<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TUESDAY MORNING CORPORATION
TMI HOLDINGS, INC.
TUESDAY MORNING, INC.
FRIDAY MORNING, INC.
TMIL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 6749 75-2398532
DELAWARE 6749 51-0336658
TEXAS 5995 75-1482994
TEXAS 6511 75-163440
DELAWARE 8980 51-0344394
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
14621 INWOOD ROAD
DALLAS, TX 75244
TELEPHONE: (972) 387-3562
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
MARK E. JARVIS
14621 INWOOD ROAD
DALLAS, TX 75244
TELEPHONE: (972) 387-3562
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
JAMES S. ROWE
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TELEPHONE: (312) 861-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% Series B Senior
Subordinated Notes
due 2007.............. $100,000,000 $1,000 $100,000,000 $29,500
- ----------------------------------------------------------------------------------------
Guarantees of 11% Series
B Senior Subordinated
Notes due 2007........ $100,000,000 (2) (2) None
- ----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT 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>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover
Cover Pages of Prospectus..... Page
3. Risk Factors, Ratio of
Earnings to Fixed Charges and Prospectus Summary; Unaudited Pro Forma
Other Information............. Financial Statements; Selected Consolidated
Financial Data
4. Terms of the Transaction...... Outside Front Cover Page; Prospectus
Summary; Description of the Exchange Notes;
The Exchange Offer; Certain Federal Income
Tax Consequences
5. Pro Forma Financial
Information................... Unaudited Pro Forma Financial Statements
6. Material Contracts with the
Company Being Acquired........ Certain Transactions
7. Additional Information
Required...................... Inapplicable
8. Interests of Named Experts and
Counsel....................... Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Inapplicable
10. Information with Respect to S-
3 Registrants................. Inapplicable
11. Incorporation of Certain
Information by Reference...... Inapplicable
12. Information with Respect to S-
3 or S-2 Registrants.......... Inapplicable
13. Incorporation of Certain
Information by Reference...... Inapplicable
14. Information with Respect to
Registrants other than S-3 or Outside Front Cover Page; Prospectus
S-2 Registrants............... Summary; Risk Factors; Use of Proceeds;
Capitalization; Unaudited Pro Forma
Financial Statements; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Certain Transactions; Principal
Shareholders; Description of the Senior
Credit Facility
15. Information with Respect to S-
3 Companies................... Inapplicable
16. Information with Respect to S-
3 or S-2 Companies............ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<S> <C>
17. Information with Respect to
Companies Other than S-3 or S-2
Companies...................... Inapplicable
18. Information if Proxies,
Consents or Authorizations are
to be Solicited................ Inapplicable
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an Management; Principal Shareholders; Certain
Exchange Offer................. Transactions
</TABLE>
<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 FEBRUARY 10, 1998
PRELIMINARY PROSPECTUS
, 1998
TUESDAY MORNING CORPORATION
OFFER TO EXCHANGE ITS 11% SERIES B SENIOR
SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING 11%
SENIOR SUBORDINATED NOTES DUE 2007
LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
Tuesday Morning Corporation, a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 11% Series
B Senior Subordinated Notes due 2007 (the "Exchange Notes"), registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 11% Senior Subordinated Notes due 2007 (the
"Old Notes"), of which $100,000,000 principal amount is outstanding. The form
and terms of the Exchange Notes are the same as the form and terms of the Old
Notes (which they replace), except that (i) the Exchange Notes will bear a
Series B designation, (ii) the Exchange Notes will have been registered under
the Securities Act and, therefore, will not bear legends restricting their
transfer and (iii) holders of the Exchange Notes will not be entitled to
certain rights of holders of Old Notes under the Registration Rights Agreement
(as defined). The Exchange Notes will evidence the same debt as the Old Notes
(which they replace) and will be issued under and be entitled to the benefits
of an Indenture dated as of December 29, 1997 (the "Indenture") among the
Company, the Subsidiary Guarantors (as defined) and Harris Trust and Savings
Bank, as trustee (the "Trustee"), governing the Old Notes and the Exchange
Notes. The Old Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes." See "The Exchange Offer" and "Description of the
Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date"). Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration
Date. The Exchange Offer is subject to certain customary conditions. See "The
Exchange Offer."
The Old Notes were sold by the Company on December 29, 1997 to Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs &
Co. (collectively, the "Initial Purchasers") in a transaction not registered
under the Securities Act in reliance upon an exemption under the Securities Act
(the "Initial Offering"). The Initial Purchasers subsequently placed the Old
Notes with qualified institutional buyers in reliance upon Rule 144A under the
Securities Act and to non-U.S. persons outside the United States in reliance on
Regulation S under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company and the Subsidiary Guarantors under the Registration Rights Agreement
entered into by the Company, the Subsidiary Guarantors and the Initial
Purchasers in connection with the Initial Offering (the "Registration Rights
Agreement"). See "The Exchange Offer."
Interest on the Notes will accrue from their date of original issuance and
will be payable semiannually in arrears on June 15 and December 15 of each
year, commencing June 15, 1998, at the rate of 11% per annum.
(Continued on following page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(Continued from previous page)
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after December 15, 2002, at the redemption prices set
forth herein, together with accrued and unpaid interest to the date of
redemption. In addition, at any time prior to December 15, 2000, the Company
may redeem up to 35% of the aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more Public Equity Offerings (as
defined), at a redemption price equal to 111% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of redemption;
provided that at least $65 million aggregate principal amount of the Notes
originally issued remains outstanding immediately after such redemption. Upon
the occurrence of a Change in Control (as defined), each holder of the Notes
shall have the right to require the Company to purchase all or any portion of
such holder's Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. In addition, the Company will be obligated to offer to repurchase
the Notes at 100% of the principal amount thereof plus accrued and unpaid
interest to date of repurchase in the event of certain Asset Sales (as
defined). See "Description of the Exchange Notes."
The Exchange Notes will be, as the Old Notes (which they replace) are,
unsecured senior subordinated obligations of the Company and will be
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of the Company, including Indebtedness (as defined)
under the Senior Credit Facility (as defined). The Exchange Notes will, as the
Old Notes (which they replace), rank pari passu in right of payment with all
other existing and future Senior Subordinated Indebtedness (as defined), if
any, of the Company. The Exchange Notes will be, as the Old Notes (which they
replace) are, guaranteed (the "Note Guarantees") jointly and severally by all
present and future domestic subsidiaries of the Company (the "Subsidiary
Guarantors"). Each Note Guarantee will be an unsecured senior subordinated
obligation of the Subsidiary Guarantor issuing such Note Guarantee, ranking
pari passu with all other existing and future senior subordinated indebtedness
of such Subsidiary Guarantor, if any. The Indebtedness (as defined) evidenced
by each Note Guarantee will be subordinated on the same basis to Guarantor
Senior Indebtedness (as defined) as the Notes are subordinated to Senior
Indebtedness. At September 30, 1997, on a pro forma basis after giving effect
to the Transactions (as defined) (including the issuance of the Old Notes and
the application of the net proceeds therefrom), the Senior Indebtedness of the
Company would have been approximately $176.5 million (all of which would
represent Indebtedness under the Senior Credit Facility), and the Company
would have had additional availability of $16.1 million for revolving credit
facility borrowings under the Senior Credit Facility, all of which would be
Senior Indebtedness, if borrowed. At September 30, 1997, on a pro forma basis
after giving effect to the Transactions (including the issuance of the Old
Notes and the application of the net proceeds therefrom), Guarantor Senior
Indebtedness of the Subsidiary Guarantors would have been approximately $181.8
million ($176.5 million of which would represent guarantees of Indebtedness
under the Senior Credit Facility). See "Description of the Exchange Notes--
Ranking" and "Description of the Exchange Notes--Note Guarantees."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes." Holders of Old Notes wishing to accept the Exchange Offer
must represent to the Company, as required by the Registration Rights
Agreement, that such conditions have been met. Each broker-dealer (a
"Participating Broker-Dealer") that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be
ii
<PAGE>
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM", THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR
IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL
NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF
WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS.
AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL
BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS
SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM."
iii
<PAGE>
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY NOR ANY OF THE SUBSIDIARY GUARANTORS IS MAKING ANY REPRESENTATION TO
ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS PROSPECTUS MAY CONSTITUTE FORWARD-
LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUCH FORWARD-LOOKING
STATEMENTS MAY INVOLVE UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE
ACTUAL RESULTS AND PERFORMANCE OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM
FUTURE RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS.
CAUTIONARY STATEMENTS REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK
FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO THE
HIGHLY LEVERAGED NATURE OF THE COMPANY, THE RESTRICTIONS IMPOSED ON THE
COMPANY BY CERTAIN INDEBTEDNESS, THE SENSITIVITY OF THE COMPANY TO ADVERSE
TRENDS IN THE GENERAL ECONOMY, THE HIGH DEGREE OF COMPETITION IN THE COMPANY'S
INDUSTRY, THE VARIABILITY OF THE COMPANY'S QUARTERLY RESULTS AND THE COMPANY'S
SEASONALITY, THE ABILITY OF THE COMPANY TO IDENTIFY, LOCATE AND PROCURE
MERCHANDISE AT SUITABLE PRICES, THE ABILITY OF THE COMPANY TO CONTINUE ITS
EXPANSION, THE CONTROL OF THE COMPANY BY MADISON DEARBORN CAPITAL PARTNERS II,
L.P. AND THE DEPENDENCE OF THE COMPANY ON KEY PERSONNEL, AMONG OTHERS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY
ARE EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. 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 to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. In
addition, the Company files periodic reporting and other information
requirements of the Exchange Act. The Exchange Offer Registration Statement,
including the exhibits thereto, and periodic reports and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center,
iv
<PAGE>
Suite 1300, New York, New York 10048. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company was required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or
beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
v
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. The following summary information is qualified in its entirety by
reference to, and should be read in conjunction with, the more detailed
information and Consolidated Financial Statements (including the notes thereto)
included elsewhere in this Prospectus. Unless otherwise indicated, references
to the "Company" or "Tuesday Morning" are to Tuesday Morning Corporation and
its subsidiaries. The pro forma consolidated statement of operations for the
periods presented gives effect to the Transactions as if they were consummated
on January 1, 1996. The pro forma consolidated balance sheet gives effect to
the Transactions as if they had occurred on September 30, 1997. See "--The
Transactions."
THE COMPANY
Tuesday Morning is the largest closeout retailer of upscale gift and home
furnishings merchandise in the United States, with 315 stores in 33 states. The
Company operates its stores during seven annual "sales events" that last from
four to seven weeks, while closing them for the remaining weeks of the year.
Tuesday Morning does not sell seconds, irregulars or factory rejects, but
rather specializes in first quality, brand name merchandise such as Ralph
Lauren bed linens, Waterman pens, Limoges hand-decorated boxes, Mikasa dishes,
Farberware cookware, Daum French crystal, Martex bath towels, Fisher-Price
toys, Samsonite luggage and Spode china. The Company purchases its merchandise
at closeout and sells it at prices that are 50% to 80% below those generally
charged by department and specialty stores. The Company believes that its
event-based selling strategy, combined with high quality, reasonably priced
merchandise, attracts upscale "bargain hunters" with strong loyalty to the
Company.
The Company was formed and opened its first store in 1974. Since its initial
public offering in 1986, the Company has increased its number of stores from 63
to 315, and has achieved compound annual growth rates for sales and EBITDA of
16.1% and 16.6%, respectively. During the twelve months ended September 30,
1997, the Company generated comparable store sales growth of 18% and net sales
and EBITDA of $297.3 million and $34.1 million, respectively. This represents
an increase of 27.8% and 72.5%, respectively, over sales and EBITDA for the
twelve months ended September 30, 1996.
BUSINESS STRENGTHS
The Company's success has been largely based on the following strengths:
Unique Event-Based Format. The Company distinguishes itself from other
retailers with a unique "event-based" selling strategy, creating the equivalent
of seven "grand openings" each year. The Company believes that the closing and
reopening of its stores heightens customers' expectations of finding new,
undiscovered merchandise and intensifies their sense of urgency to buy the
Company's products, which are available only in limited quantities. Consistent
with this approach, the Company typically realizes approximately 40% of an
event's total sales in the first four or five days of the event (Wednesday or
Thursday to Sunday).
Strong Merchandising Capabilities. The Company employs a talented and
experienced buying team, which has grown from 10 buyers in 1993 to 22 buyers in
1997, with an average of nearly 20 years of retail experience. The Company's
buyers and its reputation as a preferred, reliable purchaser have enabled it to
establish excellent, long-term relationships with a diverse group of top-of-
the-line vendors. The Company obtains its merchandise primarily by purchasing
from manufacturers their end-of-line products which did not meet their sales
expectations, or merchandise left over from cancellations of orders placed by
other retailers. Merchandise is also obtained by contracting for production
from manufacturers during periods of lower production. Through its
approximately 1,000 vendor relationships, the Company has become one of the
largest retailers for certain categories of luxury brand merchandise, such as
European handmade crystal and fine quality Oriental rugs from China and India.
The Company believes that certain top-of-the-line vendors such as Rosenthal and
Samsonite
<PAGE>
prefer to liquidate a majority of their excess inventory through the Company
because of its access to an upscale customer base and its ability to dispose of
high-end, closeout merchandise quickly and without disruption to their normal
retail channels.
Dedicated, Upscale Customer Base. Tuesday Morning has an upscale, loyal
customer following. The Company has developed and maintains a proprietary
preferred customer mailing list of over 4,000,000 customers who have visited
its stores and requested to receive mailings in advance of the Company's sales
events. Customer loyalty is evidenced by the fact that the Company derives
approximately 31% of its sales during the first two or three days of each sales
event, which is advertised only by a mailing to those individuals on the list.
The Company believes, based on its internal research, that its customers are
primarily female from households headed by professionals, typically ranging in
age from 25 to 54 and having a median family income of approximately $55,000.
In addition, the Company believes its customers are knowledgeable shoppers who
frequent five or more national department stores and are able to recognize the
Company's favorable pricing on first quality, name brand merchandise.
Strong Financial Characteristics. Tuesday Morning has demonstrated an ability
to consistently grow sales while generating strong cash flow. For the twelve
months ended September 30, 1997, Tuesday Morning generated EBITDA of $34.1
million, a 72.5% increase over the comparable period in 1996. During this same
period, capital expenditures were $6.1 million. The Company has consistently
grown its EBITDA since 1993 due to the improved profitability of its existing
store base, while requiring only modest capital expenditures to fund growth.
Flexible, Low Cost Real Estate Approach. The Company's stores are
destination-oriented, and can therefore be located in secondary locations of
major suburban markets, such as strip malls and warehouse zones, in close
proximity to their target customers. As a result, the Company's real estate
costs are significantly lower than those of many other retailers, averaging
approximately $8 per square foot. In addition, virtually all new leases contain
a "kick" clause that gives the Company the ability to terminate the lease
without penalty for up to 18 months after lease inception. These kick clauses
provide the Company with significant downside protection in opening new stores
by allowing it to vacate a site that initially proves unprofitable. The Company
is able to obtain kick clauses because it seldom requires significant build out
of a lease site and because it is able to make productive use of challenging
space.
Integrated Management Information Systems and Inventory Controls. The Company
believes its management information systems are among the most advanced in the
retailing industry. These systems enable the Company to manage its flow of
almost 80,000 SKUs from approximately 1,000 vendors on a real-time basis in
order to make timely and accurate purchasing, distribution and merchandising
decisions. The Company's proprietary merchandising and inventory control
systems, point of sale system and state-of-the-art distribution management
system are integrated with its financial reporting systems, providing the
Company's buyers with a significant degree of control over inventory
acquisition, distribution and sales performance. The Company's buyers can
review, at the SKU level and on a real-time basis, the status of every open
purchase order, inbound shipment, warehouse receipt, process shipment and item
of store inventory. These systems further allow management to target
merchandise for markdowns in an effective and systematic manner. At September
30, 1997, less than 5% of the Company's inventory was more than one year old.
BUSINESS STRATEGY
The Company's objective is to sustain its current growth and to enhance its
productivity and operating performance by continuing to build on its existing,
proven strengths. The Company intends to achieve this objective by pursuing the
following existing strategies:
Continue New Store Openings. The Company opened 31 new stores in 1997 and
plans to increase its store base, in new and existing markets, by approximately
32 to 35 stores per year for the foreseeable future. The
2
<PAGE>
Company's "no-frills" approach enables it to open this number of stores for an
aggregate cost of only $2 million per year, or approximately $60,000 per store
excluding inventory. The Company intends to profitably increase its penetration
of existing markets, capitalize on the success it has enjoyed in smaller
single-store markets, where there are often no other retailers offering the
Company's first quality products, and prudently expand into new major
metropolitan markets that will provide the basis for long-term expansion.
Enhance Sales Productivity. The Company has achieved average comparable store
sales growth of approximately 6% per year since its initial public offering in
1986 and 19% for the first nine months of 1997. The growth has resulted from
increases in (i) the number of customer transactions, (ii) the average number
of items purchased per customer visit and (iii) the average price of such
items. The average number of customer transactions has increased as a result of
the increased frequency of stocking its stores during a sales event. The
average number of items purchased by customers has increased as a result of the
introduction of additional impulse-oriented merchandise, and the average price
of items purchased has increased due to a greater mix of higher priced items.
The Company intends to continue implementing these merchandising strategies to
further enhance sales productivity.
Capitalize on Favorable Industry Dynamics and Competitive Positioning. The
Company is benefiting from several trends in the retailing industry. The
increase in the application of just-in-time inventory management techniques and
the increase in retailer consolidations have both resulted in a shift of
inventory risk from retailers to manufacturers. In addition, in order to
maintain market share in an increasingly competitive environment, manufacturers
are introducing new products and new packaging more frequently. All of these
factors have contributed to a broad and consistent supply of closeout
merchandise for the Company.
The Company believes it is the only retailer in the closeout industry that
focuses on first quality gift and home furnishings merchandise, in contrast
with most closeout retailers, which are general merchandisers or which focus on
apparel. In addition, the Company caters to upscale customers, while the rest
of the industry generally focuses on lower to middle income consumers. Finally,
unlike other closeout retailers which operate on a year-round basis, Tuesday
Morning operates on an event sale basis. The Company believes that its periodic
schedule of openings causes its customers to plan their visits to the Company's
stores to a greater extent than customers of conventional retailers whose
product offerings are more predictable and store hours more extensive.
Leverage Workforce and Technology. The Company believes that its investments
in information systems and inventory control technology and in doubling its
staff of experienced, specialized buyers over the last four years will bolster
future growth in the breadth of its product offerings and will provide the
support necessary for new store openings for the foreseeable future. The
Company's existing systems technology is scalable, enabling the Company to
expand or to upgrade its systems without significant additional expenditures in
the near term. The Company's corporate infrastructure will also allow for
future growth of the Company without significant expenditures beyond the
marginal cost of hiring additional buyers.
THE TRANSACTIONS
On December 29, 1997, Madison Dearborn Capital Partners II, L.P. ("Madison
Dearborn"), certain members of management and certain unaffiliated investors
acquired (the "Acquisition") all of the outstanding capital stock of the
Company for an equity investment of $117.9 million (the "Equity Investment").
The Equity Investment consisted of (i) an $85.4 million investment by Madison
Dearborn (comprised of $4.6 million of common stock ("Common Stock") of the
Company, and $80.8 million of junior preferred stock of the Company), (ii) a
$7.5 million of investment by certain members of management of the Company
(comprised of $0.4 million in Common Stock and $7.1 million in junior preferred
stock) and (iii) a $25.0 million investment by certain unaffiliated investors
in units consisting of senior exchangeable redeemable preferred stock (the
"Senior Exchangeable Preferred Stock") and Common Stock. The Company used the
proceeds from the Equity Investment and approximately $223.4 million of
aggregate proceeds from the financings described below
3
<PAGE>
(the "Financings") (i) to pay $323.0 million as Acquisition consideration and
(ii) to pay $18.3 million in transaction fees and expenses. See "Description of
the Units" and "Description of Junior Preferred Stock."
The Financings consisted of (i) a $200.0 million credit facility (the "Senior
Credit Facility"), comprised of a $110.0 million term loan facility, consisting
of $40.0 million in Term Loan A loans and $70.0 million in Term Loan B loans
(collectively, the "Term Loans"), and a $90.0 million revolving credit facility
which, subject to certain conditions, can be increased up to $115.0 million
(the "Revolving Credit Facility"), of which approximately $13.4 million was
drawn in January 1998 in connection with the Transaction and (ii) the proceeds
of the Old Notes. See "Description of the Senior Credit Facility" and
"Description of the Exchange Notes."
The closing of the Initial Offering (the "Closing") was conditioned upon the
simultaneous consummation of the Acquisition, the other Financings, the Equity
Investment and the repayment of the Old Credit Facility. The Initial Offering,
the Acquisition, the Other Financings, the Equity Investment and the repayment
of the Old Credit Facility are collectively referred to herein as the
"Transactions."
The sources and uses of funds related to the Transactions are set forth in
the following table:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Senior Credit Facility ($13,388 drawn in January 1998)... $123,388
Old Notes................................................ 100,000
Senior Exchangeable Preferred Stock...................... 25,000
Junior Redeemable Preferred Stock (a).................... 86,010
Junior Perpetual Preferred Stock......................... 1,918
Common Stock (b)......................................... 5,000
--------
Total.................................................. $341,316
========
USES OF FUNDS:
Acquisition consideration................................ $323,016
Fees and expenses........................................ 18,300
--------
Total.................................................. $341,316
========
</TABLE>
- --------
(a) Consists of approximately $80.8 million from Madison Dearborn and
approximately $5.2 million from management. See "Description of Junior
Preferred Stock."
(b) Consists of approximately $4.6 million from Madison Dearborn and
approximately $0.4 million from management.
THE INVESTORS
Madison Dearborn is a $925 million investment fund managed by Madison
Dearborn Partners, Inc. ("MDP"), a private equity investment firm. Since 1980,
the principals of MDP have directed equity investments of over $1.2 billion in
more than 100 transactions where MDP or its predecessor, First Chicago Venture
Capital, acted as a leading investor. Currently, MDP has approximately $2.2
billion of funds under management. MDP is comprised of five investment teams,
each focused on a particular sector: consumer (including retailing),
industrial, communications, natural resources, and healthcare services. Since
1984, MDP's consumer team has
4
<PAGE>
made lead investments in over 10 portfolio companies, including The Sports
Authority, Inc., Consolidated Stores Corporation, Sterling Merchandise Company,
Beverages & More, Inc., The Cornerstone Investment Group, Inc., Carrols
Corporation, Peter Piper, Inc. and Bizmart, Inc.
RECENT DEVELOPMENTS--UNAUDITED
The Transaction was consummated December 29, 1997. Net sales for the year
ended December 31, 1997 increased $70.5 million, or 27.5%, to $327.3 million
from $256.8 million for the comparable period in 1996. Average store sales for
1997 were approximately $1,066,000, as compared to $925,000 for 1996. During
the year ended December 31, 1997, the Company generated comparable store sales
growth of 18% and EBITDA before Transaction expenses of $41.6 million as
compared to EBITDA of $25.9 million for the comparable period in 1996.
Operating income decreased $18.5 million from $20.4 million in 1996 to $1.9
million in 1997. Compensation paid in lieu of options of $25 million and non-
debt fees and expenses of $9.4 million are included in operating income for the
year ended December 31, 1997. In addition, net current assets at December 31,
1997 decreased by $39.8 million from September 30, 1997, due to the sell down
of inventory during the holiday season. All amounts are unaudited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality."
----------------
The Company was incorporated in Delaware in 1974. The Company's principal
executive offices are located at 14621 Inwood Road, Dallas, Texas 75244 and its
telephone number is (972) 387-3562.
5
<PAGE>
THE INITIAL OFFERING
Notes..................... The Old Notes were sold by the Company on
December 29, 1997 to the Initial Purchasers
pursuant to a Purchase Agreement dated December
15, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Old
Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act.
Concurrent Initial Units Concurrent with the Initial Offering, the
Offering................. Company sold 250,000 Units on December 29, 1997
to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Initial
Purchaser") pursuant to a Purchase Agreement,
dated December 15, 1997. Each Unit consists of
one share of 13 1/4% Senior Exchangeable
Preferred Stock (as defined) and one share of
Common Stock (as defined).
Registration Rights Pursuant to the Purchase Agreement, the
Agreement................ Company, the Subsidiary Guarantors and the
Initial Purchasers entered into a Registration
Rights Agreement dated as of December 29, 1997
(the "Registration Rights Agreement"), which
grants the holder of the Old Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange
rights which terminate upon the consummation of
the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered........ $100,000,000 aggregate principal amount of 11%
Series B Senior Subordinated Notes due 2007 of
the Company (the "Exchange Notes").
The Exchange Offer........ $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $100,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the
Exchange Notes to holders on or promptly after
the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has
no arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes.
Any Participating Broker-Dealer that acquired
Old Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
6
<PAGE>
the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
Company has agreed that, for a period of 180
days after the Expiration Date, they will make
this Prospectus available to any Participating
Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which
the holder is not indemnified by the Company.
Expiration Date........... 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................
Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Conditions to the The Exchange Offer is subject to certain
Exchange Offer........... customary conditions, which may be waived by
the Company. See "The Exchange Offer--
Conditions."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes................ Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Old Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such Exchange
7
<PAGE>
Notes, whether or not such person is the
holder, that neither the holder nor any such
other person has any arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes and
that neither the holder nor any such other
person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company. See
"The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "The Exchange Offer--
Procedures for Tendering."
Untendered Old Notes...... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange rights
and such Old Notes will continue to be subject
to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
Consequences of Failure
to Exchange..............
The Old Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant
to Rule 144A or Rule 144 under the Securities
Act or pursuant to some other exemption under
the Securities Act, (iii) outside the United
States to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Exchange Offer--Consequences of
Failure to Exchange."
Shelf Registration If any holder of the Old Notes (other than any
Statement................ such holder which is an "affiliate" of the
Company or a Subsidiary Guarantor within the
meaning of Rule 405 under the Securities Act)
is not eligible under applicable securities
laws to participate in the Exchange Offer, and
such holder has satisfied certain conditions
relating to the provision of information to the
Company for use therein, the Company and the
Subsidiary Guarantors have agreed to register
the Old Notes on a shelf registration statement
(the "Shelf Registration Statement") and use
their best efforts to cause it to be declared
effective by the Commission as promptly as
practical on or after the consummation of the
Exchange Offer. The Company and Subsidiary
Guarantors have agreed to maintain the
effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the
Old Notes held by any such holders.
Special Procedures for
Beneficial Owners........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering its
Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable
8
<PAGE>
time. The Company will keep the Exchange Offer
open for not less than 30 days in order to
provide for the transfer of registered
ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their
Procedures............... Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes
and Delivery of Exchange
Notes....................
The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Use of Proceeds........... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent............ Harris Trust and Savings Bank
THE EXCHANGE NOTES
General................... The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes
(which they replace) except that (i) the
Exchange Notes bear a Series B designation,
(ii) the Exchange Notes have been registered
under the Securities Act and, therefore, will
not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange
Notes will not be entitled to certain rights
under the Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Old Notes
in certain circumstances relating to the timing
of the Exchange Offer, which rights will
terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer." The Exchange
Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of
the Indenture. See "Description of the Exchange
Notes."
Maturity Date............. December 15, 2007.
Interest Payment Dates.... June 15 and December 15 of each year, commencing
June 15, 1998.
9
<PAGE>
Guarantees................ The Exchange Notes will be jointly and severally
guaranteed on an unconditional senior subordinated
basis by the Subsidiary Guarantors. Under certain
circumstances, future subsidiaries of the Company
may be required to guarantee the Exchange Notes. In
addition, the Note Guarantees are subject to re-
lease under certain circumstances. See "Description
of the Exchange Notes--Guarantees" and "Description
of the Exchange Notes--Certain Covenants--Limita-
tion on Guarantees of Indebtedness by Restricted
Subsidiaries."
Optional Redemption....... The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time or
from time to time, on or after December 15, 2002,
at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time on or
prior to December 15, 2000 the Company may redeem
up to 35% of the aggregate principal amount of the
Exchange Notes originally issued with the net pro-
ceeds of one or more Public Equity Offerings (as
defined), at a redemption price equal to 111% of
the principal amount thereof, plus accrued and un-
paid interest, if any, to the date of redemption;
provided that at least $65 million aggregate prin-
cipal amount of the Exchange Notes remains out-
standing immediately after such redemption. See
"Description of the Exchange Notes--Optional Re-
demption."
Change in Control......... Upon the occurrence of a Change in Control (as de-
fined), each holder of the Exchange Notes shall
have the right to require the Company to purchase
all or any portion of such holder's Exchange Notes
at a purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See "De-
scription of the Exchange Notes--Purchase of Ex-
change Notes upon a Change in Control."
Ranking................... The Exchange Notes will be unsecured senior subor-
dinated obligations of the Company and, as such,
will be subordinated to all existing and future Se-
nior Indebtedness (as defined) of the Company, in-
cluding indebtedness under the Senior Credit Facil-
ity. The Exchange Notes will rank pari passu with
all other existing and future Senior Subordinated
Indebtedness, if any, of the Company and will rank
senior to Subordinated Indebtedness (as defined),
if any, of the Company. By reason of such subordi-
nation, holders of Senior Indebtedness must be paid
in full before holders of the Exchange Notes may be
paid in the event of a liquidation, dissolution or
other winding up of the Company, whether voluntary
or involuntary and whether or not involving insol-
vency or bankruptcy. At September 30, 1997 on a pro
forma basis after giving effect to the Transactions
and the application of the net proceeds therefrom,
the Company would have had approximately $176.5
million of Senior Indebtedness outstanding (all of
which would represent Indebtedness under the Senior
Credit Facility), and the Company would have had
additional availability of $16.1 million for re-
volving credit facility borrowings under the Senior
Credit Facility, all of which would be Senior In-
debtedness, if borrowed. See "Unaudited Pro Forma
Financial
10
<PAGE>
Statements." Additional Senior Indebtedness may be
incurred by the Company from time to time, subject
to certain restrictions. See "Description of the
Exchange Notes--Ranking."
The Exchange Notes also will be guaranteed by all
present and future domestic subsidiaries of the
Company. Each Note Guarantee will be an unsecured
senior subordinated obligation of the Subsidiary
Guarantor issuing such Note Guarantee, ranking pari
passu with all other existing and future senior
subordinated indebtedness of such Subsidiary Guar-
antor, if any. The Indebtedness evidenced by each
Note Guarantee will be subordinated on the same ba-
sis to Guarantor Senior Indebtedness as the Ex-
change Notes are subordinated to Senior Indebted-
ness. See "Description of the Exchange Notes--Rank-
ing."
Certain Covenants......... The Indenture contains covenants, including, but
not limited to, covenants with respect to the fol-
lowing matters: (i) limitation on additional in-
debtedness; (ii) limitation on restricted payments;
(iii) limitation on issuances and sales of capital
stock of Restricted Subsidiaries (as defined); (iv)
limitation on transactions with affiliates; (v)
limitation on liens; (vi) limitation on sale of as-
sets; (vii) limitation on merger, consolidation and
sale of substantially all assets; (viii) limita-
tions on guarantees of indebtedness by Restricted
Subsidiaries; (ix) limitation on dividend and other
payment restrictions affecting Restricted Subsidi-
aries; (x) limitation on sale and leaseback trans-
actions; (xi) limitation on investment in Unre-
stricted Subsidiaries (as defined); and (xii) limi-
tations on other senior subordinated indebtedness.
See "Description of the Exchange Notes--Certain
Covenants."
Use of Proceeds........... The proceeds to the Company from the sale of the
Old Notes were used, together with the proceeds of
the other Financings and the Equity Investment, to
consummate the Acquisition, to repay indebtedness
of the Company under the Old Credit Facility and to
pay related fees and expenses. The Company will not
receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. See "Use of
Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The summary historical financial data presented below for, and as of the end
of, each of the fiscal years in the three-year period ended December 31, 1996
is derived from the audited consolidated financial statements of the Company.
In the opinion of the Company, the unaudited financial information presented
for the nine months ended September 30, 1997 contains all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial information included therein. Results for interim periods are not
necessarily indicative of results for the full year. The summary unaudited pro
forma statement of operations and other financial data for the year ended
December 31, 1996 and nine months ended September 30, 1997 gives effect to the
Transactions as if they had occurred on January 1, 1996. The summary unaudited
pro forma balance sheet data at September 30, 1997 gives effect to the
Transactions as if they had occurred on such date. The pro forma data is not
necessarily indicative of the results that actually would have been achieved
had the Transactions occurred on such date or that may be achieved in the
future. This summary information should be read in conjunction with the
consolidated financial statements and unaudited pro forma financial statements
of the Company and the notes thereto and "Capitalization," "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED PRO FORMA TWELVE PRO FORMA NINE
YEAR ENDED DECEMBER 31, SEPTEMBER 30, MONTHS ENDED MONTHS ENDED
---------------------------- ------------------ DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- ---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $190,081 $210,265 $256,756 $138,563 $179,058 $256,756 $ 179,058
Cost of sales........... 126,931 137,427 165,189 88,199 112,620 165,189 112,620
-------- -------- -------- -------- -------- -------- ---------
Gross profit............ 63,150 72,838 91,567 50,364 66,438 91,567 66,438
Selling, general and
administrative
expenses............... 57,523 63,040 71,167 48,134 56,193 71,517 56,456
-------- -------- -------- -------- -------- -------- ---------
Operating Income........ 5,627 9,798 20,400 2,230 10,245 20,050 9,982
Net interest income
(expense) and other
income................. (1,611) (2,534) (1,892) (1,518) (1,660) (24,225) (18,261)
-------- -------- -------- -------- -------- -------- ---------
Earnings before income
taxes.................. 4,016 7,264 18,508 712 8,585 (4,175) (8,279)
Net earnings (loss)..... $ 2,651 $ 4,773 $ 11,516 $ 456 $ 5,366 $ (2,661) $ (5,174)
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 32,593 $ 39,115 $ 49,568 $ 80,367 $109,205 $ 46,863 $ 63,921
Total assets............ 89,403 94,243 121,757 151,668 199,215 127,387 209,719
Total debt.............. 10,127 8,398 6,622 48,851 61,409 218,631 281,768
Senior Exchangeable
Preferred Stock........ -- -- -- -- -- 24,643 24,643
Junior Redeemable
Preferred Stock........ -- -- -- -- -- 86,010 86,010
Total shareholders'
equity (deficit)....... 58,630 63,648 75,528 64,103 81,213 (241,746) (234,113)
OTHER FINANCIAL DATA:
EBITDAR (a)............. $ 21,920 $ 27,550 $ 39,874 $ 16,499 $ 26,322 $ 39,524 $ 26,059
Rental expense.......... 11,782 12,577 13,967 10,253 11,953 13,967 11,953
-------- -------- -------- -------- -------- -------- ---------
EBITDA (a).............. $ 10,138 $ 14,973 $ 25,907 $ 6,246 $ 14,369 $ 25,557 $ 14,106
======== ======== ======== ======== ======== ======== =========
Cash flows provided by
(used in):
Operating activities... $ 12,056 $ 6,329 $ 10,592 $(42,789) $(57,703) $(10,409) $ (73,305)
Investing activities... (7,992) (3,104) (4,701) (3,341) (5,129) (4,701) (5,129)
Financing activities... (1,257) (1,484) (1,413) 40,453 55,110 207,298 52,350
Capital expenditures.... 5,693 2,692 4,233 2,935 4,756 4,233 4,756
Gross margin............ 33.2% 34.6% 35.7% 36.4% 37.1% 35.7% 37.1%
S,G&A as a % of net
sales.................. 30.3% 30.0% 27.7% 34.7% 31.4% 27.9% 31.5%
EBITDA margin........... 5.3% 7.1% 10.1% 4.5% 8.0% 10.0% 7.9%
Ratio of EBITDA to net
interest expense....... -- -- -- -- -- 1.1x .8x
Ratio of long-term debt
to EBITDA (b).......... -- -- -- -- -- 8.5x 16.1x
Ratio of earnings to
fixed charges(c)....... 1.6x 2.0x 3.5x 1.1x 2.4x -- --
Deficiency of earnings
to cover fixed charges. -- -- -- -- -- 4,175 8,279
Ratio of earnings to
combined fixed charges
and preferred stock
dividends.............. 1.6x 2.0x 3.5x 1.1x 2.4x -- --
Deficiency of earnings
to cover combined fixed
charges and preferred
stock dividends........ -- -- -- -- -- 15,208 16,554
STORE DATA:
Comparable store sales
increases.............. 4.2% 6.4% 14.0% 11.7% 18.6% 14.0% 18.6%
Average sales per store. $ 792 $ 829 $ 925 $ 512 $ 600 $ 925 $ 600
STORES:
Beginning of period..... 235 246 260 260 286 260 286
Opened................. 22 32 33 23 20 33 20
Closed................. (11) (18) (7) (7) (2) (7) (2)
-------- -------- -------- -------- -------- -------- ---------
End of period........... 246 260 286 276 304 286 304
======== ======== ======== ======== ======== ======== =========
</TABLE>
- -------
(a) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDAR represents EBITDA plus rental expense. While EBITDA
and EBITDAR should not be construed as substitutes for operating income or
as better measures of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, they are included to provide additional information with
respect to the ability of the Company to meet future debt service, capital
expenditure and working capital requirements.
(b) Total long-term debt excludes the outstanding balance under the Revolving
Credit Facility.
(c) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes and
cumulative effect of accounting changes plus fixed charges. "Fixed charges"
consist of interest expense, amortization of deferred financing costs and
the portion of rental expense assumed to represent interest.
12
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the factors set forth below,
as well as the other information contained in this Prospectus, before
tendering their Old Notes in the Exchange Offer. The risk factors set forth
below are generally applicable to the Old Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE; RESTRICTIONS ON INDEBTEDNESS
As a result of the Transactions, the Company became highly leveraged, and
the Company's aggregate indebtedness for borrowed money and interest expense
increased and its shareholders' equity decreased. On a pro forma basis after
giving effect to the Transactions, the Company would have had total
indebtedness of $281.8 million and shareholders' deficit of approximately
$234.1 million as of September 30, 1997. In addition, subject to the
restrictions contained in the instruments governing its indebtedness, the
Company may incur additional debt from time to time to finance working
capital, capital expenditures, acquisitions or for other purposes. After
December 15, 2002, the Company will be required to pay dividends on the Senior
Exchangeable Preferred Stock in cash. Furthermore, subject to certain
conditions, the Company's Senior Exchangeable Preferred Stock will be
exchangeable, at the Company's option, for Exchange Debentures (as defined).
The Company's debt service and dividend obligations could have important
consequences to the holders of the Exchange Notes, including the following:
(i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or other purposes may be
limited or impaired; (ii) a substantial portion of the Company's cash flow
from operations will be dedicated to the payment of principal and interest on
its indebtedness and dividends on the Senior Exchangeable Preferred Stock,
thereby reducing the funds available to the Company; (iii) the Company's
operating flexibility with respect to certain matters will be limited by
covenants contained in the Indenture, the Certificate of Designation (as
defined), the Exchange Indenture (as defined) and the Senior Credit Facility
which will limit the ability of the Company and certain of its subsidiaries to
incur additional indebtedness, grant or create liens upon assets, pay
dividends, redeem capital stock or prepay certain subordinated indebtedness
and enter into sale and leaseback transactions or other loans, investments or
guarantees; and (iv) the Company's degree of leverage may make it more
vulnerable to economic downturns, may reduce its flexibility in responding to
changing business and economic conditions and may limit its ability to pursue
other business opportunities, to finance its future operations or capital
needs, and to implement its business strategy. See "Business--Strategy."
Required payments of principal and interest on the Company's indebtedness
are expected to be financed from its cash flow from operations. The Company's
ability to make scheduled payments of the principal of, or to pay interest on,
or to refinance its indebtedness (including the Exchange Notes and the
Exchange Debentures, if any) depends on the future performance of the
Company's businesses, which will in turn be subject to financial, business,
economic and other factors affecting the business and operations of the
Company, including factors beyond its control, such as prevailing economic
conditions. There can be no assurance that cash flow from operations will be
sufficient to enable the Company to service its debt and meet its other
obligations. If such cash flow is insufficient, the Company may be required to
refinance all or a portion of its existing debt, including the Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any such sales of assets or
additional financing could be achieved.
The Indenture and the Senior Credit Facility contain numerous financial and
operating covenants that limit the discretion of the Company's management with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, grant or create liens upon
assets, pay dividends, redeem capital stock or prepay certain subordinated
indebtedness or enter into sale leaseback transactions or other loans,
investments or guarantees. See "Description of the Exchange Notes" and
"Description of the Senior Credit Facility." The Senior Credit Facility also
requires the Company to meet certain financial ratios and tests. A failure to
comply with the obligations contained in the Senior Credit Facility or the
Indenture could result in an event of default under either the Senior Credit
Facility or the Indenture, which could result in acceleration of the related
debt and the
13
<PAGE>
acceleration of debt under other instruments evidencing indebtedness that may
contain cross-acceleration or cross-default provisions. If, as a result
thereof, a default occurs with respect to Senior Indebtedness, the
subordination provisions in the Indenture would likely restrict payments to
the holders of the Exchange Notes.
SUBORDINATION OF THE EXCHANGE NOTES AND THE NOTE GUARANTEES
The Exchange Notes and the Note Guarantees will be subordinated in right of
payment to all Senior Indebtedness of the Company and Guarantor Senior
Indebtedness of the Subsidiary Guarantors, respectively, including obligations
under the Senior Credit Facility. As of September 30, 1997, on a pro forma
basis after giving effect to the Transactions, the Company would have had
approximately $176.5 million of Senior Indebtedness (excluding unused
commitments of approximately $16.1 million under the Senior Credit Facility),
all of it representing Indebtedness under the Senior Credit Facility, and the
Subsidiary Guarantors would have had approximately $181.8 of Guarantor Senior
Indebtedness, $176.5 million of which would have represented guarantees of
Indebtedness under the Senior Credit Facility. Additional Senior Indebtedness
and Guarantor Senior Indebtedness may be incurred by the Company and the
Subsidiary Guarantors from time to time subject to certain restrictions
contained in the Senior Credit Facility and the Indenture. In the event of
bankruptcy, liquidation or reorganization of the Company or the Subsidiary
Guarantors, the assets of the Company or the Subsidiary Guarantors will be
available to pay obligations on the Exchange Notes only after all Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be, has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Exchange Notes then outstanding. In addition, under
certain circumstances, no payments may be made with respect to the Exchange
Notes if a default exists with respect to certain Senior Indebtedness.
Indebtedness outstanding under the Senior Credit Facility is also secured by
substantially all of the assets of the Company and its subsidiaries. See
"Encumbrances on Assets to Secure Senior Credit Facility." Claims in respect
of the Exchange Notes are effectively subordinated to all liabilities
(including trade payables) of any subsidiary of the Company that is not a
Subsidiary Guarantor. See "Description of the Senior Credit Facility" and
"Description of the Exchange Notes."
ENCUMBRANCES ON ASSETS TO SECURE SENIOR CREDIT FACILITY
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Exchange Notes will not be secured by any of
the Company's assets. The Company's obligations under the Senior Credit
Facility are secured by the Company's inventory, tangible personal property
and intangibles and a second mortgage on owned real estate. If the Company
becomes insolvent or is liquidated, or if payment under the Senior Credit
Facility is accelerated, the lenders under the Senior Credit Facility are
entitled to exercise the remedies available to a secured lender under
applicable law pursuant to the Senior Credit Facility. Accordingly, such
lenders will have a prior claim with respect to such assets and there may not
be sufficient assets remaining to pay amounts due on the Exchange Notes then
outstanding. See "Description of the Senior Credit Facility."
IMPACT OF GENERAL ECONOMIC CONDITIONS
The retailing industry is sensitive to adverse trends in the general
economy. The success of the Company's operations depends to a significant
extent upon a number of factors relating to discretionary consumer spending,
including economic conditions (and perceptions of such conditions by
consumers) affecting disposable consumer income such as employment, wages and
salaries, business conditions, interest rates, availability of credit and
taxation, for the economy as a whole and in regional and local markets where
the Company operates.
COMPETITION
The retailing business is highly competitive. The Company competes in the
sale of merchandise with a variety of other retail merchandisers, including
department, discount and specialty stores, many of which have locations
nationwide, are larger and have greater financial resources than the Company.
In addition, at various times throughout the year, department, discount and
specialty stores also offer merchandise at reduced prices similar to that sold
by the Company.
14
<PAGE>
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company's business is highly seasonal, with a significant portion of its
net sales and most or all of its EBITDA generated during the fourth quarter,
which includes the Christmas season. Net sales in the fourth quarter accounted
for over 40% of net sales for each of the last three fiscal years, and EBITDA
for the fourth quarters of 1996 and 1995 accounted for approximately 76% and
90%, respectively, of EBITDA for such years. Because a significant percentage
of the Company's net sales and EBITDA for a year results from operations in
the fourth quarter, the Company has limited ability to compensate for
shortfalls in fourth quarter sales or earnings by changes in its operations or
strategies in other quarters. A significant shortfall in results for the
fourth quarter of any year can thus be expected to have a material adverse
effect on the Company's annual results of operations. The Company's quarterly
results of operations also may fluctuate significantly as a result of a
variety of factors, including the timing of new store openings, net sales
contributed by new stores, increases or decreases in comparable store sales,
timing of certain holidays, changes in the Company's merchandise, general
economic, industry and weather conditions that affect consumer spending and
actions of competitors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
MERCHANDISE SUPPLY AND INVENTORY
The success of the Company's closeout business depends upon its ability to
identify, locate, select and purchase quality merchandise at attractive prices
in order to maintain a balance of product in certain core merchandising
categories along with a changing mix of merchandise. The Company has no
continuing contracts for the purchase of closeout merchandise and relies on
buying opportunities from both existing and new sources, for which it competes
with other closeout merchandisers and wholesalers. Although the Company
believes that its management has longstanding relationships with its suppliers
and is competitively positioned to continue to seek new sources, there can be
no assurance that the Company will be successful in maintaining an adequate
continuing supply of quality merchandise at attractive prices.
EXPANSION PROGRAM
The growth of the Company's net sales and net earnings will depend, to a
significant extent, on the Company's ability to expand its operations through
the opening of new stores in existing and new markets and to operate those
stores profitably. The Company operates 315 stores in 33 states and plans to
open approximately 32 new stores during 1998. Achieving the Company's
expansion goals will depend on a number of factors, including the Company's
ability to identify and secure suitable locations on acceptable terms, open
new stores in a timely manner, hire and train additional store and supervisory
personnel, integrate new stores into its operations on a profitable basis and
extend its information systems. There can be no assurance that the Company
will be able to achieve its expansion goals on a timely or profitable basis.
See "Business--Business Strategy."
Management believes that cash flow from operating activities and borrowings
under the Senior Credit Facility will provide adequate funds to finance the
Company's expansion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
However, if these sources of funds are inadequate to finance the Company's
expansion, it may require capital from additional sources. There can be no
assurance as to the future availability of additional financing or the terms
thereof, and failure to obtain such financing on acceptable terms could
require the Company to alter its expansion plans or otherwise adversely affect
the Company.
CONTROL BY MADISON DEARBORN
Upon consummation of the Transactions, the Company became controlled by
Madison Dearborn, which owned approximately 85.8% of the Company's Common
Stock outstanding immediately after the Acquisition (approximately 77.2% on a
fully diluted basis). Madison Dearborn has the power to elect all of the
Company's board of directors, appoint new management and approve any action
requiring the approval of the Company's shareholders, including adopting
amendments to the Company's Certificate of Incorporation and approving
acquisitions or sales of substantially all of the Company's assets. The
directors elected by Madison Dearborn
15
<PAGE>
have the authority to make decisions affecting the capital structure of the
Company, including the issuance of additional indebtedness and the declaration
of dividends. There can be no assurance that the interests of Madison Dearborn
will not conflict with the interests of holders of the Exchange Notes. See
"Management," "Principal Shareholders" and "Certain Transactions."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance will depend, in part, upon the efforts and
abilities of the Company's senior management and other key employees,
including its buyers. The loss of service of certain of these persons could
have a material adverse effect on the Company's business and development. Upon
consummation of the Transactions, Lloyd L. Ross, the Company's founder,
reduced the amount of time he spends on the Company's affairs. While he
continues to serve as Chairman of the Company's Board of Directors, he
resigned from his position as Chief Executive Officer and entered into a two-
year consulting agreement with the Company. Pursuant to a three-year
employment agreement dated December 29, 1997, Mr. Smith continues as President
and a director and succeeded Mr. Ross as Chief Executive Officer of the
Company. Mr. Smith has, however, announced his intention to retire after the
expiration of his employment agreement. See "Management--Consulting and
Employment Agreements."
CHANGE IN CONTROL
A Change in Control (as defined) could require the Company to refinance
substantial amounts of indebtedness, including indebtedness under the Exchange
Notes and the Senior Credit Facility. Upon the occurrence of a Change in
Control, each holder of the Exchange Notes would be entitled to require the
Company to repurchase the Exchange Notes, in whole or in part, at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. However, there can be no assurance
that sufficient funds will be available at the time of any Change in Control
to make any required purchases of the Exchange Notes tendered. In addition,
the Senior Credit Facility will prohibit the repayment of indebtedness on the
Exchange Notes by the Company upon a Change in Control, unless and until such
time as the indebtedness under the Senior Credit Facility is repaid in full or
the lenders under the Senior Credit Facility consent to such repayment. The
Company's failure to make such repayments in such instances would result in a
default under both the Exchange Notes and the Senior Credit Facility. Future
indebtedness of the Company may also contain restrictions or repayment
requirements with respect to certain events or transactions that would
constitute a Change in Control. The source of funds for any such repayment of
the Exchange Notes or the Senior Credit Facility would be the Company's
available cash or cash generated from operating or other sources, including
borrowings, sales of equity or funds provided by a new controlling person. In
the event of a Change in Control, there can be no assurance that the Company
would have sufficient cash to satisfy all of its obligations under the
Exchange Notes and the Senior Credit Facility. The effect of such requirements
may make it more difficult or delay attempts by others to obtain control of
the Company. See "Description of the Exchange Notes--Purchase of Exchange
Notes Upon a Change in Control" and "Description of the Senior Credit
Facility."
FRAUDULENT CONVEYANCE AND PREFERENCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent conveyance law, if, among other things, the
Company or any of the Subsidiary Guarantors, at the time it incurred the
indebtedness evidenced by the Old Notes or the Exchange Notes or its Note
Guarantee, as the case may be, (i)(a) was or is insolvent or rendered
insolvent by reason of such occurrence or (b) was or is engaged in a business
transaction of which the assets remaining with the Company or such Subsidiary
Guarantor were unreasonably small or constitute unreasonably small capital or
(c) intended or intends to incur, or believed, believes or should have
believed that it would incur, debts beyond its ability to repay such debts as
they mature and (ii) the Company or such Subsidiary Guarantor received or
receives less than the reasonably equivalent value or fair consideration for
the incurrence of such indebtedness, the Exchange Notes and the Note
Guarantees could be invalidated or subordinated to all other debts of the
Company or such Subsidiary Guarantors, as the case may be. The Exchange Notes
or Note Guarantees could also be invalidated or subordinated if it were found
that the Company or the Subsidiary Guarantor party thereto, as the case may
be, incurred indebtedness in connection
16
<PAGE>
with the Notes or the Exchange Notes or its Note Guarantees with the intent of
hindering, delaying or defrauding current or future creditors of the Company
or such Subsidiary Guarantor, as the case may be. In addition, the payment of
interest and principal by the Company pursuant to the Exchange Notes or the
payment of amounts by a Subsidiary Guarantor pursuant to a Note Guarantee
could be voided and required to be returned to the person making such payment,
or to a fund for the benefit of the creditors of the Company or such
Subsidiary Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the sum of all of its assets at a fair
valuation or if the present fair saleable value of its assets were less than
the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against
the Company or any Subsidiary Guarantor within 90 days after any payment by
the Company or such Subsidiary Guarantor with respect to the Exchange Notes or
a Note Guarantee, respectively, or after the issuance of a Note Guarantee, or
if the Company or such Subsidiary Guarantor anticipated becoming insolvent at
the time of such payment or issuance, all or a portion of such payment of such
Note Guarantee could be avoided as a preferential transfer, and the recipient
of any such payment could be required to return such payment.
To the extent any Note Guarantees were voided as a fraudulent conveyance or
held unenforceable for any other reason, holders of Exchange Notes would cease
to have any claim in respect of such Subsidiary Guarantor and would be
creditors solely of the Company and any Subsidiary Guarantor, whose Note
Guarantee was not avoided or held unenforceable. In such event, the claims of
holders of Exchange Notes against the issuer of an invalid Note Guarantee
would be subject to the prior payment of all liabilities and preferred stock
claims of such Subsidiary Guarantor. There can be no assurance that, after
providing for all prior claims and preferred stock interests, if any, there
would be sufficient assets to satisfy the claims of holders of Exchange Notes
relating to any voided portions of any Note Guarantees.
On the basis of its historical financial information, recent operating
history and projected financial data, as discussed in "Prospectus Summary,"
"Unaudited Pro Forma Financial Statements," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company
believes that, after giving effect to the indebtedness incurred in connection
with the Transactions, it will not be insolvent, will not have unreasonably
small assets or capital for the business in which it is engaged and will not
incur debts beyond its ability to pay such debts as they mature. There can be
no assurance, however, as to what standard a court would apply in making such
determinations.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The holders of Old Notes (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company is required to file a Shelf
Registration Statement with respect to such Old Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the Exchange Notes on any national securities
exchange or seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes, but they are not obligated to do so and may discontinue such
market making at any time. In
17
<PAGE>
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of the Shelf Registration Statement. Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of the trading market for the
Exchange Notes. If a trading market does not develop or is not maintained,
holders of the Exchange Notes may experience difficulty in reselling the
Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreement. The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes contemplated in this Prospectus, the Company will receive Old Notes in
like principal amount, the form and terms of which are the same as the forms
and terms of the Exchange Notes (which replace the Old Notes), except as
otherwise described herein. The Old Notes surrendered in exchange for Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase or decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in the pro forma statements or capitalization tables.
The proceeds to the Company from the sale of the Old Notes in the Initial
Offering were used, together with borrowings under the other Financings and
the Equity Investment, to consummate the Acquisition, to repay indebtedness of
the Company under the Old Credit Facility and to pay related fees and
expenses. See "Prospectus Summary--The Transactions" and "Description of the
Senior Credit Facility."
18
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical consolidated
capitalization of the Company as of September 30, 1997, and as adjusted on a
pro forma basis to give effect to the Transactions as if they had occurred on
such date. See "Use of Proceeds." This table should be read in conjunction
with the "Selected Consolidated Financial Data" and the related notes thereto,
and the Company's consolidated financial statements, including the related
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Old Credit Facility....................................... $ 56,127 $ --
Revolving Credit Facility (a)............................. -- 66,486
Term Loans................................................ -- 110,000
Old Notes................................................. -- 100,000
Mortgages and capitalized leases.......................... 5,282 5,282
-------- ---------
Total debt.............................................. 61,409 281,768
Redeemable preferred stock:
Senior Exchangeable Preferred Stock....................... -- 24,643
Junior Redeemable Preferred Stock......................... -- 86,010
-------- ---------
Total redeemable preferred stock........................ -- 110,653
Junior Perpetual Preferred Stock............................ -- 1,918
Common Stock................................................ 17,017 5,357
Retained earnings (deficit)................................. 64,196 (241,388)
-------- ---------
Total shareholders' equity (deficit).................... 81,213 (234,113)
-------- ---------
Total capitalization.................................. $142,622 $ 158,308
======== =========
</TABLE>
- --------
(a) The Revolving Credit Facility provides for revolving loans to the Company
up to $90.0 million, subject to certain borrowing base limitations. Under
certain circumstances, the Revolving Credit Facility may be increased to
$115.0 million. See "Description of the Senior Credit Facility." Had the
Transactions occurred on September 30, 1997, the Company would have had
approximately $16.1 million in remaining availability under the Revolving
Credit Facility.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") have been derived by the application of pro
forma adjustments to the Company's historical financial statements included
elsewhere in this Prospectus. The pro forma consolidated statement of
operations for the periods presented gives effect to the Transactions as if
they were consummated on January 1, 1996. The pro forma consolidated balance
sheet gives effect to the Transactions as if they had occurred on September
30, 1997. The adjustments, which include adjustments relating to the
Transactions, are described in the accompanying notes. The Pro Forma Financial
Statements should not be considered indicative of actual results that would
have been achieved had the Transactions been consummated on the date or for
the periods indicated and do not purport to indicate balance sheet data or
results of operations as of any future date or for any future period. The Pro
Forma Financial Statements should be read in conjunction with the Company's
historical financial statements and the notes thereto included elsewhere in
this Prospectus.
The Acquisition has been accounted for as a recapitalization and, as such,
has no impact on the historical basis of assets and liabilities.
19
<PAGE>
TUESDAY MORNING CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 3,029 $ (3,029)(a) $ --
Inventories................................. 159,687 -- 159,687
Income tax receivable....................... -- 7,143 (b) 7,143
Other current assets........................ 1,516 (63)(c) 1,453
-------- --------- ---------
Total current assets.................... 164,232 4,051 168,283
Net property, plant and equipment........... 31,439 -- 31,439
Other assets................................ 3,544 (47)(c) 3,497
Debt issuance costs......................... -- 9,381 (d) 9,381
-------- --------- ---------
Total assets............................ $199,215 $ 13,385 $ 212,600
======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Mortgages on land, buildings and equipment.. $ 1,021 $ -- $ 1,021
Revolving Credit Facility................... -- 51,486 (e) 51,486
Term Loans.................................. -- 1,350 (f) 1,350
Capital lease obligation.................... 213 -- 213
Accounts payable............................ 45,181 -- 45,181
Accrued expenses............................ 6,311 -- 6,311
Income taxes payable........................ 2,301 (2,301)(b) --
-------- --------- ---------
Total current liabilities............... 55,027 50,535 105,562
Mortgages on land, buildings and equipment.. 3,828 -- 3,828
Revolving Credit Facility................... 56,127 (41,127)(e) 15,000
Term Loans.................................. -- 108,650 (f) 108,650
Old Notes................................... -- 100,000 (f) 100,000
Capital lease obligation.................... 220 -- 220
Deferred income taxes....................... 2,800 -- 2,800
Redeemable preferred stock:
Senior Exchangeable Preferred Stock....... -- 24,643 24,643
Junior Redeemable Preferred Stock......... -- 86,010 86,010
Junior Perpetual Preferred Stock............ -- 1,918 1,918
Common Stock................................ 17,017 (11,660) 5,357
Retained earnings........................... 64,196 (305,584) (241,388)
-------- --------- ---------
Total shareholders' equity (deficit).... 81,213 (315,326)(g) (234,113)
-------- --------- ---------
Total liabilities and shareholders'
equity (deficit)....................... $199,215 $ 13,385 $ 212,600
======== ========= =========
</TABLE>
See accompanying notes.
20
<PAGE>
TUESDAY MORNING CORPORATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) The net effect of $(3,029) represents the adjustments to the Company's
cash and debt balances to account for the effects of the Acquisition and
the Financings.
<TABLE>
<S> <C>
Total Sources:
Term Loans................................................... $110,000
Revolving Credit Facility.................................... 66,486
Old Notes.................................................... 100,000
Senior Exchangeable Preferred Stock issuance................. 25,000
Junior preferred stock issuance.............................. 87,928
Common Stock issuance........................................ 5,000
--------
$394,414
--------
Total Uses:
Acquisition consideration.................................... $323,016
Old Credit Facility.......................................... 56,127
Fees and expenses............................................ 18,300
--------
$397,443
--------
Net.......................................................... $ (3,029)
========
</TABLE>
(b) The total of the income tax payable and income tax receivable adjustments
$(9,444) is primarily the tax benefit from recognizing the compensation
expense created by payments to management for their stock options.
(c) These adjustments write off the remaining balance of financing fees
related to the Old Credit Facility.
(d) The pro forma adjustment to debt issuance costs is to reflect fees and
expenses related to the Senior Credit Facility and the Initial Offering.
(e) Up to $90,000 is available under the Revolving Credit Facility for working
capital and general corporate purposes, subject to certain borrowing base
limitations. Had the Acquisition occurred on September 30, 1997, $66,486
would have been drawn in connection with the Acquisition, which would be
$10,359 more than amounts drawn on the Old Credit Facility. The Revolving
Credit Facility contains a $15,000 "cleandown" provision for 30
consecutive days. The amount in excess of the $15,000 is considered to be
a current liability.
(f) Reflects the following:
<TABLE>
<CAPTION>
EXPECTED TERM CURRENT LONG TERM TOTALS
------------- ------- --------- --------
<S> <C> <C> <C> <C>
Senior Credit Facility:
Term Loan A.................... 5 years $1,000 $ 39,000 $ 40,000
Term Loan B.................... 7 years 350 69,650 70,000
Notes............................ 10 years -- 100,000 100,000
------ -------- --------
Total........................ $1,350 $208,650 $210,000
====== ======== ========
</TABLE>
21
<PAGE>
(g) The following represents the net change in shareholders' equity as a
result of the Transactions.
<TABLE>
<S> <C>
Stock:
Issuance of Junior Perpetual Preferred Stock................ $ 1,918
---------
Issuance of Common Stock.................................... $ 5,357
Redemption of existing common stock(1)...................... (17,017)
---------
$ (11,660)
---------
Retained Earnings:
Payments to previous shareholders at $25 per share in excess
of common stock redemption(1).............................. $(280,925)
Acquisition fees (non-debt) and expenses.................... (8,919)
Compensation expense from payments to management for stock
options (after-tax)(2)..................................... (15,671)
Financing fees from Old Credit Facility (after-tax)......... (69)
---------
$(305,584)
---------
Net....................................................... $(315,326)
=========
</TABLE>
- --------
(1) The total purchase price to existing shareholders is $297,942 (11,917,681
shares at $25.00 per share). This is accounted for as a reduction to
common stock of $17,017 and retained earnings of $280,925.
(2) Represents redemption of options to purchase 1,184,863 shares of common
stock at $25.00 per share, net of applicable exercise price and tax
benefit.
22
<PAGE>
TUESDAY MORNING CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
---------------------------------
PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA
-------- ----------- --------
<S> <C> <C> <C>
Net sales................................. $179,058 $ -- $179,058
Cost of sales............................. 112,620 -- 112,620
-------- -------- --------
Gross profit.......................... 66,438 -- 66,438
Selling, general and administrative
expenses................................. 56,193 263 (a) 56,456
-------- -------- --------
Operating income...................... 10,245 (263) 9,982
Other income (expense):
Interest income......................... 250 -- 250
Interest expense........................ (2,330) (16,601)(b) (18,931)
Other income............................ 420 -- 420
-------- -------- --------
(1,660) (16,601) (18,261)
-------- -------- --------
Income (loss) before income taxes..... 8,585 (16,864) (8,279)
Income tax (benefit)...................... 3,219 (6,324)(c) (3,105)
-------- -------- --------
Net income (loss)..................... 5,366 (10,540) (5,174)
Dividends and accretion of discount on
preferred stock.......................... -- (5,296)(d) (5,296)
-------- -------- --------
Earnings (loss) applicable to common
shareholders......................... $ 5,366 $(15,836) $(10,470)
======== ======== ========
Net income (loss) per common share........ $ 0.43 $ -- $ (2.79)
Weighted average common share and share
equivalents.............................. 12,556 -- 3,750 (e)
</TABLE>
See accompanying notes.
23
<PAGE>
TUESDAY MORNING CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(a) Represents annual fees for management and advisory services rendered by
Madison Dearborn.
(b) Pro forma interest expense reflects the 11% interest rate on the Notes,
the interest rates applicable to the Senior Credit Facility and
amortization expense from capitalized financing fees of $999.
(c) The adjustment reflects the tax effect of the deductible adjustments at
the Company's effective tax rate of 37.5%.
(d) The adjustment reflects the effect of preferred stock dividends on net
earnings applicable to holders of Common Stock. The Company is restricted
from paying cash dividends on junior preferred stock under the terms of
the Indenture, the Senior Credit Facility, the Certificate of Designation
and, if applicable, the Exchange Indenture.
(e) Represents the number of shares of Common Stock outstanding immediately
after the recapitalization.
24
<PAGE>
TUESDAY MORNING CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1996
----------------------------------
PRO FORMA PRO
ACTUAL ADJUSTMENTS (A) FORMA
-------- -------------- --------
<S> <C> <C> <C>
Net sales............................... $256,756 $ -- $256,756
Cost of sales........................... 165,189 -- 165,189
-------- -------- --------
Gross profit........................ 91,567 -- 91,567
Selling, general and administrative
expenses............................... 71,167 350 (b) 71,517
-------- -------- --------
Operating income.................... 20,400 (350) 20,050
Other income (expense):
Interest income....................... 275 -- 275
Interest expense...................... (2,767) (22,333)(c) (25,100)
Other income.......................... 600 -- 600
-------- -------- --------
(1,892) (22,333) (24,225)
-------- -------- --------
Income (loss) before income taxes... 18,508 (22,683) (4,175)
Income tax (benefit).................... 6,992 (8,506)(d) (1,514)
-------- -------- --------
Net income (loss)................... 11,516 (14,177) (2,661)
Dividends and accretion of discount on
preferred stock........................ -- (7,061)(e) (7,061)
-------- -------- --------
Earnings (loss) applicable to common
shareholder........................ $ 11,516 $(21,238) $ (9,722)
======== ======== ========
Net income (loss) per common share...... $ 0.93 $ -- $ (2.59)
Weighted average common share and share
equivalents............................ 12,323 -- 3,750 (f)
</TABLE>
See accompanying notes.
25
<PAGE>
TUESDAY MORNING CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(a) Does not give effect to non-recurring charges of $25,074 for compensation
expense from the payment to management for their stock options, $9,400 for
non-debt issuance costs and $280 for writing off the financing fees
related to the Old Credit Facility.
(b) Represents annual fees for management and advisory services rendered by
Madison Dearborn.
(c) Pro forma interest expense reflects the 11% interest rate on the Notes,
the interest rates applicable to the Senior Credit Facility and
amortization expense from capitalized financing fees of $1,332.
(d) The adjustment reflects the tax effect of the deductible adjustments at
the Company's effective tax rate of 37.5%.
(e) The adjustment reflects the effect of preferred stock dividends on net
earnings applicable to holders of Common Stock. The Company is restricted
from paying cash dividends on junior preferred stock under the terms of
the Indenture, the Senior Credit Facility, the Certificate of Designation
and, if applicable, the Exchange Indenture.
(f) Represents the number of shares of Common Stock outstanding immediately
after the recapitalization.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial and operating data presented below for,
and as of the end of, each of the fiscal years in the five-year period ended
December 31, 1996 is derived from the audited consolidated financial
statements of the Company. In the opinion of the Company, the unaudited
financial information presented for the nine months ended September 30, 1996
and September 30, 1997 contains all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial information
included therein. Results for interim periods are not necessarily indicative
of results for the full year. The selected unaudited pro forma statement of
operations data for the twelve months ended December 31, 1996 and the nine
months ended September 30, 1997 gives effect to the Transactions as if they
had occurred on January 1, 1996. The selected unaudited pro forma balance
sheet data as of September 30, 1997 gives effect to the Transactions as if
they had occurred on such date. The pro forma data is not necessarily
indicative of the results that actually would have been achieved had the
Transactions occurred on such date or that may be achieved in the future. This
selected information should be read in conjunction with the Consolidated
Financial Statements and the unaudited pro forma financial statements of the
Company and the notes thereto and "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NINE MONTHS ENDED TWELVE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED ENDED
------------------------------------------------- ------------------ DECEMBER 31, SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- -------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $160,075 $175,790 $190,081 $210,265 $256,756 $138,563 $179,058 $ 256,756 $ 179,058
Cost of sales.......... 104,581 123,148 126,931 137,427 165,189 88,199 112,620 165,189 112,620
-------- -------- -------- -------- -------- -------- -------- --------- ---------
Gross profit........... 55,494 52,642 63,150 72,838 91,567 50,364 66,438 91,567 66,438
Selling, general and
administrative
expenses.............. 45,315 54,895 57,523 63,040 71,167 48,134 56,193 71,517 56,456
-------- -------- -------- -------- -------- -------- -------- --------- ---------
Operating income....... 10,179 (2,253) 5,627 9,798 20,400 2,230 10,245 20,050 9,982
Net interest income
(expense) and other
income................ 36 (319) (1,611) (2,534) (1,892) (1,518) (1,660) (24,225) (18,261)
-------- -------- -------- -------- -------- -------- -------- --------- ---------
Earnings (loss) before
income taxes and
cumulative effect of
accounting changes.... 10,215 (2,572) 4,016 7,264 18,508 712 8,585 (4,175) (8,279)
Cumulative effect of
accounting changes
(a)................... 1,599 564 -- -- -- -- -- -- --
Net earnings (loss).... $ 8,171 $ (1,052) $ 2,651 $ 4,773 $ 11,516 $ 456 $ 5,366 $ (2,661) $ (5,174)
BALANCE SHEET DATA (END
OF PERIOD):
Working capital........ $ 48,053 $ 36,765 $ 32,593 $ 39,115 $ 49,568 $ 80,367 $109,205 $ 46,863 $ 63,921
Total assets........... 97,175 88,967 89,403 94,243 121,757 151,668 199,215 127,387 209,719
Total debt............. 13,697 8,997 10,127 8,398 6,622 48,851 61,409 218,631 281,768
Senior Exchangeable
Preferred Stock....... -- -- -- -- -- -- -- 24,643 24,643
Junior Redeemable
Preferred Stock....... -- -- -- -- -- -- -- 86,010 86,010
Total shareholders'
equity (deficit)...... 64,564 55,724 58,630 63,648 75,528 64,103 81,213 (241,746) (234,113)
OTHER FINANCIAL DATA:
EBITDAR (b)............ $ 21,020 $ 12,303 $ 21,920 $ 27,550 $ 39,874 $ 16,499 $ 26,322 $ 39,524 $ 26,059
Rental expense......... 8,409 10,692 11,782 12,577 13,967 10,253 11,953 13,967 11,953
-------- -------- -------- -------- -------- -------- -------- --------- ---------
EBITDA (b)............. $ 12,611 $ 1,611 $ 10,138 $ 14,973 $ 25,907 $ 6,246 $ 14,369 $ 25,557 $ 14,106
======== ======== ======== ======== ======== ======== ======== ========= =========
Cash flows provided by
(used in):
Operating activities.. $(18,407) $ 14,630 $ 12,056 $ 6,329 $ 10,592 $(42,789) $(57,703) $ (10,409) $ (73,305)
Investing activities.. (5,166) (6,497) (7,992) (3,104) (4,701) (3,341) (5,129) (4,701) (5,129)
Financing activities.. 3,395 (7,932) (1,257) (1,484) (1,413) 40,453 55,110 207,298 52,350
Capital expenditures... 5,087 4,850 5,693 2,692 4,233 2,935 4,756 4,233 4,756
Gross margin........... 34.7% 30.0% 33.2% 34.6% 35.7% 36.4% 37.1% 35.7% 37.1%
S,G&A as a % of net
sales................. 28.3% 31.2% 30.3% 30.0% 27.7% 34.7% 31.4% 27.9% 31.5%
EBITDA margin.......... 7.9% 0.9% 5.3% 7.1% 10.1% 4.5% 8.0% 10.0% 7.9%
Ratio of EBITDA to net
interest expense...... -- -- -- -- -- -- -- 1.1x .8x
Ratio of long-term debt
to EBITDA (c)......... -- -- -- -- -- -- -- 8.5x 16.1x
Ratio of earnings to
fixed charges (d)..... 3.9x -- 1.6x 2.0x 3.5x 1.1x 2.4x -- --
Deficiency of earnings
to cover fixed
charges............... -- 2,572 -- -- -- -- -- 4,175 8,279
Ratio of earnings to
combined fixed charges
and preferred stock
dividends............. 3.9x -- 1.6x 2.0x 3.5x 1.1x 2.4x -- --
Deficiency of earnings
to cover combined
fixed charges and
preferred stock
dividends............. -- 2,572 -- -- -- -- -- 15,208 16,554
SELECTED STORE DATA:
Comparable store sales
increases (decreases). 8.2% (3.0)% 4.2% 6.4% 14.0% 11.7% 18.6% 14.0% 18.6%
Average sales per
store................. $ 873 $ 796 $ 792 $ 829 $ 925 $ 512 $ 600 925 $ 600
STORES:
Beginning of period.... 150 190 235 246 260 260 286 260 286
Opened................ 44 48 22 32 33 23 20 33 20
Closed................ (4) (3) (11) (18) (7) (7) (2) (7) (2)
-------- -------- -------- -------- -------- -------- -------- --------- ---------
End of period.......... 190 235 246 260 286 276 304 286 304
======== ======== ======== ======== ======== ======== ======== ========= =========
</TABLE>
- -------
(a) Cumulative effect of accounting changes represents changes in the method
of accounting for inventories in 1992 and for income taxes in 1993.
(b) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDAR represents EBITDA plus rental expense. While EBITDA
and EBITDAR should not be construed as substitutes for operating income or
as better measures of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, they are included to provide additional information with
respect to the ability of the Company to meet future debt service, capital
expenditure and working capital requirements.
(c) Total long-term debt excludes the outstanding balance under the Revolving
Credit Facility.
(d) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes and
cumulative effect of accounting changes plus fixed charges. "Fixed
charges" consist of interest expense, amortization of deferred financing
costs and the portion of rental expense assumed to represent interest.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
consolidated historical and unaudited pro forma financial statements of the
Company and the related notes thereto appearing elsewhere in this Prospectus.
RECENT DEVELOPMENTS--UNAUDITED
The Transaction was consummated on December 29, 1997. Net sales for the year
ended December 31, 1997 increased $70.5 million, or 27.5%, to $327.3 million
from $256.8 million for the comparable period in 1996. Average store sales for
1997 were approximately $1,066,000, as compared to $925,000 for 1996. During
the year ended December 31, 1997, the Company generated comparable store sales
growth of 18% and EBITDA before Transaction expenses of $41.6 million as
compared to EBITDA of $25.9 million for the comparable period in 1996.
Operating income decreased $18.5 million from $20.4 million in 1996 to $1.9
million in 1997. Compensation paid in lieu of options of $25 million and non-
debt fees and expenses of $9.4 million are included in operating income for
the year ended December 31, 1997. In addition, net current assets at December
31, 1997 decreased by $39.8 million from September 30, 1997, due to the sell
down of inventory during the holiday season. All amounts are unaudited. See
"--Seasonality."
RESULTS OF OPERATIONS
The following table sets forth certain financial information from the
Company's consolidated statements of operations expressed as a percentage of
net sales. There can be no assurance that the trends in sales growth or
operating results will continue in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 66.8 65.4 64.3 63.7 63.0
------- ------- ------- -------- --------
Gross profit ................... 33.2 34.6 35.7 36.4 37.1
Selling, general and
administrative expenses........ 30.3 30.0 27.7 34.7 31.4
------- ------- ------- -------- --------
Operating income................ 3.0 4.7 7.9 1.6 5.7
Net interest income and other
income......................... 0.9 1.2 0.7 1.1 0.9
------- ------- ------- -------- --------
Earnings before income taxes.... 2.1 3.5 7.2 0.5 4.8
Net earnings.................... 1.4% 2.3% 4.5% 0.3% 3.0%
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net sales for the nine months ended September 30, 1997 increased $40.5
million, or 29.2%, to $179.1 million from $138.6 million for the comparable
period in 1996. The increase in net sales for the period was the result of
$13.9 million in sales from new stores open during the period and from a 19%
increase in comparable store sales. The increase in comparable store sales was
the result of improvements in product selection, increase in the average price
of items sold and the continuing beneficial effects of the changes implemented
in 1993 and 1994 with respect to the size and training of the Company's buying
staff and the Company's buying and merchandising policies. The Company also
benefited from increases in the frequency of shipments of merchandise to its
stores and average store level inventory, which resulted in an increase in
customer visits and a higher number of transactions.
28
<PAGE>
Gross profit increased $16.1 million, or 31.9%, to $66.4 million from $50.4
million for the comparable period in 1996. Gross profit as a percentage of net
sales increased from 36.4% to 37.1%. This increase was primarily attributable
to the leveraging of the Company's distribution costs, which remain relatively
fixed in relation to the increase in net sales.
Selling, general and administrative expenses increased $8.1 million, or
16.8%, to $56.2 million from $48.1 million for the comparable period in 1996.
However, these expenses as a percentage of net sales declined to 31.4% from
34.7% for the comparable period in 1996. These expenses are primarily incurred
at the store level and are relatively fixed, and therefore have also benefited
from the increase in comparable store sales.
Operating income increased $8.1 million, or 368.2%, to $10.2 million from
$2.2 million for the comparable period in 1996. Operating income as a
percentage of net sales increased from 1.6% to 5.7%. These increases were the
result of the factors described above.
Income tax expense increased from 36.0% of net income to 37.5% of net income
due to reduced tax planning opportunities, and an increase in the Company's
federal tax bracket.
Other income and expense remained relatively constant. Other income
represented interest income, primarily in the form of sales tax discounts
which increased as a result of the Company's increase in net sales, and rental
income derived from a strip-center shopping area adjacent to the Company's
headquarters. Other expense represented interest expense and remained
relatively constant due to similar borrowing levels and interest rates.
For the reasons set forth above, net income for the nine months ended
September 30, 1997 increased $4.9 million, to $5.4 million from $0.5 million
for the comparable period in 1996.
1996 Compared to 1995
Net sales for the year ended December 31, 1996 increased $46.5 million, or
22.1%, to $256.8 million from $210.3 million for the year ended December 31,
1995. The increase in net sales was the result of $22.9 million in sales from
new stores open during the period and from a 14% increase in comparable store
sales. The increase in comparable store sales was comprised of a 9.3% increase
in the number of transactions and a 4.1% increase in the average transaction
amount. The increase was primarily the result of continued improvement in
merchandise selection, pricing and mix. In 1996, the Company began to realize
the full benefits of its initiative begun in 1993 to increase the staffing and
training of its buying team. By year end 1996, the size of the Company's
buying team had more than doubled from its size in 1993, which allowed the
Company to continue to develop its strategy of increasing the number of
individual products that it carries and to focus its buying activities on
areas of individual buyer expertise.
Gross profit increased $18.7 million, or 25.7%, to $91.6 million from $72.8
million for the year ended December 31, 1995. Gross profit as a percentage of
net sales increased to 35.7% from 34.6% in 1995. These increases were
primarily achieved through the leveraging of distribution, freight and buying
costs, which increased at a rate less than the increase in sales. The
remainder of this improvement was due to a reduction in markdowns, offset by a
slight increase in product cost.
Selling, general and administrative expenses increased $8.1 million, or
12.9%, to $71.2 million from $63.0 million in 1995. However, these expenses
declined as a percentage of net sales to 27.7% from 30.0% in 1995. These
expenses were primarily related to store operations. The decrease in these
expenses as a percentage of net sales was the result of the leverage obtained
from the significant increases in sales.
Operating income increased $10.6 million, or 108.2%, to $20.4 million from
$9.8 million for 1995. Operating income as a percentage of net sales increased
from 4.7% to 7.9% in 1996. These increases were due to the improvements in
gross profit and selling, general and administrative expenses discussed above.
29
<PAGE>
The Company's income tax rate increased both at the Federal and state
levels. Federal tax rate increased from 34.0% to 35.0% due to the increase in
the Company's earnings and an increase in the Company's tax bracket. The
Company's state tax rate increased from 0.3% in 1995 to 2.8% in 1996, because
loss carry-forwards utilized in 1995 were no longer available in 1996, because
of tax rate increases and because of reduced tax planning opportunities.
Interest expense declined by approximately $0.6 million in 1996 due to
reduced average borrowings during the year, which was the result of cash flow
from 1995 operations and reduced interest rates negotiated during 1996.
For the reasons set forth above, net income for the year ended December 31,
1996 increased $6.7 million, or 139.6%, to $11.5 million from $4.8 million for
the year ended December 31, 1995.
1995 Compared to 1994
Net sales for the year ended December 31, 1995 increased $20.2 million, or
10.6%, to $210.3 million from $190.1 million for the year ended December 31,
1994. The increase in net sales was the result of $17.7 million in sales from
new stores open during the period and from a 6.4% increase in comparable store
sales. The increase in comparable store sales was comprised of a 5.4% increase
in the number of transactions and a 1.1% increase in the average transaction
amount. These improvements came in several areas. Product selection, pricing
and mix continued to improve due to the increased number and expertise of new
buyers which were added in 1994 and 1995. The buyers increased their travel
throughout the world to obtain better values and to eliminate middlemen.
Buyers were able to focus on areas where they have significant expertise and
were better able to find the bargains that allow the Company to provide value
to its customers and improve product selection. As examples, the Company added
buyers with expertise in rugs, sporting goods, toys, seasonal items,
housewares, and lawn and garden which allowed for expansion of these
categories. The point of sale system, which was installed in 1994, provided
the Company with more timely information regarding the rate of sale of its
products and allowed management to monitor and more accurately plan markdowns.
Gross profit increased $9.7 million, or 15.3%, to $72.8 million from $63.2
million in 1994. Gross profit as a percentage of net sales increased 1.4
percentage points in 1995, from 33.2% to 34.6%. These increases were primarily
due to improvements in product cost attributable to the expertise of the
buyers hired in 1994 and 1995 and to the leveraging of distribution, freight
and buying costs, which increased less than the increase in sales. Gross
profit in 1995 also increased due to reductions in shrink. Shrink improved in
1994 and 1995 as a result of the enhancements made in the Company's loss
prevention program and the installation of electronic article surveillance
equipment in the Company's stores.
Selling, general and administrative expenses increased $5.5 million, or
9.6%, to $63.0 million from $57.5 million in 1995, which was slightly less
than the increase in net sales. These expenses were primarily store level
expenses and were relatively fixed on a per store basis. The leverage obtained
reduced these expenses as a percentage of sales from 30.3% to 30.0%.
Income tax expense increased from 34.0% to 34.3% due to an increase in state
income taxes which were lower in 1994 due to loss carry forwards, some of
which were fully utilized in 1994.
Interest expense increased $0.9 million, or 35%, due to increased borrowing
levels and increased interest rates on the Company's revolving credit
facility.
For the reasons set forth above, net income for the year ended December 31,
1995 increased $2.1 million, or 77.8%, to $4.8 million from $2.7 million for
the year ended December 31, 1994.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations with funds generated
from operating activities and borrowings under the Old Credit Facility.
Net cash provided (used) by operating activities for the fiscal years ended
December 31, 1994, 1995, and 1996 and the nine months ended September 30, 1996
and 1997 was $12.1 million, $6.3 million, $10.6 million, $(42.8) million and
$(57.7) million, respectively. Increases in net cash provided by operating
activities for the above periods were attributable to increases in operating
income, and for 1994, reduction in inventory levels. Uses of net cash by
operating activities was the result of seasonal increases in inventory levels.
Cash and cash equivalents as of December 31, 1994, 1995, 1996 and September
30, 1996 and 1997 were $4.5 million, $6.3 million, $10.8 million, $0.6 million
and $3.0 million, respectively.
Capital expenditures, principally associated with new store openings,
warehouse and system enhancements and maintenance capital expenditures, were
$5.7 million, $2.7 million and $4.2 million for 1994, 1995 and 1996,
respectively, and are expected to be approximately $5.1 million for 1997 and
approximately $4.7 million for 1998.
As part of the Acquisition, the Company entered into the Senior Credit
Facility, which is comprised of the $110.0 million Term Loans and the $90.0
million Revolving Credit Facility. Subject to compliance with the terms of the
Senior Credit Facility and the Indenture, borrowings under the Revolving
Credit Facility may be increased by $25.0 million to accommodate future growth
and for certain other purposes. At September 30, 1997, on a pro forma basis
after giving effect to the Transactions, the Company would have had
outstanding $110.0 million under the Term Loans and $66.5 million under the
Revolving Credit Facility and would have had remaining availability thereunder
of $16.1 million. At Closing, the Company had significantly greater
availability under the Revolving Credit Facility as a result of cash generated
during the fourth quarter. The Term Loan A loans and the Revolving Credit
Facility loans mature on the fifth anniversary of the Closing, and the Term
Loan B loans will mature on the seventh anniversary of the Closing. For a
consecutive 30-day period, measured from April 1 through March 31, beginning
in April 1998, the aggregate principal amount of loans outstanding under the
Revolving Credit Facility is not to exceed $15.0 million. See "Description of
the Senior Credit Facility."
Upon consummation of the Transactions, the Company's total debt and interest
charges increased significantly. Interest payments on the Notes, under the
Senior Credit Facility and on the Exchange Debentures, if issued, represent
significant liquidity requirements for the Company. The Notes require semi-
annual interest payments, and interest on the loans under the Senior Credit
Facility are due quarterly. After December 15, 2002, the Company will be
required to pay dividends on the Senior Exchangeable Preferred Stock in cash.
The Company anticipates that its cash flow generated from operations and
borrowings under the Senior Credit Facility will be sufficient to fund the
Company's working capital needs, planned capital expenditures, scheduled
interest payments (including interest payments on the Notes and amounts
outstanding under the Senior Credit Facility) and scheduled dividend payments
on the Senior Exchangeable Preferred Stock for the foreseeable future. See,
however, "Risk Factors--Substantial Leverage and Debt Service; Restrictions on
Indebtedness." The Company has from time to time received expressions of
interest with respect to the property on which its headquarters is located in
Dallas, Texas and in the future may consider selling such property as a means
of raising additional cash.
The instruments governing the Company's indebtedness and the Senior
Exchangeable Preferred Stock, including the Certificate of Designation, the
Exchange Indenture, the Senior Credit Facility and the Indenture contain
financial and other covenants that restrict, among other things, the ability
of the Company and its subsidiaries to incur additional indebtedness, incur
liens, pay dividends or make certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates, merge or
consolidate with any other
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person or sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company. Such limitations, together
with the highly leveraged nature of the Company, could limit corporate and
operating activities, including the Company's ability to invest in opening new
stores. See "Risk Factors--Substantial Leverage and Debt Service; Restrictions
on Indebtedness."
SEASONALITY
The Company has historically experienced, and the Company expects to
continue to experience, seasonal fluctuations in its business, with a
significant percentage of its net sales and most or all of its EBITDA being
realized in the fourth fiscal quarter, which includes the Christmas selling
season. Net sales in the fourth quarter accounted for over 40% of annual net
sales for each of the last three fiscal years, and EBITDA for the fourth
quarters of 1996 and 1995 accounted for approximately 76% and 90%,
respectively, of annual EBITDA for such years. Because a significant
percentage of the Company's net sales and EBITDA for a year results from
operations in the fourth quarter, the Company has limited ability to
compensate for shortfalls in fourth quarter sales or earnings by changes in
its operations or strategies in other quarters. A significant shortfall in
results for the fourth quarter of any year can thus be expected to have a
material adverse effect on the Company's annual results of operations. See
"Risk Factors--Variability of Quarterly Results and Seasonality."
The following table illustrates the seasonality of the Company's net sales,
EBITDA and net earnings (loss) by quarter for 1995 and 1996.
TUESDAY MORNING SEASONALITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET EARNINGS
NET SALES EBITDA (LOSS)
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter............... $ 35,740 13.9% $ 532 2.0% $ (676) (5.9)%
Second Quarter.............. 54,286 21.2 2,484 9.6 434 3.8
Third Quarter............... 48,537 18.9 3,230 12.5 698 6.1
Fourth Quarter.............. 118,193 46.0 19,661 75.9 11,060 96.0
-------- ----- ------- ----- ------- -----
Total..................... $256,756 100.0% $25,907 100.0% $11,516 100.0%
======== ===== ======= ===== ======= =====
1995
First Quarter............... $ 29,958 14.2% $(1,564) (10.4)% $(2,046) (42.9)%
Second Quarter.............. 47,977 22.8 1,702 11.4 (155) (3.2)
Third Quarter............... 38,240 18.2 1,412 9.4 (336) (7.0)
Fourth Quarter.............. 94,090 44.8 13,423 89.6 7,310 153.1
-------- ----- ------- ----- ------- -----
Total..................... $210,265 100.0% $14,973 100.0% $ 4,773 100.0%
======== ===== ======= ===== ======= =====
</TABLE>
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128 "Earnings Per Share" which is effective for both
interim and annual periods ending after December 15, 1997. Statement 128
requires the disclosure of basic and diluted earnings per share, which differ
from the previously reported primary and fully diluted earnings per share. The
Company has not yet determined the effect of this Statement on previously
reported earnings per share.
INFLATION
In management's opinion, changes in net sales and net earnings that have
resulted from inflation and changing prices have not been material during the
periods presented. There is no assurance, however, that inflation will not
materially affect the Company in the future.
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<PAGE>
BUSINESS
GENERAL
Tuesday Morning is the largest closeout retailer of upscale gift and home
furnishings merchandise in the United States, with 315 stores in 33 states.
The Company operates its stores during seven annual "sales events" that last
from four to seven weeks, while closing them for the remaining weeks of the
year. Tuesday Morning does not sell seconds, irregulars or factory rejects,
but rather specializes in first quality, brand name merchandise such as Ralph
Lauren bed linens, Waterman pens, Limoges hand-decorated boxes, Mikasa dishes,
Farberware cookware, Daum French crystal, Martex bath towels, Fisher-Price
toys, Samsonite luggage and Spode china. The Company purchases its merchandise
at closeout and sells it at prices that are 50% to 80% below those generally
charged by department and specialty stores. The Company believes that its
event-based selling strategy, combined with high quality, reasonably priced
merchandise, attracts upscale "bargain hunters" with strong loyalty to the
Company.
The Company was formed and opened its first store in 1974. Since its initial
public offering in 1986, the Company has increased its number of stores from
63 to 315, and has achieved compound annual growth rates for sales and EBITDA
of 16.1% and 16.6%, respectively. During the twelve months ended September 30,
1997, the Company generated comparable store sales growth of 18% and net sales
and EBITDA of $297.3 million and $34.1 million, respectively. This represents
an increase of 27.8% and 72.5%, respectively, over sales and EBITDA for the
twelve months ended September 30, 1996.
BUSINESS STRENGTHS
The Company's success has been largely based on the following strengths:
Unique Event-Based Format. The Company distinguishes itself from other
retailers with a unique event-based selling strategy, creating the equivalent
of seven "grand openings" each year. The Company believes that the closing and
reopening of its stores heightens customers' expectations of finding new,
undiscovered merchandise and intensifies their sense of urgency to buy the
Company's products, which are available only in limited quantities. Consistent
with this approach, the Company typically realizes approximately 40% of an
event's total sales in the first four or five days of the event (Wednesday or
Thursday to Sunday).
Strong Merchandising Capabilities. The Company employs a talented and
experienced buying team, which has grown from 10 buyers in 1993 to 22 buyers
in 1997, with an average of nearly 20 years of retail experience. The
Company's buyers and its reputation as a preferred, reliable purchaser have
enabled it to establish excellent, long-term relationships with a diverse
group of top-of-the-line vendors. The Company obtains its merchandise
primarily by purchasing from manufacturers their end-of-line merchandise,
products which did not meet their sales expectations, or merchandise left over
from cancellations of orders placed by other retailers. Merchandise is also
obtained by contracting for production from manufacturers during periods of
lower production. Through its approximately 1,000 vendor relationships, the
Company has become one of the largest retailers for certain categories of
luxury brand merchandise, such as European handmade crystal and fine quality
Oriental rugs from China and India. The Company believes that certain top-of-
the-line vendors such as Rosenthal and Samsonite prefer to liquidate a
majority of their excess inventory through the Company because of its access
to an upscale customer base and its ability to dispose of high-end, closeout
merchandise quickly and without disruption to their normal retail channels.
Dedicated, Upscale Customer Base. Tuesday Morning has an upscale, loyal
customer following. The Company has developed and maintains a proprietary
preferred customer mailing list of over 4,000,000 customers who have visited
its stores and requested to receive mailings in advance of the Company's sales
events. Customer loyalty is evidenced by the fact that the Company derives
approximately 31% of its sales during the first two or three days of each
sales event, which is advertised only by a mailing to those individuals on the
list. The Company believes, based on its internal research, that its customers
are primarily female from households headed
33
<PAGE>
by professionals, typically ranging in age from 25 to 54 and having a median
family income of approximately $55,000. In addition, the Company believes its
customers are knowledgeable shoppers who frequent five or more national
department stores and are able to recognize the Company's favorable pricing on
first quality, name brand merchandise.
Strong Financial Characteristics. Tuesday Morning has demonstrated an
ability to consistently grow sales while generating strong cash flow. For the
twelve months ended September 30, 1997, Tuesday Morning generated EBITDA of
$34.1 million, a 72.5% increase over the comparable period in 1996. During
this same period, capital expenditures were $6.1 million. The Company has
consistently grown its EBITDA since 1993 due to the improved profitability of
its existing store base, while requiring only modest capital expenditures to
fund growth.
Flexible, Low Cost Real Estate Approach. The Company's stores are
destination-oriented, and can therefore be located in secondary locations of
major suburban markets, such as strip malls and warehouse zones, in close
proximity to their target customers. As a result, the Company's real estate
costs are significantly lower than those of many other retailers, averaging
approximately $8 per square foot. In addition, virtually all new leases
contain a "kick" clause that gives the Company the ability to terminate the
lease without penalty for up to 18 months after lease inception. These kick
clauses provide the Company with significant downside protection in opening
new stores by allowing it to vacate a site that initially proves unprofitable.
The Company is able to obtain kick clauses because it seldom requires
significant build out of a lease site and because it is able to make
productive use of challenging space.
Integrated Management Information Systems and Inventory Controls. The
Company believes its management information systems are among the most
advanced in the retailing industry. These systems enable the Company to manage
its flow of almost 80,000 SKUs from approximately 1,000 vendors on a real-time
basis in order to make timely and accurate purchasing, distribution and
merchandising decisions. The Company's proprietary merchandising and inventory
control systems, point of sale system and state-of-the-art distribution
management system are integrated with its financial reporting systems,
providing the Company's buyers with a significant degree of control over
inventory acquisition, distribution and sales performance. The Company's
buyers can review, at the SKU level and on a real-time basis, the status of
every open purchase order, inbound shipment, warehouse receipt, process
shipment and item of store inventory. These systems further allow management
to target merchandise for markdowns in an effective and systematic manner. At
September 30, 1997, less than 5% of the Company's inventory was more than one
year old.
BUSINESS STRATEGY
The Company's objective is to sustain its current growth and to enhance its
productivity and operating performance by continuing to build on its existing,
proven strengths. The Company intends to achieve this objective by pursuing
the following existing strategies:
Continue New Store Openings. The Company opened 31 new stores in 1997 and
plans to increase its store base, in new and existing markets, by
approximately 32 to 35 stores per year for the foreseeable future. The
Company's "no-frills" approach enables it to open this number of stores for an
aggregate cost of only $2 million per year, or approximately $60,000 per store
excluding inventory. The Company intends to profitably increase its
penetration of existing markets, capitalize on the success it has enjoyed in
smaller single-store markets, where there are often no other retailers
offering the Company's first quality products, and prudently expand into new
major metropolitan markets that will provide the basis for long-term
expansion.
Enhance Sales Productivity. The Company has achieved average comparable
store sales growth of approximately 6% per year since its initial public
offering in 1986 and 19% for the first nine months of 1997. The growth has
resulted from increases in (i) the number of customer transactions, (ii) the
average number of items purchased per customer visit and (iii) the average
price of such items. The average number of customer transactions has increased
as a result of the increased frequency of stocking its stores during a sales
event. The
34
<PAGE>
average number of items purchased by customers has increased as a result of
the introduction of additional impulse-oriented merchandise, and the average
price of items purchased has increased due to a greater mix of higher priced
items. The Company intends to continue implementing these merchandising
strategies to further enhance sales productivity.
Capitalize on Favorable Industry Dynamics and Competitive Positioning. The
Company is benefiting from several trends in the retailing industry. The
increase in the application of just-in-time inventory management techniques
and the increase in retailer consolidations have both resulted in a shift of
inventory risk from retailers to manufacturers. In addition, in order to
maintain market share in an increasingly competitive environment,
manufacturers are introducing new products and new packaging more frequently.
All of these factors have contributed to a broad and consistent supply of
closeout merchandise for the Company.
The Company believes it is the only retailer in the closeout industry that
focuses on first quality gift and home furnishings merchandise, in contrast
with most closeout retailers, which are general merchandisers or which focus
on apparel. In addition, the Company caters to upscale customers, while the
rest of the industry generally focuses on lower to middle income consumers.
Finally, unlike other closeout retailers which operate on a year-round basis,
Tuesday Morning operates on an event sale basis. The Company believes that its
periodic schedule of openings causes its customers to plan their visits to the
Company's stores to a greater extent than customers of conventional retailers
whose product offerings are more predictable and store hours more extensive.
Leverage Workforce and Technology. The Company believes that its investments
in information systems and inventory control technology and in doubling its
staff of experienced, specialized buyers over the last four years will bolster
future growth in the breadth of its product offerings and will provide the
support necessary for new store openings for the foreseeable future. The
Company's existing systems technology is scalable, enabling the Company to
expand or to upgrade its systems without significant additional expenditures
in the near term. The Company's corporate infrastructure will also allow for
future growth of the Company without significant expenditures beyond the
marginal cost of hiring additional buyers.
CLOSEOUT RETAILING INDUSTRY
The closeout retailing industry is distinguished from other retail formats
by the manner in which the closeout retailer purchases its goods. Purchasing
on a closeout basis enables the closeout retailer to sell goods at
exceptionally low prices, often well below even the very best discount
operators. In addition, the opportunistic nature of a closeout retailer's
buying strategy often results in a lack of continuity of specific products.
The combination of these factors creates a "treasure hunt" atmosphere for the
closeout retailer's customers.
The closeout retailing industry is benefiting from several trends in the
retailing industry. The increase in the application of just-in-time inventory
management techniques and the increase in retailer consolidations have both
resulted in a shift of inventory risk from retailers to manufacturers.
Furthermore, in order to maintain market share in an increasingly competitive
environment, manufacturers are introducing new products and new packaging more
frequently. The Company believes that these trends have helped make the
closeout retailer an integral part of manufacturers' overall distribution
strategies. As a result, manufacturers are increasingly looking for larger,
more sophisticated closeout retailers, such as the Company, that can purchase
large and varied quantities of merchandise and control the distribution and
advertising of specific products to minimize disruption to the manufacturers'
traditional distribution channels.
Closeout merchandise is available to closeout retailers at low prices for a
variety of reasons, including: the inability of a manufacturer or importer to
dispose of merchandise through regular channels; the discontinuance of
merchandise due to a change in style, color, shape or packaging; insufficient
sales to justify continued production of an item; the fact that merchandise is
out of season; the cancellation of orders placed by other retailers; or the
termination of business by a manufacturer or wholesaler. Occasionally, the
closeout retailer may be able to purchase closeout merchandise at low prices
because a manufacturer may have an excess of raw material or production
capacity. Most manufacturers of retail goods anticipate that they will sell a
percentage of
35
<PAGE>
their products at substantially reduced prices. Accordingly, merchandise
offered to closeout retailers covers most categories of merchandise at all
levels of quality. A closeout retailer's buyers only buy at prices that allow
them to underprice other retailers.
The Company is distinguishable from its competitors within the closeout
retailing industry in several respects. Most retailers in the closeout
retailing industry are either general merchandisers or focus on apparel, while
the Company's focus is on higher-end gift and home furnishings merchandise. In
addition, most closeout retailers focus on lower and middle income consumers,
while the Company generally caters to higher-income customers. Finally, unlike
other closeout retailers which operate on a year-round basis, Tuesday Morning
operates on an event sale basis. The Company believes that its periodic
schedule of openings causes its customers to plan their visits to the
Company's stores to a greater extent than customers of conventional retailers
whose product offerings are more predictable and store hours more extensive.
MERCHANDISE
Tuesday Morning stores sell a wide assortment of new, high-quality, brand-
name, closeout merchandise. The Company does not sell seconds, irregulars, or
factory rejects. The merchandise can be generally described as gift and home
furnishings merchandise and primarily consists of crystal, dinnerware, silver
serving pieces, gourmet housewares, bathroom, bedroom and kitchen accessories,
linens and domestics, luggage, Christmas trim, toys, stationery and silk
plants.
Tuesday Morning differs from discount retailers in that it does not stock
continuing lines of merchandise. Although general categories of merchandise
are usually available during each sale, specific lines of merchandise
frequently change, depending upon the availability of closeout merchandise at
suitable prices.
Since its inception, the Company has not experienced any significant
difficulty in obtaining quality closeout merchandise in adequate volumes and
at suitable prices. For the year ended December 31, 1997, the Company's top
ten vendors accounted for approximately 19.6% of total purchases, with no one
vendor accounting for more than 3.5%.
PRICING
Tuesday Morning's pricing policy is to sell all merchandise at 50% to 80%
below the retail prices generally charged by department and specialty stores.
Prices are determined centrally and are uniform at all Tuesday Morning stores.
Once a price is determined for a particular item, labels displaying Tuesday
Morning's three-tiered pricing strategy are affixed to the product. A typical
price tag displays three prices: its competitor's "regular" price, its
competitor's "sale" price and finally the Tuesday Morning closeout price.
Company management and buyers verify retail prices by reviewing prices
published in advertisements and manufacturers' suggested retail price lists
and by visiting department or specialty stores selling similar merchandise.
The Company's advanced management information systems help provide the Company
with excellent control over product pricing, and the availability of daily
sales and inventory information enables the Company to markdown unsold
merchandise on a timely and systematic basis and thereby more effectively
manage inventory levels.
ADVERTISING
The Company plans and implements an event selling advertising program for
each sales event. The program includes direct mail and newspaper advertising
and in-store promotion banners. Prior to each sales event, the Company
initiates a direct mailing to its 4,000,000 preferred customers. These direct
mailings offer customers the opportunity to purchase merchandise prior to the
advertising of a sales event to the general public. After the first three days
of each sales event, the Company commences an advertising campaign in local
newspapers in each of its markets, emphasizing the significant price
reductions available to customers and the high quality of the merchandise
offered.
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<PAGE>
Advertising expenses as a percentage of net sales were approximately 7.2%,
7.3% and 6.4% for the years ended December 31, 1994, 1995 and 1996,
respectively, and 5.8% for the twelve months ended September 30, 1997.
STORE OPERATIONS
At December 31, 1997, the Company operated 315 Tuesday Morning stores in 33
states. During the year ended December 31, 1997, no single store accounted for
more than 1.3% of the Company's net sales.
The Company does not keep its stores open throughout the year, but instead
opens them seven times a year to conduct approximately four to seven week
sales events during the retailing industry's peak selling seasons. These
events generally occur during the last six weeks of the first quarter, the
last eight weeks of the second and third quarter (which contain two events
each) and the last 12 weeks of the fourth quarter (which also contains two
events). To encourage new and repeat shopping visits for each sales event, the
Company has increased the frequency of merchandise shipments during a sales
event. During each shipment, new items are delivered, stocked and promoted in
every Tuesday Morning store. Tuesday Morning stores are closed to the public
between sales events, and are used in these periods only to house inventory
and to restock for the next sales event.
The Company utilizes a "no-frills" approach to presenting merchandise.
Stores are designed to be functional, with little emphasis placed upon
fixtures and leasehold improvements. All merchandise at each store is
displayed by type and size on racks or counters, and minimum inventory is
maintained in stockrooms. Most merchandise is sold in its original shipping
carton. Because most merchandise is sold on a self-service basis, the Company
does not employ people solely to assist customers in locating merchandise or
making selections.
In keeping with Tuesday Morning's advertised policy of "Satisfaction
Guaranteed or Your Money Cheerfully Refunded," any merchandise purchased from
Tuesday Morning stores may be returned within 90 days with proof of purchase,
for any reason. Customers, if not completely satisfied, are given a choice of
either a cash refund or an equivalent value in merchandise.
Operating hours during each sale are typically from 10:00 a.m. to 6:00 p.m.
six days a week and until 8:00 p.m. on Thursday. The Company accepts cash,
personal checks and most major credit cards.
STORE MANAGEMENT
Each store has a manager who is responsible for recruiting, training and
supervising store personnel and assuring that the store is managed in
accordance with Company guidelines and established procedures. Store managers
are full-time employees of the Company. When sales events are not in progress,
these employees review store inventory and supervise restocking activities in
preparation for the next sales event. The Company employs temporary employees
at each Tuesday Morning store to serve as cashiers and to assist in stocking
during each sales event. These temporary employees generally return to work in
subsequent sales events, reducing the need for new hiring prior to each sales
event. Typically, the Company will employ more temporary employees during the
first few days of a sale, when customer traffic is highest.
