptness, such other
information and data with respect to Borrower or any of its Subsidiaries
as from time to time may be reasonably requested by Managing Agent.
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6.2 CORPORATE EXISTENCE, ETC.
Except as permitted under subsection 7.7, Borrower will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its corporate existence and all rights and franchises material to its
business, except where the failure to maintain the same could reasonably be
expected to have a Material Adverse Effect.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
A. Borrower will, and will cause each of its Subsidiaries to, pay all taxes
(except for nonmaterial state and local taxes which Borrower reasonably believes
are not required to be paid because of jurisdictional or other limitations and
the non-payment of which would not result in a Material Adverse Effect or a Lien
on any Collateral other than Liens permitted under subsection 7.2), assessments
and other governmental charges imposed upon it or any of its properties or
assets or in respect of any of its income, businesses or franchises before any
penalty accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; provided that no such charge or claim need be paid if being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and if such reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor.
B. Borrower will not, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated income tax return with any Person
(other than Borrower or any of its Subsidiaries).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE.
Borrower will, and will cause each of its Subsidiaries to, take all
reasonable action to maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of Borrower and its Subsidiaries (including,
without limitation, Intellectual Property) and from time to time will make or
cause to be made all reasonably necessary repairs, renewals and replacements
thereof. Borrower will maintain or cause to be maintained, with financially
sound and reputable insurers, insurance with respect to its properties and
business and the properties and businesses of its Subsidiaries against loss or
damage consistent with the policies and programs in effect as of the Closing
Date and of the kinds customarily carried or maintained under similar
circumstances by corporations of established reputation engaged in similar
businesses; provided that Borrower and its Subsidiaries may maintain workers
compensation self insurance programs and such other additional self insurance
programs as are customary for their size and industry and as are established and
administered in accordance with prudent business practices. Each such policy of
insurance shall name Collateral Agent for the benefit of Lenders as an
additional insured and/or as the loss payee thereunder as appropriate and shall
provide for at least 10 days prior written notice to Collateral Agent of any
modification or cancellation of such policy.
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6.5 INSPECTION; LENDER MEETING.
Borrower shall, and shall cause each of its Subsidiaries to, permit any
authorized representatives designated by any Lender to visit and inspect any of
the properties of Borrower or any of its Subsidiaries, including its and their
financial and accounting records, 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 (provided that Borrower
may, if it so chooses, be present at or participate in any such discussion), all
upon reasonable notice and at such reasonable times during normal business hours
and as often as Borrower and such Lender may reasonably agree. Without in any
way limiting the foregoing, Borrower will, upon the request of Agent or
Requisite Lenders, participate in a meeting of Managing Agent and Lenders once
during each Fiscal Year to be held at Borrower's corporate offices (or such
other location as may be agreed to by Borrower and Managing Agent) at such time
as may be agreed to by Borrower and Managing Agent, but in any case, as long as
no Event of Default or Potential Event of Default shall have occurred and be
continuing, no sooner that 15 days after Borrower's annual meeting of
stockholders.
6.6 COMPLIANCE WITH LAWS, ETC.
Borrower shall, and shall cause each of its Subsidiaries to, comply with
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could reasonably be expected to
cause a Material Adverse Effect.
6.7 ENVIRONMENTAL MATTERS.
A. Borrower shall, and shall cause each of its Subsidiaries to, exercise
all due diligence in order to comply and cause (i) all tenants under any leases
or occupancy agreements affecting any portion of the Facilities and (ii) all
other Persons on or occupying such property, to comply with all Environmental
Laws and Governmental Authorizations in all material respects including, without
limitation, with respect to the presence, storage, use, disposal, transportation
or Release of any Hazardous Materials on, under or about any Facility.
B. Borrower agrees that Managing Agent may, from time to time in its
reasonable discretion, retain, at Borrower's expense, an independent
professional consultant to review any report relating to Hazardous Materials
prepared by or for Borrower and to conduct its own investigation of any Facility
currently owned, leased, operated or used by Borrower or any of its
Subsidiaries, and Borrower agrees to use its best reasonable efforts to obtain
permission for Managing Agent's professional consultant to conduct its own
investigation of any Facility previously owned, leased, operated or used by
Borrower or any of its Subsidiaries, all upon reasonable notice, during normal
business hours and as often as may be reasonably requested. Borrower hereby
grants to Managing Agent and its agents, employees, consultants and contractors
the right to enter into or on to the Facilities currently owned, leased,
operated or used by Borrower or any of its Subsidiaries to perform
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such tests on such property as are reasonably necessary to conduct such a review
and/or investigation. Any such investigation of any Facility shall be
conducted, to the extent reasonably practicable, so as not to interfere with the
ongoing operations at any such Facility or to cause any damage or loss to any
property at such Facility. Agents and Lenders shall have no duty to disclose or
discuss any information produced by such reviews or investigations with Borrower
or any of its Subsidiaries.
C. Borrower shall promptly advise Lenders in writing and in reasonable
detail of any:
(i) Release of any Hazardous Materials required to be reported to any
governmental agency under applicable Environmental Laws;
(ii) any Environmental Claim that could reasonably be expected to
result in a Material Adverse Effect;
(iii) notice to Borrower or any Subsidiary of any material violation
of any Environmental Laws;
(iv) commencement of any judicial or administrative proceeding
alleging, or any request for information that suggests any governmental
agency is investigating, a violation by Borrower or any Subsidiary of any
Environmental Laws; or
(v) any action by Borrower or any of its Subsidiaries, including the
acquisition of any assets or the commencement of any business, that could
reasonably be expected to result in any Environmental Claims that could
have a Material Adverse Effect.
D. Borrower shall, at its own expense, provide copies of such documents
or information as Managing Agent may reasonably request in relation to any
matters disclosed pursuant to this subsection 6.7.
6.8 BORROWING BASE CERTIFICATES; OPERATING REPORTS.
(i) Borrowing Base Certificates. Borrower shall deliver to
Collateral Agent and Lenders, a Borrowing Base Certificate (i) with respect
to the Accounts component of the Borrowing Base, by 10:00 A.M. (New York
time) on the fifth day of each month and (ii) with respect to the Inventory
components of the Borrowing Base, by 10:00 A.M. (New York time) on the
fifteenth day of each month.
(ii) Operating Reports. Borrower shall deliver to Collateral Agent,
in form and detail satisfactory to Collateral Agent, each operating report
listed on Schedule 6.8, in the manner described on such Schedule, and each
other operating report reasonably requested by Collateral Agent;
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(iii) Collection Reports. Upon request of Collateral Agent, Borrower
shall make available to Collateral Agent copies of deposit slips for each
deposit, reasonably detailed information regarding the application of
proceeds and such other information regarding receipts, expenditures and
deposit account balances as Collateral Agent may reasonably request and as
Borrower and its Subsidiaries maintain from time to time in accordance with
its customary practice;
(iv) Inventory Reports.
(a) At least two times in each Fiscal Year, Borrower shall, at
its expense, conduct, and permit Collateral Agent to monitor, a
comprehensive detailed count of and evaluation of at least 80% of all
Inventory in accordance with Borrower's usual and customary practices
for such count and evaluation; provided that at least once per year
Borrower shall, at its expense, have its independent certified public
accountants oversee such count and evaluation in accordance with
standard audit procedures.
(b) Collateral Agent, in its reasonable discretion (and as
frequently as once a fiscal quarter), at Borrower's expense, may
review or have an outside consultant selected by Collateral Agent
review, upon reasonable notice and at reasonable times, the quality
and amount of Inventory.
6.9 RECEIVABLES REPORTING; OTHER REQUIREMENTS.
Borrower shall and shall cause each Operating Subsidiary to:
A. CONVERSION OF FILE TAPES. Upon notice from Collateral Agent at
any time, in its reasonable discretion, cooperate with the Collateral Agent
in connection with the writing and development of a conversion program
(such program to be held by Collateral Agent) in respect of the File Tapes.
B. SERVICING PROGRAMS. Upon notice from Collateral Agent at any time
upon and during the continuance of an Event of Default, deliver to
Collateral Agent all computer software, programs and related materials
necessary or advisable to permit the collection of the Accounts by a
servicer other than Borrower or such Operating Subsidiary, through the use
of computer hardware and systems software compatible with that used by
Borrower and its Subsidiaries, and from time to time thereafter, promptly
upon the development thereof, any amended or newly instituted programs or
related materials, in each case to the extent that such delivery would not
violate the terms thereof; provided Borrower shall use its best efforts to
obtain any required consents for such delivery.
C. FILE TAPES. Create File Tapes consistent with Borrower's usual
and customary practices, but, in any event, at least on a weekly basis,
reflecting all transactions with respect to Accounts on such day and, upon
notice from Collateral Agent at any time, in its reasonable discretion,
deliver to a storage facility to which Collateral Agent shall have access,
as soon as available and in any event within one day after the date on
which a File Tape is created, an original or a duplicate copy
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of such File Tape. Maintain satisfactory disaster recovery procedures with
respect to File Tapes and all software and hardware necessary for the
servicing and collection of the Accounts consistent with Borrower's usual
and customary practices.
D. EXISTING SERVICING CONTRACTS. Maintain any existing arrangements
between Borrower and its Subsidiaries and any other Person relating to the
servicing and collection of the Accounts, such arrangements, with such
modifications, changes and replacements as Borrower may make from time to
time upon notice to Collateral Agent and consistent with the Credit and
Collection Policy, and in all cases subject to Collateral Agent's rights
under the Loan Documents, to remain in effect until the earlier of (i) the
satisfaction in full of the Obligations and (ii) the collection of all
Accounts to the satisfaction of Collateral Agent.
E. SUCCESSOR SERVICER. In the event that the existing servicing
arrangements for the Accounts are not at any time reasonably satisfactory
to Collateral Agent, Borrower or the applicable Operating Subsidiary shall
terminate such servicing arrangements and obtain a nationally recognized
successor servicer approved by Collateral Agent to continue servicing the
Accounts (upon such terms and for such fee as shall be approved in writing
by Collateral Agent) in accordance with the Credit and Collection Policy.
6.10 CASH MANAGEMENT SYSTEM.
A. CASH MANAGEMENT SYSTEM. Borrower and the Operating Subsidiaries
shall continue to maintain the Cash Management System as in effect on the
Closing Date; provided that Borrower and the Operating Subsidiaries may
open and close Deposit Accounts and make other changes to the Cash
Management System in the ordinary course of business upon notice to
Collateral Agent and as long as (i) no Event of Default or Potential Event
of Default has occurred and is continuing or would result therefrom, (ii)
such changes, either individually or in the aggregate are not adverse to
any Agent or any Lender (in its capacity as a Lender) or impair any rights
of Collateral Agent under the Collateral Documents and (iii) all Receipts
of Borrower and the Operating Subsidiaries continue to be collected and
distributed pursuant to procedures subject to Cash Management Letters at
all times.
B. COLLATERAL AGENT RIGHTS. Managing Agent may, at any time in its
reasonable discretion and regardless of whether any Event of Default shall
have occurred and be continuing, deliver notice under the Cash Management
Letter to each of the financial institutions party thereto, requiring that
all funds on deposit in the Deposit Accounts of Borrower and the Operating
Subsidiaries be transferred on a daily basis to the Collection Account (it
being understood that funds may be transferred through intermediary
accounts in the Cash Management System subject to Cash Management Letters
prior to ultimate transfer to the Collection Account), and upon such notice
and thereafter, without limiting any other provision of this Agreement or
the other Loan Documents, Borrower agrees to perform and comply and to
cause each Operating Subsidiary to perform and comply with the following
covenants and agreements:
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(i) Receipts shall be received and held by Borrower and each Operating
Subsidiary and any of their respective officers, employees, agents or other
Persons acting for or in concert with any Credit Party to make collections
for or on behalf of any Credit Party (``COLLECTING AGENTS''), in trust for
Collateral Agent as Collateral. Notwithstanding any other provision of
this Agreement or any other Loan Document, all Receipts shall be paid by
the obligor thereon into the Deposit Accounts subject to the Cash
Management System. On a daily basis, each Credit Party, or any Collecting
Agent, shall deposit or shall cause to be deposited, all Receipts into
Deposit Accounts included in the Cash Management System and subject to Cash
Management Letters on or before the first Business Day following receipt
thereof.