Company management and area managers visit selected stores while sales are
in progress to review inventory levels and presentation, personnel
performance, expense control, security and adherence to Company procedures. In
addition, regional and area managers periodically meet with Company management
to review store policies and to discuss purchasing, merchandising and
advertising strategies for future sales events.
SITE SELECTION
The Company opened 31 new stores in 1997 and plans to increase its store
base by approximately 32 to 35 stores in each of the next several years, both
in new markets and in existing markets. The new stores are expected to be
similar in size, appearance and operation to existing stores.
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<PAGE>
When selecting sites for new store locations, the Company reviews detailed
demographic information for each new market area and generally limits its
potential store locations to upper middle class communities. In order to
reduce rental expense, Tuesday Morning does not select prime real estate
sites. The Company believes that its customers are attracted to its stores
principally by event selling, advertising and direct mail marketing that
emphasize the large assortment of quality merchandise and low prices, rather
than by location. Tuesday Morning has generally selected sites where there is
a suitable existing building requiring minimal refurbishing. Fixture costs and
store improvements are not material because of the Company's "no-frills"
approach to selling its merchandise.
WAREHOUSING AND DISTRIBUTION
An important aspect of Tuesday Morning's success involves its ability to
warehouse and distribute merchandise quickly and efficiently. Virtually all
merchandise is received by the Company at its central warehouse and
distribution facilities in Dallas, Texas, where it is inspected, counted,
priced, ticketed and designated for individual stores. The Company warehouses
merchandise until shortly before each sale, at which time merchandise is
distributed to individual Tuesday Morning stores, where it usually remains
until sold at that sale or later sales. The merchandise sold by Tuesday
Morning stores is generally carried by all of its stores. The amount of
inventory carried by any single store varies depending upon the size and
projected sales for that store. The Company does not maintain replenishment
inventory in its warehouse and distribution facilities. Restocking of
merchandise occurs only in successive events or in scheduled merchandise
shipments during a sales event, but does not occur in response to sales
activity within individual stores.
The Company has an automated warehouse processing system which includes
high-speed bar code scanners and radio frequency terminals installed in the
Company's forklifts which facilitate efficient sorting and loading of high
merchandise volumes for immediate store delivery. With this technology, the
Company can instantly locate a piece of merchandise within its 905,000 square
feet of warehousing space. The Company also utilizes third party warehousing
in California for forward staging of processed merchandise in order to reduce
restocking lead times as well as to reduce the size of stock rooms in the
areas where real estate costs are expensive and store sizes relatively small.
See "--Management Information Systems." Since 1992, total costs to process
inventory through the Company's warehouse as a percentage of the total cost of
inventory processed have declined 2.3 percentage points, from 10.9% to 8.6%.
The Company utilizes a leased fleet of trucks and trailers to distribute
merchandise to its stores. In addition, at peak stocking periods, the Company
uses common and contract carriers to distribute merchandise to stores.
PROPERTIES
The Company owns one store located adjacent to its corporate offices in
Dallas, Texas. All of the Company's other stores are leased from unaffiliated
parties. The leases for the stores open December 31, 1997 provide for rentals
which ranged from $2.26 to $19.34 per square foot per year, with an average
rental of $8.18 per square foot per year. The annual rent per store is
generally below $50,000 and store rent, as a percent of net sales, was 5.1%
for the twelve months ending December 31, 1997. At December 31, 1997, the
remaining maturities of such leases ranged from three months to approximately
10 years, with the average term of a store lease being approximately five
years. New store leases typically include "kick clauses," which allow the
Company to exit the lease after 12 to 18 months if the store does not achieve
sales expectations. The Company believes that the termination of any
particular lease would not have a material adverse effect on the Company's
operations.
The Company owns approximately 400,000 square feet of building space in
Dallas, Texas. This houses its corporate offices, the main warehouse
distribution facility and one store. The Company also leases 225,000 square
feet of warehouse space in Dallas, Texas. The lease commenced January 1, 1993
and has been extended to June 30, 2001. In addition, the Company has entered
into a five-year lease for 280,000 square feet of warehouse space which
commenced in May 1997. These current distribution facilities, supplemented
with short
38
<PAGE>
term rentals for peak times each year, are considered adequate to meet
warehouse space requirements for the next several years. The Company owns
approximately 51 acres of undeveloped land in the north Dallas area. This land
is not currently being used for the business and is currently under contract
to be sold.
MANAGEMENT INFORMATION SYSTEMS
The Company has invested over $10.5 million over the last five years in
computers, bar code scanners and radio frequency terminals, software
programming and related equipment, technology and training. All of the
Company's hardware and software, except for one software package, are Year
2000 compliant. No significant expenditures are anticipated in the foreseeable
future. The Company maintains a corporate local area network (LAN), an
inventory tracking and processing system and a point of sale system which
enable it to efficiently control and process its inventory. Forklifts at the
Company's warehouse are equipped with bar code scanners and radio frequency
terminals, and the Company has more than 1,000 POS terminals, which capture
daily sales data at the SKU level. The data is polled daily by the central
office and used to identify selling trends on a Company-wide basis for each
sale.
TRADEMARKS AND TRADENAMES
The Company has registered the name "Tuesday Morning" as a service mark with
the United States Patent and Trademark office.
COMPETITION
The Company competes in the sale of merchandise with a variety of other
retail merchandisers, including department, discount and specialty stores,
many of which have locations nationwide, are larger and have greater financial
resources than the Company. In addition, at various times throughout the year,
department, discount and specialty stores also offer merchandise similar to
that sold by the Company at reduced prices.
Unlike its competitors, which primarily offer continuing lines of
merchandise, the Company offers changing lines of merchandise, depending on
availability at suitable prices. In addition, the Company distinguishes itself
from other retailers by using an event based selling strategy. The Company
believes that its periodic schedule of openings causes its customers to plan
their visits to the Company's stores to a greater extent than customers of
conventional retailers whose product offerings are more predictable and store
hours more extensive. The Company competes with other retail establishments by
offering new merchandise, all of which is sold at substantial reductions from
original retail prices, and by offering a changing variety of high quality
merchandise at prices which the Company believes the customer will recognize
as significant values.
EMPLOYEES
At December 31, 1997, the Company employed approximately 776 persons on a
full-time basis and approximately 3,416 individuals in part-time positions.
The Company's employees are not represented by any union. The Company has not
experienced any work stoppage due to labor disagreements and regards its
employee relations as good.
LEGAL PROCEEDINGS
The Company is not aware of any legal proceedings pending or threatened
against the Company that could have a material adverse effect on its financial
position or results of operations.
39
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names, ages as of January 31, 1998, and principal positions of the
directors, executive officers and key employees of the Company and the
Subsidiary Guarantors are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Lloyd L. Ross............ 62 Chairman of the Board
Jerry M. Smith........... 61 President, Chief Executive Officer and
Director of the Company and President and
Chief Operating Officer of Friday Morning,
Inc. and Tuesday Morning, Inc.
Mark E. Jarvis........... 46 Senior Vice President, Chief Financial Officer
and Secretary of the Company, Friday Morning,
Inc. and Tuesday Morning, Inc.
G. Michael Anderson...... 45 Senior Vice President, Buying Group of the
Company and Tuesday Morning, Inc.
Duane A. Huesers......... 42 Vice President, Finance and Assistant
Secretary of the Company and Tuesday Morning,
Inc.
Richard Nance............ 51 Vice President, Information Systems of Tuesday
Morning, Inc.
Karen Costigan........... 48 Vice President, Real Estate of Tuesday
Morning, Inc.
Andrew Paris............. 39 Vice President, Store Operations of Tuesday
Morning, Inc.
William J. Hunckler, III. 44 Vice President and Assistant Secretary of the
Company and the Subsidiary Guarantors and
Director of the Company
Benjamin D. Chereskin.... 39 Vice President, Assistant Secretary and
Director of the Company, Friday Morning, Inc.
and Tuesday Morning, Inc. and President,
Secretary and Director of TMI Holdings, Inc.
and TMIL Corporation
Robin P. Selati.......... 31 Vice President and Assistant Secretary of the
Company and the Subsidiary Guarantors and
Director of the Company
</TABLE>
The following is a brief description of the business experience of the
directors, executive officers and key employees of the Company and the
Subsidiary Guarantors.
Lloyd L. Ross is the founder of the Company. Since 1972, Mr. Ross has
devoted his full time to the organization and operation of the Company and has
served as Chairman of the Board and Chief Executive Officer since its
incorporation in 1974. He also served as President of the Company from 1975 to
1985 and from 1989 to 1992. On December 29, 1997, Mr. Ross stepped down as
Chief Executive Officer but continues to serve as Chairman of the Board.
Jerry M. Smith joined the Company in 1984, was elected Vice President-
Advertising/Public Relations and Store Operations in 1986 and was elected
Senior Vice President--Advertising/Public Relations and Store Operations in
1989. He was elected Executive Vice President and appointed a director in
November 1992. In September 1994, Mr. Smith was elected President and Chief
Operating Officer. On December 29, 1997, Mr. Smith became the Company's Chief
Executive Officer. Mr. Smith has served as President and Chief Operating
Officer of Friday Morning, Inc. and Tuesday Morning, Inc. since inception and
September 1994, respectively.
Mark E. Jarvis joined the Company in September 1992 as Senior Vice President
and Chief Financial Officer. From 1988 to 1992, he served in several
capacities (most recently as Vice President and Treasurer) for Pier 1 Imports,
Inc., a specialty retailer. Mr. Jarvis has served as Senior Vice President,
Chief Financial Officer and Secretary of Friday Morning, Inc. and Tuesday
Morning, Inc. since September 1992.
G. Michael Anderson joined the Company in September 1989 as a buyer. In
1991, he was appointed Vice President, Buying, Smallwares Division. Mr.
Anderson was elected Senior Vice President, Buying Group in December 1996.
Prior to joining the Company, Mr. Anderson was a buyer for Affiliated Foods
and Merchandise Manager for Fox-Meyer Drug Company.
40
<PAGE>
Duane A. Huesers joined the Company in 1992 as Vice President, Finance.
Prior to joining the Company, Mr. Huesers served as Senior Vice President and
Chief Financial Officer of Bookstop, Inc., a chain of book superstores.
Richard Nance joined the Company in 1992 as Vice President, Information
Systems. Prior to joining the Company, Mr. Nance was part of the information
systems consulting group hired by the Company in 1991. Mr. Nance was elected
Vice President, Information Systems in 1992.
Karen Costigan joined the Company in 1982 as a Regional Manager of Store
Operations, and became head of the real estate division in 1988. Ms. Costigan
was elected Vice President, Real Estate in 1991. Prior to joining the Company,
Ms. Costigan was Assistant Managing Director of Lord & Taylor in Chicago, Oak
Brook and Dallas Northpark.
Andrew Paris joined the Company in 1990 as Regional Manager of Store
Operations. He was elected Vice President, Store Operations in 1996. Prior to
joining the Company, Mr. Paris was Manager of Ramp Operations at People
Express/Continental Airlines.
William J. Hunckler, III has served as a director of the Company and as Vice
President and Assistant Secretary of the Company and the Subsidiary Guarantors
since December 29, 1997. Mr. Hunckler has been a Vice President of MDP since
co-founding the firm in 1993. Prior to 1993, Mr. Hunckler was with First
Chicago Venture Capital for 13 years. Mr. Hunckler currently serves on the
board of directors of Beverages and More, Inc., The Cornerstone Investments
Group, Inc. and Peter Piper, Inc.
Benjamin D. Chereskin has served as Vice President, Assistant Secretary and
a director of the Company, Friday Morning, Inc. and Tuesday Morning, Inc. and
as President, Secretary and a director of TMI Holdings, Inc. and TMIL
Corporation since December 29, 1997. Mr. Chereskin has been a Vice President
of MDP since co-founding the firm in 1993. Prior to 1993, Mr. Chereskin was
with First Chicago Venture Capital for nine years. Mr. Chereskin currently
serves on the board of directors of Beverages and More, Inc., The Cornerstone
Investments Group, Inc. and Carrols Corporation.
Robin P. Selati has served as a director of the Company and as Vice
President and Assistant Secretary of the Company and the Subsidiary Guarantors
since December 29, 1997. Mr. Selati has been with MDP since 1993. His prior
experience was with Alex. Brown & Sons Incorporated as a Financial Analyst in
the consumer/retailing investment banking group. Mr. Selati currently serves
on the board of directors of Peter Piper, Inc. and Carrols Corporation.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company during the three years ended December 31, 1997 to or
for the Company's chief executive officer and the other executive officers of
the Company.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
------------- -----------------------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SAR'S COMPENSATION(A)
- --------------------------- ---- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Lloyd L. Ross...................... 1997 $444,100 -- $8,544
Chief Executive Officer in 1996 1996 375,400 -- 5,751
1995 354,150 -- 6,769
Jerry M. Smith..................... 1997 375,100 -- 9,999
President 1996 297,600 -- 9,670
1995 297,100 150,000 7,085
Mark E. Jarvis..................... 1997 179,800 -- 7,245
Senior Vice President and 1996 164,600 -- 8,010
Chief Financial Officer 1995 157,950 -- 6.610
G. Michael Anderson (b)............ 1997 209,600 -- 6,170
Senior Vice President 1996 128,100 -- 4,870
</TABLE>
41
<PAGE>
- --------
(a) The amounts indicated reflect the aggregate value of the Company's
contributions for each of the named executive officers to the Company's
401(k) defined contribution plan, group term life insurance and the
Company's stock purchase plan.
(b) Mr. Anderson was promoted to the position of Senior Vice President, Buying
Group, in December 1996.
CONSULTING AND EMPLOYMENT AGREEMENTS
On December 29, 1997, Lloyd L. Ross, the Company's founder, entered into a
two-year consulting and non-competition agreement which provides that he will
serve as Chairman of the Company's Board of Directors and will facilitate in
the Company's relationships with third parties and suppliers. Mr. Ross's
consulting agreement provides for annual compensation of $250,000 per year
(along with benefits similar to those offered to him prior to the Acquisition)
with an expected time commitment for Mr. Ross of 60 days per year. The
consulting agreement for Mr. Ross also contains noncompete and nonsolicitation
covenants and confidentiality provisions.
On December 29, 1997, Jerry M. Smith, the Company's President since 1994,
entered into a three-year employment agreement which provides that he will
serve as the Company's President and Chief Executive Officer, as well as a
director. Mr. Smith will receive an annual base salary of $475,000 per year,
subject to possible increases, and a maximum annual bonus of up to 50% of his
base salary, and will continue to receive the same benefits and perquisites
offered to him prior to the Acquisition. Mr. Smith's employment agreement also
contains noncompete and nonsolicitation covenants and confidentiality
provisions. See "Risk Factors--Dependence on Key Personnel."
INVESTMENT BY MANAGEMENT AND STOCK OPTION PLAN
In connection with the Acquisition, Messrs. Ross, Smith, Jarvis and Anderson
and certain other management members of the Company acquired the equivalent of
approximately 7.6% of the Company's Common Stock outstanding immediately after
the Acquisition. On December 29, 1997 the Company adopted the Tuesday Morning
Corporation 1997 Long-Term Equity Incentive Plan under which options may be
granted to key employees covering up to 10% of the Company's fully diluted
common equity. Mr. Smith has been granted options under the new plan covering
3% of such common equity. See "Certain Transactions."
CERTAIN TRANSACTIONS
Since 1994, Lloyd L. Ross, an executive officer and a director of the
Company, borrowed funds from the Company from time to time. Mr. Ross's
borrowings, which bore interest at the prime rate, had a balance, including
accrued interest, of approximately $3,450,000 as of the Closing. In 1992,
Jerry M. Smith, an executive officer and a director of the Company, received a
loan for the purchase of Company stock which, including accrued interest, had
a balance of approximately $189,500 as of the Closing. Mr. Smith's loan also
bore interest at the prime rate. On December 29, 1997 the maturity date of
each such loan was extended to the seventh anniversary of the Closing except
in certain circumstances described below. In addition, the interest rate of
each such loan was changed, as of the Closing, from the prime rate of interest
to the mid-term applicable federal rate as defined in Internal Revenue Code
Section 1274(d).
In order to effect the Acquisition, the Company entered into a merger
agreement (the "Merger Agreement") with Madison Dearborn Partners II, L.P., a
Delaware limited partnership ("MDP"), and its wholly owned subsidiary, Tuesday
Morning Acquisition Corp. ("Merger Sub"), pursuant to which Merger Sub merged
with and into the Company and the Company became the surviving corporation
(the "Merger"). Prior to the Merger, MDP assigned its rights and interests
under the Merger Agreement to its affiliate, Madison Dearborn.
In the Acquisition, Messrs. Ross and Smith, together with Mark E. Jarvis and
G. Michael Anderson, each an executive officer of the Company, and certain
other members of the Company's management (the
42
<PAGE>
"Management Group") invested, in the aggregate, $7.5 million in shares of
junior preferred stock and Common Stock of the Company. Prior to the Merger,
the Management Group contributed shares of the Company's common stock to
Merger Sub in the following amounts: approximately $5.5 million in the case of
Mr. Ross, approximately $1.3 million in the case of Mr. Smith and a total of
approximately $0.7 million from the other members of the Management Group.
Members of the Management Group exercised stock options to the extent that
they did not already own shares necessary to obtain the shares to be
contributed.
In the Merger, Mr. Ross's ownership position in the Merger Sub was converted
into shares of the Company's Common Stock (representing approximately 5.5% of
the total outstanding immediately after the Acquisition) and approximately
$5.2 million liquidation value of the Company's Junior Redeemable Preferred
Stock (as defined). See "Description of Junior Preferred Stock." On December
29, 1997 Mr. Ross entered into a Term Put Agreement with the Company and
Madison Dearborn which provides him with the right, 24 months after the
Closing, to put his Junior Redeemable Preferred Stock to the Company or
Madison Dearborn for an amount equal to liquidation value plus any accrued but
unpaid dividends. In the event that Mr. Ross exercises the put, he will be
required to transfer his shares of the Company's Common Stock to the Company
or Madison Dearborn, as the case may be, for no additional consideration and
his loan will become due and payable to the Company or Madison Dearborn, as
the case may be, at such time. Mr. Ross's loan will also become due and
payable at such time when the Company exercises its option to redeem his
shares of the Junior Redeemable Preferred Stock.
In the Merger, Mr. Smith's ownership position in the Merger Sub was
converted into shares of the Company's Common Stock (representing
approximately 1.3% of the total outstanding immediately after the Acquisition)
and approximately $1.2 million liquidation value of the Junior Perpetual
Preferred Stock (as defined). On December 29, 1997 Mr. Smith entered into an
Employment Put Agreement with the Company which provides him with the right to
require the Company to repurchase approximately 76% of the shares of Common
Stock and Junior Perpetual Preferred Stock held by him (i) at any time on or
after December 31, 2000 or (ii) prior to December 31, 2000 under certain
circumstances, including the termination of his employment without cause and
his death, permanent disability or incapacity. Under Mr. Smith's Employment
Put Agreement, the Company will have the option to pay the purchase price for
Mr. Smith's securities 25% in cash and 75% by the issuance of a subordinated
promissory note payable in three equal annual installments, subject to
corporate law restrictions and restrictions contained in the Senior Credit
Facility, the Indenture, the Certificate of Designation and the Exchange
Indenture.
In the Merger, the ownership position in the Merger Sub of the rest of the
Management Group, including those of Messrs. Jarvis and Anderson, was
converted into shares of the Company's Common Stock and Junior Perpetual
Preferred Stock. The Common Stock received by such members of the Company's
management represented approximately 0.7% of the total outstanding immediately
after the Acquisition. They also received shares of Junior Perpetual Preferred
Stock having liquidation values, in the aggregate, of $0.7 million. See
"Description of Junior Preferred Stock."
As a result of the transactions described above, following the Acquisition,
the Management Group owned, in the aggregate, approximately $5.2 million
liquidation value of the Junior Redeemable Preferred Stock, $1.9 million
liquidation value of the Junior Perpetual Preferred Stock and approximately
7.6% of the Company's Common Stock outstanding immediately after the
Acquisition.
Madison Dearborn acquired a number of shares representing approximately
85.8% of the Company's Common Stock outstanding immediately after the
Acquisition (approximately 77.2% on a fully diluted basis) and approximately
$80.8 million liquidation value of the Junior Redeemable Preferred Stock of
the Company for an aggregate purchase price of $85.4 million. Madison Dearborn
renders certain management and advisory services to the Company for which it
receives from the Company a fee in the amount of $350,000 per year.
During 1996, the Company paid to Saunders, Lubinski and White approximately
$11 million for media, advertising and production services. Mr Saunders, a
director of the Company since December 1996, was an officer of Saunders,
Lubinski and White. He has ceased to be affiliated with such firm since
January 1, 1997.
43
<PAGE>
In connection with the Acquisition, Madison Dearborn, the Management Group
and the Company entered into a Stockholders Agreement which provides for,
among other things, certain restrictions on the transfer of the Junior
Redeemable Preferred Stock, the Junior Perpetual Stock and the Common Stock
held by the Management Group (collectively, the "Management Shares"), the
right of the Company to sell or cause to be sold all or a portion of the
Management Shares in connection with a sale of the Company, the right of the
Company to repurchase the Management Shares of any member of the Management
Group upon the termination of such member for cause, certain rights by the
Management Group to participate in certain sales of Common Stock by Madison
Dearborn under certain circumstances, certain demand registration rights in
favor of Madison Dearborn by which it may cause the Company to register all or
part of the Common Stock held by it under the Securities Act, and certain
"piggyback" registration rights in favor of Madison Dearborn and the
Management Group.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of December 31, 1997 by each
person who beneficially owns more than five percent of such Common Stock and
by the directors and executive officers of the Company.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(A)
--------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES SHARES
- ------------------------ --------- ----------
<S> <C> <C>
Madison Dearborn Capital Partners II, L.P................. 3,216,482 85.8%
Three First National Plaza
Chicago, IL 60602
Lloyd L. Ross (b)......................................... 207,149 5.5%
Jerry M. Smith............................................ 56,377 1.5%
Mark E. Jarvis............................................ 5,650 *
G. Michael Anderson....................................... 1,883 *
Benjamin D. Chereskin (c)................................. -- --
William J. Hunckler, III (c).............................. -- --
Robin P. Selati (c)....................................... -- --
All directors and executive officers as a group (7
persons)................................................. 271,059 7.2%
</TABLE>
- --------
* Denotes ownership of less than 1.0%.
(a) "Beneficial ownership" generally means any person who, directly or
indirectly, has or shares voting or investment power with respect to a
security. Unless otherwise indicated, the Company believes that each
shareholder has sole voting and investment power with regard to the shares
listed as beneficially owned.
(b) The address of Mr. Lloyd is the address of the Company.
(c) Messrs. Chereskin, Hunckler and Selati are principals of Madison Dearborn
Partners, Inc., the general partner of Madison Dearborn Partners, L.P.,
the general partner of Madison Dearborn Capital Partners II, L.P., and
therefore may be deemed to beneficially own the shares owned by Madison
Dearborn Capital Partners II, L.P.
44
<PAGE>
DESCRIPTION OF THE SENIOR CREDIT FACILITY
As of the Closing, the Company entered into the Senior Credit Facility with
the various lenders thereunder (collectively, the "Lenders"), Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as arranger and
syndication agent, the Subsidiary Guarantors and Fleet National Bank, as
administrative agent (the "Agent"). The following is a summary description of
the principal terms of the Senior Credit Facility. The description set forth
below does not purport to be complete and is qualified in its entirety by
reference to the agreements setting forth the principal terms and conditions
of the Senior Credit Facility, which are available upon request from the
Company.
Structure. The Senior Credit Facility consists of (a) Term Loans in an
aggregate principal amount of $110.0 million (consisting of $40.0 million in
Term Loan A loans and $70.0 million in Term Loan B loans) and (b) a Revolving
Credit Facility providing for revolving loans to the Company (including a
sublimit for letters of credit) in an aggregate principal amount at any time
not to exceed the lesser of: (i) $90.0 million and (ii) the Company's
borrowing base described below. The Revolving Credit Facility may be increased
to $115.0 million subject to certain restrictions in the Senior Credit
Facility and the Indenture.
The entire amount of the Term Loans were borrowed under the Senior Credit
Facility as of the Closing. No amounts were initially borrowed under the
Revolving Credit Facility. The Revolving Credit Facility may be utilized to
fund the Company's working capital requirements, including issuance of stand-
by and trade letters of credit and for other general corporate purposes.
The borrowing base under the Revolving Credit Facility is up to 50% (60%
during the months of July through October) of the Company's eligible
inventory. Eligible inventory does not include obsolete inventory and certain
other items.
Availability. The Revolving Credit Facility is available at any time until
the fifth anniversary of the Closing subject to the fulfillment of customary
conditions precedent, including the absence of a default under the Senior
Credit Facility and compliance with the borrowing base limitation described
above.
Security; Guarantees. The Company's obligations under the Senior Credit
Facility are guaranteed by each existing and subsequently acquired or
organized subsidiary of the Company, subject to certain exceptions. The Senior
Credit Facility and the guarantees thereof are secured by a perfected first
priority security interest in all substantial tangible and intangible assets
of the Company and the guarantors and proceeds thereof, subject to certain
permitted liens.
Interest; Maturity. Borrowings under the Senior Credit Facility bear
interest, payable quarterly (or at the end of each shorter interest period in
the case of LIBOR loans), at a rate per annum equal (at the Company's option)
to: (i) LIBOR plus an applicable margin or (ii) an alternate base rate equal
to the Agent's corporate base rate plus an applicable margin. Initially, the
applicable LIBOR-margin is 2.5% per annum for the Revolving Credit Facility
and the Term Loan A loans and 3.0% per annum for the Term Loan B loans and
1.0% per annum less in each case for alternate base rate loans. The applicable
margins vary depending upon the Company's leverage ratio. The Term Loan A
loans and the Revolving Credit Facility mature on the fifth anniversary of the
Closing and the Term Loan B loans mature on the seventh anniversary. The Term
Loans are required to be repaid, subject to certain exceptions, with: 75% of
annual Excess Cash Flows (as defined) (such percentage to decline if a target
ratio of total senior debt to EBITDA is achieved); 100% of the net proceeds of
certain asset sales, insurance recoveries, debt incurrences and sale
leasebacks over certain thresholds; and 50% of the net proceeds of public and
private equity offerings and capital contributions.
Fees. The Company is required to pay to the Lenders, on a quarterly basis, a
commitment fee equal to 1/2 of 1% per annum on the undrawn portion of the
Revolving Credit Facility, and is required to pay to the Agent an annual
agency fee. The commitment fee varies depending on the Company's leverage
ratio. The Company is also obligated to pay (i) a per annum letter of credit
fee equal to the applicable LIBOR-margin for the Revolving
45
<PAGE>
Credit Facility on the aggregate undrawn amount of outstanding letters of
credit and (ii) an issuing fee for the letter of credit issuing bank equal to
1/4 of 1% per annum on the face amount of the letter of credit.
Covenants. The Senior Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries
to incur additional indebtedness, create liens and give further negative
pledges, make investments or loans or enter into joint ventures, create
guarantees and other contingent obligations, pay dividends on or redeem or
repurchase equity interests, merge, acquire other businesses, sell subsidiary
stock, make capital expenditures, enter into sale leasebacks, sell or discount
receivables, engage in certain transactions with affiliates, change its
business, amend the Indenture or other material agreements, create
subsidiaries and prepay other debt, including the Notes. In addition, the
Senior Credit Facility requires that the Company comply with specified ratios
and tests, including minimum interest coverage and fixed charge coverage
ratios, minimum trailing four quarter EBITDA and a maximum ratio of total debt
to trailing four quarter EBITDA.
Events of Default. The Senior Credit Facility contains customary events of
default, including non-payment of principal, interest or fees, material
inaccuracy of representations and warranties, violation of covenants, cross-
default and cross-acceleration to certain other indebtedness, certain events
of bankruptcy and insolvency, certain events under the Employee Retirement
Income Security Act of 1974, as amended, material judgments, actual or
asserted invalidity of any guarantee or security interest and a change of
control in certain circumstances as set forth therein.
46
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series under
the Indenture. The form and terms of the Exchange Notes are the same as the
form and terms of the Old Notes (which they replace) except that (i) the
Exchange Notes bear a Series B designation, (ii) the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange
Offer, which rights will terminate when the Exchange Offer is consummated. The
Old Notes and the Exchange Notes are sometimes referred to herein collectively
as the "Notes." Any descriptions of the Notes presented in the future tense
shall refer to the Exchange Notes, where appropriate.
The following summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), as in effect on the date of the Indenture. For definitions of certain
capitalized terms used in the following summary, see "--Certain Definitions."
GENERAL
The Notes will mature on December 15, 2007, will be limited to $100,000,000
aggregate principal amount and will be unsecured senior subordinated
obligations of the Company. Each Note will bear interest at the rate set forth
on the cover page hereof from December 29, 1997 or from the most recent
interest payment date to which interest has been paid or duly provided for,
payable on June 15, 1998 and semiannually thereafter on June 15 and December
15 in each year until the principal thereof is paid or duly provided for to
the Person in whose name the Note (or any predecessor Note) is registered at
the close of business on the June 1 or December 1 next preceding such interest
payment date. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable (subject to compliance
with transfer restrictions imposed by applicable securities laws for so long
as the Notes are not registered for resale under the Securities Act), at the
office or agency of the Company in The City of New York maintained for such
purposes (which initially will be the corporate trust office of the Trustee);
provided, however, that, at the option of the Company, interest may be paid by
check mailed to the address of the Person entitled thereto as such address
shall appear on the security register. The Notes will be issued only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any registration
of transfer or exchange or redemption of Notes, but the Company may require
payment in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after December 15, 2002 at the redemption prices
(expressed as percentages of principal amount) set forth below, together with
accrued interest, if any, to the date of redemption, if redeemed during the
12-month period beginning on December 15 of the years indicated below (subject
to the right of holders of record on relevant record dates to receive interest
due on an interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002................................... 105.50%
2003................................... 103.67%
2004................................... 101.83%
2005 and thereafter.................... 100.00%
</TABLE>
In addition, at any time prior to December 15, 2000, the Company may redeem
up to 35% of the aggregate principal amount of the Notes within 20 days of one
or more Public Equity Offerings with the net proceeds of
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such offering at a redemption price equal to 111% of the principal amount
thereof, together with accrued interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that, after giving
effect to any such redemption, at least $65 million aggregate principal amount
of the Notes remains outstanding.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date
by the Trustee by such method as the Trustee will deem fair and appropriate;
provided, however, that no such partial redemption will reduce the principal
amount of a Note not redeemed to less than $1,000. Notice of redemption will
be mailed, first-class postage prepaid, at least 30 but not more than 60 days
before the redemption date to each holder of Notes to be redeemed at its
registered address. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption and accepted for
payment.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
NOTE GUARANTEES
Payment of the principal of, premium, if any, and interest on the Notes,
when and as the same become due and payable (whether at Stated Maturity or on
a redemption date, or pursuant to a Change in Control Purchase Offer or an
Excess Proceeds Offer, and whether by declaration of acceleration, call for
redemption or otherwise), are guaranteed, jointly and severally, on an
unsecured senior subordinated basis by the Subsidiary Guarantors. The
Indenture provides that the obligations of each Subsidiary Guarantor under its
Note Guarantee are limited so as not to constitute a fraudulent conveyance
under applicable laws.
The Subsidiary Guarantors are, as of the date of this Prospectus, TMI
Holdings, Inc., Tuesday Morning, Inc., Friday Morning, Inc. and TMIL
Corporation, all of the Company's Subsidiaries. Under certain circumstances,
the Company will be able to designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries are not subject to the
restrictive covenants set forth in the Indenture. The Indenture requires that
each Restricted Subsidiary organized within the United States and certain
other Restricted Subsidiaries issue an Note Guarantee.
The Indenture provides further that, so long as no Default exists or would
exist, the Note Guarantee issued by any Subsidiary Guarantor shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer to any Person that is not an Affiliate of the Company of
all of the Company's Capital Stock in, or all or substantially all the assets
of, such Subsidiary Guarantor (which transaction is otherwise in compliance
with the Indenture, including, without limitation, the provisions of "--
Certain Covenants--Limitation on Sale of Assets" and "--Limitation on
Issuances and Sales of Capital Stock of Subsidiaries").
RANKING
The payment of the principal of, premium, if any, and interest on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to
the prior payment in full in cash or cash equivalents of all Senior
Indebtedness whether outstanding on the date of the Indenture or thereafter
incurred.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relating to the Company or to its assets, or any
liquidation, dissolution or other winding-up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or other marshalling of assets or
liabilities of the Company (except in connection with the consolidation or
merger of the Company or its liquidation or dissolution following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety upon the terms and conditions described under "Consolidation, Merger
and Sale of Assets" below), the holders of Senior Indebtedness are entitled to
receive payment in full in cash or cash equivalents of all Senior
Indebtedness, or provision shall be made for such payment in full, before the
holders of
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<PAGE>
Notes will be entitled to receive any payment or distribution of any kind or
character (other than any payment or distribution in the form of equity
securities or subordinated securities of the Company or any successor obligor
that, in the case of any such subordinated securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be
outstanding to at least the same extent as the Notes are so subordinated (such
equity securities or subordinated securities hereinafter being "Permitted
Junior Securities") and any payment made pursuant to the provisions described
under "--Certain Covenants--Defeasance or Covenant Defeasance of Indenture"
from monies or U.S. Government Obligations previously deposited with the
Trustee) on account of principal of, or premium, if any, or interest on the
Notes; and any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than a payment or
distribution in the form of Permitted Junior Securities and payments made
pursuant to the provisions described under "--Certain Covenants--Defeasance or
Covenant Defeasance of Indenture" from monies or U.S. Government Obligations
previously deposited with the Trustee), by set-off or otherwise, to which the
holders of the Notes or the Trustee would be entitled but for the provisions
of the Indenture shall be paid by the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holders of
Senior Indebtedness or their representative or representatives ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment
or distribution to the holders of such Senior Indebtedness.
No payment or distribution of any assets of the Company of any kind or
character, whether in cash, property or securities (other than Permitted
Junior Securities and payments made pursuant to the provisions described under
"--Certain Covenants--Defeasance or Covenant Defeasance of Indenture" from
monies or U.S. Government Obligations previously deposited with the Trustee),
may be made by or on behalf of the Company on account of principal of,
premium, if any, or interest on the Notes or on account of the purchase,
redemption or other acquisition of Notes upon the occurrence of any default in
payment (whether at stated maturity, upon scheduled installment, by
acceleration or otherwise) of principal of, premium, if any, or interest on
Designated Senior Indebtedness (as defined below) (a "Payment Default") until
such Payment Default shall have been cured or waived in writing or shall have
ceased to exist or such Designated Senior Indebtedness shall have been
discharged or paid in full in cash or cash equivalents.
No payment or distribution of any assets of the Company of any kind or
character, whether in cash, property or securities (other than Permitted
Junior Securities and payments made pursuant to the provisions described under
"--Certain Covenant--Defeasance or Covenant Defeasance of Indenture" from
monies or U.S. Government Obligations previously deposited with the Trustee),
may be made by or on behalf of the Company on account of principal of,
premium, if any, or interest on the Notes or on account of the purchase,
redemption or other acquisition of Notes for the period specified below (a
"Payment Blockage Period") upon the occurrence of any default or event of
default with respect to any Designated Senior Indebtedness other than any
Payment Default pursuant to which the maturity thereof may be accelerated (a
"Non-Payment Default") and receipt by the Trustee of written notice thereof
from the trustee or other representative of holders of Designated Senior
Indebtedness.
The Payment Blockage Period will commence upon the date of receipt by the
Trustee of written notice from the trustee or such other representative of the
holders of the Designated Senior Indebtedness in respect of which the Non-
Payment Default exists and shall end on the earliest of (i) 179 days
thereafter (provided that any Designated Senior Indebtedness as to which
notice was given shall not theretofore have been accelerated), (ii) the date
on which such Non-Payment Default is cured, waived or ceases to exist or such
Designated Senior Indebtedness is discharged or paid in full in cash or cash
equivalents or (iii) the date on which such Payment Blockage Period shall have
been terminated by written notice to the Trustee or the Company from the
trustee or such other representative initiating such Payment Blockage Period,
after which the Company will resume making any and all required payments in
respect of the Notes, including any missed payments. In any event, not more
than one Payment Blockage Period may be commenced during any period of 360
consecutive days. No event of default that existed or was continuing on the
date of the commencement of any Payment Blockage Period will
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<PAGE>
be, or can be made, the basis for the commencement of a subsequent Payment
Blockage Period, unless such default has been cured or waived for a period of
not less than 90 consecutive days subsequent to the commencement of such
initial Payment Blockage Period.
In the event that, notwithstanding the provisions of the preceding four
paragraphs, any payment shall be made to the Trustee (and not paid over to the
holders of the Notes) which is prohibited by such provisions, then and in such
event such payment shall be paid over and delivered by such Trustee to the
trustee and any other representative of holders of Designated Senior
Indebtedness, as their interests may appear, for application to Designated
Senior Indebtedness. After all Senior Indebtedness is paid in full and until
the Notes are paid in full, holders of the Notes shall be subrogated (equally
and ratably with all other Indebtedness pari passu with the Notes) to the
rights of holders of Senior Indebtedness to receive distributions applicable
to Senior Indebtedness to the extent that distributions otherwise payable to
the holders of the Notes have been applied to the payment of Senior
Indebtedness.
Failure by the Company to make any required payment in respect of the Notes
when due or within any applicable grace period, whether or not occurring
during a Payment Blockage Period, will result in an Event of Default and,
thereafter, holders of the Notes will have the right to accelerate the
maturity thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency of the Company, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Notes, and assets which would otherwise be available to pay obligations in
respect of the Notes will be available only after all Senior Indebtedness has
been paid in full in cash or cash equivalents, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes.
Each Note Guarantee will be an unsecured senior subordinated obligation of
the respective Subsidiary Guarantor issuing such Note Guarantee, ranking pari
passu with all other existing and future senior subordinated indebtedness of
such Subsidiary Guarantor, if any. The Indebtedness evidenced by each such
Note Guarantee will be subordinated on the same basis to the Guarantor Senior
Indebtedness as the Notes are subordinated to Senior Indebtedness.
"Senior Indebtedness" means (i) all obligations of the Company, now or
hereafter existing, under or in respect of the Senior Credit Agreement,
whether for principal, premium, if any, interest (including interest accruing
after the filing of, or which would have accrued but for the filing of, a
petition by or against the Company under Bankruptcy Law, whether or not such
interest is allowed as a claim after such filing in any proceeding under such
law) and other amounts due in connection therewith (including any fees,
premiums, expenses and indemnities) and (ii) the principal of, premium, if
any, and interest on all other Indebtedness of the Company (other than the
Notes), whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (i) Indebtedness evidenced by the
Notes, (ii) Indebtedness of the Company that is expressly subordinated in
right of payment to any Senior Indebtedness of the Company or the Notes, (iii)
Indebtedness of the Company that by operation of law is subordinate to any
general unsecured obligations of the Company, (iv) Indebtedness of the Company
to the extent incurred in violation of any covenant prohibiting the incurrence
of Indebtedness under the Indenture, (v) any liability for federal, state or
local taxes or other taxes, owed or owing by the Company, (vi) trade account
payables owed or owing by the Company, (vii) amounts owed by the Company for
compensation to employees or for services rendered to the Company, (viii)
Indebtedness of the Company to any Restricted Subsidiary or any other
Affiliate of the Company, (ix) Redeemable Capital Stock of the Company and (x)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to
the Company or any Restricted Subsidiary.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under the
Senior Credit Agreement and (ii) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount
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outstanding of at least $25 million and that has been specifically designated
in the instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Guarantor Senior Indebtedness" of a Subsidiary Guarantor means Indebtedness
of such Subsidiary Guarantor consisting of (i) a guarantee of any Senior
Indebtedness under the Senior Credit Agreement or any other Senior
Indebtedness and (ii) the principal of, premium, if any, and interest on all
other Indebtedness of such Subsidiary Guarantor (other than the Note Guarantee
issued by such Subsidiary Guarantor), whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
indebtedness shall not be senior in right of payment to such Note Guarantee.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" of a Subsidiary
Guarantor shall not include (i) Indebtedness evidenced by the Note Guarantee
of such Subsidiary Guarantor, (ii) Indebtedness of such Subsidiary Guarantor
that is expressly subordinated in right of payment to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor, (iii) Indebtedness of such
Subsidiary Guarantor that by operation of law is subordinate to any general
unsecured obligations of such Subsidiary Guarantor, (iv) Indebtedness of such
Subsidiary Guarantor to the extent incurred in violation of any covenant of
the Indenture, (v) any liability for federal, state or local taxes or other
taxes, owed or owing by such Subsidiary Guarantor, (vi) trade account payables
owed or owing by such Subsidiary Guarantor, (vii) amounts owed by such
Subsidiary Guarantor for compensation to employees or for services rendered to
such Subsidiary Guarantor, (viii) Indebtedness of such Subsidiary Guarantor to
any Affiliate of the Company, (ix) Redeemable Capital Stock of such Subsidiary
Guarantor and (x) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11 of the United States Code is
without recourse to such Subsidiary Guarantor or any Subsidiary.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Company will not, and will not permit any
Restricted Subsidiary to, create, issue, assume, guarantee or in any manner
become directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness; provided, however, that the
Company and any Subsidiary Guarantor may incur Indebtedness (including
Acquired Indebtedness) if at the time of such incurrence the Consolidated
Fixed Charge Coverage Ratio for the four full fiscal quarters immediately
preceding the incurrence of such Indebtedness for which internal financial
statements are available, taken as one period (and after giving pro forma
effect to (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of
such proceeds occurred, on the first day of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company
and its Restricted Subsidiaries since the first day of such four-quarter
period as if such Indebtedness was incurred, repaid or retired on the first
day of such four-quarter period (except that, in making such computation, the
amount of Indebtedness under any revolving credit facility shall be computed
based upon the average daily balance of such Indebtedness during such four-
quarter period) and (iii) the acquisition (whether by purchase, merger or
otherwise) or disposition (whether by sale, merger or otherwise) of any
company, entity or business acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such four-
quarter period, as if such acquisition or disposition occurred on the first
day of such four-quarter period), would have been at least equal to 2.0 to
1.0.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of the Company (other than dividends or
distributions payable solely in shares of Qualified Capital Stock of the
Company or in options, warrants or other rights to acquire such shares of
Qualified Capital Stock);
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(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock of the Company or any Affiliate
of the Company or any options, warrants or other rights to acquire such
shares of Capital Stock (other than such options, warrants or rights owned
by the Company or a wholly owned Restricted Subsidiary);
(iii) declare or pay any dividend on, or make any distribution to holders
of, any shares of Capital Stock of any Restricted Subsidiary to any Person
(other than to the Company or any of its wholly owned Restricted
Subsidiaries or to all holders of Capital Stock of such Restricted
Subsidiary on a pro rata basis);
(iv) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness of
the Company or any Subsidiary Guarantor; or
(v) make any Investment (other than any Permitted Investment) in any
Person
(such payments or other actions described in (but not excluded from) clauses
(i) through (v) are collectively referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), (1) no
Default or Event of Default shall have occurred and be continuing, (2) the
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant
and (3) the aggregate amount of all Restricted Payments declared or made after
the date of the Indenture shall not exceed the sum of:
(A) 50% of the Consolidated Adjusted Net Income of the Company accrued on
a cumulative basis during the period beginning on the first day of the
Company's first fiscal quarter after the date of the Indenture and ending
on the last day of the Company's last fiscal quarter ending prior to the
date of such proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Adjusted Net Income shall be a loss, minus 100% of such loss),
plus
(B) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company
(including upon the exercise of options, warrants or rights) or warrants,
options or rights to purchase shares of Qualified Capital Stock of the
Company, plus
(C) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of debt securities or Redeemable Capital Stock that
have been converted into or exchanged for Qualified Capital Stock of the
Company, to the extent such securities were originally sold for cash,
together with the aggregate net cash proceeds received by the Company at
the time of such conversion or exchange, plus
(D) to the extent that any Investment constituting a Restricted Payment
that was made after the date of the Indenture is sold or is otherwise
liquidated or repaid, an amount (to the extent not included in Consolidated
Adjusted Net Income) equal to the sum of (I) the lesser of (x) the cash
proceeds with respect to such Investment (less the cost of the disposition
of such Investment and net of taxes) and (y) the initial amount of such
Investment, and (II) with respect solely to any Restricted Payment to be
made pursuant to clause (v) of this paragraph (a), the cash proceeds with
respect to such Investment (less the cost of the disposition of such
Investment and net of taxes) in excess of the amount in (I), plus
(E) $5 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (with respect to
clauses (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) and (x) below) at
the time of and after giving effect thereto no Default or Event of Default
shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (a) above;
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(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary) of, shares of Qualified Capital
Stock of the Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company;
(iv) the purchase of any Indebtedness that is expressly subordinated in
right of payment to the Notes at a purchase price not greater than 101% of
the principal amount thereof in the event of a Change in Control in
accordance with provisions similar to the "Purchase of Notes upon a Change
in Control" covenant; provided that prior to such purchase the Company has
made the Change in Control Offer as provided in such covenant with respect
to the Notes and has purchased all Notes validly tendered for payment in
connection with such Change in Control Offer;
(v) the repurchase, redemption or other acquisition or retirement for
value of shares of Management Stock; provided that (1) the Company is
required, by the terms of written agreements between the Company and each
of Lloyd L. Ross and Jerry M. Smith as in effect on the Issuance Date, to
effect such purchase, redemption or other acquisition or retirement for
value of such shares and (2) the aggregate consideration paid by the
Company for such shares so purchased, redeemed or otherwise acquired or
retired for value does not exceed $25.0 million in the aggregate;
(vi) the repurchase, redemption or other acquisition or retirement for
value of shares of Capital Stock of the Company from employees who have
died (or their estates or beneficiaries) or whose employment has been
terminated; provided that such payment shall not exceed $1.5 million in any
twelve month period, excluding any amounts used to repurchase, redeem,
acquire or retire for value shares of Capital Stock of the Company pursuant
to clause (v) above;
(vii) repurchases of Capital Stock of the Company (or warrants or options
convertible into or exchangeable for such Capital Stock) deemed to occur
upon exercise of stock options to the extent that shares of such Capital
Stock (or warrants or options convertible into or exchangeable for such
Capital Stock) represent a portion of the exercise price of such options;
(viii) the issuance by the Company of shares of Preferred Stock as
dividends paid in kind on the Preferred Stock of the Company outstanding on
the Issuance Date or on shares of Preferred Stock so issued as payment in
kind dividends, such dividends made pursuant to the terms of the
Certificate of Designation for such Preferred Stock as in effect on the
Issuance Date;
(ix) the issuance by the Company of Exchange Debentures in exchange for
Senior Exchangeable Preferred Stock; and
(x) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for, or out of the net cash proceeds
of a substantially concurrent incurrence (other than to a Restricted
Subsidiary) of, new Subordinated Indebtedness so long as (A) the principal
amount of such new Subordinated Indebtedness does not exceed the principal
amount (or, if such Subordinated Indebtedness being refinanced provides for
an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Indebtedness being so purchased, redeemed, defeased,
acquired or retired, plus either the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus, in either case, the amount of reasonable expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated
Indebtedness is pari passu or subordinated, as applicable, to the Notes to
the same extent as such Indebtedness so purchased, redeemed, defeased,
acquired or retired and (C) such new Indebtedness has an Average Life
longer than the Average Life of the Notes and a final Stated Maturity of
principal later than the final Stated Maturity of principal of the Notes.
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The actions described in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii)
of this paragraph (b) shall be Restricted Payments that shall be permitted to
be taken in accordance with this paragraph (b) but shall reduce the amount
that would otherwise be available for Restricted Payments under clause (3) of
paragraph (a) above and the actions described in clauses (viii), (ix) and (x)
of this paragraph (b) shall be Restricted Payments that shall be permitted to
be taken in accordance with this paragraph (b) and shall not reduce the amount
that would otherwise be available for Restricted Payments under clause (3) of
paragraph (a).
(c) Notwithstanding the foregoing, the Company will not, and will not permit
any Restricted Subsidiary to, pay any cash dividends on any shares of Capital
Stock of the Company which shall rank junior to the Senior Exchangeable
Preferred Stock until such time as the Notes have received a rating from
Moody's of at least "B1" or higher.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (i) will not permit any Restricted Subsidiary to
issue any Capital Stock (other than to the Company or a wholly owned
Restricted Subsidiary) and (ii) will not permit any Person (other than the
Company or a wholly owned Restricted Subsidiary) to own any Capital Stock of
any Restricted Subsidiary; provided, however, that this covenant shall not
prohibit (A) the issuance and sale of all, but not less than all, of the
issued and outstanding Capital Stock of any Restricted Subsidiary owned by the
Company or any of its Restricted Subsidiaries in compliance with the other
provisions of the Indenture, (B) the ownership by other Persons of Qualified
Capital Stock (other than Preferred Stock) issued prior to the time such
Restricted Subsidiary became a Subsidiary of the Company that was neither
issued in contemplation of such Subsidiary becoming a Subsidiary nor acquired
at that time or (C) the ownership by directors of director's qualifying shares
or the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property
or services) with, or for the benefit of, any Affiliate of the Company or any
Restricted Subsidiary (other than the Company or a Restricted Subsidiary)
(collectively, "Interested Persons"), unless (i) such transaction or series of
transactions are on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would have been able to be
obtained in an arm's-length transaction with third parties that are not
Interested Persons, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $1.0
million, the Company has delivered an Officers' Certificate to the Trustee
certifying that such transaction or series of transactions complies with
clause (i) above and (iii) with respect to any transaction or series of
related transactions involving aggregate consideration equal to or greater
than $5.0 million, such transaction or series of related transactions (x) has
been approved by the Board of Directors of the Company (including a majority
of the Disinterested Directors of the Company) or (y) the Company has obtained
a written opinion from a nationally recognized investment banking or valuation
firm certifying that such transaction or series of related transactions is
fair to the Company or its Restricted Subsidiary, as the case may be, from a
financial point of view; provided, however, that this covenant will not
restrict (1) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary, (2) the
payment of management fees to Permitted Holders in an aggregate amount not to
exceed $500,000 per year, (3) loans and advances to officers, directors and
employees of the Company or any Restricted Subsidiary in the ordinary course
of business in accordance with the past practices of the Company or any
Restricted Subsidiary not to exceed $3.0 million in the aggregate outstanding
at any time, (4) any transactions made in compliance with the "Limitation on
Restricted Payments" covenant, (5) the issuance and sale of Qualified Capital
Stock of the Company to Persons who are stockholders of the Company at the
time of such issuance and sale and (6) the performance of any written
agreement as in effect on the date of the Indenture and as amended from time
to time, provided that any such amendment is not less favorable in any
material respect to the Company or any Restricted Subsidiary than the terms of
such agreement as in effect on the date of the Indenture.
Limitation on Liens. (a) The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Pari Passu Indebtedness or Subordinated
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Indebtedness of the Company on or with respect to any of its property or
assets, including any shares of stock or indebtedness of any Restricted
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
or any income, profits or proceeds therefrom, or assign or otherwise convey
any right to receive income thereon, unless (x) in the case of any Lien
securing Pari Passu Indebtedness of the Company, the Notes are secured by a
Lien on such property, assets or proceeds that is senior in priority to or
pari passu with such Lien and (y) in the case of any Lien securing
Subordinated Indebtedness of the Company, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Lien.
(b) The Company will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien securing Pari
Passu Indebtedness or Subordinated Indebtedness of such Restricted Subsidiary
on or with respect to any such Restricted Subsidiary's properties or assets,
including any shares of stock or Indebtedness of any Subsidiary of such
Restricted Subsidiary, whether owned at the date of the Indenture or
thereafter acquired, or any income, profits or proceeds therefrom, or assign
or otherwise convey any right to receive income thereon, unless (x) in the
case of any Lien securing Pari Passu Indebtedness of the Restricted
Subsidiary, such Note Guarantee is secured by a Lien on such property, assets
or proceeds that is senior in priority to or pari passu with such Lien and (y)
in the case of any Lien securing Subordinated Indebtedness of the Restricted
Subsidiary, such Note Guarantee is secured by a Lien on such property, assets
or proceeds that is senior in priority to such Lien.
Purchase of Notes upon a Change in Control. If a Change in Control shall
occur at any time, then each holder of Notes will have the right to require
that the Company purchase such holder's Notes, in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change in Control Purchase
Price") in cash in an amount equal to 101% of the principal amount thereof,
plus accrued interest, if any, to the date of purchase (the "Change in Control
Purchase Date"), pursuant to the offer described below (the "Change in Control
Offer") and the other procedures set forth in the Indenture.
Within 30 days following any Change in Control, the Company shall notify the
Trustee thereof and give written notice of such Change in Control to each
holder of Notes by first-class mail, postage prepaid, at the address of such
holder appearing in the security register, stating, among other things, (i)
the Change in Control Purchase Price and the Change in Control Purchase Date,
which shall be a Business Day no earlier than 30 days nor later than 75 days
from the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act or any applicable securities
laws or regulations; (ii) that any Note not tendered will continue to accrue
interest; (iii) that, unless the Company defaults in the payment of the Change
in Control Purchase Price, any Notes accepted for payment pursuant to the
Change in Control Offer shall cease to accrue interest after the Change in
Control Purchase Date; and (iv) certain procedures that a holder of Notes must
follow to accept a Change in Control Offer or to withdraw such acceptance.
If a Change in Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change in Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change in Control Offer. The failure of the
Company to make or consummate the Change in Control Offer or pay the Change in
Control Purchase Price when due would result in an Event of Default and would
give the Trustee and the holders of the Notes the rights described under "--
Events of Default."
One of the events which constitutes a Change in Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change in Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change in Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-l under the Exchange Act, and any other applicable securities laws
and regulations in connection with a Change in Control Offer.
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The Company will not, and will not permit any Restricted Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions existing under the Senior Credit Agreement or under Indebtedness
as in effect on the date of the Indenture) that would materially impair the
ability of the Company to make a Change in Control Offer to purchase the Notes
or, if such Change in Control Offer is made, to pay for the Notes tendered for
purchase.
Prior to making a Change in Control Offer the Company shall be required to
have terminated all commitments and repaid in full all Indebtedness under the
Senior Credit Agreement and or to have obtained the requisite consents under
the Senior Credit Agreement to permit the purchase of the Notes as provided
for under this covenant. Failure to mail the notice on the date specified
below or to have satisfied the foregoing condition precedent by the date that
the notice is required to be mailed would constitute an Event of Default under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Indebtedness, the subordination provisions in the Indenture would
likely restrict payments to the holders of the Notes.
The Company will not, and will not permit any Restricted Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions existing under the Senior Credit Agreement or under Indebtedness
as in effect on the date of the Indenture) that would materially impair the
ability of the Company to make a Change in Control Offer to purchase the Notes
or, if such Change in Control Offer is made, to pay for the Notes tendered for
purchase.
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any Restricted Subsidiary to, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution) and (ii) at least 75% of
such consideration consists of cash or Cash Equivalents. The amount of any (I)
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor or
any Senior Indebtedness of the Company or any Subsidiary Guarantor that is
actually assumed by the transferee in such Asset Sale and from which the
Company and the Restricted Subsidiaries are fully released shall be deemed to
be cash for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries (excluding any
liabilities that are incurred in connection with or in anticipation of such
Asset Sale) and (II) notes or other similar obligations received by the
Company or any Restricted Subsidiary from such transferee that are converted,
sold or exchanged within 30 days of the related Asset Sale by the Company or
the Restricted Subsidiaries into cash shall be deemed to be cash, in an amount
equal to the net cash proceeds realized upon such conversion, sale or exchange
for purposes of determining the percentage of cash consideration received by
the Company or the Restricted Subsidiaries.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after such
Asset Sale, to (i) permanently repay or prepay any then outstanding Senior
Indebtedness of the Company or any Restricted Subsidiary (and to
correspondingly reduce commitments with respect thereto) or (ii) invest (or
enter into a legally binding agreement to invest) in other properties or
assets to replace the properties or assets that were the subject of the Asset
Sale or in properties and assets that will be used in businesses of the
Company or its Restricted Subsidiaries, as the case may be, existing at the
time such assets are sold. If any such legally binding agreement to invest
such Net Cash Proceeds is terminated, then the Company may, within 90 days of
such termination or within 12 months of such Asset Sale, whichever is later,
invest such Net Cash Proceeds as provided in clause (i) or (ii) (without
regard to the parenthetical contained in such clause (ii)) above. The amount
of such Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company shall, within 30 Business Days, make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Notes, on a pro rata basis, in accordance
with the procedures set forth below, the maximum principal amount (expressed
as an integral multiple of $1,000) of Notes that may be purchased with the
Excess Proceeds. The offer price as to each Note shall be payable in cash in
an amount equal to 100% of the principal amount of such Note plus accrued
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interest, if any, to the date such Excess Proceeds Offer is consummated. To
the extent that the aggregate principal amount of Notes tendered pursuant to
an Excess Proceeds Offer is less than the Excess Proceeds, the Company may use
such deficiency for any lawful purposes. If the aggregate principal amount of
Notes validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon
completion of such Exceeds Proceeds Offer, the amount of Excess Proceeds shall
be reset to zero.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. (a) The
Company will not permit any Restricted Subsidiary, directly or indirectly, to
guarantee, assume or in any other manner become liable with respect to any
Indebtedness of the Company unless (i) (A) if such Restricted Subsidiary is
not a Subsidiary Guarantor, such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture, in form satisfactory to the Trustee,
providing for a guarantee of the Notes by such Restricted Subsidiary and
delivers to such Trustee an Opinion of Counsel reasonably satisfactory to such
Trustee to the effect that such supplemental indenture has been duly executed
and delivered by such Restricted Subsidiary and is in compliance with the
terms of the Indenture and (B) with respect to any guarantee by a Restricted
Subsidiary of Subordinated Indebtedness of the Company, any such guarantee
shall be subordinated to such Restricted Subsidiary's Note Guarantee at least
to the same extent as such guaranteed Indebtedness is subordinated to the
Notes and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Note Guarantee.
(b) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) will
provide by its terms that it will be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer to any Person
not an Affiliate of the Company of all of the Company's Capital Stock in, or
all or substantially all the assets of, the applicable Subsidiary Guarantor
(which sale, exchange or transfer is otherwise in compliance with the
Indenture) or (ii) the designation of such Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with the terms of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash
or otherwise, or make any other distributions on or in respect of its Capital
Stock to the Company or any other Restricted Subsidiary, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans or advances to the Company or any other Restricted Subsidiary, (d)
transfer any of its properties or assets to the Company or any other
Restricted Subsidiary (other than customary restrictions on transfers of
property subject to a Lien permitted under the Indenture that would not
materially adversely affect the Company's ability to satisfy its obligations
under the Notes and the Indenture) or (e) guarantee any Indebtedness of the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
provisions restricting subletting or assignment of any lease or assignment of
any other contract to which the Company or any Restricted Subsidiary is a
party or to which any of their respective properties or assets are subject,
(iii) any agreement or other instrument of a Person acquired by the Company or
any Restricted Subsidiary in existence at the time of such acquisition (but
not created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired, (iv)
encumbrances and restrictions in effect on the Issuance Date pursuant to the
Senior Credit Facility and its related documentation, (v) any encumbrance or
restriction contained in contracts for sales of assets permitted by the
"Limitation on Sale of Assets" covenant with respect to the assets to be sold
pursuant to such contract and (vi) any encumbrance or restriction existing
under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing
clauses (iii) and (iv); provided that the terms and conditions of any such
encumbrances or restrictions are not materially less favorable to the holders
of the Notes than those under or pursuant to the agreement so extended,
renewed, refinanced or replaced.
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Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into any Sale and Leaseback Transaction with respect to any property or assets
(whether now owned or hereafter acquired), unless (i) the sale or transfer of
such property or assets to be leased is treated as an Asset Sale and the
Company complies with the "Limitation on Sale of Assets" covenant and (ii) the
Company or such Restricted Subsidiary would be permitted to incur Indebtedness
under the "Limitation on Indebtedness" covenant in the amount of the
Capitalized Lease Obligations incurred in respect of such Sale and Leaseback
Transaction; provided, however, that the Company and its Restricted
Subsidiaries will not be required to comply with this covenant with respect to
the sale and leaseback of the Headquarters Facility.
Limitation on Other Senior Subordinated Indebtedness. Neither the Company
nor any Restricted Subsidiary will incur, create, assume, guarantee or in any
other manner become directly or indirectly liable with respect to or
responsible for, or permit to remain outstanding, any Indebtedness, other than
the Notes, that is subordinate or junior in right of payment to any Senior
Indebtedness unless such Indebtedness is also pari passu with, or subordinate
in right of payment to, the Notes pursuant to subordination provisions
substantially similar to those contained in the Indenture.
Limitation on Unrestricted Subsidiaries. The Company will not make, and will
not permit any of its Restricted Subsidiaries to make, any Investments in
Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of
such Investments would exceed the amount of Restricted Payments then permitted
to be made pursuant to the "Limitation on Restricted Payments" covenant. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Restricted Subsidiary and (ii) may be made in cash or property.
Reports. The Company will file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the
annual reports, quarterly reports and other documents that the Company would
be required to file if it were subject to Section 13 or 15 of the Exchange
Act. The Company will also be required (a) to file with the Trustee, and
provide to each holder of Notes, without cost to such holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company
were so required, and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, in a single transaction or through a series of
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any other Person or Persons or permit any
of its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis to any other
Person or Persons, unless at the time and immediately after giving effect
thereto (i) either (a) the Company will be the continuing corporation or (b)
the Person (if other than the Company) formed by such consolidation or into
which the Company or such Restricted Subsidiary is merged or the Person that
acquires by sale, assignment, conveyance, transfer, lease or disposition all
or substantially all the properties and assets of the Company and its
Restricted Subsidiaries on a consolidated basis (the "Surviving Entity") (1)
will be a corporation duly organized and validly existing under the laws of
the United States of America, any state thereof or the District of Columbia
and (2) will expressly assume, by a supplemental indenture in form reasonably
satisfactory to the Trustee, the Company's obligation for the due and punctual
payment of the principal of, premium, if any, and interest on all the Notes
and the performance and observance of every covenant of the Indenture on the
part of the Company to
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be performed or observed; (ii) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any obligation of the Company or any Restricted Subsidiary incurred
in connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction), no
Default or Event of Default will have occurred and be continuing; (iii)
immediately before and immediately after giving effect to such transaction or
series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the four-
quarter period immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
provisions of the "Limitation on Indebtedness" covenant; (iv) each Subsidiary
Guarantor, if any, unless it is the other party to the transactions described
above, shall have by supplemental indenture confirmed that its Note Guarantee
will apply to such Person's obligations under the Indenture and the Notes; and
(v) if any of the property or assets of the Company or any of its Restricted
Subsidiaries would thereupon become subject to any Lien, the provisions of the
"Limitation on Liens" covenant are complied with.
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Company or the Surviving
Entity shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, and if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the requirements of the Indenture and that all
conditions precedent therein provided for relating to such transaction have
been complied with.
Each Subsidiary Guarantor, if any (other than any Subsidiary whose Note
Guarantee is being released pursuant to the provisions under "--Note
Guarantees" or "--Certain Covenants--Limitation on Issuance of Guarantees of
Indebtedness by Subsidiaries" as a result of such transaction), shall not, and
the Company will not permit a Subsidiary Guarantor to, in a single transaction
or through a series of related transactions, merge or consolidate with or into
any other corporation or other entity (other than the Company or any
Subsidiary Guarantor), or sell, assign, convey, transfer, lease or otherwise
dispose of its properties and assets on a consolidated basis substantially as
an entirety to any entity (other than the Company or any Subsidiary Guarantor)
unless (i) either (a) such Subsidiary Guarantor shall be the continuing
corporation or partnership or (b) the Person (if other than such Subsidiary
Guarantor) formed by such consolidation or into which such Subsidiary
Guarantor is merged or the entity which acquires by sale, assignment,
conveyance, transfer, lease or disposition all or substantially all of the
properties and assets of such Subsidiary Guarantor, as the case may be, shall
be a corporation or partnership organized and validly existing under the laws
of the United States, any state thereof or the District of Columbia, and shall
expressly assume by an indenture supplemental to the Indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of such Subsidiary Guarantor under the Notes and the Indenture;
(ii) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default shall have
occurred and be continuing; and (iii) such Subsidiary Guarantor shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or disposition and such supplemental indenture comply with the
Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of the Company or any Subsidiary Guarantor in accordance with the
immediately preceding paragraphs, the successor Person formed by such
consolidation or into which the Company or such Subsidiary Guarantor, as the
case may be, is merged or the successor Person to which such sale, assignment,
conveyance, transfer, lease or disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or
such Subsidiary Guarantor, as the case may be, under the Indenture and/or the
Note Guarantees, as the case may be, with the same effect as if such successor
had been named as the Company or such Subsidiary Guarantor, as the case may
be, therein and/or in the Note Guarantees, as the case may be. When a
successor assumes all the obligations of its predecessor under the Indenture,
the
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Notes or a Note Guarantee, as the case may be, the predecessor shall be
released from those obligations; provided that in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal and
interest on the Notes or a Note Guarantee, as the case may be.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(ii) default in the payment of the principal of, or premium, if any, on
any Note at its Maturity (upon acceleration, optional redemption, required
purchase or otherwise);
(iii) default in the performance, or breach, of the provisions described
in "Consolidation, Merger and Sale of Assets," the failure to make or
consummate a Change in Control Offer in accordance with the provisions of
the "Purchase of Notes upon a Change in Control" covenant or the failure to
make or consummate an Excess Proceeds Offer in accordance with the
provisions of the "Limitation on Sale of Assets" covenant;
(iv) default in the performance, or breach, of any covenant or warranty
of the Company or any Subsidiary Guarantor contained in the Indenture or
any Note Guarantee (other than a default in the performance, or breach, of
a covenant or warranty which is specifically dealt with in clauses (i),
(ii) or (iii) above) and continuance of such default or breach for a period
of 30 days after written notice shall have been given to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding;
(v) (A) one or more defaults in the payment of principal of or premium,
if any, on Indebtedness of the Company or any Restricted Subsidiary
aggregating $10.0 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived or (B) Indebtedness of the Company or any Restricted Subsidiary
aggregating $10.0 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment) prior to the stated
maturity thereof;
(vi) one or more final judgments or orders shall be rendered against the
Company or any Restricted Subsidiary for the payment of money, either
individually or in an aggregate amount, in excess of $10.0 million and
shall not be discharged and either (A) an enforcement proceeding shall have
been commenced by any creditor upon such judgment or order or (B) there
shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, was not in effect;
(vii) any Note Guarantee ceases to be in full force and effect or is
declared null and void or any Subsidiary Guarantor denies that it has any
further liability under any Note Guarantee, or gives notice to such effect
(other than by reason of the termination of the Indenture or the release of
any such Note Guarantee in accordance with the Indenture); or
(viii) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (viii) above)
shall, occur and be continuing, the Trustee or the holders of not less than
25% in aggregate principal amount of the Notes then outstanding, by written
notice to the Company, may, and the Trustee, upon the written request of such
holders, shall declare the principal of, premium, if any, and accrued interest
on all of the outstanding Notes immediately due and payable; provided that so
long as the Senior Credit Agreement shall be in full force and effect, if an
Event of Default shall have occurred and be continuing (other than as
specified in clause (viii) above with respect to the Company), any such
acceleration shall not be effective until the earlier to occur of (x) five
Business Days following delivery of a written notice of such acceleration of
the Notes to the agent under the Senior Credit
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Agreement and (y) the acceleration of any Indebtedness under the Senior Credit
Agreement. Upon any such declaration all such amounts payable in respect of
the Notes shall become immediately due and payable. If an Event of Default
specified in clause (viii) above occurs and is continuing, then the principal
of, premium, if any, and accrued interest on all of the outstanding Notes
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if (a) the Company has paid or
deposited with the Trustee a sum sufficient to pay (i) all overdue interest on
all outstanding Notes, (ii) all unpaid principal of and premium, if any, on
any outstanding Notes that has become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the Notes, (iii) to
the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Notes, (iv) all sums
paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and (b) all Events of Default, other than the non-payment of
amounts of principal of, premium, if any, or interest on the Notes that has
become due solely by such declaration of acceleration, have been cured or
waived. No such rescission shall affect any subsequent default or impair any
right consequent thereon.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may, on behalf of the holders of all the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 10 days after the occurrence thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its trust officers in
good faith determines that withholding the notice is in the interests of the
holders of the Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Subsidiary Guarantors
of their respective obligations under the Indenture and as to any default in
such performance. The Company is also required to notify the Trustee within
five Business Days of the occurrence of any Default or Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company, and any Subsidiary Guarantor upon the outstanding
Notes discharged ("defeasance"). Such defeasance means that the Company will
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes and to have satisfied all of its other obligations under
such Notes and the Indenture insofar as such Notes are concerned, except for
(i) the rights of holders of outstanding Notes to receive payments in respect
of the principal of, premium, if any, and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes, maintain an office or agency for payments in respect of
the Notes and segregate and hold such payments in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company and any Subsidiary
Guarantor released with respect to certain covenants set forth in the
Indenture, and any omission to comply with such obligations will not
constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
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solely to, the benefit of the holders of the Notes, money in an amount, or
U.S. Government Obligations which through the scheduled payment of principal
and interest thereon will provide money in an amount, or a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the Stated Maturity
(or upon redemption, if applicable) of such principal, premium, if any, or
installment of interest; (ii) no Default or Event of Default will have
occurred and be continuing on the date of such deposit or, insofar as an event
of bankruptcy under clause (viii) of "Events of Default" above is concerned,
at any time during the period ending on the 91st day after the date of such
deposit; (iii) such defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under, the Indenture or any
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound; (iv) in the case of defeasance,
the Company shall have delivered to the Trustee an Opinion of Counsel stating
that the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since date of the final Prospectus,
there has been a change in applicable federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such 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; (v) in
the case of covenant defeasance, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the holders of the Notes
outstanding 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; (vi) in the case of defeasance or covenant defeasance, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
(A) the trust funds will not be subject to any rights of holders of Senior
Indebtedness under the subordination provisions of the Indenture and (B) after
the 91st day following the deposit or after the date such opinion is
delivered, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the Notes or any Note Guarantee
over the other creditors of either the Company or any Guarantor with the
intent of hindering, delaying or defrauding creditors of either the Company or
any Subsidiary Guarantor; and (viii) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes as expressly
provided for in the Indenture) and the Trustee, at the expense of the Company,
will execute proper instruments acknowledging satisfaction and discharge of
the Indenture when (a) either (i) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid and Notes for whose payment money has been deposited in trust with the
Trustee or any paying agent or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust as provided for
in the Indenture) have been delivered to the Trustee for cancellation or (ii)
all Notes not theretofore delivered to the Trustee for cancellation (x) have
become due and payable, (y) will become due and payable at Stated Maturity
within one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount sufficient to pay
and discharge the entire Indebtedness on the Notes not theretofore delivered
to the Trustee for cancellation, for principal of, premium, if any, and
interest on the Notes to the date of such deposit (in the case of Notes which
have become due and payable) or to the Stated Maturity or redemption date, as
the case may be; (b) the Company has paid or caused to be paid all sums
payable under the Indenture by the Company; and (c) the Company has delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
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AMENDMENTS AND WAIVERS
With certain exceptions, modifications and amendments of the Indenture may
be made by a supplemental indenture entered into by the Company, the
Subsidiary Guarantors and the Trustee with the consent of the holders of a
majority in aggregate outstanding principal amount of the Notes then
outstanding; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Note affected thereby:
(i) change the Stated Maturity of the principal of, or any installment of
interest on, any Note, or reduce the principal amount thereof, or premium, if
any, or the rate of interest thereon or change the coin or currency in which
the principal of any Note or any premium or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment
after the Stated Maturity thereof (or, in the case of redemption, on or after
the redemption date); (ii) amend, change or modify the obligation of the
Company to make and consummate an Excess Proceeds Offer with respect to any
Asset Sale in accordance with the "Limitation on Sale of Assets" covenant or
the obligation of the Company to make and consummate a Change in Control Offer
in the event of a Change in Control in accordance with the "Purchase of Notes
Upon a Change in Control" covenant, including, in each case, amending,
changing or modifying any definition relating thereto in any manner materially
adverse to the holders of the Notes affected thereby; (iii) reduce the
percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any such supplemental indenture or the consent of
whose holders is required for any waiver of compliance with certain provisions
of the Indenture; (iv) modify any of the provisions relating to supplemental
indentures requiring the consent of holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to increase
the percentage of outstanding Notes required for such actions or to provide
that certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each Note affected thereby; (v) except as
otherwise permitted under "Consolidation, Merger and Sale of Assets" consent
to the assignment or transfer by the Company or any Subsidiary Guarantor of
any of their rights or obligations under the Indenture; or (vi) amend or
modify any of the provisions of the Indenture relating to any Note Guarantee
in any manner adverse to the holders of the Notes.
Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Company, any Subsidiary Guarantor and the Trustee may modify or
amend the Indenture: (a) to evidence the succession of another Person to the
Company, a Subsidiary Guarantor or any other obligor on the Notes, and the
assumption by any such successor of the covenants of the Company or such
obligor or Subsidiary Guarantor in the Indenture and in the Notes and in any
Note Guarantee in accordance with "--Consolidation, Merger and Sale of
Assets;" (b) to add to the covenants of the Company, any Subsidiary Guarantor
or any other obligor upon the Notes for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company or any
other obligor upon the Notes, as applicable, in the Indenture, in the Notes or
in any Note Guarantee; (c) to cure any ambiguity, or to correct or supplement
any provision in the Indenture, the Notes or any Note Guarantee which may be
defective or inconsistent with any other provision in the Indenture, the Notes
or any Note Guarantee or make any other provisions with respect to matters or
questions arising under the Indenture, the Notes or any Note Guarantee;
provided that, in each case, such provisions shall not adversely affect the
interest of the holders of the Notes; (d) to comply with the requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act; (e) to add a Subsidiary Guarantor
under the Indenture; (f) to evidence and provide the acceptance of the
appointment of a successor Trustee under the Indenture; or (g) to mortgage,
pledge, hypothecate or grant a security interest in favor of the Trustee for
the benefit of the holders of the Notes as additional security for the payment
and performance of the Company's and any Subsidiary Guarantor's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is
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continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise
as a prudent Person would exercise under the circumstances in the conduct of
such Person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company or any Subsidiary Guarantor, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engage in other transactions; provided, however, that
if it acquires any conflicting interest (as defined) it must eliminate such
conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Note Guarantees are governed by, and
construed in accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person. Acquired Indebtedness shall be deemed
to be incurred on the date of the related acquisition of assets from any
Person or the date the acquired Person becomes a Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person
that owns, directly or indirectly, 10% or more of such specified Person's
Capital Stock or (c) any executive officer or director of any such specified
Person or other Person or (d) with respect to any natural Person, any Person
having a relationship with such Person by blood, marriage or adoption not more
remote than first cousin. For the purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any Capital
Stock of any Restricted Subsidiary; (b) all or substantially all of the
properties and assets of the Company or its Restricted Subsidiaries; or (c)
any other properties or assets of any division or line of business of the
Company or any Restricted Subsidiary, other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties or assets (i) that is governed by the
provisions of the Indenture described under "--Consolidation, Merger and Sale
of Assets," (ii) between or among the Company and Restricted Subsidiaries in
accordance with the terms of the Indenture, (iii) that consist of accounts
receivable transferred to third parties that are not Affiliates of the Company
or any Subsidiary of the Company in the ordinary course of business, including
by way of the securitization of such receivables, (iv) of the Company or any
Restricted Subsidiary in exchange for properties or assets of substantially
equal value of another Person to be used in the same line of business being
conducted by the Company or any Restricted Subsidiary at the time of such
transfer having a Fair Market Value of less than $1.0 million in any given
fiscal year, (v) to an Unrestricted Subsidiary in compliance with the
"Limitation on Restricted Payments" covenant, (vi) consisting of the
Headquarters Facility to third parties that are not Affiliates of the Company
or any Subsidiary of the Company or (vii) having a Fair Market Value of less
than $1.0 million in any given fiscal year.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the
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date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund requirements) of such Indebtedness
multiplied by (ii) the amount of each such principal payment by (b) the sum of
all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any duly authorized committee of such board.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participation, rights in or other
equivalents (however designated) of such Person's capital stock, and any
rights (other than debt securities convertible into capital stock), warrants
or options exchangeable for or convertible into such capital stock, whether
now outstanding or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required
to be classified and accounted for as a capital lease obligation under GAAP,
and, for the purpose of the Indenture, the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a maturity of
one year or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (b) certificates of deposit or acceptances with a maturity
of one year or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500 million; and (c) commercial paper with a
maturity of one year or less issued by a corporation that is not an Affiliate
of the Company and is organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by S&P or any
successor rating agency or at least P-l by Moody's or any successor rating
agency; (d) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and (b) above; and
(e) demand and time deposits with a domestic commercial bank that is a member
of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $500 million.
"Change in Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, 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 "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total outstanding Voting Stock of the Company and either
(x) the Permitted Holders beneficially own, directly or indirectly, in the
aggregate Voting Stock of the Company that represents a lesser percentage of
the aggregate ordinary voting power of all classes of the Voting Stock of the
Company, voting together as a single class, than such other person or group
and are not entitled (by voting power, contract or otherwise) to elect
directors of the Company having a majority of the total voting power of the
Board of Directors, or (y) such other person or group is entitled to elect
directors of the Company having a majority of the total voting power of the
Board of Directors; (b) the Company consolidates with, or merges with or into,
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction (i) where the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted
into or exchanged for (A) Voting Stock (other than Redeemable Capital Stock)
of the
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surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property (other than Capital Stock of the surviving or transferee
corporation) in an amount that could be paid by the Company as a Restricted
Payment as described under the "Limitation on Restricted Payments" covenant
and (ii) immediately after such transaction, no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is 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
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
outstanding Voting Stock of the surviving or transferee corporation and either
(x) the Permitted Holders beneficially own, directly or indirectly, in the
aggregate Voting Stock of the surviving or transferee corporation that
represents a lesser percentage of the aggregate ordinary voting power of all
classes of the Voting Stock of the surviving or transferee corporation, voting
together as a single class, than such other person or group and are not
entitled (by voting power, contract or otherwise) to elect directors of the
Surviving Entity having a majority of the total voting power of the Board of
Directors, or (y) such other person or group is entitled to elect directors of
the surviving or transferee having a majority of the total voting power of the
elected Board of Directors; or (c) during any consecutive two year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election to
such Board of Directors, or whose nomination for election by the stockholders
of the Company, was approved by a vote of 66 2/3% of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office; or (d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with the
provisions described under "Consolidation, Merger and Sale of Assets."
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all
fees and expenses relating thereto), (b) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset
dispositions other than in the ordinary course of business, (c) the portion of
net income (or loss) of any Person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash dividends or distributions during such period,
(d) the net income (or loss) of any Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination, (e) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary is not at the date of
determination permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted Subsidiary or
its stockholders, and (f) for purposes of calculating Consolidated Adjusted
Net Income under the "Limitation on Restricted Payment" covenant any net
income (or loss) from any Restricted Subsidiary while it was an Unrestricted
Subsidiary at any time during such period other than any amounts actually
received from such Restricted Subsidiary during such period.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Adjusted Net Income and, to
the extent deducted in computing Consolidated Adjusted Net Income,
Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated Non-Cash Charges, in each case, for such period to (b) the
Consolidated Interest Expense for such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and all
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
(1) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i)
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amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation and (iv) amortization of debt issuance costs, plus
(b) the interest component of Capitalized Lease Obligations of the Company and
its Restricted Subsidiaries during such period, plus (c) cash dividends due
(whether or not declared) on Preferred Stock by the Company and any Restricted
Subsidiary, plus (d) cash dividends due (whether or not declared) on
Redeemable Capital Stock by the Company and any Restricted Subsidiary, in each
case as determined on a consolidated basis in accordance with GAAP, less (2)
interest on the Exchange Debentures outstanding on the Issuance Date paid in
kind with Exchange Debentures and on Exchange Debentures so issued as payment
in kind interest, all in accordance with the Debenture Indenture as in effect
on the Issuance Date; provided that (x) the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
(A) bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a
fixed or floating rate of interest, shall be computed by applying at the
option of the Company, either the fixed or floating rate, and (y) in making
such computation, the Consolidated Interest Expense attributable to interest
on any Indebtedness under a revolving credit facility computed on a pro forma
basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period; provided further that,
notwithstanding the foregoing, the interest rate with respect to any
Indebtedness covered by any Interest Rate Agreement shall be deemed to be the
effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization, depletion and other non-cash expenses of the
Company and any Restricted Subsidiary reducing Consolidated Adjusted Net
Income for such period, determined on a consolidated basis in accordance with
GAAP (excluding any such non-cash charge that requires an accrual of or
reserve for cash charges for any future period).
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and designed to protect against or manage
exposure to fluctuations in foreign currency exchange rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver
a resolution of the Board of Directors under the Indenture, a member of the
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"Exchange Debentures" means the 13 1/4% Subordinated Exchange Debentures due
2009 of the Company issuable in exchange for the Senior Exchangeable Preferred
Stock, plus any additional Exchange Debentures issued in lieu of cash
interest, pursuant to the Exchange Indenture as in effect on the Issuance
Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
that are in effect on the date of the Indenture.
"guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which
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is to assure in any way the payment or performance (or payment of damages in
the event of non-performance) of all or any part of such obligation,
including, without limiting the foregoing, the payment of amounts drawn down
by letters of credit.
"Headquarters Facility" means the headquarters facility and warehouse of the
Company as of the Issuance Date located in Dallas, Texas.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or
for the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the ordinary course
of business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) all obligations of such
Person under or in respect of Interest Rate Agreements or Currency Agreements,
(f) all Indebtedness referred to in (but not excluded from) the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (g) all guarantees by such
Person of Indebtedness referred to in this definition of any other Person, and
(h) all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends. For purposes hereof, the "maximum fixed repurchase price" of
any Redeemable Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital
Stock.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
designed to protect against or manage exposure to fluctuations in interest
rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution
to (by means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness issued or
owned by, any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the fair market value of the net assets of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
shall be deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. "Investments" shall exclude extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices.
"Issuance Date" means the date on which the Old Notes were originally issued
under the Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim,
or preference or priority or other encumbrance upon or with respect to any
property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired. A Person shall be deemed to own subject to a Lien any
property which such Person has acquired or holds subject
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to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement.
"Management Stock" means the Capital Stock of the Company and the options to
acquire Capital Stock of the Company owned by Lloyd L. Ross and Jerry M. Smith
as of the Issuance Date together with Preferred Stock issued as payment in
kind dividends on such Capital Stock that is Preferred Stock and any shares of
Preferred Stock issued as payment in kind dividends thereon, such dividends
made pursuant to the terms of the certificate of designation for such
Preferred Stock or the certificate of incorporation of the Company, as the
case may be, as in effect on the Issuance Date.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable provided in such Note or in the
Indenture, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of, or stock or
other assets when disposed for, cash or Cash Equivalents (except to the extent
that such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (ii) provisions for all taxes payable as a result
of such Asset Sale, (iii) payments made to retire Indebtedness where payment
of such Indebtedness is secured by the assets or properties the subject of
such Asset Sale, (iv) amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an officers' certificate
delivered to the Trustee.
"Note Guarantee" means any guarantee of the obligations of the Company under
the Indenture and the Notes by any Restricted Subsidiary in accordance with
the provisions of the Indenture.
"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness
that ranks pari passu in right of payment to the Notes and (b) with respect to
any Note Guarantee, Indebtedness that ranks pari passu in right of payment to
such Note Guarantee.
"Permitted Holders" means, as of the date of determination, Madison Dearborn
Capital Partners II, L.P. and its Affiliates.
"Permitted Indebtedness" means any of the following:
(a) (i) Indebtedness of the Company under the Senior Credit Agreement in
an aggregate principal amount at any one time outstanding not to exceed the
sum of (A) $110 million less the amount of any permanent reductions made by
the Company in respect of any term loans under the Senior Credit Agreement
and (B) with respect to revolving borrowings, the greater of (1) $115
million and (2) 60% of the Eligible Inventory (as defined in the Senior
Credit Agreement on the Issuance Date) of the Company and the Restricted
Subsidiaries and (ii) any guarantee by a Subsidiary Guarantor of
Indebtedness incurred under this clause (i);
(b) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a Note Guarantee;
(c) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the date of the Indenture and listed on a schedule thereto;
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(d) Indebtedness of the Company owing to any wholly owned Restricted
Subsidiary; provided that any Indebtedness of the Company owing to any such
Restricted Subsidiary is subordinated in right of payment from and after
such time as the Notes shall become due and payable (whether at Stated
Maturity, acceleration or otherwise) to the payment and performance of the
Company's obligations under the Notes; provided further that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to the Company or another wholly
owned Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the Company not permitted by this clause (d);
(e) Indebtedness of a Restricted Subsidiary owing to the Company or to
another wholly owned Restricted Subsidiary; provided that any such
Indebtedness of any Subsidiary Guarantor is subordinated in right of
payment to the Note Guarantee of such Subsidiary Guarantor; provided
further that any disposition, pledge or transfer of any such Indebtedness
to a Person (other than a disposition, pledge or transfer to the Company or
a wholly owned Restricted Subsidiary) shall be deemed to be an incurrence
of such Indebtedness by such Restricted Subsidiary not permitted by this
clause (e);
(f) guarantees of any Restricted Subsidiary made in accordance with the
provisions of the "Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" covenant;
(g) obligations of the Company or any Subsidiary Guarantor entered into
in the ordinary course of business (i) pursuant to Interest Rate Agreements
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates in respect of Indebtedness of the Company or
any Restricted Subsidiary, which obligations do not exceed the aggregate
principal amount of such Indebtedness and (ii) pursuant to Currency
Agreements entered into by the Company or any of its Restricted
Subsidiaries in respect of its (x) assets or (y) obligations, as the case
may be, denominated in a foreign currency;
(h) Indebtedness of the Company or any Subsidiary Guarantor in respect of
Purchase Money Obligations and Capitalized Lease Obligations of the Company
or any Subsidiary Guarantor in an aggregate amount which does not exceed
$15.0 million at any one time outstanding;
(i) Indebtedness of the Company or any Subsidiary Guarantor consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock of Restricted
Subsidiaries;
(j) Indebtedness of the Company or any Subsidiary Guarantor represented
by (x) letters of credit for the account of the Company or any Restricted
Subsidiary or (y) other obligations to reimburse third parties pursuant to
any surety bond or other similar arrangements, which letters of credit or
other obligations, as the case may be, are intended to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or other similar requirements in the ordinary course of business;
(k) Acquired Indebtedness of any Restricted Subsidiary that is organized
outside of the United States of America in an aggregate amount which,
together with any Indebtedness permitted to be incurred pursuant to this
clause (k) and refinanced pursuant to clause (p) below, does not exceed
$10.0 million at any one time outstanding;
(l) Indebtedness of the Company owing to Jerry M. Smith, under a note
issued pursuant to a written agreement between the Company and Jerry M.
Smith as in effect on the Issuance Date, in consideration for the
repurchase of Common Stock of the Company owned by Jerry M. Smith at his
retirement, in an aggregate amount not to exceed $15.0 million outstanding
at any time;
(m) Preferred Stock issued as payment in kind dividends on Preferred
Stock outstanding on the Issuance Date and any shares of Preferred Stock
issued as payment in kind dividends thereon, such dividends made pursuant
to the terms of the certificate of designation for such Preferred Stock or
the certificate of incorporation of the Company, as the case may be, as in
effect on the Issuance Date;
(n) Indebtedness of the Company or a Subsidiary Guarantor incurred in
connection with the Company's Headquarters Facility or the purchase or
construction of a new headquarters facility, in each case, as permitted
under the Senior Credit Agreement as in effect on the Issuance Date;
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(o) Indebtedness of the Company or any Subsidiary Guarantor not otherwise
permitted by the foregoing clauses (a) through (n) in an aggregate
principal amount not in excess of $20.0 million at any one time
outstanding; and
(p) any renewals, extensions, substitutions, refinancings or replacements
(each, for purposes of this clause, a "refinancing") of any Indebtedness,
referred to in clauses (b), (c) and (k) of this definition, including any
successive refinancings, so long as (i) any such new Indebtedness shall be
in a principal amount that does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced, plus the lesser of the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
as necessary to accomplish such refinancing, (ii) in the case of any
refinancing by the Company of Pari Passu Indebtedness or Subordinated
Indebtedness, such new Indebtedness is made pari passu with or subordinate
to the Notes at least to the same extent as the Indebtedness being
refinanced, (iii) in the case of any refinancing by any Subsidiary
Guarantor of Pari Passu Indebtedness or Subordinated Indebtedness, such new
Indebtedness is made pari passu with or subordinate to the Note Guarantee
of such Subsidiary Guarantor at least to the same extent as the
Indebtedness being refinanced, (iv) such new Indebtedness has an Average
Life longer than the Average Life of the Notes and a final Stated Maturity
later than the final Stated Maturity of the Notes and (v) Indebtedness of
the Company or a Subsidiary Guarantor may only be refinanced with
Indebtedness of the Company or a Subsidiary Guarantor and Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor may only be
refinanced with Indebtedness of such Restricted Subsidiary.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any wholly owned Restricted Subsidiary;
(c) intercompany Indebtedness to the extent permitted under clauses (d)
or (e) of the definition of "Permitted Indebtedness";
(d) Investments in an amount not to exceed $10.0 million at any one time
outstanding;
(e) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment (i) such other Person becomes a
wholly owned Restricted Subsidiary or (ii) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all
of its assets to, the Company or a wholly owned Restricted Subsidiary;
(f) bonds, notes, debentures and other securities received as
consideration for Assets Sales to the extent permitted under the
"Limitation of Sale of Assets" covenant;
(g) negotiable instruments held for deposit or collection in the ordinary
course of business, except to the extent they would constitute Investments
in Affiliates; or
(h) Investments in the form of the sale (on a "true-sale" non-recourse
basis) or the servicing of receivables transferred from the Company or any
Restricted Subsidiary.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued
after the Issuance Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Capital Stock) of the Company made on a primary basis by the Company
pursuant to a registration statement that has been
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declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible
into or exchangeable for debt securities at any time prior to such final
Stated Maturity.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing of such
property or asset to the seller or transferor.
"Senior Credit Agreement" means the credit agreement dated as of December
29, 1997, among the Company, the several lenders parties thereto, the
Subsidiary Guarantors, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as arranger and syndication agent, and Fleet National
Bank, as administrative agent, as such agreement may be amended, renewed,
extended, substituted, restated, refinanced, restructured, supplemented,
increased or otherwise modified from time to time (including, without
limitation, any successive amendments, renewals, extensions, substitutions,
restatements, refinancings, restructurings, supplements or other modifications
of the foregoing); provided that with respect to any agreement providing for
the refinancing of Indebtedness under the Senior Credit Agreement, such
agreement shall be the Senior Credit Agreement under the Indenture only if a
notice to that effect is delivered by the Company to the Trustee and there
shall be at any time only one instrument that is the Senior Credit Agreement
under the Indenture.
"Senior Exchangeable Preferred Stock" means the 13 1/4% Senior Exchangeable
Preferred Stock issued by the Company on the Issuance Date and any shares of
Senior Exchangeable Preferred Stock issued as payment in kind dividends
thereon or on shares of Senior Exchangeable Preferred Stock so issued as
payment in kind dividends pursuant to a certificate of designation as in
effect on the Issuance Date.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (i) for the most recent fiscal year of
the Company, accounted for more than 10% of the consolidated revenues of the
Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the Company
and its Restricted Subsidiaries, all as set forth on the most recently
available consolidated financial statements of the Company for such fiscal
year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Notes or the Note Guarantee of such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
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"Subsidiary Guarantor" means TMI Holdings Inc., Tuesday Morning Inc., Friday
Morning, Inc. and TMIL and any Restricted Subsidiary that incurs a Guarantee;
provided that upon the release and discharge of any Person from its Note
Guarantee in accordance with the Indenture, such Person shall cease to be a
Subsidiary Guarantor.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary; provided, however, that in no event shall any
Subsidiary Guarantor be an Unrestricted Subsidiary. The Board of Directors of
the Company may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary so long as (i)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary, (ii) no default with respect
to any Indebtedness of such Subsidiary would permit (upon notice, lapse of
time or otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as a result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of the
"Limitation on Unrestricted Subsidiaries" covenant, (iv) neither the Company
nor any Restricted Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from Persons
who are not Affiliates of the Company, and (v) neither the Company nor any
Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a board resolution with the Trustee giving effect to such
designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving
effect to such designation, there would be no Default or Event of Default
under the Indenture and the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation
on Indebtedness" covenant.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which
its full faith and credit is pledged or (y) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States of America the timely payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of
or interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or the
specific payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on December 29, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act and to non-U.S. persons
outside the United States in variance on Regulation S under the Securities
Act. As a condition to the Purchase Agreement, the Company and the Subsidiary
Guarantors entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which they have agreed, for the benefit of the holders
of the Old Notes, at their cost, to use their best efforts to (i) file the
Exchange Offer Registration Statement within 45 days after the date of the
original issue of the Old Notes with the Commission with respect to the
Exchange Offer for the Exchange Notes; (ii) use their best efforts to cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act within 120 days after the date of the original issuance of the
Old Notes and (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, commence the Exchange Offer and use their
best efforts to issue the Exchange Notes in exchange for the Old Notes within
150 days after the date of the original issuance of the Old Notes. Upon the
Exchange Offer Registration Statement being declared effective, the Company
will offer the Exchange Notes in exchange for surrender of the Old Notes. The
Company and the Subsidiary Guarantors will keep the Exchange Offer open for
not less than 30 days (or longer if required by applicable law) after the date
on which notice of the Exchange Offer is mailed to the holders of the Old
Notes. For each Old Senior Note surrendered to the Company pursuant to the
Exchange Offer, the holder of such Old Note will receive an Exchange Note
having a principal amount equal to that of the surrendered Old Note. Interest
on each Exchange Note will accrue from the last interest payment date on which
interest was paid on the Old Note surrendered in exchange therefor or, if no
interest has been paid on such Old Note, from the original issue date of such
Old Note.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes will, in
general, be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Old Notes who
is an "affiliate" of the Company or who intends to participate in the Exchange
Offer for the purpose of distributing the Exchange Notes (i) will not be able
to rely on the interpretation of the staff of the Commission, (ii) will not be
able to tender its Old Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange the Old Notes for Exchange Notes in the Exchange Offer will
be required to represent to the Company in the Letter of Transmittal that (i)
the Exchange Notes to be received by it were acquired in the ordinary course
of its business, (ii) at the time of commencement of the Exchange Offer, it
has no arrangement with any person to participate in the distribution (within
the meaning of the Securities Act) of the Exchange Notes, (iii) it is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company
or any Subsidiary Guarantor or, if it is such an affiliate, it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable and (iv) it is not acting on behalf of any person
who could not truthfully make the foregoing representations. In addition, in
connection with any resales of Exchange Notes, any Participating Broker-Dealer
who acquired the Exchange Notes for its own account as a result of market-
making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-
Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes.
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In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the
Exchange Offer, (ii) for any other reason the Exchange Offer is not
consummated within 150 days after the Issuance Date, (iii) under certain
circumstances, if the Initial Purchasers shall so request or (iv) any holder
of Old Notes (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer, the Company and the Subsidiary Guarantors
will, at their expense, (a) as promptly as practicable, file with the
Commission the Shelf Registration Statement covering resales of the Old Notes,
(b) use their best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act on or prior to 150 days after the
Issuance Date and (c) use their best efforts to keep effective the Shelf
Registration Statement until the earlier of two years after its Issuance Date
or such shorter period ending when all Old Notes covered by the Shelf
Registration Statement have been sold in the manner set forth and as
contemplated in the Shelf Registration Statement or when the Old Notes become
eligible for resale pursuant to Rule 144 under the Securities Act without
volume restrictions, if any. The Company, will, in the event of the filing of
the Shelf Registration Statement, provide to each holder of the Old Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A holder of Old Notes that sells its
Old Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Rights Agreement that
are applicable to such a holder (including certain indemnification rights and
obligations thereunder). In addition, each holder of the Old Notes will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their Old Notes included in the Shelf Registration
Statement and to benefit from the provisions regarding liquidated damages set
forth in the following paragraph.
There can be no assurance that the registration statements described above
will become effective. In the event that either (a) the Exchange Offer
Registration Statement has not been declared effective on or prior to the
120th calendar day following the Issuance Date or (b) the Exchange Offer is
not consummated or a Shelf Registration Statement is not declared effective on
or prior to the 150th calendar day following the Issuance Date, the interest
rate borne by the Old Notes shall be increased by one-quarter of one percent
per annum, following such 120-day period in the case of clause (a) above or
following such 150-day period in the case of clause (b) above, which rate will
be increased by an additional one-quarter of one percent per annum for each
90-day period that any additional interest continues to accrue; provided that
the aggregate increase in such annual interest rate may in no event exceed one
percent. Upon (x) the effectiveness of the Exchange Offer Registration
Statement after the 120-day period described in clause (a) above or (y) the
consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 150-day period described
in clause (b) above, the interest rate borne by the Old Notes from the date of
such effectiveness or consummation, as the case may be, will be reduced to the
original interest rate if the Company and the Subsidiary Guarantors are
otherwise in compliance with this paragraph; provided, however, that if, after
any such reduction in interest rate, a different event specified in clause (a)
or (b) above occurs, the interest rate may again be increased pursuant to the
foregoing provisions. Pending the announcement of a material corporate
transaction, if the Company issues a notice that the Shelf Registration
Statement is unusable, or such a notice is required under applicable
securities laws to be issued by the Company, and the aggregate number of days
in any consecutive twelve-month period for which all such notices are issued
or required to be issued exceeds 30 days per occurrence or more than 60 days
in the aggregate in a calendar year, then the interest rate borne by the Old
Notes will be increased by one-quarter of one percent per annum following the
date that such Shelf Registration Statement ceases to be usable for a period
of time in excess of the period permitted above, which rate shall be increased
by an additional one-quarter of one percent per annum at the beginning of each
subsequent 90-day period; provided that the aggregate increase in such annual
interest rate may in no event exceed one percent per annum. Upon the Company
declaring that the Shelf Registration Statement is usable after the period of
time described in the preceding sentence, the interest rate borne by the Old
Notes will be reduced to the original interest rate if the Company is
otherwise in compliance with this paragraph; provided, however, that if after
any such reduction in interest rate a
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different event of the kind described in the preceding event occurs, the
interest rate may again be increased pursuant to the foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which will be made available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
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Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under
"--Conditions" shall not have been satisfied, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent or (ii) to amend
the terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on June 15, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each June 15 and
December 15, commencing on June 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal and other required documents must be
completed and received by the Exchange Agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Old Notes may be made by book-entry transfer
in accordance with the procedures described below. Confirmation of such book-
entry transfer must be received by the Exchange Agent prior to the Expiration
Date.
By executing the Letter of Transmittal, each holder will make to the Company
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY
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WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Note
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or
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irregularities with respect to tenders of Old Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but
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which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
HARRIS TRUST COMPANY OF NEW YORK
By Mail: Overnight Courier:
Wall Street Station 88 Pine Street, 19th Floor
P.O. Box 1023 New York, NY 10005
New York, NY 10268-1023 Attention: Reorganization Dept.
Attention: Reorganization Dept.
By Hand: Facsimile Transmission:
Receive Window (for Eligible Institutions Only)
88 Pine Street, 19th Floor (212) 701-7636 or 7637
New York, NY 10005
Attention: Reorganization Dept.
For Information Telephone (call collect):
(212) 701-7624
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DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each
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Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder of the Old Notes (other than certain specified holders)
who wishes to exchange the Old Notes for Exchange Notes in the Exchange Offer
will be required to represent to the Company in the Letter of Transmittal that
(i) the Exchange Notes to be received by it were acquired in the ordinary
course of its business, (ii) at the time of commencement of the Exchange
Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes,
(iii) it is not an "affiliate" (as defined in Rule 405 under the Securities
Act) of the Company or any Subsidiary Guarantor or, if it is such an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable and (iv) it is not
acting on behalf of any person who could not truthfully make the foregoing
representations. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
DESCRIPTION OF THE UNITS
Concurrently with the Initial Offering, the Company offered (the "Initial
Unit Offering") 250,000 units (collectively, the "Units"), each consisting of
one share of Senior Exchangeable Preferred Stock, par value $.01 per share
(the "Senior Exchangeable Preferred Stock") of the Company and one share of
Common Stock of the Company.
SENIOR EXCHANGEABLE PREFERRED STOCK
The Senior Exchangeable Preferred Stock was issued pursuant to a certificate
of designation (the "Certificate of Designation"). The following summary
contained herein of certain provisions of the Senior Exchangeable Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the provisions of the Company's Certificate of Incorporation and
the Certificate of Designation, copies of which are available upon request to
the Company.
General. On December 29, 1997 the Board of Directors of the Company adopted
resolutions authorizing the issuance of up to 1,000,000 shares of Senior
Exchangeable Preferred Stock, which consisted of 250,000 shares of Senior
Exchangeable Preferred Stock to be issued in the Unit Offering plus additional
shares of Senior Exchangeable Preferred Stock which may be used to pay
dividends on the Senior Exchangeable Preferred Stock. The Senior Exchangeable
Preferred Stock ranks junior in right of payment to all liabilities and
obligations (whether or not for borrowed money) of the Company (other than
Common Stock and any present and future classes of preferred stock of the
Company). The Company may, at its option, exchange the Senior Exchangeable
Preferred Stock, in whole but not in part, into Exchange Debentures on any
scheduled dividend payment date.
Ranking. The Senior Exchangeable Preferred Stock, with respect to dividends
and distributions upon the liquidation, winding-up and dissolution of the
Company, ranks senior to all classes of common stock and each other class of
capital stock or series of preferred stock of the Company, except as described
below (collectively referred to, together with all classes of common stock of
the Company, as "Junior Securities"). The Certificate of Designation provides
that the Company may not, without the consent of the holders of a majority of
the then outstanding shares of Senior Exchangeable Preferred Stock, authorize,
create (by way of reclassification or otherwise) or issue any class or series
of capital stock of the Company ranking on a parity with the Senior
Exchangeable Preferred Stock (collectively, the "Parity Securities") or any
obligation or security convertible or exchangeable into or evidencing a right
to purchase, shares of any class or series of Parity Securities. The
Certificate of Designation further provides that the Company may not, without
the consent of the holders of at
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least two-thirds of the then outstanding shares of Senior Exchangeable
Preferred Stock, authorize, create (by way of reclassification or otherwise)
or issue any class or series of capital stock of the Company ranking senior to
the Senior Exchangeable Preferred Stock (collectively, the "Senior
Securities") or any obligation or security convertible or exchangeable into or
evidencing a right to purchase, shares of any class or series of Senior
Securities.
Dividends. Holders of Senior Exchangeable Preferred Stock are entitled,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, to receive dividends on each outstanding share of the
Senior Exchangeable Preferred Stock, at the annual rate of 13 1/4% of the then
effective liquidation preference per share of Senior Exchangeable Preferred
Stock. Dividends on the Senior Exchangeable Preferred Stock are payable
quarterly in arrears on March 15, June 15, September 15 and December 15 of
each year. The right to dividends on the Senior Exchangeable Preferred Stock
are cumulative (whether or not earned or declared), without interest, from the
date of issuance of the Senior Exchangeable Preferred Stock. On and before
December 15, 2002, dividends may, at the option of the Company, be paid either
in cash or in additional fully paid and non-assessable shares of Senior
Exchangeable Preferred Stock with an aggregate liquidation preference equal to
the amount of such dividends. After December 15, 2002, dividends may only be
paid in cash.
Voting Rights. Holders of the Senior Exchangeable Preferred Stock have no
voting rights with respect to general corporate matters except as provided by
law or as set forth in the Certificate of Designation. The Certificate of
Designation provides that if (a) dividends on the Senior Exchangeable
Preferred Stock are in arrears and unpaid (and if after December 15, 2002,
such dividends are not paid in cash) for six quarterly periods (whether or not
consecutive); (b) the Company fails to discharge its obligation to redeem the
Senior Exchangeable Preferred Stock on the Mandatory Redemption Date or fails
to otherwise discharge any redemption obligation with respect to the Senior
Exchangeable Preferred Stock; (c) the Company fails to make a Change of
Control Offer if such offer is required by the provisions set forth in the
Certificate of Designations or fails to purchase shares of Senior Exchangeable
Preferred Stock from holders who elect to have such shares purchased pursuant
to the Change of Control Offer; (d) a breach or violation of any of the
provisions listed under the caption "--Certain Provisions" occurs and the
breach or violation continues for a period of 30 days or more after the
Company receives notice thereof specifying the default from the holders of at
least 25% of the shares of Senior Exchangeable Preferred Stock then
outstanding; or (e) the Company or any Restricted Subsidiary fails to pay at
the final stated maturity (giving effect to any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted
Subsidiary, or the final stated maturity of any such Indebtedness is
accelerated, if the aggregate principal amount of such Indebtedness in default
for failure to pay principal at the final stated maturity (giving effect to
any extensions thereof) or that has been accelerated, aggregates $10.0 million
or more at any time, then the holders of the majority of the then outstanding
Senior Exchangeable Preferred Stock, voting or consenting, as the case may be,
as one class, will be entitled to elect the lesser of two directors of the
Board of Directors or at least 25% of the Board of Directors. Such voting
rights will continue until such time as, in the case of a dividend default,
all dividends in arrears on the Senior Exchangeable Preferred Stock are paid
in full (and with respect to dividends payable after December 15, 2002, paid
in cash) and, in all other cases, any failure, breach or default giving rise
to such voting rights is remedied or waived by the holders of at least a
majority of the shares of the Senior Exchangeable Preferred Stock then
outstanding, at which time the term of the directors elected pursuant to the
provisions of this paragraph shall terminate. Each such event described in
clauses (a) through (e) above is referred to herein as a "Voting Rights
Triggering Event."
Redemption. The Company at its option may, but shall not be required to,
redeem for cash the Senior Exchangeable Preferred Stock (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at any time on or after December 15, 2002, in
whole or in part, at certain redemption prices (expressed as a percentage of
the liquidation preference thereof) declining ratably, together with, without
duplication, all accumulated and unpaid dividends, if any, to the date of
redemption. In addition, at any time on or prior to December 15, 2001, the
Company may redeem for cash all, but not less than all, of the outstanding
Senior Exchangeable Preferred Stock within 20 days of a Public Equity Offering
with the net proceeds of such offering at a redemption price per share equal
to 113.25% of the aggregate liquidation
83
<PAGE>
preference thereof, together with, without duplication, an amount in cash
equal to all accumulated and unpaid dividends, if any, to the date of
redemption, subject to the right of holders of record on the relevant record
date to receive dividends due on a dividend payment date. No optional
redemption may be authorized or made unless on or prior to such redemption
full unpaid cumulative dividends shall have been paid or a sum set apart for
such payment on the Senior Exchangeable Preferred Stock. On December 15, 2009,
the Company will be required to redeem (subject to the legal availability of
funds therefor) all outstanding shares of Senior Exchangeable Preferred Stock
at a price equal to the liquidation preference thereof plus, without
duplication, all accumulated and unpaid dividends, if any, to the date of
redemption.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, holders of Senior Exchangeable
Preferred Stock will be entitled to be paid out of the assets of the Company
available for distribution $100.00 per share, plus, without duplication, an
amount equal in cash to all accumulated and unpaid dividends, if any, thereon
(including by way of a deemed increase in liquidation value) to the date fixed
for liquidation, dissolution or winding-up of the Company (including an amount
equal to a prorated dividend from the last dividend payment date to the date
fixed for liquidation, dissolution or winding-up), before any distribution is
made on any Junior Securities, including, without limitation, on any common
stock of the Company.
Change in Control. Upon the occurrence of a Change in Control (as defined in
the Exchange Indenture), the Company will be required to make an offer to
purchase for cash all or any part of the Senior Exchangeable Preferred Stock
at a price in cash equal to 101% of the liquidation preference thereof, plus
all accumulated and unpaid dividends, if any, to the date of purchase
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the date of purchase to such
date).
Certain Provisions. The Certificate of Designation contains certain
restrictive provisions, including, but not limited to, provisions with respect
to the following matters: (i) limitation on additional indebtedness, (ii)
limitation on restricted payments, (iii) limitation on issuances and sales of
capital stock of Restricted Subsidiaries, and (iv) limitation on merger,
consolidation and sale of substantially all assets.
Transfer Agent and Registrar. United States Trust Company of New York is the
Transfer Agent and Registrar for the Senior Exchangeable Preferred Stock.
EXCHANGE DEBENTURES
The Company may, at its option, subject to certain conditions, on any
scheduled dividend payment date, exchange the Senior Exchangeable Preferred
Stock, in whole but not in part, for the Company's 13 1/4% Subordinated
Exchange Debentures due 2009 (the "Exchange Debentures"); provided that (i) on
the date of such exchange there are no accumulated and unpaid dividends on the
Senior Exchangeable Preferred Stock (including the dividend payable on such
date) or other contractual impediments to such exchange; (ii) there shall be
legally available funds sufficient therefor; (iii) no Voting Rights Triggering
Event has occurred and is continuing at the time of such exchange; (iv)
immediately after giving effect to such exchange, no Default or Event of
Default (each as defined in the Exchange Indenture) would exist under the
Exchange Indenture and no default or event of default would exist under any
material instrument governing Indebtedness outstanding at the time; (v) the
Exchange Indenture has been qualified under the Trust Indenture Act, if such
qualification is required at the time of exchange; and (vi) the Company shall
have delivered to the Debenture Trustee an Opinion of Counsel reasonably
satisfactory to such Debenture Trustee to the effect that all conditions to be
satisfied prior to such exchange have been satisfied.
General. The Exchange Debentures, if issued, will be issued under the
Exchange Indenture dated as of December 29, 1997 (the "Exchange Indenture"),
among the Company, as issuer, the Subsidiary Debenture Guarantors, as
guarantors, and United States Trust Company of New York, as trustee (the
"Debenture Trustee"). The Exchange Debentures will mature on December 15,
2009. Each Exchange Debenture will accrue interest at the dividend rate of the
Senior Exchangeable Preferred Stock from the Exchange Date or from the most
recent
84
<PAGE>
interest payment date to which interest has been paid or provided for.
Interest will be payable quarterly in cash (or, on or prior to December 15,
2002, in additional Exchange Debentures having a principal amount equal to the
cash interest otherwise payable, or in a combination of cash and Exchange
Debentures, at the option of the Company) in arrears on each March 15, June
15, September 15 and December 15.
Debenture Guarantees. Payment of the principal of, premium, if any, and
interest on the Exchange Debentures, when and as the same become due and
payable, will be guaranteed, jointly and severally, on an unsecured
subordinated basis by the Subsidiary Debenture Guarantors.
Optional Redemption. The Exchange Debentures will be redeemable at the
option of the Company, in whole or in part, at any time on or after December
15, 2002 at certain redemption prices (expressed as percentages of principal
amount) declining ratably, together with accrued and unpaid interest, if any,
to the date of redemption (subject to the right of holders of record on
relevant record dates to receive interest due on an interest payment date). In
addition, at any time prior to December 15, 2001, the Company may redeem all,
but not less than all, of the outstanding Exchange Debentures originally
issued under the Exchange Indenture within 20 days of a Public Equity Offering
with the net proceeds of such offering at a redemption price equal to 113.25%
of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon, if any, to the date of redemption.
Change in Control. Upon the occurrence of a Change in Control, each holder
of the Exchange Debentures may require the Company to purchase all or any
portion of such holder's Exchange Debentures at a purchase price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of purchase.
Ranking. The Exchange Debentures will be unsecured junior subordinated
obligations of the Company and, as such, will be subordinated to all existing
and future senior indebtedness and senior subordinated indebtedness (including
the Notes) of the Company, with respect to principal, premium, if any, and
interest. By reason of such subordination, holders of senior indebtedness and
senior subordinated indebtedness must be paid in full before holders of the
Exchange Debentures may be paid in the event of a liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy.
Each Debenture Guarantee, to the extent set forth in the Exchange Indenture,
will be subordinated in right of payment to the prior payment in full of all
senior indebtedness and senior subordinated indebtedness of the Subsidiary
Debenture Guarantors, upon terms substantially comparable to the subordination
of the Exchange Debentures to all senior indebtedness and senior subordinated
indebtedness of the Company.
Certain Covenants. The Exchange Indenture contains covenants, including, but
not limited to, covenants with respect to the following matters: (i)
limitation on additional indebtedness; (ii) limitation on restricted payments;
(iii) limitation on issuances and sales of capital stock of Restricted
Subsidiaries; (iv) limitation on transaction with affiliates; (v) limitation
on liens; (vi) limitation on sale of assets; (vii) limitation on merger,
consolidation and sale of substantially all assets; (viii) limitations on
guarantees of indebtedness by Restricted Subsidiaries; (ix) limitation on
dividend and other payment restrictions affecting Restricted Subsidiaries; (x)
limitation on investment in Unrestricted Subsidiaries; (xi) limitation on sale
and leaseback transactions; and (xii) limitations on other Subordinated
Indebtedness. The covenants in the Exchange Indenture are substantially
similar to the covenants in the Indenture, except that the Exchange Debentures
will be subordinated to the Notes. See "Description of the Exchange Notes--
Certain Covenants."
85
<PAGE>
DESCRIPTION OF JUNIOR PREFERRED STOCK
In connection with the Merger, the Company amended its Certificate of
Incorporation to change its authorized share capital to include 150,000 shares
of non-voting cumulative junior redeemable preferred stock, par value $.01 per
share (the "Junior Redeemable Preferred Stock"), of the Company and 2,500
shares of non-voting cumulative junior non-redeemable preferred stock, par
value $.01 per share (the "Junior Perpetual Preferred Stock"), of the Company.
Concurrently with the Initial Offering, the Company issued 87,927.998 shares
of junior preferred stock to Madison Dearborn and to certain members of
management, consisting of 86,009.590 shares of Junior Redeemable Preferred
Stock and 1,918.408 shares of Junior Perpetual Preferred Stock. The following
summary of certain provisions of the Junior Redeemable Preferred Stock and the
Junior Perpetual Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to the provisions of the Company's
amended and restated Certificate of Incorporation, which is filed as an
exhibit to the registration statement of which this Prospectus is a part.
JUNIOR REDEEMABLE PREFERRED STOCK
Ranking. The Junior Redeemable Preferred Stock, with respect to dividends
and distributions upon the liquidation, winding-up and dissolution of the
Company, ranks senior to all classes of common stock of the Company, pari
passu with the Junior Perpetual Preferred Stock and junior to all other
liabilities and obligations of the Company, whether or not for borrowed money.
Dividends. Holders of Junior Redeemable Preferred Stock are entitled, when,
as and if declared by the Board of Directors, out of funds legally available
therefor, to receive dividends on each outstanding share of the Junior
Redeemable Preferred Stock, at the annual rate of 8.0% of the liquidation
value per share thereof. Dividends on the Junior Redeemable Preferred Stock
are payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year. Dividends compound to the extent not paid on any
quarterly dividend payment date. The right to dividends on the Junior
Redeemable Preferred Stock are cumulative (whether or not earned or declared),
without interest, from the date of issuance of the Junior Redeemable Preferred
Stock.
Voting Rights. Holders of the Junior Redeemable Preferred Stock have no
voting rights with respect to general corporate matters except as provided by
law or as set forth in the Certificate of Incorporation.
Redemption. The Company has the option to redeem the Junior Redeemable
Preferred Stock in whole or in part (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time without premium or penalty. The Company is required to
redeem the Junior Redeemable Preferred Stock upon the earlier of (i) the
thirteenth (13th) anniversary of the Closing and (ii) a Sale of the Company
(as defined in the Certificate of Incorporation).
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, holders of Junior Redeemable
Preferred Stock will be entitled to be paid out of the assets of the Company
available for distribution $1,000.00 per share, plus an amount equal in cash
to all accumulated and unpaid dividends, if any, thereon, prior to any
distribution on any securities of the Company ranking junior to the Junior
Redeemable Preferred Stock, including, without limitation, on any common stock
of the Company.
Covenants. The Certificate of Incorporation provides restrictions on the
redemption of securities of the Company ranking junior to the Junior
Redeemable Preferred Stock (other than repurchases of securities from
employees of the Company) and the payment of dividends on such securities and
certain amendments to the Certificate of Incorporation.
JUNIOR PERPETUAL PREFERRED STOCK
Ranking. The Junior Perpetual Preferred Stock, with respect to dividends and
distributions upon the liquidation, winding-up and dissolution of the Company,
ranks senior to all classes of common stock of the
86
<PAGE>
Company, pari passu with the Junior Redeemable Preferred Stock and junior to
all other liabilities and obligations of the Company, whether or not for
borrowed money.
Dividends. Holders of Junior Perpetual Preferred Stock are entitled, when,
as and if declared by the Board of Directors, out of funds legally available
therefor, to receive dividends on each outstanding share of the Junior
Perpetual Preferred Stock, at the annual rate of 8.0% of the liquidation value
per share thereof through the twelfth (12th) anniversary of the Closing, and
at the annual rate of 12.0% of the liquidation value per share thereof
thereafter if, but only if, the Company has not offered to redeem such shares
prior to such time. Dividends on the Junior Perpetual Preferred Stock are
payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year. Dividends compound to the extent not paid on any quarterly
dividend payment date. The right to dividends on the Junior Perpetual
Preferred Stock are cumulative (whether or not earned or declared), without
interest, from the date of issuance of the Junior Perpetual Preferred Stock.
Voting Rights. Holders of the Junior Perpetual Preferred Stock have no
voting rights with respect to general corporate matters except as provided by
law or as set forth in the Certificate of Incorporation.
Redemption. The Company has the option, but is not required, to redeem the
Junior Perpetual Preferred Stock in whole or in part (subject to contractual
and other restrictions with respect thereto and to the legal availability of
funds therefor) at any time without premium or penalty.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, holders of Junior Perpetual
Preferred Stock will be entitled to be paid out of the assets of the Company
available for distribution $1,000.00 per share, plus an amount equal in cash
to all accumulated and unpaid dividends, if any, thereon, prior to any
distribution on any securities of the Company ranking junior to the Junior
Perpetual Preferred Stock, including, without limitation, on any common stock
of the Company.
Covenants. The Certificate of Incorporation provides restrictions on the
redemption of securities of the Company ranking junior to the Junior Perpetual
Preferred Stock (other than repurchases of securities from employees of the
Company) and the payment of dividends on such securities and certain
amendments to the Certificate of Incorporation.
SHAREHOLDERS AGREEMENT
In connection with the Acquisition, Madison Dearborn, the Management Group
and the Company entered into a Stockholders Agreement which provides for,
among other things, certain restrictions on the transfer of the Management
Shares, the right of the Company to sell or cause to be sold all or a portion
of the Management Shares in connection with a sale of the Company, the right
of the Company to repurchase the Management Shares of any member of the
Management Group upon the termination of such member for cause, certain rights
by the Management Group to participate in certain sales of Common Stock by
Madison Dearborn under certain circumstances, certain demand registration
rights in favor of Madison Dearborn by which it may cause the Company to
register all or part of the Common Stock held by it under the Securities Act,
and certain "piggyback" registration rights in favor of Madison Dearborn and
the Management Group.
87
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. The Company recommends that each holder consult such
holder's own tax advisor as to the particular tax consequences of exchanging
such holder's Old Notes for Exchange Notes, including the applicability and
effect of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered
to differ materially in kind or extent from the Old Notes. Rather, the
Exchange Notes received by a holder will be treated as a continuation of the
Old Notes in the hands of such holder. As a result, there will be no federal
income tax consequences to holders exchanging Old Notes for Exchange Notes
pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, they will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , 1998 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by
Participating Broker-Dealers for their own accounts pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
88
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Kirkland & Ellis, Chicago, Illinois (a partnership which
includes professional corporations).
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996, and for each of the years in the three-year period ended December
31, 1996, have been included herein and in the Registration Statement of which
this Prospectus is a part in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein and
in the Registration Statement of which this Prospectus is a part and upon the
authority of said firm as experts in accounting and auditing.
89
<PAGE>
TUESDAY MORNING CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994.................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994..................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................................. F-6
Notes to Consolidated Financial Statements for the years ended Decem-
ber 31, 1996, 1995 and 1994.......................................... F-7
Consolidated Balance Sheets (unaudited) as of September 30, 1997 and
1996 and December 31, 1996........................................... F-16
Consolidated Statements of Operations (unaudited) for the three months
ended September 30, 1997 and 1996 and nine months ended September 30,
1997 and 1996........................................................ F-17
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1997 and 1996.................................... F-18
Notes to Consolidated Financial Statements (unaudited)................ F-19
</TABLE>
Separate financial statements of the Subsidiary Guarantors are not presented
herein because the parent company has no operations or assets separate from
its investment in the Subsidiary Guarantors, the Subsidiary Guarantors are
wholly owned and represent all of the direct and/or indirect subsidiaries of
the parent company and the guarantees of the Subsidiary Guarantors are full
and unconditional and joint and several with the other Subsidiary Guarantors.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board Of Directors and Shareholders
Tuesday Morning Corporation:
We have audited the accompanying consolidated balance sheets of Tuesday
Morning Corporation and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tuesday
Morning Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
kpmg peat marwick llp
Dallas, Texas
February 21, 1997
F-2
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................. $ 10,754 $ 6,276
Inventories............................................... 75,493 52,367
Prepaid expenses.......................................... 1,048 993
Other current assets...................................... 726 458
-------- -------
Total current assets.................................. 88,021 60,094
-------- -------
Property, plant and equipment (notes 5 and 6):
Land...................................................... 8,356 8,356
Buildings................................................. 13,926 12,989
Furniture and fixtures.................................... 17,658 15,584
Equipment................................................. 14,469 13,433
Leasehold improvements.................................... 2,082 1,967
-------- -------
56,491 52,329
Less accumulated depreciation and amortization............ (26,104) (21,267)
-------- -------
Net property, plant and equipment......................... 30,387 31,062
-------- -------
Due from Officer (note 2)................................... 2,679 2,211
Other assets (note 2)....................................... 670 876
-------- -------
Total Assets.......................................... $121,757 $94,243
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of mortgage (note 5)................. $ 1,021 $ 1,021
Current installments of capital lease obligation (note
6)....................................................... 625 755
Accounts payable.......................................... 22,543 12,707
Accrued expenses:
Sales tax............................................... 2,105 1,662
Other................................................... 5,637 2,467
Deferred income taxes (note 8)............................ 57 231
Income taxes payable (note 8)............................. 6,465 2,136
-------- -------
Total current liabilities............................. 38,453 20,979
-------- -------
Mortgage on land, buildings and equipment, excluding current
installments (note 5)...................................... 4,594 5,615
Capital lease obligations, excluding current installments
(note 6)................................................... 382 1,007
Deferred income taxes (note 8).............................. 2,800 2,994
Shareholders' equity (note 7):
Preferred stock of $1 par value per share Authorized
2,000,000 shares, none issued............................ -- --
Common stock of $.01 par value per share Authorized
20,000,000 shares; issued 8,181,036 shares at December
31, 1996 and 8,143,586 shares at December 31, 1995....... 82 81
Additional paid-in capital................................ 18,640 18,277
Retained earnings......................................... 58,834 47,318
Less: treasury stock (274,500 shares in 1996 and in
1995).................................................... (2,028) (2,028)
-------- -------
Total shareholders' equity............................ 75,528 63,648
-------- -------
Commitments and contingencies (notes 3, 10 and 12)
Total Liabilities and Shareholders' Equity............ $121,757 $94,243
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales............................................ $256,756 210,265 190,081
Cost of sales........................................ 165,189 137,427 126,931
-------- ------- -------
Gross profit..................................... 91,567 72,838 63,150
Selling, general and administrative expenses......... 71,167 63,040 57,523
-------- ------- -------
Operating income................................. 20,400 9,798 5,627
Other income (expense):
Interest income.................................... 275 204 198
Interest expense................................... (2,767) (3,330) (2,458)
Other, net......................................... 600 592 649
-------- ------- -------
(1,892) (2,534) (1,611)
-------- ------- -------
Earnings before income taxes..................... 18,508 7,264 4,016
Income tax expense (note 8)............................. 6,992 2,491 1,365
-------- ------- -------
Net earnings..................................... $ 11,516 4,773 2,651
======== ======= =======
Net earnings per share and share equivalents .... $ 1.40 0.60 0.34
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------- PAID-IN RETAINED -------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ ------ ---------- -------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993..................... 8,060 $81 $18,091 $39,894 (330) $(2,342) $55,724
Net earnings............. -- -- -- 2,651 -- -- 2,651
Shares issued in connec-
tion with employee stock
option plan (note 7).... 40 -- 140 -- -- -- 140
Treasury shares sold to
employee stock purchase
plan (note 7)........... -- -- (60) -- 30 175 115
----- --- ------- ------- ---- ------- -------
Balance at December 31,
1994..................... 8,100 81 18,171 42,545 (300) (2,167) 58,630
Net earnings............. -- -- -- 4,773 -- -- 4,773
Shares issued in connec-
tion with employee stock
option plan (note 7).... 44 -- 162 -- -- -- 162
Treasury shares sold to
employee stock purchase
plan (note 7)..............-- -- (56) -- 25 139 83
----- --- ------- ------- ---- ------- -------
Balance at December 31,
1995..................... 8,144 81 18,277 47,318 (275) (2,028) 63,648
Net earnings............. -- -- -- 11,516 -- -- 11,516
Shares issued in connec-
tion with employee stock
option plan (note 7).... 37 1 382 -- -- -- 383
Treasury shares sold to
employee stock purchase
plan (note 7)........... -- -- (19) -- -- -- (19)
----- --- ------- ------- ---- ------- -------
Balance at December 31,
1996..................... 8,181 $82 $18,640 $58,834 (275) $(2,028) $75,528
===== === ======= ======= ==== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................ $ 256,756 $ 210,265 $ 190,081
Cash paid to suppliers and employees........ (240,814) (199,448) (177,676)
Interest received........................... 275 204 198
Interest paid............................... (2,767) (3,330) (2,458)
Income taxes (paid) refunded................ (2,858) (1,362) 1,911
--------- --------- ---------
Net cash provided by operating activities
(note 9)................................. 10,592 6,329 12,056
--------- --------- ---------
Cash flows from investing activities:
Loans to officer (note 2)................... (742) (497) (2,605)
Payments from officer (note 2).............. 274 85 207
Proceeds from sale of property, plant and
equipment.................................. -- -- 99
Capital expenditures........................ (4,233) (2,692) (5,693)
--------- --------- ---------
Net cash used by investing activities..... (4,701) (3,104) (7,992)
--------- --------- ---------
Cash flows from financing activities:
Payment of mortgages........................ (1,021) (1,063) (1,298)
Principal payments under capital lease obli-
gation..................................... (754) (666) (214)
Proceeds from exercise of common stock
options/stock purchase plan................ 362 245 255
--------- --------- ---------
Net cash used by financing activities..... (1,413) (1,484) (1,257)
--------- --------- ---------
Net increase in cash and cash equivalents..... 4,478 1,741 2,807
Cash and cash equivalents at beginning of pe-
riod......................................... 6,276 4,535 1,728
--------- --------- ---------
Cash and cash equivalents at end of period.... $ 10,754 $ 6,276 $ 4,535
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation--The consolidated financial statements include the
accounts of Tuesday Morning Corporation and its wholly-owned subsidiaries: TMI
Holdings, Inc., TMIL Corporation, Tuesday Morning, Inc. and Friday Morning,
Inc. (collectively "the Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company owned and operated 286 deep discount retail stores in 33 states
at December 31, 1996 (260 and 246 stores at December 31, 1995 and 1994,
respectively). The Company sells closeout housewares and related gift
merchandise, which it purchases at prices below wholesale prices. Company
stores are open for four sales events each year.
(b) Cash and Cash Equivalents--The Company's policy is to invest cash in
excess of operating requirements in income producing investments. Cash
equivalents of $8,352,000 in 1996 and $4,707,000 in 1995 are investments in
money market funds. The Company considers all short-term investments with
original maturities of three months or less to be cash equivalents.
(c) Inventories--Inventories are stated at the lower of average cost or
market using the retail inventory method for the stores' inventory and the
cost method for warehouse inventory. Buying, distribution and freight costs
are capitalized as part of inventory.
(d) Property, Plant and Equipment--Property, plant and equipment are stated
at cost. Buildings, furniture and fixtures, and equipment are depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
DEPRECIABLE LIVES
-----------------
<S> <C>
Buildings.................................................. 30 years
Furniture and fixtures..................................... 7 years
Equipment.................................................. 5 to 7 years
</TABLE>
Improvements to leased premises are amortized on a straight-line basis over
the shorter of their useful lives or the expected term of the related lease.
(e) Income Taxes--Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(f) Earnings (loss) per Common Share and Share Equivalent--Earnings (loss)
per common share is based on the weighted average number of common shares, and
when dilutive, share equivalents (note 7) outstanding during the period. The
weighted average number of common shares and share equivalents outstanding for
1996, 1995 and 1994 were 8,215,000, 7,997,000 and 7,890,000, respectively.
(g) Pre-opening Costs--The Company capitalizes certain costs directly
related to opening new stores. Effective August 1, 1995, the Company revised
its policy for capitalizing and amortizing preopening costs associated with
the opening of new stores. The amortization period was reduced from 24 months
to 12 months. The impact of the change in accounting policy did not have a
material impact on the Company's consolidated financial statements.
F-7
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(h) Advertising--Costs for newspaper, television, radio and other media are
expensed as the advertised events take place. Advertising expense for 1996,
1995 and 1994 was $16,475,000, $15,317,000 and $13,652,000, respectively.
(i) Estimates--The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(j) Foreign Currency Transactions--The Company has entered into foreign
exchange contracts to hedge its foreign currency transactions related to
specific purchase orders for merchandise. Gains and losses on these contracts
have been minimal and are deferred until the related merchandise is received.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of--The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(l) Stock Option Plan--Prior to January 1, 1996, the Company accounted for
its stock option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the fair-
value based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the previsions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.
(2) RECEIVABLES FROM OFFICERS
At December 31, 1996 and 1995, Other Assets included a receivable from an
officer of the Company of $124,000 and $114,000, respectively. This loan was
initiated in 1992. It bears interest at the prime rate and is secured with
Company stock.
Due from Officer at December 31, 1996 and 1995 is $2,679,000 and $2,211,000,
respectively. This unsecured loan was initiated in 1994 and bears interest at
prime.
(3) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising from the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
F-8
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(4) LINES OF CREDIT
The Company had no balances outstanding related to their line of credit at
December 31, 1996 or 1995. As of December 31, 1996 and 1995, the Company had
outstanding letters of credit of $9,819,000 and $6,186,000, respectively,
primarily for inventory purchases.
In July 1994, the Company entered into a three-year $45,000,000 revolving
line of credit with a new bank. This agreement is secured by a pledge of
substantially all the Company's assets. Borrowings were limited to the lesser
of $45,000,000 or 50% (60% for up to 120 days each year) of eligible
inventory, as defined. The availability is further reduced by the aggregate
undrawn amount of outstanding letters of credit and a reserve for the foreign
currency contracts, discussed in Note 12. At the Company's option, the amount
borrowed bore interest at either the Reference Rate plus 0.75% or the
Eurodollar Rate plus 2.50%. An Unused Line Fee of 0.25%, per annum, was paid
on the difference between $45,000,000 and the average total of the amount
borrowed and letters of credit outstanding.
During 1996, this agreement was further amended to extend the term through
July 1999 and to increase the borrowing capacity to $55,000,000 for the period
beginning July 1 and ending October 31 of each year. This amendment allows the
Company, at its option, to borrow at either the Reference Rate or the
Eurodollar Rate plus 2.00%. The maximum amount of outstanding and unused
Letters of Credit was also increased to $12,000,000.
The weighted-average interest rates were 8.38% and 8.88% during 1996 and
1995, respectively.
In connection with this line of credit, the Company is required to maintain
a minimum net worth and comply with other financial covenants including
limitations on dividends, indebtedness and capital expenditures. At December
31, 1996, the Company was in compliance with these covenants.
(5) MORTGAGE ON PROPERTY, PLANT AND EQUIPMENT
During 1995, the Company entered into a seven-year agreement with a bank to
refinance and consolidate its mortgages on land and buildings. The amount of
the note was $7,146,000, the proceeds of which were used to pay the previous
mortgage notes. The note is secured by land and buildings and bears interest
at LIBOR plus 2.125% (7.755% at December 31, 1996) with principal and interest
due monthly. It matures on June 10, 2002.
Mortgages consist of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Note payable to bank, in monthly installments of $85 plus
interest.................................................. $5,615 6,636
Less current installments.................................. (1,021) (1,021)
------ ------
$4,594 5,615
====== ======
</TABLE>
In connection with this mortgage, the Company is required to maintain
minimum net worth and comply with other financial covenants. At December 31,
1996, the Company was in compliance with these covenants.
The maturities of the mortgage are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997.................................. $1,021
1998.................................. 1,021
1999.................................. 1,021
2000.................................. 1,021
2001.................................. 1,021
Later years........................... 510
</TABLE>
F-9
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(6) CAPITAL LEASE
During September 1994, the Company entered into a capital lease with a
financial institution to finance part of the acquisition of Point of Sale
registers and Electronic Article Surveillance equipment. The amount financed
under the capital lease totaled $2,642,000. Depreciation expense during 1996
and 1995 was $528,000 per year.
This lease is for five years and contains a bargain purchase option that the
Company would be expected to exercise. This lease bears an implicit interest
rate of approximately 12.5%.
The following is a schedule of future minimum lease payments under the
capital lease together with the present value of the net minimum lease
payments as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997.................................. $ 707
1998.................................. 256
1999.................................. 170
------
Total minimum lease payments........ 1,133
Less: Amount representing interest.... (126)
------
Present value of net minimum lease
payments............................. 1,007
Less: Current installments............ (625)
------
Long term capital lease obligation.... $ 382
======
</TABLE>
(7) SHAREHOLDERS' EQUITY
On May 5, 1992, the Board of Directors of the Company approved the purchase
of the Company's stock in open market purchases to be effected from time to
time. There are no plans for purchases at this time.
The Company has a stock option plan ("the Plan") covering 2,160,500 shares
of the Company's common stock which may be granted to employees of the
Company. Under the Plan, stock options are granted at fair market value and
vest over varying periods not to exceed 10 years.
At December 31, 1996, 829,000 shares were available for grant under the
Plan. The per share weighted-average fair value of stock options granted
during 1995 was $3.09 on the date of the grant using the Black Scholes option-
pricing model with the following assumptions: expected dividend yield of 0%,
risk-free interest rate of 6.1%, an expected life of 5 years and an expected
volatility of 0.506. There were no options granted during 1996.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Net earnings
As reported.................................................. $11,516 4,773
Pro forma.................................................... 11,321 4,772
Earnings per share
As reported.................................................. $ 1.40 0.60
Pro forma.................................................... 1.38 0.60
</TABLE>
F-10
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Pro forma amounts reflect only options granted in 1996 and 1995. The full
impact of calculating compensation cost for stock options under SFAS No. 123
is not reflected in the pro forma amounts presented above because compensation
cost is recognized over the vesting period and compensation cost for options
granted prior to January 1, 1995 is not considered.
Following is a summary of transactions relating to the Plan's options for
the three years ended December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1993................... 996,600 $6.53
Exercised during year.............................. (40,000) 3.54
Canceled during year............................... (1,800) 9.63
Granted during year................................ 100,000 3.63
--------- -----
Outstanding at December 31, 1994................... 1,054,800 6.36
Exercised during year.............................. (44,000) 3.71
Canceled during year............................... (184,500) 8.69
Granted during year................................ 102,500 6.00
--------- -----
Outstanding at December 31, 1995................... 928,800 5.98
Exercised during year.............................. (37,450) 4.72
Canceled during year............................... (1,500) 9.63
Granted during year................................ 0 --
--------- -----
Outstanding at December 31, 1996................... 889,850 $6.03
========= =====
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $3.38--$9.75 and 5.2
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was 835,000
and 847,000, respectively, and the weighted-average exercise price of these
options was $5.88 and $5.80, respectively.
In May 1993 the Board of Directors approved a stock purchase plan for
Company employees. It was implemented October 1, 1993. The Company matches the
employee contribution at a rate of 25% up to the first $5,000 per year of
individual employee contributions. Stock is purchased monthly at the average
price of the shares traded during the month. The expense of the Company match
was immaterial.
F-11
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(8) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994 consists of (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1996
U.S. Federal..................................... $6,606 (129) 6,478
State, local and other........................... 754 (240) 514
------ ---- -----
Total.......................................... 7,360 (368) 6,992
====== ==== =====
Year ended December 31, 1995
U.S. Federal..................................... 2,390 80 2,470
State, local and other........................... 99 (78) 21
------ ---- -----
Total.......................................... 2,489 2 2,491
====== ==== =====
Year ended December 31, 1994
U.S. Federal..................................... 1,086 279 1,365
State, local and other........................... (34) 34 --
------ ---- -----
Total.......................................... $1,052 313 1,365
====== ==== =====
</TABLE>
A reconciliation of the expected Federal income tax expense to actual tax
expense follows (based upon a tax rate of 35% for 1996 and 34% for 1995 and
1994, in thousands).
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Expected income tax
expense................ $6,478 2,470 1,365
State income taxes, net
of related Federal tax
effect................. 378 90 (16)
Other, net.............. 136 (69) 16
------ ----- -----
$6,992 2,491 1,365
====== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Deferred tax assets:
Compensated absences........................................... $ 169 134
Accrued expenses, principally due to items not yet deductible
for income tax purposes....................................... 499 93
Other.......................................................... 224 151
------ -----
Total gross deferred assets.................................. 892 378
------ -----
Deferred tax liabilities:
Property, plant and equipment, principally due to differences
in depreciation and capitalized interest...................... 3,024 3,107
Inventory costs................................................ 473 231
Other.......................................................... 252 265
------ -----
Total gross deferred tax liabilities......................... 3,749 3,603
------ -----
Net deferred tax liability..................................... $2,857 3,225
====== =====
</TABLE>
F-12
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Management expects the deferred tax assets at December 31, 1996 to be
recovered through the reversal during the carry-forward period of existing
taxable temporary differences giving rise to the deferred income tax
liability. Accordingly, no valuation allowances for deferred tax assets were
considered necessary as of December 31, 1996 or December 31, 1995.
(9) SUPPLEMENTAL CASH FLOW INFORMATION
The reconciliation of net earnings to net cash provided by operating
activities for the years ended December 31, 1996, 1995 and 1994 is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Net earnings...................................... $11,516 4,773 2,651
------- ------ ------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................... 4,907 4,583 3,862
Deferred income taxes........................... (369) 2 313
Loss on sale of fixed assets.................... -- -- 12
Changes in operating assets and liabilities:
Income taxes receivable....................... -- -- 2,133
Inventories................................... (23,127) (5,552) 6,736
Prepaid expenses.............................. (55) 681 (683)
Other current assets.......................... (268) 191 597
Other assets.................................. 207 102 (251)
Accounts payable.............................. 9,836 (209) (2,943)
Accrued expenses.............................. 3,616 610 (1,359)
Income taxes payable.......................... 4,329 1,148 988
------- ------ ------
Total adjustments........................... (924) 1,556 9,405
------- ------ ------
Net cash provided by operating activities... $10,592 6,329 12,056
======= ====== ======
</TABLE>
A capital lease obligation of $2,642,000 was incurred when the Company
entered into a lease for new equipment in 1994.
(10) OPERATING LEASES
The Company leases substantially all store locations under noncancellable
operating leases. New store leases do, however, allow the Company to terminate
a lease after 12-18 months if the store does not achieve sales expectations.
Future minimum rental payments under leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1997................................... $15,931
1998................................... 13,996
1999................................... 10,604
2000................................... 8,501
2001................................... 5,649
Later years............................ 2,003
-------
Total minimum rental payments.......... $56,684
=======
</TABLE>
F-13
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
In the normal course of business, management expects to renew or replace
leases for store locations as they expire. Rental expense for 1996, 1995 and
1994 was $14,564,000, $13,124,000 and $12,323,000, respectively.
(11) PROFIT SHARING PLAN
The Company has a 401(K) profit sharing plan for the benefit of its
employees. Under the plan, eligible employees may request the Company to
deduct and contribute from 1% to 15% of their salary to the plan. The Company
also contributes 1% of total compensation for all plan participants, and
matches a portion of each participant's contribution up to 6% of the
participant's compensation. The Company expensed contributions of $403,000,
$327,000, and $330,000 during the years ended December 31, 1996, 1995 and
1994, respectively.
(12) FINANCIAL INSTRUMENTS
As of December 31, 1996 and 1995, the Company had approximately $4,042,000
and $474,000 respectively, of net foreign exchange contracts outstanding which
are expected to be exercised by September of each following year. The
Company's risk that counterparties to these contracts may be unable to perform
is minimized by limiting the counterparties to major financial institutions.
The following table represents the carrying amounts and estimated fair
values of the Company's notes receivable, variable rate long-term debt and
foreign exchange contracts as of December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets--notes receivable..................... $2,878 2,878 2,567 2,567
Liabilities:
Foreign exchange contracts:
unrealized (gain)........................ -- (32) -- (22)
unrealized loss.......................... -- 14 -- --
Variable rate long-term debt............... 5,615 5,615 6,636 6,636
</TABLE>
The carrying values of the Company's variable rate long-term debt and notes
receivable approximate the estimated fair values since the obligations bear
interest at current market rates. The fair values of the foreign exchange
contracts are based on the exchange rates existing at the balance sheet dates.
F-14
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results for 1996 and 1995 follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................. $35,740 54,286 48,537 118,193
Comparable store sales increase....... 11.5% 6.7% 18.0% 16.1%
Gross profit.......................... $ 3,397 18,218 18,750 41,203
Net earnings (loss)................... $ (676) 434 698 11,060
Net earnings (loss) per common share
and share equivalent................. $ (0.09) 0.05 0.08 1.33
Weighted-average number of common
shares and share equivalents out-
standing............................. 7,851 8,319 8,370 8,343
<CAPTION>
QUARTERS ENDED
--------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................. $29,958 47,977 38,240 94,090
Comparable store sales increase....... 15.2% 10.3% (5.6)% 7.4%
Gross profit.......................... $10,349 15,927 14,863 31,699
Net earnings (loss)................... $(2,046) (155) (336) 7,310
Net earnings (loss) per common share
and share equivalent................. $ (0.26) (0.02) (0.04) 0.92
Weighted-average number of common
shares and share equivalents out-
standing............................. 7,797 7,836 7,840 7,980
</TABLE>
F-15
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 30,
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 3,029 $ 599
Federal income tax receivable............................ -- 96
Inventories.............................................. 159,687 114,347
Prepaid expenses......................................... 1,203 2,627
Other current assets..................................... 313 211
-------- --------
Total current assets.................................... 164,232 117,880
-------- --------
Property, plant and equipment, at cost:
Land..................................................... 8,356 8,356
Buildings................................................ 13,875 13,285
Furniture and fixtures................................... 19,506 17,138
Equipment................................................ 17,104 14,348
Leasehold improvements................................... 2,277 2,093
-------- --------
61,118 55,220
Less accumulated depreciation & amortization............. (29,679) (24,806)
-------- --------
Net property, plant and equipment....................... 31,439 30,414
-------- --------
Other assets, at cost:
Due from Officer......................................... 2,866 2,617
Other assets............................................. 678 757
-------- --------
Total Assets.............................................. $199,215 $151,668
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of mortgages........................ $ 1,021 $ 1,021
Current installments of capital lease obligation......... 213 772
Accounts payable......................................... 45,181 31,097
Accrued expenses
Sales tax................................................ 1,332 1,068
Other.................................................... 4,922 3,324
Deferred income taxes.................................... 57 231
Income taxes payable..................................... 2,301 --
-------- --------
Total current liabilities............................... 55,027 37,513
-------- --------
Mortgages on land, buildings and equipment................ 3,828 4,849
Long term notes payable................................... 56,127 41,776
Long term capital lease obligation........................ 220 433
Deferred income taxes..................................... 2,800 2,994
Shareholders' equity:
Preferred stock of $1 par value per share Authorized
2,000,000 shares, none issued........................... -- --
Common stock of $.01 par value per share Authorized
30,000,000 shares; issued 12,357,467 shares at September
30, 1997 12,215,379 shares at September 30, 1996
12,271,554 shares at December 31, 1996.................. 123 81
Additional paid-in capital............................... 18,922 18,277
Retained earnings........................................ 64,196 47,773
Less: treasury stock 411,750 shares at September 30, 1997
411,750 shares at September 30, 1996 411,750 shares at
December 31, 1996....................................... (2,028) (2,028)
-------- --------
Total shareholders' equity.............................. 81,213 64,103
-------- --------
Total Liabilities and Shareholders' Equity................ $199,215 $151,668
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-16
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales................... $ 179,058 $ 138,563
Cost of sales............... 112,620 88,199
----------- -----------
Gross profit............ 66,438 50,364
Selling, general and
administrative expenses.... 56,193 48,134
----------- -----------
Operating income........ 10,245 2,230
----------- -----------
Other income (expense):
Interest income........... 250 195
Interest expense.......... (2,330) (2,147)
Other income.............. 420 434
----------- -----------
(1,660) (1,518)
----------- -----------
Income before income
taxes.................. 8,585 712
Income tax.................. 3,219 256
----------- -----------
Net income.............. $ 5,366 $ 456
=========== ===========
Net income per share...... $ 0.43 $ 0.04
=========== ===========
Weighted average common
share and share
equivalents................ 12,556 12,396
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-17
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.......................... $ 179,058 $ 138,563
Cash paid to suppliers and employees.................. (227,299) (176,911)
Interest received..................................... 250 195
Interest paid......................................... (2,329) (2,147)
Income taxes paid..................................... (7,383) (2,489)
--------- ---------
Net cash used by operating activities................... (57,703) (42,789)
--------- ---------
Cash flows used by investing activities:
Loans to officers..................................... (373) (406)
Capital expenditures.................................. (4,756) (2,935)
--------- ---------
Net cash used by investing activities................... (5,129) (3,341)
--------- ---------
Cash flows from financing activities:
Proceeds from short and long term borrowings.......... 56,127 41,776
Payment of mortgages.................................. (766) (766)
Principal payments under capital lease obligation..... (574) (557)
Proceeds from exercise of common stock options/stock
purchase plan........................................ 323 --
--------- ---------
Net cash provided by financing activities............... 55,110 40,453
--------- ---------
Net decrease in cash and cash equivalents............... (7,722) (5,677)
Cash and cash equivalents at beginning of period........ 10,753 6,276
--------- ---------
Cash and cash equivalents at end of period.............. $ 3,031 $ 599
========= =========
Reconciliation of net income to net cash used by
operating activities:
Net income.............................................. $ 5,366 $ 456
--------- ---------
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization......................... 3,704 3,582
Change in operating assets and liabilities:
Increase in income taxes receivable................. -- (96)
Increase in inventories............................. (84,194) (61,980)
Increase in prepaid expense......................... (155) (1,634)
Decrease in other current assets.................... 414 247
Decrease in other assets and liabilities............ 178 119
Increase in accounts payable........................ 22,638 18,390
Increase (decrease) in accrued expenses............. (1,490) 263
Decrease in income taxes payable.................... (4,164) (2,136)
--------- ---------
Total adjustments................................. (63,069) (43,245)
--------- ---------
Net cash used by operating activities................... $ (57,703) $ (42,789)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-18
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In September 1997, the Company and Madison Dearborn Partners II, L.P.
("Madison Dearborn") entered into an Agreement and Plan of Merger under which
Madison Dearborn would acquire all of the Company's outstanding shares of
common stock for $25 per share in cash. The merger was consummated on December
29, 1997.
2. The consolidated interim financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosure normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These unaudited financial statements
include all adjustments, consisting only of those of a normal recurring
nature, which in the opinion of management, are necessary to present fairly
the results of the Company for the interim periods presented and should be
read in conjunction with the consolidated financial statements and notes
thereto in the Company's 1996 Annual Report.
3. Net income per share amounts are based on the weighted average number of
shares and dilutive share equivalents outstanding during the period. See note
6 below.
4. The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
5. Notes payable under the terms of the Company's revolving line of credit
agreement are classified between current and long term in accordance with the
terms of the agreement.
6. On May 13, 1997 the Board of Directors approved a three-for-two stock
split of the Company's common stock. All financial statements presented
reflect this transaction which was completed in June, 1997.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cautionary Notice Regarding Forward-Looking Statements.................... iv
Available Information..................................................... iv
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 13
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Unaudited Pro Forma Financial Statements.................................. 19
Selected Consolidated Financial Data...................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 33
Management................................................................ 40
Certain Transactions...................................................... 42
Principal Shareholders.................................................... 44
Description of the Senior Credit Facility................................. 45
Description of the Exchange Notes......................................... 47
The Exchange Offer........................................................ 74
Description of the Units.................................................. 82
Description of Junior Preferred Stock..................................... 86
Certain Federal Income Tax Consequences................................... 88
Plan of Distribution...................................................... 88
Legal Matters............................................................. 89
Experts................................................................... 89
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
LOGO
TUESDAY MORNING
CORPORATION
OFFER TO EXCHANGE ITS
11% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR SUBORDINATED NOTES
DUE 2007
-----------
PROSPECTUS
-----------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
The Company, TMI Holdings, Inc. ("TMIH") and TMIL Corporation ("TMIL") are
each incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (the "DGCL") provides, inter alia,
that a Delaware corporation may indemnify any persons who were, are or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, were or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests, provided
that no indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Certificates of Incorporation of Delaware Registrants
The Certificate of Incorporation of each of the Company, TMIH and TMIL
provides that, to the fullest extent permitted by the DGCL, a director of the
Company, TMIH or TMIL (as the case may be) shall not be liable to the Company,
TMI Holdings, Inc. and TMIL Corporation (as the case may be) or its
stockholders for monetary damages for a breach of fiduciary duty as a
director.
By-Laws of Delaware Registrants
Article V of the By-laws of the Company ("Article V") provides, among other
things, that each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "Proceeding"),
by reason of the fact that he, or a person of whom he is the legal
representative, is or was a director or officer, of the Company or is or was
serving at the request of the Company as a director, officer, employee,
fiduciary, or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless by the
Company to the fullest extent which it is empowered to do so by the DGCL
against all expense, liability and
II-1
<PAGE>
loss (including attorneys' fees actually and reasonably incurred by such
person in connection with such Proceeding) and such indemnification shall
inure to the benefit of his heirs, executors and administrators; provided,
however, that, except in certain circumstances, the Company shall indemnify
any such person seeking indemnification in connection with a Proceeding
initiated by such person only if such Proceeding was authorized by the board
of directors of the Company. The right to indemnification conferred in Article
V shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such Proceeding in advance of
its final disposition. The Company may, by action of its board of directors,
provide indemnification to employees and agents of the Company with the same
scope and effect as the foregoing indemnification of directors and officers.
Article V further provides that any indemnification of a director or officer
of the Company under Article V or advance of expenses shall be made promptly,
and in any event within 30 days, upon the written request of the director or
officer. If a determination by the Company that the director or officer is
entitled to indemnification pursuant to Article V is required, and the Company
fails to respond within 60 days to a written request for indemnity, the
Company shall be deemed to have approved the request. If the Company denies a
written request for indemnification or advancing of expenses, in whole or in
part, or if payment in full pursuant to such request is not made within 30
days, the right to indemnification or advances as granted by Article V shall
be enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part,
in any such action shall also be indemnified by the Company. It shall be a
defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Company) that the claimant has not met the standards of conduct which make it
permissible under the DGCL for the Company to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the Company.
Neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he has met the applicable standard of
conduct set forth in the DGCL, nor an actual determination by the Company
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. Persons who are not
covered by Article V and who are or were employees or agents of the Company,
or who are or were serving at the request of the Company as employees or
agents of another corporation, partnership, joint venture, trust or other
enterprise, may be indemnified to the extent authorized at any time or from
time to time by the board of directors.
Article V provides that the Company may purchase and maintain insurance on
its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the Company or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
whether or not the Company would have the power to indemnify such person
against such liability under Article V.
Article VI of the By-laws of each of TMIH and TMIL ("Article VI") provides,
among other things, that TMIH or TMIL (as the case may be) shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of TMIH or TMIL (as the case may be)), by reason of the fact that he is
or was a director or officer of TMIH or TMIL (as the case may be), or is or
was serving at the request of TMIH or TMIL (as the case may be) as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of TMIH or TMIL (as the case may be) and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or
II-2
<PAGE>
proceeding by judgment, order settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of TMIH or TMIL (as the
case may be) or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was lawful.
Article VI further provides that TMIH or TMIL (as the case may be) shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
TMIH or TMIL (as the case may be) to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of
Holdings or TMIL (as the case may be) or is or was serving at the request of
TMIH or TMIL (as the case may be) as a director, officer, employee he or agent
of another corporation, partnership, joint venture, trust or other
enterprises, against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of TMIH or TMIL (as the
case may be), except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to TMIH or TMIL (as the case may be) unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Moreover, Article VI provides that to the extent that a director or officer
of TMIH or TMIL (as the case may be) has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Article
VI or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith. Any indemnification under
Article VI (unless ordered by a court) shall be made by TMIH or TMIL (as the
case may be) only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Article VI.
Article VI states that upon resolution passed by the board of directors of
TMIH or TMIL (as the case may be), TMIH or TMIL (as the case may be) may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of TMIH or TMIL (as the case may be) or
is or was serving at the request of TMIH or TMIL (as the case may be) as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his or
her status as such, whether or not TMIH or TMIL (as the case may be) would
have the power to indemnify him against such liability under the provisions of
Article VI.
Texas Business Corporation Act
Article 2.02-1 of the Texas Business Corporation Act, as the same exists or
may hereafter be amended (the "TBCA") empowers a Texas corporation to
indemnify any person who was, is, or is threatened to be made, a named
defendant or respondent to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such action, suit or proceeding, and any inquiry
or investigation that could lead to such an action, suit or proceeding,
because the person is or was a director of such corporation, and any person
who, while serving as a director of such corporation, was serving at the
request of such corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation or enterprise. This indemnity may include judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable
expenses actually incurred by such person in connection with such action, suit
or proceeding, provided that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification of a
director is not permitted if the person is found liable for willful and
intentional misconduct in the performance
II-3
<PAGE>
of his duty to the corporation, is found to be liable on the basis of the
receipt of an improper benefit or is found liable to the corporation. A Texas
corporation is also permitted to indemnify and advance expenses to officers,
employees and agents who are not directors to such extent as may be provided
by its articles of incorporation, bylaws, action of board of directors or a
contract, or required by common law. No indemnification shall be permitted if
the person shall have been found liable for willful or intentional misconduct
in the performance of his duty to the corporation. A Texas corporation is
required to indemnify a director or officer against reasonable expenses
incurred by him in connection with a proceeding in which he is named as a
defendant or respondent because he is or was a director or officer if he has
been wholly successful, on the merits or otherwise, in defense of the
proceeding.
Certificates of Incorporation of Texas Registrants
The Certificate of Incorporation of each of Tuesday Morning, Inc. ("TMI")
and Friday Morning, Inc. ("FMI") provides that TMI or FMI (as the case may be)
shall indemnify, to the extent provided in the next sentence, (i) any
director, officer, agent or employee of TMI or FMI (as the case may be); (ii)
any former director, officer, agent or employee of TMI or FMI (as the case may
be); and (iii) any person who may have served at TMI's or FMI's (as the case
may be) request as a director, officer, agent or employee of another
corporation in which TMI or FMI (as the case may be) owns or has owned stock,
or of which TMI or FMI (as the case may be) is or has been a creditor. The
indemnification shall be against expenses actually and necessarily incurred by
such person, and any amount paid in satisfaction of judgments in connection
with any action, suit or proceeding (whether civil or criminal) in which he is
made a party by reason of being or having been such a director, officer, agent
or employee (whether or not such at the time the costs or expenses are
incurred by or imposed on him) except in relation to matters as to which he
shall be adjudged in such action, suit or proceeding to be liable for gross
negligence or willful misconduct in the performance of duty. The Certificate
of Incorporation of each of TMI and FMI provides further that TMI or FMI (as
the case may be) may also reimburse to any such person the reasonable costs of
settlement of any such action, suit or proceeding, if it is found by a
majority of the committee of the directors not involved in the matter (whether
or not a quorum) that (i) it was to the interest of TMI or FMI (as the case
may be) to make such settlement and (ii) such person was not guilty of gross
negligence or willful misconduct.
Bylaws of Texas Registrants
The Bylaws of TMI contains the same indemnification provisions as its
Certificate of Incorporation.
Article VII of the Bylaws of FMI ("Article VII") provides that FMI shall
indemnify persons who are or were a director officer of FMI both in their
capacities as directors and officers of FMI and, if serving at the request of
FMI as a director, officer, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, trust, partnership, joint venture,
sole proprietorship, employee benefit plan or other enterprise, in each of
those capacities, against any and all liability and reasonable expense that
may be incurred by them in connection with or resulting from (a) any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, (b) an appeal in such
an action, suit or proceeding, or (c) any inquiry or investigation that could
lead to such an action, suit or proceeding, all to the full extent permitted
by Article 2.02-1 of the TBCA. FMI shall indemnify persons who are or were an
employee or agent of FMI, or persons who are not or were not employees or
agents of FMI but who are or were serving at the request of FMI as a director,
officer, trustee, employee, agent or similar functionary of another foreign or
domestic corporation, trust, partnership, joint venture, sole proprietorship,
employee benefit plan or other enterprise (collectively, along with the
directors and officers of FMI, such persons are referred to herein as
"Corporate Functionaries") against any and all liability and reasonable
expense that may be incurred by them in connection with or resulting from (a)
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative or investigative, (b) an appeal
in such an action, suit or proceeding, or (c) any inquiry or investigation
that could lead to such an action, suit or proceeding, all to the full extent
permitted by Article 2.02-1 of the TBCA. FMI shall indemnify persons who are
or were an employee or agent
II-4
<PAGE>
of FMI, or persons who are not or were not employees or agents of FMI but who
are or were serving at the request of FMI as a director, officer, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, trust, partnership, joint venture, sole proprietorship, employee
benefit plan or other enterprise (collectively, along with the directors and
officers of FMI, such persons are referred to herein as "Corporate
Functionaries") against any and all liability and reasonable expense that may
be incurred by them in connection with or resulting from (a) any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, (b) an appeal in such an action,
suit or proceeding, or (c) any inquiry or investigation that could lead to
such an action, suit or proceeding, all to the full extent permitted by
Article 2.02-1 of the TBCA, and FMI may indemnify such persons to the extent
permitted by the TBCA.
In addition, Article VII provides that FMI may purchase or maintain
insurance on behalf of any Corporate Functionary against any liability
asserted against him and incurred by him in such a capacity or arising out of
his status as a Corporate Functionary, whether or not FMI would have the power
to indemnify him or her against the liability under the TBCA or FMI's Bylaws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for payment of a liability
with respect to which FMI would not have the power to indemnify the person
only if including coverage for the additional liability has been approved by
the shareholders of FMI. Without limiting the power of FMI to procure or
maintain any kind of insurance or arrangement, FMI may, for the benefit of
persons indemnified by FMI, (i) create a trust fund, (ii) establish any form
of self-insurance, (iii) secure its indemnification obligation by grant of any
security interest or other lien on the assets of FMI, or (iv) establish a
letter of credit, guaranty or surety arrangement. Any such insurance or other
arrangement may be procured, maintained or established within FMI by its
affiliates or with any insurer or other person deemed appropriate by the board
of directors of FMI regardless of whether all or part of the stock or other
securities thereof are owned in whole or in part by FMI. In the absence of
fraud, the judgment of the board of directors of FMI as to the terms and
conditions of such insurance or other arrangement and the identity of the
insurer or other person participating in an arrangement shall be conclusive,
and the insurance or arrangement shall not be voidable and shall not subject
the directors approving the insurance or arrangement to liability, on any
ground, regardless of whether directors participating in approving such
insurance or other arrangement shall be beneficiaries thereof.
Insurance
All of the Company's and the Subsidiary Guarantors' directors and officers
will be covered by insurance policies intended to be obtained by the Company
and the Subsidiary Guarantors against certain liabilities for actions taken in
such capacities, including liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of September 12,
1997, by and among the Company, Merger Sub and MDP.
2.2 Amendment to the Agreement and Plan of Merger, dated as of
December 26, 1997 by and among Company, Merger Sub and
MDP.
3.1 Certificate of Incorporation of the Company.
3.2 Certificate of Incorporation of TMIH.
3.3 Certificate of Incorporation of TMIL.
3.4 Certificate of Incorporation of TMI.
3.5 Certificate of Incorporation of FMI.
</TABLE>
II- 5
<PAGE>
<TABLE>
<C> <S> <C>
3.6 Certificate of Designation.
3.7 By-Laws of the Company.
3.8 By-Laws of TMIH.
3.9 By-Laws of TMIL.
3.10 Bylaws of TMI.
3.11 Bylaws of FMI.
4.1 Indenture, dated as of December 29, 1997, by and between
the Company and the Subsidiary Guarantors and Harris Trust
and Savings Bank, as trustee.
4.2 Indenture, dated as of December 29, 1997, by and between
the Company and the Subsidiary Guarantors and United
States Trust Company of New York, as trustee.
4.3 Form of Notes (included in Exhibit 4.1).
4.4 Form of Exchange Notes (included in Exhibit 4.1).
4.5 Credit Agreement, dated as of December 29, 1997, among the
Company, as Borrower, the Subsidiary Guarantors, as
Guarantors, each of the Lenders that is a signatory
thereto, Merrill Lynch, as Agent and Fleet National Bank,
as Administrative Agent.
4.6 Security Agreement, dated as of December 29, 1997, by and
among the Company, the Subsidiary Guarantors and Fleet
National Bank, as Administrative Agent.
4.7 Registration Rights Agreement, dated as of December 29,
1997, by and among the Company, the Subsidiary Guarantors
and the Initial Purchasers.
5.1 Opinion of Kirkland & Ellis.*
10.1 Subscription Agreement, dated as of December 26, 1997, by
and between Merger Sub and each of the investors listed on
the Schedule of Subscribers attached thereto.
10.2 Subscription Agreement, dated as of December 29, 1997, by
and between the Company and Madison Dearborn.
10.3 Employment Agreement, dated as of December 29, 1997, by
and between the Company and Jerry M. Smith.
10.4 Consulting and Non-Competition Agreement, dated as of
December 29, 1997, by and between the Company and Lloyd L.
Ross.
10.5 Employment Put Agreement, dated as of December 29, 1997,
by and between the Company and Jerry M. Smith.
10.6 Term Put Agreement, dated as of December 29, 1997, by and
among the Company, Madison Dearborn and Lloyd L. Ross.
10.7 Stock Pledge Agreement, dated as of December 29, 1997, by
and between the Company and Jerry M. Smith.
10.8 Stock Pledge Agreement, dated as of December 29, 1997, by
and between the Company and Lloyd L. Ross.
10.9 1997 Long-Term Equity Incentive Plan of the Company.
</TABLE>
II- 6
<PAGE>
<TABLE>
<C> <S> <C>
10.10 Stock Option Agreement, dated as of December 29, 1997, by
and between the Company and Jerry M. Smith.
10.11 Stockholders Agreement, dated as of December 29, 1997, by
and among the Company, Madison Dearborn and the executives
listed on Schedule I attached thereto.
11.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges.
11.2 Statement Regarding Computation of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
21.1 Subsidiaries of the Company and each of the Subsidiary
Guarantors.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in Part II to the
Registration Statement).
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- --------
* To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to such agreement upon request by the
Commission.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bonafide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
II- 7
<PAGE>
(4) The undersigned registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(5) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers
and controlling persons of the registrants pursuant to the provisions
described under Item 20 or otherwise, the registrants have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants 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
registrants will, unless in the opinion of their counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(6) For purposes of determining any liability under the Securities Act,
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 registrants 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.
(7) For the purpose of determining any liability under the Securities
Act, 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.
(8) The undersigned registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(9) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II- 8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TUESDAY MORNING
CORPORATION HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF DALLAS, STATE OF TEXAS ON FEBRUARY 10, 1998.
Tuesday Morning Corporation
/s/ Jerry M. Smith
By: _________________________________
Jerry M. Smith
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS BENJAMIN D. CHERESKIN AND ROBIN P. SELATI AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT (AND ANY
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, FOR THE OFFERINGS WHICH THIS REGISTRATION STATEMENT
RELATES), AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Jerry M. Smith Chief Executive Officer, February 10, 1998
____________________________________ President and Director
Jerry M. Smith
/s/ Mark E. Jarvis Senior Vice President, Chief February 10, 1998
____________________________________ Financial Officer and
Mark E. Jarvis Secretary
/s/ G. Michael Anderson Senior Vice President, February 10, 1998
____________________________________ Buying Group
G. Michael Anderson
/s/ Lloyd L. Ross Chairman of the Board February 10, 1998
____________________________________
Lloyd L. Ross
/s/ William J. Hunckler, III Director February 10, 1998
____________________________________
William J. Hunckler, III
/s/ Benjamin D. Chereskin Director February 10, 1998
____________________________________
Benjamin D. Chereskin
/s/ Robin P. Selati Director February 10, 1998
____________________________________
Robin P. Selati
</TABLE>
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TUESDAY MORNING,
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
DALLAS, STATE OF TEXAS ON FEBRUARY 10, 1998.
Tuesday Morning, Inc.
/s/ Jerry M. Smith
By: _________________________________
Jerry M. Smith
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS BENJAMIN D. CHERESKIN AND ROBIN P. SELATI AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT (AND ANY
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, FOR THE OFFERINGS WHICH THIS REGISTRATION STATEMENT
RELATES), AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Jerry M. Smith President and Chief February 10, 1998
____________________________________ Operating Officer
Jerry M. Smith
/s/ Mark E. Jarvis Senior Vice President, Chief February 10, 1998
____________________________________ Financial Officer and
Mark E. Jarvis Secretary
/s/ William J. Hunckler, III Vice President and Assistant February 10, 1998
____________________________________ Secretary
William J. Hunckler, III
/s/ Benjamin D. Chereskin Vice President, Assistant February 10, 1998
____________________________________ Secretary and Director
Benjamin D. Chereskin
/s/ Robin P. Selati Vice President and Assistant February 10, 1998
____________________________________ Secretary
Robin P. Selati
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FRIDAY MORNING,
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
DALLAS, STATE OF TEXAS ON FEBRUARY 10, 1998.
Friday Morning, Inc.
/s/ Jerry M. Smith
By: _________________________________
Jerry M. Smith
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS BENJAMIN D. CHERESKIN AND ROBIN P. SELATI AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT (AND ANY
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, FOR THE OFFERINGS WHICH THIS REGISTRATION STATEMENT
RELATES), AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Jerry M. Smith President and Chief February 10, 1998
____________________________________ Operating Officer
Jerry M. Smith
/s/ Mark E. Jarvis Senior Vice President, Chief February 10, 1998
____________________________________ Financial Officer and
Mark E. Jarvis Secretary
/s/ William J. Hunckler, III Vice President and Assistant February 10, 1998
____________________________________ Secretary
William J. Hunckler, III
/s/ Benjamin D. Chereskin Vice President, Assistant February 10, 1998
____________________________________ Secretary and Director
Benjamin D. Chereskin
/s/ Robin P. Selati Vice President and Assistant February 10, 1998
____________________________________ Secretary
Robin P. Selati
</TABLE>
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TMI HOLDINGS,
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS ON FEBRUARY 10, 1998.
TMI Holdings, Inc.
/s/ Benjamin D. Chereskin
By: _________________________________
Benjamin D. Chereskin
President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS BENJAMIN D. CHERESKIN AND ROBIN P. SELATI AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT (AND ANY
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, FOR THE OFFERINGS WHICH THIS REGISTRATION STATEMENT
RELATES), AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATES
--------- -------- -----
<S> <C> <C>
/s/ Benjamin D. Chereskin President, Secretary and February 10, 1998
____________________________________ Director
Benjamin D. Chereskin
/s/ William J. Hunckler, III Vice President and Assistant February 10, 1998
____________________________________ Secretary
William J. Hunckler, III
/s/ Robin P. Selati Vice President and Assistant February 10, 1998
____________________________________ Secretary
Robin P. Selati
</TABLE>
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TMIL CORPORATION
HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS ON FEBRUARY 10, 1998.
TMIL Corporation
/s/ Benjamin D. Chereskin
By: _________________________________
Benjamin D. Chereskin
President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS BENJAMIN D. CHERESKIN AND ROBIN P. SELATI AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT (AND ANY
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, FOR THE OFFERINGS WHICH THIS REGISTRATION STATEMENT
RELATES), AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATES
--------- -------- -----
<S> <C> <C>
/s/ Benjamin D. Chereskin President, Secretary and February 10, 1998
____________________________________ Director
Benjamin D. Chereskin
/s/ William J. Hunckler, III Vice President and Assistant February 10, 1998
____________________________________ Secretary
William J. Hunckler, III
/s/ Robin P. Selati Vice President and Assistant February 10, 1998
____________________________________ Secretary
Robin P. Selati
</TABLE>
II-13
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
MADISON DEARBORN PARTNERS II, L.P.,
TUESDAY MORNING ACQUISITION CORP.
AND
TUESDAY MORNING CORPORATION
DATED AS OF SEPTEMBER 12, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 12, 1997 (this
"Agreement"), is made and entered into by and among Madison Dearborn Partners
II, L.P., a Delaware limited partnership ("Parent"), Tuesday Morning
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and Tuesday Morning Corporation, a Delaware corporation (the
"Company").
WHEREAS, the general partner of Parent and the respective Boards of
Directors of Sub and the Company have approved the acquisition of the Company
by Parent, by means of the merger (the "Merger") of Sub with and into the
Company, upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, pursuant to those certain option agreements (the "Option
Agreements"), dated as of August 13, 1997, by and between Parent and each of
Messrs. Lloyd L. Ross and Jerry M. Smith (the "Stockholders"), Parent has
acquired an option (the "Option") to purchase 3,896,757 shares of common
stock, par value $0.01 per share, of the Company ("Shares" or "Company Common
Stock") held by the Stockholders (including 1,143,600 Shares issuable to the
Stockholders upon exercise of stock options), which Shares are currently being
held in escrow by NationsBank of Texas, N.A.;
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the consummation thereof;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
The Merger
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law,
as amended (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time. At the Effective Time, the separate corporate existence of Sub
shall cease, and the Company shall continue as the surviving corporation and a
direct wholly owned subsidiary of Parent (Sub and the Company are sometimes
hereinafter referred to as "Constituent Corporations" and, as the context
requires, the Company is sometimes hereinafter referred to as the "Surviving
Corporation"), and shall continue under the name "Tuesday Morning
Corporation."
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the merger (the "Closing") shall take place at
10:00 a.m., Chicago time, on the first business day after satisfaction and/or
waiver of all of the conditions set forth in Article VI (the "Closing Date"),
at the offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois
60601, unless another date, time or place is agreed to in writing by the
parties hereto.
1.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, as provided in the DGCL, on the
Closing Date. The Merger shall become effective upon such filing or at such
time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
1.4 Effects of the Merger.
(a) The Merger shall have the effects as set forth in the applicable
provisions of the DGCL.
1
<PAGE>
(b) The directors of Sub and the officers of the Company immediately prior
to the Effective Time shall, from and after the Effective Time, be the initial
directors and officers of the Surviving Corporation until their successors
have been duly elected or appointed and qualified, or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
(c) The Certificate of Incorporation of the Company shall be amended and
restated in its entirety as set forth on Exhibit A hereto, and, from and after
the Effective Time, such amended and restated Certificate of Incorporation
shall be the Certificate of Incorporation of the Surviving Corporation, until
duly amended in accordance with the terms thereof and the DGCL.
(d) The Bylaws of the Company shall be amended and restated in their
entirety as set forth on Exhibit B hereto and, from and after the Effective
Time, such amended and restated Bylaws shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by applicable law, the
Certificate of Incorporation or the Bylaws.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder of shares of Company Common
Stock or any holder of shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one fully paid and nonassessable share of Common Stock, par
value $0.01 per share, of the Surviving Corporation or such other equity
securities of the Surviving Corporation as Parent shall specify.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of
Company Common Stock and all other shares of capital stock of the Company
that are owned by the Company and all shares of Company Common Stock and
other shares of capital stock of the Company owned by Parent or Sub shall
be canceled and retired and shall cease to exist and no consideration shall
be delivered or deliverable in exchange therefor.
2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Sub, the Company or the holders of any
of the shares thereof:
(a) (i) Subject to the other provisions of this Section 2.2, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares owned, directly or indirectly (other than
the shares covered by the Option), by the Company or by Parent, Sub or any
other Subsidiary of Parent and Dissenting Shares (as defined in Section
2.6)) shall be converted into the right to receive $25.00 per share, net to
the seller in cash, payable to the holder thereof, without any interest
thereon (the "Merger Consideration"), upon surrender and exchange of the
Certificate (as defined in Section 2.3) representing such share of Company
Common Stock. As used in this Agreement, the word "Subsidiary", with
respect to any party, means any corporation, partnership, joint venture or
other organization, whether incorporated or unincorporated, of which: (i)
such party or any other Subsidiary of such party is a general partner; (ii)
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation, partnership,
joint venture or other organization is held by such party or by any one or
more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; or (iii) at least 25% of the equity, other securities or
other interests is, directly or indirectly, owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and any
one or more of its Subsidiaries.
(ii) All such shares of Company Common Stock, when converted as provided
in Section 2.2(a)(i), no longer shall be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
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Certificate previously evidencing such Shares shall thereafter represent
only the right to receive the Merger Consideration. The holders of
Certificates previously evidencing Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to the
Company Common Stock except as otherwise provided herein or by law and,
upon the surrender of Certificates in accordance with the provisions of
Section 2.3, shall only represent the right to receive for their Shares,
the Merger Consideration, without any interest thereon.
2.3 Payment for Shares.
(a) Paying Agent. Prior to the Effective Time, Sub shall appoint a United
States bank or trust company reasonably acceptable to the Company to act as
paying agent (the "Paying Agent") for the payment of the Merger Consideration,
and Sub shall deposit or shall cause to be deposited with the Paying Agent in
a separate fund established for the benefit of the holders of shares of
Company Common Stock, for payment in accordance with this Article II, through
the Paying Agent (the "Payment Fund"), immediately available funds in amounts
necessary to make the payments pursuant to Section 2.2(a)(i) and this Section
2.3 to holders (other than the Company or Parent, Sub or any other Subsidiary
of Parent, or holders of Dissenting Shares). The Paying Agent shall, pursuant
to irrevocable instructions, pay the Merger Consideration out of the Payment
Fund.
The Paying Agent shall invest portions of the Payment Fund as Parent directs
in obligations of or guaranteed by the United States of America, in commercial
paper obligations receiving the highest investment grade rating from both
Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000 (collectively,
"Permitted Investments"); provided, however, that the maturities of Permitted
Investments shall be such as to permit the Paying Agent to make prompt payment
to former holders of Company Common Stock entitled thereto as contemplated by
this Section. The Surviving Corporation shall cause the Payment Fund to be
promptly replenished to the extent of any losses incurred as a result of
Permitted Investments. All earnings on Permitted Investments shall be paid to
the Surviving Corporation. If for any reason (including losses) the Payment
Fund is inadequate to pay the amounts to which holders of shares of Company
Common Stock shall be entitled under this Section 2.3, the Surviving
Corporation shall in any event be liable for payment thereof. The Payment Fund
shall not be used for any purpose except as expressly provided in this
Agreement.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall instruct the Paying Agent to
mail to each holder of record (other than the Company or Parent, Sub or any
other Subsidiary of Parent) of a Certificate or Certificates which,
immediately prior to the Effective Time, evidenced outstanding shares of
Company Common Stock (the "Certificates"), (i) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent, and shall be in such form and have such
other provisions as the Surviving Corporation reasonably may specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for payment therefor. Upon surrender of a Certificate for
cancellation to the Paying Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in respect thereof cash in an amount equal to the product of (x) the
number of shares of Company Common Stock represented by such Certificate and
(y) the Merger Consideration, and the Certificate so surrendered shall
forthwith be canceled. Absolutely no interest shall be paid or accrued on the
Merger Consideration payable upon the surrender of any Certificate. If payment
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the surrendered Certificate or established to
the satisfaction of the Surviving Corporation that such tax has been paid or
is not applicable. Until surrendered in accordance with the provisions of this
Section 2.3(b), each Certificate (other than Certificates representing Shares
owned by the Company or Parent, Sub or any other Subsidiary of Parent), shall
represent for all purposes only the right to receive the Merger Consideration.
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(c) Termination of Payment Fund; Interest. Any portion of the Payment Fund
which remains undistributed to the holders of Company Common Stock for 180
days after the Effective Time shall be delivered to the Surviving Corporation
upon demand, and any holders of Company Common Stock who have not theretofore
complied with this Article II and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter
look only to the Surviving Corporation for payment of the Merger Consideration
to which they are entitled. All interest accrued in respect of the Payment
Fund shall inure to the benefit of and be paid to the Surviving Corporation.
(d) No Liability. Neither Parent nor the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any cash from the
Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.4 Stock Transfer Books. At the Effective Time, the stock transfer books of
the Company shall be closed and there shall be no further registration of
transfer of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any certificates presented to the
Paying Agent or Parent for any reason shall be converted into the Merger
Consideration.
2.5 Stock Option Plans. At or about the Effective Time, the holders of then
outstanding options to purchase Shares under the Company's Restated Incentive
Stock Option Plan and Non-Qualified Stock Option Plan (the "Stock Option
Plans"), whether or not then exercisable (collectively, the "Employee
Options"), shall, in cancellation and settlement thereof, receive for each
Share subject to such Employee Option an amount (subject to any applicable
withholding tax) in cash equal to the difference between the Merger
Consideration and the per Share exercise price of such Employee Option to the
extent such difference is a positive number (such amount being hereinafter
referred to as, the "Option Consideration"). Upon receipt of the Option
Consideration, the Employee Option shall be canceled. The surrender of an
Employee Option to the Company in exchange for the Option Consideration shall
be deemed a release of any and all rights the holder had or may have had in
respect of such Employee Option. Prior to the Closing, the Company shall
obtain all necessary consents or releases from holders of Employee Options
under the Stock Option Plans and take all such other lawful action as may be
necessary to give effect to the transactions contemplated by this Section 2.5.
The Stock Option Plans shall terminate as of the Effective Time, and the
provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any Subsidiary thereof shall be canceled as of the Effective Time.
Prior to the Closing, the Company shall take all action necessary to (i)
ensure that, following the Effective Time, no participant in the Stock Option
Plans or any other plans, programs or arrangements shall have any right
thereunder to acquire equity securities of the Company, the Surviving
Corporation or any Subsidiary thereof and (ii) terminate all such plans,
programs and arrangements.
2.6 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing
and who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders instead shall be entitled to receive
payment of the appraised value of such shares of Company Common Stock held by
them in accordance with the provisions of such Section 262 of the DGCL, except
that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such shares of Company Common Stock under such Section 262 of the
DGCL shall thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Merger Consideration upon surrender in the manner
provided in Section 2.3, of the Certificate or Certificates that, immediately
prior to the Effective Time, evidenced such shares of Company Common Stock.
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ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation,
has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and in good standing to
conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not (i) have a Material Adverse Effect (as
defined below) with respect to the Company or (ii) impair in any material
respect the ability of the Company to consummate the transactions
contemplated by this Agreement. The Company has heretofore delivered to
Parent complete and correct copies of its and its Subsidiaries' respective
Certificates of Incorporation and Bylaws. All Subsidiaries of the Company
and their respective jurisdictions of incorporation or organization are
identified on Schedule 3.1(a). As used in this Agreement: a "Material
Adverse Effect" shall mean, with respect to any party, the result of one or
more events, changes or effects which, individually or in the aggregate,
would have a material adverse effect on the business, operations, results
of operations, assets, condition (financial or otherwise) or prospects of
such party and its Subsidiaries, taken as a whole.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 Shares and 2,000,000 shares of
preferred stock, par value $1.00 per share (the "Preferred Stock"). As of
the date hereof: (i) 12,346,974 Shares are issued and 11,917,681 Shares are
outstanding; (ii) no shares of Preferred Stock are issued and outstanding;
and (iii) 1,248,863 Shares are reserved for issuance pursuant to Employee
Options outstanding under the Stock Option Plans. Except for the issuance
of Shares pursuant to the exercise of outstanding Employee Options, there
are no employment, executive termination or similar agreements providing
for the issuance of Shares. No Shares are held by the Company, and no
Shares are held by any Subsidiary of the Company. No bonds, debentures,
notes or other instruments or evidence of indebtedness having the right to
vote (or convertible into, or exercisable or exchangeable for, securities
having the right to vote) on any matters on which the Company stockholders
may vote ("Company Voting Debt") are issued or outstanding. All outstanding
Shares are validly issued, fully paid and nonassessable and are not subject
to preemptive or other similar rights. Except as set forth on Schedule
3.1(b), all outstanding shares of capital stock of the Subsidiaries of the
Company are owned by the Company or a direct or indirect Subsidiary of the
Company, free and clear of all liens, charges, encumbrances, claims and
options of any nature. Except as set forth in this Section 3.1(b), there
are outstanding: (i) no shares of capital stock, Company Voting Debt or
other voting securities of the Company; (ii) no securities of the Company
or any Subsidiary of the Company convertible into, or exchangeable or
exercisable for, shares of capital stock, Company Voting Debt or other
voting securities of the Company or any Subsidiary of the Company; and
(iii) no options, warrants, calls, rights (including preemptive rights),
commitments or agreements to which the Company or any Subsidiary of the
Company is a party or by which it is bound, in any case obligating the
Company or any Subsidiary of the Company to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or any Company
Voting Debt or other voting securities of the Company or of any Subsidiary
of the Company, or obligating the Company or any Subsidiary of the Company
to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. Except as set forth on Schedule 3.1(b), since June
30, 1997, the Company has not (i) granted any options, warrants or rights
to purchase shares of Company Common Stock or (ii) amended or repriced any
Employee Option or the Stock Option Plans. The Company has previously
delivered to Parent a complete and correct list of all outstanding options,
warrants and rights to purchase shares of Company Common Stock and the
exercise prices relating thereto. Except for the Option Agreements, there
are not as of the date hereof and there will not be at the Effective Time
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any stockholder agreements, voting trusts or other agreements or
understandings to which the Company is a party or by which it is bound
relating to the voting of any shares of the capital stock of the Company
which will limit in any way the solicitation of proxies by or on behalf of
the Company from, or the casting of votes by, the stockholders of the
Company with respect to the Merger. There are no restrictions on the
Company to vote the stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to the approval of this
Agreement and the Merger by the holders of a majority of the
outstanding Shares ("Company Stockholder Approval"), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of the Company, subject to the Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and,
subject to the Company Stockholder Approval, constitutes a valid and
binding obligation of the Company enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance 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).
(ii) Except as set forth on Schedule 3.1(c)(ii), the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by the Company will not conflict with, or result in
any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration (including pursuant to any put right) of any obligation or
the loss of a material benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets or property,
or right of first refusal with respect to any asset or property (any
such conflict, violation, default, right of termination, cancellation
or acceleration, loss, creation or right of first refusal, a
"Violation"), pursuant to, (A) any provision of the Certificate of
Incorporation or Bylaws of the Company or any of its Subsidiaries or
(B) except as to which requisite waivers or consents have been obtained
and assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph (iii) of this Section
3.1(c) are duly and timely obtained or made and the Company Stockholder
Approval has been obtained, result in any Violation of (1) any loan or
credit agreement, note, mortgage, deed of trust, indenture, lease,
Benefit Plan (as defined in Section 3.1(i)), Company Permit (as defined
in Section 3.1(f)), or any other agreement, obligation, instrument,
concession, franchise, or license or (2) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company
or any of its Subsidiaries or their respective properties or assets
(collectively, "Laws"). The Board of Directors of the Company has taken
all actions necessary under the DGCL, including approving the
transactions contemplated by this Agreement, to ensure that Section 203
of the DGCL does not, and will not, apply to the transactions
contemplated in this Agreement.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for: (A) the filing of a pre-
merger notification and report form by the Company under the Hart-
Scott-Rodino Antitrust improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting
period thereunder; (B) the filing with the United States Securities and
Exchange Commission (the "SEC") of (x) a proxy statement in definitive
form relating to a meeting of the holders of Company Common Stock to
approve the Merger (such proxy statement as amended or supplemented
from time to time being hereinafter referred to as the "Proxy
Statement") and (y) such reports under and such other compliance with
the Exchange Act and the rules and regulations thereunder as may be
required in connection with this Agreement and the transactions
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contemplated hereby; (C) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware; (D) such filings and
approvals as may be required by any applicable state securities, "blue
sky" or takeover laws; and (E) such filings in connection with any
state or local tax which is attributable to the beneficial ownership of
the Company's or its Subsidiaries' real property, if any (collectively,
the "Gains and Transfer Taxes").
(d) SEC Documents. The Company has delivered to Parent a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC since January
1, 1994 and prior to the date of this Agreement (the "Company SEC
Documents"), which are all the documents (other than preliminary material)
that the Company was required to file with the SEC since such date. As of
their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
Company SEC Documents, and none of the Company SEC Documents 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,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the Company SEC
Documents complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP") applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present
in accordance with applicable requirements of GAAP (subject, in the case of
the unaudited statements, to normal, recurring adjustments, which will not
be material, either individually or in the aggregate) the consolidated
financial position of the Company and its consolidated Subsidiaries as of
their respective dates and the consolidated results of operations and the
consolidated cash flows of the Company and its consolidated Subsidiaries
for the periods presented therein.
(e) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement will, on the date it is first mailed to the holders of the
Company Common Stock or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If, at any
time prior to the Effective Time, any event with respect to the Company or
any of its Subsidiaries, or with respect to other information supplied by
the Company for inclusion in the Proxy Statement, shall occur which is
required to be described in an amendment of, or a supplement to, the Proxy
Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Proxy Statement,
insofar as it relates to the Company or its Subsidiaries or other
information supplied by the Company for inclusion therein will comply as to
form, in all material respects, with the provisions of the Exchange Act or
the rules and regulations thereunder.
(f) Compliance with Applicable Laws. The Company and its Subsidiaries
hold all material permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary for the
lawful conduct of their respective businesses (the "Company Permits"). The
Company and its Subsidiaries are in compliance in all material respects
with the terms of the Company Permits (a list of which is set forth on
Schedule 3.1(f)). Except as disclosed in Schedule 3.1(f), the Company and
its Subsidiaries have complied in all material respects with all applicable
laws, ordinances and regulations of all Governmental Entities. As of the
date of this Agreement, no investigation or review by any Governmental
Entity with respect to the Company or any of its Subsidiaries is pending
or, to the knowledge of the Company, threatened.
(g) Litigation. Except as set forth on Schedule 3.1(g), there is no suit,
action or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary of the
Company ("Company Litigation"), nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any Subsidiary of the Company ("Company
Order").
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(h) Taxes. Except as set forth on Schedule 3.1(h) hereto:
(i) All Tax Returns required to be filed by or with respect to the
Company and each of its Subsidiaries have been duly and timely filed,
and all such Tax Returns are true, correct and complete in all material
respects. The Company and each of its Subsidiaries has duly and timely
paid (or there has been paid on its behalf) all Taxes that are due, or
claimed or asserted by any taxing authority to be due, from or with
respect to it. With respect to any period for which Taxes are not yet
due with respect to the Company or any Subsidiary, the Company and each
of its Subsidiaries has made due and sufficient current accruals for
such Taxes in accordance with GAAP in the most recent financial
statements contained in the Company SEC Documents. The Company and each
of its Subsidiaries has made (or there has been made on its behalf) all
required estimated Tax payments sufficient to avoid any material
underpayment penalties. The Company and each of its Subsidiaries has
withheld and paid all Taxes required by all applicable laws to be
withheld or paid in connection with any amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(ii) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitation applicable to any claim
for, or the period for the collection or assessment of, material Taxes
due from or with respect to the Company or any of its Subsidiaries for
any taxable period. No audit or other proceeding by any court,
governmental or regulatory authority, or similar person is pending or,
to the knowledge of the Company, threatened in regard to any Taxes due
from or with respect to the Company or any of the Subsidiaries or any
Tax Return filed by or with respect to the Company or any of its
Subsidiaries. No assessment of Taxes is proposed against the Company or
any of its Subsidiaries or any of their assets.
(iii) No election under Section 338 of the Code has been made or
filed by or with respect to the Company or any of its Subsidiaries. No
consent to the application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or with respect to the
Company or any of its Subsidiaries or any of their assets. None of the
Company or any of its Subsidiaries has agreed to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision)
by reason of any change in any accounting method, and there is no
application pending with any taxing authority requesting permission for
any changes in any accounting method of the Company or any of its
Subsidiaries. None of the assets of the Company or any of its
Subsidiaries is or will be required to be treated as being owned by any
person (other than the Company or its Subsidiaries) pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986.
(iv) None of the Company or any of its Subsidiaries is a party to, is
bound by, or has any obligation under, any Tax sharing agreement, Tax
allocation agreement or similar contract.
(v) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or
any of its Subsidiaries by reason of Section 280G of the Code.
(vi) Schedule 3.1(h) accurately sets forth (i) the amount of all
deferred intercompany gains for purposes of Treasury Regulation section
1.1502-13 (including any predecessor regulation) with respect to the
Company and its Subsidiaries; and (ii) the amount of any excess loss
account with respect to the stock of each of the Subsidiaries for
purposes of Treasury Regulation section 1.1502-19 (including any
predecessor regulation).
(vii) The term "Code" shall mean the internal Revenue Code of 1986,
as amended. The term "Taxes" shall mean all taxes, charges, fees,
levies, or other similar assessments or liabilities, including (a)
income, gross receipts, ad valorem, premium, excise, real property,
personal property, sales, use, transfer, withholding, employment,
payroll, and franchise taxes imposed by the United States of America,
or by any state, local, or foreign government, or any subdivision,
agency, or other similar person of the United States or any such
government; and (b) any interest, fines, penalties, assessments, or
additions to taxes resulting from, attributable to, or incurred in
connection with any Tax or any
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contest, dispute, or refund thereof. The term "Tax Returns" shall mean
any report, return, or statement required to be supplied to a taxing
authority in connection with Taxes.
(i) Pension And Benefit Plans; ERISA.
(i) Schedule 3.1(i)(i) sets forth a complete and correct list of:
(A) all "employee benefit plans", as defined in Sections 3(3) and
4(b)(4) of ERISA, under which Company or any of its Subsidiaries has
any obligation or liability, contingent or otherwise ("Benefit Plans");
and
(B) all employment or consulting agreements, and all bonus or other
incentive compensation, deferred compensation, salary continuation
during any absence from active employment for disability or other
reasons, severance, sick days, stock award, stock option, stock
purchase, tuition assistance, club membership, employee discount,
employee loan, or vacation pay agreements, policies or arrangements
which the Company or any of its Subsidiaries maintains or has any
obligation or liability (contingent or otherwise) and each of which has
a cost to the Company or any of its Subsidiaries in excess of $10,000
for any year (the "Employee Arrangements").
(ii) with respect to each Benefit Plan and Employee Arrangement, a
complete and correct copy of each of the following documents (if
applicable) has been delivered to Parent or its representatives: (i) the
most recent plan and related trust documents, and all amendments thereto;
(ii) the most recent summary plan description, and all related summaries of
material modifications thereto; (iii) the most recent Form 5500 (including
schedules and attachments); (iv) the most recent IRS determination letter;
(v) the most recent actuarial reports (including for purposes of Financial
Accounting Standards Board report no. 87, 106 and 112).
(iii) The Company and its Subsidiaries have not during the preceding six
years had any obligation or liability (contingent or otherwise) with
respect to a Benefit Plan which is described in Section 3(35), 3(37),
4(b)(4), 4063 or 4064 of ERISA.
(iv) The Benefit Plans and their related trusts intended to qualify under
Sections 401(a) and 501(a) of the Code, respectively, are qualified under
such sections. Any voluntary employee benefit association which provides
benefits to current or former employees of the Company and its
Subsidiaries, or their beneficiaries, is and has been qualified under
Section 501(c)(9) of the Code.
(v) All contributions or other payments required to have been made by the
Company or any of its Subsidiaries to or under any Benefit Plan or Employee
Arrangement by applicable law or the terms of such Benefit Plan or Employee
Arrangement (or any agreement relating thereto) have been timely and
properly made.
(vi) The Benefit Plans and Employee Arrangements have been maintained and
administered in all material respects in accordance with their terms and
applicable laws.
(vii) Except as disclosed in Schedule 3.1(i)(vii), there are no pending
or, to the best knowledge of the Company, threatened actions, claims or
proceedings against or relating to any Benefit Plan or Employee Arrangement
other than routine benefit claims by persons entitled to benefits
thereunder.
(viii) Except as disclosed in Schedule 3.1(i)(viii), the Company and its
Subsidiaries do not maintain or have an obligation to contribute to retiree
life or retiree health plans which provide for continuing benefits or
coverage for current or former officers, directors or employees of the
Company or any of its Subsidiaries except (i) as may be required under Part
6 of Title I of ERISA) and at the sole expense of the participant or the
participant's beneficiary or (ii) a medical expense reimbursement account
plan pursuant to Section 125 of the Code.
(ix) Except as disclosed in Schedule 3.1(i)(ix) none of the assets of any
Benefit Plan is directly invested in stock of the Company or any of its
affiliates, or property leased to or jointly owned by the Company or any of
its affiliates.
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(x) Except as disclosed in Schedule 3.1(i)(x) or in connection with
equity compensation, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (A)
result in any payment becoming due to any employee (current, former or
retired) of the Company and its Subsidiaries, (B) increase any benefits
under any Benefit Plan or Employee Arrangement or (C) result in the
acceleration of the time of payment of, vesting of or other rights with
respect to any such benefits.
(xi) The Company and its Subsidiaries have no liability (contingent or
otherwise) under Section 4069 of ERISA by reason of a transfer of an
underfunded pension plan.
(j) Absence of Certain Changes or Events. Since June 30, 1997, the
business of the Company and its Subsidiaries has been carried on only in
the ordinary and usual course and no event or events has or have occurred
that (either individually or in the aggregate) has had, or could have, a
Material Adverse Effect on the Company.
(k) No Undisclosed Liabilities. Except as specifically and individually
set forth on Schedule 3.1(k) or the other schedules hereto (specific
reference to which shall be made on Schedule 3.1(k)), there are no
liabilities of the Company or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or
otherwise, that are material to the Company and its Subsidiaries considered
as a whole other than: (i) liabilities reflected on the Company's audited
financial statements (together with the related notes thereto) filed with
the Company's Annual Statement on Form 10-K for the year ended December 31,
1996 (as filed with the SEC) or unaudited financial statements contained in
the Company's Quarterly Report on Form 10-Q for the quarters ended March
31, 1997 and June 30, 1997 (such audited and unaudited financial statements
being referred to herein as the "Company Financial Statements"); and (ii)
liabilities under this Agreement.
(l) Opinion of Financial Advisor. The Company has received the opinion of
SBC Warburg Dillon Read Inc., (the "Financial Advisor") dated September 12,
1997, to the effect that, as of the date hereof, the Merger Consideration
to be received by the holders of Company Common Stock in the Merger is fair
from a financial point of view to such holders, a signed, true and complete
copy of which opinion shall be delivered to Parent, and such opinion has
not been withdrawn or modified. True and complete copies of all agreements
and understandings between the Company or any of its affiliates and the
Financial Advisor relating to the transactions contemplated by this
Agreement are attached hereto as Schedule 3.1(l).
(m) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary
(under applicable law or otherwise) to approve the Merger, this Agreement
and the transactions contemplated hereby.
(n) Labor Matters.
(i) Neither the Company nor any of its Subsidiaries is a party to any
labor or collective bargaining agreement, and no employees of the Company
or any of its Subsidiaries are represented by any labor organization.
Within the preceding three years, there have been no representation or
certification proceedings, or petitions seeking a representation
proceeding, pending or, to the knowledge of the Company, threatened to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. Within the preceding three years, to the
knowledge of the Company, there have been no organizing activities
involving the Company or any of its Subsidiaries with respect to any group
of employees of the Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes
pending or, to the knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of
the Company, threatened by or on behalf of any employee or group of
employees of the Company or any of its Subsidiaries.
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(iii) Except as set forth on Schedule 3.1(g), there are no complaints,
charges or claims against the Company or any of its Subsidiaries pending
or, to the knowledge of the Company, threatened to be brought or filed with
any governmental authority, arbitrator or court based on, arising out of,
in connection with, or otherwise relating to the employment or termination
of employment of any individual by the Company or any of its Subsidiaries.
(iv) Each of the Company and its Subsidiaries is in material compliance
with all laws, regulations and orders relating to the employment of labor,
including all such laws, regulations and orders relating to wages, hours,
collective bargaining, discrimination, civil rights, safety and health,
workers, compensation and the collection and payment of withholding and/or
social security taxes and any similar tax.
(v) Since January 1, 1996, there has been no "mass layoff" or "plant
closing" (as defined by the Worker Adjustment Retraining and Notification
Act of 1988, as amended ("WARN Act") with respect to the Company or any of
its Subsidiaries.
(o) Intangible Property. Except as set forth on Schedule 3.1(o) attached
hereto, each of the Company and its subsidiaries owns or has a right to use
each material trademark, trade name, patent, service mark, brand mark,
brand name, computer program, database, industrial design and copyright
owned, used or useful in connection with the operation of its businesses,
including any registrations thereof and pending applications therefor, and
each license or other contract relating thereto (collectively, the "Company
Intangible Property"), free and clear of any and all liens, claims or
encumbrances. Schedule 3.1(o) hereto sets forth a complete list of the
Company Intangible Property. The use of the Company Intangible Property by
the Company or its Subsidiaries does not conflict with, infringe upon,
violate or interfere with or constitute an appropriation of any right,
title, interest or goodwill, including any intellectual property right,
trademark, trade name, patent, service mark, brand mark, brand name,
computer program, database, industrial design, copyright or any pending
application therefor of any other person.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means any and all
losses, liabilities, obligations, damages, fines, penalties,
judgments, actions, claims, costs and expenses (including fees,
disbursements and expenses of legal counsel, experts, engineers and
consultants and the costs of investigation and feasibility studies
and the costs to clean up, remove, treat, or in any other way
address any Hazardous Materials) arising from or under any
Environmental Law.
(B) "Environmental Law" means any applicable law regulating or
prohibiting Releases of Hazardous materials into any part of the
natural environment, or pertaining to the protection of natural
resources, the environment and public and employee health and safety
from Hazardous Materials including the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (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 Clean Water Act (33 U.S.C. (S) 1251 et
seq.), the Clean Air Act (33 U.S.C. (S) 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. (S) 7401 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et
seq.), and the Occupational Safety and Health Act (29 U.S.C. (S) 651
et seq.) ("OSHA") and the regulations promulgated pursuant thereto,
and any such applicable state or local statutes, including the
Industrial Site Recovery Act ("IRSA"), and the regulations
promulgated pursuant thereto, as such laws have been and may be
amended or supplemented through the Closing Date;
(C) "Hazardous Material" means any substance, material or waste
which is regulated by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries
conducts business, or the United States, including any material or
substance which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law and shall also
include petroleum, petroleum products, asbestos, polychlorinated
biphenyls and radioactive materials;
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(D) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching,
or migration into the environment, or into or out of any property; and
(E) "Remedial Action" means all actions, including any expenditures,
required by a governmental entity or required under any Environmental
Law, or voluntarily undertaken to (I) clean up, remove, treat, or in
any other way ameliorate or address any Hazardous Materials or other
substance in the environment; (II) prevent the Release or threat of
Release, or minimize the further Release of any Hazardous Material so
it does not endanger or threaten to endanger the public health or
welfare or the environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (IV) bring the applicable party into
compliance with any Environmental Law.
(ii) (A) The operations of the Company and its Subsidiaries have been
and, as of the Closing Date, will be, in compliance with all
Environmental Laws;
(B) The Company and its Subsidiaries have obtained and will, as of
the Closing Date, maintain all permits required under applicable
Environmental Laws for the continued operations of their respective
businesses, except such permits the lack of which would not materially
impair the ability of the Company and its Subsidiaries to continue
operations;
(C) The Company and its Subsidiaries are not subject to any
outstanding written orders from, or written agreements with, any
Governmental Entity or other person respecting (I) Environmental Laws,
(II) Remedial Action or (III) any Release or threatened Release of a
Hazardous Material;
(D) The Company and its Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation
of or liability under any Environmental Law, which violation or
liability is outstanding;
(E) Neither the Company nor any of its Subsidiaries has any
contingent liability in connection with the Release of any Hazardous
Material into the environment (whether on-site or off-site) which would
be reasonably likely to result in the Company and its Subsidiaries
incurring Environmental Costs and Liabilities in excess of $100,000;
(F) The operations of the Company or its Subsidiaries do not involve
the transportation, treatment, storage or disposal of hazardous waste,
as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state equivalent;
(G) Except as set forth on Schedule 3.1(p) attached hereto, to the
knowledge of the Company, there is not now nor has there been in the
past, on or in any owned property of the Company or its Subsidiaries
any of the following: (I) any underground storage tanks or surface
impoundments, (II) any asbestos-containing materials in friable form or
(III) any polychlorinated biphenyls; and
(H) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries alleging the
violation of or seeking to impose liability pursuant to any
Environmental Law.
(q) Real Property.
(i) The Company has previously provided to Parent a list of all of
the real property owned in fee by the Company and its Subsidiaries.
Each of the Company and its Subsidiaries has good and marketable title
to each parcel of real property owned by it free and clear of all
mortgages, pledges, liens, encumbrances and security interests, except
(1) those reflected or reserved against in the balance sheet of the
Company dated as of December 31, 1996, (2) taxes and general and
special assessments not in default and payable without penalty and
interest, (3) statutory liens arising or incurred in the ordinary
course of business with respect to which the underlying obligations are
not delinquent and (4) liens which are not substantial in character,
amount or extent and which do not detract from the value, or interfere
with the present use, of the property subject thereto or affected
thereby.
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(ii) The Company has previously provided to Parent a list setting forth
each lease, sublease or other agreement (collectively, the "Real Property
Leases") under which the Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property. Each Real Property Lease is valid, binding and in full force and
effect, all rent and other sums and charges payable by the Company and its
Subsidiaries as tenants thereunder are current, no termination event or
condition or uncured default of a material nature on the part of the
Company or any Subsidiary of the Company or, to the Company's knowledge,
the landlord, exists under any Real Property Lease. Each of the Company and
its Subsidiaries has a good and valid leasehold interest in each parcel of
real property leased by it free and clear of all mortgages, pledges, liens,
encumbrances and security interests, except (1) those reflected or reserved
against in the balance sheet of the Company dated as of December 31, 1996,
(2) taxes and general and special assessments not in default and payable
without penalty and interest, (3) statutory liens arising or incurred in
the ordinary course of business with respect to which the underlying
obligations are not delinquent and (4) liens which are not substantial in
character, amount or extent and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(r) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by the vote of those directors
participating (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to and in the best
interests of the stockholders of the Company and has approved the same, and
(ii) resolved to recommend that the holders of the shares of Company Common
Stock approve this Agreement and the transactions contemplated herein,
including the Merger.
(s) Material Contracts. The Company has delivered to Parent (i) true and
complete copies of all written contracts, agreements, commitments,
arrangements, leases (including with respect to personal property),
policies and other instruments to which it or any of its Subsidiaries is a
party or by which it or any such Subsidiary is bound which require payments
to be made in excess of $1,000,000 per year (other than purchase orders
entered into in the ordinary course of business, real estate leases or
agreements listed in any of the other disclosure schedules attached hereto)
(collectively, "Material Contracts") and (ii) a written description of each
Material Contract that has not been reduced to writing. Each of the
Material Contracts is listed on Schedule 3.1(s). Neither the Company nor
any of its Subsidiaries is, or has received any notice or has any knowledge
that any other party is, in default in any material respect under any such
Material Contract; and there has not occurred any event or events that with
the lapse of time or the giving of notice or both would constitute such a
material default.
(t) Related Party Transactions. Except as set forth in the Company SEC
Documents, no director, officer, "affiliate" or "associate" (as such terms
are defined in Rule 12b-2 under the Exchange Act) of the Company or any of
its Subsidiaries (i) has borrowed any monies from or has outstanding any
indebtedness or other similar obligations to the Company or any of its
Subsidiaries; (ii) owns any direct or indirect interest of any kind in, or
is a director, officer, employee, partner, affiliate or associate of, or
consultant or lender to, or borrower from, or has the right to participate
in the management, operations or profits of, any person or entity which is
(A) a competitor, supplier, customer, distributor, lessor, tenant, creditor
or debtor of the Company or any of its Subsidiaries, (B) engaged in a
business related to the business of the Company or any of its Subsidiaries,
or (C) participating in any transaction to which the Company or any of its
Subsidiaries is a party; or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its Subsidiaries.
(u) Indebtedness. Except as set forth on Schedule 3.1(u) hereto (or
otherwise disclosed in the Company Financial Statements), neither the
Company nor any of its Subsidiaries has any outstanding indebtedness for
borrowed money or representing the deferred purchase price of property or
services or similar liabilities or obligations, including any guarantee in
respect thereof ("Indebtedness"), or is a party to any agreement,
arrangement or understanding providing for the creation, incurrence or
assumption thereof.
(v) Liens. Except as set forth on Schedule 3.1(v) (or otherwise disclosed
in the Company Financial Statements), neither the Company nor any of its
Subsidiaries has granted, created, or suffered to exist with
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respect to any of its assets, any mortgage, pledge, charge, hypothecation,
collateral assignment, lien, encumbrance or security agreement of any kind
or nature whatsoever, except for statutory liens arising or incurred in the
ordinary course of business with respect to which the underlying
obligations are not delinquent and liens which are not substantial in
character, amount or extent and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(w) Suppliers. There has been no material deterioration in the relations
of the Company and its Subsidiaries with any of their material suppliers
since June 30, 1997.
(x) Disclosure. Neither this Section 3 nor any schedule, attachment,
written statement, document, certificate or other item supplied to Parent
by or on behalf of the Company with respect to the transactions
contemplated by this Agreement contains any untrue statement of a material
fact or omits a material fact necessary to make each statement contained
herein or therein not misleading.
3.2 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Parent is a limited partnership and
Sub is a corporation, and each is duly organized, validly existing and in
good standing under the laws of its state of organization, has all
requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and is duly qualified to
do business as a foreign partnership or corporation and in good standing to
conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify could not have a Material Adverse Effect with respect
to Parent.
(b) Authority; No Violations; Consents and Approvals.
(i) Each of Parent and Sub has all requisite partnership or corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary partnership or corporate action on
the part of Parent and Sub. This Agreement has been duly executed and
delivered by each of Parent and Sub and assuming this Agreement constitutes
the valid and binding agreement of the Company, constitutes a valid and
binding obligation of Parent and Sub enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited by
(a) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance 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).
(ii) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by each of Parent and Sub will not
result in any Violation pursuant to any provision of the respective
Partnership Agreement or Certificate of Incorporation or Bylaws of Parent
or Sub (as applicable) or, except as to which requisite waivers or consents
have been obtained and assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in paragraph (iii) of this
Section 3.2(b) are duly and timely obtained or made, and the Company
Stockholder Approval has been obtained, result in any Violation of any loan
or credit agreement, note, mortgage, indenture, lease, or other agreement,
obligation, instrument, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or
Sub or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any Governmental
Entity, is required by or with respect to Parent or Sub in connection with
the execution and delivery of this Agreement by each of Parent and Sub or
the consummation by each of Parent or Sub of the transactions contemplated
hereby, except for: (A) filings under the HSR Act; (B) the filing with the
SEC of such reports under and such other compliance with the Exchange Act
and the rules and regulations thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby; (C) the
filing of the Certificate of Merger with the Secretary of State of the
State of Delaware; (D) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws; and (E) such
filings in connection with any Gains and Transfer Taxes.
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(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion in the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. If, at any time prior to the Effective Time, any
event with respect to Parent or Sub, or with respect to information
supplied by Parent or Sub for inclusion in the Proxy Statement, shall occur
which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described to the Company.
(d) Financing. Parent and Sub have delivered to the Company a true and
complete copy of the letters obtained by Parent and Sub from Merrill Lynch
& Co., Inc. to provide debt financing for the transactions contemplated
hereby (the "Financing Letters"). Parent and its Affiliates will provide
$115,000,000 in equity financing for the transactions contemplated hereby.
(e) Due Diligence. Parent and Sub acknowledge that they and their
representatives have conducted an independent due diligence investigation
of the Company and its Subsidiaries prior to the execution of this
Agreement and will continue to do so. At the time of the execution of this
Agreement, the officers of Parent are not aware of facts which would
currently entitle Parent and Sub to decline to effect the Merger pursuant
to Section 6.2(a). Parent and Sub agree to confirm to the Company in
writing at the time the Proxy Statement is mailed to the Company's
stockholders that such officers are not aware of any such facts.