(ii) Except to the extent otherwise provided herein, upon deposit in
the Collection Account, any Receipts consisting of cash or wire or
electronic transfers in immediately available funds shall be applied by
Collateral Agent to the Loans and other Obligations as set forth in
Subsection 6.10B(iii).
(iii) Any payments received by Collateral Agent under this subsection
6.10 shall be applied in the following order unless Collateral Agent
otherwise elects: (i) any due and payable fees, expenses or other charges
in respect of the Obligations; (ii) any due and payable interest payments
on the Loans (with application to Swing Line Loans first and Revolving
Loans second); (iii) principal payments on the Loans (whether or not due
and payable (with application to Swing Line Loans first and Revolving Loans
second); and (iv) other due and payable Obligations or to collateralize
Letters of Credit to the extent required hereunder; provided, however, that
principal and interest on LIBOR Rate Loans shall not be required to be paid
to the extent that any such payment will result in the incurrence of any
increased costs pursuant to subsection 2.6, as long as at such time, no
Event of Default or Potential Event of Default shall have occurred or be
continuing and Borrower would be entitled to borrow LIBOR Rate Loans
hereunder upon submission of an appropriate Notice of Borrowing therefor.
(iv) Each Credit Party irrevocably makes, constitutes and appoints
Collateral Agent, and all Persons designated by Collateral Agent for that
purpose, at any time, as such Credit Party's true and lawful attorney and
agent-in-fact to endorse Borrower's name on any checks, notes, drafts or
any other form of payment relating to Collateral or Receipts or proceeds of
Collateral or Receipts that come into Collateral Agent's possession or
under Collateral Agent's control; provided, however, that such appointment
by such Credit Party of Collateral Agent as such Credit Party's attorney-
in-fact shall in no case impose upon Collateral Agent any obligation or
duty to take any actions on behalf of such Credit Party or any fiduciary
obligations with respect to such Credit Party.
(v) At all times, each Credit Party shall continue to deposit all
Receipts in the Collection Account and, after application of such amounts
against the Obligations in the order set forth in clause (iii) above,
Collateral Agent shall remit to Borrower the net amount of such Receipts;
it being understood and agreed that if
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an Event of Default shall have occurred and be continuing and there shall
be outstanding any Letters of Credit, Collateral Agent shall only remit
that amount to Borrower as exceeds the amounts of immediately available
funds in the Collection Account equal to the aggregate outstanding Letter
of Credit Usage as of the date of determination, with such remaining
amounts equal to the aggregate outstanding Letter of Credit Usage in
immediately available funds to be deposited into the Collateral Account to
be administered as provided in the Pledge and Security Agreement.
SECTION 7.
BORROWER'S NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as the Commitments hereunder
shall remain in effect and until payment in full of all of the Loans and other
Obligations and the cancellation, expiration or cash collateralization in
accordance with the terms hereof of all Letters of Credit, unless Requisite
Lenders shall otherwise give prior written consent, Borrower shall perform, and
shall cause each of its Subsidiaries to perform, all covenants in this Section
7.
7.1 INDEBTEDNESS.
Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
(i) Borrower may become and remain liable with respect to the
Obligations;
(ii) Borrower and its Subsidiaries may become and remain liable with
respect to Contingent Obligations permitted by subsection 7.4 and, upon any
matured obligations actually arising pursuant thereto, the Indebtedness
corresponding to the Contingent Obligations so extinguished;
(iii) Borrower and its Subsidiaries may become and remain liable with
respect to Indebtedness in respect of Capital Leases; provided that such
Capital Leases are permitted under the terms of subsection 7.9;
(iv) Borrower may become and remain liable with respect to
Indebtedness to any of its Operating Subsidiaries, and any Operating
Subsidiary of Borrower may become and remain liable with respect to
Indebtedness to Borrower; provided that (a) all such intercompany
Indebtedness shall be evidenced by the Intercompany Notes and secured by a
second-priority security interest in the Collateral pursuant to the
Collateral Documents, (b) all such intercompany Indebtedness shall be
subordinated in right of payment to the payment in full of the Obligations,
and (c) any payment by any Operating Subsidiary under the Guaranty shall
result in a pro
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tanto reduction of the amount of any intercompany Indebtedness owed by such
Operating Subsidiary to Borrower;
(v) Borrower and its Subsidiaries, as applicable, may remain liable
with respect to the Existing EDBs;
(vi) Borrower and its Subsidiaries may become and remain liable with
respect to other unsecured Indebtedness in an aggregate principal amount
not to exceed $33,000,000 at any time outstanding;
(vii) Borrower and its Subsidiaries may become and remain liable with
respect to purchase money Indebtedness in aggregate principal amount not to
exceed $10,000,000 at any time outstanding; provided that the assets
securing such Indebtedness are not included in the Collateral and are
limited solely to the assets purchased with the proceeds of such
Indebtedness; and
(viii) In the event that HSSI shall become a Subsidiary of Borrower,
Indebtedness of HSSI and its Subsidiaries at the time HSSI becomes such a
Subsidiary; and
(ix) Indebtedness of one Operating Subsidiary (the "Transferee
Subsidiary") to another Operating Subsidiary (the "Transferor
Subsidiary") representing the unpaid purchase price of non-cash assets
transferred by the Transferor Subsidiary to the Transferee Subsidiary that
is not prohibited under subsection 7.7; and
(x) Borrower may become and remain liable in respect of the ESOP
Loan Documents; and
(xi) Borrower may become and remain liable in respect of the
Subordinated Indebtedness.
7.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. Borrower shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume
or permit to exist any Lien on or with respect to any property or asset of
any kind (including any document or instrument in respect of goods or
accounts receivable) of Borrower or any of its Subsidiaries, whether now
owned or hereafter acquired, or any income or profits therefrom, or file or
permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any Lien with respect to any such
property, asset, income or profits under the Uniform Commercial Code of any
State or under any similar recording or notice statute (other than for
precautionary notice filings in connection with transactions permitted
hereunder such as leases, consignments and the sale of accounts which do
not evidence Liens securing Indebtedness or other obligations), except:
(i) Permitted Encumbrances;
(ii) Liens created pursuant to the Collateral Documents;
(iii) Other Liens securing Indebtedness permitted pursuant to
subsection 7.1(vii);
(iv) Liens in existence as of the Closing Date as set forth in
Schedule 7.2 annexed hereto;
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(v) Liens arising in connection with the deposit of Cash or securities
with the trustee for the holders of the Senior Subordinated Notes in
connection with any redemption or repurchase by Borrower of Senior
Subordinated Notes permitted by subsection 7.5; provided that any such Lien
only attaches to the cash or securities so deposited; and
(vi) Liens existing on the property of a Person immediately prior to
such Person becoming a Subsidiary or being consolidated with or merged into
Borrower or any of its Subsidiaries or its becoming a Subsidiary of
Borrower, or Liens existing on any property acquired by Borrower or any of
its Subsidiaries at the time such is so acquired; provided that (i) no such
Lien was created or assumed in contemplation of such consolidation, merger
or acquisition or such Person becoming a Subsidiary of Borrower, whether as
security of the payment of any consideration due in connection with such
transaction or otherwise, (ii) each such Lien shall only cover the acquired
property and, if required by the terms of the instrument originally
creating such Lien, property which is an improvement to or is required for
specific use in connection with such acquired property, and (iii) no such
Lien shall encumber property constituting Collateral.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Borrower or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.
C. NO FURTHER NEGATIVE PLEDGES. Other than (i) with respect to specific
property encumbered to secure payment of particular Indebtedness or other
obligations or to be sold pursuant to an executed agreement with respect to an
Asset Sale, (ii) restrictions with respect to a Subsidiary and its Subsidiaries
pursuant to an agreement relating to any Indebtedness issued by such Subsidiary
on or prior to the date on which such Subsidiary became a Subsidiary or was
acquired by the Company or any of its Subsidiaries (other than Indebtedness
issued as consideration in, or to provide any funds utilized to consummate, the
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Borrower) and (iii) customary non-assignment provisions
contained in licenses, leases and other agreements, neither Borrower nor any of
its Subsidiaries shall enter into any agreement prohibiting the creation or
assumption of any Lien upon any of its properties or assets, whether now owned
or hereafter acquired.
D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO BORROWER OR OTHER
SUBSIDIARIES. Except as provided herein, Borrower will not, and will not
permit any of its Subsidiaries to, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock
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owned by Borrower or any other Subsidiary of Borrower, (ii) repay or prepay any
Indebtedness owed by such Subsidiary to Borrower or any other Subsidiary of
Borrower, (iii) make loans or advances to Borrower or any other Subsidiary of
Borrower, or (iv) transfer any of its property or assets to Borrower or any
other Subsidiary of Borrower except as otherwise provided in subsection 7.2C, in
each case other than restrictions with respect to a Subsidiary pursuant to an
agreement relating to any Indebtedness issued by such Subsidiary on or prior to
the date which such Subsidiary became a Subsidiary or was acquired by Borrower
or any of its Subsidiaries (other than Indebtedness issued in contemplation of
such event or as consideration in, or to provide any funds utilized to
consummate, the transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Borrower).
7.3 INVESTMENTS; JOINT VENTURES.
Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Borrower and its Subsidiaries may make and own Investments in
Cash Equivalents;
(ii) Borrower may make intercompany loans to the extent permitted
under subsection 7.1(iv) and Subsidiaries of Borrower may make intercompany
loans to the extent permitted by subsection 7.1(ix);
(iii) Borrower and its Subsidiaries may make Consolidated Capital
Expenditures permitted by subsection 7.8;
(iv) Investments existing as of the Closing Date as set forth in
Schedule 7.3 annexed hereto;
(v) Borrower and its Subsidiaries may make and own Investments in
notes and other Investments, as the same may be amended, restated, replaced
or otherwise modified, held by Borrower or any of its Subsidiaries in
connection with (A) the sale or other disposition of any assets prior to
the date of this Agreement and Asset Sales permitted pursuant to the terms
of this Agreement, and (B) with any trade debt due to Borrower or any of
its Subsidiaries or the settlement of any delinquent or defaulted accounts
or notes receivable;
(vi) Borrower and its Subsidiaries may make equity investments in any
of their respective wholly-owned Subsidiaries;
(vii) Borrower and its Subsidiaries may maintain deposit accounts as
cash collateral with any Person providing cash management services to
Borrower and its Subsidiaries;
(viii) In the event that HSSI shall become a Subsidiary of Borrower,
the investment of the Borrower in HSSI and investments of HSSI and its
Subsidiaries at the time HSSI becomes such a Subsidiary;
(ix) Borrower and its Subsidiaries may make investments in Joint
Ventures; provided that, the aggregate of such Investments does not exceed
$5,000,000 at any time (whether in the form of cash or fair market value
of property contributed to such ventures);
(x) Borrower and its Subsidiaries may make and own deposits
maintained as cash collateral by any Person providing processing services
with respect to credit card transactions; and
(xi) Borrower and its Subsidiaries may make and own Investments
permitted by subsection 7.5 and investments in any Persons acquired
pursuant thereto.
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7.4 CONTINGENT OBLIGATIONS.
Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Borrower and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of the Obligations, including
the Guaranty and the Letters of Credit;
(ii) Company may become and remain liable with respect to Contingent
Obligations under (a) one or more Interest Rate Agreements consisting of
interest rate swaps with respect to Indebtedness, in an aggregate notional
principal amount of not more than $75,000,000, which Interest Rate
Agreements shall have the effect of establishing a maximum interest rate of
not more than the then existing three-year yield on United States Treasury
obligations plus 3.50% per annum with respect to such notional principal
amount and (b) other Interest Rate Agreements (including interest rate cap
agreements and interest rate collar agreements) and (c) forward Currency
Agreements in an aggregate notional principal amount not to exceed at any
time $15,000,000;
(iii) Borrower and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of customary indemnification
and purchase price adjustment obligations incurred in connection with Asset
Sales or other sales of assets;
(iv) Borrower may become and remain liable with respect to the ESOP
Loan Documents;
(v) Borrower and its Subsidiaries may remain liable with respect to
Existing Letters of Credit; provided that in no event shall any such
Existing Letter of Credit be extended or renewed or have its stated amount
increased (if such increase would cause the aggregate undrawn amount of
such Existing Letters of Credit (together with any unreimbursed amounts in
respect thereof) to exceed the aggregate undrawn amount of the Backstop
LC), without the prior written consent of Issuing Lender; provided further
that the foregoing shall not prohibit the replacement of Existing Letters
of Credit through the issuance of Letters of Credit in accordance with the
terms hereof;
(vi) guaranties of Existing EDBs by Subsidiaries of Borrower in
existence on the Closing Date;
(vii) Borrower and its Subsidiaries may become and remain liable for
reimbursement obligations in connection with (A) surety, appeal, tender,
performance and other bonds procured by the Borrower and its Subsidiaries
in the ordinary course of business and (B) trade letters of credit procured
by Borrower and
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its Subsidiaries in the ordinary course of business on or after September
__, 1997 when Commercial Letters of Credit cannot be issued hereunder in
accordance with subsection 3.1A(v); and
(viii) Contingent Obligations of a Person existing immediately prior
to such Person becoming a Subsidiary of Borrower or any of its
Subsidiaries; provided that no such Contingent Obligation shall have been
created or assumed in contemplation of such Person becoming a Subsidiary.
7.5 RESTRICTED JUNIOR PAYMENTS.
Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for
any Restricted Junior Payment; provided that as long as no Event of Default
or Potential Event of Default has occurred and is continuing, or would
result therefrom, Borrower may (i) make Restricted Junior Payments of a
type described in clauses (i), (ii), (iii) or (v) of the definition thereof
(provided that in the case of Investments included in clause (v) of the
definition of Restricted Junior Payments, all liability, risk or other
exposure with respect to any such Investment is limited solely to the loss
of the amount so invested) in (A) an aggregate amount for any Fiscal Year
not to exceed the lesser of (1) the sum of (a) $10,000,000 plus (b) 25% of
Consolidated Net Income (or less 100% of net losses, as the case may be)
and (2) 50% of the Consolidated Net Income for such Fiscal Year, and (B) in
any event, in an aggregate cumulative amount from the Closing Date through
the Commitment Termination Date not to exceed $30,000,000, (ii) make
regularly scheduled interest payments on the Senior Subordinated Notes;
(iii) redeem or repurchase the Senior Subordinated Notes in an aggregate
principal amount not to exceed $25,000,000 with the proceeds of equity or
equity rights having terms no more favorable to the holder thereof
(including, without limitation, terms concerning default, payment and
redemption) than the terms of the Senior Subordinated Notes or as may
otherwise be approved by Requisite Lenders; (iv) redeem any rights to
purchase capital stock of Borrower which rights were issued pursuant to the
Rights Agreement, dated as of January 17, 1986, as amended, between
Borrower and First National Bank of Chicago, as rights agent, for an amount
not to exceed on a per right basis the redemption price of such right as of
the Closing Date, as adjusted for stock dividends and similar transactions;
and (v) purchase, redeem, acquire, cancel or otherwise retire for value
shares of capital stock of Borrower, options on any such shares or related
sock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or
beneficiaries under their estates) or by any employee benefit plan, upon
death, disability, retirement or termination of employment or pursuant to
the terms of any employee benefit plan approved by the Board of Directors
of Borrower or a committee thereof or under any other agreement approved by
such Board of Directors or a committee thereof under which such shares of
stock or related rights were issued; provided, however, that the aggregate
cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of capital stock or related
rights after the Closing Date does not exceed $2,500,000 in the aggregate
for any Fiscal Year or $1,000,000 in the aggregate payable to any
individual in any Fiscal Year.
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7.6 FINANCIAL COVENANTS.
A. MINIMUM CONSOLIDATED DEBT SERVICE COVERAGE RATIO. Borrower shall not
permit the Consolidated Debt Service Coverage Ratio for any four-fiscal quarter
period ending as of the last day of any fiscal quarter of Borrower set forth
below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM
CONSOLIDATED
DEBT SERVICE
FISCAL QUARTER COVERAGE RATIO
- ------------------------------------------
<S> <C>
Second Quarter 1994 1.10:1.00
- ------------------------------------------
Third Quarter 1994 1.10:1.00
- ------------------------------------------
Fourth Quarter 1994 1.10:1.00
- ------------------------------------------
First Quarter 1995 1.30:1.00
- ------------------------------------------
Second Quarter 1995 1.30:1.00
- ------------------------------------------
Third Quarter 1995 1.40:1.00
- ------------------------------------------
Fourth Quarter 1995 1.40:1.00
- ------------------------------------------
First Quarter 1996 1.50:1.00
- ------------------------------------------
Second Quarter 1996 1.50:1.00
- ------------------------------------------
Third Quarter 1996 1.50:1.00
- ------------------------------------------
Fourth Quarter 1996 1.50:1.00
- ------------------------------------------
</TABLE>
B. MAXIMUM CONSOLIDATED LEVERAGE RATIO. Borrower shall not permit the
Consolidated Leverage Ratio for any four-fiscal quarter period ending as of the
last day of any fiscal quarter of Borrower set forth below to exceed the
correlative ratio indicated:
<TABLE>
<CAPTION>
MAXIMUM
CONSOLIDATED
FISCAL QUARTER LEVERAGE RATIO
- ------------------------------------------
<S> <C>
Second Quarter 1994 6.25:1.00
- ------------------------------------------
Third Quarter 1994 6.25:1.00
- ------------------------------------------
Fourth Quarter 1994 6.25:1.00
- ------------------------------------------
First Quarter 1995 6.00:1.00
- ------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
MAXIMUM
CONSOLIDATED
FISCAL QUARTER LEVERAGE RATIO
------------------------------------------------------------
<S> <C>
Second Quarter 1995 6.00:1.00
------------------------------------------------------------
Third Quarter 1995 5.50:1.00
------------------------------------------------------------
Fourth Quarter 1995 5.50:1.00
------------------------------------------------------------
First Quarter 1996 5.50:1.00
------------------------------------------------------------
Second Quarter 1996 5.50:1.00
------------------------------------------------------------
Third Quarter 1996 5.50:1.00
------------------------------------------------------------
Fourth Quarter 1996 5.50:1.00
------------------------------------------------------------
</TABLE>
C. MINIMUM CONSOLIDATED NET WORTH. Borrower shall not permit
Consolidated Net Worth at any time as of the last day of any fiscal quarter set
forth below to be less than the correlative amount indicated:
<TABLE>
<CAPTION>
MINIMUM
CONSOLIDATED
FISCAL QUARTER NET WORTH
------------------------------------------------------------
<S> <C>
Second Quarter 1994 $95,000,000
------------------------------------------------------------
Third Quarter 1994 $95,000,000
------------------------------------------------------------
Fourth Quarter 1994 $95,000,000
------------------------------------------------------------
First Quarter 1995 $105,000,000
------------------------------------------------------------
Second Quarter 1995 $105,000,000
------------------------------------------------------------
Third Quarter 1995 $105,000,000
------------------------------------------------------------
Fourth Quarter 1995 $105,000,000
------------------------------------------------------------
First Quarter 1996 $115,000,000
------------------------------------------------------------
Second Quarter 1996 $115,000,000
------------------------------------------------------------
Third Quarter 1996 $115,000,000
------------------------------------------------------------
Fourth Quarter 1996 $115,000,000
------------------------------------------------------------
</TABLE>
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D. MINIMUM CONSOLIDATED TRADE SUPPORT RATIO. Borrower shall not permit the
Consolidated Trade Support Ratio as of the last day of any fiscal quarter set
forth below to be less than the correlative amount indicated:
MINIMUM
CONSOLIDATED
TRADE SUPPORT
FISCAL QUARTER RATIO
-------------------------------------------------------
Second Quarter 1994 10.0%
-------------------------------------------------------
Third Quarter 1994 8.0%
-------------------------------------------------------
Fourth Quarter 1994 10.0%
-------------------------------------------------------
First Quarter 1995 10.0%
-------------------------------------------------------
Second Quarter 1995 10.0%
-------------------------------------------------------
Third Quarter 1995 8.0%
-------------------------------------------------------
Fourth Quarter 1995 10.0%
-------------------------------------------------------
First Quarter 1996 10.0%
-------------------------------------------------------
Second Quarter 1996 10.0%
-------------------------------------------------------
Third Quarter 1996 8.0%
-------------------------------------------------------
Fourth Quarter 1996 10.0%
-------------------------------------------------------
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES.
Borrower shall not, and shall not permit any of its Subsidiaries to, change
its legal form, or enter into any transaction of merger or consolidation, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), make any Asset Sale or otherwise convey, sell, lease, sub-lease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property or fixed
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all the business, property or fixed assets of, or
stock or other evidence of beneficial ownership of, any Person, except:
(i) any Subsidiary of Borrower may be merged with or into Borrower or
any other Subsidiary of Borrower, or be liquidated, wound up or dissolved,
or all or any substantial part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Borrower or any other
Subsidiary of Borrower; provided that, in the case of such a merger with
Borrower, Borrower shall be the continuing or surviving corporation;
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(ii) Borrower and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8;
(iii) subject to subsection 7.13, Borrower and its Subsidiaries may
sell or otherwise dispose of assets in transactions that do not constitute
Asset Sales; provided that the consideration received for such assets shall
be in an amount at least equal to the fair market value thereof;
(iv) Borrower and its Subsidiaries may make Asset Sales of (A) assets
having a fair market value not in excess of $5,000,000 in the aggregate
during any Fiscal Year; provided that (x) the consideration received for
such assets shall be in an amount at least equal to the fair market value
thereof and (y) at least 75% of the total consideration received shall be
Cash or Cash Equivalents or the assumption of Indebtedness of the Borrower
or such Subsidiary or other obligations relating to such assets and release
from all liability on the Indebtedness or other obligations assumed and (B)
all or substantially all of the assets or stock of any Subsidiary of the
Borrower which is or has been a Subsidiary of the Borrower prior to the
date hereof, the revenues of which are derived primarily from the direct
retail sale of apparel for the fair market value thereof; provided further
that the proceeds of all such Asset Sales shall be applied as required by
subsection 2.4A(iii)(a);
(v) Kuppenheimer Manufacturing Company, Inc. and its Subsidiaries and
Direct Route Marketing Corporation may sell up to $20,000,000 in the
aggregate of Accounts arising under the Kuppenheimer private label credit
card program and the Barrie Pace private label credit card program
pursuant to a true sale transaction; provided that the Cash consideration
received for such Accounts is equal to the face value thereof less 3% and
customary adjustments; and
(vi) Borrower and its Subsidiaries may sell or otherwise dispose of
the HSSI Related Assets and Fashionairre Related Assets or any interest
that it may have therein from time to time.
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
Borrower shall not, and shall not permit its Subsidiaries to, make or incur
Consolidated Capital Expenditures, in any Fiscal Year indicated below, in an
aggregate amount in excess of the corresponding amount (the "MAXIMUM CAPITAL
EXPENDITURES AMOUNT") set forth below opposite such Fiscal Year; provided that
the Maximum Consolidated Capital Expenditures Amount for any Fiscal Year shall
be increased by an amount equal to the excess, if any (but in no event more than
50%) of the Maximum Consolidated Capital Expenditures Amount for the previous
Fiscal Year (without adjustment for any carryover) over the actual amount of
Consolidated Capital Expenditures for such previous Fiscal Year:
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
FISCAL YEAR CAPITAL EXPENDITURES
----------- --------------------
<S> <C>
1994 $15,000,000
---- -----------
1995 $16,000,000
---- -----------
1996 $17,000,000
---- -----------
</TABLE>
7.9 RESTRICTION ON LEASES.
Borrower shall not, and shall not permit any of its Subsidiaries to, become
liable in any way, whether directly or by assignment or as a guarantor or other
surety, for the obligations of the lessee under any lease, whether an Operating
Lease or a Capital Lease (other than intercompany leases between Borrower and
its wholly-owned Subsidiaries), unless, immediately after giving effect to the
incurrence of liability with respect to such lease, (i) the Consolidated Rental
Payments at the time in effect during the then current Fiscal Year shall not
exceed the lesser of (a) $33,000,000 and (b) the actual aggregate of
Consolidated Rental Payments paid during Borrower's 1993 Fiscal Year plus
$5,000,000 and (ii) the aggregate payments applicable to principal with respect
to Capital Leases at the time in effect during the then current Fiscal Year
shall not exceed $5,000,000.