ARTICLE IV
Covenants Relating to Conduct of Business
4.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees as to
the Company and its Subsidiaries that (except as expressly contemplated or
permitted by this Agreement, or to the extent that Parent shall otherwise
consent in writing):
(a) Ordinary Course. Each of the Company and its Subsidiaries shall carry
on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall use all
reasonable efforts to preserve intact its present business organization,
keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having
material business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Effective
Time.
(b) Dividends; Changes in Stock. The Company shall not, nor shall it
permit any of its Subsidiaries to: (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock; (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock; or (iii) repurchase or
otherwise acquire, or permit any Subsidiary to purchase or otherwise
acquire, any shares of its capital stock, except as required by the terms
of its securities outstanding on the date hereof.
(c) Issuance of Securities. The Company shall not, nor shall it permit
any of its Subsidiaries to, (i) grant any options, warrants or rights, to
purchase shares of Company Common Stock, (ii) amend the terms of or reprice
any option or amend the terms of the Stock Option Plans, or (iii) issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class or series, any Company Voting Debt
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, Company Voting Debt or convertible securities,
other than the issuance of Shares upon the exercise of Employee Options
that are outstanding on the date hereof.
(d) Governing Documents. The Company shall not amend or propose to amend
its Certificate of Incorporation or Bylaws, except as contemplated hereby.
(e) No Solicitation. From and after the date hereof until the termination
of this Agreement, neither the Company or any of its Subsidiaries, nor any
of their respective officers, directors, employees,
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representatives, agents or affiliates (including any investment banker,
advisor attorney or accountant retained by any of the above) (such
officers, directors, employees, representatives, agents, affiliates,
investment bankers, attorneys and accountants being referred to herein,
collectively, as "Representatives"), will, directly or indirectly, (i)
initiate, solicit or encourage (including by way of furnishing information
or assistance), or take any other action to facilitate, any inquiries or
the making of any proposal that constitutes, or could reasonably be
expected to lead to, any Acquisition Proposal (as defined below), (ii)
provide any information to any other person or entity concerning the
Company (other than information which the Company provides to other persons
in the ordinary course of its business, so long as the Company has no
reason to believe that such information will be used to make or evaluate an
Acquisition Proposal, or as required by law) or (iii) enter into or
maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal; and neither the Company nor any of
its Subsidiaries will authorize or permit any of its Representatives to
take any such action, and the Company shall notify Parent orally (within
one business day) and in writing (as promptly as practicable) of all of the
relevant details relating to, and all material aspects of, all inquiries
and proposals which it or any of its Subsidiaries or any of their
respective Representatives may receive relating to any of such matters,
including the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact, and, if such inquiry or proposal is in
writing, the Company shall deliver to Parent a copy of such inquiry or
proposal as promptly as practicable; provided, however, that nothing
contained in this Section 4.1(e) shall prohibit the Board of Directors of
the Company from responding to any unsolicited written, bona fide
Acquisition Proposal if, and only to the extent that, (A) the Board of
Directors of the Company, after consultation with and based upon the advice
of its Financial Advisor, determines in good faith that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed and
would, if consummated, result in a transaction more favorable to the
Company's stockholders than the transaction contemplated herein, (B) the
Board of Directors of the Company, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that such
action is necessary for the Board of Directors of the Company to comply
with its fiduciary duties to stockholders under applicable law, (C) prior
to taking such action, the Company (x) provides reasonable prior notice to
Parent to the effect that it is taking such action and (y) receives from
such person or entity an executed confidentiality agreement in reasonably
customary form, and (D) the Company shall promptly and continuously advise
Parent as to all of the relevant details relating to, and all material
aspects, of any such discussions or negotiations.
For purposes of this Agreement, "Acquisition Proposal" shall mean any of
the following (other than the transactions among the Company, Parent and
Sub contemplated hereunder) involving the Company or any of its
Subsidiaries: (i) any merger, consolidation, share exchange,
recapitalization, business combination, or other similar transaction; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for all or
substantially all of the outstanding shares of capital stock of the Company
or the filing of a registration statement under the Securities Act in
connection therewith; or (iv) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any
of the foregoing.
(f) No Acquisitions. The Company shall not, nor shall it permit any of
its Subsidiaries to, merge or consolidate with, or acquire any equity
interest in, any corporation, partnership, association or other business
organization, or enter into an agreement with respect thereto. The Company
shall not acquire or agree to acquire any assets of any corporation,
partnership, association or other business organization or division
thereof, except for the purchase of inventory and supplies in the ordinary
course of business.
(g) No Dispositions. Other than sales of inventory in the ordinary course
of business consistent with past practice, the Company shall not, nor shall
it permit any of its Subsidiaries to, sell, lease, encumber or otherwise
dispose of, or agree to sell, lease (whether such lease is an operating or
capital lease), encumber or otherwise dispose of, any of its assets
(including any capital stock or other ownership interest of any Subsidiary
of the Company).
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(h) Governmental Filings. The Company shall promptly provide Parent (or
its counsel) with copies of all filings made by the Company with the SEC or
any other state or federal Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
(i) No Dissolution, Etc. The Company shall not authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation or dissolution of the Company or any of its Subsidiaries.
(j) Other Actions. The Company will not nor will it permit any of its
Subsidiaries to take or agree or commit to take any action that is
reasonably likely to result in any of the Company's representations or
warranties hereunder being untrue in any material respect or in any of the
Company's covenants hereunder or any of the conditions to the Merger not
being satisfied in all material respects.
(k) Certain Employee Matters. The Company and its Subsidiaries shall not
(without the prior written consent of Parent): (i) grant any increases in
the compensation of any of its directors, officers or key employees; (ii)
pay or agree to pay any pension, retirement allowance or other employee
benefit not required or contemplated to be paid prior to the Effective Time
by any of the existing Benefit Plans or Employee Arrangements as in effect
on the date hereof to any such director, officer or key employee, whether
past or present; (iii) enter into any new, or materially amend any
existing, employment or severance or termination agreement with any such
director, officer or key employee; or (iv) except as may be required to
comply with applicable law, become obligated under any new Benefit Plan or
Employee Arrangement, which was not in existence on the date hereof, or
amend any such plan or arrangement in existence on the date hereof if such
amendment would have the effect of materially enhancing any benefits
thereunder.
(l) Indebtedness; Agreements.
(i) The Company shall not, nor shall the Company permit any of its
Subsidiaries to, assume or incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any
of its Subsidiaries or guarantee any debt securities of others (other
than borrowings under the Company's existing revolving credit facility
in the ordinary course of business consistent with past practice) or
enter into any operating or capital lease (other than entering into
operating leases in connection with leasing additional retail space in
the ordinary course of business consistent with past practice) or
create any mortgages, liens, security interests or other encumbrances
on the property of the Company or any of its Subsidiaries, or enter
into any "keep well" or other agreement or arrangement to maintain the
financial condition of another person.
(ii) The Company shall not, nor shall the Company permit any of its
Subsidiaries to, enter into, modify, rescind, terminate, waive, release
or otherwise amend in any material respect any of the terms or-
provisions of any Material Contract.
(m) Accounting. The Company shall not take any action, other than in the
ordinary course of business, consistent with past practice or as required
by the SEC or by law, with respect to accounting policies, procedures and
practices.
(n) Capital Expenditures. The Company and its Subsidiaries shall not
incur any capital expenditures in excess of $100,000, except for capital
expenditures contemplated by the Company's budget previously supplied to
Parent.
(o) Requisite Consents. The Company and its Subsidiaries shall use all
commercially reasonable efforts to (i) obtain consents from third parties
to the consummation of the Merger and the transactions contemplated thereby
and hereby, which consents are material to the business of the Company (the
"Requisite Consents") and (ii) ensure that such Requisite Consents are in
full force and effect as of the Closing Date.
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ARTICLE V
Additional Agreements
5.1 Preparation of the Proxy Statement; Company Stockholders Meeting.
(a) As soon as practicable following the date hereof, the Company and Parent
shall prepare the Proxy Statement. The Company will, as soon as practicable
following the date hereof, file the Proxy Statement with the SEC. The Company
will use all commercially reasonable efforts to respond to all SEC comments
with respect to the Proxy Statement and to cause the Proxy Statement to be
mailed to the Company's stockholders at the earliest practicable date.
(b) The Company will, as soon as practicable following the date hereof, duly
call, give notice of, convene and hold a meeting of the Company's stockholders
for the purpose of approving this Agreement and the transactions contemplated
hereby. At such stockholders meeting, Parent shall cause all of the shares of
Company Common Stock then owned by Parent and Sub to be voted in favor of the
Merger.
(c) Sub shall promptly submit this Agreement and the transactions
contemplated hereby for approval and adoption by Parent, as its sole
stockholder, by written consent.
5.2 Access to Information. Upon reasonable notice, each of the Company or
Parent, as the case may be, shall (and shall cause each of its Subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the other party (including, in the case of Parent and Sub,
potential financing sources and their employees, accountants, counsel and
other representatives), access, during normal business hours during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, such party shall (and shall
cause each of its Subsidiaries to) furnish promptly to the other party,
(a) copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to SEC requirements and
(b) all other information concerning its business, properties and personnel as
such other party may reasonably request. The Confidentiality Agreement
previously entered into between Parent and the Company (the "Confidentiality
Agreement") shall apply with respect to information furnished thereunder or
hereunder and any other activities contemplated thereby.
5.3 Settlements. Neither the Company nor any of its Subsidiaries shall
effect any settlements of any legal proceedings arising out of or related to
the execution, delivery or performance of this Agreement or the consummation
of any of the transactions contemplated hereby without the prior written
consent of Parent.
5.4 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.4 and except with respect
to claims for damages incurred as a result of the breach of this Agreement,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense.
(b) The Company agrees to pay Parent a fee in immediately available funds
equal to $9,750,000 upon:
(i) the termination of this Agreement under Section 7.1(d) in the event
that any of the following events shall occur (each, a "Trigger Event"):
(1) the Board of Directors of the Company shall have (A) withdrawn or
modified, in a manner adverse to Parent or Sub, its recommendation of
the Agreement or the Merger or (B) failed to confirm its recommendation
of the Agreement or the Merger within two business days after a written
request by Parent to do so after the occurrence of an Acquisition
Proposal;
(2) the Board of Directors of the Company shall have approved,
endorsed or recommended to the stockholders of the Company an
Acquisition Proposal;
(3) the Company shall have entered into an agreement (other than a
confidentiality agreement as contemplated by Section 4.1(e)) with
respect to an Acquisition Proposal;
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(4) any Person or group (other than Parent, Sub or any of their
Affiliates) shall have acquired Company Common Stock after the date of
this Agreement which, when added to Company Common Stock already owned
by such Person or group, constitutes a majority of the outstanding
Company Common Stock or a tender or exchange offer for Company Common
Stock shall have been commenced and such offer ultimately results,
including after the termination of this Agreement, in a Person or group
owning a majority of the outstanding Company Common Stock; or
(5) (A) an Acquisition Proposal is made and (B) the Company fails to
call and hold a stockholders meeting to approve the Agreement and the
Merger as promptly as is reasonably practicable having regard to the
expected timing of the financing of the Merger and, in any event, on or
prior to the 175th calendar day after the date hereof (such time period
shall be extended by an amount of time equal, in the reasonable
judgment of the Company, to any delays beyond the reasonable control of
the Company in obtaining any required regulatory approvals in
connection with the transactions contemplated hereby); or
(ii) the termination of this Agreement under Section 7.1(b) following a
material and willful breach by the Company of any covenant or agreement set
forth in this Agreement, which breach could reasonably be expected to aid
or encourage an Acquisition Proposal and shall not have been cured within
ten business days following receipt by the Company of notice of such
breach.
(c) Upon any termination of this Agreement (other than a termination by the
Company under Section 7.1(b)(i) hereof), the Company shall pay to Parent (not
later than one business day after receipt of reasonable documentation therefor
and in no event prior to January 2, 1998) such amounts as may be necessary to
reimburse Parent and Sub for their reasonable out-of-pocket fees and expenses
incurred or paid by or on behalf of Parent or Sub to third parties in
connection with the Merger or the consummation of any of the transactions
contemplated by this Agreement, including all costs and reasonable fees and
expenses of counsel, investment banking firms, accountants, experts and
consultants, provided that (x) reimbursement for such fees and expenses shall
be limited to $1,000,000 and (y) reimbursement under this sentence shall not
cover fees incurred or paid by or on behalf of Parent or Sub under the
Financing Letters. In addition, in the event the payment becomes due under
Section 5.4(b), the Company shall pay to Parent (not later than one business
day after receipt of reasonable documentation therefor) all fees and expenses
incurred or paid by or on behalf of Parent or Sub under the Financing Letters,
provided that reimbursement for fees and expenses under this sentence shall be
limited to $1,000,000. The Company shall in any event pay the amount requested
(subject to the limits in the preceding two sentences) within one business day
of receipt of reasonable documentation from Parent. The amounts payable to
Parent and Sub under this Section 5.4(c) shall be in addition to (and not an
offset against) the amount (if any) payable to Parent under Section 5.4(b).
(d) Any amounts due under this Section 5.4 that are not paid when due shall
bear interest at the rate of 12% per annum from the date due through and
including the date paid.
5.5 Brokers or Finders. (a) The Company represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any
broker's or finders fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except the
Financial Advisor and Hatchett Capital Group, Inc., whose fees and expenses
will be paid by the Company in accordance with the Company's agreements with
such firms (copies of which have been delivered by the Company to Parent prior
to the date of this Agreement).
(b) Parent represents, as to itself, its Subsidiaries and its affiliates,
that no agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finders fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
5.6 Indemnification; Directors' and Officers' Insurance.
(a) The Company shall, and from and after the Effective Time, the Surviving
Corporation shall, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who
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becomes prior to the Effective Time, an officer or director of the Company or
any of its Subsidiaries (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director or
officer of the Company or any of its Subsidiaries whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers as the case may be (and the Company and the Surviving Corporation, as
the case may be, will pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent
permitted by law). Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time), the
Company shall defend the Indemnified Parties in such matter with counsel of
the Company's choosing and the Indemnified Parties will use all reasonable
efforts to assist in the vigorous defense of any such matter. In no event will
the Company or the Surviving Corporation be liable for any settlement effected
without its prior written consent which consent shall not unreasonably be
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 5.6, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Company (or after the Effective Time,
the Surviving Corporation) (but the failure so to notify shall not relieve a
party from any liability which it may have under this Section 5.6 except to
the extent such failure prejudices such party), and shall deliver to the
Company (or after the Effective Time, the Surviving Corporation) the
undertaking contemplated by Section 145(e) of the DGCL. The Company and Sub
agree that the foregoing rights to indemnification, including provisions
relating to advances of expenses incurred in defense of any action or suit,
existing in favor of the Indemnified Parties with respect to matters occurring
through the Effective Time, shall survive the Merger and shall continue in
full force and effect for a period of not less than six years from the
Effective Time; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period
shall continue until the disposition of such Indemnified Liabilities.
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries (provided that Parent may substitute therefor policies of at
least the same coverage and containing terms and conditions which are not
materially less advantageous to the Indemnified Parties) with respect to
matters arising before the Effective Time, provided that Parent shall not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid by the Company prior to the date hereof, but in such
case shall purchase as much coverage as possible for such amount. The last
annual premium paid by the Company was $105,000.
(c) The provisions of this Section 5.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives and shall be binding on all successors and assigns of
Sub, the Company and the Surviving Corporation.
5.7 Commercially Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable, under applicable
laws and regulations or otherwise, to consummate and make effective the
transactions contemplated by this Agreement, subject to the Company
Stockholder Approval, including cooperating fully with the other party,
including by provision of information and making of all necessary filings in
connection with, among other things, approvals under the HSR Act. In case at
any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest the Surviving
Corporation with full title to all properties, assets, rights, approvals,
immunities and franchises of either of the Constituent Corporations, the
proper officers and directors of each
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party to this Agreement shall take all such necessary action. Without limiting
the generality of the foregoing, the Company agrees to cooperate with Parent's
and Sub's efforts to secure the financing contemplated by the Financing
Letters, such cooperation to include providing such information to Parent's
and Sub's financing sources as Parent or Sub may reasonably request and making
available management and such other employees of the Company as Parent and Sub
may reasonably request to participate in any marketing and sales efforts
relating to sales of securities in connection with the Financing Letters.
5.8 Conduct of Business of Sub. During the period of time from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.
5.9 Publicity. The parties will consult with each other and will mutually
agree upon any press release or public announcement pertaining to the Merger
and shall not issue any such press release or make any such public
announcement prior to such consultation and agreement, except as may be
required by applicable law, in which case the party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with the other party before issuing any such press
release or making any such public announcement.
5.10 Withholding Rights. Sub and the Surviving Corporation, as applicable,
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Sub or the Surviving Corporation, as applicable, is
required to deduct and withhold with respect to the making of such payment
under the Code or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Sub or the Surviving Corporation, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Sub or the Surviving
Corporation, as applicable.
ARTICLE VI
Conditions Precedent
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the holders of a majority
of the outstanding Shares entitled to vote thereon.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
expired, and no restrictive order or other requirements shall have been
placed on the Company, Parent, Sub or the Surviving Corporation in
connection therewith.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall
use all commercially reasonable efforts to have any such decree, ruling,
injunction or order vacated.
(d) Statutes. No statute, rule, order, decree or regulation shall have
been enacted or promulgated by any government or governmental agency or
authority which prohibits the consummation of the Merger.
6.2 Conditions of Obligations of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by Parent
and Sub:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date as
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though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement and except in those instances where the aggregate amounts
represented by all breaches (other than breaches for which the Company has
obtained the consent of Parent and Sub) of such representations and
warranties are not likely to result in a Material Adverse Effect on the
Company; and Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer and by the chief financial
officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer and by the chief financial officer of the Company
to such effect.
(c) Financing. Parent and Sub shall have received the debt financing for
the transactions contemplated hereby on terms substantially as outlined in
the Financing Letters.
(d) Employment Matters. Lloyd L. Ross shall have entered into a two-year
consulting agreement with the Surviving Corporation on terms consistent
with the letter dated September 12, 1997 from Parent to him. Jerry M. Smith
shall have entered into a three-year employment agreement with the
Surviving Corporation on terms consistent with the letter dated September
12, 1997 from Parent to him and shall have made the investment in Sub as
contemplated therein.
(e) No Litigation. There shall be no action, suit or proceeding pending
against Parent, Sub or the Company seeking to restrain or enjoin the
Merger, or seeking a material amount of damages in connection with the
Merger, which action, suit or proceeding has, in the opinion of legal
counsel to Parent, a reasonable possibility of success.
(f) Consents. The Company and the Subsidiaries shall have obtained all of
Requisite Consents.
(g) Dissenting Shares. No more than five percent (5.0%) of the shares of
Company Common Stock outstanding immediately prior to the Effective Time
shall be Dissenting Shares.
6.3 Conditions of Obligations of the Company. The obligation of the Company
to effect the Merger is subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement, and the Company shall have received a certificate signed
on behalf of Parent by the chief executive officer and by the chief
financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the Chief Executive officer and by the Chief Financial Officer of Parent to
such effect.
ARTICLE VII
Termination and Amendment
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or by Parent:
(a) by mutual written consent of the Company and Parent, or by mutual
action of their respective Boards of Directors;
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(b) by either the Company or Parent (i) so long as such party is not then
in material breach of its obligations hereunder, if there has been a breach
of any representation, warranty, covenant or agreement on the part of the
other set forth in this Agreement which breach has not been cured within
five business days following receipt by the breaching party of notice of
such breach, or (ii) if any permanent injunction or other order of a court
or other competent authority preventing the consummation of the Merger
shall have become final and non-appealable;
(c) by either the Company or Parent, so long as such party is not then in
material breach of its obligations hereunder, if the Merger shall not have
been consummated on or before the 180th calendar day following the date
hereof; provided, that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date; or
(d) by Parent in the event that a Trigger Event has occurred under
Section 5.4(b) prior to the Closing.
7.2 Effect of Termination. In the event of termination of this Agreement by
either the Company or Parent as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the
part of Parent, Sub or the Company or their respective affiliates, officers,
directors or shareholders except (i) with respect to (A) this Section 7.2, (B)
the second sentence of Section 5.2 and (C) Section 5.4, and (ii) to the extent
that such termination results from the material breach by a party hereto of
any of its representations or warranties, or of any of its covenants or
agreements, in each case, as set forth in this Agreement.
7.3 Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Parent, Sub and the
Company at any time prior to the Effective Date with respect to any of the
terms contained herein; provided, however, that, after this Agreement is
approved by the Company's stockholders, no such amendment or modification
shall reduce the amount or change the form of consideration to be delivered to
the holders of Shares.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by mutual action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto; (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE VIII
General Provisions
8.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Article II and Section 5.6
hereof. The Confidentiality Agreement shall survive the execution and delivery
of this Agreement, and the provisions of the Confidentiality Agreement shall
apply to all information and material delivered by any party hereunder.
8.2 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed
to be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
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(a)if to Parent or Sub, to:
Madison Dearborn Partners II, L.P.
Three First National Plaza
Chicago, Illinois 60602
Attn: Benjamin D. Chereskin
Telephone: (312) 732-5115
Telecopy: (312) 732-4098
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Carter W. Emerson, P.C.
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
(b) if to the Company, to:
Tuesday Morning Corporation
14621 Inwood Rd.
Dallas, Texas 75244
Attn: Jerry M. Smith
Telephone: (972) 450-8267
Telecopy: (972) 387-2344
with copies to:
Crouch & Hallet, L.L.P.
717 N. Harwood Suite 1400
Dallas, TX 775201
Attn: Bruce Hallett
Telephone: (214) 953-0053
Telecopy: (214) 953-0576
8.3 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (together with the Confidentiality Agreement and any
other documents and instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and,
except as provided in Section 5.6, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
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8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
8.7 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties, except that (a) Sub may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder to (i) any newly-formed
direct wholly-owned Subsidiary of Parent or Sub or (ii) any institutional
lender who provides funds to Parent, Sub or the Surviving Corporation for the
consummation of the transactions contemplated hereby and (b) Parent may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Madison Dearborn Capital Partners II, L.P. or any
subsidiary of the type contemplated in clause (a)(i) above. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
PARENT:
Madison Dearborn Partners II, L.P.
By: Madison Dearborn Partners, Inc.
/s/ Benjamin Chereskin
By: _________________________________
Benjamin D. Chereskin
SUB:
Tuesday Morning Acquisition Corp.
/s/ Benjamin D. Chereskin
By: _________________________________
Benjamin D. Chereskin
Vice President
COMPANY:
Tuesday Morning Corporation
/s/ Lloyd L. Ross
By: _________________________________
Lloyd L. Ross
Chief Executive Officer
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Exhibit 2.2
AMENDMENT TO MERGER AGREEMENT
This Amendment is made as of the 26th day of December, 1997 by the
undersigned parties to the Agreement and Plan of Merger (the "Merger Agreement")
among them dated as of September 12, 1997.
The Merger Agreement is hereby amended to add Exhibit A hereto as Exhibit A
to the Merger Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
TUESDAY MORNING CORPORATION
/s/ Mark E. Jarvis
___________________________
By: Mark E. Jarvis
Its: Chief Financial Officer
TUESDAY MORNING ACQUISITION
CORP.
___________________________
By: Benjamin D. Chereskin
Its: Vice President
MADISON DEARBORN PARTNERS II,
L.P.
By: Madison Dearborn Partners, Inc.
Its: General Partner
___________________________
By: Benjamin D. Chereskin
Its: Vice President
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TUESDAY MORNING CORPORATION
ARTICLE ONE
The name of the corporation is Tuesday Morning Corporation.
ARTICLE TWO
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle, 19805. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
AUTHORIZED SHARES.
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The total number of shares of capital stock which the Corporation has
authority to issue is 11,152,500 shares, consisting of:
(1) 1,000,000 shares of Senior Exchangeable Preferred Stock, par value
$.01 per share ("Senior Exchangeable Preferred");
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(2) 150,000 shares of Series B-1 Cumulative Junior Redeemable
Preferred Stock, par value $.01 per share ("Series B-1 Preferred");
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(3) 2,500 shares of Series B-2 Cumulative Junior Perpetual Preferred
Stock, par value $.01 per share ("Series B-2 Preferred"); and
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(4) 10,000,000 shares of Common Stock, par value $.01 per share
("Common Stock").
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The Series B-1 Preferred and the Series B-2 Preferred are herein collectively
referred to as the "Series B Preferred." The Senior Exchangeable Preferred and
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Series B Preferred are herein collectively referred to as the "Preferred Stock."
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Certain other capitalized terms used herein are defined in Section 8 of
Paragraph B hereof.
A. SENIOR EXCHANGEABLE PREFERRED.
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Shares of Senior Exchangeable Preferred may be issued from time to
time in one or more series, each of such series to have such powers, preferences
and rights as stated or expressed herein and in the resolution or resolutions
providing for the issue of such series adopted by the Board of Directors of the
Corporation as hereinafter provided. Any shares of Senior Exchangeable
Preferred which are redeemed or otherwise acquired by the Corporation shall be
canceled and shall not be reissued or transferred. Except as otherwise required
by law, different series of Senior Exchangeable Preferred shall not be construed
to constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby granted to the Board of Directors from time to
time to issue the Senior Exchangeable Preferred in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be stated and expressed in such resolutions,
all to the full extent now or hereafter permitted by the General Corporation Law
of Delaware (the "Corporation Law"). Without limiting the generality of the
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foregoing, except as otherwise provided herein or in the resolutions providing
for the issuance of any other series of Senior Exchangeable Preferred, the
resolutions providing for issuance of any series of Senior Exchangeable
Preferred may provide that such series shall be superior or rank equally or be
junior to the Senior Exchangeable Preferred of any other series to the extent
permitted by law. Except as otherwise provided herein or in the resolutions
providing for the issuance of any series of Preferred Stock, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
issuance of any series of the Preferred Stock authorized by and complying with
the conditions of this Certificate of Incorporation.
Each series of Senior Exchangeable Preferred shall rank senior to the
Series B Preferred as set forth in the resolution or resolutions providing for
the issue of such series of Senior Exchangeable Preferred adopted by the Board
of Directors as herein provided.
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B. SERIES B PREFERRED STOCK.
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Section 1. Dividends.
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1A. General Obligation. When and as declared by the Corporation's board
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of directors and to the extent permitted under the Corporation Law, the
Corporation shall pay preferential dividends to the holders of the Series B-1
Preferred as provided in this Section 1. Except as otherwise provided herein,
dividends on each share of the Series B-1 Preferred (a "Series B-1 Share") shall
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accrue on a daily basis at the rate of 8.0% per annum of the sum of the
Liquidation Value thereof plus all accumulated and unpaid dividends thereon,
from and including the date of issuance of such Series B-1 Share to and
including the date on which the Liquidation Value of such Series B-1 Share (plus
all accrued and unpaid dividends thereon) is paid. Except as otherwise provided
herein, dividends on each share of the Series B-2 Preferred (a "Series B-2
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Share") shall accrue on a daily basis at the rate of (i) 8.0% per annum through
and until December 29, 2010 and (ii) 12.0% per annum thereafter (unless the
Corporation has offered to redeem such Series B-2 Shares pursuant to Section 4
below) of the sum of the Liquidation Value thereof plus all accumulated and
unpaid dividends thereon, from and including the date of issuance of such Series
B-2 Share to and including the date on which the Liquidation Value of such
Series B-2 Share (plus all accrued and unpaid dividends thereon) is paid. Such
dividends on Series B-1 Shares and Series B-2 Shares (collectively, "Series B
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Shares") shall accrue whether or not they have been declared and whether or not
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there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The date on which the Corporation initially
issues any Series B Share shall be deemed to be its "date of issuance"
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regardless of the number of times transfer of such Series B Share is made on the
stock records maintained by or for the Corporation and regardless of the number
of certificates which may be issued to evidence such Series B Share.
1B. Dividend Reference Dates. To the extent not paid on March 31,
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June 30, September 30 and December 31 of each year, beginning March 31, 1998
(the "Dividend Reference Dates"), all dividends which have accrued on each
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Series B Share outstanding during the three-month period (or other period in the
case of the initial Dividend Reference Date) ending upon each such Dividend
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Series B Share until paid.
1C. Distribution of Partial Dividend Payments. Except as otherwise
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provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series B Preferred, such payment
shall be distributed ratably among the holders of such class based upon the
number of Series B Shares held by each such holder.
Section 2. Liquidation.
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Upon any liquidation, dissolution or winding up of the
Corporation (whether voluntary or involuntary), each holder of Series B
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of all Series B Shares
held by such holder, and the holders of Series B Preferred shall not be entitled
to any further payment. If, upon any such
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liquidation, dissolution or winding up of the Corporation, the Corporation's
assets to be distributed among the holders of the Series B Preferred are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 2, then the entire assets to be
distributed shall be distributed ratably among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Series B Preferred held by each such holder. Prior to the time of any
liquidation, dissolution or winding up of the Corporation, the Corporation shall
declare for payment all accrued and unpaid dividends with respect to the Series
B Preferred. Not less than 60 days prior to the payment date stated therein, the
Corporation shall mail written notice of such liquidation, dissolution or
winding up to each record holder of Series B Preferred. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities (whether or not the Corporation is the surviving entity), nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, nor any other form of
recapitalization or reorganization affecting the Corporation, shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 2.
Section 3. Priorities of Series B Preferred on Dividends and
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Redemptions.
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So long as any Series B Preferred remains outstanding, neither
the Corporation nor any Subsidiary shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities, nor shall the Corporation directly
or indirectly pay or declare any dividend or make any distribution upon any
Junior Securities, if at the time of or immediately after any such redemption,
purchase, acquisition, dividend or distribution the Corporation has failed to
pay the full amount of dividends accrued on the Series B Preferred or the
Corporation has failed to make any redemption of the Series B-1 Preferred
required hereunder; provided that the Corporation may purchase shares of Common
Stock from present or former employees of the Corporation and its Subsidiaries
in accordance with the provisions of the Executive Stock Agreements.
Section 4. Redemptions.
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4A. Scheduled Redemptions. The Corporation shall redeem all of the Series
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B-1 Shares (or such lesser number then outstanding), on the earlier of (i)
December 29, 2010 or (ii) the Sale of the Company.
4B. Optional Redemptions. The Corporation may at any time and from time
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to time redeem all or any portion of the Series B-1 Preferred or the Series B-2
Preferred then outstanding. Upon any such redemption, the Corporation shall pay
a price per Series B Share equal to the Liquidation Value thereof (plus all
accrued and unpaid dividends thereon). Redemptions made pursuant to this
paragraph shall not relieve the Corporation of its obligation to redeem Series
B-1 Shares on the Scheduled Redemption Dates.
4C. Redemption Payment. For each Series B Share which is to be redeemed,
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the Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Series B Share) an amount in immediately
available funds equal to the Liquidation Value of such Series B Share (plus all
accrued and unpaid dividends thereon). If the funds of the Corporation legally
available for redemption of Series B Shares on any Redemption Date are
insufficient to redeem the
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total number of Series B Shares to be redeemed on such date, those funds which
are legally available shall be used to redeem the maximum possible number of
Series B Shares ratably among the holders of the Series B Shares to be redeemed
based upon the aggregate Liquidation Value of such Series B Shares (plus all
accrued and unpaid dividends thereon) held by each such holder. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Series B Shares, such funds shall immediately be used to
redeem the balance of the Series B Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed. Prior
to the time of any redemption of Series B Shares, the Corporation shall declare
for payment all accrued and unpaid dividends with respect to the Shares which
are to be redeemed.
4D. Notice of Redemption. The Corporation shall mail written notice of
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each redemption of Series B Preferred (other than a redemption at the request of
a holder or holders of Series B Preferred) to each record holder of such class
not more than 60 nor less than 30 days prior to the date on which such
redemption is to be made. In case fewer than the total number of Series B
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Series B Shares shall be issued to the
holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed Series B Shares.
4E. Determination of the Number of Each Holder's Shares to be Redeemed.
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The number of Series B Shares to be redeemed from each holder thereof in
redemptions hereunder shall be the number of Series B Shares determined by
multiplying the total number of Series B Shares to be redeemed times a fraction,
the numerator of which shall be the total number of Series B Shares of such
class then held by such holder and the denominator of which shall be the total
number of Series B Shares then outstanding.
4F. Dividends After Redemption Date. No Series B Share is entitled to any
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dividends accruing after the date on which the Liquidation Value of such Series
B Share (plus all accrued and unpaid dividends thereon) is paid to the holder
thereof. On such date all rights of the holder of such Series B Share shall
cease, and such Series B Share shall not be deemed to be issued and outstanding.
4G. Redeemed or Otherwise Acquired Shares. Any Series B Shares which are
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redeemed or otherwise acquired by the Corporation shall be canceled and shall
not be reissued, sold or transferred.
Section 5. Voting Rights.
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Except as otherwise provided herein and as otherwise required
by law, the Series B Preferred shall have no voting rights; provided that each
holder of Series B Preferred shall be entitled to notice of all stockholders
meetings at the same time and in the same manner as notice is given to the
stockholders entitled to vote at such meeting.
Section 6. Registration of Transfer.
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The Corporation shall keep at its principal office (or such
other place as the Corporation reasonably designates) a register for the
registration of each series of Series B Preferred.
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Upon the surrender of any certificate representing shares of Series B Preferred
at such place, the Corporation shall, at the request of the registered holder of
such certificate, execute and deliver a new certificate or certificates in
exchange therefor, representing in the aggregate the number of shares of such
class represented by the surrendered certificate, and the Corporation forthwith
shall cancel such surrendered certificate. Each such new certificate will be
registered in such name and will represent such number of shares of such class
as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate. The issuance of
new certificates shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such issuance.
Section 7. Replacement.
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Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of Series B Preferred, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to
the Corporation (provided that if the holder is a financial institution or other
institutional investor, its own agreement will be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate of like kind
representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
Section 8. Definitions.
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"Executive Stock Agreements" mean the Stockholders Agreement, the
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Term Put Agreements and the Employment Put Agreement, each originally dated
as of December 29, 1997, and the various executive stock agreements entered into
from time to time by the Corporation and employees of the Corporation or its
Subsidiaries, in each case, as the same may be amended from time to time.
"Junior Securities" means any capital stock or other equity
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securities of the Corporation, except for the Senior Exchangeable Preferred and
the Series B Preferred.
"Liquidation Value" of any Series B Shares as of any particular date
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shall be equal to $1,000.00.
"Redemption Date" as to any Series B Share means the date specified
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in the notice of any redemption at the Corporation's option or the applicable
date specified herein in the case of any other redemption; provided that no such
date shall be a Redemption Date unless the Liquidation Value of such Class B
Share (plus all accrued and unpaid dividends thereon) is actually paid in full
on such date, and if not so paid in full, the Redemption Date shall be the date
on which such amount is fully paid.
"Sale of the Company" means the sale of the Corporation pursuant to
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which such party or parties acquire (i) Common Stock of the Corporation
possessing the voting power under
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normal circumstances to elect a majority of the Corporation's board of directors
(whether by merger, consolidation, sale or transfer of the Corporation's Common
Stock) or (ii) all or substantially all of the Corporation's assets determined
on a consolidated basis.
"Subsidiary" means any corporation of which the shares of outstanding
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capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 9. Notices.
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All notices referred to herein shall be in writing, shall be
delivered personally or by first class mail, postage prepaid, and shall be
deemed to have been given when so delivered or mailed to the Corporation at its
principal executive offices and to any stockholder at such holder's address as
it appears in the stock records of the Corporation (unless otherwise specified
in a written notice to the Corporation by such holder).
Section 10. Amendment and Waiver.
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No amendment, modification or waiver of any provision of this
Part B hereof shall be effective without the prior approval or consent of the
holders of a majority of the then outstanding Series B Preferred.
C. COMMON STOCK.
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Section 1. Voting Rights.
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Except as otherwise provided in this Part C or as otherwise
required by applicable law, holders of Common Stock shall be entitled to one (1)
vote per share on all matters to be voted on by the stockholders of the
Corporation.
Section 2. Dividends.
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After dividends on the Preferred Stock shall have been paid or
set apart for payment (to the extent such Preferred Stock may be entitled
thereto), subject to the provisions of Section 3 of Part B and to the rights of
the Senior Exchangeable Preferred, the Board may declare a dividend upon the
Common Stock out of the unrestricted and unreserved surplus of the Corporation.
As and when dividends are declared or paid thereon, whether in cash, property or
securities of the Corporation, the holders of Common Stock shall be entitled to
participate in such dividends ratably based on the number of shares of Common
Stock ("Common Shares") held by each such holder.
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Section 3. Liquidation.
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Subject to the provisions of the Preferred Stock, the holders
of the Common Stock shall be entitled to participate ratably based on the number
of Common Shares held by such
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holder in all distributions to the holders of Common Stock in any liquidation,
dissolution or winding up of the Corporation.
Section 4. Registration of Transfer.
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The Corporation shall keep at its principal office (or such
other place as the Corporation reasonably designates) a register for the
registration of Common Shares. Upon the surrender of any certificate
representing any class of Common Shares at such place, the Corporation shall, at
the request of the registered holder of such certificate, execute and deliver a
new certificate or certificates in exchange therefor representing in the
aggregate the number of Common Shares of such class represented by the
surrendered certificate, and the Corporation forthwith shall cancel such
surrendered certificate. Each such new certificate will be registered in such
name and will represent such number of Common Shares of such class as is
requested by the holder of the surrendered certificate and will be substantially
identical in form to the surrendered certificate. The issuance of new
certificates shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such issuance.
Section 5. Replacement.
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Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more Common Shares of any class, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to
the Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement will be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Common Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 6. Notices.
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All notices referred to herein shall be in writing, shall be
delivered personally or by first class mail, postage prepaid, and shall be
deemed to have been given when so delivered or mailed to the Corporation at its
principal executive offices and to any stockholder at such holder's address as
it appears in the stock records of the Corporation (unless otherwise specified
in a written notice to the Corporation by such holder).
Section 7. Legend.
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7A. Legend Requirement. Each certificate evidencing shares of Common
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Stock originally issued on December 29, 1997 in connection with the
Corporation's offering of units pursuant to that certain Purchase Agreement
dated as of December 15, 1997 shall bear a legend to the following effect,
unless otherwise agreed by the Company and the holder thereof:
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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE
HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE
TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION
S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE
WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS
PERMITTED BY RULE 144 UNDER THE SECURITIES ACT AND ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF
THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR
ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y)
SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION
DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE
904 OF REGULATION S, (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED
THAT THE COMPANY, THE TRUSTEE, THE TRANSFER AGENT AND
THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR
(E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES,
TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM
APPEARING ON THE
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OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE OR THE REGISTRAR, AS
THE CASE MAY BE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE TRADED, EXCHANGED OR
OTHERWISE TRANSFERRED UNTIL (I) JUNE 15, 1998; (II) THE
OCCURRENCE OF A CHANGE IN CONTROL; (III) THE DATE ON
WHICH A PREFERRED STOCK REGISTRATION STATEMENT IS
DECLARED EFFECTIVE; (IV) IMMEDIATELY PRIOR TO ANY
REDEMPTION OF SENIOR EXCHANGEABLE PREFERRED STOCK BY
THE COMPANY WITH THE PROCEEDS OF A PUBLIC EQUITY
OFFERING; OR (V) SUCH EARLIER DATE AS DETERMINED BY
MERRILL LYNCH IN ITS SOLE DISCRETION (THE DATE OF THE
OCCURRENCE OF AN EVENT SPECIFIED IN CLAUSES (I)-(V)
BEING THE "SEPARATION DATE").
7B. Refusal of Transfer. The Company shall refuse to register any
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transfer of Common Stock in violation of the restrictions contained in the
legend provided for in paragraph 7A above.
ARTICLE FIVE
The name and mailing address of the sole incorporator are as follows:
NAME MAILING ADDRESS
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Bruce H. Hallett 1601 Elm Street, Suite 3000
Dallas, TX 75201
ARTICLE SIX
The corporation is to have perpetual existence.
ARTICLE SEVEN
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
make, alter or repeal the by-laws of the corporation.
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ARTICLE EIGHT
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the by-laws
of the corporation. Election of directors need not be by written ballot unless
the by-laws of the corporation so provide.
ARTICLE NINE
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINE shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE TEN
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
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EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
TMI HOLDINGS, INC.
1. The name of the Corporation is TMI Holdings, Inc.
2. The address of the Corporation's registered office in the State of Delaware
is 1201 North Market Street, City of Wilmington, County of New Castle. The
name of its registered agent at such address is Delaware Corporation
Organizers, Inc.
3. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law
of the State of Delaware.
4. The total number of shares of capital stock that the Corporation shall have
the authority to issue is 10,000 shares of Common Stock with a par value of
$0.01 per share.
5. The name and mailing address of the incorporator is:
Susan Henderson
Thanksgiving Tower, Suite 3000
1601 Elm Street
Dallas, Texas 75201.
6. The number of directors of the Corporation shall be fixed in the manner
provided in the Bylaws of the Corporation, and until changed in the manner
provided in the Bylaws shall be two (2). The names and mailing addresses
of the persons who are to serve as directors until the first annual meeting
of stockholders or until their successors are elected and qualified are as
follows:
Name Address
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Lloyd L. Ross 14621 Inwood Road
Dallas, Texas 75244
Edward J. Lysen 14621 Inwood Road
Dallas, Texas 75244
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation shall have the power to adopt,
amend or repeal the Bylaws of the Corporation.
8. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of
<PAGE>
Incorporation, in the manner prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this reservation.
9. A director of the Corporation shall not, to the fullest extent permitted by
the Delaware General Corporation Law as the same exists or may hereafter be
amended, be liable to the Corporation or its stockholders for monetary
damages for breach of his or her fiduciary duty to the Corporation or its
stockholders.
The undersigned, being the incorporator named above, for the purpose of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this certificate, hereby declaring and certifying that this
is her act and deed and the facts herein stated are true, and accordingly has
hereunto set her hand this 14th day of October, 1991.
____________________________
Susan Henderson
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EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
TMIL CORPORATION
1. The name of the Corporation is TMIL Corporation.
2. The address of the Corporation's registered office in the State of Delaware
is 1105 North Market Street, Suite 1300, Wilmington, Delaware 19899, County
of New Castle. The name of its registered agent at such address is Delaware
Corporate Management, Inc.
3. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law
of the State of Delaware.
4. The total number of shares of capital stock that the Corporation shall have
the authority to issue is 10,000 shares of Common Stock with a par value of
$0.01 per share.
5. The name and mailing address of the incorporator is:
Susan Henderson
717 North Harwood Street
Suite 1400
Dallas, Texas 75201.
6. The number of directors of the Corporation shall be fixed in the manner
provided in the Bylaws of the Corporation, and until changed in the manner
provided in the Bylaws shall be three (3). The names and mailing addresses
of the persons who are to serve as directors until the first annual meeting
of stockholders or until their successors are elected and qualified are as
follows:
Name Address
---- -------
Mark E. Jarvis 14621 Inwood Road
Dallas, Texas 75244
Duane A. Huesers 14621 Inwood Road
Dallas, Texas 75244
Ronald J. Stephenson 14621 Inwood Road
Dallas, Texas 75244
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation shall have the power to adopt,
amend or repeal the Bylaws of the Corporation.
<PAGE>
8. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
prescribed by statute, and all rights conferred upon stockholders herein
are granted subject to this reservation.
9. A director of the Corporation shall not, to the fullest extent permitted by
the Delaware General Corporation Law as the same exists or may hereafter be
amended, be liable to the Corporation or its stockholders for monetary
damages for breach of his or her fiduciary duty to the Corporation or its
stockholders.
The undersigned, being the incorporator named above, for the purpose of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this certificate, hereby declaring and certifying that this
is her act and deed and the facts herein stated are true, and accordingly has
hereunto set her hand this 12th day of October, 1992.
________________________________________
Susan Henderson
<PAGE>
Exhibit 3.4
ARTICLES OF INCORPORATION
OF
TUESDAY MORNING, INC.
We, the undersigned natural persons of the age of twenty-one (21)
years or more, at least two of whom are citizen of the State of Texas, acting as
incorporators of a corporation under the Texas Business Corporation Act, do
hereby adopt the following Articles of Incorporation for such corporation:
ARTICLE ONE
The name of the corporation is Tuesday Morning, Inc,
ARTICLE TWO
The period of duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized are:
(a) To erect or repair any building or improvement;
(b) To purchase, sell acquire by lease, grant by lease, rent,
sublease and subdivide real property in towns, cities, and villages and their
suburbs not extending more than two miles beyond their limits;
(c) To transact any manufacturing business;
(d) To purchase and sell goods;
(e) To engage in any merchantile or trading business;
(f) To engage in the oil and gas business;
(g) To transact any or all lawful business for which the corporation
may be incorporated under the Texas Business Corporation Act and to do
everything necessary, proper, advisable or convenient for the accomplishment or
furtherance of such purposes.
The foregoing statement of purpose shall be construed as a statement
of both purpose and powers, shall be liberally construed in aid of the powers of
this corporation, and the powers and purposes stated in each clause shall,
except where otherwise stated, be in nowise limited or restricted by any term or
provision of any other clause, and shall be regarded not only as independent
purposes, but the purposes and powers stated shall be construed distributively
as each object expressed, and the enumeration as to specific powers shall not be
construed as to limit in any manner the aforesaid general powers, but are in
furtherance of, and in addition to and not in limitation of said general powers.
<PAGE>
ARTICLE FOUR
The aggregate number of shares which the corporation shall have
authority to issue is one hundred thousand (100,000) shares of the par value of
One Dollar ($1.00) per share.
ARTICLE FIVE
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done or property actually received.
ARTICLE SIX
No holder of stock of the corporation shall be entitled as a matter of
right, pre-emptive or otherwise, to subscribe for or purchase any part of any
stock now or hereafter authorized to be issued, or shares thereof held in the
treasury of the corporation or securities convertible into stock, whether issued
for cash or other consideration or by way of dividend or otherwise.
ARTICLE SEVEN
At each election of directors, every shareholder entitled to vote at
such election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected for
whose election he has a right to vote. It is expressly prohibited for any
shareholder to cumulate his votes in any election of directors.
ARTICLE EIGHT
The shareholders of the corporation hereby delegate to the Board of
Directors power to adopt, alter, amend or repeal the bylaws of the corporation;
such power shall be deemed to be vested exclusively in the Board of Directors
and shall not be exercised by the shareholders.
ARTICLE NINE
(A) Any contract or other transaction between the corporation and any
of its directors, officers or shareholders (or any corporations or firms in
which they may be directly or indirectly interested) shall be valid for all
purposes notwithstanding the presence of such director, officer or shareholder
at the meeting authorizing such contract or transaction, or his participation in
such meeting or authorization.
(B) The foregoing shall, however, apply only if the interest of each
such director, officer and/or shareholder is known or disclosed:
(1) To the Board of Directors and it nevertheless authorizes or
ratifies the contract or transaction by a majority of the directors
present, each such interested director to be counted in determining whether
a quorum is present but not in calculating the majority necessary to carry
the vote; or
(2) To the shareholders and they nevertheless authorize or ratify
<PAGE>
the contract or transaction by a majority of the shares present, each such
interested person to be counted for quorum and voting purposes.
(C) This provision shall not be construed to invalidate any contract
or transaction which would be valid in the absence of this provision.
ARTICLE TEN
(A) The corporation shall indemnify, to the extent provided in
paragraph (B), these persons:
(1) Any director, officer, agent or employee of the corporation:
(2) Any former director, officer, agent or employee of the
corporation; and,
(3) Any person who may have served at the corporation's request as a
director, officer, agent or employee of another corporation in which the
corporation owns or has owned stock, or of which it is or has been a
creditor.
(B) The indemnification shall be against expenses actually and
necessarily incurred by such person, and any amount paid in satisfaction of
judgments in connection with any action, suit or proceeding (whether civil or
criminal) in which he is made a party by reason of being or having been such a
director, officer, agent or employee (whether or not such at the time the costs
or expenses are incurred by or imposed on him) except in relation to matters as
------
to which he shall be adjudged in such action, suit or proceeding to be liable
for gross negligence or willful misconduct in the performance of duty.
(C) The corporation may also reimburse to any such person the
reasonable costs of settlement of any such action, suit or proceeding, if it is
found by a majority of the committee of the directors not involved in the matter
(whether or not a quorum) that (1) it was to the interest of the corporation to
make such settlement and (2) such person was not guilty of gross negligence or
willful misconduct.
(D) The rights of indemnification and reimbursement shall not be
exclusive of any other rights to which such person may be entitled by law,
bylaw, agreement, shareholder's vote or otherwise.
ARTICLE ELEVEN
The post office address of its initial registered office is 4117
Lindberg Drive, Addison, Texas 75001, and the name of its initial registered
agent at such address is Lloyd Louis Ross.
ARTICLE TWELVE
The director constituting the initial Board of Directors is one (1)
and the name and address of the person who is to serve as a director until the
first annual meeting of the shareholders or until his successor is elected and
qualified is:
<PAGE>
NAME ADDRESS
---- -------
Lloyd Louis Ross 4117 Lindbergh Drive
Addison, Texas 75001
ARTICLE THIRTEEN
The names and addresses of the incorporators are:
NAME ADDRESS
---- -------
A. Don Crowder 2017 Cedar Springs Road
Dallas, Texas 75201
Gloria D. Mish 2017 Cedar Springs Road
Dallas, Texas 75201
Lesley Kelehear 2017 Cedar Springs Road
Dallas, Texas 75201
In witness whereof, we have hereunto set our hands, this 23rd day of
September, A.D., 1975.
/s/ A. Don Crowder
-------------------------------
A. Don Crowder
/s/ Gloria D. Mish
-------------------------------
Gloria D. Mish
/s/ Lesley Kelehear
-------------------------------
Lesley Kelehear
STATE OF TEXAS )
)
COUNTY OF DALLAS )
I, Deborah Blackshear, a notary public, do hereby certify that on this
23rd day of September, A.D., 1975, personally appeared before me A. Don
Crowder, Gloria D. Mish and Lesley Kelehear, who each being by me first duly
sworn, severally declared that they are the persons who signed the foregoing
documents as incorporators, and that the statements therein contained are true.
/s/ Deborah Blackshear
-------------------------------
Notary Public in and for Dallas
County, Texas
My commission expires:
June 1, 1977
<PAGE>
ARTICLES OF AMENDMENT BY THE
DIRECTORS TO THE ARTICLES OF INCORPORATION
OF TUESDAY MORNING, INC.
------------------------------------------
Pursuant to the provisions of Article 4.04(A) of the Texas Business
Corporation Act, the undersigned directors adopt the following Articles of
Amendment of the Articles of Incorporation of the corporation which increases
the aggregate number of shares the corporation shall have authority to issue
from one hundred thousand (100,000) shares to four million (4,000,000) shares
and reduces par value per share from One Dollar ($1.00) to One Cent ($0.01).
ARTICLE ONE
The name of the corporation is Tuesday Morning, Inc.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by the
directors of the corporation on October 13, 1975:
Article Four of the Articles of Incorporation is hereby amended to
read as follows: "The aggregate number of shares which the corporation
shall have authority to issue is four million (4,000,000) shares of the par
value of One Cent ($0.01) per share."
ARTICLE THREE
None of the shares of the corporation have been issued.
ARTICLE FOUR
The foregoing amendment was adopted by the unanimous written consent of the
directors named in the Articles of Incorporation of the corporation.
DATED: October 13, 1975.
TUESDAY MORNING, INC.
By /s/ Lloyd L. Ross
------------------------------
Lloyd L. Ross, President
By /s/ F. Donald Robb
------------------------------
F. Donald Robb, Secretary
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
I, A. Don Crowder, a Notary Public, do hereby certify that on this
<PAGE>
13th day of October, 1975, personally appeared before me Lloyd L. Ross, who
declared he is President of the corporation executing the foregoing document,
and being first duly sworn, acknowledged that he signed the foregoing document
in the capacity therein set forth and declared that the statements therein
contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and year
before written.
/s/ A. Don Crowder
--------------------------------
A. Don Crowder, Notary Public
in and for Dallas County, Texas
My Commission Expires:
June 1, 1977
Articles of Amendment - Page 2
<PAGE>
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
TUESDAY MORNING, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Tuesday Morning, Inc.
ARTICLE TWO
The following amendments to the Articles of Incorporation were adopted by
the shareholders of the corporation by unanimous consent as of September 22,
1983. The amendments restate the purposes for which the corporation was
organized, increase the authorized number of shares of Common Stock, $0.01 par
value, authorize 2,000,000 shares of Preferred Stock, $1.00 par value, and
delete certain provisions regarding the modification and repeal of Bylaws,
interested director and interested shareholder contracts, and indemnification.
The full text of the amendments are as follows:
Article Three of the Articles of Incorporation is hereby amended to read as
follows:
"The purpose or purposes for which the corporation is organized are to
transact any and all lawful business for which the corporation may be
incorporated under the Texas Business Corporation Act and to do everything
necessary, proper, advisable or convenient for the accomplishment or
furtherance of such purposes."
Article Four of the Articles of incorporation is hereby amended to read as
follows:
<PAGE>
"The aggregate number of shares of all classes of stock which the
corporation shall be authorized to issue is Twelve Million (12,000,000), divided
into the following: Ten Million (10,000,000) shares of Common Stock, $0.01 par
value (the "Common Stock"), and Two Million (2,000,000) shares of Preferred
Stock, $1.00 par value (the "Preferred Stock").
The following is a statement of the relative rights, preferences and
limitations in respect of the shares of each class of capital stock of the
corporation, insofar as the same are fixed in these Articles of Incorporation,
and of the authority expressly vested in the Board of Directors of the
corporation to divide the Preferred Stock into series and to fix and determine
the variations in the relative rights and preferences as between series:
A. PREFERRED STOCK
1. The Preferred Stock may from time to time be divided into and issued
in one or more series with each series to be so designated as to distinguish the
shares thereof from the shares of all other series and classes, the shares of
each series to have such designations, preferences, limitations and relative
rights as are stated and expressed herein and in a resolution or resolutions
providing for the issue of such series, adopted by the Board of Directors as
hereinafter provided.
2. To the extent that these Articles of Incorporation shall not have
fixed and determined the variations in the relative rights and preferences of
the Preferred Stock and as between series, the Board of Directors of the
corporation is expressly vested with the authority to divide the Preferred Stock
into one or more series and, within the limitations set forth in these Articles
of Incorporation, to fix and determine the relative rights and preferences of
the shares of any series so established, and, with respect to each such series,
to fix by resolution or resolutions providing for the issue of such series, the
following:
(a) The maximum number of shares to constitute such series and the
distinctive designation thereof;
(b) The annual dividend rate, if any, on the shares of such series and the
date or dates from which dividends shall commence to accrue or to accumulate as
herein provided, or provision that dividends shall not be cumulative;
(c) The price at and the terms and conditions on which the shares of such
series may be redeemed, including the time during which shares of the series may
be redeemed and the premium, if any, over and above the par value thereof and
any
2
<PAGE>
accumulated dividends thereon which the holders of shares of such series
shall be entitled to receive upon the redemption thereof, which premium may
vary at different dates and may also be different with respect to shares
redeemed through the operation of any retirement or sinking fund than with
respect to shares otherwise redeemed;
(d) The liquidation preference, if any, over and above the par value
thereof, and any accumulated dividends thereon, which the holders of shares
of such series shall be entitled to receive upon the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
corporation;
(e) Whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or for
other corporate purposes and the terms and provisions relative to the
operations of the said fund;
(f) The terms and conditions, if any, on which the shares of such
series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or classes of the corporation or any series of any
other class or classes, or of any other series of the same class, including
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
(g) The voting rights, if any, on the shares of such series; and
(h) Any other preferences and relative, participating, optional or
other special rights, or qualifications, limitations or restrictions
thereof, as shall not be inconsistent with the law or with this Article
Four.
3. All shares of any one series of Preferred Stock shall be identical
with each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall be
cumulative; and all series shall rank equally and be identical in all respects,
expect as provided in paragraph 1 of this Section A and except as permitted by
the foregoing provisions of paragraph 2 hereof.
4. Except to the extent restricted in the resolution or resolutions
adopted by the Board of Directors providing for the issue of any series of
Preferred Stock, before any dividends (other than dividends payable in Common
Stock) on any class or classes of capital stock of the corporation ranking
junior to the Preferred Stock, or any series thereof, as to
3
<PAGE>
dividends shall be declared or paid or set apart for payment, the holders of
shares of Preferred Stock of each series shall have been paid, or there shall
have been set apart for payment, cash dividends, when and as declared by the
Board of Directors, at the annual rate, and no more, fixed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series.
5. In the event of liquidation, dissolution or winding up of the affairs
of the corporation, before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart for the
holders of any class or classes of capital stock of the corporation ranking
junior to the Preferred Stock, or any series thereof, upon liquidation, the
holders of the shares of the Preferred Stock shall be entitled to receive
payment at the rate fixed in the resolution or resolutions adopted by the Board
of Directors providing for the issue of the respective series. For the purposes
of this paragraph 5 and paragraph 2(d) of this Section A, neither the
consolidation nor merger of the corporation with one or more other corporations
shall be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
6. The corporation, at the option of the Board of Directors, may redeem,
at such time as fixed for the shares of the respective series, the whole or from
time to time any part of the Preferred Stock of any series at the time
outstanding, at the par value thereof, plus in every case an amount equal to all
accumulated dividends, if any (whether or not earned or declared), with respect
to each share so to be redeemed and, in addition thereto, the amount of the
premium, if any, payable upon such redemption fixed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series (the total sum so payable on any such redemption being herein referred to
as the "redemption price"). Notice of every such redemption shall be mailed not
less than 20 nor more than 50 days in advance of the date designated for such
redemption (herein referred to as the "redemption date") to the holders of
record of the shares of Preferred Stock to be redeemed at their respective
addresses as the same shall appear on the books of the corporation. In order to
facilitate the redemption of any shares of Preferred Stock that may be chosen
for redemption as provided in this paragraph 6, the Board of Directors shall be
authorized to cause the transfer books of the corporation to be closed as to
such shares at any time (not exceeding 50 days) prior to the redemption date. In
case of the redemption of only a portion of any series of Preferred Stock at the
time outstanding, the shares of such series to be so redeemed shall be selected
by lot or in such manner as the Board of Directors may determine. The Board of
Directors shall have full power and authority, subject to the limitations and
provisions contained herein and in the
4
<PAGE>
Texas Business Corporation Act, to prescribe the terms and conditions upon which
the Preferred Stock shall be redeemed from time to time.
7. Shares of Preferred Stock which have been redeemed, purchased or
otherwise acquired by the corporation or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any other class or
classes or any series of any other class or classes or of any other series of
the same class, shall be cancelled and may not under any circumstances
thereafter be reissued or otherwise disposed of by the corporation, and the
corporation shall from time to time and at least once each year cause all such
shares to be retired in the manner provided by law.
8. Nothing herein contained shall limit any legal right of the
corporation to purchase any shares of the Preferred Stock.
B. COMMON STOCK
1. Subject to the prior rights and preferences of the Preferred Stock and
subject to the provisions and on the conditions set forth in the foregoing
Section A of this Article Four, or in any resolution or resolutions providing
for the issue of a series of Preferred Stock, and to the extent permitted by the
laws of the State of Texas, the holders of Common Stock shall be entitled to
receive such cash dividends as may be declared and made payable by the Board of
Directors.
2. After payment shall have been made in full to the holders of the
Preferred Stock in the event of any liquidation, dissolution or winding up of
the affairs of the corporation, the remaining assets and funds of the
corporation shall be distributed among the holders of the Common Stock according
to their respective shares."
Article Eight of the Articles of Incorporation is hereby deleted in its
entirety.
Article Nine of the Articles of Incorporation is hereby deleted in its
entirety.
Article Ten of the Articles of Incorporation is hereby deleted in its
entirety.
Article Eleven is hereby redesignated as Article Eight.
Article Twelve is hereby redesignated as Article Nine.
Article Thirteen is hereby redesignated as Article Ten.
5
<PAGE>
ARTICLE THREE
The number of shares of capital stock of the corporation outstanding at the
time of such adoption was 2,740,287; and the number of shares entitled to vote
thereon was 2,740,287.
ARTICLE FOUR
The holders of all of the shares of capital stock outstanding and entitled
to vote on said amendment have signed a consent in writing adopting said
amendments.
Dated as of September 22, 1983.
TUESDAY MORNING, INC.
By: /s/ Lloyd L. Ross
--------------------------
Lloyd L. Ross, President
By: /s/ Edward J. Lysen
--------------------------
Edward J. Lysen, Secretary
6
<PAGE>
ARTICLES OF AMENDMENT BY THE SHAREHOLDERS
TO THE ARTICLES OF INCORPORATION OF
TUESDAY MORNING, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts these Articles of Amendment
to its Articles of Incorporation.
ARTICLE I
The name of the corporation is Tuesday Morning, Inc.
ARTICLE II
The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on the 22nd day of January, 1986.
The Articles of Incorporation are amended by adding thereto a new Section C
to Article Four, said Section C reading as follows:
"C. Reverse Stock Split
"Each three (3) shares of Common Stock of the corporation issued and
outstanding and not held in the treasury of the corporation are hereby
reclassified and changed into two (2) fully paid and non-assessable shares of
Common Stock of the corporation of a par value of one cent ($0.01) each, and
each holder of record of certificates for three (3) or more shares of Common
Stock of the corporation as of the close of business on the date this amendment
becomes effective shall be entitled to receive as soon as practicable upon
surrender to the Secretary of the corporation of all certificates of each
holder, a certificate or certificates representing two (2) shares of Common
Stock for each three (3) shares of Common Stock surrendered. Nothing contained
in this Section C shall reduce the number of shares authorized by these
Articles."
<PAGE>
ARTICLE III
The number of shares of the corporation outstanding at the time of such
adoption was 2,740,287; and the number of shares entitled to vote thereon was
2,740,287.
ARTICLE IV
The number of shares voted for such amendment was 2,740,287 and no shares
voted against such amendment.
ARTICLE V
The manner in which the exchange of issued shares provided for in this
amendment shall be effected, is as follows:
Upon the effective date of this amendment each three (3) outstanding shares
of Common Stock, one cent ($0.01) par value per share, shall be
reclassified as two (2) shares of Common Stock, one cent ($0.01) par value
per share. No fractional shares shall be issued as a result of the stock
split. In lieu of such fractional shares, each shareholder of the
corporation will be paid in cash an amount equal to (i) the fraction of a
share he was otherwise entitled to receive multiplied by (ii) $13.
ARTICLE VI
The manner in which such amendment effects a change in the amount of stated
capital, and the amount of stated capital as changed by such amendment, are as
follows:
The stated capital of the corporation prior to the reverse stock split as
provided herein is $27,402.87. After the transfer on the books of the
corporation of $9,134.29 from stated capital to paid-in surplus, the stated
capital of the corporation shall be $18,268.58.
DATED this 22nd day of January, 1986.
/s/ Mike A. Moffitt
------------------------------
Mike A. Moffitt, President
/s/ Edward J. Lysen
------------------------------
Edward J. Lysen, Secretary
-2-
<PAGE>
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
TUESDAY MORNING, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Restated Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Tuesday Morning, Inc. (the "Corporation")
ARTICLE TWO
The following amendments to the Articles of Incorporation were adopted by
the unanimous written consent of the sole shareholder of the Corporation, dated
July 23, 1992.
Article FOUR is hereby amended to read in its entirety as follows:
"The aggregate number of shares which the corporation shall have
authority to issue is 100 shares of common stock, $.01 per value."
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of such
adoption was 10 shares of common stock, and the number of shares entitled to
vote thereon was 10 shares of common stock.
ARTICLE FOUR
The number of shares voted for such amendment was 10 shares of common
stock, and no shares voted against such amendment.
IN WITNESS WHEREOF, the Corporation has executed this document as of July
28, 1992.
TUESDAY MORNING, INC.
By: /s/ Edward J. Lysen
-----------------------------
Edward J. Lysen Secretary
<PAGE>
EXHIBIT 3.5
ARTICLES OF INCORPORATION
OF
FRIDAY MORNING, INC.
We, the undersigned natural persons of the age of twenty-one (21) years or
more, at least two of whom are citizens of the State of Texas, acting as
incorporators of a corporation under the Texas Business Corporation Act, do
hereby adopt the following Articles of Incorporation for such corporation:
ARTICLE ONE
The name of the corporation is Friday Morning, Inc..
ARTICLE TWO
The period of duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized are:
(a) To erect or repair any building or improvement;
(b) To purchase, sell, acquire by lease, grant by lease, rent,
sublease and subdivide real property in towns, cities, and villages and
their suburbs not extending more than two miles beyond their limits;
(c) To transact any manufacturing business;
(d) To purchase and sell goods;
(e) To engage in any merchantile or trading business;
(f) To engage in the oil and gas business;
(g) To transact any or all lawful business for which the corporation
may be incorporated under the Texas Business Corporation Act and to do
everything necessary, proper, advisable or convenient for the
accomplishment or furtherance of such purposes.
The foregoing statement of purposes shall be construed as a statement of
both purposes and powers, shall be liberally construed in aid of the powers of
this corporation, and the powers and purposes stated in each clause shall,
except where otherwise stated, be in nowise limited or restricted by any term or
provision of any other clause, and shall be regarded not only as independent
purposes, but the purposes and powers stated shall be construed distributively
as each object expressed, and the enumeration as to specific powers shall not be
construed as to limit in any manner the aforesaid general powers, but are in
furtherance of, and in addition to and not in limitation of said general powers.
ARTICLE FOUR
The aggregate number of shares which the corporation shall have authority
to issue is one million (1,000,000) shares of the par value of One Cent ($0.01)
per share.
<PAGE>
ARTICLE FIVE
The corporation will not commence business until it has received for
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done or property actually received.
ARTICLE SIX
No holder of stock of the corporation shall be entitled as a matter of
right, pre-emptive or otherwise, to subscribe for or purchase any part of any
stock now or hereafter authorized to be issued, or shares thereof held in the
treasury of the corporation or securities convertible into stock, whether issued
for cash or other consideration or by way of dividend or otherwise.
ARTICLE SEVEN
At each election of directors, every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected
for whose election he has a right to vote. It is expressly prohibited for any
shareholder to cumulate his votes in any election of directors.
ARTICLE EIGHT
The shareholders of the corporation hereby delegate to the Board of
Directors power to adopt, alter, amend or repeal the bylaws of the corporation;
such power shall be deemed to be vested exclusively in the Board of Directors
and shall not be exercised by the shareholders.
ARTICLE NINE
(a) Any contract or other transaction between the corporation and any of
its directors, officers or shareholders (or any corporations or firms in which
they may be directly or indirectly interested) shall be valid for all purposes
notwithstanding the presence of such director, officer or shareholder at the
meeting authorizing such contract or transaction, or his participation in such
meeting or authorization.
(b) The foregoing shall, however, apply only if the interest of each such
director, officer and/or shareholder is known or disclosed:
(1) To the Board of Directors and it nevertheless
authorizes or ratifies the contract or transaction by a majority
of the directors present, each such interested director to be
counted in determining whether a quorum is present but not in
calculating the majority necessary to carry the vote; or
(2) To the shareholders and they nevertheless authorize or
ratify the contract or transaction by a majority of the shares
present, each such interested person to be counted for quorum and
voting purposes.
(c) This provision shall not be construed to invalidate any contract or
transaction which would be valid in the absence of this provision.
ARTICLE TEN
(a) The corporation shall indemnify, to the extent provided in paragraph
(b), these persons:
(1) Any director, officer, agent or employee of the
corporation;
Articles of Incorporation - Page 2
<PAGE>
(2) Any former director, officer, agent or employee of the
corporation; and,
(3) Any person who may have served at the corporation's
request as a director, officer, agent or employee of another
corporation in which the corporation owns or has owned stock, or
of which it is or has been a creditor.
(b) The indemnification shall be against expenses actually and necessarily
incurred by such person, and any amount paid in satisfaction of judgments in
connection with any action, suit or proceeding (whether civil or criminal) in
which he is made a party by reason of being or having been such a director,
officer, agent or employee (whether or not such at the time the costs or
expenses are incurred by or imposed on him) except in relation to matters as to
------
which he shall be adjudged in such action, suit or proceeding to be liable for
gross negligence or willful misconduct in the performance of duty.
(c) The corporation may also reimburse to any such person the reasonable
costs of settlement of any such action, suit or proceeding, if it is found by a
majority of the committee of the directors not involved in the matter (whether
or not a quorum) that (1) it was to the interest of the corporation to make such
settlement, and (2) such person was not guilty of gross negligence or willful
misconduct.
(d) The rights of indemnification and reimbursement shall not be exclusive
of any other rights to which such person may be entitled by law, bylaw,
agreement, shareholder's vote or otherwise.
ARTICLE ELEVEN
The post office address of its initial registered office is 14621 Inwood
Road, Dallas, Texas 75240, and the name of its initial registered agent at such
address is Lloyd L. Ross.
ARTICLE TWELVE
The directors constituting the initial Board of Directors is one (1), and
the name and address of the person who is to serve as director until the first
annual meeting of the shareholders or until their successors are elected and
qualified is:
NAME ADDRESS
---- -------
Lloyd L. Ross 14621 Inwood Road
Dallas, Texas 75240
ARTICLE THIRTEEN
The names and addresses of the incorporators are:
NAME ADDRESS
---- -------
A. Don Crowder 2017 Cedar Springs Road
Dallas, Texas 75201
Deborah Blackshear 2017 Cedar Springs Road
Dallas, Texas 75201
Janice Mattox 2017 Ceder Springs Road
Dallas, Texas 75201
Articles of Incorporation - Page 3
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands, this 9th day of March
--- -----
A.D., 1979.
/s/ A. Don Crowder
----------------------------------
A. Don Crowder
/s/ Deborah Blackshear
----------------------------------
Deborah Blackshear
/s/ Janice Mattox
----------------------------------
Janice Mattox
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
I, Cassidi Casey, a notary public, do hereby certify that on this 9th day
---
of March , A.D., 1979, personally appeared before me A. DON CROWDER, DEBORAH
-----
BLACKSHEAR and JANICE MATTOX, who each being by me first duly sworn, severally
declared that they are the persons who signed the foregoing documents as
incorporators, and that the statements therein contained, are true.
/s/ Cassidi Casey
---------------------------------------
Cassidi Casey, Notary Public in
and for Dallas County, Texas
My Commission Expires:
8-22-90
- ----------------------
Articles of Incorporation - Page 4
<PAGE>
Exhibit 3.6
CERTIFICATE OF THE DESIGNATION OF THE
POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF THE
13 1/4% SERIES A SENIOR EXCHANGEABLE PREFERRED STOCK AND THE
13 1/4% SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
Tuesday Morning Corporation (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Company by its Certificate of Incorporation (hereinafter referred to as
the "Certificate of Incorporation") and pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, said Board of
Directors, by unanimous written consent dated December 29, 1997, duly approved
and adopted the following resolution (the "Resolution"):
RESOLVED, that pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors hereby
creates, authorizes and provides for the issuance of two series of Preferred
Stock of the Company, designated as 13 1/4% Series A Senior Exchangeable
Preferred Stock of the Company, par value $0.01 per share, and 13 1/4% Series B
Senior Exchangeable Preferred Stock of the Company, par value $0.01 per share,
having the designations, preferences, relative, participating, optional and
other special rights of the shares of each such series, and the qualifications,
limitations and restrictions thereof that are set forth in the Certificate of
Incorporation and in this Resolution, as follows:
SECTION 1. Designation and Amount. The designations for the two
----------------------
series of Preferred Stock authorized by this Resolution shall be the 13 1/4%
Series A Senior Exchangeable Preferred Stock, par value $0.01 per share (the
"Series A Senior Preferred Stock") and the 13 1/4% Series B Senior Exchangeable
Preferred Stock, par value $0.01 per share (the "Series B Senior Preferred
Stock" and together with the Series A Senior Preferred Stock, the "Senior
Exchangeable Preferred Stock"). The initial liquidation preference of the
Senior Exchangeable Preferred Stock is $100.00 per share and the original issue
price for each such share is $100.00. The issue price per share or liquidation
preference of the Senior Exchangeable Preferred Stock shall not for any purpose
be considered to be a determination by the Board of Directors with respect to
the capital and surplus of the Company. The number of shares constituting such
Series A Senior Preferred Stock shall be 500,000, consisting of an initial
issuance of 250,000 shares of Series A Senior Preferred Stock and 250,000 shares
of Series A Senior Preferred Stock, if the Company elects to pay dividends in
additional shares of Series A Senior Preferred Stock. The number of shares
constituting such Series B Senior Preferred Stock shall be 500,000, to be
registered under the
<PAGE>
2
Securities Act of 1933, as amended, and exchanged for the outstanding Series A
Senior Preferred Stock and to be issued as dividends if the Company elects to
pay dividends in additional shares of Series B Senior Preferred Stock.
SECTION 2. Dividends. (a) Holders of the outstanding shares of
---------
Senior Exchangeable Preferred Stock (the "Holders") will be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends on the Senior Exchangeable Preferred Stock at an
annual rate of 13 1/4% (the "Dividend Rate"). All dividends will be cumulative,
whether or not earned or declared, from the Issuance Date and will be payable
quarterly in arrears on March 15, June 15, September 15 and December 15 of each
year, commencing on March 15, 1998, to Holders of record on the March 1, June 1,
September 1 and December 1 immediately preceding the relevant Dividend Payment
Date. On or before December 15, 2002, the Company may, at its option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Senior Exchangeable Preferred Stock having an aggregate liquidation preference
equal to the amount of such dividends, provided, however, that if the Company
pays dividends in additional shares of Senior Exchangeable Preferred Stock,
Holders of Series A Senior Preferred Stock shall be paid in additional shares of
Series A Senior Preferred Stock and Holders of Series B Senior Preferred Stock
shall be paid in additional shares of Series B Senior Preferred Stock. After
December 15, 2002, dividends shall be paid only in cash. If any dividend (or
portion thereof) payable on any Dividend Payment Date on or before December 15,
2002 is not declared or paid in full in cash or in shares of Senior Exchangeable
Preferred Stock as described above on such Dividend Payment Date, the amount of
the accumulated and unpaid dividend will bear interest at the Dividend Rate,
compounding quarterly from such Dividend Payment Date until paid in full. If
any dividend (or portion thereof) payable on any Dividend Payment Date after
December 15, 2002 is not declared or paid in full in cash on such Dividend
Payment Date, the amount of the accumulated and unpaid dividend that is payable
and that is not paid in cash on such date will bear interest at the Dividend
Rate, compounding quarterly from such Dividend Payment Date until paid in full.
Dividends shall cease to accumulate in respect of the shares of Senior
Exchangeable Preferred Stock on the Exchange Date or on the Redemption Date
unless the Company shall have failed to issue the appropriate aggregate
principal amount of Exchange Debentures in respect of the Senior Exchangeable
Preferred Stock on the Exchange Date or shall have failed to pay the relevant
redemption price on the Redemption Date.
(b) All dividends paid with respect to shares of the Senior
Exchangeable Preferred Stock pursuant to Section 2(a) of this Certificate of
Designation shall be paid pro rata to the Holders entitled thereto.
(c) Nothing contained in this Certificate of Designation shall in any
way or under any circumstances be construed or deemed to require the Board of
Directors to declare, or the Company to pay or set apart for payment, any
dividends on shares of the Senior Exchangeable Preferred Stock at any time.
<PAGE>
3
(d) Holders shall be entitled to receive the dividends provided for in
Section 2(a) of this Certificate of Designation (including any accumulated and
unpaid cash dividends on the Senior Exchangeable Preferred Stock) in preference
to and in priority over any cash dividends (including accumulated and unpaid
dividends) upon any of the Junior Securities.
(e) No full dividends may be declared or paid or funds set apart for
the payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
(or are deemed declared and paid) in full or declared and, if payable in cash, a
sum in cash sufficient for such payment set apart for such payment on the Senior
Exchangeable Preferred Stock. If full dividends are not so paid, the Senior
Exchangeable Preferred Stock will share dividends pro rata with the Parity
Securities. No dividends shall be paid or set apart for such payment on Junior
Securities (except dividends on Junior Securities payable in additional shares
of Junior Securities) and no Junior Securities or Parity Securities may be
repurchased, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto, if full cumulative dividends have not been paid in
full (or deemed paid) on any issued and outstanding Senior Exchangeable
Preferred Stock; provided, however, the Company may repurchase, redeem or
otherwise acquire or retire for value the Management Stock in accordance with
Section 8(b).
(f) Dividends on account of arrears for any past dividend period and
dividends in connection with any optional redemption may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to Holders of
record of the Senior Exchangeable Preferred Stock on such date, not more than 45
days prior to the payment thereof, as may be fixed by the Board of Directors.
(g) Each fractional share of Senior Exchangeable Preferred Stock
outstanding shall be entitled to a ratably proportionate amount of all dividends
accruing with respect to each outstanding share of Senior Exchangeable Preferred
Stock pursuant to Section 2(a), and all such dividends with respect to such
outstanding fractional shares shall accumulate at the Dividend Rate and shall be
payable in the same manner and at such times as provided for in Section 2(a)
with respect to dividends on each outstanding share of Senior Exchangeable
Preferred Stock.
(h) Dividends payable on the Senior Exchangeable Preferred Stock for
any period less than a year shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in the period for
which dividends are payable.
SECTION 3. Liquidation Preference. Upon any voluntary or involuntary
----------------------
liquidation, dissolution or winding-up of the Company, Holders will be entitled
to be paid, out of the assets of the Company available for distribution to
stockholders, the then effective liquidation preference per share of Senior
Exchangeable Preferred Stock, plus, without duplication, an amount in cash equal
to all accumulated and unpaid dividends, if any, thereon (including by way of a
deemed increase in liquidation value) to the date fixed for liquidation,
dissolution or winding-up
<PAGE>
4
(including an amount equal to a prorated dividend for the period from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or winding-
up), before any distribution is made on any Junior Securities, including,
without limitation, on any common stock of the Company. If, upon any voluntary
or involuntary liquidation, dissolution or winding-up of the Company, the
amounts payable with respect to the Senior Exchangeable Preferred Stock and all
other Parity Securities are not paid in full, the Holders of the Senior
Exchangeable Preferred Stock and the holders of the Parity Securities will share
equally and ratably in any distribution of assets of the Company in proportion
to the liquidation preference, together with all accumulated and unpaid
dividends, to which each is entitled. After payment of the full amount of the
liquidation preference and accumulation and unpaid dividends to which they are
entitled, Holders will not be entitled to any further participation in any
distribution of assets of the Company. For the purposes of this Section 3,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with one
or more entities shall be deemed to be a liquidation, dissolution or winding-up
of the Company.
The liquidation preference with respect to each outstanding fractional
share of Senior Exchangeable Preferred Stock shall be equal to a ratably
proportionate amount of the liquidation payments with respect to each
outstanding full share of Senior Exchangeable Preferred Stock.
SECTION 4. Exchange. (a) The Company may, at its option, subject to
--------
the conditions described below, on any scheduled Dividend Payment Date, exchange
the Senior Exchangeable Preferred Stock, in whole but not in part, for the
Exchange Debentures. At least 30 and not more than 60 days prior to the date
fixed for exchange, the Company shall send a written notice (the "Exchange
Notice") of exchange by mail to each Holder, which notice shall state:
(i) that the Company has elected to exchange the Senior
Exchangeable Preferred Stock into Exchange Debentures pursuant to this
Certificate of Designation;
(ii) the date of such exchange (the "Exchange Date");
(iii) that the Holder is to surrender to the Company, at the place or
places and in the manner designated in the Exchange Notice, its certificate
or certificates representing the shares of Senior Exchangeable Preferred
Stock;
(iv) that dividends on the shares of Senior Exchangeable Preferred
Stock to be exchanged shall cease to accumulate at the close of business on
the day prior to the Exchange Date, whether or not certificates for shares
of Senior Exchangeable Preferred Stock are surrendered for exchange on the
Exchange Date, unless the Company shall default in the delivery of Exchange
Debentures; and
<PAGE>
5
(v) that interest on the Exchange Debentures shall accrue from the
Exchange Date whether or not certificates for shares of Senior Exchangeable
Preferred Stock are surrendered for exchange on the Exchange Date.
On the Exchange Date, if the conditions set forth in clauses (A)
through (F) below are satisfied and if the exchange is then permitted under the
Exchange Indenture, the Company shall issue Exchange Debentures in exchange for
the Senior Exchangeable Preferred Stock as provided in the next paragraph,
provided that: (A) on the Exchange Date there are no accumulated and unpaid
dividends on the Senior Exchangeable Preferred Stock (including the dividend
payable on such date) or other contractual impediments to such exchange; (B)
there shall be legally available funds sufficient for the exchange to occur
(including, without limitation, legally available funds sufficient therefor
under Section 160 and 170 (or any successor provisions) of the General
Corporation Law of the State of Delaware); (C) no Voting Right Triggering Event
has occurred and is continuing at the time of such exchange; (D) immediately
after giving effect to such exchange, no Default or Event of Default (each as
defined in the Exchange Indenture) would exist under the Exchange Indenture,
and no Default or Event of Default would exist under any material instrument
governing Indebtedness outstanding of the Company at the time of such exchange;
(E) the Exchange Indenture shall have been qualified under the Trust Indenture
Act, if qualification is required; and (F) the Company shall have delivered to
the Debenture Trustee, a written Opinion of Counsel, dated the Exchange Date,
regarding the satisfaction of the conditions set forth in clauses (A) through
(E). In the event that any of the conditions set forth in clauses (A) through
(F) of the preceding sentence are not satisfied on the Exchange Date, then no
shares of Senior Exchangeable Preferred Stock shall be exchanged, and in order
to effect an exchange as provided for in this Section 4, the Company shall be
required to fix another date for the exchange and issue a new Exchange Notice
and the Company shall use its best efforts to satisfy such conditions and
effect such exchange as soon as practicable.
(b) Upon any exchange pursuant to this Section 4, Holders shall be
entitled to receive, subject to the provisions hereof, $1.00 principal amount of
Exchange Debentures for each $1.00 of the aggregate of the liquidation
preference of the Senior Exchangeable Preferred Stock and all accumulated and
unpaid dividends thereon, plus, without duplication, an amount in cash equal to
all accumulated and unpaid dividends thereon for the period from the immediately
preceding Dividend Payment Date to the day prior to the Exchange Date; provided
that the Company shall pay cash in lieu of issuing an Exchange Debenture in a
principal amount of less than $1,000 and provided further that the Exchange
Debentures will be issuable only in denominations of $1,000 and integral
multiples thereof.
(c) On or before the Exchange Date, each Holder shall surrender the
certificate or certificates representing such shares of the Senior Exchangeable
Preferred Stock, in the manner and at the place designated in the Exchange
Notice. The Company shall cause the Exchange Debentures to be executed on the
Exchange Date and, upon surrender in accordance with the Exchange Notice of the
certificates for any shares of the Senior Exchangeable Preferred Stock so
<PAGE>
6
exchanged (properly endorsed or assigned for transfer, if the Exchange Notice
shall so state), such shares shall be exchanged by the Company into Exchange
Debentures as aforesaid. The Company shall pay interest on the Exchange
Debentures at the rate and on the dates specified therein from the Exchange
Date.
(d) If the Exchange Notice has been mailed as aforesaid, and if before
the Exchange Date all Exchange Debentures necessary for such exchange shall have
been duly executed by the Company and delivered to the Debentures Trustee with
irrevocable instructions to authenticate the Exchange Debentures necessary for
such exchange, then the rights of the Holders as stockholders of the Company
shall cease (except the right to receive the Exchange Debentures, an amount in
cash, to the extent applicable, equal to the accumulated and unpaid dividends to
the Exchange Date and cash in lieu of any Exchange Debenture that is in a
principal amount less than $1,000), and the person or persons entitled to
receive the Exchange Debentures issuable upon exchange shall be treated for all
purposes as a registered holder or holders of such Exchange Debentures as of the
Exchange Date.
SECTION 5. Voting Rights. (a) Holders, except as otherwise required
-------------
under the laws of the State of Delaware or as set forth below, shall not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Company.
(b) If (i) dividends on the Senior Exchangeable Preferred Stock are in
arrears and unpaid (and if with respect to dividends payable for periods
beginning after December 15, 2002, such dividends are not paid in cash) for six
quarterly periods (whether or not consecutive); (ii) the Company fails to
discharge its obligation to redeem the Senior Exchangeable Preferred Stock on
the Mandatory Redemption Date or fails to otherwise discharge any redemption
obligation with respect to the Senior Exchangeable Preferred Stock; (iii) the
Company fails to make a Change in Control Offer if such offer is required by the
provisions set forth under Section 8 below or fails to purchase shares of Senior
Exchangeable Preferred Stock from holders who elect to have such shares
purchased pursuant to the Change in Control Offer; (iv) a breach or violation of
any other provisions contained in Section 8 hereof occurs and the breach or
violation continues for a period of 30 days or more after the Company receives
notice thereof specifying the default from the holders of at least 25% of the
shares of Senior Exchangeable Preferred Stock then outstanding; or (v) the
Company or any Restricted Subsidiary fails to pay at the final stated maturity
(giving effect to any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary, or the final stated
maturity of any such Indebtedness is accelerated, if the aggregate principal
amount of such Indebtedness in default for failure to pay principal at the final
stated maturity (giving effect to any extensions thereof) or that has been
accelerated, aggregates $10,000,000 or more at any time, then the holders of the
majority of the then outstanding Senior Exchangeable Preferred Stock, voting or
consenting, as the case may be, as one class, will be entitled to elect the
lesser of two directors of the Board of Directors or at least 25% of the Board
of Directors. Such voting rights will continue until such time as, in the case
of a dividend default, all dividends in arrears on the Senior Exchangeable
Preferred Stock are paid
<PAGE>
7
in full (and with respect to dividends payable for periods beginning after
December 15, 2002, paid in cash) and, in all other cases, any failure, breach or
default giving rise to such voting rights is remedied or waived by the holders
of at least a majority of the shares of Senior Exchangeable Preferred Stock then
outstanding, at which time the term of the directors elected pursuant to the
provisions of this paragraph shall terminate. Each such event described in
clauses (i) through (v) above is referred to herein as a "Voting Rights
Triggering Event."
(c) The Company shall not modify, change, affect or amend the
Certificate of Incorporation or this Certificate of Designation to affect
materially and adversely the specified rights, preferences, privileges or voting
rights of the Holders of the Senior Exchangeable Preferred Stock, or authorize
the issuance of any additional shares of Senior Exchangeable Preferred Stock,
without the affirmative vote or consent of Holders of at least a majority of the
shares of Senior Exchangeable Preferred Stock then outstanding, voting or
consenting, as the case may be, as one class. In addition, the Company shall
not authorize, create (by way of reclassification or otherwise) or issue (i) any
Parity Securities, or any obligation or security convertible into or evidencing
the right to purchase any Parity Securities, without the affirmative vote or
consent of the Holders of a majority of the then outstanding shares of Senior
Exchangeable Preferred Stock and (ii) any Senior Securities, or any obligation
or security convertible into or evidencing the right to purchase Senior
Securities, without the affirmative vote or consent of the Holders of at least
two-thirds of the outstanding shares of the Senior Exchangeable Preferred Stock,
in each case voting or consenting, as the case may be, as one class.
(d) Immediately after voting power to elect directors shall have
become vested and be continuing in the Holders pursuant to Section 5(b) or if
vacancies shall exist in the offices of directors elected by the Holders, a
proper officer of the Company shall call a special meeting of the Holders for
the purpose of electing the directors which such Holders are entitled to elect.
Any such meeting shall be held at the earliest practicable date, and the Company
shall provide Holders with access to the lists of Holders, pursuant to the
provisions of this Section 5(d). At any meeting held for the purpose of
electing directors at which the Holders shall have the right, voting separately
as a class, to elect directors, the presence in person or by proxy of the
Holders of at least a majority of the outstanding shares of Senior Exchangeable
Preferred Stock shall be required to constitute a quorum of such Holders.
(e) Any vacancy occurring in the office of a director elected by the
Holders may be filled by the remaining directors elected by the Holders unless
and until such vacancy shall be filled by the Holders.
(f) In any case in which the Holders shall be entitled to vote
pursuant to this Section 5 or pursuant to the General Corporation Law of the
State of Delaware, each Holder shall be entitled to one vote for each share of
Senior Exchangeable Preferred Stock held.
<PAGE>
8
(g) Holders of at least a majority of the then outstanding shares of
Senior Exchangeable Preferred Stock, voting or consenting, as the case may be,
separately as a class, may waive compliance with any provision of this
Certificate of Designation.
Further, Holders are entitled to vote as a class upon a proposed
amendment to the Certificate of Incorporation if the amendment would increase or
decrease the par value of the shares of, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Except as set forth above, (i) the creation, authorization or
issuance of any shares of Junior Securities, Parity Securities or Senior
Securities, including the designation of series thereof within the existing
class of Preferred Stock of the Company, or (ii) the increase or decrease in the
amount of authorized Capital Stock of any class, including any Preferred Stock
of the Company, shall not require the consent of the Holders and shall not be
deemed to affect adversely the rights, preferences, privileges or voting rights
of Holders.
SECTION 6. Redemption. (a) Optional Redemption. (i) The Senior
----------
Exchangeable Preferred Stock will be redeemable (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at the election of the Company, as a whole or from time to time in
part, at any time on or after December 15, 2002 on not less than 30 nor more
than 60 days' prior notice, at the redemption prices (expressed as a percentage
of the then effective liquidation preference thereof) set forth below, plus,
without duplication, all accumulated and unpaid dividends, if any, to the date
of redemption (the "Redemption Date") (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Redemption Date to the Redemption Date), if redeemed during the 12-
month period beginning on December 15 of the years indicated below.
Year Redemption Price
----- ----------------
2002................. 109.938%
2003................. 106.625%
2004................. 103.313%
2005 and thereafter 100.000%
(ii) In addition, at any time prior to December 15, 2001, the Company
may at its option redeem for cash all, but not less than all, of the outstanding
Senior Exchangeable Preferred Stock within 20 days of a Public Equity Offering
with the net proceeds of such offering at a redemption price per share equal to
113.25% of the aggregate liquidation preference thereof, together with, without
duplication, an amount in cash equal to all accumulated and unpaid dividends, if
any, to the Redemption Date (including an amount in cash equal to a prorated
dividend for the period from the Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date), subject to the right of Holders of
record on the relevant record date to receive dividends due on a Dividend
Payment Date.
<PAGE>
9
(iii) No optional redemption may be authorized or made unless on or
prior to such redemption full unpaid cumulative dividends shall have been paid
or a sum set apart for such payment on the Senior Exchangeable Preferred Stock.
If less then all the Senior Exchangeable Preferred Stock is to be redeemed, the
particular shares to be redeemed will be determined pro rata, except that the
Company may redeem such shares held by any holder of fewer than 100 shares
without regard to such pro rata, redemption requirement. If any Senior
Exchangeable Preferred Stock is to be redeemed in part, the Redemption Notice
that relates to such Senior Exchangeable Preferred Stock shall state the portion
of the liquidation preference to be redeemed. New shares of the same Series of
Senior Exchangeable Preferred Stock having an aggregate liquidation preference
equal to the unredeemed portion will be issued in the name of the holder thereof
upon cancellation of the original shares of Senior Exchangeable Preferred Stock
and, unless the Company fails to pay the redemption price on the Redemption
Date, after the Redemption Date dividends will cease to accumulate on the Senior
Exchangeable Preferred Stock called for redemption.
(b) Mandatory Redemption. The Company shall redeem all outstanding
Senior Exchangeable Preferred Stock (subject to the legal availability of funds
therefor) in whole on the redemption date of December 15, 2009 (the "Mandatory
Redemption Date"), at a redemption price equal to 100% of the liquidation
preference thereof, plus, without duplication, all accumulated and unpaid
dividends, if any, to the date of redemption.
(c) Procedure for Redemption. (i) Not more than 60 and not less then
30 days prior to any Redemption Date, written notice (the "Redemption Notice")
shall be given by first-class mail, postage prepaid, to each Holder of record of
shares to be redeemed on the record date fixed for such redemption of the Senior
Exchangeable Preferred Stock at such Holder's address as the same appears on the
stock register of the Company, provided, however, that no failure to give such
notice nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of Senior Exchangeable Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Company has failed to
give such notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(A) the Redemption Price;
(B) whether all or less than all the outstanding shares of the Senior
Exchangeable Preferred Stock are to be redeemed and the total number of
shares of such Senior Exchangeable Preferred Stock being redeemed;
(C) the number of shares of Senior Exchangeable Preferred Stock held
by the Holder that the Company intends to redeem;
(D) the Redemption Date;
<PAGE>
10
(E) that the Holder is to surrender to the Company, at the place or
places, which shall be designated in such Redemption Notice, its
certificates representing the shares of Senior Exchangeable Preferred
Stock to be redeemed;
(F) that dividends on the shares of the Senior Exchangeable
Preferred Stock to be redeemed shall cease to accumulate on the day prior
to such Redemption Date unless the Company defaults in the payment of the
redemption price; and
(G) the name of any bank or trust company performing the duties
referred to in subsection (c)(v) below.
(ii) On or before the Redemption Date, each Holder of Senior
Exchangeable Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares of Senior Exchangeable Preferred Stock to
the Company, in the manner and at the place designated in the Redemption Notice,
and on the Redemption Date the full redemption price for such shares shall be
payable in cash to the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
returned to authorized but unissued shares. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(iii) Unless the Company defaults in the payment in full of the
redemption price, dividends on the Senior Exchangeable Preferred Stock called
for redemption shall cease to accumulate on the day prior to the Redemption
Date, and the Holders of such shares shall cease to have any further rights with
respect thereto on the Redemption Date, other than the right to receive the
redemption price, without interest.
(iv) If a Redemption Notice shall have been duly given, and if, on or
before the Redemption Date specified therein, all funds necessary for such
redemption shall have been set aside by the Company, separate and apart from its
other funds, in trust for the pro rata benefit of the Holders of the Senior
Exchangeable Preferred Stock called for redemption so as to be and continue to
be available therefor, then, notwithstanding that any certificate for shares
so called for redemption shall not have been surrendered for cancellation, all
shares so called for redemption shall no longer be deemed outstanding, and all
rights with respect to such shares shall forthwith on such Redemption Date cease
and terminate, except only the right of the Holders thereof to receive the
amount payable on redemption thereof, without interest.
(v) If a Redemption Notice shall have been duly given or if the
Company shall have given to the bank or trust company hereinafter referred to
irrevocable authorization promptly to give such notice, and if on or before the
Redemption Date specified therein the funds necessary for such redemption shall
have been deposited by the Company with such bank or trust company in trust for
the pro rata benefit of the Holders of the Senior Exchangeable Preferred Stock
called for redemption, then, notwithstanding that any certificate for shares so
called for redemption shall
<PAGE>
11
not have been surrendered for cancellation, from and after the time of such
deposit, all shares so called, or to be so called pursuant to such irrevocable
authorization, for redemption shall no longer be deemed to be outstanding and
all rights with respect of such shares shall forthwith cease and terminate,
except only the right of the Holders thereof to receive from such bank or trust
company at any time after the time of such deposit the funds so deposited,
without interest. The aforesaid bank or trust company shall be organized and in
good standing under the laws of the United States of America or of the State of
New York, shall be doing business in the Borough of Manhattan, The City of New
York, shall have capital, surplus and undivided profits aggregating at least
100,000,000 according to its last published statement of condition, and shall be
identified in the Redemption Notice. Any interest accrued on such funds shall be
paid to the Company from time to time. Any funds so set aside or deposited, as
the case may be, and unclaimed at the end of three years from such Redemption
Date shall, to the extent permitted by law, be released or repaid to the
Company, after which repayment the Holders of the shares so called for
redemption shall look only to the Company for payment thereof.
SECTION 7. Ranking. The Senior Exchangeable Preferred Stock shall,
-------
with respect to dividends and distributions upon liquidation, winding-up and
dissolution of the Company, rank (a) senior to all classes of common stock, the
Series B Preferred, and to each other class of Capital Stock or series of
preferred stock of the Company, established after the Issuance Date by the Board
of Directors, the terms of which expressly provide that it ranks junior to the
Senior Exchangeable Preferred Stock as to dividends and distributions upon
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with all classes of common stock of the Company, as "Junior
Securities"); (b) subject to the approval of the Holders in accordance with
Section 5(c) hereof, on a parity with each other class of Capital Stock or
series of preferred stock established after the Issuance Date by the Board of
Directors the terms of which expressly provide that such class or series will
rank on a parity with the Senior Exchangeable Preferred Stock as to dividends
and distributions upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Parity Securities"); and (c) subject to the
approval of the Holders in accordance with Section 5(c) hereof, junior to each
class of Capital Stock or series of preferred stock established after the
Issuance Date by the Board of Directors and the terms of which do not expressly
provide that such class or series will rank junior to, or on a parity with, the
Senior Exchangeable Preferred Stock as to dividends and distributions upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Securities").
SECTION 8. Certain Additional Provisions.
-----------------------------
(a) Limitation on Indebtedness. The Company shall not, and shall not
permit any Restricted Subsidiary to, create, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of, or otherwise
incur (collectively, "incur"), any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness; provided, however, that the
Company and any Restricted Subsidiary may incur Indebtedness (including Acquired
Indebtedness) if at the time of such incurrence (i) no Voting Rights Triggering
Event shall have
<PAGE>
12
occurred and be continuing or shall occur as a consequence thereof and (ii) the
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding the incurrence of such Indebtedness for which internal
financial statements are available, taken as one period (and after giving pro
forma effect to (A) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, on the first day of such four-quarter period, (B) the
incurrence, repayment or retirement of any other Indebtedness by the Company and
its Restricted Subsidiaries since the first day of such four-quarter period as
if such Indebtedness was incurred, repaid or retired on the first day of such
four-quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter period)
and (C) the acquisition (whether by purchase, merger or otherwise) or
disposition (whether by sale, merger or otherwise) of any company, entity or
business acquired or disposed of by the Company or its Restricted Subsidiaries,
as the case may be, since the first day of such four-quarter period, as if such
acquisition or disposition occurred on the first day of such four-quarter
period), would have been at least equal to 2.0 to 1.0.
(b) Limitations on Restricted Payments. (I) The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly, take
any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
the holders of any Parity Securities or Junior Securities (other than
dividends or distributions payable solely in shares of Qualified Capital
Stock (other than Senior Securities) or in options, warrants or other
rights to purchase shares of Qualified Capital Stock (other than Senior
Securities));
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any Parity Securities or Junior Securities or any
Capital Stock of the Company or any Affiliate of the Company or any
options, warrants or other rights to acquire Parity Securities or Junior
Securities or such Capital Stock (other than such options, warrants or
rights owned by the Company or a wholly owned Restricted Subsidiary);
(iii) declare or pay any dividend on, or make any distribution to
holders of any shares of Capital Stock of any Restricted Subsidiary (other
than to the Company or any of its wholly owned Restricted Subsidiaries or
to all holders of Capital Stock of such Restricted Subsidiary on a pro
rata basis); or
(iv) make any Investment (other than any Permitted Investment) in
any Person
(such payments or other actions described in (but not excluded from) clauses (i)
through (iv) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment,
<PAGE>
13
if other than cash, as determined by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a Board Resolution),
(1) no Voting Rights Triggering Event shall have occurred and be continuing, (2)
the Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 8(a) and (3) the aggregate amount of
all Restricted Payments declared or made after the Issuance Date shall not
exceed the sum of:
(A) 50% of the Consolidated Adjusted Net Income of the Company
accrued on a cumulative basis during the period beginning on the first day
of the Company's first fiscal quarter after the Issuance Date and ending
on the last day of the Company's last fiscal quarter ending prior to the
date of such proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Adjusted Net Income shall be a loss, minus 100% of such
loss), plus
(B) the aggregate net cash proceeds received after the Issuance Date
by the Company from the issuance or sale (other than to any Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company (including
upon the exercise of options, warrants or rights) or warrants, options or
rights to purchase shares of Qualified Capital Stock of the Company, plus
(C) the aggregate net cash proceeds received after the Issuance Date
by the Company from the issuance or sale (other than to any Restricted
Subsidiary) of debt securities or Redeemable Capital Stock that have been
converted into or exchanged for Qualified Capital Stock of the Company, to
the extent such securities were originally sold for cash, together with
the aggregate net cash proceeds received by the Company at the time of
such conversion or exchange, plus
(D) to the extent that any Investment constituting a Restricted
Payment that was made after the Issuance Date is sold or is otherwise
liquidated or repaid, an amount (to the extent not included in
Consolidated Adjusted Net Income) equal to (I) the lesser of (x) the cash
proceeds with respect to such Investment (less the cost of the disposition
of such Investment and net of taxes) and (y) the initial amount of such
Investment, or (II) with respect to solely any Restricted Payment to be
made pursuant to clause (iv) of this paragraph (a), the cash proceeds with
respect to such Investment (less the cost of the disposition of such
Investment and net of taxes) in excess of the amount in (I), plus
(E) $5,000,000.
(II) Notwithstanding paragraph (I) above, the Company and its
Restricted Subsidiaries may take the following actions so long as (with respect
to clauses (ii), (iii), (iv), (v) and (vi) below) at the time of and after
giving effect thereto no Voting Rights Triggering Event has occurred and is
continuing:
<PAGE>
14
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (I) above;
(ii) the purchase, redemption or other acquisition or retirement
for value of any shares of Capital Stock of the Company in exchange for,
or out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock (other than Senior Securities) of the Company;
(iii) the repurchase, redemption or other acquisition or retirement
for value of shares of Management Stock; provided that (1) the Company is
required, by the terms of written agreements between the Company and each
of Lloyd L. Ross and Jerry M. Smith as in effect on the Issuance Date, to
effect such purchase, redemption or other acquisition or retirement for
value of such shares and (2) the aggregate consideration paid by the
Company for such shares so purchased, redeemed or otherwise acquired or
retired for value does not exceed $25,000,000 in the aggregate;
(iv) the repurchase, redemption or other acquisition or retirement
for value of shares of Capital Stock of the Company from employees who
have died (or their estates or beneficiaries) or whose employment has been
terminated; provided that such payment shall not exceed $1,500,000 in any
twelve-month period, excluding any amounts used to repurchase, redeem,
acquire or retire for value shares of Capital Stock of the Company
pursuant to clause (iii) above;
(v) repurchases of Capital Stock of the Company (or warrants or
options convertible into or exchangeable for such Capital Stock) deemed to
occur upon exercise of stock options to the extent that shares of such
Capital Stock (or warrants or options convertible into or exchangeable for
such Capital Stock) represent a portion of the exercise price of such
options; and
(vi) the issuance by the Company of shares of Preferred Stock as
dividends paid in kind on the Preferred Stock of the Company outstanding
on the Issuance Date or on shares of Preferred Stock so issued as payment-
in-kind dividends, such dividends made pursuant to the terms of the
certificate of designation or the certificate of incorporation, as the
case may be, for such Preferred Stock as in effect on the Issuance Date.
The actions described in clauses (i), (ii), (iii), (iv) and (v) of this
paragraph (II) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (II) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (I)
above and the actions described in clause (vi) of this paragraph (II) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (II) and
<PAGE>
15
shall not reduce the amount that would otherwise be available for Restricted
Payments under clause (3) of paragraph (I).
(III) Notwithstanding the foregoing, the Company shall not, and shall
not permit any Restricted Subsidiary to, pay any cash dividends on any shares of
Capital Stock of the Company which shall rank junior to the Senior Exchangeable
Preferred Stock until such time as the Notes have received a rating from Moody's
of at least "B1" or higher.
(c) Change in Control. If a Change in Control shall occur at any
time, then each Holder of Senior Exchangeable Preferred Stock shall have the
right to require that the Company purchase such Holder's Senior Exchangeable
Preferred Stock, in whole or in part, at a purchase price in cash (a "Change in
Control Payment") in an amount equal to 101% of the liquidation preference of
such Senior Exchangeable Preferred Stock, plus accumulated and unpaid dividends,
if any, to the date of purchase, pursuant to the offer described below (the
"Change in Control Offer") and the other procedures set forth herein.