7.10 SALES AND LEASE-BACKS.
Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Borrower or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Borrower
or any of its Subsidiaries) or (ii) which Borrower or any of its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by Borrower or any of its Subsidiaries
to any Person (other than Borrower or any of its Subsidiaries) in connection
with such lease; unless, in each case, such sale and leaseback transaction would
otherwise be permitted hereunder as both an Asset Sale and an Operating Lease.
7.11 SALE OR DISCOUNT OF RECEIVABLES.
Other than as may be permitted pursuant to subsection 7.7, Borrower shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
sell with recourse, or discount or otherwise sell for less than the face value
thereof, any of its notes or accounts receivable except for purposes of
collection in accordance with the Credit and Collection Policy.
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<PAGE>
7.12 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity Securities of Borrower or with any Affiliate of Borrower or of
any such holder unless (i) the terms of such business, transaction or series of
transactions are (a) set forth in writing and (b) as favorable to the Borrower
or such Subsidiary as terms that would be obtainable at the time for a
comparable transaction or series of similar transactions in arm's-length
dealings with an unrelated third person and (ii) the Board of Directors of
Borrower or such Subsidiary has, by resolution, determined in good faith that
such business or transaction or series of transactions meets the criteria set
forth in (i)(b) above; provided that the foregoing restriction shall not apply
to (i) any transaction between Borrower and any of its Operating Subsidiaries or
between any of its Operating Subsidiaries, (ii) reasonable and customary fees,
advances and other payments paid to members of the Boards of Directors of
Borrower and its Subsidiaries or (iii) Restricted Junior Payments permitted
pursuant to subsection 7.5.
7.13 DISPOSAL OF SUBSIDIARY STOCK.
Other than as permitted by subsections 7.2 and 7.7, Borrower shall not:
(i) directly or indirectly sell, assign, pledge or otherwise encumber
or dispose of any shares of capital stock or other equity Securities of any
of its Subsidiaries, except to qualify directors if required by applicable
law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries (including such
Subsidiary), except to Borrower, another Subsidiary of Borrower, or to
qualify directors if required by applicable law.
7.14 CONDUCT OF BUSINESS.
From and after the Closing Date, Borrower shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i)
the businesses engaged in by Borrower and its Subsidiaries on the Closing
Date and similar or related businesses and in substantially in the same
fields of enterprise and lines of business as are presently conducted,
including businesses related thereto; provided that all such business and
transactions of Borrower and its Subsidiaries with non-Affiliates shall be
conducted on an arms length basis consistent with prevailing market
conditions and (ii) such other lines of business as may be consented to by
Requisite Lenders;
7.15 AMENDMENTS OF RELATED DOCUMENTS; LICENSE AGREEMENTS.
A. SUBORDINATED INDEBTEDNESS; ESOP LOAN DOCUMENTS. Borrower shall
not, and shall not permit any of its Subsidiaries to, amend or otherwise
change the terms of any
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<PAGE>
Subordinated Indebtedness or the ESOP Loan Documents, or make any payment
consistent with an amendment thereof or change thereto, if the effect of
such amendment or change is to increase the interest rate on such
Subordinated Indebtedness or the Indebtedness under the ESOP Loan
Documents, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or
condition to an event of default with respect thereto (other than to
eliminate, cure or reduce the effect on Borrower of any such event of
default), change the redemption, prepayment or defeasance provisions
thereof, change, in the case of the Subordinated Indebtedness, the
subordination provisions thereof (or of any guaranty thereof), or change
any collateral therefor (other than to release such collateral), or if the
effect of such amendment or change, together with all other amendments or
changes made, is to increase materially the obligations of the obligor
thereunder or to confer any additional rights on the holders of such
Subordinated Indebtedness or Indebtedness under the ESOP Loan Documents (or
a trustee or other representative on their behalf) which would be adverse
to Borrower or Lenders.
B. OTHER RELATED DOCUMENTS. No Credit Party will agree to any material
amendment to, or waive any of its material rights under, any of the Related
Documents other than those referred to in subsection 7.15A, (other than
amendments or waivers which individually, or together with all other
amendments, waivers or changes made, would not be adverse to any Credit
Party or any Agent or any Lender) without, in each case, obtaining the
written consent of Requisite Lenders to such amendment or waiver.
C. LICENSE AGREEMENTS; INTELLECTUAL PROPERTY RIGHTS. No Credit Party
shall license or grant any right to use any Intellectual Property to any
Person or agree to any material amendment to, or waive any of its material
rights under, any License Agreement if such license, grant, amendment or
waiver (individually or in the aggregate) would limit or impair any of the
rights of Collateral Agent to use, or realize its interest in, any
Intellectual Property or other Collateral in accordance with the terms of
the Collateral Documents; provided that Borrower may terminate, sell or
otherwise dispose of any License Agreement upon notice to Collateral Agent
provided that such termination will not result in an Event of Default or
Potential Event of Default hereunder and all Inventory which can no longer
be sold bearing the mark of the Intellectual Property thereunder is
excluded from the Borrowing Base or the Borrowing Base is adjusted to
reflect the extent to which such Inventory can still be sold without
bearing such mark. Borrower shall deliver to Collateral Agent a copy of any
such license or grant within 30 days of the date of the underlying
agreement in respect thereof. Borrower shall deliver to Collateral Agent a
copy of any modification to existing License Agreements, and a copy of each
new License Agreement entered into promptly upon the execution thereof.
7.16 FISCAL YEAR
Borrower shall not change its Fiscal Year-end from on or about
November 30.
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<PAGE>
7.17 DESIGNATED SENIOR DEBT.
Anything in the Loan Documents or the Related Documents to the contrary
notwithstanding, in no event shall Borrower permit any Indebtedness or
Contingent Obligations other than the Obligations to constitute or be designated
as Designated Senior Debt (as that term is defined in the Subordinated Note
Indenture).
SECTION 8.
EVENTS OF DEFAULT
If any of the following conditions or events ("EVENTS OF DEFAULT") shall
occur:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
Failure to pay any installment of principal of or interest on any Loan when
due, whether at stated maturity, by acceleration, by notice of prepayment or
otherwise; failure to pay when due any amount payable to Issuing Lender in
reimbursement of any drawing under a Letter of Credit; or failure to pay within
three days of the date due any other amount due under this Agreement; or
8.2 DEFAULT IN OTHER AGREEMENTS.
(i) Failure of Borrower or any of its Subsidiaries to pay when due (a) any
principal of or interest on any Indebtedness (other than Indebtedness referred
to in subsection 8.1) in an individual principal amount of $3,000,000 or more or
any items of Indebtedness with an aggregate principal amount of $3,000,000 or
more or (b) any Contingent Obligation in an individual principal amount of
$3,000,000 or more or any Contingent Obligations with an aggregate principal
amount of $3,000,000 or more, in each case beyond the end of any grace period
provided therefor; or (ii) breach or default by Borrower or any of its
Subsidiaries with respect to any other material term of (a) any evidence of any
Indebtedness in an individual principal amount of $3,000,000 or more or any
items of Indebtedness with an aggregate principal amount of $3,000,000 or more
or any Contingent Obligation in an individual principal amount of $3,000,000 or
more or any Contingent Obligations with an aggregate principal amount of
$3,000,000 or more or (b) any loan agreement, mortgage, indenture or other
agreement relating to such Indebtedness or Contingent Obligation(s), if the
effect of such breach or default is to cause, or to permit the holder or holders
of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such
holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to
become or be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be; or (iii) breach or
default by Borrower or any of its Subsidiaries under the Senior Subordinated
Notes; or
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<PAGE>
8.3 BREACH OF CERTAIN COVENANTS.
Failure of Borrower to perform or comply with any term or condition
contained in subsection 2.4A(iii), 2.5 or 6.2 (with respect to the maintenance
of corporate existence of Borrower or any Subsidiary), 6.8(i), or 6.10 or
Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
Any representation, warranty, certification or other statement made by
Borrower or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by Borrower or any of its Subsidiaries in writing
pursuant hereto or thereto or in connection herewith or therewith shall be false
in any material respect on the date as of which made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
Borrower shall default in the performance of or compliance with any term
contained in this Agreement or any of the other Loan Documents, other than any
such term referred to in any other subsection of this Section 8, and such
default shall not have been remedied or waived within 30 days after the earlier
of (i) an executive or senior officer of Borrower becoming aware of such default
or (ii) receipt by Borrower of notice from any Agent or any Lender of such
default; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of Borrower or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against Borrower or any of its Subsidiaries under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Borrower or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of Borrower or any of its Subsidiaries for all or a
substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of Borrower or any of its Subsidiaries, and any such event described in
this clause (ii) shall continue for 60 days unless dismissed, bonded or
discharged; or
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) Borrower or any of its Subsidiaries shall have an order for relief
entered with respect to it or commence a voluntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent
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<PAGE>
to the entry of an order for relief in an involuntary case, or to the conversion
of an involuntary case to a voluntary case, under any such law, or shall consent
to the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; or Borrower or any of
its Subsidiaries shall make any assignment for the benefit of creditors; or (ii)
Borrower or any of its Subsidiaries shall be unable, or shall fail generally, or
shall admit in writing its inability, to pay its debts as such debts become due;
or the Board of Directors of Borrower or any of its Subsidiaries (or any
committee thereof) shall adopt any resolution or otherwise authorize any action
to approve any of the actions referred to in clause (i) above or this clause
(ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
Any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $3,000,000 or (ii)
in the aggregate at any time an amount in excess of $3,000,000 (in either case
not adequately covered by insurance by a solvent and unaffiliated insurance
company which has not disputed or denied coverage) shall be entered or filed
against Borrower or any of its Subsidiaries or any of their respective assets
and shall remain undischarged, unvacated, unbonded or unstayed for a period of
60 days (or in any event later than five days prior to the date of any proposed
sale thereunder); or
8.9 DISSOLUTION.
Any order, judgment or decree shall be entered against Borrower or any of
its Subsidiaries decreeing the dissolution or split up of Borrower or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
8.10 EMPLOYEE BENEFIT PLANS.
There shall occur one or more ERISA Events which individually or in the
aggregate results in or might reasonably be expected to result in liability of
Borrower or any of its ERISA Affiliates in excess of $3,000,000 in any Fiscal
Year during the term of this Agreement; or there shall exist an amount of
unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), which exceeds $5,000,000; or
8.11 IMPAIRMENT OF COLLATERAL; FAILURE OF SECURITY.
(a) A judgment creditor of any Credit Party or of any other Person shall
obtain possession of any substantial portion of the Collateral by any means,
including, without limitation, levy, distraint, replevin or self-help, (b) any
of the Collateral Documents shall cease for any reason to be in full force and
effect, or any party thereto shall purport to disavow its respective obligations
thereunder or shall declare that it does not have any further obligations
thereunder or shall contest the validity or enforceability thereof or
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<PAGE>
Collateral Agent shall cease to have a valid and perfected first priority
security interest in any Collateral therein (to the extent required by the
Collateral Documents), or (c) Collateral Agent's security interests or Liens on
the Collateral under the Collateral Documents shall become otherwise impaired or
unenforceable; or
8.12 MATERIAL ADVERSE EFFECT.
Any event or change shall occur that has caused or evidences, either in any
case or in the aggregate, a Material Adverse Effect; or
8.13 CHANGE OF CONTROL.
Any Change of Control shall occur;
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrower, and the obligation of each Lender to make any Loan, the
obligation of Issuing Lender to issue any Letter of Credit and the right of
Issuing Lender to issue any Letter of Credit hereunder shall thereupon
terminate, and (ii) upon the occurrence and during the continuation of any other
Event of Default, Agent shall, upon the written request of Requisite Lenders, by
written notice to Borrower, declare all or any portion of the amounts described
in clauses (a) through (c) above to be, and the same shall forthwith become,
immediately due and payable, and the obligation of each Lender to make any Loan,
the obligation of Issuing Lender to issue any Letter of Credit and the right of
Issuing Lender to issue any Letter of Credit hereunder shall thereupon
terminate; provided that the foregoing shall not affect in any way the
obligations of Lenders under subsection 3.3C(i) or the obligations of Lenders to
purchase participations in any unpaid Swing Line Loans as provided in subsection
2.1A(ii).
Any amounts described in clause (b) above, when received by Agent, shall be
held by Agent pursuant to the terms of the Collateral Account Agreement and
shall be applied as therein provided.
Notwithstanding anything contained in the second preceding paragraph, if at
any time within 60 days after an acceleration of the Loans pursuant to such
paragraph Borrower shall pay all arrears of interest and all payments on account
of principal which shall have become due otherwise than as a result of such
acceleration (with interest on principal and, to the
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extent permitted by law, on overdue interest, at the rates specified in this
Agreement) and all Events of Default and Potential Events of Default (other than
non-payment of the principal of and accrued interest on the Loans, in each case
which is due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to
Borrower, may at their option rescind and annul such acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon. The
provisions of this paragraph are intended merely to bind Lenders to a decision
which may be made at the election of Requisite Lenders and are not intended to
benefit Borrower and do not grant Borrower the right to require Lenders to
rescind or annul any acceleration hereunder, even if the conditions set forth
herein are met.
SECTION 9.
AGENT
9.1 APPOINTMENT.
GE Capital is hereby appointed Managing Agent and Collateral Agent, and The
Bank of New York and Continental Bank, N.A., are each hereby appointed Co-Agent,
hereunder and under the other Loan Documents and each Lender hereby authorizes
each such Agent to act as its agent in accordance with the terms of this
Agreement and the other Loan Documents. Each Agent agrees to act upon the
express conditions contained in this Agreement and the other Loan Documents, as
applicable. The provisions of this Section 9 are solely for the benefit of
Agents and Lenders and Borrower shall have no rights as a third party
beneficiary of any of the provisions thereof. In performing its functions and
duties under this Agreement, each Agent shall act solely as an agent of Lenders
and does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for Borrower or any of its
Subsidiaries.
9.2 POWERS; GENERAL IMMUNITY.
A. DUTIES SPECIFIED. Each Lender irrevocably authorizes each Agent to
take such action on such Lender's behalf and to exercise such powers hereunder
and under the other Loan Documents as are specifically delegated to such Agent
by the terms hereof and thereof, together with such powers as are reasonably
incidental thereto. Each Agent shall have only those duties and
responsibilities that are expressly specified in this Agreement and the other
Loan Documents and it may perform such duties by or through its agents or
employees. No Agent shall have, by reason of this Agreement or any of the other
Loan Documents, a fiduciary relationship in respect of any Lender; and nothing
in this Agreement or any of the other Loan Documents, expressed or implied, is
intended to or shall be so con-strued as to impose upon any Agent any
obligations in respect of this Agreement or any of the other Loan Documents
except as expressly set forth herein or therein. Anything in this Agreement or
the other Loan Documents to the contrary notwithstanding, no Co-Agent shall have
any duties or responsibilities hereunder or under the other Loan Documents other
than its duties and responsibilities as a Lender hereunder and thereunder.
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B. NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be responsible
to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished or made by any Agent to Lenders or by or on behalf of
Borrower or any of its Subsidiaries to any Agent or any Lender in connection
with the Loan Documents and the transactions contemplated thereby or for the
financial condition or business affairs of Borrower or any of its Subsidiaries
or any other Person liable for the payment of any Obligations, nor shall any
Agent be required to ascertain or inquire as to the performance or observance of
any of the terms, conditions, provisions, covenants or agreements contained in
any of the Loan Documents or as to the use of the proceeds of the Loans or the
use of the Letters of Credit or as to the existence or possible existence of any
Event of Default or Potential Event of Default. Anything contained in this
Agreement to the contrary notwithstanding, no Agent shall have any liability
arising from confirmations of the amount of outstanding Loans or the Letter of
Credit Usage or the component amounts thereof.
C. EXCULPATORY PROVISIONS. Neither any Agent nor any of its officers,
directors, employees or agents shall be liable to Lenders for any action taken
or omitted by such Agent under or in connection with any of the Loan Documents
except to the extent caused by such Agent's gross negligence or willful
misconduct. If any Agent shall request instructions from Lenders with respect
to any act or action (including the failure to take an action) in connection
with this Agreement or any of the other Loan Documents, such Agent shall be
entitled to refrain from such act or taking such action unless and until such
Agent shall have received instructions from Requisite Lenders. Without
prejudice to the generality of the foregoing, (i) each Agent shall be entitled
to rely, and shall be fully protected in relying, upon any communication,
instrument or document believed by it to be genuine and correct and to have been
signed or sent by the proper person or persons, and shall be entitled to rely
and shall be protected in relying on opinions and judgments of attorneys (who
may be attorneys for Borrower and its Subsidiaries), accountants, experts and
other professional advisors selected by it; and (ii) no Lender shall have any
right of action whatsoever against any Agent as a result of any Agent acting or
(where so instructed) refraining from acting under this Agreement or any of the
other Loan Documents in accordance with the instructions of Requisite Lenders.
Each Agent shall be entitled to refrain from exercising any power, discretion or
authority vested in it under this Agreement or any of the other Loan Documents
unless and until it has obtained the instructions of Requisite Lenders.
D. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term ``Lender'' or ``Lenders'' or any similar
term shall, unless the context clearly otherwise indicates, include Agent in its
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individual capacity. Each Agent and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of banking, trust, financial
advisory or other business with Borrower or any of its Affiliates as if it were
not performing the duties specified herein, and may accept fees and other
consideration from Borrower for services in connection with this Agreement and
otherwise without having to account for the same to Lenders.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of Borrower and its
Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Borrower. No Agent shall have any duty
or responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Lenders or to provide any
Lender with any credit or other information with respect thereto, whether coming
into its possession before the making of the Loans or at any time or times
thereafter, and no Agent shall have any responsibility with respect to the
accuracy of or the completeness of any information provided to Lenders.
9.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by Borrower, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, counsel fees and disbursements) or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against such Agent in performing its duties hereunder or under the
other Loan Documents or otherwise in its capacity as Agent in any way relating
to or arising out of this Agreement or the other Loan Documents; provided that
no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from such Agent's gross negligence or willful
misconduct. If any indemnity furnished to any Agent for any purpose shall, in
the opinion of such Agent, be insufficient or become impaired, Agent may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.
9.5 PAYEE OF NOTE TREATED AS OWNER.
Each Agent may deem and treat the payee of any Note as the owner thereof
for all purposes hereof unless and until an Assignment and Acceptance effecting
the assignment or transfer thereof shall have been accepted by Managing Agent as
provided in subsection 10.1B(iii). Any request, authority or consent of any
person or entity 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 or assignee of that Note or of any Note or
Notes issued in exchange therefor.
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9.6 SUCCESSOR AGENT AND SWING LINE LENDER.
A. SUCCESSOR AGENT. Any Agent may resign at any time by giving 30 days'
prior written notice thereof to Lenders and Borrower, and any Agent may be
removed at any time with or without cause by an instrument or concurrent
instruments in writing delivered to Borrower and such Agent and signed by
Requisite Lenders. Upon any such notice of resignation or any such removal,
Requisite Lenders shall have the right, upon five Business Days' notice to
Borrower, to appoint a successor Agent. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, that successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Agent and the retiring or removed Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring or removed Agent's resignation or removal hereunder as Agent, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of Managing
Agent pursuant to subsection 9.6A shall also constitute the resignation or
removal of GE Capital or its successor as Swing Line Lender and any successor
Managing Agent appointed pursuant to subsection 9.6A shall, upon its acceptance
of such appointment, become the successor Swing Line Lender for all purposes
hereunder. In such event (i) Borrower shall prepay any outstanding Swing Line
Loans made by the retiring or removed Managing Agent in its capacity as Swing
Line Lender, (ii) upon such prepayment, the retiring or removed Managing Agent
and Swing Line Lender shall surrender the Swing Line Note held by it to Borrower
for cancellation, and (iii) Borrower shall issue a new Swing Line Note to the
successor Managing Agent and Swing Line Lender substantially in the form of
Exhibit IV-A annexed hereto, in the principal amount of the Swing Line
Commitment then in effect and with other appropriate insertions.
9.7 COLLATERAL DOCUMENTS.
A. COLLATERAL AGENT. Each Lender hereby further authorizes Collateral
Agent to enter into the Collateral Documents as secured party on behalf of and
for the benefit of Lenders and agrees to be bound by the terms of the Collateral
Documents; provided that Collateral Agent shall not enter into or consent to any
amendment, modification, termination or waiver of any provision contained in the
Collateral Documents without the prior consent of Requisite Lenders; provided
further, that anything in this Agreement or the other Loan Documents to the
contrary notwithstanding:
(i) The Collateral Agent is authorized on behalf of all Lenders,
without the necessity of any notice to or further consent from the Lenders,
from time to time to take any action with respect to any Collateral or the
Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the Collateral granted
pursuant to the Collateral Documents.
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(ii) The Lenders irrevocably authorize the Collateral Agent, at its
option and in its discretion, to release any Lien granted to or held by the
Collateral Agent upon any Collateral (a) upon termination of the
Commitments and payment in full of the Loans and all other Obligations
payable under this Agreement and under any other Loan Document; (b)
constituting property sold or to be sold or disposed of as part of or in
connection with any disposition permitted hereunder; (c) constituting
property in which Borrower or any Subsidiary of Borrower owned no interest
at the time the Lien was granted or at any time thereafter; (d) consisting
of an instrument evidencing Indebtedness if the Indebtedness evidenced
thereby has been paid in full; or (e) if otherwise approved, authorized or
ratified in writing by Requisite Lenders, subject to Subsection 10.6. Upon
request by the Collateral Agent at any time, Lenders will confirm in
writing the Collateral Agent's authority to release particular types or
items of Collateral pursuant to this subsection 9.7.
B. LENDER ACTION. Anything contained in any of the Loan Documents to the
contrary notwithstanding, each Lender agrees that no Lender shall have any right
individually to realize upon any of the Collateral under the Collateral
Documents (including without limitation through the exercise of a right of set-
off against call deposits of such Lender in which any funds on deposit in the
Collateral Documents may from time to time be invested), it being understood and
agreed that all rights and remedies under the Collateral Documents may be
exercised solely by Collateral Agent for the benefit of Lenders in accordance
with the terms thereof.
SECTION 10.
MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
A. GENERAL. Subject to the provisions of this subsection 10.1, each
Lender shall have the right at any time to (i) sell, assign, transfer or
negotiate to any Eligible Assignee, or (ii) sell participations to any Person
in, all or any part of its Commitment or any Loan or Loans made by it or its
Letters of Credit or participations therein or any other interest herein or in
any other Obligations owed to it; provided that no such assignment or
participation shall, without the consent of Borrower, require Borrower to file a
registration statement with the Securities and Exchange Commission or apply to
qualify such assignment or participation under the securities laws of any state.
Except as otherwise provided in this subsection 10.1, no Lender shall, as
between Borrower and such Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
any granting of participations in, all or any part of its Commitment or the
Loans, the Letters of Credit or participations therein or the other Obligations
owed to such Lender.
B. ASSIGNMENTS.
(i) Amounts and Terms of Assignments. During the Initial Syndication
Period, Managing Agent shall have the exclusive right to make assignments
of
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Commitments, Loans, Letters of Credit, participations therein or any other
Obligation in any amount (of a constant and not a varying percentage) to
any Eligible Assignee, and no other Lender shall have any such right.