Within 30 days following any Change in Control, the Company will mail
a notice to each Holder of Senior Exchangeable Preferred Stock with a copy to
the Transfer Agent, with the following information: (i) a Change in Control
Offer is being made pursuant to this Section 8(c) of this Certificate of
Designation, and that all Senior Exchangeable Preferred Stock properly tendered
pursuant to such Change in Control Offer will be accepted for payment; (ii) the
purchase price and the purchase date, which will be no earlier than 30 days nor
later than 75 days from the date such notice is mailed, except as may be
otherwise required by applicable law (the "Change in Control Payment Date");
(iii) any Senior Exchangeable Preferred Stock not properly tendered will remain
outstanding and continue to accumulate dividends; (iv) unless the Company
defaults in the payment of the Change in Control Payment, all Senior
Exchangeable Preferred Stock accepted for payment pursuant to the Change in
Control Offer will cease to accumulate dividends on the Change in Control
Payment Date; (v) Holders electing to have any shares of Senior Exchangeable
Preferred Stock purchased pursuant to a Change in Control Offer will be required
to surrender such shares, properly endorsed for transfer, to the Transfer Agent
for the Senior Exchangeable Preferred Stock at the address specified in the
notice prior to the close of business on the third Business Day preceding the
Change in Control Payment Date; (vi) Holders will be entitled to withdraw their
tendered shares of Senior Exchangeable Preferred Stock and their election to
require the Company to purchase such shares, provided that the Transfer Agent
receives, not later than the close of business on the last day of the offer
period, a telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the aggregate liquidation preference of the Senior
Exchangeable Preferred Stock tendered for purchase, and a statement that such
holder is withdrawing his tendered shares of Senior Exchangeable Preferred Stock
and his election to have such shares of Senior Exchangeable Preferred Stock
purchased; and (vii) that holders whose shares of Senior Exchangeable Preferred
Stock are being purchased only in part will be issued new shares of Senior
Exchangeable Preferred Stock equal in aggregate liquidation preference to the
unpurchased portion of the shares of Senior Exchangeable Preferred Stock
<PAGE>
16
surrendered, which unpurchased portion must be equal to $1,000 in aggregate
liquidation preference or an integral multiple thereof.
On the Change in Control Payment Date, the Company shall, to the
extent permitted by law, (i) accept for payment all shares of Senior
Exchangeable Preferred Stock or portions thereof properly tendered pursuant to
the Change in Control Offer, (ii) deposit with the Transfer Agent an amount in
cash equal to the aggregate Change in Control Payment in respect of all shares
of Senior Exchangeable Preferred Stock or portions thereof so tendered and (iii)
deliver, or cause to be delivered, to the Transfer Agent for cancellation the
shares of Senior Exchangeable Preferred Stock so accepted together with an
Officers' Certificate stating that such shares of Senior Exchangeable Preferred
Stock or portions thereof have been tendered to and purchased by the Company.
The Transfer Agent shall promptly mail to each holder of Senior Exchangeable
Preferred Stock the Change in Control Payment for such Senior Exchangeable
Preferred Stock, and the Transfer Agent shall promptly mail to each holder new
shares of Senior Exchangeable Preferred Stock equal in aggregate liquidation
preference to any unpurchased portion of Senior Exchangeable Preferred Stock
surrendered, if any. The Company shall publicly announce the results of the
Change in Control Offer on or as soon as practicable after the Change in Control
Payment Date.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create or permit to exist or become effective any restriction (other than
restrictions existing under the Senior Credit Agreement or under Indebtedness as
in effect on the Issuance Date) that would materially impair the ability of the
Company to make a Change in Control Offer to purchase the Senior Exchangeable
Preferred Stock or, if such Change in Control Offer is made, to pay for the
Senior Exchangeable Preferred Stock tendered for purchase.
Prior to making a Change in Control Offer, the Company shall terminate
all commitments and repay in full all Indebtedness under the Senior Credit
Agreement and the Notes, respectively, and shall have obtained the requisite
consents under the Senior Credit Agreement and the Indenture to permit the
purchase of the Senior Exchangeable Preferred Stock as provided for herein.
(d) Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (i) shall not permit any Restricted Subsidiary to
issue any Capital Stock (other than to the Company or a wholly owned Restricted
Subsidiary) and (ii) shall not permit any Person (other than the Company or a
wholly owned Restricted Subsidiary) to own any Capital Stock of any Restricted
Subsidiary; provided, however, that this provision shall not prohibit (A) the
issuance and sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions herein, (B) the
ownership by other Persons of Qualified Capital Stock (other than Preferred
Stock) issued prior to the time such Restricted Subsidiary became a Subsidiary
of the Company that was neither issued in contemplation of such Subsidiary
<PAGE>
17
becoming a Subsidiary nor acquired at that time or (C) the ownership by
directors of directors' qualifying shares or the ownership by foreign nationals
of Capital Stock of any Restricted Subsidiary, to the extent mandated by
applicable law.
(e) Consolidation, Merger and Sale of Assets. The Company shall not,
in a single transaction or through a series of transactions, consolidate with or
merge with or into any other Person or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets to
any other Person or Persons or permit any of its Restricted Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or Persons, unless at the time and
immediately after giving effect thereto:
(i) either (a) the Company shall be the continuing corporation or
(b) the Person (if other than the Company) formed by such consolidation or
into which the Company or such Restricted Subsidiary is merged or the
Person that acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis (the
"Surviving Entity") shall be a corporation duly organized and validly
existing under the laws of the United States of America, any state thereof
or the District of Columbia;
(ii) the Senior Exchangeable Preferred Stock shall be converted
into or exchanged for and shall become shares of the Surviving Entity
having in respect of the Surviving Entity the same rights and privileges
that the Senior Exchangeable Preferred Stock had immediately prior to such
transaction with respect to the Company;
(iii) immediately after giving effect to such transaction or series
of transactions on a pro forma basis, no Voting Rights Triggering Event,
and no event that after the giving of notice or lapse of time or both
would become a Voting Rights Triggering Event, shall have occurred and be
continuing;
(iv) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the
assumption that the transaction or series of transactions occurred on the
first day of the four-quarter period immediately prior to the consummation
of such transaction or series of transactions with the appropriate
adjustments with respect to the transaction or series of transactions
being included in such pro forma calculation), the Company (or the
Surviving Entity, as the case may be) could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 8(a) of this Certificate of Designation; and
<PAGE>
18
(v) the Company or the Surviving Entity shall have delivered to
the Transfer Agent an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition comply with this
Certificate of Designation.
The Surviving Entity shall file an appropriate certificate of
designation with respect to the preferred stock referred to in clause (ii) above
with the Secretary of State (or similar public official) of the jurisdiction
under whose laws it is organized. In such event, the Company shall be released
from its obligations under this Certificate of Designation.
(f) Reports and Other Information. The Company shall file on a
timely basis with the Commission, to the extent such filings are accepted by the
Commission and whether or not the Company has a class of securities registered
under the Exchange Act, the annual reports, quarterly reports and other
documents that the Company would be required to file if it were subject to
Section 13 or 15 of the Exchange Act. The Company shall also (a) file with the
Transfer Agent, and provide to each holder of Senior Exchangeable Preferred
Stock, without cost to such holder, copies of such reports and documents within
15 days after the date on which the Company files such reports and documents
with the Commission or the date on which the Company would be required to file
such reports and documents if the Company were so required, and (b) if filing
such reports and documents with the Commission is not accepted by the Commission
or is prohibited under the Exchange Act, to supply at the Company's cost copies
of such reports and documents to any prospective holder of Senior Exchangeable
Preferred Stock promptly upon written request.
SECTION 9. No Reissuance of Senior Exchangeable Preferred Stock.
----------------------------------------------------
None of the shares of Senior Exchangeable Preferred Stock acquired by the
Company by reason of redemption, purchase, or otherwise shall be reissued.
SECTION 10. Business Day. If any payment or redemption shall be
------------
required by the terms hereof to be made on a day that is not a Business Day,
such payment or redemption shall be made on the immediately succeeding Business
Day.
SECTION 11. Transfer Restrictions. (a) The Series A Senior
---------------------
Preferred Stock will bear a legend to the following effect (as applicable)
unless otherwise agreed by the Company and the Holder thereof:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
<PAGE>
19
ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR (B)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH
IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144
UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OR
THIS SECURITY) AND THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE
OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER,
SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR
SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S, (E)
TO AN ACCREDITED INVESTOR THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN ACCREDITED INVESTOR, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT
(AND IF ACQUIRING THE SECURITIES FROM SUCH AN ACCREDITED INVESTOR,
IS ACQUIRING SECURITIES HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT
LESS THAN $100,000), OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE
<PAGE>
20
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT
IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE
COMPANY, THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D),
(E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF
THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRADED, EXCHANGED OR OTHERWISE TRANSFERRED UNTIL (I) JUNE 15,
1998, (II) THE OCCURRENCE OF A CHANGE IN CONTROL; (III) THE DATE ON
WHICH A PREFERRED STOCK REGISTRATION STATEMENT IS DECLARED EFFECTIVE;
(IV) IMMEDIATELY PRIOR TO ANY REDEMPTION OF SENIOR EXCHANGEABLE
PREFERRED STOCK BY THE COMPANY WITH THE PROCEEDS OF A PUBLIC EQUITY
OFFERING; OR (V) SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH IN
ITS SOLE DISCRETION (THE DATE OF THE OCCURRENCE OF AN EVENT SPECIFIED
IN CLAUSES (I)-(V) BEING THE "SEPARATION DATE").
(b) The Transfer Agent shall refuse to register any transfer of
Series A Senior Preferred Stock in violation of the restrictions contained in
the legend provided for in Section 11(a).
(c) The legend provided for in Section 11(a) may be removed if the
Series A Senior Preferred Stock has been registered pursuant to a Preferred
Stock Shelf Registration Statement under the Securities Act. Unlegended Series
B Senior Preferred Stock may be issued in exchange for Series A Senior Preferred
Stock pursuant to a Preferred Stock Exchange Offer.
(d) At any time after the later of the Separation Date and 40 days
following the Issuance Date, upon receipt by the Transfer Agent and the Company
of a certificate substantially in the form of Exhibit A hereto, the Transfer
Agent shall authenticate and deliver one or more shares of unlegended Series A
Senior Preferred Stock in the place of shares of legended Series A Senior
Preferred Stock.
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21
(e) In connection with proposed transfers of Series A Senior Preferred
Stock described in Exhibit B or Exhibit C, the Transfer Agent or the Company may
require the transferor or transferee, as the case may be, to deliver the
appropriate letter attached hereto as Exhibit B or C. Each Holder of Series A
Senior Preferred Stock shall notify the Company or the Transfer Agent in the
event of any transfer by such Holder of any shares of Series A Senior Preferred
Stock to a foreign transferee.
SECTION 12. Definitions. As used in this Certificate of Designation,
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the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at
the time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person. Acquired Indebtedness shall be deemed
to be incurred on the date of the related acquisition of assets from any Person
or the date the acquired Person becomes a Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or (c) any executive officer or director of any such specified Person or
other Person or (d) with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Average Life" means, as of the date of determination with respect to
any Indebtedness or Senior Exchangeable Preferred Stock, the quotient obtained
by dividing (a) the sum of the products of (i) the number of years from the date
of determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund requirements) or
liquidation value payment of such Indebtedness or Senior Exchangeable Preferred
Stock, respectively, multiplied by (ii) the amount of each such principal or
liquidation value payment by (b) the sum of all such principal or liquidation
value payments.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any duly authorized committee of such board.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Transfer Agent.
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York City are
authorized or obligated by law, regulation or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participation, rights in or other equivalents
(however designated) of such Person's capital stock, and any rights (other than
debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the Issuance Date.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP, and,
for the purpose of this Certificate of Designation, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means: (a) any evidence of Indebtedness with a
maturity of one year or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (b) certificates of deposit or acceptances with a
maturity of one year or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500 million; (c) commercial paper with a maturity of
one year or less issued by a corporation that is not an Affiliate of the Company
and is organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 by S&P or any successor rating
agency or at least P-1 by Moody's or any successor rating agency; (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (a) and (b) above; and (e) demand and time
deposits with a domestic commercial bank that is a member of the Federal Reserve
System having combined capital and surplus and undivided profits of not less
than $500 million.
"Change in Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, 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 "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding Voting Stock of the
Company and either (x) the Permitted Holders beneficially own, directly or
indirectly, in the aggregate Voting Stock of the Company that represents a
lesser percentage of the aggregate ordinary voting power of all classes of the
Voting Stock of the Company, voting together as a single class, than such other
person or group and are not entitled (by voting power, contract or otherwise) to
elect directors of the Company having a majority of the total voting power of
the Board of Directors, or (y) such other person or group is entitled to elect
directors of the Company having a majority of the total voting power of the
Board
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23
of Directors; (b) the Company consolidates with, or merges with or into, another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction (i) where the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property (other than Capital Stock of the surviving or transferee
corporation) in an amount that could be paid by the Company as a Restricted
Payment as described under Section 8(b) of this Certificate of Designation and
(ii) immediately after such transaction, no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is 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 "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total outstanding Voting Stock
of the surviving or transferee corporation and either (x) the Permitted Holders
beneficially own, directly or indirectly, in the aggregate Voting Stock of the
surviving or transferee corporation that represents a lesser percentage of the
aggregate ordinary voting power of all classes of the Voting Stock of the
surviving or transferee corporation, voting together as a single class, than
such other person or group and are not entitled (by voting power, contract or
otherwise) to elect directors of the Surviving Entity having a majority of the
total voting power of the Board of Directors, or (y) such other person or group
is entitled to elect directors of the surviving or transferee corporation having
a majority of the total voting power of the elected Board of Directors; or (c)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election to such Board of Directors, or whose nomination for
election by the stockholders of the Company, was approved by a vote of 66 2/3%
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (d) the Company is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under Section 8(e) of
this Certificate of Designation.
"Change in Control Offer" has the meaning specified in Section 8(c)
hereof.
"Change in Control Payment" has the meaning specified in Section 8(c)
hereof.
"Change in Control Payment Date" has the meaning specified in Section
8(c) hereof.
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24
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issuance Date or issued after the Issuance Date, and includes, without
limitation, all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Certificate of Designation until a successor Person shall have
become such pursuant to the applicable provisions of this Certificate of
Designation, and thereafter "Company" shall mean such successor Person.
"Consolidated Adjusted Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (less
all fees and expenses relating thereto), (b) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset dispositions
other than in the ordinary course of business, (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash dividends or distributions during such period, (d) the net
income (or loss) of any Person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination, (e) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary or its stockholders, and (f)
for purposes of calculating Consolidated Adjusted Net Income under Section 8(b)
of this Certificate of Designation, any net income (or loss) from any Restricted
Subsidiary while it was an Unrestricted Subsidiary at any time during such
period other than any amounts actually received from such Restricted Subsidiary
during such period.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for
any period, the ratio of (a) the sum of Consolidated Adjusted Net Income and, to
the extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges, in each case, for such period to (b) the Consolidated Interest Expense
for such period.
"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and all
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
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25
"Consolidated Interest Expense" means, for any period, without
duplication, (1) the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation and (iv) amortization of debt issuance costs, plus
(b) the interest component of Capitalized Lease Obligations of the Company and
its Restricted Subsidiaries during such period, plus (c) cash dividends due
(whether or not declared) on Preferred Stock by the Company and any Restricted
Subsidiary, plus (d) cash dividends due (whether or not declared) on Redeemable
Capital Stock by the Company and any Restricted Subsidiary, in each case as
determined on a consolidated basis in accordance with GAAP, less (2) interest on
the Exchange Debentures outstanding on the Exchange Date paid in kind with
Exchange Debentures and on Exchange Debentures so issued as payment in kind
interest, all in accordance with the Exchange Indenture as in effect on the
Issuance Date; provided that (x) the Consolidated Interest Expense attributable
to interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying at the option of the Company, either the fixed or
floating rate, and (y) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period; provided
further that, notwithstanding the foregoing, the interest rate with respect to
any Indebtedness covered by any Interest Rate Agreement shall be deemed to be
the effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization, depletion and other non-cash expenses of the Company
and any Restricted Subsidiary reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge that requires an accrual of or reserve for cash charges
for any future period).
"corporation" includes corporations, associations, companies and
business trusts.
"Currency Agreements" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and designed to protect against
or manage exposure to fluctuations in foreign currency exchange rates.
"Debenture Guarantee" means any guarantee of the obligations of the
Company under the Exchange Indenture and the Exchange Debentures by any
Restricted Subsidiary in accordance with the provisions of the Exchange
Indenture.
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26
"Dividend Payment Date" means each March 15, June 15, September 15 and
December 15 of each year on which dividends shall be paid or are payable, any
Redemption Date and any other date on which dividends in arrears may be paid.
"Dividend Rate" has the meaning specified in Section 2(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Date" has the meaning specified in Section 4(a) hereof.
"Exchange Debentures" means the 13 1/4% Subordinated Exchange
Debentures due 2009 of the Company issuable in exchange for the Senior
Exchangeable Preferred Stock, at the option of the Company, plus any additional
Exchange Debentures issued in lieu of cash interest, pursuant to the Exchange
Indenture as in effect on the Issuance Date.
"Exchange Indenture" means the Indenture dated as of December 29, 1997
among the Company, the Subsidiary Debenture Guarantors and United States Trust
Company of New York, as trustee, relating to the Exchange Debentures.
"Exchange Notice" has the meaning specified in Section 4(a) hereof.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States consistently applied, that
are in effect on the Issuance Date.
"guarantee" means, as applied to any obligation, (a) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Headquarters Facility" means the headquarters facility and warehouse
of the Company as of the Issuance Date located in Dallas, Texas.
"Holder" has the meaning specified in Section 2(a) hereof.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money (including overdrafts) or
for the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the ordinary course
of business, but including, without limitation, all obligations,
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27
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) all obligations of such Person
under or in respect of Interest Rate Agreements or Currency Agreements, (f) all
Indebtedness referred to in (but not excluded from) the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset and the amount of the
obligation so secured), (g) all guarantees by such Person of Indebtedness
referred to in this definition of any other Person and (h) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Certificate of Designation, and if
such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued or owned by,
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP. In addition, the fair market
value of the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed
to be an "Investment" made by the Company in such Unrestricted Subsidiary at
such time. "Investments" shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
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"Issuance Date" means the date on which the Senior Exchangeable
Preferred Stock is originally issued under this Certificate of Designation.
"Junior Securities" has the meaning specified in Section 7 hereof.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Management Stock" means the Capital Stock of the Company and the
options to acquire Capital Stock of the Company owned by Lloyd L. Ross and Jerry
M. Smith as of the Issuance Date together with Preferred Stock issued as payment
in kind dividends on such Preferred Stock and any shares of Preferred Stock
issued as payment in kind dividends thereon, such dividends made pursuant to the
terms of the certificate of designation or the certificate of incorporation, as
the case may be, for such Preferred Stock as in effect on the Issuance Date.
"Mandatory Redemption Date" has the meaning specified in Section 6(b)
hereof.
"Notes" means the 11% Senior Subordinated Notes due 2007 of the
Company, issuable pursuant to the Notes Indenture.
"Notes Indenture" means the Indenture dated as of December 29, 1997
among the Company, the Subsidiary Guarantors and Harris Trust and Savings Bank,
as trustee, relating to the Notes.
"Note Guarantee" means any guarantee of the obligations of the Company
under the Notes Indenture and the Notes by the Subsidiary Guarantors in
accordance with the provisions of the Notes Indenture.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company,
and delivered to the Transfer Agent.
"Opinion of Counsel" means a written opinion of legal counsel, which
and who may be counsel for the Company, including an employee of the Company,
and who shall be reasonably acceptable to the Transfer Agent.
"Parity Securities" has the meaning specified in Section 8 hereof.
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"Permitted Holders" means, as of the date of determination, Madison
Dearborn Capital Partners II, L.P. and its Affiliates.
"Permitted Indebtedness" means any of the following:
(a) (i) Indebtedness of the Company under the Senior Credit Agreement
in an aggregate principal amount at any one time outstanding not to exceed
the sum of (A) $110 million less the amount of any permanent reductions
made by the Company in respect of any term loans under the Senior Credit
Agreement and (B) with respect to revolving borrowings, the greater of (1)
$115 million and (2) 60% of the Eligible Inventory (as defined in the
Senior Credit Agreement on the Issuance Date) of the Company and the
Restricted Subsidiaries and (ii) any guarantee by a Subsidiary Debenture
Guarantor of Indebtedness incurred under this clause (a);
(b) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a Note Guarantee;
(c) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Exchange Indenture and listed on a schedule
thereto;
(d) Indebtedness of the Company owing to any wholly owned Restricted
Subsidiary; provided that any Indebtedness of the Company owing to any
such Restricted Subsidiary is subordinated in right of payment from and
after such time as the Exchange Debentures shall become due and payable
(whether at Stated Maturity, acceleration or otherwise) to the payment and
performance of the Company's obligations under such Exchange Debentures;
provided further that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to
the Company or another wholly owned Restricted Subsidiary) shall be deemed
to be an incurrence of such Indebtedness by the Company not permitted by
this clause (d);
(e) Indebtedness of a Restricted Subsidiary owing to the Company or
to another wholly owned Restricted Subsidiary; provided that any such
Indebtedness is subordinated in right of payment to the Debenture
Guarantee of such Subsidiary Debenture Guarantor; provided further that
any disposition, pledge or transfer of any such Indebtedness to a Person
(other than a disposition, pledge or transfer to the Company or a wholly
owned Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by such Restricted Subsidiary not permitted by this clause
(e);
(f) guarantees of any Restricted Subsidiary made in accordance with
the provisions of Section 1015, "Limitation on Guarantees of Indebtedness
by Restricted Subsidiaries," of the Notes Indenture;
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(g) obligations of the Company or any Subsidiary Debenture Guarantor
entered into in the ordinary course of business (i) pursuant to Interest
Rate Agreements designed to protect the Company or any Restricted
Subsidiary against fluctuations in interest rates in respect of
Indebtedness of the Company or any Restricted Subsidiary, which
obligations do not exceed the aggregate principal amount of such
Indebtedness and (ii) pursuant to Currency Agreements entered into by the
Company or any of its Restricted Subsidiaries in respect of its (x) assets
or (y) obligations, as the case may be, denominated in a foreign currency;
(h) Indebtedness of the Company or any Subsidiary Debenture Guarantor
in respect of Purchase Money Obligations and Capitalized Lease Obligations
of the Company or any Subsidiary Debenture Guarantor in an aggregate
amount which does not exceed $15,000,000 at any one time outstanding;
(i) Indebtedness of the Company or any Subsidiary Debenture Guarantor
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of Capital
Stock of Restricted Subsidiaries;
(j) Indebtedness of the Company or any Subsidiary Debenture Guarantor
represented by (x) letters of credit for the account of the Company or any
Restricted Subsidiary or (y) other obligations to reimburse third parties
pursuant to any surety bond or other similar arrangements, which letters
of credit or other obligations, as the case may be, are intended to
provide security for workers' compensation claims, payment obligations in
connection with self-insurance or other similar requirements in the
ordinary course of business;
(k) Acquired Indebtedness of any Restricted Subsidiary that is
organized outside of the United States of America in an aggregate amount
which, together with any Indebtedness permitted to be incurred pursuant to
this clause (k) and refinanced pursuant to clause (p) below, does not
exceed $10,000,000 at any one time outstanding;
(l) Indebtedness of the Company owing to Jerry M. Smith under a note
issued pursuant to a written agreement between the Company and Jerry M.
Smith as in effect on the Issuance Date, in consideration for the
repurchase of Common Stock of the Company owned by Jerry M. Smith at his
retirement, in an aggregate amount not to exceed $15,000,000 outstanding
at any time;
(m) Preferred Stock issued as payment in kind dividends on Preferred
Stock outstanding on the Issuance Date and any shares of Preferred Stock
issued as payment in kind dividends thereon, such dividends made pursuant
to the terms of the certificate of
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designation or the certificate of incorporation, as the case may be, for
such Preferred Stock as in effect on the Issuance Date;
(n) Indebtedness of the Company or a Subsidiary Debenture Guarantor
incurred in connection with the Company's Headquarters Facility or the
purchase or construction of a new headquarters facility, in each case, as
permitted under the Senior Credit Agreement as in effect on the Issuance
Date;
(o) Indebtedness of the Company or any Subsidiary Debenture Guarantor
not otherwise permitted by the foregoing clauses (a) through (n) in an
aggregate principal amount not in excess of $20,000,000 at any one time
outstanding; and
(p) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
Indebtedness, referred to in clauses (b), (c) and (k) of this definition,
including any successive refinancings, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for
an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) so refinanced, plus the lesser of the amount of any
premium required to be paid in connection with such refinancing pursuant
to the terms of the Indebtedness refinanced or the amount of any premium
reasonably determined as necessary to accomplish such refinancing, (ii)
such new Indebtedness has an Average Life longer than the Average Life of
the Senior Exchangeable Preferred Stock and a final Stated Maturity later
than the Mandatory Redemption Date and (iii) Indebtedness of the Company
or a Subsidiary Debenture Guarantor may only be refinanced with
Indebtedness of the Company or a Subsidiary Debenture Guarantor and
Indebtedness of a Restricted Subsidiary may only be refinanced with
Indebtedness of a Restricted Subsidiary and Indebtedness of a Restricted
Subsidiary that is not a Subsidiary Debenture Guarantor may only be
refinanced with Indebtedness of such Restricted Subsidiary.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any wholly owned Restricted
Subsidiary;
(c) intercompany Indebtedness to the extent permitted under clause
(d) or (e) of the definition of "Permitted Indebtedness;"
(d) Investments in an amount not to exceed $10,000,000 at any one
time outstanding;
<PAGE>
32
(e) Investments by the Company or any Restricted Subsidiary in
another Person, if as a result of such Investment (i) such other Person
becomes a wholly owned Restricted Subsidiary or (ii) such Person, in one
transaction or a series of related transactions, is merged or consolidated
with or into, or transfers or conveys all or substantially all of its
assets to, the Company or a wholly owned Restricted Subsidiary;
(f) bonds, notes, debentures and other securities received as
consideration for Assets Sales to the extent permitted under Section 1014
of the Notes Indenture;
(g) negotiable instruments held for deposit or collection in the
ordinary course of business, except to the extent they would constitute
Investments in Affiliates; or
(h) Investments in the form of the sale (on a "true-sale" non-
recourse basis) or the servicing of receivables transferred from the
Company or any Restricted Subsidiary.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding, or issued
after the Issuance Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Preferred Stock Exchange Offer" means an offer by the Company to
exchange the Series A Senior Preferred Stock for the Series B Senior Preferred
Stock pursuant to an effective registration statement.
"Preferred Stock Shelf Registration Statement" means a shelf
registration statement which becomes effective and covers resales of the Series
A Senior Preferred Stock.
"Public Equity Offering" means an offer and sale of common stock
(which is Qualified Capital Stock) of the Company made on a primary basis by the
Company pursuant to a registration statement that has been declared effective by
the Commission pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of the Company).
"Purchase Money Obligations" means, with respect to any Person,
obligations, other than Capitalized Lease Obligations, incurred or assumed in
the ordinary course of business in connection with the purchase of property to
be used in the business of such Person within 90
<PAGE>
33
days of such purchase, provided that the amount of any Purchase Money Obligation
shall not exceed the purchase price of the property purchased.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Exchange Debentures or is redeemable at the
option of the holder thereof at any time prior to such final Stated Maturity, or
is convertible into or exchangeable for debt securities at any time prior to
such final Stated Maturity.
"Redemption Date" has the meaning specified in Section 6(a)(i)
hereof.
"Redemption Notice" has the meaning specified in Section 6(c)(i)
hereof.
"Redemption Price" means the price at which the Senior Exchangeable
Preferred Stock may be redeemed.
"Restricted Payment" has the meaning specified in Section 8(b)
hereof.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Credit Agreement" means the credit agreement dated as of
December 29, 1997 among the Company, the Subsidiary Debenture Guarantors, the
several lenders parties thereto, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as arranger and syndication agent, and Fleet
National Bank, as administrative agent, as such agreement may be amended,
renewed, extended, substituted, restated, refinanced, restructured,
supplemented, increased or otherwise modified from time to time (including,
without limitation, any successive amendments, renewals, extensions,
substitutions, restatements, refinancings, restructurings, supplements or other
modifications of the foregoing); provided that, with respect to any agreement
providing for the refinancing of Indebtedness under the Senior Credit Agreement,
such agreement shall be the Senior Credit Agreement under the Exchange Indenture
only if a notice to that effect is delivered by the Company to the Transfer
Agent and there shall be at any time only one instrument that is the Senior
Credit Agreement under this Certificate of Designation.
<PAGE>
34
"Senior Exchangeable Preferred Stock" has the meaning set forth in
Section 1 hereof.
"Senior Securities" has the meaning specified in Section 7 hereof.
"Series A Senior Preferred Stock" has the meaning set forth in
Section 1 hereof.
"Series B Preferred" means the Series B-1 Cumulative Junior Redeemable
Preferred Stock of the Company, par value $.01 per share and the Series B-2
Cumulative Junior Perpetual Preferred Stock of the Company, par value $.01 per
share, in each case authorized pursuant to the Certificate of Incorporation.
"Series B Senior Preferred Stock" has the meaning set forth in
Section 1 hereof.
"Stated Maturity" means, when used with respect to any Exchange
Debenture or any installment of interest thereon, the date specified in such
Exchange Debenture as the fixed date on which the principal of such Exchange
Debenture or such installment of interest is due and payable, and, when used
with respect to any other Indebtedness, means the date specified in the
instrument governing such Indebtedness as the fixed date on which the principal
of such Indebtedness, or any installment of interest thereon, is due and
payable.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries.
"Subsidiary Debenture Guarantor" means each of TMI Holdings Inc., a
Delaware corporation, Tuesday Morning Inc., a Texas corporation, Friday Morning,
Inc., a Texas corporation, and TMIL Corporation, a Delaware corporation, and any
Restricted Subsidiary that would be required to incur a Debenture Guarantee
under the Exchange Indenture; provided that, if such Person would be released
and discharged from its Debenture Guarantee in accordance with the Exchange
Indenture, such Person shall cease to be a Subsidiary Debenture Guarantor.
"Subsidiary Guarantor" means each of TMI Holdings Inc., a Delaware
corporation, Tuesday Morning Inc., a Texas corporation, Friday Morning, Inc., a
Texas corporation, and TMIL Corporation, a Delaware corporation, and any
Restricted Subsidiary that incurs a Notes Guarantee under the Notes Indenture;
provided that, upon the release and discharge of any Person from its Notes
Guarantee in accordance with the Notes Indenture, such Person shall cease to be
a Subsidiary Guarantor.
"Transfer Agent" means United States Trust Company of New York or any
successor transfer agent.
<PAGE>
35
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force on the date on which this Certificate of Designation was filed.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Company, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary; provided, however, that in no event shall any
Subsidiary Debenture Guarantor be an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so long as
(i) neither the Company nor any Restricted Subsidiary is directly or indirectly
liable for any Indebtedness of such Subsidiary, (ii) no default with respect to
any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1019
"Limitation on Unrestricted Subsidiaries," of the Exchange Indenture, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
Persons who are not Affiliates of the Company, and (v) neither the Company nor
any Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Transfer
Agent by filing a Board Resolution with the Transfer Agent giving effect to such
designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving
effect to such designation, there would be no Voting Rights Triggering Event
under this Certificate of Designation and the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
8(a) of this Certificate of Designation.
"Voting Rights Triggering Event" has the meaning set forth above in
Section 5(b) hereof.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Certificate of
Designation to be duly executed in its corporate name on this 29th day of
December, 1997.
TUESDAY MORNING CORPORATION
By:_____________________________________________
Name: Jerry M. Smith
Title: Chief Executive Officer and
President
By:_____________________________________________
Name: Mark E. Jarvis
Title: Senior Vice President, Chief Financial
Officer and Secretary
This instrument was acknowledged before me on December 29, 1997 by
Mark E. Jarvis, as Secretary of Tuesday Morning Corporation.
_______________________________________________
Notary Public
(Seal, if any)
<PAGE>
EXHIBIT A
---------
Form of Certificate as to
Completion of Distribution and
Termination of Restricted Period
--------------------------------
[Date]
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Administration
Re: Tuesday Morning Corporation (the "Company") 13 1/4%
Series A Senior Exchangeable Preferred Stock
(the "Series A Senior Preferred Stock") and 13 1/4% Series B
Senior Exchangeable Preferred Stock (the "Series B Senior
----------------------------------------------------------
Preferred Stock")
-----------------
Ladies and Gentlemen:
This letter relates to [insert number of shares] shares of Series A
Senior Preferred Stock represented by the attached Certificate (the "Legended
Certificate") which bears a legend outlining restrictions upon transfer of such
Legended Certificate. Pursuant to Section 11(d) of the Certificate of
Designation (the "Certificate of Designation") filed with the Secretary of State
of the State of Delaware on December 29, 1997 relating to the Series A Senior
Preferred Stock and the Series B Senior Preferred Stock, we hereby certify that
we are a person outside the United States to whom the Series A Senior Preferred
Stock could be transferred in accordance with Rule 904 of Regulation S
promulgated under the Securities Act of 1933, as amended. Accordingly, you are
hereby requested to exchange the shares of Series A Senior Preferred Stock
represented by the Legended Certificate for a like number of shares of Series A
Senior Preferred Stock, which shall be represented by the attached Certificate
(the "Unlegended Certificate"), which does not bear a legend outlining
restrictions upon the transfer of such Unlegended Certificate, all in the manner
provided for in the Certificate of Designation.
<PAGE>
A-2
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Signature of Holder]
<PAGE>
EXHIBIT B
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
[Date]
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Administration
Re: Tuesday Morning Corporation (the "Company") 13 1/4% Series A
Senior Exchangeable Preferred Stock (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of [insert number of shares]
shares of the Securities, we confirm that:
1. The undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Securities, except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
2. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities my not be
offered at sold except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Securities, we will do so
only (A) to the Company or any subsidiary thereof, (B) in accordance with
Rule 144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (C) to an institutional "accredited investor" (as defined
below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and, if requested by the Company,
an opinion of counsel acceptable to the Company that such transfer is in
compliance with the Securities Act, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act, or (F) pursuant to an effective registration statement
under the Securities Act, and
<PAGE>
B-2
we further agree to provide to any person purchasing any of the Securities
from us a notice advising such purchaser that resales of the Securities are
restricted as stated herein.
3. We understand that, on any proposed resale of any Securities or
Conversion Shares, we will be required to furnish to you and the Company
such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Securities
purchased by us will bear a legend to the effect set out in paragraph 2.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable at evaluating the merits and risks of our investment in the
Securities and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment.
5. We are acquiring the Securities purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Signature of Holder]
<PAGE>
EXHIBIT C
---------
Form of Certificate to Be
Delivered in Connection with
Transfers Pursuant to Regulation S
----------------------------------
[Date]
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Administration
Re: Tuesday Morning Corporation (the "Company") 13 1/4% Series A
Senior Exchangeable Preferred Stock (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen
In connection with our proposed sale of [insert number of shares]
shares of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act of 1933.
<PAGE>
C-2
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale has been made in accordance with
the applicable provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as the
case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Signature of Holder]
<PAGE>
Exhibit 3.7
AMENDED AND RESTATED BY-LAWS
OF
TUESDAY MORNING CORPORATION
A Delaware corporation
(Effective as of December 29, 1997)
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the corporation in
--------- -----------------
the State of Delaware shall be located at 1209 Orange Street, Corporation Trust
Center, Wilmington, Delaware, County of New Castle 19805. The name of the
corporation's registered agent at such address shall be The Corporation Trust
Company. The registered office and/or registered agent of the corporation may
be changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
--------- -------------
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
--------- --------------------------
stockholders shall be held each year within one hundred fifty (150) days after
the close of the immediately preceding fiscal year of the corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall
be determined by the president of the corporation; provided, that if the
president does not act, the board of directors shall determine the date, time
and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders may be
--------- ----------------
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the board of directors or the president and shall be called by the president
upon the written request of holders of shares entitled to cast not less than
twenty-five percent (25%) of the votes at the meeting, such written request
shall state the purpose or purposes of the meeting and shall be delivered to the
president.
<PAGE>
Section 3. Place of Meetings. The board of directors may designate any
--------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
--------- ------
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the president or the secretary, and if
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, addressed to the stockholder at his, her or its
address as the same appears on the records of the corporation. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends for the express purpose of objecting at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
--------- -----------------
ledger of the corporation shall make, at least ten (10) days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
--------- ------
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
--------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
-2-
<PAGE>
Section 8. Vote Required. When a quorum is present, the affirmative vote
--------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the General
--------- -------------
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one (1) vote in person or by proxy for each share of common stock
held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
---------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Action by Written Consent. Unless otherwise provided in the
---------- -------------------------
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until such
consent or consents are actually received at the registered office. All
consents properly delivered in accordance with this section shall be deemed to
be recorded when so delivered. No written consent shall be effective to take the
corporate action referred to therein
-3-
<PAGE>
unless, within sixty (60) days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Any action taken pursuant to such written consent or
consents of the stockholders shall have the same force and effect as if taken by
the stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
--------- --------------
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
--------- -----------------------------------
which shall constitute the first board shall be five (5). Thereafter, the
number of directors shall be established from time to time by resolution of the
board. The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
the election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
--------- -----------------------
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
--------- ---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected
--------- ---------------
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
-4-
<PAGE>
Section 6. Other Meetings and Notice. Regular meetings, other than the
--------- -------------------------
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at
the request of the president on at least twenty-four (24) hours notice to each
director, either personally, by telephone, by mail, or by telegraph.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
--------- -------------------------------------
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
--------- ----------
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
--------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors
---------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
---------- ------------------------------------------
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of
-5-
<PAGE>
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Such member shall be
conclusively presumed to have assented to any action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless his or her
written dissent to such action shall be filed with the person acting as the
secretary of the meeting before the adjournment thereof or shall be forwarded by
registered mail to the secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to any member
who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
---------- -------------------------
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by
--------- ------
the board of directors and shall consist of a president, one or more vice-
presidents, secretary, a treasurer, and such other officers and assistant
officers as may be deemed necessary or desirable by the board of directors. Any
number of offices may be held by the same person. In its discretion, the board
of directors may choose not to fill any office for any period as it may deem
advisable, except that the offices of president and secretary shall be filled as
expeditiously as possible.
Section 2. Election and Term of Office. The officers of the corporation
--------- ---------------------------
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall be elected annually by the board of directors at
the first meeting of the board of directors held after each annual meeting of
stockholders or as soon thereafter as conveniently may be. The president shall
appoint other officers to serve for such terms as he or she deems desirable.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
--------- -------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
--------- ---------
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
-6-
<PAGE>
Section 5. Compensation. Compensation of all officers shall be fixed by
--------- ------------
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. The President. The president shall be the chief executive
--------- -------------
officer of the corporation; shall preside at all meetings of the stockholders
and board of directors at which he is present; subject to the powers of the
board of directors, shall have general charge of the business, affairs and
property of the corporation, and control over its officers, agents and
employees; and shall see that all orders and resolutions of the board of
directors are carried into effect. The president shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation. The
president shall have such other powers and perform such other duties as may be
prescribed by the board of directors or as may be provided in these by-laws.
Section 7. Vice-presidents. The vice-president, or if there shall be more
--------- ---------------
than one, the vice-presidents in the order determined by the board of directors
or by the president, shall, in the absence or disability of the president, act
with all of the powers and be subject to all the restrictions of the president.
The vice-presidents shall also perform such other duties and have such other
powers as the board of directors, the president or these by-laws may, from time
to time, prescribe.
Section 8. The Secretary and Assistant Secretaries. The secretary shall
--------- ---------------------------------------
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these by-
laws may, from time to time, prescribe; and shall have custody of the corporate
seal of the corporation. The secretary, or an assistant secretary, shall have
authority to affix the corporate seal to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors, the president, or secretary may, from
time to time, prescribe.
Section 9. The Treasurer and Assistant Treasurer. The treasurer shall
--------- -------------------------------------
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the corporation; shall
have such powers and perform such duties as the board of directors, the presi-
-7-
<PAGE>
dent or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which shall
be rendered every six (6) years) in such sums and with such surety or sureties
as shall be satisfactory to the board of directors for the faithful performance
of the duties of the office of treasurer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
Section 10. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 11. Absence or Disability of Officers. In the case of the absence
---------- ---------------------------------
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a party or
--------- -------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding) and such indemnification
shall inure to the benefit of his heirs, executors and administrators; provided,
however, that, except as provided in Section 2 hereof, the corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the corporation. The right
-8-
<PAGE>
to indemnification conferred in this Article V shall be a contract right and,
subject to Sections 2 and 5 hereof, shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance of
its final disposition. The corporation may, by action of its board of directors,
provide indemnification to employees and agents of the corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
--------- -------------------------------------------------------
indemnification of a director or officer of the corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within thirty (30) days, upon the written
request of the director or officer. If a determination by the corporation that
the director or officer is entitled to indemnification pursuant to this Article
V is required, and the corporation fails to respond within sixty (60) days to a
written request for indemnity, the corporation shall be deemed to have approved
the request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within thirty (30) days, the right to indemnification
or advances as granted by this Article V shall be enforceable by the director or
officer in any court of competent jurisdiction. Such person's costs and expenses
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the corporation to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the corporation.
Neither the failure of the corporation (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by the corporation (including its board of directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
--------- ---------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
--------- ---------
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not
-9-
<PAGE>
the corporation would have the power to indemnify such person against such
liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
--------- --------
1 of this Article V in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
--------- --------------------
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
--------- ---------------
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
--------- -----------------------
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI
----------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the corporation shall be
--------- ----
entitled to have a certificate, signed by, or in the name of the corporation by
the president or a vice-president and the secretary or an assistant secretary of
the corporation, certifying the number of shares of a specific class or series
owned by such holder in the corporation. If such a certificate is countersigned
(1) by
-10-
<PAGE>
a transfer agent or an assistant transfer agent other than the corporation or
its employee or (2) by a registrar, other than the corporation or its employee,
the signature of any such president, vice-presi dent, secretary, or assistant
secretary may be facsimiles. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such certificate
or certificates shall cease to be such officer or officers of the corporation
whether because of death, resignation or otherwise before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile signature
or signatures have been used thereon had not ceased to be such officer or
officers of the corporation. All certificates for shares shall be consecutively
numbered or otherwise identified. The name of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the books of the corporation. Shares of stock of the
corporation shall only be transferred on the books of the corporation by the
holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
--------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
--------- ---------------------------------------------
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by
the board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders
-11-
<PAGE>
shall apply to any adjournment of the meeting; provided, however, that the board
of directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
--------- --------------------------------------------------
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
--------- ---------------------------------------
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
--------- -----------------------
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
--------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is
-12-
<PAGE>
due, the corporation may proceed to collect the amount due in the same manner as
any debt due the corporation.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
--------- ------------------------
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
--------- ---------
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
--------- -----
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
--------- -----------
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
--------- --------------
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words
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<PAGE>
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
--------- --------------------------------------
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
--------- -------------------------------
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 9. Section Headings. Section headings in these by-laws are for
--------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
---------- -----------------------
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of the same powers.
-14-
<PAGE>
Exhibit 3.8
BY-LAWS
OF
TMI HOLDINGS, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
ARTICLE I
<S> <C>
OFFICES
Section 1. Registered Office.................................... 1
Section 2. Other Offices........................................ 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings............................ 1
Section 2. Annual Meetings....................................... 1
Section 3. Notice of Annual Meetings............................. 1
Section 4. Special Meetings...................................... 1
Section 5. Notice of Special Meetings............................ 2
Section 6. Quorum................................................ 2
Section 7. Organization.......................................... 2
Section 8. Voting................................................ 2
Section 9. List of Stockholders.................................. 3
Section 10. Inspectors of Votes................................... 4
Section 11. Actions Without a Meeting............................. 4
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers................................................ 4
Section 2. Number, Qualification, and Term of Office............. 4
Section 3. Resignations.......................................... 5
Section 4. Removal of Directors.................................. 5
Section 5. Vacancies............................................. 5
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. Place of Meetings..................................... 5
Section 7. Annual Meetings....................................... 5
Section 8. Regular Meetings...................................... 6
Section 9. Special Meetings; Notice.............................. 6
Section 10. Quorum and Manner of Acting........................... 6
Section 11. Remuneration.......................................... 6
COMMITTEES OF DIRECTORS
Section 12. Executive Committee; How Constituted and Powers....... 7
Section 13. Organization.......................................... 7
Section 14. Meetings.............................................. 7
Section 15. Quorum and Manner of Acting........................... 8
Section 16. Other Committees...................................... 8
Section 17. Alternate Members of Committees....................... 8
</TABLE>
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<TABLE>
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Section 18. Minutes of Committees................................. 9
GENERAL
Section 19. Actions Without a Meeting............................. 9
Section 20. Presence at Meetings by Means of Communications
Equipment............................................. 9
ARTICLE IV
NOTICES
Section 1. Type of Notice........................................ 9
Section 2. Waiver of Notice...................................... 9
Section 3. When Notice Unnecessary............................... 10
ARTICLE V
OFFICERS
Section 1. Elected and Appointed Officers........................ 10
Section 2. Time of Election or Appointment....................... 10
Section 3. Salaries of Elected Officers.......................... 11
Section 4. Term.................................................. 11
Section 5. Duties of the Chairman of the Board................... 11
Section 6. Duties of the President............................... 11
Section 7. Duties of Vice Presidents............................. 11
Section 8. Duties of Assistant Vice Presidents................... 12
Section 9. Duties of the Secretary............................... 12
Section 10. Duties of Assistant Secretaries....................... 12
Section 11. Duties of the Treasurer............................... 13
Section 12. Duties of Assistant Treasurers........................ 13
Section 13. Duties of the Controller.............................. 13
Section 14. Duties of Assistant Controllers....................... 14
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of
the Corporation....................................... 14
Section 2. Actions by or in the Right of the Corporation......... 14
Section 3. Determination of Right to Indemnification............. 15
Section 4. Right to Indemnification.............................. 15
Section 5. Prepaid Expenses...................................... 15
Section 6. Right to Indemnification upon Application;
Procedure upon Application............................ 15
Section 7. Other Rights and Remedies............................. 16
Section 8. Insurance............................................. 16
Section 9. Mergers............................................... 16
Section 10. Savings Provision..................................... 17
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ARTICLE VII
<S> <C>
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate.................................. 17
Section 2. Facsimile Signatures.................................. 18
Section 3. New Certificates...................................... 18
Section 4. Transfers............................................. 18
Section 5. Record Date........................................... 18
Section 6. Registered Stockholders............................... 19
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends............................................. 19
Section 2. Reserves.............................................. 19
Section 3. Annual Statement...................................... 20
Section 4. Checks................................................ 20
Section 5. Fiscal Year........................................... 20
Section 6. Corporate Seal........................................ 20
ARTICLE IX
AMENDMENTS................................................................ 20
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ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other place or places, within the State of Delaware, as the Board of Directors
may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
--------- --------------------------
for the election of directors shall be held at such time and place, within the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders, commencing
--------- ---------------
with the year 1992, shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, at which meeting the stockholders shall elect by a plurality
vote a Board of Directors and transact such other business as may properly be
brought before the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
---------- -------------------------
meeting, stating the place, date, and hour of the meeting, shall be given to
each stockholder of record entitled to vote at such meeting not less than 10 or
more than 60 days before the date of the meeting.
Section 4. Special Meetings. Special meetings of the stockholders for any
--------- ----------------
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by order of the Board of
Directors and shall be called by the Chairman of the Board, the President, or
the Secretary at the request in writing of the holders of not less than 10
percent (10%) of the voting power represented by all the shares issued,
outstanding and entitled to be voted at the proposed special meeting, unless the
Certificate of Incorporation provides for a different percentage, in which event
such provision of the Certificate of Incorporation shall govern. Such request
shall state the purpose or purposes of the proposed
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special meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 5. Notice of Special Meetings. Written notice of a special
--------- --------------------------
meeting, stating the place, date, and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 or more than 60 days
before the date of the meeting.
Section 6. Quorum. Except as otherwise provided by statute or the
---------- ------
Certificate of Incorporation, the holders of stock having a majority of the
voting power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time without notice (other than
announcement at the meeting at which the adjournment is taken of the time and
place of the adjourned meeting) until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 7. Organization. At each meeting of the stockholders, the
--------- ------------
Chairman of the Board or the President, determined as provided in Article V of
these By-Laws, or if those officers shall be absent therefrom, another officer
of the Corporation chosen as chairman present in person or by proxy and entitled
to vote thereat, or if all the officers of the Corporation shall be absent
therefrom, a stockholder holding of record shares of stock of the Corporation so
chosen, shall act as chairman of the meeting and preside thereat. The Secretary,
or if he shall be absent from such meeting or shall be required pursuant to the
provisions of this Section 7 to act as chairman of such meeting, the person (who
shall be an Assistant Secretary, if an Assistant Secretary shall be present
thereat) whom the chairman of such meeting shall appoint, shall act as secretary
of such meeting and keep the minutes thereof.
Section 8. Voting. Except as otherwise provided in the Certificate of
--------- ------
Incorporation, each stockholder shall, at each meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the
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date fixed pursuant to the provisions of Section 5 of Article VII of these By-
Laws as the record date for the determination of stockholders who shall be
entitled to notice of and to vote at such meeting. Shares of its own stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held directly or indirectly by the Corporation, shall not be entitled to
vote. Any vote by stock of the Corporation may be given at any meeting of the
stockholders by the stockholder entitled thereto, in person or by his proxy
appointed by an instrument in writing subscribed by such stockholder or by his
attorney thereunto duly authorized and delivered to the Secretary of the
Corporation or to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date, unless said proxy
shall provide for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders all matters, except
where other provision is made by law, the Certificate of Incorporation, or these
By-Laws, shall be decided by the vote of a majority of the votes cast by the
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Unless demanded by a stockholder of the Corporation
present in person or by proxy at any meeting of the stockholders and entitled to
vote thereat, or so directed by the chairman of the meeting, the vote thereat on
any question other than the election or removal of directors need not be by
written ballot. Upon a demand of any such stockholder for a vote by written
ballot on any question or at the direction of such chairman that a vote by
written ballot be taken on any question, such vote shall be taken by written
ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and shall state the
number of shares voted.
Section 9. List of Stockholders. It shall be the duty of the Secretary or
--------- --------------------
other officer of the Corporation who shall have charge of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent appointed by the Board of Directors, to prepare and
make, at least 10 days before every meeting of the stockholders, a complete list
of the stockholders entitled to vote thereat, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days before said meeting, either at
a place within the city where said meeting is to be held, which place shall be
specified in the notice of said meeting, or, if not so specified, at the place
where said meeting is to be held. The list shall also be produced and kept at
the time and place of said meeting during
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the whole time thereof, and may be inspected by any stockholder of record who
shall be present thereat. The stock ledger shall be the only evidence as to who
are the stockholders entitled to examine the stock ledger, such list or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 10. Inspectors of Votes. At each meeting of the stockholders, the
---------- -------------------
chairman of such meeting may appoint two Inspectors of Votes to act thereat,
unless the Board of Directors shall have theretofore made such appointments.
Each Inspector of Votes so appointed shall first subscribe an oath or
affirmation faithfully to execute the duties of an Inspector of Votes at such
meeting with strict impartiality and according to the best of his ability. Such
Inspectors of Votes, if any, shall take charge of the ballots, if any, at such
meeting and, after the balloting thereat on any question, shall count the
ballots cast thereon and shall make a report in writing to the secretary of such
meeting of the results thereof. An Inspector of Votes need not be a stockholder
of the Corporation, and any officer of the Corporation may be an Inspector of
Votes on any question other than a vote for or against his election to any
position with the Corporation or on any other question in which he may be
directly interested.
Section 11. Actions Without a Meeting. Any action required to be taken at
---------- -------------------------
any annual or special meeting of stockholders of the Corporation, or any action
which may by taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice, and without a vote if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereat were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
--------- ------
managed by its Board of Directors, which shall have and may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute, the Certificate of Incorporation, or these By-Laws directed or required
to be exercised or done by the stockholders.
Section 2. Number, Qualification, and Term of Office. The number of
--------- -----------------------------------------
directors which shall constitute the whole Board of
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Directors shall not be less than one (1) or more than twelve (12). Within the
limits above specified, the number of directors which shall constitute the whole
Board of Directors shall be determined by resolution of the Board of Directors
or by the stockholders at any annual or special meeting or otherwise pursuant to
action of the stockholders. Directors need not be stockholders. The directors
shall be elected at the annual meeting of the stockholders, except as provided
in Sections 4 and 5 of this Article III, and each director elected shall hold
office until the annual meeting next after his election and until his successor
is duly elected and qualified, or until his death or retirement or until he
resigns or is removed in the manner hereinafter provided. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote on the election of directors at any
annual or special meeting of stockholders. Such election shall be by written
ballot.
Section 3. Resignations. Any director may resign at any time by giving
--------- ------------
written notice of his resignation to the Corporation. Any such resignation shall
take effect at the time specified therein, or if the time when it shall become
effective shall not be specified therein, then it shall take effect immediately
upon its receipt by the Secretary. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4. Removal of Directors. Any director may be removed, either with
--------- --------------------
or without cause, at any time, by the affirmative vote by written ballot of a
majority in voting interest of the stockholders of record of the Corporation
entitled to vote, given at an annual meeting or at a special meeting of the
stockholders called for that purpose. The vacancy in the Board of Directors
caused by any such removal shall be filled by the stockholders at such meeting
or, if not so filled, by the Board of Directors as provided in Section 5 of this
Article III.
Section 5. Vacancies. Vacancies and newly created directorships resulting
--------- ---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the
annual meeting next after their election and until their successors are elected
and qualified, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. Place of Meetings. The Board of Directors of the Corporation
--------- -----------------
may hold meetings, both regular and special,
5
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within the State of Delaware.
Section 7. Annual Meetings. The first meeting of each newly elected Board
--------- ---------------
of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute the meeting, provided a quorum shall
be present. In the event such meeting is not held immediately following the
annual meeting of stockholders, the meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
--------- ----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 9. Special Meetings; Notice. Special meetings of the Board of
--------- ------------------------
Directors may be called by the Chairman of the Board, the President, or the
Secretary on 24 hours' notice to each director, either personally or by
telephone or by mail, telegraph, telex, cable, wireless, or other form of
recorded communication; special meetings shall be called by the Chairman of the
Board, the President, or the Secretary in like manner and on like notice on the
written request of two directors. Notice of any such meeting need not be given
to any director, however, if waived by him in writing or by telegraph, telex,
cable, wireless, or other form of recorded communication, or if he shall be
present at such meeting.
Section 10. Quorum and Manner of Acting. At all meetings of the Board of
---------- ---------------------------
Directors, a majority of the directors at the time in office (but not less than
one-third of the whole Board of Directors) shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 11. Remuneration. Unless otherwise expressly provided by resolution
---------- ------------
adopted by the Board of Directors, none of the directors shall, as such, receive
any stated remuneration for his services; but the Board of Directors may at any
time and from time to time by resolution provide that a specified sum shall be
paid to any director of the Corporation, either as his annual remuneration as
such director or member of any committee of the Board of Directors or as
remuneration for his attendance at each
6
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meeting of the Board of Directors or any such committee. The Board of Directors
may also likewise provide that the Corporation shall reimburse each director for
any expenses paid by him on account of his attendance at any meeting. Nothing in
this Section 11 shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
COMMITTEES OF DIRECTORS
Section 12. Executive Committee; How Constituted and Powers. The Board of
---------- -----------------------------------------------
Directors may in its discretion, by resolution passed by a majority of the whole
Board of Directors, designate an Executive Committee consisting of one or more
of the directors of the Corporation. Subject to the provisions of Section 141 of
the General Corporation Law of the State of Delaware, the Certificate of
Incorporation, and these By-Laws, the Executive Committee shall have and may
exercise, when the Board of Directors is not in session, all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and shall have the power to authorize the seal of
the Corporation to be affixed to all papers which may require it; but the
Executive Committee shall not have the power to fill vacancies in the Board of
Directors, the Executive Committee, or any other committee of directors or to
elect or approve officers of the Corporation. The Executive Committee shall have
the power and authority to authorize the issuance of common stock and grant and
authorize options and other rights with respect to such issuance. The Board of
Directors shall have the power at any time, by resolution passed by a majority
of the whole Board of Directors, to change the membership of the Executive
Committee, to fill all vacancies in it, or to dissolve it, either with or
without cause.
Section 13. Organization. The Chairman of the Executive Committee, to be
---------- ------------
selected by the Board of Directors, shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case of
the absence from any meeting of the Executive Committee of the Chairman of the
Executive Committee or the Secretary, the Executive Committee may appoint a
chairman or secretary, as the case may be, of the meeting.
Section 14. Meetings. Regular meetings of the Executive Committee, of
---------- --------
which no notice shall be necessary, may be held on such days and at such places,
within the State of Delaware, as shall be fixed by resolution adopted by a
majority of the Executive Committee and communicated in writing to all its
members. Special meetings of the Executive Committee shall be held whenever
called by the Chairman of the Executive Committee or a majority of the members
of the Executive Committee then in office. Notice of each special meeting of the
Executive
7
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Committee shall be given by mail, telegraph, telex, cable, wireless, or other
form of recorded communication or be delivered personally or by telephone to
each member of the Executive Committee not later than the day before the day on
which such meeting is to be held. Notice of any such meeting need not be given
to any member of the Executive Committee, however, if waived by him in writing
or by telegraph, telex, cable, wireless, or other form of recorded
communication, or if he shall be present at such meeting; and any meeting of the
Executive Committee shall be a legal meeting without any notice thereof having
been given, if all the members of the Executive Committee shall be present
thereat. Subject to the provisions of this Article III, the Executive Committee,
by resolution adopted by a majority of the whole Executive Committee, shall fix
its own rules of procedure.
Section 15. Quorum and Manner of Acting. A majority of the Executive
---------- ---------------------------
Committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at a meeting thereof at which a quorum is present
shall be the act of the Executive Committee.
Section 16. Other Committees. The Board of Directors may, by resolution or
---------- ----------------
resolutions passed by a majority of the whole Board of Directors, designate one
or more other committees consisting of one or more directors of the Corporation,
which, to the extent provided in said resolution or resolutions, shall have and
may exercise, subject to the provisions of Section 141 of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation, and
these By-Laws, the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have the
power to authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power to fill vacancies in
the Board of Directors, the Executive Committee, or any other committee or in
their respective membership, to appoint or remove officers of the Corporation,
or to authorize the issuance of shares of the capital stock of the Corporation,
except that such a committee may, to the extent provided in said resolutions,
grant and authorize options and other rights with respect to the common stock of
the Corporation pursuant to and in accordance with any plan approved by the
Board of Directors. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors. A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings and specify what notice
thereof, if any, shall be given, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power to change the members of any
such committee at any time to fill vacancies, and to discharge any such
committee, either with or without cause, at any time.
8
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Section 17. Alternate Members of Committees. The Board of Directors may
---------- -------------------------------
designate one or more directors as alternate members of the Executive Committee
or any other committee, who may replace any absent or disqualified member at any
meeting of the committee, or if none be so appointed, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 18. Minutes of Committees. Each committee shall keep regular
---------- ---------------------
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
GENERAL
Section 19. Actions Without a Meeting. Unless otherwise restricted by the
---------- -------------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
Section 20. Presence at Meetings by Means of Communications Equipment.
---------------------------------------------------------
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting conducted pursuant to this Section 20 shall
constitute presence in person at such meeting.
ARTICLE IV
NOTICES
Section 1. Type of Notice. Whenever, under the provisions of any
--------- --------------
applicable statute, the Certificate of Incorporation, or these By-Laws, notice
is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, in
person or by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
any manner permitted by Article III hereof and shall be deemed to be given at
the time when first transmitted by the method of communication
9
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so permitted.
Section 2. Waiver of Notice. Whenever any notice is required to be given
--------- ----------------
under the provisions of any applicable statute, the Certificate of
Incorporation, or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto, and transmission of a waiver
of notice by a director or stockholder by mail, telegraph, telex, cable,
wireless, or other form of recorded communication may constitute such a waiver.
Section 3. When Notice Unnecessary. Whenever, under the provisions of the
--------- -----------------------
Act, the Certificate of Incorporation or these Bylaws, any notice is required to
be given to any stockholder, such notice need not be given to the stockholder
if:
(a) notice of two consecutive annual meetings and all notices of meetings
held during the period between those annual meetings, if any, or
(b) all (but in no event less than two) payments (if sent by first class
mail) of distributions or interest on securities during a 12-month
period,
have been mailed to that person, addressed at his address as shown on the
records of the Corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such a person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. Elected and Appointed Officers. The elected officers of the
--------- ------------------------------
Corporation shall be a President, one or more Vice Presidents, with or without
such descriptive titles as the Board of Directors shall deem appropriate, a
Secretary, and a Treasurer, and, if the Board of Directors so elects, a Chairman
of the Board (who shall be a director) and a Controller. The Board of Directors
or the Executive Committee of the Board of Directors by resolution also may
appoint one or more Assistant Vice Presidents, Assistant Treasurers, Assistant
Secretaries, Assistant Controllers, and such other officers and agents as from
time to time may appear to be necessary or advisable in the conduct of the
affairs of the Corporation.
Section 2. Time of Election or Appointment. The Board
--------- -------------------------------
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of Directors at its annual meeting shall elect or appoint, as the case may be,
the officers to fill the positions designated in or pursuant to Section 1 of
this Article V. Officers of the Corporation may also be elected or appointed, as
the case may be, at any other time.
Section 3. Salaries of Elected Officers. The salaries of all elected
--------- ----------------------------
officers of the Corporation shall be fixed by the Board of Directors.
Section 4. Term. Each officer of the Corporation shall hold his office
--------- ----
until his successor is duly elected or appointed and qualified or until his
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Corporation. Any officer elected or appointed by the Board of
Directors or the Executive Committee may be removed at any time by the
affirmative vote of a majority of the whole Board of Directors. Any vacancy
occurring in any office of the Corporation by death, resignation, removal, or
otherwise may be filled by the Board of Directors or the appropriate committee
thereof.
Section 5. Duties of the Chairman of the Board. The Chairman of the
--------- -----------------------------------
Board, if one be elected, shall preside when present at all meetings of the
Board of Directors and, with the approval of the President, may preside at
meetings of the stockholders. He shall advise and counsel the President and
other officers of the Corporation, and shall exercise such powers and perform
such duties as shall be assigned to or required of him from time to time by the
Board of Directors.
Section 6. Duties of the President. The President shall be the chief
--------- -----------------------
executive officer of the Corporation and, subject to the provisions of these By-
Laws, shall have general supervision of the affairs of the Corporation and shall
have general and active control of all its business. He shall preside, when
present, at all meetings of stockholders, except when the Chairman of the Board
presides with the approval of the President and as may otherwise be provided by
statute, and, in the absence of any other person designated thereto by these By-
Laws, at all meetings of the Board of Directors. He shall see that all orders
and resolutions of the Board of Directors and the stockholders are carried into
effect. He shall have general authority to execute bonds, deeds, and contracts
in the name of the Corporation and affix the corporate seal thereto; to sign
stock certificates; to cause the employment or appointment of such employees and
agents of the Corporation as the proper conduct of operations may require, and
to fix their compensation, subject to the provisions of these By-Laws; to remove
or suspend any employee or agent who shall have been employed or appointed under
his authority or under authority of an officer subordinate to him; to suspend
for cause, pending final action by the authority
11
<PAGE>
which shall have elected or appointed him, any officer subordinate to the
President; and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation, except as
otherwise provided in these By-Laws.
Section 7. Duties of Vice Presidents. In the absence of the President
--------- -------------------------
or in the event of his inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.
Section 8. Duties of Assistant Vice Presidents. In the absence of a
--------- -----------------------------------
Vice President or in the event of his inability or refusal to act, the Assistant
Vice President (or in the event there shall be more than one, the Assistant Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties and exercise the powers of that Vice President, and shall perform such
other duties and have such other powers as the Board of Directors, the
President, or the Vice President under whose supervision he is appointed may
from time to time prescribe.
Section 9. Duties of the Secretary. The Secretary shall attend all
--------- -----------------------
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the Executive Committee or other standing committees when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the President, under whose
supervision he shall be. He shall have custody of the corporate seal of the
Corporation, and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it, and when so affixed, it may be attested
by his signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary
shall keep and account for all books, documents, papers, and records of the
Corporation, except those for which some other officer or agent is properly
accountable. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of the
secretary of a corporation.
12
<PAGE>
Section 10. Duties of Assistant Secretaries. In the absence of the
---------- -------------------------------
Secretary or in the event of his inability or refusal to act, the Assistant
Secretary (or, if there shall be more than one, the Assistant Secretaries in the
order designated by the Board of Directors, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
and exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors, the President, or the
Secretary may from time to time prescribe.
Section 11. Duties of the Treasurer. The Treasurer shall have the
---------- -----------------------
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control belonging to the Corporation. The Treasurer shall be under
the supervision of the Vice President in charge of finance, if one is so
designated, and he shall perform such other duties as may be prescribed by the
Board of Directors, the President, or any such Vice President in charge of
finance.
Section 12. Duties of Assistant Treasurers. The Assistant Treasurer or
---------- ------------------------------
Assistant Treasurers shall assist the Treasurer, and in the absence of the
Treasurer or in the event of his inability or refusal to act, the Assistant
Treasurer (or in the event there shall be more than one, the Assistant
Treasurers in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors, the President, or
the Treasurer may from time to time prescribe.
Section 13. Duties of the Controller. The Controller, if one is
---------- ------------------------
appointed, shall have supervision of the accounting
13
<PAGE>
practices of the Corporation and shall prescribe the duties and powers of any
other accounting personnel of the Corporation. He shall cause to be maintained
an adequate system of financial control through a program of budgets and
interpretive reports. He shall initiate and enforce measures and procedures
whereby the business of the Corporation shall be conducted with the maximum
efficiency and economy. If required, he shall prepare a monthly report covering
the operating results of the Corporation. The Controller shall be under the
supervision of the Vice President in charge of finance, if one is so designated,
and he shall perform such other duties as may be prescribed by the Board of
Directors, the President, or any such Vice President in charge of finance.
Section 14. Duties of Assistant Controllers. The Assistant Controller
---------- -------------------------------
or Assistant Controllers shall assist the Controller, and in the absence of the
Controller or in the event of his inability or refusal to act, the Assistant
Controller (or, if there shall be more than one, the Assistant Controllers in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
and exercise the powers of the Controller and perform such other duties and have
such other powers as the Board of Directors, the President, or the Controller
may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the Corporation.
--------- --------------------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Corporation), by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, or other enterprise (all of such
persons being hereafter referred to in this Article as a "Corporate
Functionary"), against expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to
14
<PAGE>
the best interests of the Corporation or, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
--------- ---------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a Corporate Functionary against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the Corporation, unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Determination of Right to Indemnification. Any indemnification
--------- -----------------------------------------
under Sections 1 or 2 of this Article VI (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Corporate Functionary is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article VI. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit, or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable if a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Section 4. Right to Indemnification. Notwithstanding the other provisions
--------- ------------------------
of this Article VI, to the extent that a Corporate Functionary has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in Sections 1 or 2 of this Article VI (including the
dismissal of a proceeding without prejudice or the settlement of a proceeding
without admission of liability), or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 5. Prepaid Expenses. Expenses incurred in defending a civil or
--------- ----------------
criminal action, suit, or proceeding shall
15
<PAGE>
be paid by the Corporation in advance of the final disposition of such action,
suit, or proceeding, upon receipt of an undertaking by or on behalf of the
Corporate Functionary to repay such amount if it shall ultimately be determined
he is not entitled to be indemnified by the Corporation as authorized in this
Article VI.
Section 6. Right to Indemnification upon Application; Procedure upon
--------- ---------------------------------------------------------
Application. Any indemnification under Sections 2, 3 and 4, or any advance
- -----------
under Section 5, of this Article VI shall be made promptly upon, and in any
event within 60 days after, the written request of the Corporate Functionary,
unless with respect to applications under Sections 2, 3 or 5 of this Article VI,
a determination is reasonably and promptly made by the Board of Directors by
majority vote of a quorum consisting of disinterested directors that such
Corporate Functionary acted in a manner set forth in such Sections as to justify
the Corporation in not indemnifying or making an advance of expenses to the
Corporate Functionary. If no quorum of disinterested directors is obtainable,
the Board of Directors shall promptly direct that independent legal counsel
shall decide whether the Corporate Functionary acted in a manner set forth in
such Sections as to justify the Corporation's not indemnifying or making an
advance of expenses to the Corporate Functionary. The right to indemnification
or advance of expenses granted by this Article VI shall be enforceable by the
Corporate Functionary in any court of competent jurisdiction if the Board of
Directors or independent legal counsel denies his claim, in whole or in part, or
if no disposition of such claim is made within 60 days. The expenses of the
Corporate Functionary incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such proceeding shall also
be indemnified by the Corporation.
Section 7. Other Rights and Remedies. The indemnification and advancement
--------- -------------------------
of expenses or provided by or granted pursuant to this Article VI shall not be
deemed exclusive of any other rights to which any person seeking indemnification
and advancement of expenses or may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a Corporate Functionary and shall
inure to the benefit of the heirs, executors, and administrators of such a
person. Any repeal or modification of these by-laws or relevant provisions of
the Delaware General Corporation Law and other applicable law, if any, shall not
affect any then existing rights of a Corporate Functionary to indemnification or
advancement of expenses.
Section 8. Insurance. Upon resolution passed by the Board of Directors,
--------- ---------
the Corporation may purchase and maintain
16
<PAGE>
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
Section 9. Mergers. For purposes of this Article VI, references to
--------- -------
"the Corporation" shall include, in addition to the resulting or surviving
corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
Section 10. Savings Provision. If this Article VI or any portion hereof
---------- -----------------
shall be invalidated on any ground by a court of competent jurisdiction, the
Corporation shall nevertheless indemnify each Corporate Functionary as to
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any action, suit, proceeding, or investigation,
whether civil, criminal, or administrative, including a grand jury proceeding or
action or suit brought by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate. Every holder of stock in the Corporation
--------- --------------------
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board, the President, or a Vice President
and by the Secretary or an Assistant Secretary of the Corporation, certifying
the number of shares owned by him in the Corporation. If the Corporation shall
be authorized to issue more than one class of stock or more than one series of
any class, the powers, designations, preferences, and relative, participating,
optional, or other special rights of each class of stock or series thereof
17
<PAGE>
and the qualifications, limitations, or restrictions of such preferences or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock; provided, that, except as otherwise provided in Section 202 of the
General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences, and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations, or restrictions of such
preferences or rights.
Section 2. Facsimile Signatures. Any of or all the signatures on the
--------- --------------------
certificate may be facsimile. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Section 3. New Certificates. The Board of Directors may direct a new
--------- ----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen, or destroyed
or the issuance of such new certificate.
Section 4. Transfers. Upon surrender to the Corporation or the transfer
--------- ---------
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation, or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
Section 5. Record Date. The Board of Directors may fix in advance a
--------- -----------
date, not preceding the date on which the resolution
18
<PAGE>
fixing the record date is adopted, and
(i) not more than 60 days nor less than 10 days preceding the date of
any meeting of stockholders, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such
meeting and any adjournment thereof,
(ii) not more than 10 days after the date on which the resolution fixing
the record date is adopted, as a record date in connection with
obtaining a consent of the stockholders in writing to corporate
action without a meeting, or
(iii) not more than 60 days before the date for payment of any dividend or
distribution, or the date for the allotment of rights, or the date
when any change, or conversion or exchange of capital stock shall go
into effect, or the date on which any other lawful action shall be
taken, as the record date for determining the stockholders entitled
to receive payment of any such dividend or distribution, or to
receive any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock
or other lawful action of the corporation,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, any such meeting and any adjournment thereof (provided, however,
that the Board of Directors may fix a new record date for an adjourned meeting),
or to give such consent, or to receive payment of such dividend or distribution,
or to receive such allotment of rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
Section 6. Registered Stockholders. The Corporation shall be entitled to
--------- -----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
19
<PAGE>
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
--------- ---------
if any, subject to the provisions of the Certificate of Incorporation, may be
declared by the Board of Directors (but not any committee thereof) at any
regular meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
--------- --------
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
Section 3. Annual Statement. The Board of Directors shall present at each
--------- ----------------
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
Section 4. Checks. All checks or demands for money and promissory notes of
--------- ------
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time prescribe.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
determined by the Board of Directors.
Section 6. Corporate Seal. The corporate seal shall have inscribed thereon
--------- --------------
the name of the Corporation, the year of its organization, and the word
"Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, reproduced, or otherwise.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended, or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors at any regular meeting
of the stockholders or the Board of Directors or at any special meeting of the
stockholders or the Board of Directors if notice of such alteration, amendment,
repeal, or adoption of new By-Laws be contained in the notice of such special
meeting.
20
<PAGE>
CERTIFICATION
I, Edward J. Lysen, Secretary of the Corporation, hereby certify that the
foregoing is a true, accurate and complete copy of the Bylaws of TMI Holdings,
Inc. adopted by its Board of Directors as of October 17, 1991.
_______________________________
Edward J. Lysen, Secretary
21
<PAGE>
EXHIBIT 3.9
BY-LAWS
OF
TMIL CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
<TABLE>
<CAPTION>
OFFICES
<S> <C>
Section 1. Registered Office............................... 1
Section 2. Other Offices................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings...................... 1
Section 2. Annual Meetings................................. 1
Section 3. Notice of Annual Meetings....................... 1
Section 4. Special Meetings................................ 1
Section 5. Notice of Special Meetings...................... 2
Section 6. Quorum.......................................... 2
Section 7. Organization.................................... 2
Section 8. Voting.......................................... 2
Section 9. List of Stockholders............................ 3
Section 10. Inspectors of Votes............................. 4
Section 11. Actions Without a Meeting....................... 4
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers.......................................... 4
Section 2. Number, Qualification, and Term of
Office.......................................... 4
Section 3. Resignations.................................... 5
Section 4. Removal of Directors............................ 5
Section 5. Vacancies....................................... 5
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. Place of Meetings............................... 5
Section 7. Annual Meetings................................. 5
Section 8. Regular Meetings................................ 6
Section 9. Special Meetings; Notice........................ 6
Section 10. Quorum and Manner of Acting..................... 6
Section 11. Remuneration.................................... 6
COMMITTEES OF DIRECTORS
Section 12. Executive Committee; How Constituted and
Powers.......................................... 7
Section 13. Organization.................................... 7
Section 14. Meetings........................................ 7
Section 15. Quorum and Manner of Acting..................... 8
Section 16. Other Committees................................ 8
Section 17. Alternate Members of Committees................. 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 18. Minutes of Committees........................... 9
GENERAL
Section 19. Actions Without a Meeting....................... 9
Section 20. Presence at Meetings by Means of
Communications Equipment........................ 9
ARTICLE IV
NOTICES
Section 1. Type of Notice.................................. 9
Section 2. Waiver of Notice................................ 9
Section 3. When Notice Unnecessary......................... 10
ARTICLE V
OFFICERS
Section 1. Elected and Appointed Officers.................. 10
Section 2. Time of Election or Appointment................. 10
Section 3. Salaries of Elected Officers.................... 11
Section 4. Term............................................ 11
Section 5. Duties of the Chairman of the Board............. 11
Section 6. Duties of the President......................... 11
Section 7. Duties of Vice Presidents....................... 11
Section 8. Duties of Assistant Vice Presidents............. 12
Section 9. Duties of the Secretary......................... 12
Section 10. Duties of Assistant Secretaries................. 12
Section 11. Duties of the Treasurer......................... 13
Section 12. Duties of Assistant Treasurers.................. 13
Section 13. Duties of the Controller........................ 13
Section 14. Duties of Assistant Controllers................. 14
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of
the Corporation................................. 14
Section 2. Actions by or in the Right of the
Corporation..................................... 14
Section 3. Determination of Right to
Indemnification................................. 15
Section 4. Right to Indemnification........................ 15
Section 5. Prepaid Expenses................................ 15
Section 6. Right to Indemnification upon
Application; Procedure upon Application......... 15
Section 7. Other Rights and Remedies....................... 16
Section 8. Insurance....................................... 16
Section 9. Mergers......................................... 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 10. Savings Provision............................... 17
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate............................ 17
Section 2. Facsimile Signatures............................ 18
Section 3. New Certificates................................ 18
Section 4. Transfers....................................... 18
Section 5. Record Date..................................... 18
Section 6. Registered Stockholders......................... 19
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends....................................... 19
Section 2. Reserves........................................ 19
Section 3. Annual Statement................................ 20
Section 4. Checks.......................................... 20
Section 5. Fiscal Year..................................... 20
Section 6. Corporate Seal.................................. 20
ARTICLE IX
AMENDMENTS..................................................... 20
</TABLE>
iii
<PAGE>
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other place or places, within the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
---------- --------------------------
for the election of directors shall be held at such time and place, within the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders, commencing
---------- ---------------
with the year 1993, shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, at which meeting the stockholders shall elect by a plurality
vote a Board of Directors and transact such other business as may properly be
brought before the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
---------- -------------------------
meeting, stating the place, date, and hour of the meeting, shall be given to
each stockholder of record entitled to vote at such meeting not less than 10 or
more than 60 days before the date of the meeting.
Section 4. Special Meetings. Special meetings of the stockholders for any
---------- ----------------
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by order of the Board of
Directors and shall be called by the Chairman of the Board, the President, or
the Secretary at the request in writing of the holders of not less than 10
percent (10%) of the voting power represented by all the shares issued,
outstanding and entitled to be voted at the proposed special meeting, unless the
Certificate of Incorporation provides for a different percentage, in which event
such provision of the Certificate of Incorporation shall govern. Such request
shall state the purpose or purposes of the proposed special meeting.
1
<PAGE>
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 5. Notice of Special Meetings. Written notice of a special
---------- --------------------------
meeting, stating the place, date, and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 or more than 60 days
before the date of the meeting.
Section 6. Quorum. Except as otherwise provided by statute or the
---------- ------
Certificate of Incorporation, the holders of stock having a majority of the
voting power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time without notice (other than
announcement at the meeting at which the adjournment is taken of the time and
place of the adjourned meeting) until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 7. Organization. At each meeting of the stockholders, the
--------- ------------
Chairman of the Board or the President, determined as provided in Article V of
these By-Laws, or if those officers shall be absent therefrom, another officer
of the Corporation chosen as chairman present in person or by proxy and entitled
to vote thereat, or if all the officers of the Corporation shall be absent
therefrom, a stockholder holding of record shares of stock of the Corporation so
chosen, shall act as chairman of the meeting and preside thereat. The Secretary,
or if he shall be absent from such meeting or shall be required pursuant to the
provisions of this Section 7 to act as chairman of such meeting, the person (who
shall be an Assistant Secretary, if an Assistant Secretary shall be present
thereat) whom the chairman of such meeting shall appoint, shall act as secretary
of such meeting and keep the minutes thereof.
Section 8. Voting. Except as otherwise provided in the Certificate of
---------- ------
Incorporation, each stockholder shall, at each meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of Article
VII of
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these By-Laws as the record date for the determination of stockholders who shall
be entitled to notice of and to vote at such meeting. Shares of its own stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held directly or indirectly by the Corporation, shall not be entitled to
vote. Any vote by stock of the Corporation may be given at any meeting of the
stockholders by the stockholder entitled thereto, in person or by his proxy
appointed by an instrument in writing subscribed by such stockholder or by his
attorney thereunto duly authorized and delivered to the Secretary of the
Corporation or to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date, unless said proxy
shall provide for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders all matters, except
where other provision is made by law, the Certificate of Incorporation, or these
By-Laws, shall be decided by the vote of a majority of the votes cast by the
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Unless demanded by a stockholder of the Corporation
present in person or by proxy at any meeting of the stockholders and entitled to
vote thereat, or so directed by the chairman of the meeting, the vote thereat on
any question other than the election or removal of directors need not be by
written ballot. Upon a demand of any such stockholder for a vote by written
ballot on any question or at the direction of such chairman that a vote by
written ballot be taken on any question, such vote shall be taken by written
ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and shall state the
number of shares voted.
Section 9. List of Stockholders. It shall be the duty of the Secretary or
---------- --------------------
other officer of the Corporation who shall have charge of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent appointed by the Board of Directors, to prepare and
make, at least 10 days before every meeting of the stockholders, a complete list
of the stockholders entitled to vote thereat, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days before said meeting, either at
a place within the city where said meeting is to be held, which place shall be
specified in the notice of said meeting, or, if not so specified, at the place
where said meeting is to be held. The list shall also be produced and kept at
the time and place of said meeting during the whole time thereof, and may be
inspected by any stockholder of record who shall be present thereat. The stock
ledger shall be the only evidence as to who are the stockholders
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entitled to examine the stock ledger, such list or the books of the Corporation,
or to vote in person or by proxy at any meeting of stockholders.
Section 10. Inspectors of Votes. At each meeting of the stockholders, the
----------- -------------------
chairman of such meeting may appoint two Inspectors of Votes to act thereat,
unless the Board of Directors shall have theretofore made such appointments.
Each Inspector of Votes so appointed shall first subscribe an oath or
affirmation faithfully to execute the duties of an Inspector of Votes at such
meeting with strict impartiality and according to the best of his ability. Such
Inspectors of Votes, if any, shall take charge of the ballots, if any, at such
meeting and, after the balloting thereat on any question, shall count the
ballots cast thereon and shall make a report in writing to the secretary of such
meeting of the results thereof. An Inspector of Votes need not be a stockholder
of the Corporation, and any officer of the Corporation may be an Inspector of
Votes on any question other than a vote for or against his election to any
position with the Corporation or on any other question in which he may be
directly interested.
Section 11. Actions Without a Meeting. Any action required to be taken at
----------- -------------------------
any annual or special meeting of stockholders of the Corporation, or any action
which may by taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice, and without a vote if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereat were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation
---------- ------
shall be managed by its Board of Directors, which shall have and may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute, the Certificate of Incorporation, or these By-Laws directed or
required to be exercised or done by the stockholders.
Section 2. Number, Qualification, and Term of Office. The number of
---------- -----------------------------------------
directors which shall constitute the whole Board of Directors shall not be less
than one (1) or more than twelve (12). Within the limits above specified, the
number of directors which shall constitute the whole Board of Directors shall be
determined by resolution of the Board of Directors or by the stockholders at any
annual or special meeting or otherwise pursuant to action of
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the stockholders. Directors need not be stockholders. The directors shall be
elected at the annual meeting of the stockholders, except as provided in
Sections 4 and 5 of this Article III, and each director elected shall hold
office until the annual meeting next after his election and until his successor
is duly elected and qualified, or until his death or retirement or until he
resigns or is removed in the manner hereinafter provided. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote on the election of directors at any
annual or special meeting of stockholders. Such election shall be by written
ballot.
Section 3. Resignations. Any director may resign at any time by giving
---------- ------------
written notice of his resignation to the Corporation. Any such resignation shall
take effect at the time specified therein, or if the time when it shall become
effective shall not be specified therein, then it shall take effect immediately
upon its receipt by the Secretary. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4. Removal of Directors. Any director may be removed, either with
---------- --------------------
or without cause, at any time, by the affirmative vote by written ballot of a
majority in voting interest of the stockholders of record of the Corporation
entitled to vote, given at an annual meeting or at a special meeting of the
stockholders called for that purpose. The vacancy in the Board of Directors
caused by any such removal shall be filled by the stockholders at such meeting
or, if not so filled, by the Board of Directors as provided in Section 5 of this
Article III.
Section 5. Vacancies. Vacancies and newly created directorships resulting
---------- ---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the
annual meeting next after their election and until their successors are elected
and qualified, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. Place of Meetings. The Board of Directors of the Corporation
---------- -----------------
may hold meetings, both regular and special, within the State of Delaware.
Section 7. Annual Meetings. The first meeting of each newly elected Board
---------- ---------------
of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute the meeting, provided a quorum shall
be
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present. In the event such meeting is not held immediately following the annual
meeting of stockholders, the meeting may be held at such time and place as shall
be specified in a notice given as hereinafter provided for special meetings of
the Board of Directors, or as shall be specified in a written waiver signed by
all of the directors.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
---------- ----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 9. Special Meetings; Notice. Special meetings of the Board of
---------- ------------------------
Directors may be called by the Chairman of the Board, the President, or the
Secretary on 24 hours' notice to each director, either personally or by
telephone or by mail, telegraph, telex, cable, wireless, or other form of
recorded communication; special meetings shall be called by the Chairman of the
Board, the President, or the Secretary in like manner and on like notice on the
written request of two directors. Notice of any such meeting need not be given
to any director, however, if waived by him in writing or by telegraph, telex,
cable, wireless, or other form of recorded communication, or if he shall be
present at such meeting.
Section 10. Quorum and Manner of Acting. At all meetings of the Board of
----------- ---------------------------
Directors, a majority of the directors at the time in office (but not less than
one-third of the whole Board of Directors) shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 11. Remuneration. Unless otherwise expressly provided by
----------- ------------
resolution adopted by the Board of Directors, none of the directors shall, as
such, receive any stated remuneration for his services; but the Board of
Directors may at any time and from time to time by resolution provide that a
specified sum shall be paid to any director of the Corporation, either as his
annual remuneration as such director or member of any committee of the Board of
Directors or as remuneration for his attendance at each meeting of the Board of
Directors or any such committee. The Board of Directors may also likewise
provide that the Corporation shall reimburse each director for any expenses paid
by him on account of his attendance at any meeting. Nothing in this Section 11
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving remuneration therefor.
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COMMITTEES OF DIRECTORS
Section 12. Executive Committee; How Constituted and Powers. The Board of
----------- -----------------------------------------------
Directors may in its discretion, by resolution passed by a majority of the whole
Board of Directors, designate an Executive Committee consisting of one or more
of the directors of the Corporation. Subject to the provisions of Section 141 of
the General Corporation Law of the State of Delaware, the Certificate of
Incorporation, and these By-Laws, the Executive Committee shall have and may
exercise, when the Board of Directors is not in session, all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and shall have the power to authorize the seal of
the Corporation to be affixed to all papers which may require it; but the
Executive Committee shall not have the power to fill vacancies in the Board of
Directors, the Executive Committee, or any other committee of directors or to
elect or approve officers of the Corporation. The Executive Committee shall have
the power and authority to authorize the issuance of common stock and grant and
authorize options and other rights with respect to such issuance. The Board of
Directors shall have the power at any time, by resolution passed by a majority
of the whole Board of Directors, to change the membership of the Executive
Committee, to fill all vacancies in it, or to dissolve it, either with or
without cause.
Section 13. Organization. The Chairman of the Executive Committee, to be
----------- ------------
selected by the Board of Directors, shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case of
the absence from any meeting of the Executive Committee of the Chairman of the
Executive Committee or the Secretary, the Executive Committee may appoint a
chairman or secretary, as the case may be, of the meeting.
Section 14. Meetings. Regular meetings of the Executive Committee, of
----------- --------
which no notice shall be necessary, may be held on such days and at such places,
within the State of Delaware, as shall be fixed by resolution adopted by a
majority of the Executive Committee and communicated in writing to all its
members. Special meetings of the Executive Committee shall be held whenever
called by the Chairman of the Executive Committee or a majority of the members
of the Executive Committee then in office. Notice of each special meeting of the
Executive Committee shall be given by mail, telegraph, telex, cable, wireless,
or other form of recorded communication or be delivered personally or by
telephone to each member of the Executive Committee not later than the day
before the day on which such meeting is to be held. Notice of any such meeting
need not be given to any member of the Executive Committee, however, if waived
by him in writing or by telegraph, telex, cable, wireless, or other form of
recorded communication, or if he shall be present at such meeting; and any
meeting of the Executive Committee shall be a legal meeting without any notice
thereof
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<PAGE>
having been given, if all the members of the Executive Committee shall be
present thereat. Subject to the provisions of this Article III, the Executive
Committee, by resolution adopted by a majority of the whole Executive Committee,
shall fix its own rules of procedure.
Section 15. Quorum and Manner of Acting. A majority of the Executive
----------- ---------------------------
Committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at a meeting thereof at which a quorum is present
shall be the act of the Executive Committee.
Section 16. Other Committees. The Board of Directors may, by resolution
----------- ----------------
or resolutions passed by a majority of the whole Board of Directors, designate
one or more other committees consisting of one or more directors of the
Corporation, which, to the extent provided in said resolution or resolutions,
shall have and may exercise, subject to the provisions of Section 141 of the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation, and these By-Laws, the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
shall have the power to authorize the seal of the Corporation to be affixed to
all papers which may require it; but no such committee shall have the power to
fill vacancies in the Board of Directors, the Executive Committee, or any other
committee or in their respective membership, to appoint or remove officers of
the Corporation, or to authorize the issuance of shares of the capital stock of
the Corporation, except that such a committee may, to the extent provided in
said resolutions, grant and authorize options and other rights with respect to
the common stock of the Corporation pursuant to and in accordance with any plan
approved by the Board of Directors. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors. A majority of all the members of any such committee may
determine its action and fix the time and place of its meetings and specify what
notice thereof, if any, shall be given, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power to change the members
of any such committee at any time to fill vacancies, and to discharge any such
committee, either with or without cause, at any time.
Section 17. Alternate Members of Committees. The Board of Directors may
----------- -------------------------------
designate one or more directors as alternate members of the Executive Committee
or any other committee, who may replace any absent or disqualified member at any
meeting of the committee, or if none be so appointed, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
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Section 18. Minutes of Committees. Each committee shall keep regular
----------- ---------------------
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
GENERAL
Section 19. Actions Without a Meeting. Unless otherwise restricted by the
----------- -------------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
Section 20. Presence at Meetings by Means of Communications Equipment.
----------- ---------------------------------------------------------
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting conducted pursuant to this Section 20 shall
constitute presence in person at such meeting.
ARTICLE IV
NOTICES
Section 1. Type of Notice. Whenever, under the provisions of any
---------- --------------
applicable statute, the Certificate of Incorporation, or these By-Laws, notice
is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, in
person or by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
any manner permitted by Article III hereof and shall be deemed to be given at
the time when first transmitted by the method of communication so permitted.
Section 2. Waiver of Notice. Whenever any notice is required to be given
---------- ----------------
under the provisions of any applicable statute, the Certificate of
Incorporation, or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto, and transmission of a waiver
of notice by a director or stockholder by mail, telegraph, telex, cable,
wireless, or other form of recorded communication may constitute such a waiver.
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Section 3. When Notice Unnecessary. Whenever, under the provisions of the
---------- -----------------------
Act, the Certificate of Incorporation or these Bylaws, any notice is required to
be given to any stockholder, such notice need not be given to the stockholder
if:
(a) notice of two consecutive annual meetings and all notices of meetings
held during the period between those annual meetings, if any, or
(b) all (but in no event less than two) payments (if sent by first class
mail) of distributions or interest on securities during a 12-month
period,
have been mailed to that person, addressed at his address as shown on the
records of the Corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such a person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. Elected and Appointed Officers. The elected officers of the
---------- ------------------------------
Corporation shall be a President, one or more Vice Presidents, with or without
such descriptive titles as the Board of Directors shall deem appropriate, a
Secretary, and a Treasurer, and, if the Board of Directors so elects, a Chairman
of the Board (who shall be a director) and a Controller. The Board of Directors
or the Executive Committee of the Board of Directors by resolution also may
appoint one or more Assistant Vice Presidents, Assistant Treasurers, Assistant
Secretaries, Assistant Controllers, and such other officers and agents as from
time to time may appear to be necessary or advisable in the conduct of the
affairs of the Corporation.
Section 2. Time of Election or Appointment. The Board of Directors at its
---------- -------------------------------
annual meeting shall elect or appoint, as the case may be, the officers to fill
the positions designated in or pursuant to Section 1 of this Article V. Officers
of the Corporation may also be elected or appointed, as the case may be, at any
other time.
Section 3. Salaries of Elected Officers. The salaries of all elected
---------- ----------------------------
officers of the Corporation shall be fixed by the Board of Directors.
Section 4. Term. Each officer of the Corporation shall hold his office
---------- ----
until his successor is duly elected or appointed
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<PAGE>
and qualified or until his earlier resignation or removal. Any officer may
resign at any time upon written notice to the Corporation. Any officer elected
or appointed by the Board of Directors or the Executive Committee may be removed
at any time by the affirmative vote of a majority of the whole Board of
Directors. Any vacancy occurring in any office of the Corporation by death,
resignation, removal, or otherwise may be filled by the Board of Directors or
the appropriate committee thereof.
Section 5. Duties of the Chairman of the Board. The Chairman of the
---------- -----------------------------------
Board, if one be elected, shall preside when present at all meetings of the
Board of Directors and, with the approval of the President, may preside at
meetings of the stockholders. He shall advise and counsel the President and
other officers of the Corporation, and shall exercise such powers and perform
such duties as shall be assigned to or required of him from time to time by the
Board of Directors.
Section 6. Duties of the President. The President shall be the chief
---------- -----------------------
executive officer of the Corporation and, subject to the provisions of these By-
Laws, shall have general supervision of the affairs of the Corporation and shall
have general and active control of all its business. He shall preside, when
present, at all meetings of stockholders, except when the Chairman of the Board
presides with the approval of the President and as may otherwise be provided by
statute, and, in the absence of any other person designated thereto by these By-
Laws, at all meetings of the Board of Directors. He shall see that all orders
and resolutions of the Board of Directors and the stockholders are carried into
effect. He shall have general authority to execute bonds, deeds, and contracts
in the name of the Corporation and affix the corporate seal thereto; to sign
stock certificates; to cause the employment or appointment of such employees and
agents of the Corporation as the proper conduct of operations may require, and
to fix their compensation, subject to the provisions of these By-Laws; to remove
or suspend any employee or agent who shall have been employed or appointed under
his authority or under authority of an officer subordinate to him; to suspend
for cause, pending final action by the authority which shall have elected or
appointed him, any officer subordinate to the President; and, in general, to
exercise all the powers and authority usually appertaining to the chief
executive officer of a corporation, except as otherwise provided in these By-
Laws.
Section 7. Duties of Vice Presidents. In the absence of the President or
---------- -------------------------
in the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other
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duties and have such other powers as the Board of Directors or the President may
from time to time prescribe.
Section 8. Duties of Assistant Vice Presidents. In the absence of a Vice
---------- -----------------------------------
President or in the event of his inability or refusal to act, the Assistant Vice
President (or in the event there shall be more than one, the Assistant Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties and exercise the powers of that Vice President, and shall perform such
other duties and have such other powers as the Board of Directors, the
President, or the Vice President under whose supervision he is appointed may
from time to time prescribe.
Section 9. Duties of the Secretary. The Secretary shall attend all
---------- -----------------------
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the Executive Committee or other standing committees when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the President, under whose
supervision he shall be. He shall have custody of the corporate seal of the
Corporation, and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it, and when so affixed, it may be attested
by his signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary shall
keep and account for all books, documents, papers, and records of the
Corporation, except those for which some other officer or agent is properly
accountable. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of the
secretary of a corporation.
Section 10. Duties of Assistant Secretaries. In the absence of the
----------- -------------------------------
Secretary or in the event of his inability or refusal to act, the Assistant
Secretary (or, if there shall be more than one, the Assistant Secretaries in the
order designated by the Board of Directors, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
and exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors, the President, or the
Secretary may from time to time prescribe.
Section 11. Duties of the Treasurer. The Treasurer shall have the custody
----------- -----------------------
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the
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Corporation in such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond (which shall be renewed every
six years) in such sum and with such surety or sureties as shall be satisfactory
to the Board of Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
money, and other property of whatever kind in his possession or under his
control belonging to the Corporation. The Treasurer shall be under the
supervision of the Vice President in charge of finance, if one is so designated,
and he shall perform such other duties as may be prescribed by the Board of
Directors, the President, or any such Vice President in charge of finance.
Section 12. Duties of Assistant Treasurers. The Assistant Treasurer or
----------- ------------------------------
Assistant Treasurers shall assist the Treasurer, and in the absence of the
Treasurer or in the event of his inability or refusal to act, the Assistant
Treasurer (or in the event there shall be more than one, the Assistant
Treasurers in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors, the President, or
the Treasurer may from time to time prescribe.
Section 13. Duties of the Controller. The Controller, if one is
----------- ------------------------
appointed, shall have supervision of the accounting practices of the Corporation
and shall prescribe the duties and powers of any other accounting personnel of
the Corporation. He shall cause to be maintained an adequate system of
financial control through a program of budgets and interpretive reports. He
shall initiate and enforce measures and procedures whereby the business of the
Corporation shall be conducted with the maximum efficiency and economy. If
required, he shall prepare a monthly report covering the operating results of
the Corporation. The Controller shall be under the supervision of the Vice
President in charge of finance, if one is so designated, and he shall perform
such other duties as may be prescribed by the Board of Directors, the President,
or any such Vice President in charge of finance.
Section 14. Duties of Assistant Controllers. The Assistant Controller or
----------- -------------------------------
Assistant Controllers shall assist the Controller, and in the absence of the
Controller or in the event of his inability or refusal to act, the Assistant
Controller (or, if there
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shall be more than one, the Assistant Controllers in the order designated by the
Board of Directors, or in the absence of any designation, then in the order of
their appointment) shall perform the duties and exercise the powers of the
Controller and perform such other duties and have such other powers as the Board
of Directors, the President, or the Controller may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the Corporation. The
---------- --------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Corporation), by reason of the fact
that he is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, or other enterprise (all of such
persons being hereafter referred to in this Article as a "Corporate
Functionary"), against expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
---------- ---------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a Corporate Functionary against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the Corporation, unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the
14
<PAGE>
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 3. Determination of Right to Indemnification. Any indemnification
---------- -----------------------------------------
under Sections 1 or 2 of this Article VI (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Corporate Functionary is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article VI. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit, or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable if a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Section 4. Right to Indemnification. Notwithstanding the other provisions
---------- ------------------------
of this Article VI, to the extent that a Corporate Functionary has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in Sections 1 or 2 of this Article VI (including the
dismissal of a proceeding without prejudice or the settlement of a proceeding
without admission of liability), or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 5. Prepaid Expenses. Expenses incurred in defending a civil or
---------- ----------------
criminal action, suit, or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit, or proceeding, upon receipt of an
undertaking by or on behalf of the Corporate Functionary to repay such amount if
it shall ultimately be determined he is not entitled to be indemnified by the
Corporation as authorized in this Article VI.
Section 6. Right to Indemnification upon Application; Procedure upon
---------- ---------------------------------------------------------
Application. Any indemnification under Sections 2, 3 and 4, or any advance
- -----------
under Section 5, of this Article VI shall be made promptly upon, and in any
event within 60 days after, the written request of the Corporate Functionary,
unless with respect to applications under Sections 2, 3 or 5 of this Article VI,
a determination is reasonably and promptly made by the Board of Directors by
majority vote of a quorum consisting of disinterested directors that such
Corporate Functionary acted in a manner set forth in such Sections as to justify
the Corporation in not indemnifying or making an advance of expenses to the
Corporate Functionary. If no quorum of disinterested directors is obtainable,
the Board of Directors shall promptly direct that independent legal counsel
shall decide whether the Corporate
15
<PAGE>
Functionary acted in a manner set forth in such Sections as to justify the
Corporation's not indemnifying or making an advance of expenses to the Corporate
Functionary. The right to indemnification or advance of expenses granted by this
Article VI shall be enforceable by the Corporate Functionary in any court of
competent jurisdiction if the Board of Directors or independent legal counsel
denies his claim, in whole or in part, or if no disposition of such claim is
made within 60 days. The expenses of the Corporate Functionary incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
Section 7. Other Rights and Remedies. The indemnification and advancement
---------- -------------------------
of expenses or provided by or granted pursuant to this Article VI shall not be
deemed exclusive of any other rights to which any person seeking indemnification
and advancement of expenses or may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a Corporate Functionary and shall
inure to the benefit of the heirs, executors, and administrators of such a
person. Any repeal or modification of these by-laws or relevant provisions of
the Delaware General Corporation Law and other applicable law, if any, shall not
affect any then existing rights of a Corporate Functionary to indemnification or
advancement of expenses.
Section 8. Insurance. Upon resolution passed by the Board of Directors,
---------- ---------
the Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
Section 9. Mergers. For purposes of this Article VI, references to "the
---------- -------
Corporation" shall include, in addition to the resulting or surviving
corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other
16
<PAGE>
enterprise shall stand in the same position under the provisions of this Article
VI with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
Section 10. Savings Provision. If this Article VI or any portion hereof
----------- -----------------
shall be invalidated on any ground by a court of competent jurisdiction, the
Corporation shall nevertheless indemnify each Corporate Functionary as to
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any action, suit, proceeding, or investigation,
whether civil, criminal, or administrative, including a grand jury proceeding or
action or suit brought by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article VI that shall not have been
invalidated.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. Right to Certificate. Every holder of stock in the Corporation
---------- --------------------
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board, the President, or a Vice President
and by the Secretary or an Assistant Secretary of the Corporation, certifying
the number of shares owned by him in the Corporation. If the Corporation shall
be authorized to issue more than one class of stock or more than one series of
any class, the powers, designations, preferences, and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock;
provided, that, except as otherwise provided in Section 202 of the General
Corporation Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences, and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations, or restrictions of such preferences or rights.
Section 2. Facsimile Signatures. Any of or all the signatures on the
---------- --------------------
certificate may be facsimile. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the
17
<PAGE>
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 3. New Certificates. The Board of Directors may direct a new
---------- ----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen, or destroyed
or the issuance of such new certificate.
Section 4. Transfers. Upon surrender to the Corporation or the transfer
---------- ---------
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation, or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
Section 5. Record Date. The Board of Directors may fix in advance a date,
---------- -----------
not preceding the date on which the resolution fixing the record date is
adopted, and
(i) not more than 60 days nor less than 10 days preceding the date of
any meeting of stockholders, as a record date for the
determination of the stockholders entitled to notice of, and to
vote at, any such meeting and any adjournment thereof,
(ii) not more than 10 days after the date on which the resolution
fixing the record date is adopted, as a record date in connection
with obtaining a consent of the stockholders in writing to
corporate action without a meeting, or
(iii) not more than 60 days before the date for payment of any dividend
or distribution, or the date for the allotment of rights, or the
date when any change, or conversion or exchange of capital stock
shall go into effect, or the date on which any other lawful
action shall be taken, as the record date for determining the
stockholders entitled to receive payment of any such dividend or
18
<PAGE>
distribution, or to receive any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or
exchange of capital stock or other lawful action of the
corporation,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, any such meeting and any adjournment thereof (provided, however,
that the Board of Directors may fix a new record date for an adjourned meeting),
or to give such consent, or to receive payment of such dividend or distribution,
or to receive such allotment of rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
Section 6. Registered Stockholders. The Corporation shall be entitled to
---------- -----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
---------- ---------
if any, subject to the provisions of the Certificate of Incorporation, may be
declared by the Board of Directors (but not any committee thereof) at any
regular meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
---------- --------
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
Section 3. Annual Statement. The Board of Directors shall present at each
---------- ----------------
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full
19
<PAGE>
and clear statement of the business and condition of the Corporation.
Section 4. Checks. All checks or demands for money and promissory notes
---------- ------
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time prescribe.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
---------- -----------
determined by the Board of Directors.
Section 6. Corporate Seal. The corporate seal shall have inscribed
---------- --------------
thereon the name of the Corporation, the year of its organization, and the word
"Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, reproduced, or otherwise.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended, or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors at any regular meeting
of the stockholders or the Board of Directors or at any special meeting of the
stockholders or the Board of Directors if notice of such alteration, amendment,
repeal, or adoption of new By-Laws be contained in the notice of such special
meeting.
20
<PAGE>
CERTIFICATION
I, Mark E. Jarvis, Secretary of the Corporation, hereby certify that the
foregoing is a true, accurate and complete copy of the Bylaws of TMIL
Corporation adopted by its Board of Directors as of October __, 1992.
___________________________________
Mark E. Jarvis, Secretary
21
<PAGE>
Exhibit 3.10
BYLAWS OF TUESDAY MORNING INC.
Contents
ARTICLE 1: Offices
-------
1.01 Registered Office & Agent.
1.02 Other Offices.
ARTICLE II: Capital Stock
-------------
2.01 Amount of Capital Stock.
2.02 Stock Certifications.
2.03 Stock Transfers.
ARTICLE III: Shareholders
------------
3.01 Place of Meetings.
3.02 Annual Meeting.
3.03 Voting List.
3.04 Special Meetings.
3.05 Notice.
3.06 Quorum.
3.07 Majority Vote; Withdrawal of Quorum.
3.08 Method of Voting.
3.09 Record Date; Closing Transfer Books.
3.10 Action Without Meeting.
ARTICLE IV: Directors
---------
4.01 Management.
4.02 Number; Qualification; Election; Term.
4.03 Change in Number.
4.04 Removal.
4.05 Vacancies.
4.06 Election of Directors.
4.07 Place of Meetings.
4.08 First Meetings.
4.09 Regular Meetings.
4.10 Special Meetings.
4.11 Quorum; Majority Vote.
4.12 Compensation.
4.13 Procedure.
4.14 Interested Directors, Officers and Shareholders.
ARTICLE V: Executive Committee
-------------------
5.01 Designation.
5.02 Authority.
EXHIBIT "C"
<PAGE>
5.03 Procedure.
5.04 Removal.
5.05 Responsibility.
ARTICLE VI: Notice
------
6.01 Method.
6.02 Waiver.
ARTICLE VII: Officers and Agents
-------------------
7.01 Number; Qualification; Election; Term.
7.02 Removal.
7.03 Vacancies.
7.04 Authority.
7.05 Compensation.
7.06 President.
7.07 Vice President.
7.08 Secretary.
7.09 Assistant Secretary.
7.10 Treasurer.
7.11 Assistant Treasurer.
ARTICLE VIII: Certificates and Shareholders
-----------------------------
8.01 Certificates.
8.02 Replacement of Lost or Destroyed Certificates.
8.03 Transfer of Shares.
8.04 Registered Shareholders.
8.05 Pre-Emptive Rights.
ARTICLE IX: General Provisions
------------------
9.01 Dividends and Reserves.
9.02 Books and Records.
9.03 Annual Statement.
9.04 Checks and Notes.
9.05 Fiscal Year.
9.06 Seal.
9.07 Indemnification.
9.08 Resignation.
9.09 Amendment of Bylaws.
9.10 Construction.
9.11 Table of Contents; Headings.
<PAGE>
BY-LAWS
ARTICLE I: OFFICES
------------------
1.01 Registered Office & Agent. The registered office of the corporation
-------------------------
shall be at 4117 Lindbergh Drive, Addison, Texas 75001. The name of the
------------------------------------------
registered agent at such address is Lloyd Louis Ross.