Following the expiration of the Initial Syndication Period, each Lender's
Commitment, Loan, Letter of Credit or participation therein or other
Obligation may (a) be assigned in any amount (of a constant and not a
varying percentage) to another Lender, or to an Affiliate of the assigning
Lender or another Lender, with the giving of notice to Borrower and
Managing Agent or (b) be assigned in an aggregate amount (of a constant and
not a varying percentage) of not less than $5,000,000 (or such lesser
amount as shall constitute the aggregate amount of the Commitment, Loans,
Letters of Credit and participations therein and other Obligations of the
assigning Lender) to any other Eligible Assignee with the giving of notice
to Borrower and Managing Agent and with the consent of Managing Agent. To
the extent of any such assignment in accordance with either clause (a) or
(b) above and upon execution and delivery of an Assignment and Acceptance
with respect thereto as provided below, the assigning Lender shall be
relieved of its obligations with respect to its Commitment, Loans, Letters
of Credit or participations therein or other Obligations or the portion
thereof so assigned. The parties to each such assignment shall execute and
deliver to Managing Agent, for its acceptance, an Assignment and
Acceptance, together with a processing fee of $2,500 and such certificates,
documents or other evidence, if any, with respect to United States federal
income tax withholding matters as the assignee under such Assignment and
Acceptance may be required to deliver to Managing Agent pursuant to
subsection 2.7B(iii). Upon such execution, delivery and acceptance, from
and after the effective date specified in such Assignment and Acceptance,
(y) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a
Lender hereunder and (z) the assigning Lender thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). The Commitments hereunder shall be
modified to reflect the Commitment of such assignee and any remaining
Commitment of such assigning Lender and, if any such assignment occurs
after the issuance of the Notes hereunder, new Notes shall, upon surrender
of the assigning Lender's Note, be issued to the assignee and to the
assigning Lender, substantially in the form of Exhibit IV annexed hereto
with appropriate insertions, to reflect the new Commitments of the assignee
and the assigning Lender.
(ii) Acceptance by Managing Agent. Upon its receipt of an Assignment
and Acceptance executed by an assigning Lender and an assignee representing
that it is an Eligible Assignee, together with the processing fee referred
to in subsection 10.1B(i) and any certificates, documents or other evidence
with respect to United States federal income tax withholding matters that
such assignee may be required to deliver to Managing Agent pursuant to
subsection 2.7B(iii), Managing
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Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit VIII hereto and if Managing Agent has
consented to the assignment evidenced thereby, to the extent such consent
is required pursuant to subsection 10.1B(i), (a) accept such Assignment and
Acceptance by executing a counterpart thereof as provided therein (which
acceptance shall evidence any required consent of Managing Agent to such
assignment) and (b) give prompt notice thereof to Borrower (with a copy of
such Assignment and Acceptance) and each other Agent. Managing Agent shall
maintain a copy of each Assignment and Acceptance delivered to and accepted
by it as provided in this subsection 10.1B(ii).
C. PARTICIPATIONS. Following the expiration of the Initial Syndication
Period, each Lender may sell participations as permitted pursuant to subsection
10.1A. The holder of any participation, other than an Affiliate of the Lender
granting such participation, shall not be entitled to require such Lender to
take or omit to take any action hereunder except action directly affecting (i)
the extension of the regularly scheduled maturity of any portion of the
principal amount of or interest on any Loan allocated to such participation,
(ii) a reduction of the principal amount of or the rate of interest payable on
any Loan allocated to such participation or (iii) the release of all or
substantially all of the Collateral, and all amounts payable by Borrower
hereunder (including without limitation amounts payable to such Lender pursuant
to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not
sold such participation. Borrower and each Lender hereby acknowledge and agree
that, solely for purposes of subsections 10.4 and 10.5, (a) any participation
will give rise to a direct obligation of Borrower to the participant and (b) the
participant shall be considered to be a ``Lender''; provided that no Person
shall be eligible to be a participant hereunder if such Person would not be an
Eligible Assignee pursuant to the terms of the final proviso of the definition
of Eligible Assignee.
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
10.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender and its Note to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank. No Lender shall, as between Borrower and such Lender, be relieved of any
of its obligations hereunder as a result of any such assignment and pledge.
E. INFORMATION. Each Lender may furnish any information concerning
Borrower and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 10.19.
10.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to pay promptly upon Borrower's receipt of reasonably detailed
invoices and statements therefor (i) all the actual and reasonable costs and
expenses of preparation of the Loan Documents; (ii) all the costs of furnishing
all opinions by counsel for Borrower (including without limitation any opinions
requested by Lenders as to any legal matters arising hereunder) and of
Borrower's performance of and compliance with all agreements
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and conditions on its part to be performed or complied with under this Agreement
and the other Loan Documents including, without limitation, with respect to
confirming compliance with environmental and insurance requirements; (iii) the
reasonable fees, expenses and disbursements of counsel to Managing Agent and
Collateral Agent in connection with the negotiation, preparation, execution and
administration of the Loan Documents and the Loans and any consents, amendments,
waivers or other modifications hereto or thereto and any other documents or
matters requested by Borrower; (iv) all other actual and reasonable costs and
expenses incurred by Managing Agent in connection with the negotiation,
preparation and execution of the Loan Documents and the transactions
contemplated hereby and thereby; and (v) after the occurrence of an Event of
Default, all costs and expenses, including reasonable attorneys' fees and costs
of settlement, incurred by any Agent and Lenders in enforcing any Obligations of
or in collecting any payments due from Borrower hereunder or under the other
Loan Documents by reason of such Event of Default or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a ``work-out'' or pursuant to any insolvency or
bankruptcy proceedings; provided that all reimbursable costs and expenses
described in the foregoing clauses (i), (ii), (iii) and (iv) shall not exceed
$400,000 through the Closing Date.
10.3 INDEMNITY.
In addition (but without duplication) to the payment of expenses pursuant
to subsection 10.2, whether or not the transactions contemplated hereby shall
be consummated, Borrower agrees to defend, indemnify, pay and hold harmless
Agents and Lenders, and the officers, directors, employees, agents and
affiliates of, Agents and Lenders (collectively called the ``INDEMNITEES'') from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including without limitation the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws, statutes, rules or
regulations (including without limitation securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of this Agreement or the other Loan Documents or the transactions
contemplated hereby or thereby (including without limitation Lenders' agreement
to make the Loans hereunder or the use or intended use of the proceeds of any of
the Loans or the issuance of Letters of Credit hereunder or the use or intended
use of any of the Letters of Credit) or the statements contained in the
commitment letter delivered by any Lender to Borrower with respect thereto
(collectively called the ``INDEMNIFIED LIABILITIES''); provided that Borrower
shall not have any obligation to any Indemnitee hereunder with respect to any
Indemnified Liabilities to the extent such Indemnified Liabilities arise solely
from the gross negligence or willful misconduct of that Indemnitee (or its
officers, agents or employees) as determined by a final judgment of a court of
competent jurisdiction. To the extent that the undertaking to defend, indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy,
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Borrower shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.
In addition to any rights now or hereafter granted under applicable law and
not by way of limitation of any such rights, upon the occurrence of any Event of
Default each Lender is hereby authorized by Borrower at any time or from time to
time, without notice to Borrower or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured, but not
including trust accounts) and any other Indebtedness at any time held or owing
by that Lender to or for the credit or the account of Borrower against and on
account of the obligations and liabilities of Borrower to that Lender under this
Agreement, the Notes, the Letters of Credit and participations therein,
including, but not limited to, all claims of any nature or description arising
out of or connected with this Agreement, the Notes, the Letters of Credit and
participations therein or any other Loan Document, irrespective of whether or
not (i) that Lender shall have made any demand hereunder or (ii) the principal
of or the interest on the Loans or any amounts in respect of the Letters of
Credit or any other amounts due hereunder shall have become due and payable
pursuant to Section 8 and although said obligations and liabilities, or any of
them, may be contingent or unmatured. Borrower hereby further grants to each
Agent and each Lender a security interest in all deposits and accounts
maintained with such Agent or such Lender as security for the Obligations.
10.5 RATABLE SHARING.
Lenders hereby agree among themselves that if any of them shall, whether by
voluntary payment, by realization upon security, through the exercise of any
right of set-off or banker's lien, by counterclaim or cross action or by the
enforcement of any right under the Loan Documents or otherwise, or as adequate
protection of a deposit treated as cash collateral under the Bankruptcy Code,
receive payment or reduction of a proportion of the aggregate amount of
principal, interest, amounts payable in respect of Letters of Credit, fees and
other amounts then due and owing to that Lender hereunder or under the other
Loan Documents (collectively, the ``AGGREGATE AMOUNTS DUE'' to such Lender)
which is greater than the proportion received by any other Lender in respect of
the Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (i) notify each Agent and each other
Lender of the receipt of such payment and (ii) apply a portion of such payment
to purchase participations (which it shall be deemed to have purchased from each
seller of a participation simultaneously upon the receipt by such seller of its
portion of such payment) in the Aggregate Amounts Due to the other Lenders so
that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders
in proportion to the Aggregate Amounts Due to them; provided that if all or part
of such proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Lender upon the bankruptcy or reorganization of
Borrower or otherwise, those purchases
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shall be rescinded and the purchase prices paid for such participations shall be
returned to such purchasing Lender ratably to the extent of such recovery, but
without interest. Borrower expressly consents to the foregoing arrangement and
agrees that any holder of a participation so purchased may exercise any and all
rights of banker's lien, set-off or counterclaim with respect to any and all
monies owing by Borrower to that holder with respect thereto as fully as if that
holder were owed the amount of the participation held by that holder.
10.6 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision of this
Agreement or of the Notes, or consent to any departure by Borrower therefrom,
shall in any event be effective without the written concurrence of Requisite
Lenders; provided that any such amendment, modification, termination, waiver or
consent which: (i) increases the amount of any of the Commitments or reduces the
principal amount of any of the Loans; (ii) increases the maximum amount of
Letters of Credit; (iii) changes any Lender's Pro Rata Share; (iv) changes in
any manner the percentage constituting ``Requisite Lenders''; (v) provides for
the release of all or substantially all of the Collateral; (vi) changes in any
manner any provision of this Agreement which, by its terms, expressly requires
the approval or concurrence of all Lenders; (vii) postpones the scheduled final
maturity date of any of the Loans; (viii) postpones the date on which any
interest or any fees are payable; (ix) decreases the interest rate borne by any
of the Loans (other than any waiver of any increase in the interest rate
applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any
fees payable hereunder; (x) increases the maximum duration of Interest Periods
permitted hereunder; (xi) reduces the amount or postpones the due date of any
amount payable in respect of, or extends the required expiration date of, any
Letter of Credit; (xii) changes in any manner the obligations of Lenders
relating to the purchase of participations in Letters of Credit; (xiii) changes
in any manner the provisions contained in subsection 8.1 or this subsection
10.6; or (xiv) increases the stated advance rates for Accounts or Inventory set
forth in the definition of Borrowing Base, shall be effective only if evidenced
by a writing signed by or on behalf of all Lenders. In addition, (i) any
amendment, modification, termination or waiver of any of the provisions
contained in Section 4 shall be effective only if evidenced by a writing signed
by or on behalf of Managing Agent and Requisite Lenders, (ii) no amendment,
modification, termination or waiver of any provision of Section 9 or of any
other provision of this Agreement which, by its terms, expressly requires the
approval or concurrence of an Agent shall be effective without the written
concurrence of such Agent and any other Agent affected thereby and (iii) no
amendment, modification, termination or waiver of any provision of subsection
2.1A(ii) or any other provision of this Agreement relating to the Swing Line
Loan Commitment or the Swing Line Loans shall be effective without the written
concurrence of Swing Line Lender. Managing Agent may, but shall have no
obligation to, with the concurrence of any Lender, execute amendments,
modifications, waivers or consents on behalf of that Lender. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 10.6 shall be binding upon
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each Lender at the time outstanding, each future Lender and, if signed by
Borrower, on Borrower.
10.7 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
10.8 NOTICES.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telecopied, telexed or sent by United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service, upon receipt of telecopy or telex, or four Business Days
after depositing it in the United States mail, registered or certified, with
postage prepaid and properly addressed; provided that notices to any Agent shall
not be effective until received. For the purposes hereof, the address of each
party hereto shall be as set forth under such party's name on the signature
pages hereof or (i) as to Borrower and Agent, such other address as shall be
designated by such Person in a written notice delivered to the other parties
hereto and (ii) as to each other party, such other address as shall be
designated by such party in a written notice delivered to Agent.
10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Borrower set forth in subsections 2.6D, 2.7, 10.2
and 10.3 and the agreements of Lenders set forth in subsections 9.2C, 9.4, 10.3,
10.5 and 10.19 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of any Agent or any Lender in the exercise
of any power, right or privilege hereunder or under any other Loan Document
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other power, right or privilege. All rights and remedies existing under
this Agreement and the other Loan Documents are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
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10.11 MARSHALLING; PAYMENTS SET ASIDE.
Neither any Agent nor any Lender shall be under any obligation to marshal
any assets in favor of Borrower or any other party or against or in payment of
any or all of the Obligations. To the extent that Borrower makes a payment or
payments to any Agent or Lenders (or to an Agent for the benefit of Lenders), or
any Agent or Lenders enforce any security interests or exercise their rights of
set-off, and such payment or payments or the proceeds of such enforcement or
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, any other state or federal
law, common law or any equitable cause, then, to the extent of such recovery,
the obligation or part thereof originally intended to be satisfied, and all
Liens, rights and remedies therefor or related thereto, shall be revived and
continued in full force and effect as if such payment or payments had not been
made or such enforcement or set-off had not occurred.
10.12 SEVERABILITY.
In case any provision in or obligation under this Agreement or the Notes
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of Lenders hereunder are several and no Lender shall be
responsible for the obligations or Commitment of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
10.14 HEADINGS.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
10.15 APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
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10.16 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither
Borrower's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Borrower without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST BORROWER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT BORROWER ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH
OBLIGATION. Borrower designates and appoints ____________________, and such
other Persons as may hereafter be selected by Borrower irrevocably agreeing in
writing to so serve, as its agent to receive on its behalf service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by Borrower to be effective and binding service in every respect.
A copy of any such process so served shall be mailed by registered mail to
Borrower at its address provided in subsection 10.8; provided that, unless
otherwise provided by applicable law, any failure to mail such copy shall not
affect the validity of service of such process. If any agent appointed by
Borrower refuses to accept service, Borrower hereby agrees that service of
process sufficient for personal jurisdiction in any action against Borrower in
the State of New York may be made by registered or certified mail, return
receipt requested, to Borrower at its address provided in subsection 10.8, and
Borrower hereby acknowledges that such service shall be effective and binding in
every respect. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of any Lender to bring
proceedings against Borrower in the courts of any other jurisdiction.
10.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort
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<PAGE>
claims, breach of duty claims and all other common law and statutory claims.
Each party hereto acknowledges that this waiver is a material inducement to
enter into a business relationship, that each has already relied on this waiver
in entering into this Agreement, and that each will continue to rely on this
waiver in their related future dealings. Each party hereto further warrants and
represents that it has reviewed this waiver with its legal counsel and that it
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
10.19 CONFIDENTIALITY.
Each Agent and each Lender agrees that it will hold and keep confidential
any non-public information from time to time supplied by Borrower or any of its
Subsidiaries, which has been identified as confidential, pursuant to the terms
of this Agreement or the Loan Documents in accordance with such Agent's and such
Lender's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices, and in all
cases, in a manner consistent with which such Agent and such Lender protects its
own non-public confidential information, it being understood and agreed by
Borrower that Agents and Lenders may make disclosures to: (i) to the extent
required by law, to any governmental agency or representative thereof or
pursuant to legal process; provided that, unless specifically prohibited by
applicable law or court order, each Agent and each Lender shall notify Borrower
of any request by any governmental agency or representative for disclosure of
any such non-public information prior to the disclosure of such information;
(ii) counsel to any Agent or any Lender or to any such respective parties'
accountants or other advisors; (iii) bank examiners and auditors; (iv) any other
Lender; (v) an Eligible Assignee of any Lender, that agrees in writing to be
bound by the terms and provisions of this subsection 10.19; or (vi) the extent
that such information becomes public other than as a result of a breach of this
subsection 10.19. It is understood and agreed that in no event shall any Agent
or any Lender be obligated or required to return any materials furnished by
Borrower or any Subsidiary, and it is further understood and agreed that this
subsection 10.19 supersedes any prior confidentiality arrangements between
Borrower and any Agent and any Lender regarding the transactions contemplated
hereby. Each Agent and each Lender agree that the terms and provisions of this
subsection 10.19 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement and the Loan Documents.
10.20 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different
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parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto and receipt by Borrower and Managing Agent of written or
telephonic notification of such execution and authorization of delivery thereof.
10.21 INTERCOMPANY NOTE COLLATERAL.
A. PRIORITY OF LIENS AND ENFORCEMENT. Borrower hereby acknowledges and
agrees that all of its rights and interests as a secured party under the
Intercompany Note Security Agreement and the Collateral Documents related
thereto have been assigned as Collateral to Collateral Agent pursuant to the
Pledge and Security Agreement and hereby further acknowledges and agrees that
Collateral Agent shall not have any duty or obligation to follow any
instructions or requests of Borrower as a secured party thereunder and
Borrower's sole rights under the Intercompany Note Security Agreement and the
Collateral Documents related thereto shall be to receive the proceeds of any
Collateral received thereunder after payment in full in cash of all Obligations
in accordance with the terms of the Loan Documents; provided further, that
anything in this Agreement or the other Loan Documents to the contrary
notwithstanding:
(i) Collateral Agent is authorized on behalf of Borrower, without the
necessity of any notice to or further consent from Borrower, from time to
time to take any action permitted by the Collateral Documents with respect
to any Collateral (as defined in the Intercompany Note Security Agreement,
the "Junior Collateral") or the Collateral Documents related thereto in its
sole discretion.
(ii) Borrower irrevocably authorizes the Collateral Agent, at its
option and in its sole discretion, to release any Lien granted to or held
by the Collateral Agent upon any Junior Collateral.
(iii) Borrower agrees that Borrower shall not, until the Obligations
are paid in full in cash in accordance with the terms of the Loan
Documents, have any right individually to realize upon any of the Junior
Collateral under the Collateral Documents (including without limitation
through the exercise of a right of set-off), it being understood and agreed
that all rights and remedies under the Collateral Documents may be
exercised solely by Collateral Agent for the benefit of Lenders in
accordance with the terms hereof and thereof.
(iv) Notwithstanding the date, manner or order of perfection or
recording of the security interests and Liens granted pursuant to the
Collateral Documents, and notwithstanding any provisions of the UCC, of any
applicable law or decision, or of the Loan Documents, or whether Borrower
or Collateral Agent holds possession of all or any part of the Collateral,
all right, title and interest of Borrower as a secured party in and to any
Collateral (collectively, the ``JUNIOR LIEN'') is junior and subordinate to
all rights and interests of Agents and Lenders therein, and that the
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priorities, subordinations and distribution arrangements specified in this
Section 10.21 and the other provisions of this Section 10.21 with respect
to any Collateral are expressly intended to be effective regardless of the
avoidability or non-perfection of the security interests and Liens held by
Collateral Agent in such Collateral, and in the event the security
interests or Liens held by Collateral Agent in any Collateral is judicially
determined to be unperfected or is avoided for any reason, then the
priorities, subordinations and distribution arrangements provided for in
this Section 10.21, shall as to the parties to this Agreement, remain
effective as to such Collateral. Borrower agrees that it will not
challenge the legality, validity, enforceability or priority of the
Obligations or the legality, validity, enforceability, perfection or
priority of the Liens granted pursuant to the Collateral Documents as set
forth herein or the rights of any secured party thereunder.
(v) Until the indefeasible cash payment in full of all Obligations in
accordance with the terms of the Loan Documents:
(a) No payment of, or other distribution in respect of, all or
any part of the Junior Lien or any claim secured thereby may be made
to Borrower other than payments permitted pursuant to subsection
10.21B.
(b) Borrower shall not seek to collect or enforce, by
litigation, set-off or otherwise, or make any demand for payment of,
any claim secured by the Junior Lien, all such rights being assigned
to the Collateral Agent pursuant to the Loan Documents.
(c) Borrower shall not exercise any remedy or commence,
prosecute, or participate in any action, whether private, judicial,
equitable, administrative, or otherwise, including without limitation
the commencement or initiation of any bankruptcy proceeding, against
any Credit Party or any of its assets to enforce any rights under or
in respect of the Junior Lien, including, without limitation, any
right to foreclose upon any Collateral, all such rights being assigned
to the Collateral Agent pursuant to the Loan Documents.
(d) In order to enable Collateral Agent to enforce its rights
hereunder in any bankruptcy proceeding, Collateral Agent is hereby
irrevocably authorized and empowered in its sole and absolute
discretion to make and present for and on behalf of Borrower such
proofs of claim against any Credit Party on account of the Junior Lien
as Collateral Agent may deem expedient or proper and to vote such
proofs of claim and to receive and collect any and all payments or
disbursements made thereon in whatever form the same may be paid or
issued and to apply the same on account of any Obligations in
accordance with the provisions of the Loan Documents.
(e) In the event of any bankruptcy proceeding against any Credit
Party, Borrower may not exercise any right or remedy with respect to
the
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Junior Lien that otherwise might be available to Borrower, including,
without limitation:
(1) any right to adequate protection under (S)(S) 361, 362,
363 or (S) 364 (including without limitation (S) 364(d)) of the
Bankruptcy Code;
(2) any right to relief from the automatic stay under (S)
362(d) of the Bankruptcy Code;
(3) any right to object to the treatment provided under (S)
1129(b) of the Bankruptcy Code to any claim secured by such
Collateral (other than in respect of a plan of reorganization
that (x) is acceptable to Collateral Agent in its sole discretion
or (y) provides for the indefeasible cash payment in full, upon
the effective date of such plan, of all Obligations in accordance
with the terms of the Loan Documents); and
(4) any right to file any motion, complaint, objection,
response or answer or other pleading seeking to assert, protect,
enforce or value any interest in any Collateral or any right to
be heard on any matter with respect to the Collateral (including,
without limitation, any sale, transfer or disposition thereof).
(f) Borrower hereby collaterally assigns the Junior Lien to
Collateral Agent and appoints Collateral Agent as attorney-in-fact for
Borrower to take any such steps hereinabove mentioned with full power
of substitution in the premises, and further agrees to execute and
deliver any further assignments or other instruments which may be
necessary or expedient in order to enable Collateral Agent to enforce
any and all such claims, and to collect any and all payments or
disbursements which may be made at any time on account of all or any
of the Junior Lien.
If Borrower, in violation of the provisions herein set forth shall commence,
prosecute or participate in any suit, action, case or proceeding against any
Credit Party, such Credit Party may interpose as a defense or plea the
applicable provisions of this Agreement, and Collateral Agent may intervene and
interpose such defense or plea in its own name or in the name of the Credit
Party, and shall, in any event, have standing to restrain the enforcement of the
obligations of such Credit Party in its own name or in the name of the Credit
Party in the same suit, action, case or proceeding or in any independent suit,
action, case or proceeding. Borrower waives presentment, protest, notice,
demand or action or delinquency in respect of the Collateral or any part
thereof, including, without limitation, any right to require Collateral Agent or
any other Person with respect to any Collateral or any part thereof, or
otherwise to enforce payment thereof or recovery thereunder and waives any right
it may have at law or otherwise to require Collateral Agent to act in a
commercially reasonable manner or to marshall any assets or Collateral in favor
of
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Borrower, any Credit Party, or any other Person or against or in payment of any
of all of the Obligations. With respect to any subrogation claims, Borrower
hereby waives, releases and discharges any and all rights, claims, causes of
action, liabilities, claims and demands, in law or equity, which Borrower has
had, now has, or may in the future have, arising out of or relating directly or
indirectly to the taking or not taking of any act, or proceeding or not
proceeding with any action which Collateral Agent may take pursuant to the terms
of the Loan Documents or any other documents or with respect to any effort to
collect in respect of the Obligations. To the extent that any Credit Party
makes any payment on the Obligations which is subsequently invalidated, declared
to be fraudulent or preferential, set aside or is required to be repaid to a
trustee, receiver or any other party under any bankruptcy proceeding or
otherwise (such payment being hereinafter referred to as a ``VOIDED PAYMENT'')
then, to the extent of such Voided Payment, that portion of the Obligations
which had previously been satisfied by such Voided Payment shall be revived and
continue in full force and effect as if such Voided Payment had never been made
and, until the full amount of such Voided Payment is fully and finally restored
to Lenders the provisions of this Section 10.21 shall be in full force and
effect with respect to the Junior Lien and the Collateral. In the event that,
notwithstanding the foregoing provisions prohibiting such payment or
distribution, Borrower shall receive any payment under or in respect of the
Junior Lien or Collateral or any claim secured thereby at a time when such
payment or distribution is prohibited by this Section 10.21 and before the
principal, interest and all other amounts constituting Obligations are
indefeasibly paid in full in cash in accordance with the terms of the Loan
Documents, then and in such event such payment or distribution shall be received
and held in trust for Collateral Agent on behalf of Lenders and shall be paid
over or delivered to Collateral Agent on behalf of Lenders, to the extent
necessary to pay in full in cash, in accordance with the terms of the Loan
Documents the principal, interest and all other amounts of such Obligations
after giving effect to any concurrent payment or distribution to Collateral
Agent on behalf of Lenders in respect of the Obligations.