----------------
1.02 Other Offices. The corporation may also have offices at such other
-------------
places both within and without the State of Texas as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II: CAPITAL
-------------------
2.01 Amount of Capital Stock. The amount of the capital stock shall be
-----------------------
Forty Thousand Dollars ($40,000.00), which shall be divided into 4,000,000
- ----------------------------------- ---------
shares, of the value of One Cent ($0.01) each.
----------------
2.02 Stock Certifications. All certifications of stock shall be signed
--------------------
pursuant to the procedures detailed in Article 8.01 hereinafter.
2.03 Stock Transfers. Transfers of stock shall be made only on the books
---------------
of the corporation; and the old certificate, properly endorsed, shall be
surrendered and cancelled before a new certificate is issued.
ARTICLE III: SHAREHOLDERS
-------------------------
3.01 Place of Meetings. All meetings of the shareholders for the election
-----------------
of directors shall be held at such time and place, within or without the State
of Texas, as shall be stated in the notice of the meeting or in a fully executed
waiver of notice thereof.
3.02 Annual Meeting. An annual meeting of the shareholders, commencing
--------------
with the year 1976, shall be held each year at 7:00 p.m. on a day during the
---- ---------
month of June to be selected by the board of directors. If such a day is a legal
----
holiday, then the meeting shall be on the next secular day following. At the
meeting, the shareholders shall elect directors and transact such other business
as may properly be brought before the meeting.
<PAGE>
3.03 Voting List. At least ten days before each meeting of shareholders,
-----------
a complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, with the address of each are the number of voting shares
held by each, shall be prepared by the officer or agent having charge of the
stock transfer books. The list for a period of ten days prior to the meeting,
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual business
hours. The list shall also be produced and kept open at the time and place of
the meeting during the whole time thereof, and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
3.04 Special Meetings. Special meetings of the shareholders, for any
----------------
purpose or purposes, unless otherwise prescribed by statue or by the articles of
incorporation, or by these bylaws, may be called by the president, board of
directors, or the holders of not less than one-tenth of all shares entitled to
vote at the meetings. Business transacted at a special meeting shall be
confined to the objects stated in the notice of the meeting.
3.05 Notice. Written or printed notice stating the place, day and hour
------
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more than
fifty days before the date of the meeting, either personally or by mail, by or
at the direction of the president, the secretary, or the officer or person
calling the meeting, to each shareholder of record entitled to vote at the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
3.06 Quorum. The holders of a majority of the shares issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
shareholders, for the transaction of business except as otherwise provided by
statute, by the articles of incorporation or by these bylaws. If a quorum is not
present or represented at a meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted which might have been transacted at the meeting as originally
notified.
<PAGE>
3.07 Majority Vote: Withdrawal of Quorum. When a quorum is present at any
-----------------------------------
meeting, the vote of the holders of a majority of the shares having voting
power, present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statues or of the articles of incorporation or of these bylaws,
a different vote is required in which case such express provision shall govern
and control the decision of such question. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
3.08 Method of Voting. Each outstanding share, regardless of class, shall
----------------
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the articles of incorporation. At any
meeting of the shareholders, every shareholder having the right to vote either
in person, or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy. Each proxy
shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Each proxy shall be filed with the
secretary of the corporation prior to or at the time of the meeting. Voting
for directors shall be in accordance with Section 4.06 of these bylaws, but in
no event shall any shareholder be entitled to cumulate his votes for the
election of directors. Any vote may be taken viva voice or by show of hands
unless someone entitled to vote objects, in which case, written ballots shall be
used.
3.09 Record Date: Closing Transfer Books. The board of directors may fix
-----------------------------------
in advance a record date for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of the shareholders, the record date to be not
less than ten nor more than fifty days prior to the meeting; or the board of
directors may close the stock transfer books for such purpose for a period of
not less than ten nor more than fifty days prior to such meeting. In the absence
of any action by the board of directors, the date upon which the notice of the
meeting is mailed shall be the record date.
3.10 Action Without Meeting. Any action required by statute to be taken
----------------------
at a meeting of the shareholders, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of
<PAGE>
the shareholders entitled to vote with respect to the subject matter thereof and
such consent shall have the same force and effect as a unanimous vote of the
shareholders. Any such signed consent, or a signed copy thereof, shall be placed
in the minute book of the corporation.
ARTICLE IV: DIRECTORS
---------------------
4.01 Management. The business and affairs of the corporation shall be
----------
managed by the Board of Directors who may exercise all such powers of the
corporation and do all such lawful acts and things as are not (by statute or by
the articles of incorporation or by these bylaws) directed or required to be
exercised or done by the shareholders.
4.02 Number; Qualification; Election; Term. The board of directors shall
-------------------------------------
consist of not less than One (1) nor more than eleven (11) directors none of
------- -----------
whom need be shareholders or residents of the State of Texas. The directors
shall be elected at the annual meeting of the shareholders, except as provided
in Bylaws 4.03 and 4.05. Each director elected shall hold office until his
successor shall be elected and shall qualify.
4.03 Change in Number. The number of directors may be increased or
----------------
decreased from time to time by amendment to these bylaws but no decrease shall
-------------------------
have the effect of shortening the term of any incumbent director. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose.
4.04 Removal. Any director may be removed either for or without cause at
-------
any special or annual meeting of shareholders, by the affirmative vote of a
majority in number of shares of the shareholders present in person or by proxy
at such meeting and entitled to vote for the election of such director if notice
of intention to act upon such matter shall have been given in the notice calling
such meeting.
4.05 Vacancies. Any vacancy occurring in the board of directors (by death,
---------
resignation, removal, or otherwise) may be filled by an affirmative vote of a
majority of the remaining directors though less than a quorum of the board of
directors. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
4.06 Election of Directors. At each election for directors, each
----------------------
shareholder shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected
for whose election he has a right to vote. It is expressly prohibited for any
shareholder to cumulate his votes in any election of directors.
<PAGE>
4.07 Place of Meetings. Meetings of the board of directors, regular or
-----------------
special, may be held either within or without the State of Texas.
4.08 First Meetings. The first meeting of each newly elected board shall
--------------
be held without further notice immediately following the annual meeting of
shareholders, and at the same place, unless (by unanimous consent of the
directors then elected and serving) such time or place shall be changed.
4.09 Regular Meetings. Regular meetings of the board of directors may be
----------------
held without notice at such time and place as shall from time to time be held
without notice at such time and place as shall from time to time be determined
by the board.
4.10 Special Meetings. Special meetings of the board of directors may be
----------------
called by the president on the three days' notice to each director, either
personally or by mail or by telegram. Special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors. Except as otherwise expressly provided by statute, or by the
articles of incorporation, or by these bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
4.11 Quorum: Majority Vote. At all meetings of the board of directors a
---------------------
majority of the number of directors fixed by these bylaws shall constitute a
quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board of directors, except as otherwise specifically provided by statute or by
the articles of incorporation or by these bylaws. If a quorum is not present at
a meeting of the board of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
4.12 Compensation. By resolution of the board of directors, the directors
------------
may be paid their expenses, if any, of attendance at each meeting of the board
of directors, and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of the executive committee or of
special or standing committees may, by resolution of the board of directors, be
allowed like compensation for attending committee meetings.
4.13 Procedure. The board of directors shall keep regular minutes of its
---------
proceedings. The minutes shall be placed in the minute book of the corporation.
<PAGE>
4.14 Interested Directors, Officers and Shareholders.
-----------------------------------------------
(a) Validity. Any contract or other transaction between the
--------
corporation and any of its directors, officers or shareholders (or any
corporation or firm which any of them are directly or indirectly interested
shall be valid for all purposes notwithstanding the presence of such director
officer or shareholder at the meeting authorizing such contract or transaction,
or is participation in such meeting or authorization.
(b) Disclosure, Approval. The foregoing shall, however apply only if
--------------------
the interest of each such director, officer or shareholder is known or
disclosed.
(1) To the Board of Directors and it nevertheless authorizes or
ratifies the contract or transaction by a majority of the directors present each
such interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the vote; or
(2) To the shareholders and they nevertheless authorize or
ratify the contract or transaction by a majority of the shares present, each
such interested person to be counted for quorum and voting purposes.
(c) Non-Exclusive. This provision shall not be construed to
-------------
invalidate any contract or transaction which would be valid in the absence of
this provision.
ARTICLE V: EXECUTIVE COMMITTEE
-------------------------------
5.01 Designation. The board of directors may, be resolution, adopted by a
-----------
majority of the whole board, designate an executive committee, to consist of two
or more of the directors of the corporation, one of whom shall be the president
of the corporation.
5.02 Authority. The executive committee, to the extent provided in such
---------
resolution, shall have and may exercise all of the authority of the board of
directors in the management of the business and affairs of the corporation,
except where action of the full board of directors is required by statute or by
articles of incorporation, and shall have power to authorize the seal of the
corporation to be affixed to all papers which may require it.
5.03 Procedure. The executive committee shall keep regular minutes of its
---------
proceedings and report the same to the board of directors when required. The
minutes of the proceedings of the executive committee shall be placed in the
minute book of the corporation.
<PAGE>
5.04 Removal. Any member of the executive committee may be removed by the
-------
board of directors by the affirmative vote of a majority of the whole board,
whenever in its judgement the best interests of the corporation will be served
thereby.
5.05 Responsibility. The designation of an executive committee and the
--------------
delegation of authority to it shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed upon it or him
by law.
ARTICLE VI: NOTICE
-------------------
6.01 Method. Whenever by statute or the articles of incorporation or these
------
bylaws, notice is required to be given to director or shareholder and no
provision is made as to how the notice shall be given, it shall not be construed
to mean personal notice, but any such notice may be given (a) in writing, by
mail, postage prepaid, addressed to the director or shareholder at the address
appearing on the books of the corporation, or (b) in any other method permitted
by law. Any notice required or permitted to be given by mail shall be deemed
given at the time when the same is thus deposited in the United States mails.
6.02 Waiver. Whenever, by statute or the articles of incorporation, or
------
these bylaws, notice is required to be given to shareholder or director, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE VII: OFFICERS AND AGENTS
---------------------------------
7.01 Number; Qualification; Election: Term:
-------------------------------------
(a) The corporation shall have:
(1) A president, a vice-president, a secretary and a treasurer,
and
(2) Such other officers (including a chairman of the board and
additional vice-presidents) and assistant officers and agents as the board of
directors may think necessary.
<PAGE>
(b) No officer or agent need be a shareholder, a director or a
resident of Texas.
(c) Officers named in Sec. 7.01 (a)(1) shall be elected by the board
of directors on the expiration of an officer's term or whenever a vacancy
exists. Officers and agents named in Sec. 7.01(a)(2) may be elected by the board
at any meeting.
(d) Unless otherwise specified by the board at the time of election
or appointment, or in an employment contract approved by the board, each
officer's and agent's term shall end at the first meeting of directors after the
next annual meeting of shareholders. He shall serve until the end of his term
or, if earlier, his death, resignation, or removal.
(e) Any two or more offices may be held by the same person, except
that the President and the Secretary shall not be the same person.
7.02 Removal. Any officer or agent elected or appointed by the board of
-------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
7.03 Vacancies. Any vacancy occurring in any office of the corporation (by
---------
death, resignation, removal or otherwise) may be filled by the board of
directors.
7.04 Authority. Officers and agents shall have such authority and perform
---------
such duties in the management of the corporation as are provided in these bylaws
or as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
7.05 Compensation. The compensation of officers and agents shall be fixed
------------
from time to time by the board of directors.
7.06 President. The president shall be the chief executive officer of the
---------
corporation; he shall preside at all meetings of the shareholders and the board
of directors, shall have general and active management of the business and
affairs of the corporation, shall see that all orders and resolutions of the
board are carried into effect. He shall perform such other duties and have such
other authority and powers as the board of directors may from time to time
prescribe.
<PAGE>
7.07 Vice President. The vice presidents in the order of that seniority,
--------------
unless otherwise determined ny the board of directors shall in the absence or
disability of the president, perform the duties and have the authority and
exercise the powers of the president. They shall perform such other duties and
have such other authority and powers as the board of directors may from time to
time prescribe or as the president may from time to time delegate.
7.08 Secretary.
---------
(a) The secretary shall attend all meetings of the board of directors
and all meetings of the shareholders and record all votes and the minutes of
all proceedings in a book to be kept for that purpose and shall perform like
duties for the executive committee when required.
(b) He shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the board of directors.
(c) He shall keep in safe custody the seal of the corporation and when
authorized by the board of directors or the executive committee, affix the same
to any instrument requiring it and, when so affixed, it shall be attested by his
signature or by the signature of the treasurer or an assistant secretary.
(d) He shall be under the supervision of the president. He shall
perform such other duties and have such other authority and powers as the board
of directors may from time to time prescribe or as the president may from time
to time delegate.
7.09 Assistant Secretary. The assistant secretaries in the order of their
-------------------
seniority, unless otherwise determined by the board of directors, shall, in the
absence or disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe or as the president may from time to time delegate.
7.10 Treasurer.
---------
(a) The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors.
(b) He shall disburse the funds of the corporation as may be ordered
by the board of directors, taking proper vouchers for such dis-
<PAGE>
bursements, and shall render to the president and directors at the regular
meetings of the board, or whenever they may require it, an account of all his
transactions as treasurer and of the financial condition of the corporation.
(c) If required by the board of directors, he shall give the
corporation a bond in such form, in such sum, and with such surety or sureties
as shall be satisfactory to the board for the faithful performance of the duties
of his office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
(d) He shall perform such other duties and have such other authority
and powers as the board of directors may from time to time prescribe or as the
president may from time to time delegate.
7.11 Assistant Treasurer. The assistant treasurers in the order of their
-------------------
seniority, unless otherwise determined by the board of directors, shall, in the
absence or disability of the treasurer, perform the duties and have the
authority and exercise the powers of the treasurer. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe or the president may from time to time delegate.
ARTICLE VIII: CERTIFICATES AND SHAREHOLDERS
--------------------------------------------
8.01 Certificates. Certificates in the form determined by the board of
------------
directors shall be delivered representing all shares to which shareholders are
entitled. Certificates shall be consecutively numbered and shall be entered in
the books of the corporation as they are issued. Each certificate shall state on
the face thereof the holder's name, the number and class of shares, the par
value of shares or a statement that such shares are without par value, and such
other matters as may be required by law. They shall be signed by the president
or a vice president and such other officer or officers as the board of directors
shall designate, and may be sealed with the seal of the corporation or a
facsimile thereof. If any certificate is countersigned by a transfer agent, or
an assistant transfer agent or registered by a registrar (either of which is
other than the corporation or an employee of the corporation), the signature of
any such officer may be facsimile.
8.02 Replacement of Lost or Destroyed Certificates. The board of directors
---------------------------------------------
may direct a new certificate or certificates to be issued in place of any
certificate previously issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the loss or destruction. In so doing the board of directors may, in its
discretion and as a condition precedent to the issuance (a) require the owner of
the lost or destroyed certificate, or his legal representative, to
<PAGE>
advertise the same in such manner as it shall require and or is to give the
corporation a bond (with a surety or sureties satisfactory to the corporation)
in such sum as it may direct, as indemnity against any claim or expense
resulting from any claim, that may be made against the corporation with respect
to the certificate alleged to have been lost or destroyed.
8.03 Transfer of Shares. Shares of stock shall be transferable only on the
------------------
books of the corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender, to the corporation or its transfer agent,
of a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer the corporation or
its transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
8.04 Registered Shareholders. The corporation shall be entitled to treat
-----------------------
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any person, whether
or not it has express or other notice thereof, except as otherwise provided by
law.
8.05 Pre-Emptive Rights. No shareholder or other person shall have any
------------------
pre-emptive right whatsoever.
ARTICLE IX: GENERAL PROVISIONS
-------------------------------
9.01 Dividends and Reserves.
----------------------
(a) Declaration and Payment. Subject to statute and the articles of
-----------------------
incorporation, dividends may be declared by the board of directors at any
regular or special meeting and may be paid in cash, property, or in shares of
the corporation. The declaration and payment shall be at the discretion of the
board of directors.
(b) Record Date. The board of directors may fix in advance a record
-----------
date for the purpose of determining shareholders entitled to receive payment of
any dividend, the record date to be not more than fifty days prior to the
payment date of such dividend, or the board of directors may close the stock
transfer books for such purpose for a period of not more than fifty days prior
to the payment date of such dividend. In the absence of any action by the board
of directors, the date upon which the board of directors adopts the resolution
declaring the dividend shall be the record date.
<PAGE>
(c) Reserves. By resolution the board of directors may create such
--------
reserve or reserves out of the earned surplus of the corporation as the
directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the corporation, or for any other purpose they think beneficial to the
corporation. The directors may modify or abolish any such reserve in the manner
in which it was created.
9.02 Books and Records. The corporation shall keep correct and complete
-----------------
books and records of account and shall keep minutes of the proceedings of its
shareholders and board of directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
9.03 Annual Statement. The board of directors shall present at each
----------------
annual meeting of the shareholders a full and clear statement of the business
and condition of the corporation, including a reasonably detailed balance sheet,
income statement, and surplus statement.
9.04 Checks and Notes. All checks or demands for money and notes of the
----------------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
9.05 Fiscal Year. The fiscal year of the corporation shall be fixed by
-----------
resolution of the board of directors.
9.06 Seal. The corporation seal (of which there may be one or more
----
exemplars) shall contain the following:
"Tuesday Morning, Inc., Texas"
9.07 Indemnification.
---------------
(a) Persons. The corporation shall indemnify, to the extent
-------
provided in paragraph (b), these persons:
(1) Any director, officer, agent or employee of the
corporation.
<PAGE>
(2) Any former director, officer, agent or employee of the
corporation, and
(3) Any person who may have served at the corporation's request
as director, officer, agent or employee of another corporation in which the
corporation owns or has owned stock, or of which it is or has been a creditor.
(b) Extent. The indemnification shall be against expenses actually
------
and necessarily incurred by such person, and any amount paid on satisfaction of
judgments in connection with any action, suit or proceeding (whether civil or
criminal) in which he is made a party by reason of being or having been such a
director, officer, agent or employee (whether or not such at the time the costs
or expenses are incurred by or imposed on him) except in relation to matters as
to which he shall be adjudged in such action, suit or proceeding to be liable
for gross negligence or willful miscount in the performance of duty.
(c) Reimbursement. The corporation may also reimburse to any such
-------------
person the reasonable costs of settlement of any such action, suit or
proceeding, if it is found by a majority of the committee of the directors not
involved in the matter (whether or not a quorum) that (1) it was to the interest
of the corporation to make such settlement and (2) such person was not guilty of
gross negligence or willful misconduct.
(d) Non-Exclusive. These rights of indemnification and reimbursement
-------------
shall not be exclusive of any other rights to which such person may be entitled
by law, bylaw, agreement, shareholders' vote or otherwise.
9.08 Resignation. Any director, officer, or agent may resign by giving
-----------
written notice to the president or the secretary. The resignation shall take
effect at the time specified therein, or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
9.09 Amendment of Bylaws. The bylaws may be altered, amended, or repealed
-------------------
at any meeting of the directors at which a quorum of the directors is present
and without having to submit said notice of amendment or the amended bylaws for
shareholder approval.
9.10 Construction. Whenever the context so requires, the masculine shall
------------
include the feminine and neuter, and the singular shall include the plural and
conversely. If any portion of these bylaws shall be invalid and inoperative,
then, so far as is reasonable and possible:
<PAGE>
(a) The remainder of these bylaws shall be considered valid and
operative, and
(b) Effect shall be given to the intent manifested by the portion
held invalid or inoperative.
(c) A valid or operative provision shall be substituted as similar in
terms to such invalid or inoperative portion as may be legal, valid and
operative.
9.11 Table of Contents: Headings. The table of contents and headings used
---------------------------
in these bylaws have been inserted for convenience only and do not constitute
matter to be construed in interpretation.
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
---------------------------------
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of Tuesday Morning, Inc.,
a Texas corporation and,
(2) That the foregoing Bylaws, comprising sixteen (16) pages, constitute the
Bylaws of said corporation as duly enacted at the meeting of the Board of
Directors thereof duly held on the 5th day of November, A.D., 1975.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of
said corporation this 5th day of November, A.D, 1975
/s/ F. Donald Robb
------------------------------
F. Donald Robb, Secretary
<PAGE>
EXHIBIT 3.11
BYLAWS
OF
FRIDAY MORNING, INC.
(A TEXAS CORPORATION)
EXHIBIT "C"
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE I
<S> <C>
OFFICES
Section 1. Principal Office........................................ 2
Section 2. Other Offices........................................... 2
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings.............................. 2
Section 2. Annual Meetings......................................... 2
Section 3. Special Meetings........................................ 2
Section 4. Notice.................................................. 2
Section 5. Closing of Share Transfer Records and Fixing Record
Dates for Matters Other than Consents to Action......... 3
Section 6. Fixing Record Dates for consents to Action.............. 3
Section 7. List of Shareholders.................................... 4
Section 8. Quorum.................................................. 4
Section 9. Voting.................................................. 5
Section 10. Action by Consent....................................... 6
Section 11. Communications Equipment................................ 7
ARTICLE III
DIRECTORS
Section 1. Number of Directors..................................... 7
Section 2. Vacancies............................................... 7
Section 3. General Powers.......................................... 8
Section 4. Place of Meetings....................................... 8
Section 5. Annual Meetings......................................... 8
Section 6. Regular Meetings........................................ 9
Section 7. Special Meetings........................................ 9
Section 8. Quorum and Voting....................................... 9
Section 9. Committees of the Board of Directors.................... 10
Section 10. Compensation of Directors............................... 10
Section 11. Action by Unanimous Consent............................. 10
Section 12. Presence at Meetings by Means of Communications
Equipment............................................... 11
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE IV
<S> <C>
NOTICES
Section 1. Form of Notice......................................... 11
Section 2. Waiver................................................. 11
Section 3. When Notice Unnecessary................................ 11
ARTICLE V
OFFICERS
Section 1. General................................................ 12
Section 2. Election............................................... 12
Section 3. Chairman of the Board.................................. 12
Section 4. President.............................................. 13
Section 5. Vice Presidents........................................ 13
Section 6. Assistant Vice Presidents.............................. 13
Section 7. Secretary.............................................. 13
Section 8. Assistant Secretaries.................................. 14
Section 9. Treasurer.............................................. 14
Section 10. Assistant Treasurers................................... 15
Section 11. Bonding................................................ 15
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates................................... 15
Section 2. Lost Certificates ..................................... 16
Section 3. Transfer of Shares..................................... 16
Section 4. Registered Shareholders................................ 16
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General................................................ 17
Section 2. Insurance.............................................. 17
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends...................... 18
Section 2. Reserves .............................................. 18
Section 3. Fiscal Year............................................ 19
Section 4. Seal................................................... 19
Section 5. Resignation............................................ 19
ARTICLE IX
AMENDMENTS TO BYLAWS.................................................. 19
</TABLE>
ii
<PAGE>
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation shall
---------- ----------------
be in Dallas County, Texas, or such other county as the Board of Directors may
from time to time designate.
Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings. Meetings of the shareholder shall
---------- --------------------------
be held at such time and at such place, within or without the State of Texas, as
shall be determined by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of shareholders shall be held
---------- ---------------
on such date and at such time as shall be determined by the Board of Directors.
At each annual meeting the Shareholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the shareholders may be
---------- ----------------
called at any time by the Chief Executive Officer, President or the Board of
Directors, and shall be called by the Chief Executive Officer, President or the
Secretary at the request in writing of the holders of not less than ten percent
(10%) of the voting power represented by all the shares issued, outstanding and
entitled to be voted at the proposed special meeting, unless the Articles of
Incorporation provide for a different percentage, in which event such provision
of the Articles of Incorporation shall govern. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at special
meetings shall be confined to the purposes stated in the notice of the meeting.
Section 4. Notice. Written or printed notice stating the place, day and
---------- ------
hour of any shareholders' meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive Officer, President,
Secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the shareholder
1
<PAGE>
at his address as it appears on the share transfer records of the Corporation.
Section 5. Closing of Share Transfer Records and Fixing Records Dates for
---------- --------------------------------------------------------------
Matters Other than Consents to Action. For the purpose of determining
- -------------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any distribution or
share dividend, or in order to make a determination of shareholders for any
other proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors of the Corporation may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case, 60
days. If the share transfer records shall be closed for the purpose of
determining shareholders, such records shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 60 days and, in the case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the share transfer records are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares)
or share dividend, the date on which notice of the meeting is mailed or the date
on which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of share transfer records and
the stated period of closing has expired.
Section 6. Fixing Record Dates for Consents to Action. Unless a record
---------- ------------------------------------------
date shall have previously been fixed or determined pursuant to this Section 6,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors
and the prior action of the Board of Directors is not required by the Texas
Business Corporation Act (herein called the "Act"), the record date for
determining shareholders entitled to
2
<PAGE>
consent to action in writing without a meeting shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the Corporation having
custody of the records in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or by certified or registered mail, return
receipt requested. Delivery to the Corporation's principal place of business
shall be addressed to the President or the Chief Executive Officer of the
Corporation. If no record date shall have been fixed by the Board of Directors
and prior action of the Board of Directors is required by the Act, the record
date for determining shareholders entitled to consent to action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts a resolution taking such prior action.
Section 7. List of Shareholders. The officer or agent of the Corporation
--------- --------------------
having charge of the share transfer records for shares of the Corporation shall
make, at least ten days before each meeting of the shareholders, a complete list
of the shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of voting
shares held by each, which list, for a period of ten days prior to such meeting,
shall be kept on file at the registered office or principal place of business of
the Corporation and shall be subject to inspection by any shareholder at any
time during the usual business hours of the Corporation. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original share transfer records shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer records or to vote at any
meeting of shareholders. Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at such meeting.
Section 8. Quorum. A quorum shall be present at a meeting of shareholders
--------- ------
if the holders of shares having a majority of the voting power represented by
all issued and outstanding shares entitled to vote at the meeting are present in
person or represented by proxy at such meeting, unless otherwise provided by the
Articles of Incorporation in accordance with the Act. Once a quorum is present
at a meeting of shareholders, the shareholders represented in person or by proxy
at the meeting may conduct such business as may properly be brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting of
any shareholder or the refusal of any shareholder represented in person or by
proxy to vote shall not affect the presence of a quorum at the meeting. If,
however, a quorum shall not be present at any meeting of shareholders, the
shareholders entitled to vote, present in person or represented by proxy, shall
have power to
3
<PAGE>
adjourn the meeting, without notice (other than announcement at the meeting at
which the adjournment is taken of the time and place of the adjourned meeting),
until such time and to such place as may be determined by a vote of the holders
of a majority of the shares represented in person or by proxy at such meeting
until a quorum shall be present. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed.
Section 9. Voting. When a quorum is present at any meeting, the vote of
--------- ------
the holders of a majority of the shares entitled to vote, present in person or
represented by proxy at such meeting, shall decide any matter brought before
such meeting, other than the election of directors or a matter for which the
affirmative vote of the holders of a specified portion of the shares entitled to
vote is required by the Act, and shall be the act of the shareholders, unless
otherwise provided by the Articles of Incorporation, these Bylaws or by
resolution of the Board of Directors in accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these Bylaws
in accordance with the Act, directors of the corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present.
At every meeting of the shareholders, each shareholder shall be entitled to
such number of votes, in person or by proxy, for each share having voting power
held by such shareholder, as is specified in the Articles of Incorporation
(including the resolution of the Board of Directors (or a committee thereof)
creating such shares), except to the extent that the voting rights of the shares
of any class or series are limited or denied by the Articles of Incorporation.
At each election of directors, every shareholder shall be entitled to cast, in
person or by proxy, the number of votes to which the shares owned by him are
entitled for as many persons as there are directors to be elected and for whose
election he has a right to vote. Cumulative voting is prohibited by the Articles
of Incorporation. Every proxy shall be in writing and be executed by the
shareholder. A telegram, telex, cablegram, or similar transmission by the
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing executed by the shareholder, shall be treated as an execution in
writing for the purposes of this Section 9. No proxy shall be valid after 11
months from the date of its execution unless otherwise provided therein. Each
proxy shall be revocable unless (i) the proxy form conspicuously states that the
proxy is irrevocable, and (ii) the proxy is coupled with an interest, as defined
in the Act and other Texas law.
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Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without being transferred into his name, if such authority is contained
in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of the Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 10. Action by Consent. Any action required or permitted to be
---------- -----------------
taken at a meeting of the shareholders may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the action that is the subject of the consent.
In addition, if the Articles of Incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
5
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Every written consent shall bear the date of signature of each shareholder
who signs the consent. No written consent shall be effective to take the action
that is the subject of the consent unless, within 60 days after the date of the
earliest dated consent delivered to the Corporation as set forth below in this
Section 10, the consent or consents signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to take
the action that is the subject of the consent are delivered to the Corporation
by delivery to its registered office, its principal place of business, or an
officer or agent of the Corporation having custody of the records in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President or
the Chief Executive Officer of the Corporation. A telegram, telex, cablegram, or
similar transmission by a shareholder, or a photographic, photostatic,
facsimile, or similar reproduction of a writing signed by a shareholder, shall
be regarded as signed by the shareholder for the purposes of this Section 10.
Section 11. Presence at Meetings by Means of Communications Equipment.
---------- ---------------------------------------------------------
Shareholders may participate in and hold a meeting of the shareholders by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section 11 shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors of the Corporation
--------- -------------------
shall be fixed from time to time by resolution of the Board of Directors, but in
no case shall the number of directors be less than one. Until otherwise fixed by
resolution of the Board of Directors, the number of directors shall be the
number stated in the Articles of Incorporation. No decrease in the number of
directors shall have the effect of reducing the term of any incumbent director.
Directors shall be elected at each annual meeting of the shareholders by the
holders of shares entitled to vote in the election of directors, except as
provided in Section 2 of this Article III, and each director shall hold office
until the annual meeting of shareholders following his election or until his
successor is elected and qualified. Directors need not be residents of the State
of Texas or shareholders of the Corporation.
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Section 2. Vacancies. Subject to other provisions of this Section 2, any
--------- ---------
vacancy occurring in the Board of Directors may be filled by election at an
annual or special meeting of the shareholders called for that purpose or by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by Section 8 of this Article III. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship to
be filled by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special meeting of shareholders called for
that purpose or may be filled by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the Board of Directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders. Shareholders holding a majority of shares then entitled to vote
at an election of directors may, at any time and with or without cause,
terminate the term of office of all or any of the directors by a vote at any
annual or special meeting called for that purpose. Such removal shall be
effective immediately upon such shareholder action even if successors are not
elected simultaneously, and the vacancies on the Board of Directors caused by
such action shall be filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class or series
of shares are entitled to elect one or more directors by the provisions of the
Articles of Incorporation, only the holders of shares of that class or series
shall be entitled to vote for or against the removal of any director elected by
the holders of shares of that class or series; and any vacancies in such
directorships and any newly created directorships of such class or series to be
filled by reason of an increase in the number of such directors may be filled by
the affirmative vote of a majority of the directors elected by such class or
series then in office or by a sole remaining director so elected, or by the vote
of the holders of the outstanding shares of such class or series, and such
directorships shall not in any case be filled by the vote of the remaining
directors or the holders of the outstanding shares as a whole unless otherwise
provided in the Articles of Incorporation.
Section 3. General Powers. The powers of the Corporation shall be
--------- --------------
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, its Board of Directors,
which may do or cause to be done all such lawful acts and things, as are not by
the Act, the Articles of Incorporation or these Bylaws directed or required to
be exercised or done by the shareholders.
7
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Section 4. Place of Meetings. The Board of Directors of the Corporation
--------- -----------------
may hold meetings, both regular and special, either within or without the State
of Texas.
Section 5. Annual Meetings. The first meeting of each newly elected Board
--------- ---------------
of Directors shall be held, without further notice, immediately following the
annual meeting of shareholders at the same place, unless by the majority vote or
unanimous consent of the directors then elected and serving, such time or place
shall be changed.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
--------- ----------------
may be held with or without notice at such time and place as the Board of
Directors may determine by resolution.
Section 7. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the Chief Executive Officer and shall be
called by the Secretary on the written request of a majority of the incumbent
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by such person or persons. Notice of any special
meeting shall be given at least 24 hours previous thereto if given either
personally (including written notice delivered personally or telephone notice)
or by telex, telecopy, telegram or other means of immediate communication, and
at least 72 hours previous thereto if given by written notice mailed or
otherwise transmitted to each director at the address of his business or
residence. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting. Any director may waive notice of any
meeting, as provided in Section 2 of Article IV of these Bylaws. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 8. Quorum and Voting. At all meetings of the Board of Directors,
--------- -----------------
the presence of a majority of the number of directors fixed in the manner
provided in Section 1 of this Article III shall constitute a quorum for the
transaction of business. At all meetings of committees of the Board of Directors
(if one or more be designated in the manner described in Section 9 of this
Article III), the presence of a majority of the number of directors fixed from
time to time by resolution of the Board of Directors to serve as members of such
committees shall constitute a quorum for the transaction of business. The
affirmative vote of at least a majority of the directors present and entitled to
vote at any meeting of the Board of Directors or a committee of the Board of
Directors at which there is a quorum shall be the act of
8
<PAGE>
the Board of Directors or the committee, except as may be otherwise specifically
provided by the Act, the Articles of Incorporation or these Bylaws. Directors
may not vote by proxy at any meeting of the Board of Directors. Directors with
an interest in a business transaction of the Corporation and directors who are
directors or officers or have a financial interest in any other corporation,
partnership, association or other organization with which the Corporation is
transacting business may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee of the Board of Directors to
authorize such business transaction. If a quorum shall not be present at any
meeting of the Board of Directors or a committee thereof, a majority of the
directors present thereat may adjourn the meeting, without notice other than
announcement at the meeting, until such time and to such place as may be
determined by such majority of directors, until a quorum shall be present.
Section 9. Committees of the Board of Directors. The Board of Directors
--------- ------------------------------------
may, by resolution passed by a majority of the whole Board of Directors,
designate from among its members one or more committees, each of which shall be
composed of one or more of its members, and may designate one or more of its
members as alternate members of any committee, who may, subject to any
limitations imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. Any such committee, to the extent
provided in the resolution of the Board of Directors designating the committee
or in the Articles of Incorporation or these Bylaws , shall have and may
exercise all of the authority of the Board of Directors of the Corporation,
except where action of the Board of Directors is required by the Act or by the
Articles of Incorporation. Any member of a committee of the Board of Directors
may be removed, for or without cause, by the affirmative vote of a majority of
the whole Board of Directors. If any vacancy or vacancies occur in a committee
of the Board of Directors caused by death, resignation, retirement,
disqualification, removal from office or otherwise, the vacancy or vacancies
shall be filled by the affirmative vote of a majority of the whole Board of
Directors. Such committee or committees shall have such name or names as may be
designated by the Board of Directors and shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 10. Compensation of Directors. Unless otherwise provided by
---------- -------------------------
resolution of the Board of Directors, directors, as members of the Board of
Directors or of any committee thereof, shall not be entitled to receive any
stated salary for their services. Nothing herein contained, however, shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 11. Action by Unanimous Consent. Any action required or permitted
---------- ---------------------------
to be taken at any meeting of the Board of
9
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Directors or of any committee thereof may be taken without a meeting if a
written consent, setting forth the action so taken, is signed by all the members
of the Board of Directors or the committee, as the case may be, and such written
consent shall have the same force and effect as a unanimous vote at a meeting of
the Board of Directors.
Section 12. Presence at Meetings by Means of Communications Equipment.
---------- ---------------------------------------------------------
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 12 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
Section 1. Form of Notice. Whenever under the provisions of the Act, the
--------- --------------
Articles of Incorporation or these Bylaws, notice is required to be given to any
director or shareholder, and no provision is made as to how such notice shall be
given, it shall not be construed to mean personal notice exclusively, but any
such notice may be given in writing, by mail, postage prepaid, or by telex,
telecopy, or telegram, or other means of immediate communication, addressed or
transmitted to such director or shareholder at such address as appears on the
books of the Corporation. Any notice required or permitted to be given by mail
shall be deemed to be given at the time when the same be thus deposited, postage
prepaid, in the United States mail as aforesaid. Any notice required or
permitted to be given by telex, telecopy, telegram, or other means of immediate
communication shall be deemed to be given at the time of actual delivery.
Section 2. Waiver. Whenever under the provisions of the Act, the Articles
--------- ------
of Incorporation or these Bylaws, any notice is required to be given to any
director or shareholder of the Corporation, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, shall be equivalent to the giving of such notice.
Section 3. When Notice Unnecessary. Whenever, under the provisions of
--------- -----------------------
the Act, the Articles of Incorporation or these Bylaws, any notice is required
to be given to any shareholder, such notice need not be given to the shareholder
if:
10
<PAGE>
(a) notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if
any, or
(b) all (but in no event less than two) payments (if sent by first
class mail) of distributions or interest on securities during a
12-month period,
have been mailed to that person, addressed at his address as shown on the
records of the Corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such a person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. General. The elected officers of the Corporation shall be a
--------- -------
President and a Secretary. The Board of Directors may also elect or appoint a
Chairman of the Board, one or more Vice Presidents, with or without such
descriptive titles as the Board of Directors shall deem appropriate, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer, one
or more Assistant Treasurers, and such other officers as may be deemed
necessary, all of whom shall also be officers. Two or more offices may be held
by the same person.
Section 2. Election. The Board of Directors shall elect the officers of
--------- --------
the Corporation at each annual meeting of the Board of Directors. The board of
Directors may appoint such other officers and agents as it shall deem necessary
and shall determine the salaries of all officers and agents from time to time.
The officers shall hold office until their successors are chosen and qualified.
No officer need be a member of the Board of Directors except the Chairman of the
Board, if one be elected. Any officer elected or appointed by the Board of
Directors may be removed, with or without cause, at any time by a majority vote
of the whole Board. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 3. Chairman of the Board. The Chairman of the Board, if any, shall
--------- ---------------------
be the Chief Executive officer of the Corporation and, subject to the provisions
of these Bylaws, shall have general supervision of the affairs of the
Corporation and shall have general and active control of all its business. He
shall preside, when present, at all meetings of shareholders and at all meetings
of the Board of Directors. He shall see that all
11
<PAGE>
orders and resolutions of the Board of Directors and the shareholders are
carried into effect. He shall have general authority to execute bonds, deeds and
contracts in the name of the Corporation and affix the corporate seal thereto;
to sign stock certificates; to cause the employment or appointment of such
employees and agents of the Corporation as the proper conduct of operations may
require, and to fix their compensation, subject to the provisions of these
Bylaws; to remove or suspend any employee or agent who shall have been employed
or appointed under his authority or under authority of an officer subordinate to
him; to suspend for cause, pending final action by the authority which shall
have elected or appointed him, any officer subordinate to the Chairman of the
Board; and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation, except as
otherwise provided in these Bylaws.
Section 4. President. In the absence of a Chairman of the Board, the
--------- ---------
President shall be the ranking and Chief Executive Officer of the Corporation,
and shall have the duties and responsibilities, and the authority and power, of
the Chairman of the Board. The President shall be the Chief Operating Officer of
the Corporation and as such shall have, subject to review and approval of the
Chairman of the Board, if one be elected, the responsibility for the operation
of the Corporation and the authority of the Chairman of the Board.
Section 5. Vice Presidents. In the absence of the President or in the
--------- ---------------
event of his inability or refusal to act, the Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated or,
in the absence of any designation, then in the order of their election), shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Chief Operating Officer
may from time to time prescribe. The Vice President in charge of finance, if
any, shall also perform the duties and assume the responsibilities described in
Section 9 of this Article for the Treasurer, and shall report directly to the
Chief Executive Officer of the Corporation.
Section 6. Assistant Vice Presidents. In the absence of a Vice
--------- -------------------------
President or in the event of his inability or refusal to act, the Assistant Vice
President, if any (or, if there be more than one, the Assistant Vice Presidents
in the order designated or, in the absence of any designation, then in the
order of their election), shall perform the duties and exercise the powers of
that Vice President, and shall perform such other duties and have such other
powers as the Board of Directors, the Chief Executive
12
<PAGE>
Officer, the Chief Operating Officer or the Vice President under whose
supervision he is appointed may from time to time prescribe.
Section 7. Secretary. The Secretary shall attend and record minutes of
--------- ---------
the proceedings of all meetings of the Board of Directors and any committees
thereof and all meetings of the shareholders. He shall file the records of such
meetings in one or more books to be kept by him for that purpose. Unless the
corporation has appointed a transfer agent or other agent to keep such a
record, the Secretary shall also keep at the Corporation's registered office or
principal place of business a record of the original issuance of shares issued
by the Corporation and a record of each transfer of those shares that have been
presented to the Corporation for registration of transfer. Such records shall
contain the names and addresses of all past and current shareholders of the
Corporation and the number and class of shares issued by the Corporation held by
each of them. He shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or the Chief
Executive Officer, under whose supervision he shall be. He shall have custody of
the corporate seal of the Corporation and he, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and when so
affixed, it may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is properly accountable. He shall have authority to sign stock
certificates and shall generally perform all the duties usually appertaining to
the office of the secretary of a corporation.
Section 8. Assistant Secretaries. In the absence of the Secretary or
--------- ---------------------
in the event of his inability or refusal to act, the Assistant Secretary, if any
(or, if there be more than one, the Assistant Secretaries in the order
designated or, in the absence of any designation, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time
prescribe.
Section 9. Treasurer. The Treasurer, if any (or the Vice President in
--------- ---------
charge of finance, if one be elected), shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as
13
<PAGE>
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation. If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration of
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation. The
Treasurer shall be under the supervision of the Vice President in charge of
finance, if any, and he shall perform such other duties as may be prescribed by
the Board of Directors, the Chief Executive Officer or any such Vice President
in charge of finance.
Section 10. Assistant Treasurers. In the absence of the Treasurer or in
---------- --------------------
the event of his inability or refusal to act, the Assistant Treasurer, if on be
elected (or, if there shall be more than one, the Assistant Treasurer in the
order designated or, in the absence of any designation, then in the order of
their election), shall perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Treasurer may from time
to time prescribe.
Section 11. Bonding. If required by the Board of Directors, all or
---------- -------
certain of the officers shall give the Corporation a bond, in such form, in such
sum and with such surety or sureties as shall be satisfactory to the Board, for
the faithful performance of the duties of their office and for the restoration
to the Corporation, in case of their death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in their possession or under their control belonging to the
Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. The Corporation shall deliver
--------- --------------------
certificates representing all shares to which shareholders are entitled.
Certificates representing shares of the Corporation shall be in such form as
shall be approved and adopted by the Board of Directors and shall be numbered
consecutively and entered in the share transfer records of the Corporation as
they are issued. Each certificate shall state on the face thereof that the
Corporation is organized under the laws of the State of Texas,
14
<PAGE>
the name of the registered holder, the number and class of shares, and the
designation of the series, if any, which said certificate represents, and either
the par value of the shares or a statement that the shares are without par
value. Each certificate shall also set forth on the back thereof a full or
summary statement of matters required by the Act or the Articles of
Incorporation to be described on certificates representing shares, and shall
contain a conspicuous statement on the face thereof referring to the matters
set forth on the back thereof. Certificates shall be signed by the Chairman of
the Board, President or any Vice President and the Secretary or any Assistant
Secretary, and may be sealed with the seal of the Corporation. Either the seal
of the Corporation or the signatures of the Corporation's officers or both may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificate or
certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed the certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
Section 2. Lost Certificates. The Corporation may direct that a new
--------- -----------------
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 3. Transfer of Shares. Shares of stock shall be transferable
--------- ------------------
only on the share transfer records of the Corporation by the holder thereof in
person or by his duly authorized attorney. Subject to any restrictions on
transfer set forth in the Articles of Incorporation, these Bylaws or any
agreement among shareholders to which this Corporation is a party or has
notice, upon surrender to the Corporation or to the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation or the transfer agent of the Corporation to issue
a new certificate
15
<PAGE>
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Registered Shareholders. Except as otherwise provided in the
--------- -----------------------
Act or other Texas law, the Corporation shall be entitled to regard the person
in whose name any shares issued by the Corporation are registered in the share
transfer records of the Corporation at any particular time (including, without
limitation, as of the record date fixed pursuant to Section 5 or Section 6 of
Article II hereof) as the owner of those shares and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General. The Corporation shall indemnify persons who are or
--------- -------
were a director or officer of the Corporation both in their capacities as
directors and officers of the Corporation and, if serving at the request of the
Corporation as a director, officer, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise,
in each of those capacities, against any and all liability and reasonable
expense that may be incurred by them in connection with or resulting from (a)
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, (b) an appeal in such an
action, suit or proceeding, or (c) any inquiry or investigation that could lead
to such an action, suit or proceeding, all to the full extent permitted by
Article 2.02-1 of the Act. The Corporation shall indemnify persons who are or
were an employee or agent of the Corporation, or persons who are not or were not
employees or agents of the Corporation but who are or were serving at the
request of the Corporation as a director, officer, trustee, employee, agent
or similar functionary of another foreign or domestic corporation, trust,
partnership, joint venture, sole proprietorship, employee benefit plan or other
enterprise (collectively, along with the directors and officers of the
Corporation, such persons are referred to herein as "Corporate Functionaries")
against any and all liability and reasonable expense that may be incurred by
them in connection with or resulting from (a) any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, (b) an appeal in such an action, suit or
proceeding, or (c) any inquiry or investigation that could lead to such an
action, suit or proceeding, all to the full extent permitted by Article 2.02-1
of the Act, and the Corporation may indemnify such persons to the extent
permitted by the Act. The
16
<PAGE>
rights of indemnification provided for in this Article VII shall be in addition
to all rights to which any Corporate Functionary may be entitled under any
agreement or vote of shareholders or as a matter of law or otherwise.
Section 2. Insurance. The Corporation may purchase or maintain,
--------- ---------
insurance on behalf of any Corporate Functionary against any liability asserted
against him and incurred by him in such a capacity or arising out of his status
as a Corporate Functionary, whether or not the Corporation would have the power
to indemnify him or her against the liability under the Act or these Bylaws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for payment of a lability
with respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been approved
by the shareholders of the Corporation. Without limiting the power of the
Corporation to procure or maintain any kind of insurance or arrangement, the
Corporation may, for the benefit of persons indemnified by the Corporation, (i)
create a trust fund, (ii) establish any form of self-insurance, (iii) secure its
indemnification obligation by grant of any security interest or other lien on
the assets of the Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement. Any such insurance or other arrangement may be procured,
maintained or established within the Corporation or its affiliates or with any
insurer or other person deemed appropriate by the Board of Directors of the
Corporation regardless of whether all or part of the stock or other securities
thereof are owned in whole or in part by the Corporation. In the absence of
fraud, the judgment of the Board of Directors of the Corporation as to the
terms and conditions of such insurance or other arrangement and the identity of
the insurer or other person participating in an arrangement shall be conclusive,
and the insurance or arrangement shall not be voidable and shall not subject the
directors approving the insurance or arrangement to liability, on any ground,
regardless of whether directors participating in approving such insurance or
other arrangement shall be beneficiaries thereof.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends. Distributions or share
--------- ---------------------------------
dividends to the shareholders of the Corporation, subject to the provisions of
the Act and the Articles of Incorporation and any agreements or obligations of
the Corporation, if any, may be declared by the Board of Directors at any
regular or special meeting. Distributions may be declared and paid in cash or in
property (other than shares or rights to acquire shares of the Corporation),
provided that all such
17
<PAGE>
declarations and payments of distributions, and all declarations and issuances
of share dividends, shall be in strict compliance with all applicable laws and
the Articles of Incorporation.
Section 2. Reserves. There may be created by resolution of the Board of
--------- --------
Directors out of the surplus of the Corporation such reserve or reserves as the
Board of Directors from time to time, in its discretion, deems proper to
provide for contingencies, or to equalize distributions or share dividends, or
to repair or maintain any property of the Corporation, or for such other proper
purpose as the Board shall deem beneficial to the Corporation, and the Board may
increase, decrease or abolish any reserve in the same manner in which it was
created.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
--------- -----------
determined by the Board of Directors.
Section 4. Seal. The Corporation shall have a seal which may be used by
--------- ----
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced. Any officer of the Corporation shall have authority to affix the
seal to any document requiring it.
Section 5. Resignation. Any director, officer or agent of the
--------- -----------
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BYLAWS
Unless otherwise provided by the Articles of Incorporation or a bylaw
adopted by the shareholders of the Corporation, these Bylaws may be amended or
repealed, or new Bylaws may be adopted, at any meeting of the shareholders of
the Corporation or of the Board of Directors at which a quorum is present, by
the affirmative vote of the holders of a majority of the shares or the
directors, as the case may be, present at such meeting.
18
<PAGE>
CERTIFICATION
-------------
I, Edward J. Lysen, Secretary of the Corporation, hereby certify that the
foregoing is a true, accurate and complete copy of the Bylaws of Friday Morning,
Inc., adopted by its Board of Directors as of October 22, 1991.
/s/ Edward J. Lysen
------------------------------
Edward J. Lysen, Secretary
19
<PAGE>
EXHIBIT 4.1
================================================================================
TUESDAY MORNING CORPORATION
Company
TMI HOLDINGS, INC.
TUESDAY MORNING, INC.
FRIDAY MORNING, INC.
TMIL CORPORATION
Subsidiary Guarantors
and
HARRIS TRUST AND SAVINGS BANK
Trustee
-------------------------
INDENTURE
Dated as of December 29, 1997
-------------------------
$100,000,000
11% Senior Subordinated Notes due 2007
11% Series B Senior Subordinated Notes due 2007
================================================================================
<PAGE>
TUESDAY MORNING CORPORATION
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of December 29, 1997
-----------------------------------------------------
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
--------------- ---------
<S> <C>
(S) 310(a)(1)......................... 607
(a)(2)............................ 607
(b)............................... 608
(S) 312(c)............................ 701
(S) 314(a)............................ 703
(a)(4)............................ 1004
(c)(1)............................ 102
(c)(2)............................ 102
(e)............................... 102
(S) 315(b)............................ 601
(S) 316(a)(last sentence)............. 101 ("Outstanding")
(a)(1)(A)......................... 502, 512
(a)(1)(B)......................... 513
(b)............................... 508
(c)............................... 104(d)
(S) 317(a)(1)......................... 503
(a)(2)............................ 504
(b)............................... 1003
(S) 318(a)............................ 111
</TABLE>
____________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES....................................................................... 1
RECITALS OF THE COMPANY....................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions...................................................... 2
Acquired Indebtedness.......................................... 2
Act............................................................ 2
Affiliate...................................................... 2
Agent Bank..................................................... 3
Agent Members.................................................. 3
Asset Sale..................................................... 3
Authenticating Agent........................................... 3
Average Life................................................... 3
Bankruptcy Law................................................. 3
Board of Directors............................................. 4
Board Resolution............................................... 4
Business Day................................................... 4
Capital Stock.................................................. 4
Capitalized Lease Obligation................................... 4
Cash Equivalents............................................... 4
Certificate of Designation..................................... 5
Change in Control.............................................. 5
Commission..................................................... 6
Common Stock................................................... 6
Company........................................................ 6
Company Request" or "Company Order............................. 6
Consolidated Adjusted Net Income............................... 6
Consolidated Fixed Charge Coverage Ratio....................... 7
Consolidated Income Tax Expense................................ 7
Consolidated Interest Expense.................................. 7
Consolidated Non-Cash Charges.................................. 8
Corporate Trust Office......................................... 8
corporation.................................................... 8
Currency Agreements............................................ 8
Custodian...................................................... 8
Default........................................................ 8
Defaulted Interest............................................. 8
Depositary..................................................... 8
</TABLE>
<PAGE>
ii
<TABLE>
<S> <C>
Designated Senior Indebtedness................................. 8
Disinterested Director......................................... 8
Dollar" or "$.................................................. 9
Event of Default............................................... 9
Exchange Act................................................... 9
Exchange Debentures............................................ 9
Exchange Notes................................................. 9
Exchange Offer................................................. 9
Exchange Offer Registration Statement.......................... 9
Fair Market Value.............................................. 9
Generally Accepted Accounting Principles....................... 9
Global Notes................................................... 9
guarantee...................................................... 10
Guarantor Senior Indebtedness.................................. 10
Headquarters Facility.......................................... 10
Holder......................................................... 10
Indebtedness................................................... 10
Indenture...................................................... 11
Initial Notes.................................................. 11
Institutional Accredited Investor.............................. 11
Interest Payment Date.......................................... 11
Interest Rate Agreements....................................... 11
Investment..................................................... 12
Issuance Date.................................................. 12
Lien........................................................... 12
Management Stock............................................... 12
Maturity....................................................... 12
Moody's........................................................ 12
Net Cash Proceeds.............................................. 12
Non-Payment Default............................................ 13
Non-U.S. Person................................................ 13
Note Guarantee................................................. 13
Note Register" and "Note Registrar............................. 13
Notes.......................................................... 13
Officers' Certificate.......................................... 13
Offshore Global Note........................................... 13
Offshore Note Exchange Date.................................... 13
Offshore Physical Note......................................... 13
Opinion of Counsel............................................. 14
Outstanding.................................................... 14
Pari Passu Indebtedness........................................ 15
Paying Agent................................................... 15
Payment Blockage Period........................................ 15
Payment Default................................................ 15
Permitted Holders.............................................. 15
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C>
Permitted Indebtedness......................................... 15
Permitted Investments.......................................... 18
Permitted Junior Securities.................................... 18
Person......................................................... 18
Physical Notes................................................. 18
Place of Payment............................................... 19
Predecessor Note............................................... 19
Preferred Stock................................................ 19
Private Placement Legend....................................... 19
Public Equity Offering......................................... 19
Purchase Money Obligations..................................... 19
QIB............................................................ 19
Qualified Capital Stock........................................ 19
Redeemable Capital Stock....................................... 19
Redemption Date................................................ 20
Redemption Price............................................... 20
Registration Rights Agreement.................................. 20
Registration Statement......................................... 20
Regular Record Date............................................ 20
Regulation S................................................... 20
Representative................................................. 20
Responsible Officer............................................ 20
Restricted Subsidiary.......................................... 20
Rule 144A...................................................... 20
S&P............................................................ 20
Sale and Leaseback Transaction................................. 20
Securities Act................................................. 21
Senior Credit Agreement........................................ 21
Senior Exchangeable Preferred Stock............................ 21
Senior Indebtedness............................................ 21
Shelf Registration Statement................................... 22
Significant Subsidiary......................................... 22
Special Record Date............................................ 22
Stated Maturity................................................ 22
Subordinated Indebtedness...................................... 22
Subsidiary..................................................... 22
Subsidiary Guarantor........................................... 22
Trust Indenture Act" or "TIA................................... 22
Trustee........................................................ 22
United States.................................................. 23
Unrestricted Subsidiary........................................ 23
U.S. Global Note............................................... 23
U.S. Government Obligations.................................... 23
U.S. Physical Note............................................. 24
Vice President................................................. 24
</TABLE>
<PAGE>
iv
<TABLE>
<S> <C>
Voting Stock................................................... 24
SECTION 102. Compliance Certificates and Opinions............................. 24
SECTION 103. Form of Documents Delivered to Trustee........................... 25
SECTION 104. Acts of Holders.................................................. 25
SECTION 105. Notices, Etc., to Trustee, Company, any Subsidiary Guarantor
and Agent Bank................................................ 27
SECTION 106. Notice to Holders; Waiver........................................ 27
SECTION 107. Effect of Headings and Table of Contents......................... 28
SECTION 108. Successors and Assigns........................................... 28
SECTION 109. Separability Clause.............................................. 28
SECTION 110. Benefits of Indenture............................................ 28
SECTION 111. Governing Law.................................................... 28
SECTION 112. Legal Holidays................................................... 29
SECTION 113. Trust Indenture Act Controls..................................... 29
SECTION 114. No Recourse Against Others....................................... 29
SECTION 115. Counterparts..................................................... 29
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.................................................. 30
SECTION 202. Form of Trustee's Certificate of Authentication.................. 31
SECTION 203. Restrictive Legends.............................................. 31
SECTION 204. Form of Certificate to be Delivered After the Offshore Note
Exchange Date................................................. 34
ARTICLE THREE
THE NOTES
SECTION 301. Amount........................................................... 35
SECTION 302. Denominations.................................................... 36
SECTION 303. Execution, Authentication, Delivery and Dating................... 36
SECTION 304. Temporary Notes.................................................. 37
SECTION 305. Registration, Registration of Transfer and Exchange.............. 38
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes...................... 39
SECTION 307. Payment of Interest; Interest Rights Preserved................... 40
SECTION 308. Persons Deemed Owners............................................ 41
SECTION 309. Cancellation..................................................... 41
SECTION 310. Computation of Interest.......................................... 42
SECTION 311. Book-Entry Provisions for Global Notes........................... 42
SECTION 312. Transfer Provisions.............................................. 43
SECTION 313. Form of Accredited Investor Certificate.......................... 52
SECTION 314. Form of Regulation S Certificate................................. 55
</TABLE>
<PAGE>
v
<TABLE>
<S> <C>
SECTION 315. Form of Rule 144A Certificate.................................... 56
SECTION 316. CUSIP Numbers.................................................... 58
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.......................... 58
SECTION 402. Application of Trust Money....................................... 60
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default................................................ 60
SECTION 502. Acceleration of Maturity; Rescission and Annulment............... 62
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee....................................................... 63
SECTION 504. Trustee May File Proofs of Claim................................. 64
SECTION 505. Trustee May Enforce Claims Without Possession of Notes........... 65
SECTION 506. Application of Money Collected................................... 65
SECTION 507. Limitation on Suits.............................................. 66
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.......................................... 66
SECTION 509. Restoration of Rights and Remedies............................... 67
SECTION 510. Rights and Remedies Cumulative................................... 67
SECTION 511. Delay or Omission Not Waiver..................................... 67
SECTION 512. Control by Holders............................................... 67
SECTION 513. Waiver of Past Defaults.......................................... 68
SECTION 514. Waiver of Stay or Extension Laws................................. 68
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities............................. 69
SECTION 602. Notice of Defaults.............................................. 70
SECTION 603. Certain Rights of Trustee....................................... 70
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes....... 72
SECTION 605. May Hold Notes.................................................. 72
SECTION 606. Money Held in Trust............................................. 73
SECTION 607. Compensation and Reimbursement.................................. 73
SECTION 608. Corporate Trustee Required; Eligibility......................... 74
SECTION 609. Resignation and Removal; Appointment of Successor............... 74
SECTION 610. Acceptance of Appointment by Successor.......................... 76
SECTION 611. Merger, Conversion, Consolidation or Succession to Business..... 76
</TABLE>
<PAGE>
vi
<TABLE>
<S> <C>
SECTION 612. Appointment of Authenticating Agent............................. 77
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses.................. 78
SECTION 702. Disclosure of Names and Addresses of Holders.................... 79
SECTION 703. Reports by Trustee.............................................. 79
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms............ 79
SECTION 802. Subsidiary Guarantors May Consolidate, Etc., Only on Certain
Terms......................................................... 81
SECTION 803. Successor Substituted........................................... 81
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.............. 82
SECTION 902. Supplemental Indentures with Consent of Holders................. 83
SECTION 903. Execution of Supplemental Indentures............................ 84
SECTION 904. Effect of Supplemental Indentures............................... 84
SECTION 905. Conformity with Trust Indenture Act............................. 84
SECTION 906. Reference in Notes to Supplemental Indentures................... 85
SECTION 907. Notice of Supplemental Indentures............................... 85
SECTION 908. Effect on Senior Indebtedness................................... 85
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest............ 85
SECTION 1002. Maintenance of Office or Agency................................ 85
SECTION 1003. Money for Notes Payments to Be Held in Trust................... 86
SECTION 1004. Corporate Existence............................................ 87
SECTION 1005. Payment of Taxes and Other Claims.............................. 88
SECTION 1006. Maintenance of Properties...................................... 88
SECTION 1007. Statement by Officers as to Default............................ 88
SECTION 1008. Limitation on Indebtedness..................................... 89
SECTION 1009. Limitation on Restricted Payments.............................. 90
</TABLE>
<PAGE>
vii
<TABLE>
<S> <C>
SECTION 1010. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries....................................... 94
SECTION 1011. Limitation on Transactions with Affiliates..................... 94
SECTION 1012. Limitation on Liens............................................ 95
SECTION 1013. Purchase of Notes upon Change in Control....................... 95
SECTION 1014. Limitation on Sale of Assets................................... 97
SECTION 1015. Limitations on Guarantees of Indebtedness by Restricted
Subsidiaries.................................................. 99
SECTION 1016. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries............................. 100
SECTION 1017. Limitation on Sale and Leaseback Transactions.................. 100
SECTION 1018. Limitation on Other Senior Subordinated Indebtedness........... 101
SECTION 1019. Limitation on Unrestricted Subsidiaries........................ 101
SECTION 1020. Reports........................................................ 101
SECTION 1021. Waiver of Certain Covenants.................................... 102
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption..................................................... 102
SECTION 1102. Applicability of Article....................................... 102
SECTION 1103. Election to Redeem; Notice to Trustee.......................... 103
SECTION 1104. Selection by Trustee of Notes to Be Redeemed................... 103
SECTION 1105. Notice of Redemption........................................... 103
SECTION 1106. Deposit of Redemption Price.................................... 105
SECTION 1107. Notes Payable on Redemption Date............................... 105
SECTION 1108. Notes Redeemed in Part......................................... 105
ARTICLE TWELVE
SUBORDINATION OF NOTES
SECTION 1201. Notes Subordinate to Senior Indebtedness....................... 106
SECTION 1202. Payment over of Proceeds upon Dissolution, etc................. 106
SECTION 1203. Suspension of Payment When Designated Senior Indebtedness
in Default.................................................... 107
SECTION 1204. Payment Permitted If No Default................................ 108
SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness........ 109
SECTION 1206. Provisions Solely to Define Relative Rights.................... 109
SECTION 1207. Trustee to Effectuate Subordination............................ 109
SECTION 1208. No Waiver of Subordination Provisions.......................... 110
SECTION 1209. Distribution or Notice to Representative....................... 110
SECTION 1210. Notice to Trustee.............................................. 110
SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating
Agent......................................................... 111
</TABLE>
<PAGE>
viii
<TABLE>
<S> <C>
SECTION 1212. Rights of Trustee As a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.............................. 112
SECTION 1213. Article Applicable to Paying Agents............................ 112
SECTION 1214. No Suspension of Remedies...................................... 112
SECTION 1215. Trust Moneys Not Subordinated.................................. 112
SECTION 1216. Trustee Not Fiduciary for Holders of Senior Indebtedness....... 112
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Note Guarantees................................................ 113
SECTION 1302. Severability................................................... 115
SECTION 1303. Restricted Subsidiaries........................................ 115
SECTION 1304. Subordination of Note Guarantees............................... 115
SECTION 1305. Limitation of Subsidiary Guarantors' Liability................. 115
SECTION 1306. Contribution................................................... 116
SECTION 1307. Subrogation.................................................... 116
SECTION 1308. Reinstatement.................................................. 117
SECTION 1309. Release of a Subsidiary Guarantor.............................. 117
SECTION 1310. Benefits Acknowledged.......................................... 117
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Company's Option to Effect Defeasance or Covenant
Defeasance.................................................... 117
SECTION 1402. Defeasance and Discharge....................................... 118
SECTION 1403. Covenant Defeasance............................................ 118
SECTION 1404. Conditions to Defeasance or Covenant Defeasance................ 119
SECTION 1405. Deposited Money and Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions...................... 120
SECTION 1406. Reinstatement.................................................. 121
TESTIMONIUM................................................................... 117
SIGNATURES AND SEALS.......................................................... 117
EXHIBIT A - Form of Note
</TABLE>
<PAGE>
INDENTURE, dated as of December 29, 1997, among TUESDAY MORNING
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
14621 Inwood Road, Dallas, Texas 75244, and TMI HOLDINGS, INC., a Delaware
corporation, TUESDAY MORNING, INC., a Texas corporation, FRIDAY MORNING, INC., a
Texas corporation, and TMIL CORPORATION, a Delaware corporation (collectively,
the "Subsidiary Guarantors"), and HARRIS TRUST AND SAVINGS BANK, an Illinois
corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its
11% Senior Subordinated Notes due 2007 (the "Initial Notes"), and its 11% Series
B Senior Subordinated Notes due 2007 (the "Exchange Notes" and, together with
the Initial Notes, the "Notes"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Each Subsidiary Guarantor has duly authorized the guarantee of up to
$100,000,000 aggregate principal amount of the Initial Notes, and upon the
issuance of the Exchange Notes, if any, up to $100,000,000 aggregate principal
amount of the Exchange Notes and to provide therefor each Subsidiary Guarantor
has duly authorized the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness
of the Shelf Registration Statement (as defined herein), this Indenture will be
subject to, and shall be governed by the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of or deemed to be part of and
to govern the indentures qualified thereunder.
All things necessary have been done to make the Notes, when duly
executed and duly issued by the Company and authenticated and delivered
hereunder by the Trustee or the Authenticating Agent, the valid obligations of
the Company and to make this Indenture a valid agreement of the Company, in
accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles; and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person; provided that, for purposes of Section
1008, such Indebtedness shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Restricted Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or (c) any executive officer or director of any such specified Person or
other Person or (d) with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether
<PAGE>
3
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Bank" means Fleet National Bank in its capacity as administrative
agent under the Senior Credit Agreement and any future or successor or
replacement administrative agent under the Senior Credit Agreement.
"Agent Members" has the meaning specified in Section 311.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any Capital Stock
of any Restricted Subsidiary; (b) all or substantially all of the properties and
assets of the Company or its Restricted Subsidiaries; or (c) any other
properties or assets of any division or line of business of the Company or any
Restricted Subsidiary, other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (i) that is governed by the provisions of
Article Eight, (ii) between or among the Company and Restricted Subsidiaries in
accordance with the terms of this Indenture, (iii) that consist of accounts
receivable transferred to third parties that are not Affiliates of the Company
or any Subsidiary of the Company in the ordinary course of business, including
by way of the securitization of such receivables, (iv) of the Company or any
Restricted Subsidiary in exchange for properties or assets of substantially
equal value of another Person to be used in the same line of business being
conducted by the Company or any Restricted Subsidiary at the time of such
transfer having a Fair Market Value of less than $1.0 million in any given
fiscal year, (v) to an Unrestricted Subsidiary, if permitted under Section 1009,
(vi) consisting of the Headquarters Facility to third parties that are not
Affiliates of the Company or any Subsidiary of the Company or (vii) having a
Fair Market Value of less than $1.0 million in any given fiscal year.
"Authenticating Agent" means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate Notes.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
<PAGE>
4
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any duly authorized committee of such board.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day," when used with respect to any Place of Payment or any other
particular location referred to in this Indenture or in the Notes, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment or other location are authorized
or obligated by law, regulation or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participation, rights in or other equivalents
(however designated) of such Person's capital stock, and any rights (other than
debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP, and,
for the purpose of this Indenture, the amount of such obligation at any date
shall be the capitalized amount thereof at such date, determined in accordance
with GAAP.
"Cash Equivalents" means: (a) any evidence of Indebtedness with a maturity
of one year or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (b) certificates of deposit or acceptances with a maturity of one year
or less of any financial institution that is a member of the Federal Reserve
System having combined capital and surplus and undivided profits of not less
than $500 million; (c) commercial paper with a maturity of one year or less
issued by a corporation that is not an Affiliate of the Company and is organized
under the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or any successor rating agency or at least P-1 by
Moody's or any successor rating agency; (d) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clauses (a) and (b) above; and (e) demand and time deposits with a domestic
commercial bank that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million.
<PAGE>
5
"Certificate of Designation" means the certificate of designations,
preferences and rights of the Senior Exchangeable Preferred Stock filed with the
Secretary of State of the State of Delaware on December 29, 1997.
"Change in Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, 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 "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding Voting Stock of the
Company and either (x) the Permitted Holders beneficially own, directly or
indirectly, in the aggregate Voting Stock of the Company that represents a
lesser percentage of the aggregate ordinary voting power of all classes of the
Voting Stock of the Company, voting together as a single class, than such other
person or group and are not entitled (by voting power, contract or otherwise) to
elect directors of the Company having a majority of the total voting power of
the Board of Directors, or (y) such other person or group is entitled to elect
directors of the Company having a majority of the total voting power of the
Board of Directors; (b) the Company consolidates with, or merges with or into,
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction (i) where the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property (other than Capital Stock of the surviving or transferee
corporation) in an amount that could be paid by the Company as a Restricted
Payment as described under Section 1009 and (ii) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is 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 "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total outstanding Voting Stock of the surviving or transferee
corporation and either (x) the Permitted Holders beneficially own, directly or
indirectly, in the aggregate Voting Stock of the surviving or transferee
corporation that represents a lesser percentage of the aggregate ordinary voting
power of all classes of the Voting Stock of the surviving or transferee
corporation, voting together as a single class, than such other person or group
and are not entitled (by voting power, contract or otherwise) to elect directors
of the Surviving Entity having a majority of the total voting power of the Board
of Directors, or (y) such other person or group is entitled to elect directors
of the surviving or transferee having a majority of the total voting power of
the elected
<PAGE>
6
Board of Directors; or (c) during any consecutive two year period, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election to such Board of
Directors, or whose nomination for election by the stockholders of the Company,
was approved by a vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (d) the
Company is liquidated or dissolved or adopts a plan of liquidation or
dissolution other than in a transaction which complies with Article Eight.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated, whether voting or
non-voting) of such Person's common stock, whether outstanding on the Issuance
Date or issued after the Issuance Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, its Chief Operating Officer, its Chief
Financial Officer, any Vice President, its Treasurer or an Assistant Treasurer,
and delivered to the Trustee.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, (c) the portion of net income (or loss)
of any Person (other than the Company or a Restricted Subsidiary), including
Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has
an ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in cash
dividends or distributions during such period, (d) the net income (or loss) of
any Person combined with the Company or any Restricted Subsidiary on a "pooling
of interests" basis attributable to any period prior to the date of combination,
(e) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar
<PAGE>
7
distributions by such Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
stockholders, and (f) for purposes of calculating Consolidated Adjusted Net
Income under Section 1009, any net income (or loss) from any Restricted
Subsidiary while it was an Unrestricted Subsidiary at any time during such
period other than any amounts actually received from such Restricted Subsidiary
during such period.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Adjusted Net Income and, to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges, in each case, for such period to (b) the Consolidated Interest Expense
for such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and all Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
(1) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of Interest Rate Agreements (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) amortization of debt issuance costs, plus (b) the interest
component of Capitalized Lease Obligations of the Company and its Restricted
Subsidiaries during such period, plus (c) cash dividends due (whether or not
declared) on Preferred Stock by the Company and any Restricted Subsidiary, plus
(d) cash dividends due (whether or not declared) on Redeemable Capital Stock by
the Company and any Restricted Subsidiary, in each case as determined on a
consolidated basis in accordance with GAAP, less (2) interest on the Exchange
Debentures outstanding on the Exchange Date paid in kind with Exchange
Debentures and on Exchange Debentures so issued as payment in kind interest, all
in accordance with the Debenture Indenture as in effect on the Issuance Date;
provided that (x) the Consolidated Interest Expense attributable to interest on
any Indebtedness computed on a pro forma basis and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying at the option of the Company, either the fixed or
floating rate, and (y) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period; provided
further that, notwithstanding the foregoing, the interest rate with respect to
any Indebtedness covered by any Interest Rate Agreement shall be deemed to be
the effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.
<PAGE>
8
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization, depletion and other non-cash expenses of the Company
and any Restricted Subsidiary reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge that requires an accrual of or reserve for cash charges
for any future period).
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office on the date of execution of this Indenture is located
at 311 West Monroe Street, Chicago, Illinois 60606.
"corporation" includes corporations, associations, companies and business
trusts.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and designed to protect against or manage
exposure to fluctuations in foreign currency exchange rates.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Senior Credit Agreement and (ii) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding of at least
$25,000,000 and that has been specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the
Company.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
<PAGE>
9
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Exchange Debentures" means the 13 1/4% Subordinated Exchange Debentures
due 2009 of the Company issuable in exchange for the Senior Exchangeable
Preferred Stock, plus any additional Exchange Debentures issued in lieu of cash
interest, pursuant to the Exchange Indenture as in effect on the Issuance Date.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act, and (ii) certain provisions relating to an increase in
the stated rate of interest thereon shall be eliminated) that are issued and
exchanged for the Initial Notes in accordance with the Exchange Offer, as
provided for in the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of this Indenture.
"Global Notes" has the meaning set forth in Section 201.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including, without limiting the foregoing, the payment
of amounts drawn down by letters of credit.
<PAGE>
10
"Guarantor Senior Indebtedness" of a Subsidiary Guarantor means
Indebtedness of such Subsidiary Guarantor consisting of (i) a guarantee of any
Senior Indebtedness under the Senior Credit Agreement or any other Senior
Indebtedness and (ii) the principal of, premium, if any, and interest on all
other Indebtedness of such Subsidiary Guarantor (other than the Note Guarantee
issued by such Subsidiary Guarantor), whether outstanding on the date of this
Indenture or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
indebtedness shall not be senior in right of payment to such Note Guarantee.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" of a Subsidiary
Guarantor shall not include (i) Indebtedness evidenced by the Note Guarantee of
such Subsidiary Guarantor, (ii) Indebtedness of such Subsidiary Guarantor that
is expressly subordinated in right of payment to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor, (iii) Indebtedness of such Subsidiary
Guarantor that by operation of law is subordinate to any general unsecured
obligations of such Subsidiary Guarantor, (iv) Indebtedness of such Subsidiary
Guarantor to the extent incurred in violation of any covenant of this Indenture,
(v) any liability for federal, state or local taxes or other taxes, owed or
owing by such Subsidiary Guarantor, (vi) trade account payables owed or owing by
such Subsidiary Guarantor, (vii) amounts owed by such Subsidiary Guarantor for
compensation to employees or for services rendered to such Subsidiary Guarantor,
(viii) Indebtedness of such Subsidiary Guarantor to any Affiliate of the
Company, (ix) Redeemable Capital Stock of such Subsidiary Guarantor and (x)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to
such Subsidiary Guarantor or any Subsidiary.
"Headquarters Facility" means the headquarters facility and warehouse of
the Company as of the Issuance Date located in Dallas, Texas.
"Holder" means the Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the ordinary course
of business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade payables arising in the ordinary course of business, (d) all Capitalized
Lease Obligations of such Person, (e) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements, (f) all Indebtedness
referred to in (but not excluded from) the preceding clauses of other Persons
and all dividends of other Persons, the payment of which
<PAGE>
11
is secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or with respect
to property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (g) all guarantees by such Person of Indebtedness
referred to in this definition of any other Person, and (h) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Notes" has the meaning specified in the recitals to this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act.
"Interest Payment Date," when used with respect to any Note, means the
Stated Maturity of an installment of interest on such Note.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
designed to protect against or manage exposure to fluctuations in interest
rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued or owned by,
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP. In addition, the fair market
value of the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed
to be an "Investment" made by the Company in such Unrestricted Subsidiary at
<PAGE>
12
such time. "Investments" shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Issuance Date" means the closing date for the sale and original issuance
of Notes hereunder.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Management Stock" means the Capital Stock of the Company and the options
to acquire Capital Stock of the Company owned by Lloyd L. Ross and Jerry M.
Smith as of the Issuance Date together with Preferred Stock issued as payment in
kind dividends on such Preferred Stock and any shares of Preferred Stock issued
as payment in kind dividends thereon, and such dividends made pursuant to the
terms of the certificate of designation or the certificate of incorporation, as
the case may be, for such Preferred Stock as in effect on the Issuance Date.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and (v) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification
<PAGE>
13
obligations associated with such Asset Sale, all as reflected in an Officers'
Certificate delivered to the Trustee.
"Non-Payment Default" means any event of default (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Non-U.S. Person" means a person who is not a U.S. person as defined in
Regulation S.
"Note Guarantee" means any guarantee of the obligations of the Company
under the Indenture and the Notes by any Restricted Subsidiary in accordance
with the provisions of the Indenture.
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 305.
"Notes" has the meaning stated in the first recital of this Indenture and
more particularly means any Notes authenticated and delivered under this
Indenture.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Offshore Global Note" has the meaning set forth in Section 201.
"Offshore Note Exchange Date" has the meaning set forth in Section 201.
"Offshore Physical Note" has the meaning set forth in Section 201.
"Opinion of Counsel" means a written opinion of legal counsel, which and
who may be counsel for the Company, including an employee of the Company, and
who shall be reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption or
repayment at the option of the Holder money in the necessary amount has
been theretofore deposited
<PAGE>
14
with the Trustee or any Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such Notes; provided that, if
such Notes are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Notes, except to the extent provided in Sections 1402 and 1403,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Fourteen; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands such
Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor shall be disregarded and deemed not to be Outstanding
(provided that in connection with any offer by the Company or any obligor to
purchase the Notes, Notes tendered for purchase will be deemed to be Outstanding
and held by the tendering Holder until the date of purchase), except that, in
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Notes so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right to act with
respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or such other obligor.
"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness
that ranks pari passu in right of payment to the Notes and (b) with respect to
any Note Guarantee, Indebtedness that ranks pari passu in right of payment to
such Note Guarantee.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (or premium, if any,
on) or interest on any Notes on behalf of the Company.
"Payment Blockage Period" has the meaning specified in Section 1203.
<PAGE>
15
"Payment Default" means any default in the payment (whether at stated
maturity, upon scheduled installment, by acceleration or otherwise) of principal
of, or premium, if any, or interest on Designated Senior Indebtedness.
"Permitted Holders" means, as of the date of determination, Madison
Dearborn Capital Partners II, L.P. and its Affiliates.
"Permitted Indebtedness" means any of the following:
(a) (i) Indebtedness of the Company under the Senior Credit Agreement
in an aggregate principal amount at any one time outstanding not to exceed
the sum of (A) $110 million less the amount of any permanent reductions
made by the Company in respect of any term loans under the Senior Credit
Agreement and (B) with respect to revolving borrowings, the greater of (1)
$115 million and (2) 60% of the Eligible Inventory (as defined in the
Senior Credit Agreement on the Issuance Date) of the Company and the
Restricted Subsidiaries and (ii) any guarantee by a Subsidiary Guarantor of
Indebtedness incurred under this clause (a);
(b) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a Note Guarantee;
(c) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of this Indenture and listed on Schedule A;
(d) Indebtedness of the Company owing to any wholly owned Restricted
Subsidiary; provided that any Indebtedness of the Company owing to any such
Restricted Subsidiary is subordinated in right of payment from and after
such time as the Notes shall become due and payable (whether at Stated
Maturity, acceleration or otherwise) to the payment and performance of the
Company's obligations under such Notes; provided further that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to the Company or another wholly
owned Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the Company not permitted by this clause (d);
(e) Indebtedness of a Restricted Subsidiary owing to the Company or
to another wholly owned Restricted Subsidiary; provided that any such
Indebtedness of any Subsidiary Guarantor is subordinated in right of
payment to the Note Guarantee of such Subsidiary Guarantor; provided
further that any disposition, pledge or transfer of any such Indebtedness
to a Person (other than a disposition, pledge or transfer to the Company or
a wholly owned Restricted Subsidiary) shall be deemed to be an incurrence
of such Indebtedness by such Restricted Subsidiary not permitted by this
clause (e);
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16
(f) guarantees of any Restricted Subsidiary made in accordance with
the provisions of Section 1015;
(g) obligations of the Company or any Subsidiary Guarantor entered
into in the ordinary course of business (i) pursuant to Interest Rate
Agreements designed to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates in respect of Indebtedness of the
Company or any Restricted Subsidiary, which obligations do not exceed the
aggregate principal amount of such Indebtedness and (ii) pursuant to
Currency Agreements entered into by the Company or any of its Restricted
Subsidiaries in respect of its (x) assets or (y) obligations, as the case
may be, denominated in a foreign currency;
(h) Indebtedness of the Company or any Subsidiary Guarantor in
respect of Purchase Money Obligations and Capitalized Lease Obligations of
the Company or any Subsidiary Guarantor in an aggregate amount which does
not exceed $15,000,000 at any one time outstanding;
(i) Indebtedness of the Company or any Subsidiary Guarantor
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock of
Restricted Subsidiaries;
(j) Indebtedness of the Company or any Subsidiary Guarantor
represented by (x) letters of credit for the account of the Company or any
Restricted Subsidiary or (y) other obligations to reimburse third parties
pursuant to any surety bond or other similar arrangements, which letters of
credit or other obligations, as the case may be, are intended to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or other similar requirements in the
ordinary course of business;
(k) Acquired Indebtedness of any Restricted Subsidiary that is
organized outside of the United States of America in an aggregate amount
which, together with any Indebtedness permitted to be incurred pursuant to
this clause (k) and refinanced pursuant to clause (p) below, does not
exceed $10,000,000 at any one time outstanding;
(l) Indebtedness of the Company owing to Jerry M. Smith, under a note
issued pursuant to a written agreement between the Company and Jerry M.
Smith as in effect on the Issuance Date, in consideration for the
repurchase of Common Stock of the Company owned by Jerry M. Smith at his
retirement, in an aggregate amount not to exceed $15,000,000 outstanding at
any time;
(m) Preferred Stock issued as payment in kind dividends on Preferred
Stock outstanding on the Issuance Date and any shares of Preferred Stock
issued as payment in kind dividends thereon, such dividends made pursuant
to the terms of the certificate of
<PAGE>
17
designation for such Preferred Stock or the certificate of incorporation,
as the case may be, as in effect on the Issuance Date;
(n) Indebtedness of the Company or a Subsidiary Guarantor incurred in
connection with the Company's Headquarters Facility or the purchase or
construction of a new headquarters facility, in each case, as permitted
under the Senior Credit Agreement as in effect on the Issuance Date;
(o) Indebtedness of the Company or any Subsidiary Guarantor not
otherwise permitted by the foregoing clauses (a) through (n) in an
aggregate principal amount not in excess of $20,000,000 at any one time
outstanding; and
(p) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
Indebtedness, referred to in clauses (b), (c) and (k) of this definition,
including any successive refinancings, so long as (i) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined as necessary to accomplish such refinancing, (ii) in
the case of any refinancing by the Company of Pari Passu Indebtedness or
Subordinated Indebtedness, such new Indebtedness is made pari passu with or
subordinate to the Notes at least to the same extent as the Indebtedness
being refinanced, (iii) in the case of any refinancing by any Subsidiary
Guarantor of Pari Passu Indebtedness or Subordinated Indebtedness, such new
Indebtedness is made pari passu with or subordinate to the Note Guarantee
of such Subsidiary Guarantor at least to the same extent as the
Indebtedness being refinanced, (iv) such new Indebtedness has an Average
Life longer than the Average Life of the Notes and a final Stated Maturity
later than the final Stated Maturity of the Notes and (v) Indebtedness of
the Company or a Subsidiary Guarantor may only be refinanced with
Indebtedness of the Company or a Subsidiary Guarantor and Indebtedness of a
Restricted Subsidiary that is not a Subsidiary Guarantor may only be
refinanced with Indebtedness of such Restricted Subsidiary.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any wholly owned Restricted
Subsidiary;
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18
(c) intercompany Indebtedness to the extent permitted under clause
(d) or (e) of the definition of "Permitted Indebtedness;"
(d) Investments in an amount not to exceed $10,000,000 at any one
time outstanding;
(e) Investments by the Company or any Restricted Subsidiary in
another Person, if as a result of such Investment (i) such other Person
becomes a wholly owned Restricted Subsidiary or (ii) such Person, in one
transaction or a series of related transactions, is merged or consolidated
with or into, or transfers or conveys all or substantially all of its
assets to, the Company or a wholly owned Restricted Subsidiary;
(f) bonds, notes, debentures and other securities received as
consideration for Assets Sales to the extent permitted under Section 1014;
(g) negotiable instruments held for deposit or collection in the
ordinary course of business, except to the extent they would constitute
Investments in Affiliates; or
(h) Investments in the form of the sale (on a "true-sale" non-
recourse basis) or the servicing of receivables transferred from the
Company or any Restricted Subsidiary.
"Permitted Junior Securities" has the meaning specified in Section 1202.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Notes" has the meaning set forth in Section 201.
"Place of Payment" means the office or agency maintained by the Company
where the principal of (and premium, if any, on) and interest on the Notes are
payable as specified in Section 1002.
"Predecessor Note" of any particular Note, means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference
<PAGE>
19
stock whether now outstanding, or issued after the Issuance Date, and including,
without limitation, all classes and series of preferred or preference stock of
such Person.
"Private Placement Legend" has the meaning set forth in Section 203.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Capital Stock) of the Company made on a primary basis by the Company
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than a registration statement
on Form S-8 or otherwise relating to equity securities issuable under any
employee benefit plan of the Company).
"Purchase Money Obligations" means, with respect to any Person,
obligations, other than Capitalized Lease Obligations, incurred or assumed in
the ordinary course of business in connection with the purchase of property to
be used in the business of such Person within 90 days of such purchase, provided
that the amount of any Purchase Money Obligation shall not exceed the purchase
price of the property purchased.
"QIB" means a "Qualified Institutional Buyer" within the meaning of Rule
144A under the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.
"Redemption Date," when used with respect to any Note to be redeemed, in
whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of December 29, 1997, among the Company, the Subsidiary Guarantors and
the Holders of Initial Notes.
"Registration Statement" means the Registration Statement as defined in the
Registration Rights Agreement.
<PAGE>
20
"Regular Record Date" has the meaning specified in Section 301.
"Regulation S" means Regulation S under the Securities Act.
"Representative" means (i) with respect to the Senior Credit Agreement, the
Agent Bank and (ii) with respect to any other Senior Indebtedness, the indenture
trustee or other trustee, agent or representative for the holders of such Senior
Indebtedness.
"Responsible Officer," when used with respect to the Trustee, means any
vice president, any assistant secretary, any assistant treasurer, any trust
officer or assistant trust officer, or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above-
designated officers, and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
or her knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing of such property
or asset to the seller or transferor.
"Securities Act" means Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Credit Agreement" means the credit agreement dated as of December
29, 1997, among the Company, the several lenders parties thereto, the Subsidiary
Guarantors, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as arranger and syndication agent, and Fleet National Bank, as
administrative agent, as such agreement may be amended, renewed, extended,
substituted, restated, refinanced, restructured, supplemented, increased or
otherwise modified from time to time (including, without limitation, any
successive amendments, renewals, extensions, substitutions, restatements,
refinancings, restructurings, supplements or other modifications of the
foregoing); provided that with respect to any agreement providing for the
refinancing of Indebtedness under the Senior Credit Agreement, such agreement
shall be the Senior Credit Agreement under the Indenture only if a notice to
that effect is delivered by the
<PAGE>
21
Company to the Trustee and there shall be at any time only one instrument that
is the Senior Credit Agreement under the Indenture.
"Senior Exchangeable Preferred Stock" means the 13 1/4% Senior Exchangeable
Preferred Stock issued by the Company on the Issuance Date and any shares of
Senior Exchangeable Preferred Stock issued as payment in kind dividends thereon
or on shares of Senior Exchangeable Preferred Stock so issued as payment in kind
dividends pursuant to the Certificate of Designation as in effect on the
Issuance Date.
"Senior Indebtedness" means (i) all obligations of the Company, now or
hereafter existing, under or in respect of the Senior Credit Agreement, whether
for principal, premium, if any, interest (including, interest accruing after the
filing of, or which would have accrued but for the filing of, a petition by or
against the Company under Bankruptcy Law, whether or not such interest is
allowed as a claim after such filing in any proceeding under such law) and other
amounts due in connection therewith (including any fees, premiums, expenses and
indemnities) and (ii) the principal of, premium, if any, and interest on all
other Indebtedness of the Company (other than the Notes), whether outstanding on
the date of this Indenture or thereafter created, incurred or assumed, unless,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(i) Indebtedness evidenced by the Notes, (ii) Indebtedness of the Company that
is expressly subordinated in right of payment to any Senior Indebtedness of the
Company or the Notes, (iii) Indebtedness of the Company that by operation of law
is subordinate to any general unsecured obligations of the Company, (iv)
Indebtedness of the Company to the extent incurred in violation of Section 1008,
(v) any liability for federal, state or local taxes or other taxes, owed or
owing by the Company, (vi) trade account payables owed or owing by the Company,
(vii) amounts owed by the Company for compensation to employees or for services
rendered to the Company, (viii) Indebtedness of the Company to any Restricted
Subsidiary or any other Affiliate of the Company, (ix) Redeemable Capital Stock
of the Company and (x) Indebtedness which when incurred and without respect to
any election under Section 1111(b) of Title 11 of the United States Code is
without recourse to the Company or any Restricted Subsidiary.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (i) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated revenues of the Company
and its Restricted Subsidiaries or (ii) as of the end of such fiscal year, was
the owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year.
<PAGE>
22
"Special Record Date" for the payment of any Defaulted Interest on the
Notes means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Notes or the Note Guarantee of such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
"Subsidiary Guarantor" means each of TMI Holdings Inc., Tuesday Morning
Inc., Friday Morning, Inc. and TMIL Corporation and any Restricted Subsidiary
that incurs a Note Guarantee; provided that, upon the release and discharge of
any Person from its Note Guarantee in accordance with the Indenture, such Person
shall cease to be a Subsidiary Guarantor.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which this Indenture was executed, except as provided in
Section 905.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder.
"United States" means the United States of America (including the states
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Company, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary; provided, however, that in no event shall any
Subsidiary Guarantor be an Unrestricted Subsidiary. The Board of Directors of
the Company may designate any Subsidiary (including any newly acquired or newly
formed Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the
Company nor any Restricted Subsidiary is directly or indirectly liable for any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
<PAGE>
23
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1019, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
Persons who are not Affiliates of the Company, and (v) neither the Company nor
any Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing a board resolution with the Trustee giving effect to such designation.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
as a Restricted Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under this Indenture
and the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 1008.
"U.S. Global Note" has the meaning set forth in Section 201.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"U.S. Physical Note" has the meaning set forth in Section 201.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
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24
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company, the Subsidiary
Guarantors and any other obligor on the Notes (if applicable) shall, at the
request of the Trustee, furnish to the Trustee an Officers' Certificate in form
and substance reasonably acceptable to the Trustee stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and, at the request of the Trustee, an
Opinion of Counsel to the effect that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of any such
documents is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or opinion
need be furnished.
Each certificate or opinion with respect to compliance with a covenant
or condition provided for in this Indenture (other than pursuant to Section
1007) shall include:
(1) a statement that each individual or firm signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(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 each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him or it 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 each such
individual or such firm, such covenant or condition has been complied with.
<PAGE>
25
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Subsidiary Guarantor or other obligor on the Notes may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his or her certificate or opinion is based are erroneous.
Any such certificate or Opinion of Counsel may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company, any Subsidiary Guarantor or other obligor on
the Notes stating that the information with respect to such factual matters is
in the possession of the Company, any Subsidiary Guarantor or other obligor on
the Notes, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing. Except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the
<PAGE>
26
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company or
any Subsidiary Guarantor in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 105. Notices, Etc., to Trustee, Company, any Subsidiary
--------------------------------------------------
Guarantor and Agent Bank.
- ------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other documents provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
<PAGE>
27
(1) the Trustee by any Holder or by the Company or any Subsidiary
Guarantor or any other obligor on the Notes shall be sufficient for every
purpose hereunder if made, given, furnished or delivered in writing and
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to or with the Trustee at its Corporate Trust Office, Attention:
Indenture Trust Division/J. Bartolini, or
(2) the Company or any Subsidiary Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if made, given, furnished or delivered in
writing, or mailed, first-class postage prepaid, or delivered by recognized
overnight courier, to the Company or such Subsidiary Guarantor addressed to
it at the address of its principal office, for the attention of the Chief
Financial Officer, specified in the first paragraph of this Indenture or at
any other address previously furnished in writing to the Trustee by the
Company or such Subsidiary Guarantor, or
(3) the Agent Bank by the Company or any Subsidiary Guarantor, the
Trustee or any Holder shall be sufficient for any purpose hereunder if
made, given, furnished or delivered in writing to or with the Agent Bank
addressed to it as set forth in the Senior Credit Agreement, or at any
other address previously furnished in writing to the Company, the
Subsidiary Guarantors and the Trustee by the Agent Bank.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders of
Notes by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed, first-
class postage prepaid, to each such Holder affected by such event, at its
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice.
In any case where notice to Holders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders. Any notice mailed to a Holder in the manner herein prescribed shall be
conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice.
In case, by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impractical to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be sufficient giving of
such notice for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such
<PAGE>
28
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in any Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Authenticating Agent, any
Paying Agent, any Notes Registrar and their successors hereunder and the Holders
and, with respect to any provisions hereof relating to the subordination of the
Notes or the rights of holders of Senior Indebtedness, the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of New York. Upon the effectiveness of the
Shelf Registration Statement or the consummation of the Exchange Offer, this
Indenture will be subject to the provisions of the Trust Indenture Act that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, or
Stated Maturity or Maturity of any Note shall not be a Business Day at any Place
of Payment, then (notwithstanding any other provision of this Indenture or of
any Note) payment of principal (and
<PAGE>
29
premium, if any) or interest need not be made at such Place of Payment on such
date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date
or Redemption Date or at the Stated Maturity or Maturity; provided that no
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date, Stated Maturity or Maturity, as the case may be.
SECTION 113. 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 provision required by the TIA shall control. If any provision of this
Indenture modifies or excludes any provision of the TIA that may be so modified
or excluded, the latter provision shall be deemed to apply to this Indenture as
so modified or excluded, as the case may be.
SECTION 114. No Recourse Against Others.
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or such Subsidiary Guarantor under the Notes, any Note Guarantee or
this Indenture, as applicable, or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Note and the
related Note Guarantee, each Holder shall waive and release all such liability.
The waiver and release shall be part of the consideration for the issue of the
Notes and the Note Guarantees.
SECTION 115. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each of
which shall be original; but such counterparts shall together constitute but one
and the same instrument.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
---------------
The Initial Notes shall be known as the "11% Senior Subordinated Notes
due 2007" and the Exchange Notes shall be known as the "11% Series B Senior
Subordinated Notes due 2007," in each case, of the Company. The Notes and the
Trustee's certificate of authentication shall be in substantially the forms set
forth in Exhibit A hereto and in this Article, respectively, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification
<PAGE>
30
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers of the Company executing such Notes, as evidenced by
their execution of the Notes. Any portion of the text of any Note may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Note. Each Note shall be dated the date of its authentication.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
Initial Notes offered and sold in reliance on Rule 144A under the
Securities Act shall be issued initially in the form of a single permanent
global Note in substantially the form set forth in Exhibit A and contain each of
the legends set forth in Section 203 (the "U.S. Global Note"), registered in the
name of the nominee of the Depositary, deposited with the Trustee, as custodian
for the Depositary or its nominee, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Note may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, as hereinafter provided.
Initial Notes offered and sold in offshore transactions in reliance on
Regulation S under the Securities Act shall be issued initially in the form of a
single temporary global Note in substantially the form set forth in Exhibit A
and contain the legends set forth in Section 203 (the "Temporary Offshore Global
Note"), registered in the name of the nominee of the Depositary, deposited with
the Trustee, as custodian for the Depositary or its nominee, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. At any
time following 41 days after the date hereof (the "Offshore Note Exchange
Date"), upon receipt by the Trustee and the Company of a certificate
substantially in the form set forth in Section 204, a single permanent global
Note substantially in the form of Exhibit A hereto (the "Permanent Offshore
Global Note"; and together with the Temporary Offshore Global Note, the
"Offshore Global Note") duly executed by the Company and authenticated by the
Trustee as hereinafter provided shall be deposited with the Trustee, as
custodian for the Depositary, and the Note Registrar shall reflect on its books
and records the date and a decrease in the principal amount of the Temporary
Offshore Global Note in an amount equal to the principal amount of the
beneficial interest in the Temporary Offshore Global Note transferred. The
aggregate principal amount of the Offshore Global Note may from time to time be
increased or decreased by adjustments made in the records of the Trustee, as
custodian for the Depositary or its nominee, as herein provided. Initial Notes
issued pursuant to Section 305 in exchange for or upon transfer of beneficial
interests in the U.S. Global Note or the Offshore Global Note shall be in the
form of U.S. Physical Notes or in the form of permanent certificated Notes
substantially in the form set forth in Exhibit A (the "Offshore Physical
Notes"), respectively, as hereinafter provided.
<PAGE>
31
Initial Notes which are offered and sold to Institutional Accredited
Investors which are not QIBs (excluding Non-U.S. Persons) shall be issued in the
form of permanent certificated Notes in substantially the form set forth in
Exhibit A and contain the Private Placement Legend as set forth in Section 203
(the "U.S. Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes." The U.S. Global Note
and the Offshore Global Note are sometimes collectively referred to as the
"Global Notes."
Exchange Notes shall be issued substantially in the form set forth in
Exhibit A.
SECTION 202. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
Subject to Section 611, the Trustee's certificate of authentication
shall be in substantially the following form:
This is one of the Notes referred to in the within-mentioned
Indenture.
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Dated: __________ By: ____________________
Authorized Signatory
SECTION 203. Restrictive Legends.
-------------------
Unless and until (i) an Initial Note is sold pursuant to an effective
Shelf Registration Statement or (ii) an Initial Note is exchanged for an
Exchange Note in an Exchange Offer pursuant to an effective Exchange Offer
Registration Statement, in each case pursuant to the Registration Rights
Agreement, (A) each U.S. Global Note and U.S. Physical Note shall bear the
following legend set forth below (the "Private Placement Legend") on the face
thereof and (B) the Offshore Physical Notes and the Temporary Offshore Global
Note shall bear the Private Placement Legend on the face thereof until the
Offshore Note Exchange Date and receipt by the Company and the Trustee of a
certificate substantially in the form provided in Section 204:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
THE REGISTRATION
<PAGE>
32
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR
(B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE
TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2) AGREES THAT
IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT AND ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR AND THIS SECURITY) AND THE LAST DAY ON WHICH
THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS
MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION
DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG
AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE
UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT,
PURSUANT TO RULE 904 OF REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED
THAT THE COMPANY, THE TRUSTEE, THE TRANSFER AGENT AND THE REGISTRAR SHALL
HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
(II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE
<PAGE>
33
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Global Note, whether or not an Initial Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 311 AND 312 OF THE INDENTURE.
SECTION 204. Form of Certificate to be Delivered After the Offshore
------------------------------------------------------
Note Exchange Date.
- ------------------
On or after February 8, 1998
HARRIS TRUST AND SAVINGS BANK
311 West Monroe Street
Chicago, IL 60606
Attention: Indenture Trust Division/J. Bartolini
Re: TUESDAY MORNING CORPORATION (the "Company")
11% Senior Subordinated Notes due 2007 (the "Notes")
----------------------------------------------------
Ladies and Gentlemen:
This letter relates to $_______________ principal amount of Notes
represented by the temporary offshore global note certificate (the "Temporary
Offshore Global Note"). Pursuant to Section [201] [203] of the Indenture dated
as of December 29, 1997 (the "Indenture") relating to
<PAGE>
34
the Notes, we hereby certify that (1) we are the beneficial owner of such
principal amount of Notes represented by the Temporary Offshore Global Note and
(2) we are a Non-U.S. Person to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the Securities Act of
1933, as amended (the "Regulation S"). [Accordingly, you are hereby requested to
exchange the Temporary Offshore Global Note for an unlegended Permanent Offshore
Global Note representing the undersigned's interest in the principal amount of
Notes represented by the Temporary Offshore Global Note, all in the manner
provided for in the Indenture.] [Accordingly, you are hereby requested to issue
an Offshore Physical Note representing the undersigned's interest in the
principal amount of Notes represented by the Temporary Offshore Global Note, all
in the manner provided by the Indenture.]
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:__________________________
Authorized Signature
ARTICLE THREE
THE NOTES
SECTION 301. Amount.
------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $100,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 303, 304, 305, 306, 311,
312, 906, 1013, 1014 or 1108 or pursuant to an Exchange Offer.
The Initial Notes shall be known and designated as the "11% Senior
Subordinated Notes due 2007" and the Exchange Notes shall be known and
designated as the "11% Series B Senior Subordinated Notes due 2007," in each
case, of the Company. The Stated Maturity of the Notes shall be December 15,
2007, and they shall bear interest at the rate of 11% per annum from December
29, 1997, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable on June 15, 1998 and semi-annually
thereafter on June 15 and
<PAGE>
35
December 15 in each year, until the principal thereof is paid in full and to the
Person in whose name the Note (or any predecessor Note) is registered at the
close of business on the June 1 or December 1 immediately preceding such
Interest Payment Date (each, a "Regular Record Date"). Interest will be computed
on the Notes as specified in Section 310 hereof.
The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that, at the option of the
Company, interest may be paid (a) by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register or (b) by
wire transfer to an account located in the United States maintained by the
payee.
Holders shall have the right to require the Company to purchase their
Notes, in whole or in part, in the event of a Change in Control pursuant to
Section 1013. The Notes shall be subject to repurchase pursuant to an Excess
Proceeds Offer as provided in Section 1014.
The Notes shall be redeemable as provided in Article Eleven and in the
Notes. The Indebtedness evidenced by the Notes shall be subordinated in right
of payment to Senior Indebtedness as provided in Article Twelve. The due and
punctual payment of principal of, and premium, if any, and interest on the Notes
payable by the Company is irrevocably and unconditionally guaranteed, to the
extent set forth herein, by each of the Subsidiary Guarantors. The Note
Guarantee issued by any Subsidiary Guarantor will be subordinated to all
existing and future Guarantor Senior Indebtedness of such Subsidiary Guarantor
as provided in Article 12.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, its President, its Chief Operating
Officer, its Chief Financial Officer or a Vice President. The signature of any
of these officers on the Notes may be the manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
<PAGE>
36
On Company Order, the Trustee shall authenticate for original issue
Initial Notes in an aggregate principal amount not to exceed $100,000,000. On
Company Order, the Trustee shall authenticate for original issue Exchange Notes
in an aggregate principal amount not to exceed $100,000,000; provided that such
Exchange Notes shall be issuable only upon the valid surrender for cancellation
of Initial Notes of a like aggregate principal amount in accordance with an
Exchange Offer pursuant to the Registration Rights Agreement. In each case, the
Trustee shall be entitled to receive an Officers' Certificate and an Opinion of
Counsel of the Company that it may reasonably request in connection with such
authentication of Notes. Such order shall specify the amount of Notes to be
authenticated and the date on which the original issue of Notes is to be
authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company or any Subsidiary Guarantor, pursuant to Article
Eight, shall be consolidated or merged with or into any other Person or shall
convey, transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company or
such Subsidiary Guarantor shall have been merged, or the Person which shall have
received a conveyance, transfer, lease or other disposition as aforesaid, shall
have executed an indenture supplemental hereto with the Trustee pursuant to
Article Eight, any of the Notes authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Notes surrendered for such exchange and of like principal amount;
and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Notes as specified in such request for the purpose of
such exchange. If Notes shall at any time be authenticated and delivered in any
new name of a successor Person pursuant to this Section 303 in exchange or
substitution for or upon registration of transfer of any Notes, such successor
Person, at the option of the Holders but without expense to them, shall provide
for the exchange of all Notes at the time Outstanding for Notes authenticated
and delivered in such new name.
<PAGE>
37
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their execution
of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes, upon
surrender of the temporary Notes at the office or agency of the Company in a
Place of Payment, without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Notes, the Company shall execute and, upon Company
Order, the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register for the Notes (the register maintained in the Corporate
Trust Office of the Trustee and in any other office or agency of the Company in
a Place of Payment being herein sometimes collectively referred to as the "Note
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Notes and of transfers of
Notes. The Note Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. At all reasonable
times, the Note Register shall be open to inspection by the Trustee. The Trustee
is hereby initially appointed as note registrar (the Trustee in such capacity,
together with any successor of the Trustee in such capacity, the "Note
Registrar") for the purpose of registering Notes and transfers of Notes as
herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency in a Place of Payment, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes, of any authorized denomination or
denominations and of a like aggregate principal amount and tenor.
At the option of the Holder, Notes may be exchanged for other Notes,
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange (including an exchange of Initial Notes
for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled
<PAGE>
38
to receive; provided that no exchange of Initial Notes for Exchange Notes shall
occur until an Exchange Offer Registration Statement shall have been declared
effective by the Commission, the Trustee shall have received an Officers'
Certificate confirming that the Exchange Offer Registration Statement has been
declared effective by the Commission and the Initial Notes to be exchanged for
the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 303, 304, 906, 1013, 1014 or 1108 not involving
any transfer.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding, or, in case any such mutilated Note has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Note, pay such Note.
If there shall be delivered to the Company, any Subsidiary Guarantor
and to the Trustee (i) evidence to their satisfaction of the destruction, loss
or theft of any Note and (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company, any Subsidiary Guarantor or the Trustee that
such Note has been acquired by a bona fide purchaser, the Company shall execute
and upon Company Order the Trustee shall authenticate and deliver, in lieu of
any such destroyed, lost or stolen Note, a new Note of like tenor and principal
amount and bearing a number not contemporaneously outstanding, or, in case any
such destroyed, lost or stolen Note has become or is about to become due and
payable, the Company in its discretion may, instead of issuing a new Note, pay
such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be
<PAGE>
39
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) in connection therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note, shall constitute an original
additional contractual obligation of the Company, any Subsidiary Guarantor and
any other obligor upon the Notes, whether or not the mutilated, destroyed, lost
or stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately with any and
all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the Place of Payment;
provided, however, that each installment of interest on any Note may at the
Company's option be paid (i) by mailing a check for such interest, payable to or
upon the written order of the Person entitled thereto pursuant to Section 308,
to the address of such Person as it appears on the Note Register or (ii) by wire
transfer to an account located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such defaulted interest and, if applicable, interest on
such defaulted interest (to the extent lawful) at the rate specified in the
Notes (such defaulted interest and, if applicable, interest thereon herein
collectively called "Defaulted Interest") may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment (the "Special Record Date"), and at the same time
the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit on
or prior to the date of the
<PAGE>
40
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose name the Registered Notes (or their respective
Predecessor Notes) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause
(2).
(2) The Company may make payment of any Defaulted Interest on the
Notes in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305,
each Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to due presentment of a Note for registration of transfer, the
Company, any Subsidiary Guarantor, the Trustee and any agent of the Company, any
Subsidiary Guarantor or the Trustee may treat the Person in whose name such Note
is registered as the owner of such Note for the purpose of receiving payment of
principal of (and premium, if any, on) and (subject to Sections 305 and 307)
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and none of the Company, any Subsidiary Guarantor, the Trustee
or any agent of the Company, any Subsidiary Guarantor or the Trustee shall be
affected by notice to the contrary.
<PAGE>
41
SECTION 309. Cancellation.
------------
All Notes surrendered for payment, redemption, repayment at the option
of the Holder, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Notes so
delivered to the Trustee shall be promptly cancelled by it. The Company may at
any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. If the Company shall so acquire any
of the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures unless by Company Order the Company shall direct that
cancelled Notes be returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 311. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) Each Global Note initially shall (i) be registered in the name of
the Depositary for such Global Notes or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear legends
as set forth in Section 203.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note, and the
Depositary may be treated by the Company, the Subsidiary Guarantors, the Trustee
and any agent of the Company, the Subsidiary Guarantors or the Trustee as the
absolute owner of such Global Note for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Subsidiary
Guarantors, the Trustee or any agent of the Company, the Subsidiary Guarantors
or the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial owner of any Note. The registered holder
of a Global Note may grant proxies and otherwise authorize any person, including
Agent Members and persons that may hold interests through Agent Members, to take
any action which a Holder is entitled to take under this Indenture or the Notes.
<PAGE>
42
(b) Interests of beneficial owners in a Global Note may be
transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 312. Transfers of a Global Note shall
be limited to transfers of such Global Note in whole, but not in part, to the
Depositary, its successors or their respective nominees, except (i) as otherwise
set forth in Section 312 and (ii) U.S. Physical Notes or Offshore Physical Notes
shall be transferred to all beneficial owners in exchange for their beneficial
interests in the U.S. Global Note or the Offshore Global Note, respectively, in
the event that the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the applicable Global Note or the
Depositary ceases to be a "Clearing Agency" registered under the Exchange Act
and a successor depositary is not appointed by the Company within 90 days or an
Event of Default has occurred and is continuing and the Note Registrar has
received a request from the Depositary. In connection with a transfer of an
entire Global Note to beneficial owners pursuant to clause (ii) of this
paragraph (b), the applicable Global Note shall be deemed to be surrendered to
the Trustee for cancellation, and the Company shall execute, and the Trustee
shall authenticate and deliver, to each beneficial owner identified by the
Depositary in exchange for its beneficial interest in the applicable Global
Note, an equal aggregate principal amount at maturity of U.S. Physical Notes (in
the case of the U.S. Global Note) or Offshore Physical Notes (in the case of the
Offshore Global Note), as the case may be, of authorized denominations.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b) of this Section shall, unless
such exchange is made on or after the Resale Restriction Termination Date and
except as otherwise provided in Section 312, bear the Private Placement Legend.
SECTION 312. Transfer Provisions.
-------------------
Unless and until (i) an Initial Note is sold pursuant to an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in the Exchange Offer pursuant to an effective Registration Statement, in
each case, pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) General. The provisions of this Section 312 shall apply to all
-------
transfers involving any Physical Note and any beneficial interest in any
Global Note.
<PAGE>
43
(b) Certain Definitions. As used in this Section 312 only, "delivery"
-------------------
of a certificate by a transferee or transferor means the delivery to the
Note Registrar by such transferee or transferor of the applicable
certificate duly completed; "holding" includes both possession of a
Physical Note and ownership of a beneficial interest in a Global Note, as
the context requires; "transferring" a Global Note means transferring that
portion of the principal amount of the transferor's beneficial interest
therein that the transferor has notified the Note Registrar that it has
agreed to transfer; and "transferring" a Physical Note means transferring
that portion of the principal amount thereof that the transferor has
notified the Note Registrar that it has agreed to transfer.
As used in this Indenture, "Accredited Investor Certificate" means a
certificate substantially in the form set forth in Section 313; "Regulation
S Certificate" means a certificate substantially in the form set forth in
Section 314; "Rule 144A Certificate" means a certificate substantially in
the form set forth in Section 315; and "Non-Registration Opinion and
Supporting Evidence" means a written opinion of counsel reasonably
acceptable to the Company to the effect that, and such other certification
or information as the Company may reasonably require to confirm that, the
proposed transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain
-----------------------------------------------------
Circumstances. A Rule 144A Certificate, if not actually delivered, will be
-------------
deemed delivered if (A) (i) the transferor advises the Company and the
Trustee in writing that the relevant offer and sale were made in accordance
with the provisions of Rule 144A (or, in the case of a transfer of a
Physical Note, the transferor checks the box provided on the Physical Note
to that effect) and (ii) the transferee advises the Company and the Trustee
in writing that (x) it and, if applicable, each account for which it is
acting in connection with the relevant transfer, is a qualified
institutional buyer within the meaning of Rule 144A, (y) it is aware that
the transfer of Notes to it is being made in reliance on the exemption from
the provisions of Section 5 of the Securities Act provided by Rule 144A,
and (z) prior to the proposed date of transfer it has been given the
opportunity to obtain from the Company the information referred to in Rule
144A(d)(4), and has either declined such opportunity or has received such
information (or, in the case of a transfer of a Physical Note, the
transferee signs the certification provided on the Physical Note to that
effect); or (B) the transferor holds the U.S. Global Note and is
transferring to a transferee that will take delivery in the form of the
U.S. Global Note.
<PAGE>
44
(e) Procedures and Requirements.
---------------------------
1. If the proposed transfer occurs prior to the Offshore Note
Exchange Date, and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note
Registrar, and the proposed transferee or transferor, as
applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the Note Registrar
shall (x) register such transfer in the name of such
transferee and record the date thereof in its books and
records, (y) cancel such surrendered U.S. Physical Note and
(z) deliver a new U.S. Physical Note to such transferee duly
registered in the name of such transferee in principal
amount equal to the principal amount being transferred of
such surrendered U.S. Physical Note;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the Note
Registrar shall (x) cancel such surrendered U.S. Physical
Note, (y) record an increase in the principal amount of the
U.S. Global Note equal to the principal amount being
transferred of such surrendered U.S. Physical Note and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Temporary Offshore Global Note,
then the Note Registrar shall (x) cancel such surrendered
U.S. Physical Note, (y) record an increase in the principal
amount of the Temporary Offshore Global Note equal to the
principal amount being transferred of such surrendered U.S.
Physical Note and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of
such transfer.
<PAGE>
45
In any of the cases described in this Section 312(e)(1)(A), the
Note Registrar shall deliver to the transferor a new U.S.
Physical Note in principal amount equal to the principal amount
not being transferred of such surrendered U.S. Physical Note, as
applicable.
(B) the U.S. Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the Note Registrar
shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of
the U.S. Global Note in an amount equal to the beneficial
interest therein being transferred, (y) deliver a new U.S.
Physical Note to such transferee duly registered in the name
of such transferee in principal amount equal to the amount
of such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of
such transfer;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the
transfer shall be effected in accordance with the procedures
of the Depositary therefor; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Temporary Offshore Global Note,
then the Note Registrar shall (w) register such transfer in
the name of such transferee and record the date thereof in
its books and records, (x) record a decrease in the
principal amount of the U.S. Global Note in an amount equal
to the beneficial interest therein being transferred, (y)
record an increase in the principal amount of the Temporary
Offshore Global Note equal to the amount of such decrease
and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such
transfer.
<PAGE>
46
(C) the Temporary Offshore Global Note, and the proposed
transferee or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the Note Registrar
shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of
the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) deliver a
new U.S. Physical Note to such transferee duly registered in
the name of such transferee in principal amount equal to the
amount of such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the Note
Registrar shall (x) record a decrease in the principal
amount of the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) record an
increase in the principal amount of the U.S. Global Note
equal to the amount of such decrease and (z) notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Temporary Offshore Global Note,
then the transfer shall be effected in accordance with the
procedures of the Depositary therefor; provided, however,
that until the Offshore Note Exchange Date occurs,
beneficial interests in the Offshore Global Note may be held
only in or through accounts maintained at the Depositary by
Euroclear or Cedel (or by Agent Members acting for the
account thereof), and no person shall be entitled to effect
any transfer or exchange that would result in any such
interest being held otherwise than in or through such an
account.
<PAGE>
47
2. If the proposed transfer occurs on or after the Offshore
Note Exchange Date and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note
Registrar, and the proposed transferee or transferor, as
applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the procedures set
forth in Section 312(e)(1)(A)(i) shall apply;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the
procedures set forth in Section 312(e)(1)(A)(ii) shall
apply; or
(iii) delivers a Regulation S Certificate, then the
Note Registrar shall cancel such surrendered U.S. Physical
Note and at the direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and
records and deliver a new Offshore Physical Note to
such transferee in principal amount equal to the
principal amount being transferred of such surrendered
U.S. Physical Note, or
(y) if the proposed transferee is or is acting
through an Agent Member, record an increase in the
principal amount of the Offshore Global Note equal to
the principal amount being transferred of such
surrendered U.S. Physical Note and notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
In any of the cases described in this Section
312(e)(2)(A)(i), (ii) or (iii)(x), the Note Registrar shall
deliver to the transferor a new U.S. Physical Note in
principal amount equal to the principal amount not
<PAGE>
48
being transferred of such surrendered U.S. Physical Note, as
applicable.
(B) the U.S. Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the procedures set
forth in Section 312(e)(1)(B)(i) shall apply; or
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the
procedures set forth in Section 312(e)(1)(B)(ii) shall
apply; or
(iii) delivers a Regulation S Certificate, then the
Note Registrar shall (x) record a decrease in the principal
amount of the U.S. Global Note in an amount equal to the
beneficial interest therein being transferred, (y) notify
the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer and (z) at the
direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and
records and deliver a new Offshore Physical Note to
such transferee in principal amount equal to the amount
of such decrease, or
(y) if the proposed transferee is or is acting
through an Agent Member, record an increase in the
principal amount of the Offshore Global Note equal to
the amount of such decrease.
(C) an Offshore Physical Note which is surrendered to the
Note Registrar, and the proposed transferee or transferor, as
applicable:
<PAGE>
49
(i) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests delivery in the form of the U.S. Global Note,
then the Note Registrar shall (x) cancel such surrendered
Offshore Physical Note, (y) record an increase in the
principal amount of the U.S. Global Note equal to the
principal amount being transferred of such surrendered
Offshore Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer;
(ii) where the proposed transferee is or is acting
through an Agent Member, requests that the proposed
transferee receive a beneficial interest in the Offshore
Global Note, then the Note Registrar shall (x) cancel such
surrendered Offshore Physical Note, (y) record an increase
in the principal amount of the Offshore Global Note equal to
the principal amount being transferred of such surrendered
Offshore Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer; or
(iii) does not make a request covered by Section
312(e)(2)(C)(i) or Section 312(e)(2)(C)(ii), then the Note
Registrar shall (x) register such transfer in the name of
such transferee and record the date thereof in its books and
records, (y) cancel such surrendered Offshore Physical Note
and (z) deliver a new Offshore Physical Note to such
transferee duly registered in the name of such transferee in
principal amount equal to the principal amount being
transferred of such surrendered Offshore Physical Note.
In any of the cases described in this Section 312(e)(2)(C),
the Note Registrar shall deliver to the transferor a new
U.S. Physical Note in principal amount equal to the
principal amount not being transferred of such surrendered
U.S. Physical Note, as applicable.
(D) the Offshore Global Note, and the proposed transferee
or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests delivery in the form of the U.S. Global Note,
then the Note
<PAGE>
50
Registrar shall (x) record a decrease in the principal
amount of the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) record an
increase in the principal amount of the U.S. Global Note
equal to the amount of such decrease and (z) notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer;
(ii) where the proposed transferee is or is acting
through an Agent Member, requests that the proposed
transferee receive a beneficial interest in the Offshore
Global Note, then the transfer shall be effected in
accordance with the procedures of the Depositary therefor;
or
(iii) does not make a request covered by Section
312(e)(2)(D)(i) or Section 312(e)(2)(D)(ii), then the Note
Registrar shall (w) register such transfer in the name of
such transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of
the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) deliver a
new Offshore Physical Note to such transferee duly
registered in the name of such transferee in principal
amount equal to the amount of such decrease and (z) notify
the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
(f) Execution, Authentication and Delivery of Physical Notes. In any
--------------------------------------------------------
case in which the Note Registrar is required to deliver a Physical Note to
a transferee or transferor, the Company shall execute, and the Trustee
shall authenticate and make available for delivery, such Physical Note.
(g) Certain Additional Terms Applicable to Physical Notes. Any
-----------------------------------------------------
transferee entitled to receive a Physical Note may request that the
principal amount thereof be evidenced by one or more Physical Notes in any
authorized denomination or denominations and the Note Registrar shall
comply with such request if all other transfer restrictions are satisfied.
(h) Transfers Not Covered by Section 312(e). The Note Registrar
---------------------------------------
shall effect and record, upon receipt of a written request from the Company
so to do, a transfer not otherwise permitted by Section 312(e), such
recording to be done in accordance with the otherwise applicable provisions
of Section 312(e), upon the furnishing by the proposed transferor or
transferee of a Non-Registration Opinion and Supporting Evidence.
<PAGE>
51
(i) General. By its acceptance of any Note bearing the Private
-------
Placement Legend, each Holder of such Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Note only as
provided in the Indenture. The Note Registrar shall not register a transfer
of any Note unless such transfer complies with the restrictions with
respect thereto set forth in this Indenture. The Note Registrar shall not
be required to determine (but may rely upon a determination made by the
Company) the sufficiency or accuracy of any such certifications, legal
opinions, other information or document.
(j) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Note Registrar shall deliver only Notes that
bear the Private Placement Legend unless (i) the circumstances exist
contemplated by the fourth paragraph of Section 201 (with respect to an
Offshore Physical Note) or the requested transfer is at least two years
after the original issue date of the Initial Note (with respect to any
Physical Note), (ii) there is delivered to the Note Registrar an Opinion of
Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer
are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Notes are exchanged for Exchange Notes
pursuant to an Exchange Offer.
SECTION 313. Form of Accredited Investor Certificate.
---------------------------------------
Transferee Letter of Representation
-----------------------------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
311 West Monroe Street
Chicago, IL 60606
Attention: Indenture Trust Division/J. Bartolini
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the 11% Senior Subordinated Notes due 2007 (the "Notes") of
Tuesday Morning Corporation. (the "Company"), we confirm that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of
1933, as amended (the "Securities Act")) purchasing for our own account or
for the account of such an
<PAGE>
52
institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the Securities Act or
other applicable securities law and we have such knowledge and experience
in financial and business matters as to be capable of evaluating the merits
and risks of our investment in the Notes, and we and any accounts for which
we are acting are each able to bear the economic risk of our or its
investment.
2. We understand and acknowledge that the Notes have not been
registered under the Securities Act, or any other applicable securities law
and may not be offered, sold or otherwise transferred except in compliance
with the registration requirements of the Securities Act or any other
applicable securities law, or pursuant to an exemption therefrom, and in
each case in compliance with the conditions for transfer set forth below.
We agree on our own behalf and on behalf of any investor account for which
we are purchasing Notes to offer, sell or otherwise transfer such Notes
prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of
the Company was the owner of such Notes (or any predecessor thereto) (the
"Resale Restriction Termination Date") only (a) to the Company or any
subsidiary thereof, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) for so long as the Notes
are eligible for resale pursuant to Rule 144A under the Securities Act
("Rule 144A"), to a person we reasonably believe is a "Qualified
Institutional Buyer" within the meaning of Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A,
(d) pursuant to offers and sales to non-U.S. persons that occur outside the
United States within the meaning of Regulation S under the Securities Act,
or (e) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing cases
to any requirement of law that the disposition of our property or the
property of such investor account or accounts be at all times within our or
their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the
Resale Restriction Termination Date. If any resale or other transfer of the
Notes is proposed to be made pursuant to clause (d) or (e) above prior to
the Resale Restriction Termination Date, the transferor shall deliver to
the trustee (the "Trustee") under the Indenture pursuant to which the Notes
are issued a letter from the transferee substantially in the form of this
letter, which shall provide, among other things, that the transferee is a
person or entity as defined in paragraph 1 of this letter and that it is
acquiring such Notes for investment purposes and not for distribution in
violation of the Securities Act. We acknowledge that the Company and the
Trustee reserve the right prior to any offer, sale or other transfer of the
Notes pursuant to clauses (d) and (e) above prior to the Resale Restriction
Termination Date to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and
the Trustee.
<PAGE>
53
3. We are acquiring the Notes purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
4. You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By:______________________________
Date:____________________________
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME ADDRESS TAXPAYER ID NUMBER
------ ------- ------------------
</TABLE>
<PAGE>
54
Date of this Certificate: _________ __, 199_
<PAGE>
55
SECTION 314. Form of Regulation S Certificate.
--------------------------------
Regulation S Certificate
------------------------
To: Harris Trust and Savings Bank,
as Trustee (the "Trustee")
311 West Monroe Street
Chicago, IL 60606
Attention: Indenture Trust Division/J. Bartolini
Re: Tuesday Morning Corporation (the "Company")
11% Senior Subordinated Notes due 2007 (the "Notes")
----------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate principal
amount of Notes, we confirm that such sale has been effected pursuant to and in
accordance with Regulation S ("Regulation S") under the Securities Act of 1933,
as amended (the "Securities Act"), and accordingly, we hereby certify as
follows:
1. The offer of the Notes was not made to a person in the United
States (unless such person or the account held by it for which it is acting
is excluded from the definition of "U.S. person" pursuant to Rule 902(o) of
Regulation S under the circumstances described in Rule 902(i)(3) of
Regulation S) or specifically targeted at an identifiable group of U.S.
citizens abroad.
2. Either (a) at the time the buy order was originated, the buyer
was outside the United States or we and any person acting on our behalf
reasonably believed that the buyer was outside the United States or (b) the
transaction was executed in, on or through the facilities of a designated
offshore securities market, and neither we nor any person acting on our
behalf knows that the transaction was pre-arranged with a buyer in the
United States.
3. Neither we, any of our affiliates, nor any person acting on our
or their behalf has made any directed selling efforts in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable.
4. The proposed transfer of Notes is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
<PAGE>
56
5. If we are a dealer or a person receiving a selling concession
or other fee or remuneration in respect of the Notes, and the proposed
transfer takes place before the Offshore Note Exchange Date referred to in
the Indenture, dated as of December 29, 1997, among the Company, the
guarantors thereunder and the Trustee, or we are an officer or director of
the Company or a distributor, we certify that the proposed transfer is
being made in accordance with the provisions of Rules 903 and 904(c) of
Regulation S.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[NAME OF SELLER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________ __, 199_
<PAGE>
57
SECTION 315. Form of Rule 144A Certificate.
-----------------------------
Rule 144A Certificate
---------------------
To: Harris Trust and Savings Bank,
as Trustee (the "Trustee")
311 West Monroe Street
Chicago, IL 60606
Attention: Indenture Trust Division/J. Bartolini
Re: Tuesday Morning Corporation (the "Company")
11% Senior Subordinated Notes due 2007 (the "Notes")
----------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate principal
amount of Notes, we confirm that such sale has been effected pursuant to and in
accordance with Rule 144A ("Rule 144A") under the Securities Act of 1933, as
amended (the "Securities Act"). We are aware that the transfer of Notes to us is
being made in reliance on the exemption from the provisions of Section 5 of the
Securities Act provided by Rule 144A. Prior to the date of this Certificate we
have been given the opportunity to obtain from the Company the information
referred to in Rule 144A(d)(4), and have either declined such opportunity or
have received such information.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________ __, 199_
<PAGE>
58
SECTION 316. CUSIP Numbers.
-------------
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers, and, if so, the Trustee shall
use such "CUSIP" numbers in addition to serial numbers in notices of redemption,
repurchase or other notices to Holders as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such CUSIP numbers either as printed on the Notes or as contained
in any notice of a redemption or repurchase and that reliance may be placed only
on the serial or other identification numbers printed on the Notes, and any such
redemption or repurchase shall not be affected by any defect in or omission of
such numbers. The Company will promptly notify the Trustee of any change in the
CUSIP numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall, upon Company Request, cease to be of further
effect with respect to Notes (except as to any surviving rights of registration
of transfer or exchange of Notes expressly provided for) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(A) all Notes theretofore authenticated and delivered (other than
(i) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306, and (ii) Notes for
whose payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such
trust, as provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(B) all Notes and, in the case of (i) or (ii) below, not
theretofore delivered to the Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable at their Stated Maturity
within one year, or
<PAGE>
59
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company or any Subsidiary Guarantor, in the case of
(i), (ii) or (iii) above, has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust for such
purpose an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest on the Notes to the date of such deposit (in the case of
Notes which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) no Default or Event of Default with respect to this
Indenture or the Notes shall have occurred and be continuing on the
date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument or agreement to which
the Company or any Subsidiary Guarantor is a party or by which it is
bound;
(3) the Company or any Subsidiary Guarantor has paid or caused
to be paid all other sums payable hereunder by the Company or any
Subsidiary Guarantor;
(4) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of such Notes
at maturity or the Redemption Date, as the case may be; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606, the obligations of
the Company to any Authenticating Agent under Section 612 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
<PAGE>
60
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 401 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 and any
Subsidiary Guarantor's obligations under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
401; provided that if the Company has made any payment of principal of, premium,
if any, or interest on any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article 12 or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest on any Note when it
becomes due and payable and continuance of such default for a period of 30
days;
(2) default in the payment of the principal of, or premium, if any,
on any Note at its Maturity (upon acceleration, optional redemption,
required purchase or otherwise);
(3) default in the performance, or breach, of the provisions of
Article Eight, the failure to make or consummate a Change in Control Offer
in accordance with Section 1013
<PAGE>
61
or the failure to make or consummate an Excess Proceeds Offer in accordance
with Section 1014;
(4) default in the performance, or breach, of any covenant or
warranty of the Company or any Subsidiary Guarantor contained in this
Indenture or any Note Guarantee (other than a default in the performance,
or breach, of a covenant or warranty which is specifically dealt with in
clause (1), (2) or (3) of this Section) and continuance of such default or
breach for a period of 30 days after there has been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least
25% in aggregate principal amount of all Outstanding Notes;
(5) (a) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Restricted
Subsidiary aggregating $10,000,000 or more, when the same becomes due and
payable at the stated maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have been
cured or waived or (b) Indebtedness of the Company or any Restricted
Subsidiary aggregating $10,000,000 or more shall have been accelerated or
otherwise declared due and payable, or required to be prepaid or
repurchased (other than by regularly scheduled required prepayment) prior
to the stated maturity thereof;
(6) one or more final judgments or orders shall be rendered against
the Company or any Restricted Subsidiary which require the payment of
money, either individually or in an aggregate amount, in excess of
$10,000,000 and shall not be discharged and either (a) an enforcement
proceeding shall have been commenced by any creditor upon such judgment or
order or (b) there shall have been a period of 60 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, was not in effect;
(7) any Note Guarantee ceases to be in full force and effect or is
declared null and void or any Subsidiary Guarantor denies that it has any
further liability under any Note Guarantee, or gives notice to such effect
(other than by reason of the termination of this Indenture or the release
of any such Note Guarantee in accordance with this Indenture);
(8) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of Bankruptcy Law: (A) commences a voluntary case; (B)
consents to the entry of an order for relief against it in an involuntary
case; (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property; (D) makes a general assignment for the
benefit of its creditors, or (E) admits in writing that it is generally not
paying its debts (other than debts which are the subject of a bona fide
dispute) as they become due; or
<PAGE>
62
(9) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that remains unstayed and in effect for 60 days and: (A)
is for relief against the Company or any of its Significant Subsidiaries in
an involuntary case; (B) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of the property of
the Company or any of its Significant Subsidiaries; or (C) orders the
liquidation of the Company or any of its Significant Subsidiaries; provided
that clauses (A), (B) and (C) shall not apply to an Unrestricted
Subsidiary, unless such action or proceeding has a material adverse effect
on the interests of the Company or any Restricted Subsidiary.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
clause (8) or (9) of Section 501) occurs and is continuing, then in every such
case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Outstanding Notes by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee, upon the
written request of such Holders, shall declare the principal of, premium, if
any, and accrued interest on all of the Outstanding Notes to be due and payable
immediately; provided that so long as the Senior Credit Agreement shall be in
full force and effect, if an Event of Default shall have occurred and be
continuing (other than as specified in clause (8) or (9) of Section 501 with
respect to the Company), any such acceleration shall not be effective until the
earlier to occur of (x) five Business Days following delivery of a written
notice of such acceleration of the Notes to the agent under the Senior Credit
Agreement and (y) the acceleration of any Indebtedness under the Senior Credit
Agreement. Upon any such declaration all such amounts payable in respect of the
Notes shall become immediately due and payable. If an Event of Default specified
in clause (8) or (9) of Section 501 occurs and is continuing, then the principal
of, premium, if any, and accrued interest on all of the Outstanding Notes shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in aggregate principal amount of the Outstanding Notes, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes that has become due otherwise than by such
declaration of acceleration together with interest on such unpaid
principal at the rate borne by such Notes,
<PAGE>
63
(C) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by such Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(2) all Events of Default, other than the non-payment of amounts of
principal (or premium, if any, on) or interest on Notes which have become
due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513,
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if
(1) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
then the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Notes, the whole amount then due and payable on
such Notes for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by such Notes, and, in addition thereto, such further amount
as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any Subsidiary Guarantor (in accordance with the
applicable Note Guarantee) or any other obligor upon such Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company, any Subsidiary Guarantor or any other obligor upon
such Notes, wherever situated.
<PAGE>
64
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture or the Note Guarantees by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, including seeking recourse against any Subsidiary Guarantor,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy, including, without limitation, seeking recourse against
any Subsidiary Guarantor.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor, including any
Subsidiary Guarantor, upon the Notes or the property of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes, to
take such other actions (including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such matter)
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided,
<PAGE>
65
however, that the Trustee may, on behalf of such Holders, vote for the election
of a trustee in bankruptcy or other similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture, the Notes or the
Note Guarantees may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (or premium, if any) or interest, upon presentation of the Notes
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section
-----
607;
Second: To the payment of the amounts then due and unpaid for
------
principal of (and premium, if any, on) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if any)
and interest, respectively; and
Third: The balance, if any, to the Person or Persons entitled
-----
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct;
provided that all sums due and owing to the Holders and the Trustee have
been paid in full as required by this Indenture.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
<PAGE>
66
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Notes shall have made a written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority
in principal amount of the Outstanding Notes;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture, any Note or any Note Guarantee to affect, disturb or
prejudice the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other of such Holders or to enforce any right
under this Indenture, any Note or any Note Guarantee, except in the manner
herein provided and for the equal and ratable benefit of all Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Eleven) and in
such Note of the principal of (and premium, if any, on) and (subject to Section
307) interest on, such Note on the respective Stated Maturities expressed in
such Note (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Note Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, any
Subsidiary Guarantor, any other obligor on the Notes, the Trustee and the
Holders of Notes shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
<PAGE>
67
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders of Notes is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) subject to Section 315 of the Trust Indenture Act, the Trustee
may take any other action deemed proper by the Trustee which is not
inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or that the Trustee determines in good faith is unjustly
prejudicial to the Holders of Notes not consenting, it being understood
that, subject to Section 601, the Trustee shall have no duty to ascertain
whether or not such actions or forbearances are unjustly prejudicial to
such holders.
<PAGE>
68
SECTION 513. Waiver of Past Defaults.
-----------------------
Subject to Sections 508, 902 and the last paragraph of Section 502,
the Holders of not less than a majority in aggregate principal amount of the
Outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes) may on behalf of the Holders of all the Notes
waive any past default hereunder and its consequences under this Indenture or
any Note Guarantee, except a default
(1) in respect of the payment of the principal of (or premium, if
any, on) or interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
Upon any such waiver, any such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture and the Note Guarantees; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
Each of the Company, the Subsidiary Guarantors and any other obligor
on the Notes covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law wherever enacted, now or
at any time hereafter in force, which would prohibit or forgive the Company, any
Subsidiary Guarantor or any such obligor from paying all or any portion of the
principal of, premium, if any, or interest on the Notes contemplated herein or
in the Notes or which may affect the covenants or the performance of this
Indenture; and each of the Company, the Subsidiary Guarantors and any other
obligor on the Notes (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
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69
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of a Default or 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 or willful misconduct 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; but in the case of any such certificates or opinions, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture, but not to verify
the contents thereof.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Responsible Officer of the Trustee has actual knowledge or
of which written notice of such Default or Event of Default shall have been
given to the Trustee by the Company, any other obligor of the Notes or by any
Holder, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
------
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in aggregate principal amount of the
Outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
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70
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. Notice of Defaults.
------------------
Within ten days after the earlier of receipt from the Company of
notice of the occurrence of any Default or Event of Default hereunder or the
date when such Default or Event of Default becomes known to the Trustee, the
Trustee shall transmit, in the manner and to the extent provided in TIA Section
313(c), notice of such Default or Event of Default hereunder known to the
Trustee, unless such Default or Event of Default shall have been cured or
waived; provided, however, that, except in the case of a Default or Event of
Default in the payment of the principal of (or premium, if any, on) or interest
on any Note, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interest of the Holders.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d)
(determined as if the TIA were applicable to this Indenture at all times):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate;
<PAGE>
71
(4) before the Trustee acts or refrains from acting, the Trustee may
consult with counsel of its selection and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Notes pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
(9) the Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder;
(10) the permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty; and
(11) except for a default under Sections 501(1) or (2) hereof, or any
other event of which the Trustee has "actual knowledge" and which event,
with the giving of notice or the passage of time or both, would constitute
an Event of Default under this Indenture, the Trustee shall not be deemed
to have notice of any default or Event of Default unless specifically
notified in writing of such event by the Company or the Holders of not less
than 25% in aggregate principal amount of the Notes then outstanding; as
used herein, the term "actual knowledge" means the actual fact or statement
of knowing, without any duty to make any investigation with regard thereto.
<PAGE>
72
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
- -----
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Notes, except that the
Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Notes and perform its obligations hereunder and that
the statements made by it in its Statement of Eligibility on Form T-1 supplied
to the Company are true and accurate, subject to the qualifications set forth
therein. Neither the Trustee nor any Authenticating Agent shall be accountable
for the use or application by the Company of Notes or the proceeds thereof.
SECTION 605. May Hold Notes.
--------------
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company or of the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Notes and, subject to
TIA Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Note Registrar or such other agent.
SECTION 606. Money Held in Trust.
-------------------
All money received by the Trustee shall, until used or applied as
herein provided, be held in trust hereunder for the purposes for which they were
received. Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as
shall be agreed in writing between the Company and the Trustee for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
<PAGE>
73
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel and costs and expenses of
collection), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee and
its agents for, and to hold it harmless against, any and all loss,
liability, damage, claim or expense, including taxes (other than taxes
based on the income of the Trustee) incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending itself against, or investigating, any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Notes upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any, on) or interest
on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or Section 501(9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation of the Trustee for the services are intended to constitute
expenses of administration under any applicable Federal or state bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and which shall have an
office in The City of New York, and shall have a combined capital and surplus of
at least $50,000,000. If the Trustee does not have an office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the Company to conduct any activities which the Trustee may be
required under this Indenture to conduct in The City of New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital
<PAGE>
74
and surplus as set forth in its most recent report of condition so published. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 610.
(b) The Trustee may resign at any time with respect to the Notes by
giving written notice thereof to the Company. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee by written
instrument executed by authority of the Board of Directors, a copy of which
shall be delivered to the resigning Trustee and a copy to the successor trustee.
If the instrument of acceptance by a successor Trustee required by Section 610
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Notes.
(c) The Trustee may be removed at any time with respect to the Notes
by Act of the Holders of not less than a majority in principal amount of the
Outstanding Notes, delivered to the Trustee and to the Company. If the
instrument of acceptance by a successor Trustee required by Section 610 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of removal, the Trustee being removed may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Notes.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a Custodian of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
<PAGE>
75
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee with respect to all Notes, or (ii) subject to TIA Section 315(e), any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all Notes
and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Notes, the Company, by a Board Resolution, shall promptly appoint
a successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Notes shall be appointed by Act of the Holders of a majority in
aggregate principal amount of the Outstanding Notes delivered to the Company and
the retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its acceptance of such appointment, become the successor Trustee with respect to
the Notes and to that extent supersede the successor Trustee appointed by the
Company. If no successor Trustee with respect to the Notes shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Note for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Notes.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Notes and each appointment of a
successor Trustee with respect to the Notes to the Holders of Notes in the
manner provided for in Section 106. Each notice shall include the name of the
successor Trustee with respect to the Notes and the address of its Corporate
Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
--------------------------------------
(a) Each successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in paragraph (a) of this Section.
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76
(c) No successor Trustee shall accept its appointment unless at the
time of such acceptance, such successor Trustee shall be qualified and eligible
under this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as if
such successor Trustee had itself authenticated such Notes. In case at that time
any of the Notes shall not have been authenticated, any successor Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor Trustee. In all such cases such certificates shall
have the full force and effect which this Indenture provides for, the
certificate of authentication of the Trustee shall have; provided, however, that
the right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Notes in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 612. Appointment of Authenticating Agent.
-----------------------------------
At any time when any of the Notes remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents with respect to the Notes which shall
be authorized to act on behalf of the Trustee to authenticate Notes and the
Trustee shall give written notice of such appointment to all Holders of Notes
with respect to which such Authenticating Agent will serve, in the manner
provided for in Section 106. Notes so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Any such appointment shall be
evidenced by an instrument in writing signed by a Responsible Officer of the
Trustee, and a copy of such instrument shall be promptly furnished to the
Company. Wherever reference is made in this Indenture to the authentication and
delivery of Notes by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a corporation organized and doing business under the laws of the United
States of America, any state thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by federal or state authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority,
<PAGE>
77
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give written notice of
such appointment to all Holders of Notes, in the manner provided for in Section
106. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time such compensation for its services under this Section as shall be agreed in
writing between the Company and such Authenticating Agent.
If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
<PAGE>
78
This is one of the Notes designated therein referred to in the within-
mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: _______________________________
as Authenticating Agent
By: _______________________________
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses.
----------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content to that in Subsection (a) hereof as of a
date not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
SECTION 702. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
<PAGE>
79
SECTION 703. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Notes pursuant to this Indenture, the Trustee
shall transmit to the Holders of Notes (with a copy to the Company at the Place
of Payment), in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company will not, in a single transaction or through a series of
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any other Person or Persons or permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis to any other
Person or Persons, unless at the time and immediately after giving effect
thereto:
(a) either (1) the Company shall be the continuing corporation or (2)
the Person (if other than the Company) formed by such consolidation or into
which the Company or such Restricted Subsidiary is merged or the Person
which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis (the
"Surviving Entity") (i) will be a corporation duly organized and validly
existing under the laws of the United States of America, any state thereof
or the District of Columbia and (ii) will expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustees, in form
reasonably satisfactory to the Trustee, the Company's obligation for the
due and punctual payment of the principal of (and premium, if any) and
interest on all the Notes and the performance and observance of every
covenant of this Indenture on the part of the Company to be performed or
observed;
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any obligation of the Company or any Restricted Subsidiary incurred in
connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing;
<PAGE>
80
(c) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the
assumption that the transaction or series of transactions occurred on the
first day of the four-quarter period immediately prior to the consummation
of such transaction or series of transactions with the appropriate
adjustments with respect to the transaction or series of transactions being
included in such pro forma calculation), the Company (or the Surviving
Entity if the Company is not the continuing obligor under this Indenture)
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 1008;
(d) each Subsidiary Guarantor, if any, unless it is the other party
to the transactions described above, shall have by supplemental indenture
confirmed that its Note Guarantee will apply to such Person's obligations
hereunder and under the Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1012 are complied with; and
(f) the Company or the Surviving Entity shall have delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposition, and if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with
this Section 801 and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
SECTION 802. Subsidiary Guarantors May Consolidate, Etc., Only on
----------------------------------------------------
Certain Terms.
- -------------
Each Subsidiary Guarantor, if any (other than any Subsidiary whose
Note Guarantee is being released pursuant to the provisions of Section 1309 as a
result of such transaction), will not, and the Company will not permit a
Subsidiary Guarantor to, in a single transaction or through a series of related
transactions, merge or consolidate with or into any other corporation or other
entity (other than the Company or any Subsidiary Guarantor), or sell, assign,
convey, transfer, lease or otherwise dispose of its properties and assets on a
consolidated basis substantially as an entirety to any entity (other than the
Company or any Subsidiary Guarantor) unless at the time and after giving effect
thereto:
(a) either (1) such Subsidiary Guarantor shall be the continuing
corporation or partnership or (2) the Person (if other than such Subsidiary
Guarantor) formed by such consolidation or into which such Subsidiary
Guarantor is merged or the entity which acquires by sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially
all of the properties and assets of such Subsidiary Guarantor, as the case
may
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be, shall be a corporation or partnership organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia, and shall expressly assume by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all obligations of such Subsidiary Guarantor under the Notes and this
Indenture;
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any obligation of the Company or such Subsidiary Guarantor incurred in
connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; and
(c) such Subsidiary Guarantor or such Person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or disposition and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply
with this Section 802 and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
SECTION 803. Successor Substituted.
---------------------
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company or any Subsidiary Guarantor in accordance with Sections
801 and 802, the successor Person formed by such consolidation or into which the
Company or such Subsidiary Guarantor, as the case may be, is merged or the
successor Person to which such sale, assignment, conveyance, transfer, lease or
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Subsidiary Guarantor, as the case
may be, under this Indenture and/or the Note Guarantees, as the case may be,
with the same effect as if such successor had been named as the Company or such
Subsidiary Guarantor, as the case may be, herein and/or the Note Guarantees, as
the case may be. When a successor assumes all the obligations of its predecessor
hereunder, the Notes or a Note Guarantee, as the case may be, the predecessor
shall be released from all obligations; provided that in the case of a transfer
by lease, the predecessor shall not be released from the payment of principal
and interest or other obligations on the Notes or a Note Guarantee, as the case
may be.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company or any Subsidiary
Guarantor, when authorized by or pursuant to a Board Resolution, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the Company, a
Subsidiary Guarantor or any other obligor on the Notes, and the assumption
by any such successor of the covenants of the Company or such obligor or
Subsidiary Guarantor contained herein and in the Notes and in any Note
Guarantee in accordance with Article Eight;
(2) to add to the covenants of the Company, any Subsidiary Guarantor
or any other obligor upon the Notes for the benefit of the Holders or to
surrender any right or power conferred upon the Company, or any Subsidiary
Guarantor or any other obligor on the Notes, as applicable, herein, in the
Notes or in any Note Guarantee;
(3) to cure any ambiguity, or to correct or supplement any provision
herein, in the Notes or in any Note Guarantee which may be defective or
inconsistent with any other provision herein, in the Notes or in any Note
Guarantee or to make any other provisions with respect to matters or
questions arising under this Indenture, the Notes or any Note Guarantee;
provided that, in each case, such provisions shall not adversely affect the
interests of the Holders;
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act;
(5) to add a Subsidiary Guarantor of the Notes under this Indenture;
(6) to evidence and provide for the acceptance of the appointment of
a successor Trustee under this Indenture; or
(7) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security
for the payment and performance of the Company's and any Subsidiary
Guarantor's obligations under this Indenture, in any property, or assets,
including any of which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be granted to
the Trustee pursuant to this Indenture or otherwise.
<PAGE>
83
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of all Outstanding Notes that are affected thereby, by Act of
said Holders delivered to the Company, the Subsidiary Guarantors and the
Trustee, the Company and the Subsidiary Guarantors, when authorized by or
pursuant to their respective Board Resolutions, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of Notes
under this Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Note affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal
of any Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(2) amend, change or modify any of the provisions of Section 1013 or
Section 1014 including any definitions relating thereto in any manner
materially adverse to the Holders;
(3) reduce the percentage in principal amount of Outstanding Notes,
the consent of whose Holders is required for any such supplemental
indenture or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture;
(4) modify any provisions of this Section, Section 1021 or Section
513, except to increase the percentage in principal amount of the
Outstanding Notes required to take any of the actions described therein or
to provide that certain additional provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each Outstanding
Note affected thereby;
(5) except as otherwise permitted under Article Eight, consent to the
assignment or transfer by the Company or any Subsidiary Guarantor of any of
their rights or obligations under this Indenture;
(6) amend or modify any of the provisions of Article Thirteen in any
manner adverse to the Holders; or
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84
(7) modify any of the provisions of this Indenture relating to the
subordination of the Notes in a manner adverse to the Holders.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company, any Subsidiary Guarantor
and the Trustee of any supplemental indenture pursuant to the provisions of
Section 902, the Company shall give notice thereof to the Holders of each
Outstanding Note affected, in the manner provided for in Section 106, setting
forth in general terms the substance of such supplemental indenture.
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85
SECTION 908. Effect on Senior Indebtedness.
-----------------------------
No supplemental indenture shall adversely affect the rights of the
holders of Senior Indebtedness under Article Twelve of this Indenture without
the consent of such holders affected thereby.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders of
Notes that it will duly and punctually pay the principal of (and premium, if
any, on) and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York an office or agency
where Notes may be presented or surrendered for payment (the "Place of
Payment"), where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company hereby designates the
Corporate Trust Office as the Place of Payment.
The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of the Place of Payment. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive such respective presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind any such designation;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in
accordance with the requirements set forth above for Notes for such purposes.
The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
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86
SECTION 1003. Money for Notes Payments to Be Held in Trust.
--------------------------------------------
If the Company shall at any time act as its own Paying Agent with
respect to the Notes, it will, on or before each due date of the principal of
(and premium, if any) or interest on any of the Notes, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, prior to or on each due date of the principal of (and premium,
if any, on) or interest on any Notes, deposit with a Paying Agent a sum in same
day funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) and interest on the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal of
(and premium, if any) or interest on the Notes; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
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Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment to the Company, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the Borough of Manhattan, The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory), licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that, subject to the other provisions
of this Indenture, the Company shall not be required to preserve any such
existence (except the Company), right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not, and will not be, disadvantageous in any
material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, would by
law become a material liability or lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate reserves, if necessary (in
the good faith judgment of management of the Company) are being maintained in
accordance with GAAP.
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SECTION 1006. Maintenance of Properties.
-------------------------
The Company will cause all material properties owned by the Company or
any Restricted Subsidiary or used or held for use in the conduct of its business
or the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company or any of its Restricted
Subsidiaries from discontinuing the maintenance of any of such properties if
such discontinuance is, in the judgment of the Company, desirable in the conduct
of its business or the business of any Restricted Subsidiary and not adverse in
any material respect to the Holders.
SECTION 1007. Statement by Officers as to Default.
-----------------------------------
(a) The Company and each Subsidiary Guarantor will deliver to the
Trustee, within 45 days after the end of each fiscal quarter and within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company or the Subsidiary Guarantor, as the case
may be, during the preceding quarter or the preceding fiscal year, as the case
may be, has been made under the supervision of the signing officers with a view
to determining whether it has kept, observed, performed and fulfilled, and has
caused each of its Subsidiaries to keep, observe, perform and fulfill its
obligations under this Indenture and further stating, as to each such officer
signing such certificate, that, to the best of his or her knowledge, the Company
during such preceding quarter or the preceding fiscal year, as the case may be,
has kept, observed, performed and fulfilled, and has caused each of its
Subsidiaries to keep, observe, perform and fulfill each and every such covenant
contained in this Indenture and no Default or Event of Default occurred during
such quarter or year, as the case may be, and at the date of such certificate
there is no Default or Event of Default which has occurred and is continuing or,
if such signers do know of such Default or Event of Default, the certificate
shall describe its status, with particularity and that, to the best of his or
her knowledge, no event has occurred and remains by reason of which payments on
the account of the principal of or interest, if any, on the Notes is prohibited
or if such event has occurred, a description of the event and what action each
is taking or proposes to take with respect thereto. The Officers' Certificate
shall also notify the Trustee should the Company elect to change the manner in
which it fixes its fiscal year-end. For purposes of this Section 1007(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default or Event of Default has occurred and is
continuing under this Indenture, or if the trustee for or the holder of any
other evidence of Indebtedness of the Company or any Subsidiary gives any notice
or takes any other action with respect to a claimed default (other than with
respect to Indebtedness in the principal amount of less than $10,000,000),
<PAGE>
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the Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission an Officers' Certificate specifying
such event, notice or other action within five Business Days of its occurrence.
SECTION 1008. Limitation on Indebtedness.
--------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Indebtedness (including any Acquired Indebtedness), other than
Permitted Indebtedness; provided, however, that the Company and any Subsidiary
Guarantor may incur Indebtedness (including Acquired Indebtedness) if at the
time of such incurrence the Consolidated Fixed Charge Coverage Ratio for the
four full fiscal quarters immediately preceding the incurrence of such
Indebtedness for which internal financial statements are available, taken as one
period (and after giving pro forma effect to (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred,
and the application of such proceeds occurred, on the first day of such four-
quarter period, (ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Restricted Subsidiaries since the first day
of such four-quarter period as if such Indebtedness was incurred, repaid or
retired on the first day of such four-quarter period (except that, in making
such computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period) and (iii) the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any company, entity or business acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such four-
quarter period, as if such acquisition or disposition occurred on the first day
of such four-quarter period), would have been at least equal to 2.0 to 1.0.
SECTION 1009. Limitation on Restricted Payments.
---------------------------------
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than
dividends or distributions payable solely in shares of Qualified Capital
Stock of the Company or in options, warrants or other rights to acquire
such shares of Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Affiliate of the Company or any options, warrants or other rights to
acquire such shares of Capital Stock (other than
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90
such options, warrants or rights owned by the Company or a wholly owned
Restricted Subsidiary);
(iii) declare or pay any dividend on, or make any distribution to
holders of, any shares of Capital Stock of any Restricted Subsidiary to any
Person (other than to the Company or any of its wholly owned Restricted
Subsidiaries or to all holders of Capital Stock of such Restricted
Subsidiary on a pro rata basis);
(iv) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness of
the Company or any Subsidiary Guarantor; or
(v) make any Investment (other than any Permitted Investment) in any
Person
(such payments or other actions described in (but not excluded from) clauses (i)
through (v) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution), (1) no Default or Event of
Default shall have occurred and be continuing, (2) the Company could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 1008 and (3) the aggregate amount of all Restricted Payments
declared or made after the date of this Indenture shall not exceed the sum of:
(A) 50% of the Consolidated Adjusted Net Income of the Company
accrued on a cumulative basis during the period beginning on the first day
of the Company's first fiscal quarter after the date of this Indenture and
ending on the last day of the Company's last fiscal quarter ending prior to
the date of such proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Adjusted Net Income shall be a loss, minus 100% of
such loss), plus
(B) the aggregate net cash proceeds received after the date of this
Indenture by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company
(including upon the exercise of options, warrants or fights) or warrants,
options or rights to purchase shares of Qualified Capital Stock of the
Company, plus
(C) the aggregate net cash proceeds received after the date of this
Indenture by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of debt securities or Redeemable Capital Stock that
have been converted into or exchanged for Qualified Capital Stock of the
Company, to the extent such securities were originally sold
<PAGE>
91
for cash, together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange, plus
(D) to the extent that any Investment constituting a Restricted
Payment that was made after the date of this Indenture is sold or is
otherwise liquidated or repaid, an amount (to the extent not included in
Consolidated Adjusted Net Income) equal to the sum of (I) the lesser of (x)
the cash proceeds with respect to such Investment (less the cost of the
disposition of such Investment and net of taxes) and (y) the initial amount
of such Investment, and (II) with respect solely to any Restricted Payment
to be made pursuant to clause (v) of this paragraph (a), the cash proceeds
with respect to such Investment (less the cost of the disposition of such
Investment and net of taxes) in excess of the amount in (I), plus
(E) $5,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its
Restricted Subsidiaries may take the following actions so long as (with respect
to clauses (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix) and (x) below) at
the time of and after giving effect thereto no Default or Event of Default shall
have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary) of, shares of Qualified Capital
Stock of the Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company;
(iv) the purchase of any Indebtedness that is expressly subordinated
in right of payment to the Notes at a purchase price not greater than 101%
of the principal amount thereof in the event of a Change in Control in
accordance with provisions similar to those of Section 1013; provided that
prior to such purchase the Company has made the Change in Control Offer as
provided in Section 1013 and has purchased all Notes validly tendered for
payment in connection with such Change in Control Offer;
<PAGE>
92
(v) the repurchase, redemption or other acquisition or retirement
for value of shares of Management Stock; provided that (1) the Company is
required, by the terms of written agreements between the Company and each
of Lloyd L. Ross and Jerry M. Smith as in effect on the Issuance Date, to
effect such purchase, redemption or other acquisition or retirement for
value of such shares and (2) the aggregate consideration paid by the
Company for such shares so purchased, redeemed or otherwise acquired or
retired for value does not exceed $25,000,000 in the aggregate;
(vi) the repurchase, redemption or other acquisition or retirement
for value of shares of Capital Stock of the Company from employees who have
died (or their estates or beneficiaries) or whose employment has been
terminated; provided that such payment shall not exceed $1,500,000 in any
twelve month period, excluding any amounts used to repurchase, redeem,
acquire or retire for value shares of Capital Stock of the Company pursuant
to clause (v) above;
(vii) repurchases of Capital Stock of the Company (or warrants or
options convertible into or exchangeable for such Capital Stock) deemed to
occur upon exercise of stock options to the extent that shares of such
Capital Stock (or warrants or options convertible into or exchangeable for
such Capital Stock) represent a portion of the exercise price of such
options;
(viii) the issuance by the Company of shares of Preferred Stock as
dividends paid in kind on the Preferred Stock of the Company outstanding on
the Issuance Date or on shares of Preferred Stock so issued as payment in
kind dividends, such dividends made pursuant to the terms of the
Certificate of Designation for such Preferred Stock as in effect on the
Issuance Date;
(ix) the issuance by the Company of Exchange Debentures in exchange
for Senior Exchangeable Preferred Stock; and
(x) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for, or out of the net cash proceeds
of a substantially concurrent incurrence (other than to a Restricted
Subsidiary) of, new Subordinated Indebtedness so long as (A) the principal
amount of such new Subordinated Indebtedness does not exceed the principal
amount (or, if such Subordinated Indebtedness being refinanced provides for
an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Indebtedness being so purchased, redeemed, defeased,
acquired or retired, plus either the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus, in either case, the amount of reasonable
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93
expenses of the Company incurred in connection with such refinancing, (B)
such new Subordinated Indebtedness is pari passu or subordinated, as
applicable, to the Notes to the same extent as such Indebtedness so
purchased, redeemed, defeased, acquired or retired and (C) such new
Indebtedness has an Average Life longer than the Average Life of the Notes
and a final Stated Maturity of principal later than the final Stated
Maturity of principal of the Notes.
The actions described in clauses (i), (ii), (iii), (iv), (v), (vi) and
(vii) of this paragraph (b) shall be Restricted Payments that shall be permitted
to be taken in accordance with this paragraph (b) but shall reduce the amount
that would otherwise be available for Restricted Payments under clause (3) of
paragraph (a) above and the actions described in clauses (viii), (ix) and (x) of
this paragraph (b) shall be Restricted Payments that shall be permitted to be
taken in accordance with this paragraph (b) and shall not reduce the amount that
would otherwise be available for Restricted Payments under clause (3) of
paragraph (a).
(c) Notwithstanding the foregoing, the Company will not, and will not
permit any Restricted Subsidiary to, pay any cash dividends on any shares of
Capital Stock of the Company which shall rank junior to the Senior Exchangeable
Preferred Stock until such time as the Notes have received a rating from Moody's
of at least "B1" or higher.
SECTION 1010. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company (i) shall not permit any Restricted Subsidiary to issue
any Capital Stock (other than to the Company or a wholly owned Restricted
Subsidiary) and (ii) shall not permit any Person (other than the Company or a
wholly owned Restricted Subsidiary) to own any Capital Stock of any Restricted
Subsidiary; provided, however, that this Section 1010 shall not prohibit (a) the
issuance and sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of this
Indenture, (b) the ownership by other Persons of Qualified Capital Stock (other
than Preferred Stock) issued prior to the time such Restricted Subsidiary became
a Subsidiary of the Company that was neither issued in contemplation of such
Subsidiary becoming a Subsidiary nor acquired at that time or (c) the ownership
by directors of director's qualifying shares or the ownership by foreign
nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated
by applicable law.
SECTION 1011. Limitation on Transactions with Affiliates.
------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with, or for the
benefit of, any Affiliate of the Company or any Restricted Subsidiary (other
than
<PAGE>
94
the Company or a Restricted Subsidiary) (collectively, "Interested Persons"),
unless (i) such transaction or series of transactions are on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could have been able to be obtained in an arm's-length
transaction with third parties that are not Interested Persons, (ii) with
respect to any transaction or series of related transactions involving aggregate
consideration equal to or greater than $1,000,000, the Company has delivered an
Officers' Certificate to the Trustee certifying that such transaction or series
of transactions complies with clause (i) above and (iii) with respect to any
transaction or series of related transactions involving aggregate consideration
equal to or greater than $5,000,000, such transaction or series of related
transactions (x) has been approved by the Board of Directors of the Company
(including a majority of the Disinterested Directors of the Company) or (y) the
Company has obtained a written opinion from a nationally recognized investment
banking or valuation firm certifying that such transaction or series of related
transactions is fair to the Company or its Restricted Subsidiary, as the case
may be, from a financial point of view; provided, however, that this Section
1011 shall not restrict (1) the Company from paying reasonable and customary
regular compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted Subsidiary,
(2) the payment of management fees to Permitted Holders in an aggregate amount
not to exceed $500,000 per year, (3) loans and advances to officers, directors
and employees of the Company or any Restricted Subsidiary in the ordinary course
of business in accordance with the past practices of the Company or any
Restricted Subsidiary not to exceed $3,000,000 in the aggregate outstanding at
any time, (4) any transactions made in compliance with Section 1009, (5) the
issuance and sale of Qualified Capital Stock of the Company to Persons who are
stockholders of the Company at the time of such issuance and sale and (6) the
performance of any written agreement as in effect on the date of this Indenture
and as amended from time to time, provided that any such amendment is not less
favorable in any material respect to the Company or any Restricted Subsidiary
than the terms of such agreement as in effect on the date of this Indenture.
SECTION 1012. Limitation on Liens.
-------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind securing Pari Passu Indebtedness or Subordinated
Indebtedness of the Company on or with respect to any of its property or assets,
including any shares of stock or indebtedness of any Restricted Subsidiary,
whether owned at the date of this Indenture or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless (x) in the case of any Lien securing Pari
Passu Indebtedness of the Company, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to or pari passu with
such Lien and (y) in the case of any Lien securing Subordinated Indebtedness of
the Company, the Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Lien.
<PAGE>
95
(b) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien securing Pari Passu Indebtedness or Subordinated Indebtedness of such
Restricted Subsidiary on or with respect to any such Restricted Subsidiary's
properties or assets, including any shares of stock or Indebtedness of any
Subsidiary of such Restricted Subsidiary, whether owned at the date of this
Indenture or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Pari Passu Indebtedness of the Restricted
Subsidiary, such Note Guarantee is secured by a Lien on such property, assets or
proceeds that is senior in priority to or pari passu with such Lien and (y) in
the case of any Lien securing Subordinated Indebtedness of the Restricted
Subsidiary, such Note Guarantee is secured by a Lien on such property, assets or
proceeds that is senior in priority to such Lien.
SECTION 1013. Purchase of Notes upon Change in Control.
----------------------------------------
(a) If a Change in Control shall occur at any time, then each Holder
of Notes will have the right to require that the Company purchase such Holder's
Notes, in whole or in part in integral multiples of $1,000, at a purchase price
(the "Change in Control Purchase Price") in cash in an amount equal to 101% of
the principal amount thereof, plus accrued interest, if any, to the date of
purchase (the "Change in Control Purchase Date"), pursuant to the offer
described below (the "Change in Control Offer") and the other procedures set
forth in this Indenture.
(b) Within 30 days following any Change in Control, the Company shall
notify the Trustee thereof and give written notice of such Change in Control
Offer to each Holder by first-class mail, postage prepaid, at the address of
such Holder appearing in the Note Register, stating, among other things, (i) the
Change in Control Purchase Price and the Change in Control Purchase Date, which
shall be a Business Day no earlier than 30 days nor later than 75 days from the
date such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act or any applicable securities laws or
regulations; (ii) that any Note not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the Change in Control
Purchase Price, any Notes accepted for payment pursuant to the Change in Control
Offer shall cease to accrue interest after the Change in Control Purchase Date;
and (iv) that Holders electing to have any Notes purchased pursuant to a Change
in Control Offer shall be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change in Control
Purchase Date; (v) that Holders shall be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change in Control Purchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing its election to have such Notes purchased; (vi) that
Holders whose Notes are being purchased only in part shall be issued new Notes
equal in principal amount to the unpurchased
<PAGE>
96
portion of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof; (vii) the
instructions that the Holders of Notes must follow in order to tender their
Notes; and (viii) the circumstances and relevant facts regarding such Change in
Control.
(c) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection with
a Change in Control Offer.
(d) The Company shall not, and shall not permit any Restricted
Subsidiary to, create or permit to exist or become effective any restriction
(other than restrictions existing under the Senior Credit Agreement or under
Indebtedness as in effect on the date of this Indenture) that would materially
impair the ability of the Company to make a Change in Control Offer to purchase
the Notes or, if such Change in Control Offer is made, to pay for the Notes
tendered for purchase.
(e) Prior to complying with the provisions of this Section 1013, but
in any event within 30 days following a Change in Control, the Company shall
either terminate all commitments and repay in full all Indebtedness under the
Senior Credit Agreement and or obtain the requisite consents, if any, under the
Senior Credit Agreement to permit the purchase of the Notes as provided for
under this Section 1013.
(f) The Company shall not, and shall not permit any Restricted
Subsidiary to, create or permit to exist or become effective any restriction
(other than restrictions existing under the Senior Credit Agreement or under
Indebtedness as in effect on the date of this Indenture) that would materially
impair the ability of the Company to make a Change in Control Offer to purchase
the Notes or, if such Change in Control Offer is made, to pay for the Notes
tendered for purchase.
SECTION 1014. Limitation on Sale of Assets.
----------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly, or indirectly, consummate any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution) and (ii) at least 75% of such
consideration consists of cash or Cash Equivalents. The amount of any (I)
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor or
any Senior Indebtedness of the Company or any Subsidiary Guarantor that is
actually assumed by the transferee in such Asset Sale and from which the Company
and the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries (excluding any liabilities that are
incurred in connection with or in anticipation of such Asset Sale) and (II)
notes or other similar obligations received by the Company or any Restricted
Subsidiary from such transferee that are converted, sold or
<PAGE>
97
exchanged within 30 days of the related Asset Sale by the Company or the
Restricted Subsidiaries into cash shall be deemed to be cash, in an amount equal
to the net cash proceeds realized upon such conversion, sale or exchange for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may use the Net Cash Proceeds thereof, within 12 months after
such Asset Sale, to (i) permanently repay or prepay any then outstanding Senior
Indebtedness of the Company or any Restricted Subsidiary (and to correspondingly
reduce commitments with respect thereto) or (ii) invest (or enter into a legally
binding agreement to invest) in other properties or assets to replace the
properties or assets that were the subject of the Asset Sale or in properties
and assets that will be used in businesses of the Company or its Restricted
Subsidiaries, as the case may be, existing at the time such assets are sold. If
any such legally binding agreement to invest such Net Cash Proceeds is
terminated, then the Company may, within 90 days of such termination or within
12 months of such Asset Sale, whichever is later, invest such Net Cash Proceeds
as provided in clause (i) or (ii) (without regard to the parenthetical contained
in such clause (ii)) above. The amount of such Net Cash Proceeds not so used as
set forth above in this paragraph (b) shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000,
the Company shall, within 30 Business Days, make an offer to purchase (an
"Excess Proceeds Offer") from all holders of Notes, on a pro rata basis, in
accordance with the procedures set forth below, the maximum principal amount
(expressed as an integral multiple of $1,000) of Notes that may be purchased
with the Excess Proceeds. The offer price as to each Note shall be payable in
cash in an amount equal to 100% of the principal amount of such Note plus
accrued interest, if any (the "Offered Price"), to the date such Excess Proceeds
Offer is consummated (the "Offer Date"). To the extent that the aggregate
principal amount of Notes tendered pursuant to an Excess Proceeds Offer is less
than the Excess Proceeds, the Company may use such deficiency for any lawful
purposes. If the aggregate principal amount of Notes validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased
will be selected on a pro rata basis. Upon completion of such Exceeds Proceeds
Offer, the amount of Excess Proceeds shall be reset to zero.
(d) Whenever the Excess Proceeds received by the Company exceed
$10,000,000, such Excess Proceeds shall be set aside by the Company in a
separate account pending (i) deposit with the Trustee or a paying agent of the
amount required to purchase the Notes tendered in an Excess Proceeds Offer, (ii)
delivery by the Company of the Offered Price to the holders of the Notes
tendered in an Excess Proceeds Offer and (iii) application, as set forth above,
of Excess Proceeds for any lawful purposes. Such Excess Proceeds may be
invested in Cash Equivalents, provided that the maturity date of any investment
shall not be later than the Offer Date. The Company shall be entitled to any
interest or dividends accrued, earned or paid on such Cash Equivalents.
<PAGE>
98
(e) If the Company becomes obligated to make an Excess Proceeds Offer
pursuant to clause (c) above, the Notes shall be purchased by the Company, at
the option of the Holders thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event the amount of Excess Proceeds is less
than the aggregate Offered Price of all Notes tendered.
(f) Within 15 days after the obligation of the Company to make an
Excess Proceeds Offer arises, the Company shall notify the Trustee thereof and
give written notice of such Excess Proceeds Offer to each Holder of Notes by
first-class mail, postage prepaid, at the address of such Holder appearing in
the Note Register, stating, (i) the Offered Price and the Offer Date, which
shall be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act or any applicable securities laws or
regulations; (ii) that any Note not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the Offered Price, any
Notes accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrue interest after the date of purchase; (iv) that Holders electing to have
any Notes purchased pursuant to an Excess Proceeds Offer shall be required to
surrender the Notes, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Offer Date; (v) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Offer Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing its election to have such Notes purchased; (vi) that Holders whose
Notes are being purchased only in part shall be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof; (vii) the instructions that the Holders of Notes must follow
in order to tender their Notes; and (viii) the circumstances and relevant facts
regarding such Excess Proceeds Offer.
(g) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection with
an Excess Proceeds Offer.
SECTION 1015. Limitations on Guarantees of Indebtedness by Restricted
-------------------------------------------------------
Subsidiaries.
- ------------
(a) The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) (A) if such Restricted
Subsidiary is not a Subsidiary
<PAGE>
99
Guarantor, such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture, in form satisfactory to the Trustee, providing for a
guarantee of the Notes by such Restricted Subsidiary and delivers to such
Trustee an Opinion of Counsel reasonably satisfactory to such Trustee to the
effect that such supplemental indenture has been duly executed and delivered by
such Restricted Subsidiary and is in compliance with the terms of this Indenture
and (B) with respect to any guarantee by a Restricted Subsidiary of Subordinated
Indebtedness of the Company, any such guarantee shall be subordinated to such
Restricted Subsidiary's Note Guarantee at least to the same extent as such
guaranteed Indebtedness is subordinated to the Notes and (ii) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Note Guarantee.
(b) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) will provide
by its terms that it will be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer to any Person not an
Affiliate of the Company of all of the Company's Capital Stock in, or all or
substantially all the assets of, the applicable Subsidiary Guarantor (which
sale, exchange or transfer is otherwise in compliance with this Indenture) or
(ii) the designation of such Restricted Subsidiary as an Unrestricted Subsidiary
in accordance with the terms of this Indenture.
SECTION 1016. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- ---------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock to the
Company or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company or any other Restricted Subsidiary, (c) make loans or advances to the
Company or any other Restricted Subsidiary, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary (other than
customary restrictions on transfers of property subject to a Lien permitted
under this Indenture that would not materially adversely affect the Company's
ability to satisfy its obligations under the Notes and this Indenture) or (e)
guarantee any Indebtedness of the Company or any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) customary provisions restricting subletting or assignment
of any lease or assignment of any other contract to which the Company or any
Restricted Subsidiary is a party or to which any of their respective properties
or assets are subject, (iii) any agreement or other instrument of a Person
acquired by the Company or any Restricted Subsidiary in existence at the time of
such acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, (iv)
<PAGE>
100
encumbrances and restrictions in effect on the Issuance Date pursuant to the
Senior Credit Facility and its related documentation, (v) any encumbrance or
restriction contained in contracts for sales of assets permitted by Section 1014
with respect to the assets to be sold pursuant to such contract and (vi) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (iii) and (iv); provided that the terms
and conditions of any such encumbrances or restrictions are not materially less
favorable to the Holders than those under or pursuant to the agreement so
extended, renewed, refinanced or replaced.
SECTION 1017. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into any Sale and Leaseback Transaction with
respect to any property or assets (whether now owned or hereafter acquired),
unless (i) the sale or transfer of such property or assets to be leased is
treated as an Asset Sale and the Company complies with Section 1014 and (ii) the
Company or such Restricted Subsidiary would be permitted to incur Indebtedness
under Section 1008 in the amount of the Capitalized Lease Obligations incurred
in respect of such Sale and Leaseback Transaction; provided, however, that the
Company and its Restricted Subsidiaries will not be required to comply with
Section 1017 with respect to the sale and leaseback of the Headquarters
Facility.
SECTION 1018. Limitation on Other Senior Subordinated Indebtedness.
----------------------------------------------------
Neither the Company nor any Restricted Subsidiary shall incur, create,
assume, guarantee or in any other manner become directly or indirectly liable
with respect to or responsible for, or permit to remain outstanding, any
Indebtedness, other than the Notes, that is subordinate or junior in right of
payment to any Senior Indebtedness unless such Indebtedness is also pari passu
with, or subordinate in right of payment to, the Notes pursuant to subordination
provisions substantially similar to those contained in this Indenture.
SECTION 1019. Limitation on Unrestricted Subsidiaries.
---------------------------------------
The Company shall not make, and shall not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to Section 1008. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
Section 1019 (i) shall be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Restricted Subsidiary and (ii) may be made in cash or property.
<PAGE>
101
SECTION 1020. Reports.
-------
The Company shall file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act.
The Company shall also (a) file with the Trustee, and provide to each Holder of
Notes (at their respective addresses set forth in the Note Register, without
cost to such Holder, copies of such reports and documents within 15 days after
the date on which the Company files such reports and documents with the
Commission or the date on which the Company would be required to file such
reports and documents if the Company were so required, and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, supply at the Company's cost copies of
such reports and documents to any prospective Holder promptly upon written
request.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 1021. Waiver of Certain Covenants.
---------------------------
The Company and the Restricted Subsidiaries may omit in any particular
instance to comply with any term, provision or condition set forth in Sections
1007 to 1012, inclusive, and Sections 1015 to 1019, inclusive, if before or
after the time for such compliance the Holders of at least a majority in
aggregate principal amount of all Outstanding Notes affected by such term,
provision or covenant, by Act of such Holders, waive such compliance in such
instance with such term, provision or condition, but no such waiver shall extend
to or affect such term, provision or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company, the Restricted Subsidiaries and the duties of the Trustee, as
applicable, in respect of any such term, provision or condition shall remain in
full force and effect.
<PAGE>
102
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption.
----------
The Notes may or shall be, as the case may be, redeemed, as a whole or
from time to time in part, subject to the conditions and the Redemption Prices
specified in the form of Note, together with accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of Holders of record on
relevant record dates to receive interest due on an Interest Payment Date), on
the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with the terms of such Notes and in accordance with this Article
Eleven.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed, or, if such Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee shall
deem fair and appropriate (and in such manner as complies with applicable legal
requirements) and which may provide for the selection for redemption of portions
of the principal of Notes; provided, however, that no such partial redemption
shall reduce the portion of the principal amount of a Note not redeemed to less
than $1,000.
<PAGE>
103
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed. The Trustee shall give notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall deliver to the Trustee, at least 45 days prior
to the Redemption Date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the following items.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification of the particular Notes to be redeemed, as well as the
aggregate principal amount of Notes to be redeemed and the aggregate
principal amount of Notes to be outstanding after such partial redemption,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the holder will receive, without charge, a new
Note or Notes of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and, unless the Company defaults in making the
redemption payment, that interest on Notes called for redemption (or the
portion thereof) will cease to accrue on and after said date,
<PAGE>
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(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any,
(7) the name and address of the Paying Agent,
(8) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price,
(9) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP number, if any, listed in such notice
or printed on the Notes, and
(10) the paragraph of the Notes pursuant to which the Notes are to be
redeemed.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to 10:00 A.M. on any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Regular Record Date or Special Record Date, as the case
may be, according to their terms and the provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate of interest set forth in the
Note.
<PAGE>
105
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at a Place of Payment therefor
(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holders attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Note without service charge, a
new Note or Notes, of any authorized denomination as requested by such Holder,
in an aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Note so surrendered, provided, that each such
new Note will be in a principal amount of $1,000 or integral multiple thereof.
ARTICLE TWELVE
SUBORDINATION OF NOTES
SECTION 1201. Notes Subordinate to Senior Indebtedness.
----------------------------------------
The Company covenants and agrees, and each Holder of a Note, by its
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Notes and the payment of the principal of (and premium, if any) and
interest on each and all of the Notes are hereby expressly made subordinate and
subject in right of payment as provided in this Article to the prior payment in
full in cash or cash equivalents of all Senior Indebtedness; provided, however,
that the Notes, the Indebtedness represented thereby and the payment of the
principal of (and premium, if any) and interest on the Notes in all respects
shall rank equally with, or prior to, all existing and future senior
subordinated indebtedness (including, without limitation, Indebtedness) of the
Company that is subordinated to Senior Indebtedness.
SECTION 1202. Payment over of Proceeds upon Dissolution, etc.
-----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Company or to its assets, or
(b) any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or other marshalling of
assets or liabilities of the Company (except in connection with the
consolidation or merger of the Company or its liquidation or dissolution
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety upon the terms and conditions described under
Article Eight), then and in any event:
<PAGE>
106
(1) the holders of Senior Indebtedness shall first be entitled to
receive payment in full in cash or cash equivalents of all Senior
Indebtedness, or provision shall be made for such payment in full, before
the Holders will be entitled to receive any payment or distribution of any
kind or character (other than any payment or distribution in the form of
equity securities or subordinated securities of the Company or any
successor obligor that, in the case of any such subordinated securities,
are subordinated in right of payment to all Senior Indebtedness that may at
the time be outstanding to at least the same extent as the Notes are so
subordinated as provided in this Indenture (such equity securities or
subordinated securities hereinafter being "Permitted Junior Securities")
and any payment made pursuant to Article Fourteen from monies or U.S.
Government Obligations previously deposited with the Trustee) on account of
principal of (or premium, if any) or interest on the Notes or on account of
the purchase or redemption or other acquisition of Notes; and
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than a payment
or distribution in the form of Permitted Junior Securities and any payment
made pursuant to Article Fourteen from monies or U.S. Government
Obligations previously deposited with the Trustee), by set-off or
otherwise, to which the Holders or the Trustee would be entitled but for
the provisions of this Indenture shall be paid by the liquidating trustee
or agent or other Person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the holders of Senior Indebtedness or their representative
ratably according to the aggregate amounts remaining unpaid on account of
the Senior Indebtedness to the extent necessary to make payment in full of
all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance, transfer or lease of its properties and assets substantially as
an entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of the Company for the purposes of this Section if the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer or lease such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance, transfer or lease, comply with the conditions
set forth in Article Eight.
SECTION 1203. Suspension of Payment When Designated Senior
--------------------------------------------
Indebtedness in Default.
- -----------------------
<PAGE>
107
(a) Unless Section 1202 shall be applicable, upon the occurrence of a
Payment Default, no payment or distribution of any assets of the Company of any
kind or character, whether in cash, property or securities (other than Permitted
Junior Securities and payments made pursuant to Article Fourteen from monies or
U.S. Government Obligations previously deposited with the Trustee), shall be
made by or on behalf of the Company on account of principal of (or premium, if
any) or interest on the Notes or on account of the purchase or redemption or
other acquisition of Notes unless and until such Payment Default shall have been
cured or waived in writing from the Agent Bank or any other representative of a
holder of Designated Senior Indebtedness or shall have ceased to exist or such
Designated Senior Indebtedness shall have been discharged or paid in full in
cash or cash equivalents, after which the Company shall resume making any and
all required payments in respect of the Notes, including any missed payments.
(b) Unless Section 1202 shall be applicable, upon (1) the occurrence
of a Non-Payment Default and (2) receipt by the Trustee of written notice
thereof from the Agent Bank or any other representative of a holder of
Designated Senior Indebtedness, then no payment or distribution of any assets of
the Company of any kind or character, whether in cash, property or securities
(other than Permitted Junior Securities and payments made pursuant to Article
Fourteen from monies or U.S. Government Obligations previously deposited with
the Trustee), shall be made by or on behalf of the Company on account of any
principal of (or premium, if any) or interest on the Notes or on account of the
purchase, redemption or other acquisition of Notes for a period ("Payment
Blockage Period") commencing on the date of receipt by the Trustee of written
notice from the Agent Bank or such other representative and ending on the
earliest of (i) 179 days thereafter (provided that any Designated Senior
Indebtedness as to which notice was given shall not theretofore have been
accelerated, in which case the provisions of paragraph (a) shall apply), (ii)
the date on which such Non-Payment Default is cured, waived or ceases to exist
or such Designated Senior Indebtedness is discharged or paid in full in cash or
cash equivalents or (iii) the date on which such Payment Blockage Period shall
have been terminated by written notice to the Trustee or the Company from the
Agent Bank or such other representative initiating such Payment Blockage Period,
after which the Company will resume making any and all required payments in
respect of the Notes, including any missed payments. In any event, not more than
one Payment Blockage Period may be commenced during any period of 360
consecutive days. No event of default that existed or was continuing on the date
of the commencement of any Payment Blockage Period will be, or can be, made the
basis for the commencement of a subsequent Payment Blockage Period, unless such
default has been cured or waived for a period of not less than 90 consecutive
days subsequent to the commencement of such initial Payment Blockage Period. In
no event will a Payment Blockage Period extend beyond 179 days.
In the event that, notwithstanding the foregoing and the provisions of
Section 1202, any payments or distribution shall be made to the Trustee (and not
paid over to the Holders of the Notes) which is prohibited by the foregoing
provisions of this Section and the provisions of Section 1202, then and in such
event such payment shall be paid over and delivered forthwith by the Trustee to
the Agent Bank and any other representative of holders of Designated Senior
<PAGE>
108
Indebtedness, as their interests may appear, to the extent necessary to pay in
full, in cash or cash equivalents all Designated Senior Indebtedness.
SECTION 1204. Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Notes shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 1202 or under the conditions
described in Section 1203, from making payments at any time of principal of, and
premium, if any, or interest on the Notes.
SECTION 1205. Subrogation to Rights of Holders of Senior
------------------------------------------
Indebtedness.
- ------------
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Notes shall be subrogated (equally and ratably with the holders of all
Pari Passu Indebtedness of the Company) to the rights of the holders of such
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness. For purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holders of the Notes or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Notes or on their behalf or by the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness; it
being understood that the provisions of this Article are intended solely for the
purpose of determining the relative rights of the Holders of Notes, on the one
hand, and the holders of Senior Indebtedness, on the other hand.
SECTION 1206. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as between the Company and the Holders, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders the
principal of, and premium, if any, and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article of the holders of Senior Indebtedness.
<PAGE>
109
SECTION 1207. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by its acceptance thereof authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes. If the Trustee does
not file a proper proof of claim or proof of debt in the form required in any
proceeding referred to in Section 504 hereof at least 30 days before the
expiration of the time to file such claim, the Agent Bank (if the Senior Credit
Agreement is still outstanding) is hereby authorized to file an appropriate
claim for and on behalf of the Holders of the Notes.
SECTION 1208. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without in any way limiting the generality of paragraph (a) of
this Section, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (1) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any
Person liable in any manner for the collection of Senior Indebtedness; and (4)
exercise or refrain from exercising any rights against the Company and any other
Person.
SECTION 1209. Distribution or Notice to Representative.
----------------------------------------
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article Twelve, the Trustee and the Holders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or
<PAGE>
110
payable thereon, the amount or amounts paid or distributed thereon and all other
acts pertinent thereto or to this Article Twelve.
SECTION 1210. Notice to Trustee.
-----------------
(a) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company,
the Agent Bank or a holder of Senior Indebtedness or from any trustee, fiduciary
or agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled in all
respects to assume that no such facts exist; provided, however, that, if the
Trustee shall not have received the notice provided for in this Section at least
three Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal of, and premium, if any, or interest on any Note), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three Business Days
prior to such date.
(b) Subject to TIA Sections 315(a) through 315(d), the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing itself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 1211. Reliance on Judicial Order or Certificate of
--------------------------------------------
Liquidating Agent.
- -----------------
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to TIA Sections 315(a) through 315(d), and
the Holders of the Notes shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy,
<PAGE>
111
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of Notes, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article; provided that such court, trustee,
receiver, custodian, assignee, agent or other Person has been apprised of, or
the order, decree or certificate makes reference to, the provisions of this
Article.
SECTION 1212. Rights of Trustee As a Holder of Senior Indebtedness;
-----------------------------------------------------
Preservation of Trustee's Rights.
- --------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 606.
SECTION 1213. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1212 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1214. No Suspension of Remedies.
-------------------------
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of Notes to take any action to accelerate the maturity of the
Notes pursuant to Article Five or to pursue any rights or remedies hereunder or
under applicable law, except as provided in Article Five.
SECTION 1215. Trust Moneys Not Subordinated.
-----------------------------
Notwithstanding anything contained herein to the contrary, payments
from cash or the proceeds of U.S. Government Obligations held in trust under
Article Fourteen hereof by the Trustee (or other qualifying trustee) and which
were deposited in accordance with the terms of Article Fourteen hereof and not
in violation of Section 1203 hereof for the payment of principal of (and
premium, if any) and interest on the Notes shall not be subordinated to the
prior payment
<PAGE>
112
of any Senior Indebtedness or subject to the restrictions set forth in this
Article Twelve, and none of the Holders shall be obligated to pay over any such
amount to the Company or any holder of Senior Indebtedness or any other creditor
of the Company.
SECTION 1216. Trustee Not Fiduciary for Holders of Senior
-------------------------------------------
Indebtedness.
- ------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if
the Trustee shall mistakenly, in the absence of gross negligence or willful
misconduct, pay over or distribute to Holders of Notes or to the Company or to
any other person cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article or otherwise. With
respect to the holders of Senior Indebtedness, the Trustee undertakes to perform
or to observe only such of its covenants or obligations as are specifically set
forth in this Article and no implied covenants or obligations with respect to
holders of Senior Indebtedness shall be read into this Indenture against the
Trustee.
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Note Guarantees.
---------------
Each Subsidiary Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee, and to the Trustee on behalf of such
Holder, that: (a) the principal of (and premium, if any) and interest on the
Notes will be paid in full when due, whether at Stated Maturity, by acceleration
or otherwise (including, without limitation, the amount that would become due
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Law), together with interest on the overdue principal, if any, and
interest on any overdue interest, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be paid in full or performed, all in accordance with the terms hereof and
thereof; and (b) in case of any extension of time of payment or renewal of any
Notes or of any such other obligations, the same will be paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at Stated Maturity, by acceleration or otherwise, subject, however, in the case
of clauses (a) and (b) above, to the limitations set forth in Section 1305
hereof.
Each Subsidiary Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Subsidiary
Guarantor, the recovery of any judgment against the Company, any action to
enforce the same or
<PAGE>
113
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.
Each Subsidiary Guarantor hereby waives (to the extent permitted by
law) the benefits of diligence, presentment, demand for payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company or any other Person,
protest, notice and all demands whatsoever and covenants that the Note Guarantee
of such Subsidiary Guarantor shall not be discharged as to any Note except by
complete performance of the obligations contained in such Note, this Indenture
and such Note Guarantee. Each Subsidiary Guarantor acknowledges that the Note
Guarantee is a guarantee of payment and not of collection. Each of the
Subsidiary Guarantors hereby agrees that, in the event of a default in payment
of principal (or premium, if any) or interest on such Note, whether at its
Stated Maturity, by acceleration, purchase or otherwise, legal proceedings may
be instituted by the Trustee on behalf of, or by, the Holder of such Note,
subject to the terms and conditions set forth in this Indenture, directly
against each of the Subsidiary Guarantors to enforce such Subsidiary Guarantor's
Note Guarantee without first proceeding against the Company or any other
Subsidiary Guarantor. Each Subsidiary Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Notes, to collect interest on the
Notes, or to enforce or exercise any other right or remedy with respect to the
Notes, such Subsidiary Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights and remedies been permitted to be exercised by the
Trustee or any of the Holders.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company or any Subsidiary Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
any Subsidiary Guarantor, any amount paid by any of them to the Trustee or such
Holder, the Note Guarantee of each of the Subsidiary Guarantors, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (x) subject
to this Article Thirteen, the maturity of the obligations guaranteed hereby may
be accelerated as provided in Article Five hereof for the purposes of the Note
Guarantee of such Subsidiary Guarantor, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Five hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Subsidiary Guarantor for
the purpose of the Note Guarantee of such Subsidiary Guarantor.
Each Note Guarantee shall remain in full force and effect and continue
to be effective should any petition be filed by or against the Company for
liquidation or reorganization, should the Company become insolvent or make an
assignment for the benefit of creditors or should
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a receiver or trustee be appointed for all or any significant part of the
Company's assets, and shall, to the fullest extent permitted by law, continue to
be effective or be reinstated, as the case may be, if at any time payment and
performance of the Notes are, pursuant to applicable law, rescinded or reduced
in amount, or must otherwise be restored or returned by any obligee on the
Notes, whether as a "voidable preference", "fraudulent transfer" or otherwise,
all as though such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored or returned,
the Notes shall, to the fullest extent permitted by law, be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced, restored
or returned.
SECTION 1302. Severability.
------------
In case any provision of any Note Guarantee shall be invalid, illegal
or unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 1303. Restricted Subsidiaries.
-----------------------
If the Company or any of its Restricted Subsidiaries acquires or forms
a Restricted Subsidiary organized within the United States, the Company will
cause any such Restricted Subsidiary (and any other Restricted Subsidiary as
required pursuant to Section 1015) to (i) execute and deliver to the Trustee a
supplemental indenture in accordance with the provisions of Article Nine of this
Indenture pursuant to which such Restricted Subsidiary shall guarantee all of
the obligations on the Notes, whether for principal, premium, if any, interest
(including interest accruing after the filing of, or which would have accrued
but for the filing of, a petition by or against the Company under Bankruptcy
Law, whether or not such interest is allowed as a claim after such filing in any
proceeding under such law) and other amounts due in connection therewith
(including any fees, expenses and indemnities), on a senior unsecured
subordinated basis, and (ii) deliver to such Trustee an Opinion of Counsel
reasonably satisfactory to such Trustee to the effect that such supplemental
indenture has been duly executed and delivered by such Restricted Subsidiary and
is in compliance with the terms of this Indenture. Upon the execution of any
such supplemental indenture, the obligations of the Subsidiary Guarantors and
any such Restricted Subsidiary under their respective Note Guarantees shall
become joint and several and each reference to the "Subsidiary Guarantor" in
this Indenture shall, subject to Section 1308, be deemed to refer to all
Subsidiary Guarantors, including such Restricted Subsidiary.
SECTION 1304. Subordination of Note Guarantees.
--------------------------------
The Note Guarantee issued by any Subsidiary Guarantor will be
unsecured senior subordinated obligations of such Subsidiary Guarantor, ranking
pari passu with all other existing and future senior subordinated indebtedness
of such Subsidiary Guarantor, if any. The Indebtedness evidenced by such Note
Guarantee will be subordinated on the same basis to
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115
Guarantor Senior Indebtedness of such Subsidiary Guarantor as the Notes are
subordinated to Senior Indebtedness under Article Twelve.
SECTION 1305. Limitation of Subsidiary Guarantors' Liability.
----------------------------------------------
Each Subsidiary Guarantor and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the guarantee by each
such Subsidiary Guarantor pursuant to its Note Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law or the provisions of its local law relating to
fraudulent transfer or conveyance. To effectuate the foregoing intention, the
Holders and each such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Note Guarantee shall be
limited to the maximum amount that will not, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Note Guarantee or pursuant to Section 1305 hereof, result in
the obligations of such Subsidiary Guarantor under its Note Guarantee
constituting such fraudulent transfer or conveyance.
SECTION 1306. Contribution.
------------
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under a Note Guarantee, such Funding Guarantor shall be
entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount based on the Adjusted Net Assets (as defined below) of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Subsidiary Guarantor's
obligations with respect to the Note Guarantee of such Subsidiary Guarantor.
"Adjusted Net Assets" of such Subsidiary Guarantor at any date shall mean the
lesser of (x) the amount by which the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Note Guarantee of such Subsidiary Guarantor at such date
and (y) the amount by which the present fair salable value of the assets of such
Subsidiary Guarantor at such date exceeds the amount that will be required to
pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date), excluding debt in respect of the Note Guarantee of such
Subsidiary Guarantor, as they become absolute and matured.
<PAGE>
116
SECTION 1307. Subrogation.
-----------
Each Subsidiary Guarantor shall be subrogated to all rights of Holders
against the Company in respect of any amounts paid by any Subsidiary Guarantor
pursuant to the provisions of Section 1301; provided, however, that, if an Event
of Default has occurred and is continuing, no Subsidiary Guarantor shall be
entitled to enforce or receive any payments arising out of, or based upon, such
right of subrogation until all amounts then due and payable by the Company under
this Indenture or the Notes shall have been paid in full.
SECTION 1308. Reinstatement.
-------------
Each Subsidiary Guarantor hereby agrees (and each Person who becomes a
Subsidiary Guarantor shall agree) that the Note Guarantee provided for in
Section 1301 shall continue to be effective or be reinstated, as the case may
be, if at any time, payment, or any part thereof, of any obligations or interest
thereon is rescinded or must otherwise be restored by a Holder to the Company
upon the bankruptcy or insolvency of the Company or any Subsidiary Guarantor.
SECTION 1309. Release of a Subsidiary Guarantor.
---------------------------------
(a) If no Default exists or would exist under this Indenture, the
Note Guarantee issued by any Subsidiary Guarantor under this Indenture shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer to any Person not an Affiliate of the Company or a
Restricted Subsidiary of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Subsidiary Guarantor (which sale, exchange
or transfer is not prohibited by this Indenture).
(b) Concurrently with the discharge of the Notes under Section 401,
the defeasance of the Notes under Section 1402 hereof, or the covenant
defeasance of the Notes under Section 1403 hereof, the Subsidiary Guarantors
shall be released from all their obligations under their Note Guarantees under
this Article Thirteen.
SECTION 1310. Benefits Acknowledged.
---------------------
Each Subsidiary Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that its guarantee and waivers pursuant to its Note Guarantee are knowingly
made in contemplation of such benefits.
<PAGE>
117
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option and at any time, effect defeasance of
the Notes under Section 1402, or covenant defeasance of the Notes under Section
1403, in accordance with the terms of the Notes and in accordance with this
Article.
SECTION 1402. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1401 of the option
applicable to this Section 1402, the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from their obligations with respect to the
Outstanding Notes and the Note Guarantees, respectively, on the date the
conditions set forth in Section 1404 are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company and the Subsidiary
Guarantors shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Notes, which shall thereafter be deemed to be
"Outstanding" only for the purposes of Section 1405 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under the Notes and this Indenture insofar as the Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of such Outstanding Notes to receive, solely from the trust fund
described in Section 1404 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any) and interest on such Notes
when such payments are due, (B) the Company's obligations with respect to such
Notes under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, and the Company's
obligations in connection therewith and (D) this Article Fourteen. Subject to
compliance with this Article Fourteen, the Company may exercise its option under
this Section 1402 notwithstanding the prior exercise of its option under Section
1403 with respect to such Notes.
SECTION 1403. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1401 of the option
applicable to this Section 1403, the Company and the Subsidiary Guarantors shall
be released from their obligations under Section 801, 802 and Sections 1008
through 1019 with respect to the Outstanding Notes on and after the date the
conditions set forth in Section 1404 are satisfied (hereinafter, "covenant
defeasance"), and such Notes shall thereafter be deemed not to be "Outstanding"
for the purposes of any direction, waiver, consent or declaration or Act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "Outstanding" for all
<PAGE>
118
other purposes hereunder. For this purpose, such covenant defeasance means that,
with respect to such Outstanding Notes, the Company and any Subsidiary
Guarantor, as applicable, may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 501(3) or 501(4) or
otherwise, as the case may be, but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby.
SECTION 1404. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1402 or Section 1403 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Fourteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) an
amount in cash, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment of principal (including any premium) and interest,
if any, on such Notes, money in an amount, or (C) a combination thereof, in
each case in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the principal of (and premium, if any, on)
and interest on such Outstanding Notes on the Stated Maturity of such
principal (and premium, if any) or installment of interest; provided that
the Trustee (or such qualifying trustee) shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to such Notes.
(2) No Default or Event of Default with respect to such Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (8) and (9) of Section 501 are concerned, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any material agreement to which the Company or any Subsidiary Guarantor is
a party or by which it is bound.
<PAGE>
119
(4) In the case of an election under Section 1402, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the Issuance Date, there has been a
change in the applicable federal income tax law or interpretation of such
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
Outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such 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.
(5) In the case of an election under Section 1403, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred.
(6) In the case of defeasance under Section 1402 or covenant
defeasance under Section 1403, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that (A) the trust funds will
not be subject to any rights of holders of Senior Indebtedness under
Article Twelve hereof, and (B) after the 91st day following the deposit or
after the date such opinion is delivered, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the Notes or any Note Guarantee over
the other creditors of either the Company or any Subsidiary Guarantor with
the intent of hindering, delaying or defrauding creditors of either the
Company or any Subsidiary Guarantor.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1402
or the covenant defeasance under Section 1403, as the case may be, have
been complied with.
SECTION 1405. Deposited Money and Government Obligations to Be Held
-----------------------------------------------------
in Trust; Other Miscellaneous Provisions.
- ----------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other
<PAGE>
120
qualifying trustee, collectively for purposes of this Section 1405, the
"Trustee") pursuant to Sections 1404 and 1406 in respect of such Outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Notes of all sums due and
to become due thereon in respect of principal (and premium, if any) and
interest, but such money need not be segregated from other funds except to the
extent required by law. Money and U.S. Government Obligations so held in trust
are not subject to Article Twelve.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1404 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of such Outstanding Notes.
Anything in this Article Fourteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations (or other property and any
proceeds therefrom) held by it as provided in Section 1404 which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance, as applicable, in accordance with
this Article.
SECTION 1406. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1405 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and such Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1402 or 1403, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1405; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any such Note following the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
TUESDAY MORNING CORPORATION
By ______________________________________
Name: Mark E. Jarvis
Title: Senior Vice President, Chief
Financial Officer and Secretary
TMI HOLDINGS, INC.
By ______________________________________
Name: Alan L. Oppenheimer
Title: Senior Vice President, Secretary
and Treasurer
TUESDAY MORNING, INC.
By ______________________________________
Name: Mark E. Jarvis
Title: Senior Vice President, Chief
Financial Officer and Secretary
FRIDAY MORNING, INC.
By ______________________________________
Name: Jerry M. Smith
Title: President and Chief Operating
Officer
<PAGE>
TMIL CORPORATION
By ______________________________________
Name: Alan L. Oppenheimer
Title: Senior Vice President, Secretary
and Treasurer
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:______________________________________
Name:
Title:
<PAGE>
Exhibit A
---------
[FACE OF NOTE]
TUESDAY MORNING CORPORATION
11% [Series B]/1/ Senior Subordinated Note due 2007
No. _______________ CUSIP No. __________
$ __________
TUESDAY MORNING CORPORATION, a Delaware corporation (the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, promises to pay to ___________, or its
registered assigns, the principal sum of ____________________________________
Dollars ($___________), on December 15, 2007.
[Interest Rate: [__]% per annum.]/1/
Interest Payment Dates: June 15 and December 15 of each year
commencing June 15, 1998.
Regular Record Dates: June 1 and December 1 of each year.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
__________________
/1/ Include only for Exchange Notes.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: _____________________ TUESDAY MORNING CORPORATION
By: _________________________
Name:
Title:
<PAGE>
A-3
(Form of Trustee's Certificate of Authentication)
This is one of the 11% [Series B]/2/ Senior Subordinated Notes due
2007 referred to in the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Dated: __________ By: ___________________________
Authorized Signatory
___________________
/2/ Include only for Exchange Note.
<PAGE>
A-4
[REVERSE SIDE OF NOTE]
TUESDAY MORNING CORPORATION
11% [Series B] /1/Senior Subordinated Note due 2007
1. Principal and Interest; Subordination.
-------------------------------------
The Company will pay the principal of this Note on December 15, 2007.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate of 11% per
annum [(subject to adjustment as provided below)]/2/ [except that interest
accrued on this Note pursuant to the fourth paragraph of this Section 1 for
periods prior to the applicable Exchange Date (as such term is defined in the
Registration Rights Agreement referred to below) will accrue at the rate or
rates borne by the Notes from time to time during such periods]./1/
Interest will be payable semi-annually (to the Holders of record of
the Notes (or any Predecessor Notes) at the close of business on the June 1 or
December 1 immediately preceding the Interest Payment Date) on each Interest
Payment Date, commencing June 15, 1998.
[The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated December 29, 1997, among the Company, the
Subsidiary Guarantors and the Initial Purchasers named therein (the
"Registration Rights Agreement"). In the event that either (a) the Exchange
Offer Registration Statement (as such term is defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 45th calendar day following the date of original issue of the Notes, (b)
the Exchange Offer Registration Statement (as such term is defined in the
Registration Rights Agreement) has not been declared effective on or prior to
the 120th calendar day following the date of original issue of the Notes or (c)
the Exchange Offer is not consummated or a Shelf Registration Statement (as such
terms are defined in the Registration Rights Agreement) is not declared
effective on or prior to the 150th calendar day following the date of original
issue of the Notes, the interest rate borne by this Note shall be increased by
one-quarter of one percent per annum following such 45-day period in the case of
(a) above, following such 120-day period in the case of (b) above or following
such 150-day period in the case of (c) above, which rate will be increased by an
additional one-quarter of one percent per annum for each 90-day period that any
additional interest continues to accrue;
____________________
/1/ Include only for Exchange Note.
/2/ Include only for Exchange Note.
<PAGE>
A-5
provided that the aggregate increase in such annual interest rate shall in no
event exceed one percent. Upon (x) the filing of the Exchange Offer Registration
Statement after the 45-day period described in clause (a) above, (y) the
effectiveness of the Exchange Offer Registration Statement after the 120-day
period described in clause (b) above or (z) the consummation of the Exchange
Offer or the effectiveness of a Shelf Registration Statement, as the case may
be, after the 150-day period described in clause (c) above, the interest rate
borne by this Note from the date of such filing, effectiveness or consummation,
as the case may be, will be reduced to the interest rate set forth above;
provided, however, that, if after any such reduction in interest rate, a
different event specified in clause (a), (b) or (c) above occurs, the interest
rate may again be increased pursuant to the foregoing provisions.]/1/
Interest on this Note will accrue from the most recent date to which
interest has been paid [on this Note or the Note surrendered in exchange
herefor]/2/ or, if no interest has been paid, from December 29, 1997; provided
that, if there is no existing default in the payment of interest and if this
Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. 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 and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the rate of interest applicable to the Notes.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness, and this Note is issued
subject to such provisions. Each Holder of this Note, by accepting the same,
(a) agrees to and shall be bound by such provisions, (b) authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination as provided in the Indenture and (c) appoints
the Trustee its attorney-in-fact for such purpose.
2. Method of Payment.
-----------------
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes on each June 15 and December 15 to the Persons who
are Holders (as reflected in the Note Register at the close of business on the
June 1 and December 1 immediately preceding the Interest Payment Date), in each
case, even if the Note is cancelled on registration of transfer or registration
of exchange after such Regular Record Date; provided that, with respect to the
___________________
/1/ Include only for Initial Note.
/2/ Include only for Exchange Note.
<PAGE>
A-6
payment of principal, the Company will make payment to the Holder that
surrenders this Note to any Paying Agent on or after December 15, 2007.
The Company will pay principal (premium, if any) 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 (premium, if
any) and interest by its check payable in such money. The Company may pay
interest on the Notes either (a) by mailing a check for such interest to a
Holder's registered address (as reflected in the Note Register) or (b) by wire
transfer to an account located in the United States maintained by the payee. If
a payment date is a date other than a Business Day at a Place of Payment,
payment may be made at that place on the next succeeding day that is a Business
Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Note Registrar.
The Company may change any Paying Agent or Note Registrar upon written notice
thereto. The Company, any Subsidiary or any Affiliate of any of them may act as
Paying Agent, Note Registrar or co-registrar.
4. Indenture; Limitations.
----------------------
The Company issued the Notes under an Indenture dated as of December
29, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and
Harris Trust and Savings Bank, as trustee (the "Trustee"). Capitalized terms
herein are used as defined in the Indenture unless otherwise indicated. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act. The Notes are subject to
all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this Note
and the terms of the Indenture, the terms of the Indenture shall control.
The Notes are unsecured senior subordinated obligations of the
Company. The Indenture limits the aggregate principal amount of the Notes to
$100,000,000.
5. Redemption.
----------
Optional Redemption. The Notes may be redeemed at the option of the
-------------------
Company, in whole or in part, at any time and from time to time on or after
December 15, 2002, 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 Regular Record Date to receive interest due on an Interest Payment Date
that is on or
<PAGE>
A-7
prior to the Redemption Date), if redeemed during the 12-month period beginning
December 15 of each of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002........................... 105.50%
2003........................... 103.67%
2004........................... 101.83%
2005 and thereafter............ 100.00%
</TABLE>
In addition to the optional redemption of the Notes in accordance with
the provisions of the preceding paragraph, at any time prior to December 15,
2000, the Company may redeem up to $35,000,000 aggregate principal amount of the
Notes, within 20 days of one or more Public Equity Offerings with the net
proceeds of such offerings, at 111% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of holders of record on relevant Regular Record Dates to receive interest
due on an Interest Payment Date that is on or prior to the Redemption Date);
provided, however, that at least $65,000,000 of the original aggregate principal
amount of the Notes remains outstanding thereafter.
If less than all the Notes are to be redeemed pursuant to the
preceding two paragraphs, the Trustee shall select the Notes or portions thereof
to be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes being redeemed are listed, or if
the Notes are not so listed, on a pro rata basis, by lot or by such other method
the Trustee shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
Notice of a redemption will be mailed, first-class postage prepaid, at
least 30 days but not more than 60 days before the Redemption Date to each
Holder to be redeemed at such Holder's last address as it appears in the Note
Register. Notes in original denominations larger than $1,000 may be redeemed in
part in integral multiples of $1,000. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called for redemption,
unless the Company defaults in the payment of the Redemption Price.
6. Repurchase upon a Change in Control and Asset Sales.
---------------------------------------------------
Upon the occurrence of (a) a Change in Control, the Holders of the
Notes will have the right to require that the Company purchase such Holder's
outstanding Notes, in whole or in part, at a purchase price of 101% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase and (b) Asset Sales, the Company may
be obligated to make offers to purchase Notes with a portion of the Net Cash
Proceeds of such Asset Sales at a
<PAGE>
A-8
redemption price of 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
7. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form without coupons, in denominations of
$1,000 and multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Notes in accordance with the Indenture. The Note
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Note Registrar need not register the
transfer or exchange of any Notes selected for redemption (except the unredeemed
portion of any Note being redeemed in part).
8. Persons Deemed Owners.
---------------------
A Holder may be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal (premium, if any) or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of (premium, if any) and accrued interest on the Notes (a)
to redemption or maturity, the Company will be discharged from the Indenture and
the Notes, except in certain circumstances for certain sections thereof, and (b)
to the Stated Maturity, the Company will be discharged from certain covenants
set forth in the Indenture.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend
<PAGE>
A-9
or supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not adversely
affect the rights of any Holder.
12. Restrictive Covenants.
---------------------
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Capital Stock of
Restricted Subsidiaries; (iv) transactions with Affiliates; (v) Liens; (vi)
purchase of Notes upon a Change in Control; (vii) disposition of proceeds of
Asset Sales; (viii) guarantees of Indebtedness by Restricted Subsidiaries; (ix)
dividend and other payment restrictions affecting Restricted Subsidiaries; (x)
merger and certain transfers of assets; and (xi) limitation on Unrestricted
Subsidiaries. Within 120 days after the end of each fiscal year and within 45
days after each fiscal quarter, the Company must report to the Trustee on
compliance with such limitations.
13. Successor Persons.
-----------------
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. Remedies for Events of Default.
------------------------------
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may declare all the Notes to be
immediately due and payable; provided that so long as the Senior Credit
Agreement shall be in full force and effect, if an Event of Default shall have
occurred and be continuing (other than with respect to certain bankruptcy or
insolvency defaults with respect to the Company), any such acceleration shall
not be effective until the earlier to occur of (x) five Business Days following
delivery of a written notice of such acceleration of the Notes to the Agent Bank
under the Senior Credit Agreement and (y) the acceleration of any indebtedness
under the Senior Credit Agreement. If a bankruptcy or insolvency default with
respect to the Company or any of its Significant Subsidiaries occurs and is
continuing, the Notes automatically become immediately due and payable. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in aggregate principal amount of the Notes then outstanding may direct
the Trustee in its exercise of any trust or power.
<PAGE>
A-10
15. Note Guarantees.
---------------
The Company's obligations under the Notes are fully, irrevocably and
unconditionally guaranteed on a senior unsecured basis, to the extent set forth
in the Indenture, by each of the Subsidiary Guarantors.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to, accept
deposits from, perform services for, and otherwise deal with, the Company and
its Affiliates as if it were not the Trustee.