B. PAYMENT UNDER INTERCOMPANY NOTES. Anything in this Agreement to the
contrary notwithstanding, but subject to Section 15 of the Pledge and Security
Agreement, as long as Collateral Agent has not elected to exercise its rights
pursuant to Section 15(b) of the Pledge and Security Agreement, Borrower may
receive payments in respect of the Intercompany Notes from time to time in the
ordinary course of its business consistent with past practice.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWER:
HARTMARX CORPORATION
By: ____________________________________
Title: ____________________________________
Notice Address:
___________________________
___________________________
___________________________
___________________________
LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION,
individually, as Managing Agent and as
Collateral Agent
By: ____________________________________
Title: ____________________________________
Notice Address:
___________________________
___________________________
___________________________
___________________________
S-1
<PAGE>
THE BANK OF NEW YORK,
Individually and as Co-Agent
By: ___________________________________
Title: ___________________________________
Notice Address:
___________________________
___________________________
___________________________
___________________________
CONTINENTAL BANK, N.A.
Individually and as Co-Agent
By: ____________________________________
Title: ____________________________________
Notice Address:
____________________________
____________________________
____________________________
____________________________
____________________________
S-2
<PAGE>
_________________________________________
By: _________________________________
Title: _________________________________
Notice Address:
__________________________
__________________________
__________________________
__________________________
__________________________
S-3
<PAGE>
SCHEDULE 1.1A
ELIGIBLE ACCOUNTS
``ELIGIBLE ACCOUNTS'' means, as determined by Collateral Agent, based upon
the most recent information delivered by Borrower pursuant to this Agreement or
other information available to Collateral Agent, that portion of Accounts of
Borrower and its Operating Subsidiaries that shall be deemed to be ``ELIGIBLE
ACCOUNTS'' for purposes of determining the amounts to be advanced, if any,
pursuant to this Agreement. In determining that portion of Accounts that
constitutes Eligible Accounts, Collateral Agent shall apply the following
requirements and shall be entitled to exclude any Account that fails to satisfy
any of the following requirements:
(a) The Account arises from a sale or services performed in the
ordinary course of business of a Credit Party (and not, for example, in
connection with any going out of business sale or other liquidation); and
is not subject to any setoff, counterclaim or similar rights by the Account
Debtor or, if such is the case, such Account Debtor has entered into an
agreement acceptable to Collateral Agent with respect to waiver of rights
of set off, unresolved dispute, defense, counterclaim or similar rights, as
the case may be; provided that if any such setoff, unresolved dispute,
defense counterclaim or similar right is expressly asserted only to a
portion of such Account, then the remaining unaffected portion of such
Account shall not be excluded solely by operation of this clause (a);
(b) The Account, together with the contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, consumer protection, retail installment
sales, truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy) and with
respect to which no party to the contract related thereto is in violation
of any such law, rule or regulation in any material respect;
(c) The Account is one in respect of which Collateral Agent has a
perfected, first priority security interest;
(d) The Account (i) is not in respect of a deferred payment program
unless the first required payment under such program has been requested or
received or (ii) is not in excess of 60 days past due or (iii) is not due
within 120 days of its original invoice date or (iv) has not been assigned
to a collection agency;
(e) The Account is denominated and payable only in Dollars in the
United States and satisfies the applicable Credit and Collection Policy and
is not a Defaulted Account;
Sched1.1A-1
<PAGE>
(f) The Account arises under a contract, the performance of which has
been completed by the applicable Credit Party and by all parties other than
the Account Debtor and is enforceable against the Account Debtor, and which
Account has been invoiced and all goods or services in connection therewith
have been delivered to (including, without limitation, by delivery F.O.B.
at a location other than that of the Account Debtor) or performed for the
Account Debtor;
(g) The Account Debtor (i) is not a known ``skip'' or ``fraud'', (ii)
satisfies all requirements of the applicable Credit and Collection Policy,
(iii) is not an Affiliate, agent, employee, officer or director of the
Borrower or any of its Subsidiaries and (iv) in the case of an individual,
is a competent living person who is not a minor;
(h) The Account Debtor is neither the United States of America nor
any subdivision, department or agency thereof nor any subdivision,
department or agency of any State or municipality;
(i) The Account Debtor for such Account is not insolvent or the
subject of any bankruptcy or insolvency proceeding of any kind (unless such
Account constitutes a valid administrative expense of such Account Debtor
payable in accordance with its terms under Section 503(b) of the Bankruptcy
Code) or a Person whose credit standing is unacceptable to Lender for this
purpose;
(j) If the Account Debtor is located in the States of New Jersey,
Minnesota, or any other State requiring the filing of a Business Activity
Report or similar document in order to bring suit or otherwise enforce its
remedies against such Account Debtor in the courts or through any judicial
process of such State, the Credit Party generating such Account has filed a
Notice of Business Activities Report with the New Jersey Division of
Taxation, the Minnesota Department of Revenue, or with such other States,
as appropriate, for the current year;
(k) None of the representations, warranties or covenants contained in
this Agreement and the other Loan Documents in respect of such Account has
been breached by Borrower or the applicable Operating Subsidiary; and
(l) The Account is determined by Collateral Agent in its reasonable
business discretion to be unacceptable for inclusion in the Borrowing Base.
Notwithstanding the foregoing, all Accounts from an Account Debtor will be
ineligible if fifty percent (50%) or more of the total face value of such
Accounts are ineligible under clause (d) above.
Sched1.1A-2
<PAGE>
SCHEDULE 1.1B
ELIGIBLE INVENTORY
``ELIGIBLE INVENTORY'' means, as determined by Collateral Agent, based upon
the most recent information delivered to Collateral Agent pursuant to this
Agreement or other information available to Collateral Agent, that portion of
Inventory owned by Borrower or an Operating Subsidiary that shall be deemed to
be ``ELIGIBLE INVENTORY'' for purposes of determining the amounts to be
advanced, if any, pursuant to this Agreement. In determining that portion of
Inventory that constitutes Eligible Inventory, Collateral Agent shall apply the
following requirements:
(a) The Inventory is subject to a first priority security interest in
favor of Collateral Agent and is not subject to any other adverse claim,
interest or right;
(b) The Inventory consists of (i) finished goods purchased or
manufactured by Borrower or an Operating Subsidiary in the ordinary course
of its business, (ii) raw materials or piece goods or (iii) identifiable
finished goods carried as work-in-progress by Borrower or an Operating
Subsidiary in the ordinary course of business prior to the matching of the
jackets and slacks;
(c) The Inventory is in good condition and meets all standards
imposed by any Person having regulatory authority over such goods, its use
and/or sale, is not obsolete or damaged, and is currently saleable in the
normal course of Borrower's or such Operating Subsidiary's business;
(d) None of the representations, warranties or covenants contained in
this Agreement and the other Loan Documents in respect of such Inventory
has been breached by Borrower or the applicable Operating Subsidiary;
(e) The Inventory is located at one of the manufacturing facilities,
warehouses or retail locations operated by a Credit Party or at a location
as to which Collateral Agent shall have received a Collateral Access
Agreement which is in full force and effect;
(f) The Inventory has not been consigned to or by any Person (other
than consignment by a Credit Party to another Credit Party) and is not in-
transit or on lease;
(g) The Inventory has not been returned to Borrower or an Operating
Subsidiary from customers or Account Debtors and not yet returned to
regular stock at one of the locations permitted pursuant to clause (e)
above; and
(h) The Inventory is not determined by Collateral Agent, in its
reasonable business discretion to be unacceptable for inclusion in the
Borrower Base.
Sched1.1B-1
<PAGE>
SCHEDULE 2.1
LENDERS' COMMITMENTS AND PRO RATA SHARES
<TABLE>
<CAPTION>
REVOLVING
LOAN PRO RATA
LENDER COMMITMENT SHARE
- -------------------------------------- ---------- --------
<S> <C> <C>
General Electric Capital Corporation
The Bank of New York
Continental Bank, N.A.
---------- --------
Total $ 100%
</TABLE>
<TABLE>
<CAPTION>
SWING LINE PRO RATA
LENDER COMMITMENT SHARE
- -------------------------------------- ----------- --------
<S> <C> <C>
General Electric Capital Corporation $15,000,000 100%
</TABLE>
Sched2.1-1
<PAGE>
SCHEDULE 5.1
PART ONE
SUBSIDIARIES OF BORROWER
------------------------
<TABLE>
<CAPTION>
OWNERSHIP
JURISDICTION OF DIRECT BY BORROWER
ENTITY INCORPORATION PARENT(S) (DIRECT/INDIRECT)
- -------- --------------- --------- -----------------
<S> <C> <C> <C>
%
</TABLE>
Sched5.1-1
<PAGE>
SCHEDULE 5.1
PART TWO
CHIEF EXECUTIVE OFFICE AND PRINCIPAL PLACE OF BUSINESS
------------------------------------------------------
CREDIT PARTY CHIEF EXECUTIVE OFFICE PRINCIPAL PLACE OF BUSINESS
-------------- ---------------------- ---------------------------
Sched5.1-2
<PAGE>
SCHEDULE 5.1
PART THREE
ACCOUNTS
--------
LOCATION OF RECORDS RE: ACCOUNTS
CREDIT PARTY (INCLUDE STREET ADDRESS AND COUNTY)
-------------- -----------------------------------
Sched5.1-3
<PAGE>
SCHEDULE 5.1
PART FOUR
INVENTORY
---------
LOCATION OF INVENTORY (INCLUDE STREET ADDRESS
CREDIT PARTY AND COUNTY; INDICATE BAILEE, WAREHOUSEMAN, ETC.)
------------ ------------------------------------------------
Sched5.1-4
<PAGE>
SCHEDULE 5.1
PART FIVE
TRADE NAMES
-----------
TRADE NAMES
CREDIT PARTY CURRENT TRADE NAMES PAST FIVE YEARS
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Sched5.1-5
<PAGE>
EXHIBIT 23-A
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CONSENT OF INDEPENDENT ACCOUNTANTS
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We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
January 12, 1994, except as to the Legal Proceedings Note which is as of
February 4, 1994, appearing on page 17 of Hartmarx Corporation's Annual Report
on Form 10-K for the year ended November 30, 1993. We also consent to the use in
the Prospectus constituting part of this Registration Statement on Form S-3 of
our report dated January 12, 1994, except as to the Legal Proceedings Note which
is as of February 4, 1994, relating to the financial statements of Hartmarx
Corporation, which appears in such Prospectus. We also consent to the references
to us under the headings "Experts" and "Selected Historical and Pro Forma
Consolidated Financial Information" in such Prospectus. However, it should be
noted that Price Waterhouse has not prepared or certified such "Selected
Historical and Pro Forma Consolidated Financial Information."
/s/ Price Waterhouse
PRICE WATERHOUSE
Chicago, Illinois
March 10, 1994