17. Authentication.
--------------
This Note shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Note.
18. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Tuesday Morning
Corporation, 14621 Inwood Road, Dallas, Texas 75244, Attention: Chief Financial
Officer.
<PAGE>
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
________________________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
December 29, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
Check One
---------
(a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
--
(b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and
<PAGE>
A-12
until the conditions to any such transfer of registration set forth herein and
in Sections 311 and 312 of the Indenture shall have been satisfied.
Date: ______________________
__________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee: ___________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: _____________________ _________________________________________
NOTICE: To be executed by an executive
officer
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1013 or Section 1014 of the Indenture, check the Box: ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1013 or Section 1014 of the Indenture, state the amount (in
original principal amount) below:
$_____________________.
Date: ________________________________
Your Signature: ______________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: _________________
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
<PAGE>
SCHEDULE A
Indebtedness of the Company or any Restricted
Subsidiary Outstanding on the Issuance Date
----------------------------------------------
Indebtedness under Pacific Atlantic Systems Leasing, Inc. Capital Lease
outstanding as of the Closing Date (monthly payment: $20,928.65).
Real Estate mortgages with Compass Bank outstanding as of the Closing Date.
<PAGE>
EXHIBIT 4.2
================================================================================
TUESDAY MORNING CORPORATION
TMI HOLDINGS, INC.
TUESDAY MORNING, INC.
FRIDAY MORNING, INC.
TMIL CORPORATION
Subsidiary Debenture Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK
Debenture Trustee
________________________
Exchange Indenture
Dated as of December 29, 1997
_______________________
13 1/4% Subordinated Exchange Debentures due 2009
13 1/4% Series B Subordinated Exchange Debentures due 2009
================================================================================
<PAGE>
TUESDAY MORNING CORPORATION
Reconciliation and tie between Trust Indenture Act
of 1939 and Exchange Indenture, dated as of December 29, 1997
-------------------------------------------------------------
<TABLE>
<CAPTION>
Trust Indenture Exchange Indenture
Act Section Section
- --------------- ------------------
<S> <C>
(S) 310(a)(1)................................................. 607
(a)(2)................................................. 607
(b).................................................... 608
(S) 312(c).................................................... 701
(S) 314(a).................................................... 703
(a)(4)................................................. 1004
(c)(1)................................................. 102
(c)(2)................................................. 102
(e).................................................... 102
(S) 315(b).................................................... 601
(S) 316(a)(last sentence)..................................... 101 ("Outstanding")
(a)(1)(A).............................................. 502, 512
(a)(1)(B).............................................. 513
(b).................................................... 508
(c).................................................... 104(d)
(S) 317(a)(1)................................................. 503
(a)(2)................................................. 504
(b).................................................... 1003
(S) 318(a).................................................... 111
</TABLE>
__________________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Exchange Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES.................................................................................................... 1
RECITALS OF THE COMPANY.................................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions................................................................................. 2
Acquired Indebtedness....................................................................... 2
Act......................................................................................... 2
Affiliate................................................................................... 2
Agent Bank.................................................................................. 3
Agent Members............................................................................... 3
Asset Sale.................................................................................. 3
Authenticating Agent........................................................................ 3
Average Life................................................................................ 3
Bankruptcy Law.............................................................................. 3
Board of Directors.......................................................................... 4
Board Resolution............................................................................ 4
Business Day................................................................................ 4
Capital Stock............................................................................... 4
Capitalized Lease Obligation................................................................ 4
Cash Equivalents............................................................................ 4
Certificate of Designation.................................................................. 5
Change in Control........................................................................... 5
Commission.................................................................................. 6
Common Stock................................................................................ 6
Company..................................................................................... 6
Company Request" or "Company Order.......................................................... 6
Consolidated Adjusted Net Income............................................................ 6
Consolidated Fixed Charge Coverage Ratio.................................................... 7
Consolidated Income Tax Expense............................................................. 7
Consolidated Interest Expense............................................................... 7
Consolidated Non-Cash Charges............................................................... 8
Corporate Trust Office...................................................................... 8
Corporation................................................................................. 8
Currency Agreements......................................................................... 8
Custodian................................................................................... 8
Debenture Guarantee......................................................................... 8
Debenture Guarantor Senior Indebtedness..................................................... 8
Debenture Guarantor Senior Subordinated Indebtedness........................................ 9
Debenture Trustee........................................................................... 9
</TABLE>
<PAGE>
ii
<TABLE>
<S> <C>
Default...................................................................................... 10
Defaulted Interest........................................................................... 10
Depositary................................................................................... 10
Designated Senior Indebtedness............................................................... 10
Disinterested Director....................................................................... 10
Dollar" or "$................................................................................ 10
Event of Default............................................................................. 10
Exchange Act................................................................................. 10
Exchange Debenture Register" and "Exchange Debenture Registrar............................... 11
Exchange Offer............................................................................... 11
Exchange Offer Registration Statement........................................................ 11
Fair Market Value............................................................................ 11
Generally Accepted Accounting Principles..................................................... 11
Global Exchange Debentures................................................................... 11
guarantee.................................................................................... 11
Headquarters Facility........................................................................ 11
Holder....................................................................................... 11
Indebtedness................................................................................. 12
Initial Exchange Debentures.................................................................. 12
Institutional Accredited Investor............................................................ 12
Interest Payment Date........................................................................ 12
Interest Rate Agreements..................................................................... 13
Investment................................................................................... 13
Issuance Date................................................................................ 13
Junior Subordinated Indebtedness............................................................. 13
Lien ........................................................................................ 13
Management Stock............................................................................. 13
Maturity..................................................................................... 13
Moody's...................................................................................... 14
Net Cash Proceeds............................................................................ 14
New Exchange Debentures...................................................................... 14
Non-Payment Default.......................................................................... 14
Non-U.S. Person.............................................................................. 14
Note Guarantee............................................................................... 14
Notes........................................................................................ 14
Notes Indenture.............................................................................. 15
Officers' Certificate........................................................................ 15
Offshore Exchange Debenture Exchange Date.................................................... 15
Offshore Global Exchange Debenture........................................................... 15
Offshore Physical Exchange Debenture......................................................... 15
Opinion of Counsel........................................................................... 15
Outstanding.................................................................................. 15
Pari Passu Indebtedness...................................................................... 16
Paying Agent................................................................................. 16
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C>
Payment Blockage Period...................................................................... 16
Payment Default.............................................................................. 16
Permitted Holders............................................................................ 16
Permitted Indebtedness....................................................................... 17
Permitted Investments........................................................................ 19
Permitted Junior Securities.................................................................. 20
Person....................................................................................... 20
Physical Debentures.......................................................................... 20
Place of Payment............................................................................. 20
Predecessor Exchange Debenture............................................................... 20
Preferred Stock.............................................................................. 21
Private Placement Legend..................................................................... 21
Public Equity Offering....................................................................... 21
Purchase Money Obligations................................................................... 21
Qualified Capital Stock...................................................................... 21
QIB.......................................................................................... 21
Redeemable Capital Stock..................................................................... 21
Redemption Date.............................................................................. 21
Redemption Price............................................................................. 21
Registration Rights Agreement................................................................ 21
Registration Statement....................................................................... 22
Regular Record Date.......................................................................... 22
Regulation S................................................................................. 22
Representative............................................................................... 22
Responsible Officer.......................................................................... 22
Restricted Subsidiary........................................................................ 22
Rule 144A.................................................................................... 22
Sale and Leaseback Transaction............................................................... 22
S&P.......................................................................................... 22
Securities Act............................................................................... 22
Senior Credit Agreement...................................................................... 22
Senior Exchangeable Preferred Stock.......................................................... 23
Senior Indebtedness.......................................................................... 23
Senior Subordinated Indebtedness............................................................. 23
Shelf Registration Statement................................................................. 24
Significant Subsidiary....................................................................... 24
Special Record Date.......................................................................... 24
Stated Maturity.............................................................................. 24
Subordinated Indebtedness.................................................................... 25
Subsidiary................................................................................... 25
Subsidiary Debenture Guarantor............................................................... 25
Trust Indenture Act" or "TIA................................................................. 25
United States................................................................................ 25
Unrestricted Subsidiary...................................................................... 25
U.S. Global Debenture........................................................................ 26
</TABLE>
<PAGE>
iv
<TABLE>
<S> <C>
U.S. Government Obligations.................................................................. 26
U.S. Physical Debenture...................................................................... 26
Vice President............................................................................... 26
Voting Stock................................................................................. 26
SECTION 102. Compliance Certificates and Opinions......................................................... 26
SECTION 103. Form of Documents Delivered to Debenture Trustee............................................. 27
SECTION 104. Acts of Holders.............................................................................. 28
SECTION 105. Notices, Etc., to Debenture Trustee, Company, Any Subsidiary
Debenture Guarantor and Agent Bank........................................................... 29
SECTION 106. Notice to Holders; Waiver.................................................................... 30
SECTION 107. Effect of Headings and Table of Contents..................................................... 30
SECTION 108. Successors and Assigns....................................................................... 31
SECTION 109. Separability Clause.......................................................................... 31
SECTION 110. Benefits of Exchange Indenture............................................................... 31
SECTION 111. Governing Law................................................................................ 31
SECTION 112. Legal Holidays............................................................................... 31
SECTION 113. Trust Indenture Act Controls................................................................. 32
SECTION 114. No Recourse Against Others................................................................... 32
SECTION 115. Counterparts................................................................................. 32
ARTICLE TWO
EXCHANGE DEBENTURE FORMS
SECTION 201. Forms Generally.............................................................................. 32
SECTION 202. Form of Debenture Trustee's Certificate of Authentication.................................... 34
SECTION 203. Restrictive Legends.......................................................................... 34
SECTION 204. Form of Certificate to Be Delivered After the Offshore Exchange
Debenture Exchange Date...................................................................... 37
ARTICLE THREE
THE EXCHANGE DEBENTURES
SECTION 301. Amount....................................................................................... 38
SECTION 302. Denominations................................................................................ 39
SECTION 303. Execution, Authentication, Delivery and Dating............................................... 39
SECTION 304. Temporary Exchange Debentures................................................................ 41
SECTION 305. Registration, Registration of Transfer and Exchange.......................................... 41
SECTION 306. Mutilated, Destroyed, Lost and Stolen Exchange Debentures.................................... 43
SECTION 307. Payment of Interest; Interest Rights Preserved............................................... 44
SECTION 308. Persons Deemed Owners........................................................................ 45
SECTION 309. Cancellation................................................................................. 45
SECTION 310. Computation of Interest...................................................................... 46
SECTION 311. Book-Entry Provisions for Global Exchange Debentures......................................... 46
</TABLE>
<PAGE>
v
<TABLE>
<S> <C>
SECTION 312. Transfer Provisions.......................................................................... 47
SECTION 313. Form of Accredited Investor Certificate...................................................... 57
SECTION 314. Form of Regulation S Certificate............................................................. 59
SECTION 315. Form of Rule 144A Certificate................................................................ 61
SECTION 316. CUSIP Numbers................................................................................ 62
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Exchange Indenture.............................................. 62
SECTION 402. Application of Trust Money.................................................................... 64
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default............................................................................. 65
SECTION 502. Acceleration of Maturity; Rescission and Annulment............................................ 66
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Debenture Trustee..................... 68
SECTION 504. Debenture Trustee May File Proofs of Claim.................................................... 69
SECTION 505. Debenture Trustee May Enforce Claims Without Possession of Exchange Debentures................ 69
SECTION 506. Application of Money Collected................................................................ 70
SECTION 507. Limitation on Suits........................................................................... 70
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest..................... 71
SECTION 509. Restoration of Rights and Remedies............................................................ 71
SECTION 510. Rights and Remedies Cumulative................................................................ 72
SECTION 511. Delay or Omission Not Waiver.................................................................. 72
SECTION 512. Control by Holders............................................................................ 72
SECTION 513. Waiver of Past Defaults....................................................................... 73
SECTION 514. Waiver of Stay or Extension Laws.............................................................. 73
ARTICLE SIX
THE DEBENTURE TRUSTEE
SECTION 601. Certain Duties and Responsibilities........................................................... 74
SECTION 602. Notice of Defaults............................................................................ 75
SECTION 603. Certain Rights of Debenture Trustee........................................................... 75
SECTION 604. Debenture Trustee Not Responsible for Recitals or Issuance of Exchange Debentures............. 77
SECTION 605. May Hold Exchange Debentures.................................................................. 77
</TABLE>
<PAGE>
vi
<TABLE>
<S> <C>
SECTION 606. Money Held in Trust........................................................................... 77
SECTION 607. Compensation and Reimbursement................................................................ 78
SECTION 608. Corporate Debenture Trustee Required; Eligibility............................................. 79
SECTION 609. Resignation and Removal; Appointment of Successor............................................. 79
SECTION 610. Acceptance of Appointment by Successor........................................................ 81
SECTION 611. Merger, Conversion, Consolidation or Succession to Business................................... 81
SECTION 612. Appointment of Authenticating Agent........................................................... 82
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY DEBENTURE TRUSTEE
AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses................................................ 84
SECTION 702. Disclosure of Names and Addresses of Holders.................................................. 84
SECTION 703. Reports by Debenture Trustee.................................................................. 84
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.......................................... 85
SECTION 802. Subsidiary Debenture Guarantors May Consolidate, Etc., Only on Certain Terms.................. 86
SECTION 803. Successor Substituted......................................................................... 87
ARTICLE NINE
SUPPLEMENTAL EXCHANGE INDENTURES
SECTION 901. Supplemental Exchange Indentures Without Consent of Holders................................... 88
SECTION 902. Supplemental Exchange Indentures with Consent of Holders...................................... 89
SECTION 903. Execution of Supplemental Exchange Indentures................................................. 90
SECTION 904. Effect of Supplemental Exchange Indentures.................................................... 90
SECTION 905. Conformity with Trust Indenture Act........................................................... 90
SECTION 906. Reference in Exchange Debentures to Supplemental Exchange Indentures.......................... 91
SECTION 907. Notice of Supplemental Exchange Indentures.................................................... 91
SECTION 908. Effect on Senior Indebtedness and Senior Subordinated Indebtedness............................ 91
ARTICLE TEN
COVENANTS
</TABLE>
<PAGE>
vii
<TABLE>
<S> <C>
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.......................................... 91
SECTION 1002. Maintenance of Office or Agency.............................................................. 92
SECTION 1003. Money for Exchange Debentures Payments to Be Held in Trust................................... 92
SECTION 1004. Corporate Existence.......................................................................... 94
SECTION 1005. Payment of Taxes and Other Claims............................................................ 94
SECTION 1006. Maintenance of Properties.................................................................... 94
SECTION 1007. Statement by Officers as to Default.......................................................... 95
SECTION 1008. Limitation on Indebtedness................................................................... 95
SECTION 1009. Limitation on Restricted Payments............................................................ 96
SECTION 1010. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries.. ............. 100
SECTION 1011. Limitation on Transactions with Affiliates................................................... 100
SECTION 1012. Limitation on Liens.......................................................................... 101
SECTION 1013. Purchase of Exchange Debentures upon Change in Control....................................... 102
SECTION 1014. Limitation on Sale of Assets................................................................. 103
SECTION 1015. Limitations on Guarantees of Indebtedness by Restricted Subsidiaries......................... 105
SECTION 1016. Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries................................................................................. 106
SECTION 1017. Limitation on Sale and Leaseback Transactions................................................ 107
SECTION 1018. Limitation on Other Subordinated Indebtedness................................................ 107
SECTION 1019. Limitation on Unrestricted Subsidiaries...................................................... 108
SECTION 1020. Reports...................................................................................... 108
SECTION 1021. Waiver of Certain Covenants.................................................................. 108
ARTICLE ELEVEN
REDEMPTION OF EXCHANGE DEBENTURES
SECTION 1101. Redemption................................................................................... 109
SECTION 1102. Applicability of Article..................................................................... 109
SECTION 1103. Election to Redeem; Notice to Debenture Trustee.............................................. 109
SECTION 1104. Selection by Debenture Trustee of Exchange Debentures to Be Redeemed......................... 109
SECTION 1105. Notice of Redemption......................................................................... 110
SECTION 1106. Deposit of Redemption Price.................................................................. 111
SECTION 1107. Exchange Debentures Payable on Redemption Date............................................... 111
SECTION 1108. Exchange Debentures Redeemed in Part......................................................... 112
ARTICLE TWELVE
SUBORDINATION OF EXCHANGE DEBENTURES
SECTION 1201. Exchange Debentures Subordinate to Senior Indebtedness....................................... 112
SECTION 1202. Payment Over of Proceeds upon Dissolution, Etc............................................... 113
</TABLE>
<PAGE>
viii
<TABLE>
<S> <C>
SECTION 1203. Suspension of Payment When Designated Senior Indebtedness in Default......................... 114
SECTION 1204. Payment Permitted if No Default.............................................................. 115
SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness and
Senior Subordinated Indebtedness............................................................. 115
SECTION 1206. Provisions Solely to Define Relative Rights.................................................. 116
SECTION 1207. Debenture Trustee to Effectuate Subordination................................................ 116
SECTION 1208. No Waiver of Subordination Provisions........................................................ 117
SECTION 1209. Distribution or Notice to Representative..................................................... 117
SECTION 1210. Notice to Debenture Trustee.................................................................. 118
SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating Agent............................... 118
SECTION 1212. Rights of Debenture Trustee as a Holder of Senior Indebtedness
and Senior Subordinated Indebtedness; Preservation of Debenture Trustee's Rights............. 119
SECTION 1213. Article Applicable to Paying Agents.......................................................... 119
SECTION 1214. No Suspension of Remedies.................................................................... 119
SECTION 1215. Trust Moneys Not Subordinated................................................................ 119
SECTION 1216. Debenture Trustee Not Fiduciary for Holders of Senior
Indebtedness or Senior Subordinated Indebtedness............................................. 120
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Debenture Guarantees......................................................................... 120
SECTION 1302. Severability................................................................................. 122
SECTION 1303. Restricted Subsidiaries...................................................................... 122
SECTION 1304. Subordination of Debenture Guarantees........................................................ 123
SECTION 1305. Limitation of Subsidiary Debenture Guarantors' Liability..................................... 123
SECTION 1306. Contribution................................................................................. 124
SECTION 1307. Subrogation.................................................................................. 124
SECTION 1308. Reinstatement................................................................................ 124
SECTION 1309. Release of a Subsidiary Debenture Guarantor.................................................. 125
SECTION 1309. Benefits Acknowledged........................................................................ 125
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Company's Option to Effect Defeasance or Covenant Defeasance................................. 125
SECTION 1402. Defeasance and Discharge..................................................................... 125
SECTION 1403. Covenant Defeasance.......................................................................... 126
SECTION 1404. Conditions to Defeasance or Covenant Defeasance.............................................. 127
SECTION 1405. Deposited Money and Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions........................................................ 128
</TABLE>
<PAGE>
ix
<TABLE>
<S> <C>
SECTION 1406. Reinstatement................................................................................ 129
</TABLE>
TESTIMONIUM
SIGNATURES AND SEALS
EXHIBIT A - Form of Exchange Debenture
<PAGE>
Exchange Indenture, dated as of December 29, 1997, among TUESDAY
MORNING CORPORATION, a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 14621 Inwood Road, Dallas, Texas 75244, and TMI HOLDINGS, INC., a Delaware
corporation, TUESDAY MORNING, INC., a Texas corporation, FRIDAY MORNING, INC., a
Texas corporation and TMIL CORPORATION, a Delaware corporation (collectively,
the "Subsidiary Debenture Guarantors"), and UNITED STATES TRUST COMPANY OF NEW
YORK, a New York banking corporation, as Debenture Trustee (herein called the
"Debenture Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its 13
1/4% Subordinated Exchange Debentures due 2009 (the "Initial Exchange
Debentures"), and its 13 1/4% Series B Subordinated Exchange Debentures due 2009
(the "New Exchange Debentures" and, together with the Initial Exchange
Debentures, the "Exchange Debentures"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Exchange Indenture.
Each Subsidiary Debenture Guarantor has duly authorized the guarantee
the aggregate principal amount of the Initial Exchange Debentures, and upon the
issuance of the New Exchange Debentures, if any, the aggregate principal amount
of the New Exchange Debentures and to provide therefor each Subsidiary Debenture
Guarantor has duly authorized the execution and delivery of this Exchange
Indenture.
Upon the issuance of the New Exchange Debentures, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Exchange Indenture will be subject to, and shall be governed by the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be part of
or deemed to be part of and to govern the indentures qualified thereunder.
All things necessary have been done to make the Exchange Debentures,
when duly executed and duly issued by the Company and authenticated and
delivered hereunder by the Debenture Trustee or the Authenticating Agent, the
valid obligations of the Company and to make this Exchange Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS EXCHANGE INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Senior Exchangeable Preferred Stock by the holders thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders of
the Exchange Debentures, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Exchange Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles; and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Exchange Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person; provided that, for purposes of Section
1008, such Indebtedness shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Restricted Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or (c) any executive officer or director of any such specified Person or
other Person or (d) with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether
<PAGE>
3
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Bank" means Fleet National Bank in its capacity as administrative
agent under the Senior Credit Agreement and any future or successor or
replacement administrative agent under the Senior Credit Agreement.
"Agent Members" has the meaning specified in Section 311.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any Capital Stock
of any Restricted Subsidiary; (b) all or substantially all of the properties and
assets of the Company or its Restricted Subsidiaries; or (c) any other
properties or assets of any division or line of business of the Company or any
Restricted Subsidiary, other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (i) that is governed by the provisions of
Article Eight, (ii) between or among the Company and Restricted Subsidiaries in
accordance with the terms of this Exchange Indenture, (iii) that consist of
accounts receivable transferred to third parties that are not Affiliates of the
Company or any Subsidiary of the Company in the ordinary course of business,
including by way of the securitization of such receivables, (iv) of the Company
or any Restricted Subsidiary in exchange for properties or assets of
substantially equal value of another Person to be used in the same line of
business being conducted by the Company or any Restricted Subsidiary at the time
of such transfer having a Fair Market Value of less than $1.0 million in any
given fiscal year, (v) to an Unrestricted Subsidiary, if permitted under Section
1009, (vi) consisting of the Headquarters Facility to third parties that are not
Affiliates of the Company or any Subsidiary of the Company or (vii) having a
Fair Market Value of less than $1.0 million in any given fiscal year.
"Authenticating Agent" means any Person authorized by the Debenture Trustee
to act on behalf of the Debenture Trustee to authenticate the Exchange
Debentures.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
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4
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any duly authorized committee of such board.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Debenture Trustee.
"Business Day," when used with respect to any Place of Payment or any other
particular location referred to in this Exchange Indenture or in the Exchange
Debentures, means each Monday, Tuesday, Wednesday, Thursday and Friday which is
not a day on which banking institutions in that Place of Payment or other
location are authorized or obligated by law, regulation or executive order to
close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participation, rights in or other equivalents
(however designated) of such Person's capital stock, and any rights (other than
debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP, and,
for the purpose of this Exchange Indenture, the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Cash Equivalents" means: (a) any evidence of Indebtedness with a maturity
of one year or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (b) certificates of deposit or acceptances with a maturity of one year
or less of any financial institution that is a member of the Federal Reserve
System having combined capital and surplus and undivided profits of not less
than $500 million; (c) commercial paper with a maturity of one year or less
issued by a corporation that is not an Affiliate of the Company and is organized
under the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or any successor rating agency or at least P-1 by
Moody's or any successor rating agency; (d) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clauses (a) and (b) above; and (e) demand and time deposits with a domestic
commercial bank that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million.
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5
"Certificate of Designation" means the certificate of designations,
preferences and rights of the Senior Exchangeable Preferred Stock filed with the
Secretary of State of the State of Delaware on December 29, 1997.
"Change in Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, 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 "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total outstanding Voting Stock of the
Company and either (x) the Permitted Holders beneficially own, directly or
indirectly, in the aggregate Voting Stock of the Company that represents a
lesser percentage of the aggregate ordinary voting power of all classes of the
Voting Stock of the Company, voting together as a single class, than such other
person or group and are not entitled (by voting power, contract or otherwise) to
elect directors of the Company having a majority of the total voting power of
the Board of Directors, or (y) such other person or group is entitled to elect
directors of the Company having a majority of the total voting power of the
Board of Directors; (b) the Company consolidates with, or merges with or into,
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction (i) where the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property (other than Capital Stock of the surviving or transferee
corporation) in an amount that could be paid by the Company as a Restricted
Payment as described under Section 1009 and (ii) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is 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 "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total outstanding Voting Stock of the surviving or transferee
corporation and either (x) the Permitted Holders beneficially own, directly or
indirectly, in the aggregate Voting Stock of the surviving or transferee
corporation that represents a lesser percentage of the aggregate ordinary voting
power of all classes of the Voting Stock of the surviving or transferee
corporation, voting together as a single class, than such other person or group
and are not entitled (by voting power, contract or otherwise) to elect directors
of the Surviving Entity having a majority of the total voting power of the Board
of Directors, or (y) such other person or group is entitled to elect directors
of the surviving or transferee having a majority of the total voting power of
the elected
<PAGE>
6
Board of Directors; or (c) during any consecutive two year period, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election to such Board of
Directors, or whose nomination for election by the stockholders of the Company,
was approved by a vote of 66% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (d) the
Company is liquidated or dissolved or adopts a plan of liquidation or
dissolution other than in a transaction which complies with Article Eight .
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this Exchange Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated, whether voting or
non-voting) of such Person's common stock, whether outstanding on the Issuance
Date or issued after the Issuance Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the Person named as the "Company" in the first paragraph of
this Exchange Indenture until a successor Person shall have become such pursuant
to the applicable provisions of this Exchange Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, its Chief Operating Officer, its Chief
Financial Officer, any Vice President, its Treasurer or an Assistant Treasurer,
and delivered to the Debenture Trustee.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, (c) the portion of net income (or loss)
of any Person (other than the Company or a Restricted Subsidiary), including
Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has
an ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in cash
dividends or distributions during such period, (d) the net income (or loss) of
any Person combined with the Company or any Restricted Subsidiary on a "pooling
of interests" basis attributable to any period prior to the date of combination,
(e) the net income of any
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7
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary is not at the date of
determination permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary or its
stockholders, and (f) for purposes of calculating Consolidated Adjusted Net
Income under Section 1009, any net income (or loss) from any Restricted
Subsidiary while it was an Unrestricted Subsidiary at any time during such
period other than any amounts actually received from such Restricted Subsidiary
during such period.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Adjusted Net Income and, to the
extent deducted in computing Consolidated Adjusted Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges, in each case, for such period to (b) the Consolidated Interest Expense
for such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and all Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
(1) the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of Interest Rate Agreements (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) amortization of debt issuance costs, plus (b) the interest
component of Capitalized Lease Obligations of the Company and its Restricted
Subsidiaries during such period, plus (c) cash dividends due (whether or not
declared) on Preferred Stock by the Company and any Restricted Subsidiary, plus
(d) cash dividends due (whether or not declared) on Redeemable Capital Stock by
the Company and any Restricted Subsidiary, in each case as determined on a
consolidated basis in accordance with GAAP, less (2) interest on the Exchange
Debentures outstanding on the Exchange Date paid in kind with Exchange
Debentures and on Exchange Debentures so issued as payment in kind interest, all
in accordance with the Exchange Indenture as in effect on the Issuance Date;
provided that (x) the Consolidated Interest Expense attributable to interest on
any Indebtedness computed on a pro forma basis and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying at the option of the Company, either the fixed or
floating rate, and (y) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period; provided
further that, notwithstanding the foregoing, the interest rate with respect to
any
<PAGE>
8
Indebtedness covered by any Interest Rate Agreement shall be deemed to be the
effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization, depletion and other non-cash expenses of the Company
and any Restricted Subsidiary reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge that requires an accrual of or reserve for cash charges
for any future period).
"Corporate Trust Office" means the principal corporate trust office of the
Debenture Trustee, at which at any particular time its corporate trust business
shall be administered, which office on the date of execution of this Exchange
Indenture is located at 114 West 47th Street, New York, New York 10036.
"corporation" includes corporations, associations, companies and business
trusts.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and designed to protect against or manage
exposure to fluctuations in foreign currency exchange rates.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Debenture Guarantee" means any guarantee of the obligations of the Company
under this Exchange Indenture and the Exchange Debentures by any Restricted
Subsidiary in accordance with the provisions of this Exchange Indenture.
"Debenture Guarantor Senior Indebtedness" of a Subsidiary Debenture
Guarantor means Indebtedness of such Subsidiary Debenture Guarantor consisting
of (i) a guarantee of any Senior Indebtedness under the Senior Credit Agreement
or any other Senior Indebtedness and (ii) the principal of, premium, if any, and
interest on all other Indebtedness of such Subsidiary Debenture Guarantor (other
than the Debenture Guarantee issued by such Subsidiary Debenture Guarantor),
whether outstanding on the Issuance Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to such Debenture Guarantee. Notwithstanding the foregoing, "Debenture
Guarantor Senior Indebtedness" of a Subsidiary Debenture Guarantor shall not
include (i) Indebtedness evidenced by the Debenture Guarantee of such Subsidiary
Debenture Guarantor, (ii) Indebtedness of such Subsidiary Debenture Guarantor
that is expressly subordinated in right of payment to any Debenture Guarantor
Senior Indebtedness of such Subsidiary Debenture Guarantor, (iii) Indebtedness
of such Subsidiary Debenture Guarantor that by operation of law is
<PAGE>
9
subordinate to any general unsecured obligations of such Subsidiary Debenture
Guarantor, (iv) Indebtedness of such Subsidiary Debenture Guarantor to the
extent incurred in violation of any covenant of this Exchange Indenture, (v) any
liability for federal, state or local taxes or other taxes, owed or owing by
such Subsidiary Debenture Guarantor, (vi) trade account payables owed or owing
by such Subsidiary Debenture Guarantor, (vii) amounts owed by such Subsidiary
Debenture Guarantor for compensation to employees or for services rendered to
such Subsidiary Debenture Guarantor, (viii) Indebtedness of such Subsidiary
Debenture Guarantor to any Affiliate of the Company, (ix) Redeemable Capital
Stock of such Subsidiary Debenture Guarantor and (x) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of Title 11
of the United States Code is without recourse to such Subsidiary Debenture
Guarantor.
"Debenture Guarantor Senior Subordinated Indebtedness" of a Subsidiary
Debenture Guarantor means Indebtedness of such Subsidiary Debenture Guarantor
consisting of (i) a guarantee of any Senior Subordinated Indebtedness under the
Notes Indenture or any other Senior Subordinated Indebtedness and (ii) the
principal of, premium, if any, and interest on all other Indebtedness of such
Subsidiary Debenture Guarantor (other than the Debenture Guarantee issued by
such Subsidiary Debenture Guarantor), whether outstanding on the Issuance Date
or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to such Debenture
Guarantee. Notwithstanding the foregoing, "Debenture Guarantor Senior
Subordinated Indebtedness" of a Subsidiary Debenture Guarantor shall not include
(i) Indebtedness evidenced by the Debenture Guarantee of such Subsidiary
Debenture Guarantor, (ii) Indebtedness of such Subsidiary Debenture Guarantor
that is expressly subordinated in right of payment to any Debenture Guarantor
Senior Subordinated Indebtedness of such Subsidiary Debenture Guarantor, (iii)
Indebtedness of such Subsidiary Debenture Guarantor that by operation of law is
subordinate to any general unsecured obligations of such Subsidiary Debenture
Guarantor, (iv) Indebtedness of such Subsidiary Debenture Guarantor to the
extent incurred in violation of any covenant of this Exchange Indenture, (v) any
liability for federal, state or local taxes or other taxes, owed or owing by
such Subsidiary Debenture Guarantor, (vi) trade account payables owed or owing
by such Subsidiary Debenture Guarantor, (vii) amounts owed by such Subsidiary
Debenture Guarantor for compensation to employees or for services rendered to
such Subsidiary Debenture Guarantor, (viii) Indebtedness of such Subsidiary
Debenture Guarantor to any Affiliate of the Company, (ix) Redeemable Capital
Stock of such Subsidiary Debenture Guarantor and (x) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of Title 11
of the United States Code is without recourse to such Subsidiary Debenture
Guarantor.
"Debenture Trustee" means the Person named as the "Debenture Trustee" in
the first paragraph of this Exchange Indenture until a successor Debenture
Trustee shall have become such pursuant to the applicable provisions of this
Exchange Indenture, and thereafter "Debenture Trustee" shall mean or include
each Person who is then an Debenture Trustee hereunder.
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10
"Debentures" has the meaning stated in the first recital of the Exchange
Indenture and more particularly means any Debentures authenticated and delivered
under this Exchange Indenture.
"Debenture Trustee" means the Person named as "Debenture Trustee" in the
first paragraph of this Exchange Indenture until a successor Trustee shall have
become such pursuant to the applicable provisions of this Exchange Indenture,
and thereafter "Debenture Trustee" shall mean or include each Person who is then
a Debenture Trustee hereunder.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Senior Credit Agreement and (ii) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding of at least
$25,000,000 and that has been specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the
Company.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Exchange Indenture, a
member of the Board of Directors who does not have any material direct or
indirect financial interest in or with respect to such transaction or series of
transactions.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Exchange Date" means the date on which the shares of Senior Exchangeable
Preferred Stock are exchanged into Exchange Debentures at the option of the
Company.
"Exchange Debenture Register" and "Exchange Debenture Registrar" have the
respective meanings specified in Section 305.
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11
"Exchange Debentures" has the meaning specified in the recitals to this
Exchange Indenture.
"Exchange Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Exchange Debentures or Senior Exchangeable Preferred Stock to exchange
all of the Initial Exchange Debentures or Senior Exchangeable Preferred Stock,
as the case may be, for New Exchange Debentures or Senior Exchangeable Preferred
Stock registered under the Securities Act, as provided for in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of this Exchange Indenture.
"Global Exchange Debentures" has the meaning set forth in Section 201.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including, without limiting the foregoing, the payment
of amounts drawn down by letters of credit.
"Headquarters Facility" means the headquarters facility and warehouse of
the Company as of the Issuance Date located in Dallas, Texas.
"Holder" means the Person in whose name an Exchange Debenture is registered
in the Exchange Debenture Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of
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12
property or services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business, but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables arising in
the ordinary course of business, (d) all Capitalized Lease Obligations of such
Person, (e) all obligations of such Person under or in respect of Interest Rate
Agreements or Currency Agreements, (f) all Indebtedness referred to in (but not
excluded from) the preceding clauses of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (g) all guarantees by such
Person of Indebtedness referred to in this definition of any other Person, and
(h) all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Exchange Indenture, and if
such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value shall be determined in good
faith by the board of directors of the issuer of such Redeemable Capital Stock.
"Initial Exchange Debentures" has the meaning specified in the recitals to
this Exchange Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act.
"Interest Payment Date," when used with respect to any Exchange Debenture,
means the Stated Maturity of an installment of interest on such Exchange
Debenture.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
designed to protect against or manage exposure to fluctuations in interest
rates.
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13
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued or owned by,
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP. In addition, the fair market
value of the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary shall be deemed
to be an "Investment" made by the Company in such Unrestricted Subsidiary at
such time. "Investments" shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Issuance Date" means the date on which the Senior Exchangeable Preferred
Stock is originally issued under the Certificate of Designation.
"Junior Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Debenture Guarantor that is subordinated in right of payment to the
Exchange Debentures or the Debenture Guarantee of such Subsidiary Debenture
Guarantor, as the case may be.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Management Stock" means the Capital Stock of the Company and the options
to acquire Capital Stock of the Company owned by Lloyd L. Ross and Jerry M.
Smith as of the Issuance Date together with Preferred Stock issued as payment in
kind dividends on such Preferred Stock and any shares of Preferred Stock issued
as payment in kind dividends thereon, and such dividends made pursuant to the
terms of the certificate of designation for such Preferred Stock or the
certificate of incorporation, as the case may be, as in effect on the Issuance
Date.
"Maturity" means, with respect to any Exchange Debenture, the date on which
any principal of such Exchange Debenture becomes due and payable as therein or
herein provided, whether at the Stated Maturity with respect to such principal
or by declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations
<PAGE>
14
when received in the form of, or stock or other assets when disposed for, cash
or Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Debenture Trustee.
"New Exchange Debentures" has the meaning stated in the first recital of
this Exchange Indenture and refers to any New Exchange Debenture containing
terms substantially identical to the Initial Exchange Debenture (except that (i)
such New Exchange Debenture shall not contain terms with respect to transfer
restrictions and shall be registered under the Securities Act, and (ii) certain
provisions relating to an increase in the stated rate of interest thereon shall
be eliminated) that are issued and exchanged for the Initial Exchange Debentures
in accordance with the Exchange Offer, as provided for in the Registration
Rights Agreement and this Exchange Indenture.
"Non-Payment Default" means any event of default (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Non-U.S. Person" means a person who is not a U.S. person as defined in
Regulation S.
"Note Guarantee" means any guarantee of the obligations of the Company
under the Notes Indenture and the Notes by any Restricted Subsidiary (as such
term is defined in the Notes Indenture) in accordance with the provisions of the
Notes Indenture.
"Notes" means the 11% Senior Subordinated Notes due 2007 issued pursuant to
the Notes Indenture.
"Notes Indenture" means the Indenture dated as of December 29, 1997, among
the Company, the guarantors named therein and Harris Trust and Savings Bank, as
trustee, with respect to the Notes.
<PAGE>
15
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Debenture Trustee.
"Offshore Exchange Debenture Exchange Date" has the meaning set forth in
Section 201.
"Offshore Global Exchange Debenture" has the meaning set forth in Section
201.
"Offshore Physical Exchange Debenture" has the meaning set forth in Section
201.
"Opinion of Counsel" means a written opinion of legal counsel, which and
who may be counsel for the Company, including an employee of the Company, and
who shall be reasonably acceptable to the Debenture Trustee.
"Outstanding," when used with respect to Exchange Debentures, means, as of
the date of determination, all Exchange Debentures theretofore authenticated and
delivered under this Exchange Indenture, except:
(i) Exchange Debentures theretofore cancelled by the Debenture
Trustee or delivered to the Debenture Trustee for cancellation;
(ii) Exchange Debentures, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder money in the necessary
amount has been theretofore deposited with the Debenture Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Exchange Debentures; provided that, if such
Exchange Debentures are to be redeemed, notice of such redemption has been
duly given pursuant to this Exchange Indenture or provision therefor
satisfactory to the Debenture Trustee has been made;
(iii) Exchange Debentures, except to the extent provided in Sections
1402 and 1403, with respect to which the Company has effected defeasance
and/or covenant defeasance as provided in Article Fourteen; and
(iv) Exchange Debentures which have been paid pursuant to Section
306 or in exchange for or in lieu of which other Exchange Debentures have
been authenticated and delivered pursuant to this Exchange Indenture, other
than any such Exchange Debentures in respect of which there shall have been
presented to the Debenture Trustee proof satisfactory to it that such
Exchange Debentures are held by a bona fide purchaser in whose hands such
Exchange Debentures are valid obligations of the Company;
<PAGE>
16
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Exchange Debentures have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, and for
the purpose of making the calculations required by TIA Section 313, Exchange
Debentures owned by the Company or any other obligor upon the Exchange
Debentures or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding (provided that in connection with
any offer by the Company or any obligor to purchase the Exchange Debentures,
Exchange Debentures tendered for purchase will be deemed to be Outstanding and
held by the tendering Holder until the date of purchase), except that, in
determining whether the Debenture Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Exchange Debentures which a
Responsible Officer of the Debenture Trustee actually knows to be so owned shall
be so disregarded. Exchange Debentures so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Debenture Trustee the pledgee's right to act with respect to
such Exchange Debentures and that the pledgee is not the Company or any other
obligor upon the Exchange Debentures or any Affiliate of the Company or such
other obligor.
"Pari Passu Indebtedness" means (a) with respect to the Exchange
Debentures, Indebtedness that ranks pari passu in right of payment to the
Exchange Debentures and (b) with respect to any Debenture Guarantee,
Indebtedness that ranks pari passu in right of payment to such Debenture
Guarantee.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (or premium, if any,
on) or interest on any Exchange Debentures on behalf of the Company.
"Payment Blockage Period" has the meaning specified in Section 1203.
"Payment Default" means any default in the payment (whether at stated
maturity, upon scheduled installment, by acceleration or otherwise) of principal
of, or premium, if any, or interest on Designated Senior Indebtedness.
"Permitted Holders" means, as of the date of determination, Madison
Dearborn Capital Partners II, L.P. and its Affiliates.
"Permitted Indebtedness" means any of the following:
(a) (i) Indebtedness of the Company under the Senior Credit Agreement
in an aggregate principal amount at any one time outstanding not to exceed
the sum of (A) $110 million less the amount of any permanent reductions
made by the Company in respect of any term loans under the Senior Credit
Agreement and (B) with respect to revolving borrowings, the greater of (1)
$115 million and (2) 60% of the Eligible Inventory (as
<PAGE>
17
defined in the Senior Credit Agreement on the Issuance Date) of the Company
and the Restricted Subsidiaries and (ii) any guarantee by a Subsidiary
Debenture Guarantor of Indebtedness incurred under this clause (a);
(b) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary (as such term is defined in the Notes Indenture)
pursuant to a Note Guarantee;
(c) Indebtedness of the Company pursuant to the Exchange Debentures or
of any Restricted Subsidiary pursuant to a Debenture Guarantee;
(d) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of this Exchange Indenture and listed on Schedule A
hereto;
(e) Indebtedness of the Company owing to any wholly owned Restricted
Subsidiary; provided that any Indebtedness of the Company owing to any such
Restricted Subsidiary is subordinated in right of payment from and after
such time as the Exchange Debentures shall become due and payable (whether
at Stated Maturity, acceleration or otherwise) to the payment and
performance of the Company's obligations under such Exchange Debentures;
provided further that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to
the Company or another wholly owned Restricted Subsidiary) shall be deemed
to be an incurrence of such Indebtedness by the Company not permitted by
this clause (e);
(f) Indebtedness of a Restricted Subsidiary owing to the Company or to
another wholly owned Restricted Subsidiary; provided that any such
Indebtedness of any Subsidiary Debenture Guarantor is subordinated in right
of payment to the Debenture Guarantee of such Subsidiary Debenture
Guarantor; provided further that any disposition, pledge or transfer of any
such Indebtedness to a Person (other than a disposition, pledge or transfer
to the Company or a wholly owned Restricted Subsidiary) shall be deemed to
be an incurrence of such Indebtedness by such Restricted Subsidiary not
permitted by this clause (f);
(g) guarantees of any Restricted Subsidiary made in accordance with
the provisions of Section 1015;
(h) obligations of the Company or any Subsidiary Debenture Guarantor
entered into in the ordinary course of business (i) pursuant to Interest
Rate Agreements designed to protect the Company or any Restricted
Subsidiary against fluctuations in interest rates in respect of
Indebtedness of the Company or any Restricted Subsidiary, which obligations
do not exceed the aggregate principal amount of such Indebtedness and (ii)
pursuant to Currency Agreements entered into by the Company or any of its
Restricted Subsidiaries
<PAGE>
18
in respect of its (x) assets or (y) obligations, as the case may be,
denominated in a foreign currency;
(i) Indebtedness of the Company or any Subsidiary Debenture Guarantor
in respect of Purchase Money Obligations and Capitalized Lease Obligations
of the Company or any Subsidiary Debenture Guarantor in an aggregate amount
which does not exceed $15,000,000 at any one time outstanding;
(j) Indebtedness of the Company or any Subsidiary Debenture Guarantor
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock of
Restricted Subsidiaries;
(k) Indebtedness of the Company or any Subsidiary Debenture Guarantor
represented by (x) letters of credit for the account of the Company or any
Restricted Subsidiary or (y) other obligations to reimburse third parties
pursuant to any surety bond or other similar arrangements, which letters of
credit or other obligations, as the case may be, are intended to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or other similar requirements in the
ordinary course of business;
(l) Acquired Indebtedness of any Restricted Subsidiary that is
organized outside of the United States of America in an aggregate amount
which, together with any Indebtedness permitted to be incurred pursuant to
this clause (l) and refinanced pursuant to clause (q) below, does not
exceed $10,000,000 at any one time outstanding;
(m) Indebtedness of the Company owing to Jerry M. Smith, under a note
issued pursuant to a written agreement between the Company and Jerry M.
Smith as in effect on the Issuance Date, in consideration for the
repurchase of Common Stock of the Company owned by Jerry M. Smith at his
retirement, in an aggregate amount not to exceed $15,000,000 outstanding at
any time;
(n) Preferred Stock issued as payment in kind dividends on Preferred
Stock outstanding on the Issuance Date and any shares of Preferred Stock
issued as payment in kind dividends thereon, such dividends made pursuant
to the terms of the certificate of designation for such Preferred Stock or
the certificate of incorporation, as the case may be, as in effect on the
Issuance Date;
(o) Indebtedness of the Company or a Subsidiary Debenture Guarantor
incurred in connection with the Company's Headquarters Facility or the
purchase or construction of a new headquarters facility, in each case, as
permitted under the Senior Credit Agreement as in effect on the Issuance
Date;
<PAGE>
19
(p) Indebtedness of the Company or any Subsidiary Debenture Guarantor
not otherwise permitted by the foregoing clauses (a) through (o) in an
aggregate principal amount not in excess of $20,000,000 at any one time
outstanding; and
(q) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
Indebtedness, referred to in clauses (b), (c), (d) and (l) of this
definition, including any successive refinancings, so long as (i) any such
new Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined as necessary to accomplish such refinancing, (ii) in
the case of any refinancing by the Company of Pari Passu Indebtedness or
Junior Subordinated Indebtedness, such new Indebtedness is made pari passu
with or subordinate to the Exchange Debentures at least to the same extent
as the Indebtedness being refinanced, (iii) in the case of any refinancing
by any Subsidiary Debenture Guarantor of Pari Passu Indebtedness or Junior
Subordinated Indebtedness, such new Indebtedness is made pari passu with or
subordinate to the Debenture Guarantee of such Subsidiary Debenture
Guarantor at least to the same extent as the Indebtedness being refinanced,
(iv) such new Indebtedness has an Average Life longer than the Average Life
of the Exchange Debentures and a final Stated Maturity later than the final
Stated Maturity of the Exchange Debentures and (v) Indebtedness of the
Company or a Subsidiary Debenture Guarantor may only be refinanced with
Indebtedness of the Company or a Subsidiary Debenture Guarantor and
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Debenture
Guarantor may only be refinanced with Indebtedness of such Restricted
Subsidiary.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any wholly owned Restricted
Subsidiary;
(c) intercompany Indebtedness to the extent permitted under clause (e) or
(f) of the definition of "Permitted Indebtedness";
(d) Investments in an amount not to exceed $10,000,000 at any one time
outstanding;
(e) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment (i) such other Person becomes a
wholly owned
<PAGE>
20
Restricted Subsidiary or (ii) such Person, in one transaction
or a series of related transactions, is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to,
the Company or a wholly owned Restricted Subsidiary;
(f) bonds, notes, debentures and other securities received as
consideration for Assets Sales to the extent permitted under Section 1014;
(g) negotiable instruments held for deposit or collection in the
ordinary course of business, except to the extent they would constitute
Investments in Affiliates; or
(h) Investments in the form of the sale (on a "true-sale" non-recourse
basis) or the servicing of receivables transferred from the Company or any
Restricted Subsidiary.
"Permitted Junior Securities" has the meaning specified in Section 1202.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Debentures" has the meaning set forth in Section 201.
"Place of Payment" means the office or agency maintained by the Company
where the principal of (and premium, if any, on) and interest on the Exchange
Debentures are payable as specified in Section 1002.
"Predecessor Exchange Debenture" of any particular Exchange Debenture,
means every previous Exchange Debenture evidencing all or a portion of the same
debt as that evidenced by such particular Exchange Debenture; and, for the
purposes of this definition, any Exchange Debenture authenticated and delivered
under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Exchange Debenture shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Exchange Debenture.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Issuance Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Private Placement Legend" has the meaning set forth in Section 203.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Capital Stock) of the Company made on a primary basis by the Company
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other
<PAGE>
21
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Purchase Money Obligations" means, with respect to any Person,
obligations, other than Capitalized Lease Obligations, incurred or assumed in
the ordinary course of business in connection with the purchase of property to
be used in the business of such Person within 90 days of such purchase, provided
that the amount of any Purchase Money Obligation shall not exceed the purchase
price of the property purchased.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"QIB" means a "Qualified Institutional Buyer" within the meaning of Rule
144A under the Securities Act.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Exchange Debentures or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity.
"Redemption Date," when used with respect to any Exchange Debenture to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Exchange Indenture.
"Redemption Price," when used with respect to any Exchange Debenture to be
redeemed, means the price at which it is to be redeemed pursuant to this
Exchange Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of December 29, 1997, among the Company, the Subsidiary Debenture
Guarantors and the holders of Senior Exchangeable Preferred Stock.
"Registration Statement" means the Registration Statement as defined in the
Registration Rights Agreement.
"Regular Record Date" has the meaning specified in Section 301.
"Regulation S" means Regulation S under the Securities Act.
<PAGE>
22
"Representative" means (i) with respect to the Senior Credit Agreement, the
Agent Bank and (ii) with respect to any other Senior Indebtedness, the indenture
trustee or other trustee, agent or representative for the holders of such Senior
Indebtedness.
"Responsible Officer," when used with respect to the Debenture Trustee,
means any vice president, any assistant secretary, any assistant treasurer, any
trust officer or assistant trust officer, or any other officer of the Debenture
Trustee customarily performing functions similar to those performed by any of
the above-designated officers, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing of such property
or asset to the seller or transferor.
"S&P" means Standard and Poor's Ratings Services, a division of The McGraw-
Hill, Inc. and its successors.
"Securities Act" means Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Credit Agreement" means the credit agreement dated as of December
29, 1997, among the Company, the several lenders parties thereto, the Subsidiary
Debenture Guarantors, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as arranger and syndication agent, and Fleet National Bank, as
administrative agent, as such agreement may be amended, renewed, extended,
substituted, restated, refinanced, restructured, supplemented, increased or
otherwise modified from time to time (including, without limitation, any
successive amendments, renewals, extensions, substitutions, restatements,
refinancings, restructurings, supplements or other modifications of the
foregoing); provided that with respect to any agreement providing for the
refinancing of Indebtedness under the Senior Credit Agreement, such agreement
shall be the Senior Credit Agreement under this Exchange Indenture only if a
notice to that effect is delivered by the Company to the Debenture Trustee and
there shall be at any time only one instrument that is the Senior Credit
Agreement under the Exchange Indenture.
<PAGE>
23
"Senior Exchangeable Preferred Stock" means the 13 1/4% Senior Exchangeable
Preferred Stock issued by the Company on the Issuance Date and any shares of
Senior Exchangeable Preferred Stock issued as payment in kind dividends thereon
or on shares of Senior Exchangeable Preferred Stock so issued as payment in kind
dividends pursuant to the Certificate of Designation as in effect on the
Issuance Date.
"Senior Indebtedness" means (i) all obligations of the Company, now or
hereafter existing, under or in respect of the Senior Credit Agreement, whether
for principal, premium, if any, interest (including, interest accruing after the
filing of, or which would have accrued but for the filing of, a petition by or
against the Company under Bankruptcy Law, whether or not such interest is
allowed as a claim after such filing in any proceeding under such law) and other
amounts due in connection therewith (including any fees, premiums, expenses and
indemnities) and (ii) the principal of, premium, if any, and interest on all
other Indebtedness of the Company (other than the Exchange Debentures), whether
outstanding on the date of this Exchange Indenture or thereafter created,
incurred or assumed, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Exchange Debentures. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (i) Indebtedness evidenced by the
Exchange Debentures, (ii) Indebtedness of the Company that is expressly
subordinated in right of payment to any Senior Indebtedness of the Company,
(iii) Indebtedness of the Company that by operation of law is subordinate to any
general unsecured obligations of the Company, (iv) Indebtedness of the Company
to the extent incurred in violation of Section 1008, (v) any liability for
federal, state or local taxes or other taxes, owed or owing by the Company, (vi)
trade account payables owed or owing by the Company, (vii) amounts owed by the
Company for compensation to employees or for services rendered to the Company,
(viii) Indebtedness of the Company to any Restricted Subsidiary or any other
Affiliate of the Company, (ix) Redeemable Capital Stock of the Company and (x)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to the
Company or any Restricted Subsidiary.
"Senior Subordinated Indebtedness" means (i) all obligations of the
Company, now or hereafter existing, under or in respect of the Notes, whether
for principal, premium, if any, interest (including interest accruing after the
filing of, or which would have accrued but for the filing of, a petition by or
against the Company under Bankruptcy Law, whether or not such interest is
allowed as a claim after such filing in any proceeding under such law) and (ii)
the principal of, premium, if any, and interest on all other Indebtedness of the
Company (other than the Exchange Debentures), whether outstanding on the date of
this Exchange Indenture or thereafter created, incurred or assumed, for which,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness will be subordinate in right of payment to any
Senior Indebtedness or other general unsecured obligations of the Company,
unless, such instrument expressly provides that such Indebtedness will be
subordinate in right of payment to the Notes or any Indebtedness
<PAGE>
24
that is pari passu in right of payment to the Notes. Notwithstanding the
foregoing, "Senior Subordinated Indebtedness" shall not include (i) Indebtedness
evidenced by the Exchange Debentures, (ii) Indebtedness of the Company that is
expressly subordinated in right of payment to any Senior Subordinated
Indebtedness of the Company or the Notes, (iii) Indebtedness of the Company that
by operation of law is subordinate to any general unsecured obligations of the
Company, (iv) Indebtedness of the Company to the extent incurred in violation of
any covenant prohibiting the incurrence of Indebtedness under the Certificate of
Designation or this Exchange Indenture, (v) any liability for federal, state or
local taxes or other taxes, owed or owing by the Company, (vi) trade account
payables owed or owing by the Company, (vii) amounts owed by the Company for
compensation to employees or for services rendered to the Company, (viii)
Indebtedness of the Company to any Restricted Subsidiary or any other Affiliate
of the Company, (ix) Redeemable Capital Stock of the Company and (xi)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to the
Company or any Restricted Subsidiary.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (i) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated revenues of the Company
and its Restricted Subsidiaries or (ii) as of the end of such fiscal year, was
the owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal year.
"Special Record Date" for the payment of any Defaulted Interest on the
Exchange Debentures means a date fixed by the Debenture Trustee pursuant to
Section 307.
"Stated Maturity" means, when used with respect to any Exchange Debenture
or any installment of interest thereon, the date specified in such Exchange
Debenture as the fixed date on which the principal of such Exchange Debenture or
such installment of interest is due and payable, and, when used with respect to
any other Indebtedness, means the date specified in the instrument governing
such Indebtedness as the fixed date on which the principal of such Indebtedness,
or any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Notes or the Note Guarantee of such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
<PAGE>
25
"Subsidiary Debenture Guarantor" means each of TMI Holdings Inc., Tuesday
Morning Inc., Friday Morning, Inc. and TMIL Corporation and any Restricted
Subsidiary that incurs a Debenture Guarantee; provided that, upon the release
and discharge of any Person from its Debenture Guarantee in accordance with this
Exchange Indenture, such Person shall cease to be a Subsidiary Debenture
Guarantor.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which this Exchange Indenture was executed, except as
provided in Section 905.
"United States" means the United States of America (including the states
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Company, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary; provided, however, that in no event shall any
Subsidiary Debenture Guarantor be an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary but excluding any Subsidiary Debenture
Guarantor) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any Restricted Subsidiary is directly or indirectly liable for any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1019, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
Persons who are not Affiliates of the Company, and (v) neither the Company nor
any Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Debenture
Trustee by filing a board resolution with the Debenture Trustee giving effect to
such designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving
effect to such designation, there would be no Default or Event of Default under
this Exchange Indenture and the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1008.
"U.S. Global Debenture" has the meaning set forth in Section 201.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y)
<PAGE>
26
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian
with respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
"U.S. Physical Debenture" has the meaning set forth in Section 201.
"Vice President," when used with respect to the Company or the Debenture
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Debenture
Trustee to take any action under any provision of this Exchange Indenture, the
Company, the Subsidiary Debenture Guarantors and any other obligor on the
Exchange Debentures (if applicable) shall, at the request of the Debenture
Trustee, furnish to the Debenture Trustee an Officers' Certificate in form and
substance reasonably acceptable to the Debenture Trustee stating that all
conditions precedent, if any, provided for in this Exchange Indenture (including
any covenant compliance with which constitutes a condition precedent) relating
to the proposed action have been complied with and, at the request of the
Debenture Trustee, an Opinion of Counsel to the effect that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of any such documents is specifically required by any provision of
this Exchange Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Each certificate or opinion with respect to compliance with a covenant
or condition provided for in this Exchange Indenture (other than pursuant to
Section 1007) shall include:
<PAGE>
27
(1) a statement that each individual or firm signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(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 each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him or it 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, in the opinion of each such individual
or such firm, such covenant or condition has been complied with.
SECTION 103. Form of Documents Delivered to Debenture Trustee.
------------------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Subsidiary Debenture Guarantor or other obligor on the Exchange Debentures may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company, any
Subsidiary Debenture Guarantor or other obligor on the Exchange Debentures
stating that the information with respect to such factual matters is in the
possession of the Company, any Subsidiary Debenture Guarantor or other obligor
on the Exchange Debentures, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Exchange Indenture, they may, but need not, be
consolidated and form one instrument.
<PAGE>
28
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Exchange Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing. Except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments are delivered to the
Debenture Trustee and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Exchange Indenture and conclusive in favor of the Debenture Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Debenture Trustee deems sufficient.
(c) The principal amount and serial numbers of Exchange Debentures
held by any Person, and the date of holding the same, shall be proved by the
Exchange Debenture Register.
(d) If the Company shall solicit from the Holders of Exchange
Debentures any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding Exchange
Debentures have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Exchange Debentures shall be computed as of such record
date; provided that no such
<PAGE>
29
authorization, agreement or consent by the Holders on such record date shall be
deemed effective unless it shall become effective pursuant to the provisions of
this Exchange Indenture not later than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Exchange Debenture shall bind every
future Holder of the same Exchange Debenture and the Holder of every Exchange
Debenture issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Debenture Trustee or the Company or any Subsidiary Debenture
Guarantor in reliance thereon, whether or not notation of such action is made
upon such Exchange Debenture.
SECTION 105. Notices, Etc., to Debenture Trustee, Company, Any
-------------------------------------------------
Subsidiary Debenture Guarantor and Agent Bank.
- ---------------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other documents provided or permitted by this Exchange
Indenture to be made upon, given or furnished to, or filed with,
(1) the Debenture Trustee by any Holder or by the Company or any
Subsidiary Debenture Guarantor or any other obligor on the Exchange
Debentures shall be sufficient for every purpose hereunder if made, given,
furnished or delivered in writing and mailed, first-class postage prepaid,
or delivered by recognized overnight courier, to or with the Debenture
Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or
(2) the Company or any Subsidiary Debenture Guarantor by the
Debenture Trustee or by any Holder shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if made, given,
furnished or delivered in writing, or mailed, first-class postage prepaid,
or delivered by recognized overnight courier, to the Company or such
Subsidiary Debenture Guarantor addressed to it at the address of its
principal office, for the attention of the Chief Financial Officer,
specified in the first paragraph of this Exchange Indenture or at any other
address previously furnished in writing to the Debenture Trustee by the
Company or such Subsidiary Debenture Guarantor, or
(3) the Agent Bank by the Company or any Subsidiary Debenture
Guarantor, the Debenture Trustee or any Holder shall be sufficient for any
purpose hereunder if made, given, furnished or delivered in writing to or
with the Agent Bank addressed to it as set forth in the Senior Credit
Agreement, or at any other address previously furnished in writing to the
Company, the Subsidiary Debenture Guarantors and the Debenture Trustee by
the Agent Bank.
<PAGE>
30
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Exchange Indenture provides for notice of any event to
Holders of Exchange Debentures by the Company or the Debenture Trustee, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each such Holder
affected by such event, at its address as it appears in the Exchange Debenture
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice.
In case, by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impractical to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Exchange Indenture, then any manner of giving such
notice as shall be satisfactory to the Debenture Trustee shall be deemed to be
sufficient giving of such notice for every purpose hereunder.
Where this Exchange Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Debenture
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Exchange Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Exchange Indenture or in any Exchange
Debenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
<PAGE>
31
SECTION 110. Benefits of Exchange Indenture.
------------------------------
Nothing in this Exchange Indenture or in the Exchange Debentures,
express or implied, shall give to any Person, other than the parties hereto, any
Authenticating Agent, any Paying Agent, any Exchange Debenture Registrar and
their successors hereunder and the Holders and, with respect to any provisions
hereof relating to the subordination of the Exchange Debentures or the rights of
holders of Senior Indebtedness or Senior Subordinated Indebtedness, any benefit
or any legal or equitable right, remedy or claim under this Exchange Indenture.
SECTION 111. Governing Law.
-------------
This Exchange Indenture and the Exchange Debentures shall be governed
by and construed in accordance with the law of the State of New York. Upon the
effectiveness of the Shelf Registration Statement or the consummation of the
Exchange Offer, this Exchange Indenture will be subject to the provisions of the
Trust Indenture Act that are required to be part of this Exchange Indenture and
shall, to the extent applicable, be governed by such provisions.
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, or
Stated Maturity or Maturity of any Exchange Debenture shall not be a Business
Day at any Place of Payment, then (notwithstanding any other provision of this
Exchange Indenture or of any Exchange Debenture) payment of principal (and
premium, if any) or interest need not be made at such Place of Payment on such
date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date
or Redemption Date or at the Stated Maturity or Maturity; provided that no
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date, Stated Maturity or Maturity, as the case may be.
SECTION 113. Trust Indenture Act Controls.
----------------------------
If any provision of this Exchange Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Exchange Indenture by the TIA, the provision required by the TIA shall control.
SECTION 114. No Recourse Against Others.
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Debenture Guarantor shall not have any liability for any
obligations of the Company or such Subsidiary Debenture Guarantor under the
Exchange Debentures, any Debenture Guarantee or this Exchange Indenture, as
applicable, or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting an Exchange Debenture and the
<PAGE>
32
related Debenture Guarantee, each Holder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Exchange Debentures and the Debenture Guarantees.
SECTION 115. Counterparts.
------------
This Exchange Indenture may be executed in any number of counterparts,
each of which shall be original; but such counterparts shall together constitute
but one and the same instrument.
ARTICLE TWO
EXCHANGE DEBENTURE FORMS
SECTION 201. Forms Generally.
---------------
The Initial Exchange Debentures shall be known as the "13 1/4%
Subordinated Exchange Debentures due 2009" and the New Exchange Debentures shall
be known as the "13 1/4% Series B Subordinated Exchange Debentures due 2009," in
each case, of the Company. The Exchange Debentures and the Debenture Trustee's
certificate of authentication shall be in substantially the forms set forth in
Exhibit A hereto and in this Article, respectively, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Exchange Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers of the Company executing
such Exchange Debentures, as evidenced by their execution of the Exchange
Debentures. Any portion of the text of any Exchange Debenture may be set forth
on the reverse thereof, with an appropriate reference thereto on the face of the
Exchange Debenture. Each Exchange Debenture shall be dated the date of its
authentication.
The definitive Exchange Debentures shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Exchange Debentures,
as evidenced by their execution of such Exchange Debentures.
Initial Exchange Debentures offered and sold in reliance on Rule 144A
under the Securities Act (or exchanged for Senior Exchangeable Preferred Stock
so offered and sold) shall be issued initially in the form of a single permanent
global Exchange Debentures in substantially the form set forth in Exhibit A and
contain each of the legends set forth in Section 203 (the "U.S. Global Exchange
Debenture"), registered in the name of the nominee of the Depositary, deposited
with the Debenture Trustee, as custodian for the Depositary or its nominee, duly
executed by the
<PAGE>
33
Company and authenticated by the Debenture Trustee as hereinafter provided. The
aggregate principal amount of the U.S. Global Exchange Debenture may from time
to time be increased or decreased by adjustments made on the records of the
Debenture Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Initial Exchange Debentures offered and sold in offshore transactions
in reliance on Regulation S under the Securities Act (or exchanged for Senior
Exchangeable Preferred Stock so offered and sold) shall be initially issued in
the form of a single temporary global Exchange Debenture in substantially the
form set forth in Exhibit A (the "Temporary Offshore Global Exchange
Debenture"), registered in the name of the nominee of the Depositary, deposited
with the Debenture Trustee, as custodian for the Depositary or its nominee, duly
executed by the Company and authenticated by the Debenture Trustee as
hereinafter provided. At any time following 41 days after the date hereof (the
"Offshore Exchange Debenture Exchange Date"), upon receipt by the Debenture
Trustee and the Company of a certificate substantially in the form set forth in
Section 204, a single permanent global Exchange Debenture substantially in the
form of Exhibit A hereto (the "Permanent Offshore Global Exchange Debenture";
and together with the Temporary Offshore Global Exchange Debenture, the
"Offshore Global Exchange Debenture") duly executed by the Company and
authenticated by the Debenture Trustee as hereinafter provided shall be
deposited with the Debenture Trustee, as custodian for the Depositary, and the
Exchange Debenture Registrar shall reflect on its books and records the date and
a decrease in the principal amount of the Temporary Offshore Global Exchange
Debenture in an amount equal to the principal amount of the beneficial interest
in the Temporary Offshore Global Exchange Debenture transferred. The aggregate
principal amount of the Offshore Global Exchange Debenture may from time to time
be increased or decreased by adjustments made in the records of the Debenture
Trustee, as custodian for the Depositary or its nominee, as herein provided.
Initial Exchange Debentures issued pursuant to Section 305 (or exchanged for
Senior Exchangeable Preferred Stock so offered and sold) in exchange for or upon
transfer of beneficial interests in the U.S. Global Exchange Debenture or the
Offshore Global Exchange Debenture shall be in the form of U.S. Physical
Exchange Debentures or in the form of permanent certificated Exchange Debentures
substantially in the form set forth in Exhibit A (the "Offshore Physical
Exchange Debentures"), respectively, as hereinafter provided.
Initial Exchange Debentures which are offered and sold to
Institutional Accredited Investors which are not QIBs (excluding Non-U.S.
Persons) (or exchanged for Senior Exchangeable Preferred Stock so offered and
sold) shall be issued in the form of permanent certificated Exchange Debentures
in substantially the form set forth in Exhibit A and contain the Private
Placement Legend as set forth in Section 203 (the "U.S. Physical Exchange
Debentures").
The Offshore Physical Exchange Debentures and U.S. Physical Exchange
Debentures are sometimes collectively referred to herein as the "Physical
Exchange Debentures." The U.S. Global Exchange Debenture and the Offshore Global
Exchange Debenture are sometimes collectively referred to as the "Global
Exchange Debentures."
<PAGE>
34
New Exchange Debentures shall be issued substantially in the form set
forth in Exhibit A.
SECTION 202. Form of Debenture Trustee's Certificate of
------------------------------------------
Authentication.
- --------------
Subject to Section 611, the Debenture Trustee's certificate of
authentication shall be in substantially the following form:
This is one of the Exchange Debentures referred to in the within-
mentioned Exchange Indenture.
United States Trust Company of New York,
as Debenture Trustee
Dated: __________ By: _________________
Authorized Signatory
SECTION 203. Restrictive Legends.
-------------------
Unless and until (i) an Initial Exchange Debenture is sold pursuant to
an effective Shelf Registration Statement or (ii) an Initial Exchange Debenture
or Senior Exchangeable Preferred Stock is exchanged for a New Exchange Debenture
or Senior Exchangeable Preferred Stock in an Exchange Offer pursuant to an
effective Exchange Offer Registration Statement, in each case pursuant to the
Registration Rights Agreement, (A) each U.S. Global Exchange Debenture and U.S.
Physical Exchange Debenture shall bear the following legend set forth below (the
"Private Placement Legend") on the face thereof and (B) the Offshore Physical
Exchange Debentures and the Temporary Offshore Global Exchange Debenture shall
bear the Private Placement Legend on the face thereof until the Offshore
Exchange Debenture Exchange Date and receipt by the Company and the Debenture
Trustee of a certificate substantially in the form provided in Section 204:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS
<PAGE>
35
SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS
TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER
THE SECURITIES ACT AND ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR AND THIS SECURITY)
AND THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) AND (Y)
SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION
S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE DEBENTURE TRUSTEE,
THE TRANSFER AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
DEBENTURE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRADED, EXCHANGED
OR OTHERWISE TRANSFERRED SEPARATELY FROM THE COMMON STOCK OF THE COMPANY
UNTIL (I) JUNE 15, 1998; (II) THE OCCURRENCE OF A CHANGE
<PAGE>
36
IN CONTROL; (III) THE DATE ON WHICH A PREFERRED STOCK REGISTRATION
STATEMENT IS DECLARED EFFECTIVE; (IV) IMMEDIATELY PRIOR TO ANY REDEMPTION
OF SENIOR EXCHANGEABLE PREFERRED STOCK BY THE COMPANY WITH THE PROCEEDS OF
A PUBLIC EQUITY OFFERING; OR (V) SUCH EARLIER DATE AS DETERMINED BY MERRILL
LYNCH IN ITS SOLE DISCRETION (THE DATE OF THE OCCURRENCE OF AN EVENT
SPECIFIED IN CLAUSES (I)-(V) BEING THE "SEPARATION DATE").
Each Global Exchange Debenture, whether or not an Initial Exchange
Debenture, shall also bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 311 AND 312 OF THE EXCHANGE INDENTURE.
<PAGE>
37
SECTION 204. Form of Certificate to Be Delivered After the Offshore
------------------------------------------------------
Exchange Debenture Exchange Date.
- --------------------------------
On or after February 8, 1998
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Administration
Re: TUESDAY MORNING CORPORATION (the "Company")
13 1/4% Subordinated Exchange Debentures due 2009 (the
"Exchange Debentures")
-----------------------------------------------------
_____
Ladies and Gentlemen:
This letter relates to $__________ principal amount of Exchange
Debentures represented by the temporary offshore global note certificate (the
"Temporary Offshore Global Exchange Debenture"). Pursuant to Section [201] [203]
of the Exchange Indenture dated as of December 29, 1997 (the "Exchange
Indenture") relating to the Exchange Debentures, we hereby certify that (1) we
are the beneficial owner of such principal amount of Exchange Debentures
represented by the Temporary Offshore Global Exchange Debenture and (2) we are a
Non-U.S. Person to whom the Exchange Debentures could be transferred in
accordance with Rule 904 of Regulation S promulgated under the Securities Act of
1933 (the "Securities Act"). [Accordingly, you are hereby requested to exchange
the Temporary Offshore Global Exchange Debenture for an unlegended Permanent
Offshore Global Exchange Debenture representing the undersigned's interest in
the principal amount of Exchange Debentures represented by the Temporary
Offshore Global Exchange Debenture, all in the manner provided for in the
Exchange Indenture.] [Accordingly, you are hereby requested to issue an Offshore
Physical Exchange Debenture representing the undersigned's interest in the
principal amount of Exchange Debentures represented by the Offshore Global
Exchange Debenture, all in the manner provided by the Exchange Indenture.]
<PAGE>
38
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:__________________________________________________________________
Authorized Signature
ARTICLE THREE
THE EXCHANGE DEBENTURES
SECTION 301. Amount.
------
The aggregate principal amount of Exchange Debentures which may be
authenticated and delivered under this Exchange Indenture is limited to
$50,000,000, except for Exchange Debentures authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Exchange
Debentures pursuant to Section 303, 304, 305, 306, 311, 312, 906, 1013, 1014 or
1108 or pursuant to an Exchange Offer. Exchange Debentures may be issued in
exchange for Senior Exchangeable Preferred Stock as provided in the Certificate
of Designation with respect thereto or in connection with the payment of
interest on Exchange Debentures as provided herein.
The Initial Exchange Debentures shall be known and designated as the
"13 1/4% Subordinated Exchange Debentures due 2009" and the New Exchange
Debentures shall be known and designated as the "13 1/4% Series B Subordinated
Exchange Debentures due 2009," in each case, of the Company. The Stated Maturity
of the Exchange Debentures shall be December 15, 2009, and they shall bear
interest at the rate of 13 1/4% per annum from the Exchange Date, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, payable quarterly on March 15, June 15, September 15 and December
15 in each year, commencing on the first such date after the Exchange Date until
the principal thereof is paid in full and to the Person in whose name the
Exchange Debenture (or any predecessor Exchange Debenture) is registered at the
close of business on the March 1, June 1, September 1 or December
<PAGE>
39
1 immediately preceding such Interest Payment Date (each, a "Regular Record
Date"). Interest will be computed on the Exchange Debentures as specified in
Section 310 hereof. On or prior to December 15, 2002, interest is payable in
additional Exchange Debentures having an aggregate principal amount equal to the
amount of such interest, or at the option of the Company, in cash. Thereafter,
all interest will be payable only in cash. Interest on the Exchange Debentures
will accrue from the date of issuance thereof.
The principal of (and premium, if any) and interest on the Exchange
Debentures shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid (a) by check (or, if Exchange
Debentures have been issued as payment of interest in lieu of money, by such
Exchange Debentures) mailed to addresses of the Persons entitled thereto as such
addresses shall appear on the Exchange Debenture Register or (b) by wire
transfer to an account located in the United States maintained by the payee.
Holders shall have the right to require the Company to purchase their
Exchange Debentures, in whole or in part, in the event of a Change in Control
pursuant to Section 1013. The Exchange Debentures shall be subject to repurchase
pursuant to an Excess Proceeds Offer as provided in Section 1014.
The Exchange Debentures shall be redeemable as provided in Article
Eleven and in the Exchange Debentures. The Indebtedness evidenced by the
Exchange Debentures shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve. The due and punctual payment of
principal of, and premium, if any, and interest on the Exchange Debentures
payable by the Company is irrevocably and unconditionally guaranteed, to the
extent set forth herein, by each of the Subsidiary Debenture Guarantors. The
Debenture Guarantee issued by any Subsidiary Debenture Guarantor will be
subordinated to all existing and future Guarantor Senior Indebtedness of such
Subsidiary Debenture Guarantor as provided in Article Twelve.
SECTION 302. Denominations.
-------------
The Exchange Debentures shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Exchange Debentures shall be executed on behalf of the Company by
its Chairman of the Board, its Chief Executive Officer, its President, its Chief
Operating Officer, its Chief Financial Officer or a Vice President. The
signature of any of these officers on the
<PAGE>
40
Exchange Debentures may be the manual or facsimile signatures of the present or
any future such authorized officer and may be imprinted or otherwise reproduced
on the Exchange Debentures.
Exchange Debentures bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Exchange
Debentures or did not hold such offices at the date of such Exchange Debentures.
At any time and from time to time after the execution and delivery of
this Exchange Indenture, the Company may deliver (i) Exchange Debentures and
(ii) any additional Exchange Debentures issued in lieu of interest payments in
money as provided in this Exchange Indenture and in the Exchange Debentures, in
each case executed by the Company to the Debenture Trustee for authentication,
together with a Company Order for the authentication and delivery of such
Exchange Debentures, directing the Debenture Trustee to authenticate the
Exchange Debentures and certifying that all conditions precedent to the issuance
of Exchange Debentures contained herein have been fully complied with, and the
Debentures Trustee in accordance with such Company Order shall authenticate and
deliver such Initial Exchange Debentures and Exchange Debentures issued in lieu
of interest payments in money, as the case may be. On Company Order, the
Debenture Trustee shall authenticate for original issue New Exchange Debentures
in an aggregate principal amount not to exceed $50,000,000; provided that such
New Exchange Debentures shall be issuable only upon the valid surrender for
cancellation of Initial Exchange Debentures of a like aggregate principal amount
in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Debenture Trustee shall be entitled to receive an
Officers' Certificate and an Opinion of Counsel of the Company that it may
reasonably request in connection with such authentication of Exchange
Debentures. Such order shall specify the amount of Exchange Debentures to be
authenticated and the date on which the original issue of Exchange Debentures is
to be authenticated.
Each Exchange Debenture shall be dated the date of its authentication.
No Exchange Debenture shall be entitled to any benefit under this
Exchange Indenture or be valid or obligatory for any purpose unless there
appears on such Exchange Debenture a certificate of authentication substantially
in the form provided for herein duly executed by the Debenture Trustee by manual
signature of an authorized signatory, and such certificate upon any Exchange
Debenture shall be conclusive evidence, and the only evidence, that such
Exchange Debenture has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Exchange Indenture.
In case the Company or any Subsidiary Debenture Guarantor, pursuant to
Article Eight, shall be consolidated or merged with or into any other Person or
shall convey, transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person,
<PAGE>
41
and the successor Person resulting from such consolidation, or surviving such
merger, or into which the Company or such Subsidiary Debenture Guarantor shall
have been merged, or the Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Debenture Trustee pursuant to Article
Eight, any of the Exchange Debentures authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Exchange Debentures executed in the name of the successor Person with such
changes in phraseology and form as may be appropriate, but otherwise in
substance of like tenor as the Exchange Debentures surrendered for such exchange
and of like principal amount; and the Debenture Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Exchange Debentures as
specified in such request for the purpose of such exchange. If Exchange
Debentures shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section 303 in exchange or substitution for or
upon registration of transfer of any Exchange Debentures, such successor Person,
at the option of the Holders but without expense to them, shall provide for the
exchange of all Exchange Debentures at the time Outstanding for Exchange
Debentures authenticated and delivered in such new name.
SECTION 304. Temporary Exchange Debentures.
-----------------------------
Pending the preparation of definitive Exchange Debentures, the Company
may execute, and upon Company Order the Debenture Trustee shall authenticate and
deliver, temporary Exchange Debentures which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Exchange Debentures in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Exchange
Debentures may determine, as conclusively evidenced by their execution of such
Exchange Debentures.
If temporary Exchange Debentures are issued, the Company will cause
definitive Exchange Debentures to be prepared without unreasonable delay. After
the preparation of definitive Exchange Debentures, the temporary Exchange
Debentures shall be exchangeable for definitive Exchange Debentures, upon
surrender of the temporary Exchange Debentures at the office or agency of the
Company in a Place of Payment, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Exchange Debentures, the Company shall
execute and, upon Company Order, the Debenture Trustee shall authenticate and
make available for delivery in exchange therefor a like principal amount of
definitive Exchange Debentures of authorized denominations. Until so exchanged
the temporary Exchange Debentures shall in all respects be entitled to the same
benefits under this Exchange Indenture as definitive Exchange Debentures.
<PAGE>
42
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Debenture Trustee a register for the Exchange Debentures (the register
maintained in the Corporate Trust Office of the Debenture Trustee and in any
other office or agency of the Company in a Place of Payment being herein
sometimes collectively referred to as the "Exchange Debenture Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Exchange Debentures and of transfers of
Exchange Debentures. The Exchange Debenture Register shall be in written form or
any other form capable of being converted into written form within a reasonable
time. At all reasonable times, the Exchange Debenture Register shall be open to
inspection by the Debenture Trustee. The Debenture Trustee is hereby initially
appointed as note registrar (the Debenture Trustee in such capacity, together
with any successor of the Debenture Trustee in such capacity, the "Exchange
Debenture Registrar") for the purpose of registering Exchange Debentures and
transfers of Exchange Debentures as herein provided.
Upon surrender for registration of transfer of any Exchange Debenture
at the office or agency in a Place of Payment, the Company shall execute, and
the Debenture Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Exchange Debentures, of
any authorized denomination or denominations and of a like aggregate principal
amount and tenor.
At the option of the Holder, Exchange Debentures may be exchanged for
other Exchange Debentures, of any authorized denomination and of a like
aggregate principal amount, upon surrender of the Exchange Debentures to be
exchanged at such office or agency. Whenever any Exchange Debentures are so
surrendered for exchange (including an exchange of Initial Exchange Debentures
for New Exchange Debentures), the Company shall execute, and the Debenture
Trustee shall authenticate and deliver, the Exchange Debentures which the Holder
making the exchange is entitled to receive; provided that no exchange of Initial
Exchange Debentures for New Exchange Debentures shall occur until an Exchange
Offer Registration Statement shall have been declared effective by the
Commission, the Debenture Trustee shall have received an Officers' Certificate
confirming that the Exchange Offer Registration Statement has been declared
effective by the Commission and the Initial Exchange Debentures to be exchanged
for the New Exchange Debentures shall be cancelled by the Debenture Trustee.
All Exchange Debentures issued upon any registration of transfer or
exchange of Exchange Debentures shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this Exchange
Indenture, as the Exchange Debentures surrendered upon such registration of
transfer or exchange.
Every Exchange Debenture presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Exchange
Debenture Registrar) be duly
<PAGE>
43
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Exchange Debenture Registrar, duly executed
by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Exchange Debentures, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Exchange Debentures, other than exchanges pursuant to Section 303, 304, 906,
1013, 1014 or 1108 not involving any transfer.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Exchange
----------------------------------------------
Debentures.
- ----------
If any mutilated Exchange Debenture is surrendered to the Debenture
Trustee, the Company shall execute and the Debenture Trustee shall authenticate
and deliver in exchange therefor a new Exchange Debenture of like tenor and
principal amount and bearing a number not contemporaneously outstanding, or, in
case any such mutilated Exchange Debenture has become or is about to become due
and payable, the Company in its discretion may, instead of issuing a new
Exchange Debenture, pay such Exchange Debenture.
If there shall be delivered to the Company, any Subsidiary Debenture
Guarantor and to the Debenture Trustee (i) evidence to their satisfaction of the
destruction, loss or theft of any Exchange Debenture and (ii) such security or
indemnity as may be required by them to save each of them and any agent of
either of them harmless, then, in the absence of notice to the Company, any
Subsidiary Debenture Guarantor or the Debenture Trustee that such Exchange
Debenture has been acquired by a bona fide purchaser, the Company shall execute
and upon Company Order the Debenture Trustee shall authenticate and deliver, in
lieu of any such destroyed, lost or stolen Exchange Debenture, a new Exchange
Debenture of like tenor and principal amount and bearing a number not
contemporaneously outstanding, or, in case any such destroyed, lost or stolen
Exchange Debenture has become or is about to become due and payable, the Company
in its discretion may, instead of issuing a new Exchange Debenture, pay such
Exchange Debenture.
Upon the issuance of any new Exchange Debenture under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Debenture Trustee) in
connection therewith.
Every new Exchange Debenture issued pursuant to this Section in lieu
of any destroyed, lost or stolen Exchange Debenture, shall constitute an
original additional contractual obligation of the Company, any Subsidiary
Debenture Guarantor and any other obligor upon the Exchange Debentures, whether
or not the mutilated, destroyed, lost or stolen Exchange Debenture shall be at
any time enforceable by anyone, and shall be entitled to all the benefits of
this
<PAGE>
44
Exchange Indenture equally and proportionately with any and all other Exchange
Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Exchange Debentures.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Exchange Debenture which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Exchange Debenture (or one or more Predecessor
Exchange Debentures) is registered at the close of business on the Regular
Record Date for such interest at the Place of Payment; provided, however, that
each installment of interest on any Exchange Debenture may at the Company's
option be paid (i) by mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of such Person as it appears on the Exchange Debenture Register or (ii)
by wire transfer to an account located in the United States maintained by the
payee.
Any interest on any Exchange Debenture which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the relevant Regular Record Date
by virtue of its having been such Holder, and such defaulted interest and, if
applicable, interest on such defaulted interest (to the extent lawful) at the
rate specified in the Exchange Debentures (such defaulted interest and, if
applicable, interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Exchange Debentures (or their respective
Predecessor Exchange Debentures) are registered at the close of business on
a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Debenture Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Exchange Debenture and the date of the proposed payment
(the "Special Record Date"), and at the same time the Company shall deposit
with the Debenture Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Debenture Trustee for such deposit on or
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Debenture Trustee shall
fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date
of the proposed payment and not less than 10 days after the receipt by the
Debenture Trustee of the notice of the proposed
<PAGE>
45
payment. The Debenture Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose name the Registered Exchange Debentures (or
their respective Predecessor Exchange Debentures) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Exchange Debentures in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Exchange Debentures
may be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Debenture Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Debenture Trustee.
Subject to the foregoing provisions of this Section and Section 305,
each Exchange Debenture delivered under this Exchange Indenture upon
registration of transfer of or in exchange for or in lieu of any other Exchange
Debenture shall carry the rights to interest accrued and unpaid, and to accrue,
which were carried by such other Exchange Debenture.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to due presentment of an Exchange Debenture for registration of
transfer, the Company, any Subsidiary Debenture Guarantor, the Debenture Trustee
and any agent of the Company, any Subsidiary Debenture Guarantor or the
Debenture Trustee may treat the Person in whose name such Exchange Debenture is
registered as the owner of such Exchange Debenture for the purpose of receiving
payment of principal of (and premium, if any, on) and (subject to Sections 305
and 307) interest on such Exchange Debenture and for all other purposes
whatsoever, whether or not such Exchange Debenture be overdue, and none of the
Company, any Subsidiary Debenture Guarantor, the Debenture Trustee or any agent
of the Company, any Subsidiary Debenture Guarantor or the Debenture Trustee
shall be affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Exchange Debentures surrendered for payment, redemption, repayment
at the option of the Holder, registration of transfer or exchange shall, if
surrendered to any Person other than the Debenture Trustee, be delivered to the
Debenture Trustee. All Exchange Debentures so delivered to the Debenture Trustee
shall be promptly cancelled by it. The Company may at any time deliver to the
Debenture Trustee for cancellation any Exchange Debentures previously
authenticated and delivered hereunder which the Company may have acquired in any
manner
<PAGE>
46
whatsoever, and may deliver to the Debenture Trustee (or to any other Person for
delivery to the Debenture Trustee) for cancellation any Exchange Debentures
previously authenticated hereunder which the Company has not issued and sold,
and all Exchange Debentures so delivered shall be promptly cancelled by the
Debenture Trustee. If the Company shall so acquire any of the Exchange
Debentures, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Exchange Debentures unless
and until the same are surrendered to the Debenture Trustee for cancellation. No
Exchange Debentures shall be authenticated in lieu of or in exchange for any
Exchange Debentures cancelled as provided in this Section, except as expressly
permitted by this Exchange Indenture. All cancelled Exchange Debentures held by
the Debenture Trustee shall be disposed of by the Debenture Trustee in
accordance with its customary procedures unless by Company Order the Company
shall direct that cancelled Exchange Debentures be returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Exchange Debentures shall be computed on the basis of
a 360-day year of twelve 30-day months.
SECTION 311. Book-Entry Provisions for Global Exchange Debentures.
----------------------------------------------------
(a) Each Global Exchange Debenture initially shall (i) be registered
in the name of the Depositary for such Global Exchange Debentures or the nominee
of such Depositary, (ii) be delivered to the Debenture Trustee as custodian for
such Depositary and (iii) bear legends as set forth in Section 203.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Exchange Indenture with respect to any Global Exchange
Debenture, and the Depositary may be treated by the Company, the Subsidiary
Debenture Guarantors, the Debenture Trustee and any agent of the Company, the
Subsidiary Debenture Guarantors or the Debenture Trustee as the absolute owner
of such Global Exchange Debenture for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Subsidiary
Debenture Guarantors, the Debenture Trustee or any agent of the Company, the
Subsidiary Debenture Guarantors or the Debenture Trustee from giving effect to
any written certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
beneficial owner of any Exchange Debenture. The registered holder of a Global
Exchange Debenture may grant proxies and otherwise authorize any person,
including Agent Members and persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Exchange Indenture or the Exchange Debentures.
(b) Interests of beneficial owners in a Global Exchange Debenture may
be transferred in accordance with the applicable rules and procedures of the
Depositary and the
<PAGE>
47
provisions of Section 312. Transfers of a Global Exchange Debenture shall be
limited to transfers of such Global Exchange Debenture in whole, but not in
part, to the Depositary, its successors or their respective nominees, except (i)
as otherwise set forth in Section 312 and (ii) U.S. Physical Exchange Debentures
or Offshore Physical Exchange Debentures shall be transferred to all beneficial
owners in exchange for their beneficial interests in the U.S. Global Exchange
Debenture or the Offshore Global Exchange Debenture, respectively, in the event
that the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for the applicable Global Exchange Debenture or the
Depositary ceases to be a "Clearing Agency" registered under the Exchange Act
and a successor depositary is not appointed by the Company within 90 days or an
Event of Default has occurred and is continuing and the Exchange Debenture
Registrar has received a request from the Depositary. In connection with a
transfer of an entire Global Exchange Debenture to beneficial owners pursuant to
clause (ii) of this paragraph (b), the applicable Global Exchange Debenture
shall be deemed to be surrendered to the Debenture Trustee for cancellation, and
the Company shall execute, and the Debenture Trustee shall authenticate and
deliver, to each beneficial owner identified by the Depositary in exchange for
its beneficial interest in the applicable Global Exchange Debenture, an equal
aggregate principal amount at maturity of U.S. Physical Exchange Debentures (in
the case of the U.S. Global Exchange Debenture) or Offshore Physical Exchange
Debentures (in the case of the Offshore Global Exchange Debenture), as the case
may be, of authorized denominations.
(c) Any beneficial interest in one of the Global Exchange Debentures
that is transferred to a person who takes delivery in the form of an interest in
the other Global Exchange Debenture will, upon transfer, cease to be an interest
in such Global Exchange Debenture and become an interest in the other Global
Exchange Debenture and, accordingly, will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to beneficial interests in
such other Global Exchange Debenture for as long as it remains such an interest.
(d) Any U.S. Physical Exchange Debenture delivered in exchange for an
interest in the U.S. Global Exchange Debenture pursuant to paragraph (b) of this
Section shall, unless such exchange is made on or after the Resale Restriction
Termination Date and except as otherwise provided in Section 312, bear the
Private Placement Legend.
SECTION 312. Transfer Provisions.
-------------------
Unless and until (i) an Initial Exchange Debenture is sold pursuant to
an effective Registration Statement, or (ii) an Initial Exchange Debenture is
exchanged for a New Exchange Debenture in the Exchange Offer pursuant to an
effective Registration Statement, in each case, pursuant to the Registration
Rights Agreement, the following provisions shall apply:
(a) General. The provisions of this Section 312 shall apply to all
-------
transfers involving any Physical Exchange Debenture and any beneficial
interest in any Global Exchange Debenture.
<PAGE>
48
(b) Certain Definitions. As used in this Section 312 only, "delivery"
-------------------
of a certificate by a transferee or transferor means the delivery to the
Exchange Debenture Registrar by such transferee or transferor of the
applicable certificate duly completed; "holding" includes both possession
of a Physical Exchange Debenture and ownership of a beneficial interest in
a Global Exchange Debenture, as the context requires; "transferring" a
Global Exchange Debenture means transferring that portion of the principal
amount of the transferor's beneficial interest therein that the transferor
has notified the Exchange Debenture Registrar that it has agreed to
transfer; and "transferring" a Physical Exchange Debenture means
transferring that portion of the principal amount thereof that the
transferor has notified the Exchange Debenture Registrar that it has agreed
to transfer.
As used in this Exchange Indenture, "Accredited Investor Certificate"
means a certificate substantially in the form set forth in Section 313;
"Regulation S Certificate" means a certificate substantially in the form
set forth in Section 314; "Rule 144A Certificate" means a certificate
substantially in the form set forth in Section 315; and "Non-Registration
Opinion and Supporting Evidence" means a written opinion of counsel
reasonably acceptable to the Company to the effect that, and such other
certification or information as the Company may reasonably require to
confirm that, the proposed transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of
the Securities Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain
-----------------------------------------------------
Circumstances. A Rule 144A Certificate, if not actually delivered, will be
-------------
deemed delivered if (A) (i) the transferor advises the Company and the
Debenture Trustee in writing that the relevant offer and sale were made in
accordance with the provisions of Rule 144A (or, in the case of a transfer
of a Physical Exchange Debenture, the transferor checks the box provided on
the Physical Exchange Debenture to that effect) and (ii) the transferee
advises the Company and the Debenture Trustee in writing that (x) it and,
if applicable, each account for which it is acting in connection with the
relevant transfer, is a qualified institutional buyer within the meaning of
Rule 144A, (y) it is aware that the transfer of Exchange Debentures to it
is being made in reliance on the exemption from the provisions of Section 5
of the Securities Act provided by Rule 144A, and (z) prior to the proposed
date of transfer it has been given the opportunity to obtain from the
Company the information referred to in Rule 144A(d)(4), and has either
declined such opportunity or has received such information (or, in the case
of a transfer of a Physical Exchange Debenture, the transferee signs the
certification provided on the Physical Exchange Debenture to that effect);
or (B) the transferor holds the U.S. Global Exchange Debenture and is
transferring to a transferee that will take delivery in the form of the
U.S. Global Exchange Debenture.
<PAGE>
49
(e) Procedures and Requirements.
---------------------------
1. If the proposed transfer occurs prior to the Offshore
Exchange Debenture Exchange Date, and the proposed transferor holds:
(A) a U.S. Physical Exchange Debenture which is surrendered
to the Exchange Debenture Registrar, and the proposed transferee
or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Exchange Debenture, then the
Exchange Debenture Registrar shall (x) register such
transfer in the name of such transferee and record the date
thereof in its books and records, (y) cancel such
surrendered U.S. Physical Exchange Debenture and (z) deliver
a new U.S. Physical Exchange Debenture to such transferee
duly registered in the name of such transferee in principal
amount equal to the principal amount being transferred of
such surrendered U.S. Physical Exchange Debenture;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Exchange Debenture,
then the Exchange Debenture Registrar shall (x) cancel such
surrendered U.S. Physical Exchange Debenture, (y) record an
increase in the principal amount of the U.S. Global Exchange
Debenture equal to the principal amount being transferred of
such surrendered U.S. Physical Exchange Debenture and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Temporary Offshore Global
Exchange Debenture, then the Exchange Debenture Registrar
shall (x) cancel such surrendered U.S. Physical Exchange
Debenture, (y) record an increase in the principal amount of
the Temporary Offshore Global Exchange
<PAGE>
50
Debenture equal to the principal amount being transferred of
such surrendered U.S. Physical Exchange Debenture and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer.
In any of the cases described in this Section 312(e)(1)(A), the
Exchange Debenture Registrar shall deliver to the transferor a
new U.S. Physical Exchange Debenture in principal amount equal to
the principal amount not being transferred of such surrendered
U.S. Physical Exchange Debenture, as applicable.
(B) the U.S. Global Exchange Debenture, and the proposed
transferee or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Exchange Debenture, then the
Exchange Debenture Registrar shall (w) register such
transfer in the name of such transferee and record the date
thereof in its books and records, (x) record a decrease in
the principal amount of the U.S. Global Exchange Debenture
in an amount equal to the beneficial interest therein being
transferred, (y) deliver a new U.S. Physical Exchange
Debenture to such transferee duly registered in the name of
such transferee in principal amount equal to the amount of
such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of
such transfer;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Exchange Debenture,
then the transfer shall be effected in accordance with the
procedures of the Depositary therefor; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Temporary Offshore Global
Exchange Debenture, then the Exchange Debenture Registrar
shall (w) register such transfer in the
<PAGE>
51
name of such transferee and record the date thereof in its
books and records, (x) record a decrease in the principal
amount of the U.S. Global Exchange Debenture in an amount
equal to the beneficial interest therein being transferred,
(y) record an increase in the principal amount of the
Offshore Global Exchange Debenture equal to the amount of
such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of
such transfer.
(C) the Temporary Offshore Global Exchange Debenture, and
the proposed transferee or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Exchange Debenture, then the
Exchange Debenture Registrar shall (w) register such
transfer in the name of such transferee and record the date
thereof in its books and records, (x) record a decrease in
the principal amount of the Offshore Global Exchange
Debenture in an amount equal to the beneficial interest
therein being transferred, (y) deliver a new U.S. Physical
Exchange Debenture to such transferee duly registered in the
name of such transferee in principal amount equal to the
amount of such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Exchange Debenture,
then the Exchange Debenture Registrar shall (x) record a
decrease in the principal amount of the Offshore Global
Exchange Debenture in an amount equal to the beneficial
interest therein being transferred, (y) record an increase
in the principal amount of the U.S. Global Exchange
Debenture equal to the amount of such decrease and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer; or
<PAGE>
52
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Temporary Offshore Global
Exchange Debenture, then the transfer shall be effected in
accordance with the procedures of the Depositary therefor;
provided, however, that until the Offshore Exchange
Debenture Exchange Date occurs, beneficial interests in the
Offshore Global Exchange Debenture may be held only in or
through accounts maintained at the Depositary by Euroclear
or Cedel (or by Agent Members acting for the account
thereof), and no person shall be entitled to effect any
transfer or exchange that would result in any such interest
being held otherwise than in or through such an account.
2. If the proposed transfer occurs on or after the Offshore
Exchange Debentures Exchange Date and the proposed transferor holds:
(A) a U.S. Physical Exchange Debenture which is surrendered
to the Exchange Debenture Registrar, and the proposed transferee
or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Exchange Debenture, then the
procedures set forth in Section 312(e)(1)(A)(i) shall apply;
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Offshore Global Exchange
Debenture, then the procedures set forth in Section
312(e)(1)(A)(ii) shall apply; or
(iii) delivers a Regulation S Certificate, then the
Exchange Debenture Registrar shall cancel such surrendered
U.S. Physical Exchange Debenture and at the direction of the
transferee, either:
<PAGE>
53
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Exchange Debenture to
such transferee in principal amount equal to the principal
amount being transferred of such surrendered U.S. Physical
Exchange Debenture, or
(y) if the proposed transferee is or is acting
through an Agent Member, record an increase in the principal
amount of the Offshore Global Exchange Debenture equal to
the principal amount being transferred of such surrendered
U.S. Physical Exchange Debenture and notify the Depositary
in accordance with the procedures of the Depositary that it
approves of such transfer.
In any of the cases described in this Section
312(e)(2)(A)(i), (ii) or (iii)(x), the Exchange Debenture
Registrar shall deliver to the transferor a new U.S.
Physical Exchange Debenture in principal amount equal to the
principal amount not being transferred of such surrendered
U.S. Physical Exchange Debenture, as applicable.
(B) the U.S. Global Exchange Debenture, and the proposed
transferee or transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Exchange Debenture, then the
procedures set forth in Section 312(e)(1)(B)(i) shall apply;
or
(ii) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Exchange Debenture,
then the procedures set forth in Section 312(e)(1)(B)(ii)
shall apply; or
(iii) delivers a Regulation S Certificate, then the
Exchange Debenture Registrar shall (x) record a decrease in
the principal amount of the U.S. Global Exchange Debenture
in an amount equal to the beneficial interest therein being
transferred, (y) notify the Depositary in accordance with
the procedures of the
<PAGE>
54
Depositary that it approves of such transfer and (z) at the
direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and
records and deliver a new Offshore Physical Exchange
Debenture to such transferee in principal amount equal
to the amount of such decrease, or
(y) if the proposed transferee is or is acting
through an Agent Member, record an increase in the
principal amount of the Offshore Global Exchange
Debenture equal to the amount of such decrease.
(C) an Offshore Physical Exchange Debenture which is
surrendered to the Exchange Debenture Registrar, and the proposed
transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests delivery in the form of the U.S. Global
Exchange Debenture, then the Exchange Debenture Registrar
shall (x) cancel such surrendered Offshore Physical Exchange
Debenture, (y) record an increase in the principal amount of
the U.S. Global Exchange Debenture equal to the principal
amount being transferred of such surrendered Offshore
Physical Exchange Debenture and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer;
(ii) where the proposed transferee is or is acting
through an Agent Member, requests that the proposed
transferee receive a beneficial interest in the Offshore
Global Exchange Debenture, then the Exchange Debenture
Registrar shall (x) cancel such surrendered Offshore
Physical Exchange Debenture, (y) record an increase in the
principal amount of the Offshore Global Exchange Debenture
equal to the principal amount being transferred of such
surrendered Offshore Physical Exchange Debenture and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer; or
<PAGE>
55
(iii) does not make a request covered by Section
312(e)(2)(C)(i) or Section 312(e)(2)(C)(ii), then the
Exchange Debenture Registrar shall (x) register such
transfer in the name of such transferee and record the date
thereof in its books and records, (y) cancel such
surrendered Offshore Physical Exchange Debenture and (z)
deliver a new Offshore Physical Exchange Debenture to such
transferee duly registered in the name of such transferee in
principal amount equal to the principal amount being
transferred of such surrendered Offshore Physical Exchange
Debenture.
In any of the cases described in this Section 312(e)(2)(C), the
Exchange Debenture Registrar shall deliver to the transferor a
new U.S. Physical Exchange Debenture in principal amount equal to
the principal amount not being transferred of such surrendered
U.S. Physical Exchange Debenture, as applicable.
(D) the Offshore Global Exchange Debenture, and the
proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant
to clause (d) above) a Rule 144A Certificate and the
proposed transferee is or is acting through an Agent Member
and requests delivery in the form of the U.S. Global
Exchange Debenture, then the Exchange Debenture Registrar
shall (x) record a decrease in the principal amount of the
Offshore Global Exchange Debenture in an amount equal to the
beneficial interest therein being transferred, (y) record an
increase in the principal amount of the U.S. Global Exchange
Debenture equal to the amount of such decrease and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer;
(ii) where the proposed transferee is or is acting
through an Agent Member, requests that the proposed
transferee receive a beneficial interest in the Offshore
Global Exchange Debenture, then the transfer shall be
effected in accordance with the procedures of the Depositary
therefor; or
(iii) does not make a request covered by Section
312(e)(2)(D)(i) or Section 312(e)(2)(D)(ii), then the
Exchange Debenture Registrar shall (w) register such
transfer in the name of such transferee and record the date
thereof in its books and records, (x) record a decrease in
the principal amount of the Offshore Global
<PAGE>
56
Exchange Debenture in an amount equal to the beneficial
interest therein being transferred, (y) deliver a new
Offshore Physical Exchange Debenture to such transferee duly
registered in the name of such transferee in principal
amount equal to the amount of such decrease and (z) notify
the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
(f) Execution, Authentication and Delivery of Physical Exchange
-----------------------------------------------------------
Debentures. In any case in which the Exchange Debenture Registrar is
----------
required to deliver a Physical Exchange Debenture to a transferee or
transferor, the Company shall execute, and the Debenture Trustee shall
authenticate and make available for delivery, such Physical Exchange
Debenture.
(g) Certain Additional Terms Applicable to Physical Exchange
--------------------------------------------------------
Debentures. Any transferee entitled to receive a Physical Exchange
----------
Debenture may request that the principal amount thereof be evidenced by one
or more Physical Exchange Debentures in any authorized denomination or
denominations and the Exchange Debenture Registrar shall comply with such
request if all other transfer restrictions are satisfied.
(h) Transfers Not Covered by Section 312(e). The Exchange Debenture
---------------------------------------
Registrar shall effect and record, upon receipt of a written request from
the Company so to do, a transfer not otherwise permitted by Section 312(e),
such recording to be done in accordance with the otherwise applicable
provisions of Section 312(e), upon the furnishing by the proposed
transferor or transferee of a Non-Registration Opinion and Supporting
Evidence.
(i) General. By its acceptance of any Exchange Debenture bearing the
-------
Private Placement Legend, each Holder of such Exchange Debenture
acknowledges the restrictions on transfer of such Exchange Debenture set
forth in this Exchange Indenture and in the Private Placement Legend and
agrees that it will transfer such Exchange Debenture only as provided in
this Exchange Indenture. The Exchange Debenture Registrar shall not
register a transfer of any Exchange Debenture unless such transfer complies
with the restrictions with respect thereto set forth in this Exchange
Indenture. The Exchange Debenture Registrar shall not be required to
determine (but may rely upon a determination made by the Company) the
sufficiency or accuracy of any such certifications, legal opinions, other
information or document.
(j) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Exchange Debentures not bearing the Private Placement
Legend, the Exchange Debenture Registrar shall deliver Exchange Debentures
that do not bear the Private Placement Legend. Upon the transfer, exchange
or replacement of Exchange Debentures bearing the Private Placement Legend,
the Exchange Debenture Registrar shall deliver only Exchange
<PAGE>
57
Debentures that bear the Private Placement Legend unless (i) the
circumstances exist contemplated by the fourth paragraph of Section 201
(with respect to an Offshore Physical Exchange Debenture) or the requested
transfer is at least two years after the original issue date of the Initial
Exchange Debenture (with respect to any Physical Exchange Debenture), (ii)
there is delivered to the Exchange Debenture Registrar an Opinion of
Counsel reasonably satisfactory to the Company and the Debenture Trustee to
the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions
of the Securities Act or (iii) such Exchange Debentures are exchanged for
New Exchange Debentures pursuant to an Exchange Offer.
SECTION 313. Form of Accredited Investor Certificate.
---------------------------------------
Transferee Letter of Representation
-----------------------------------
United States Trust Company of New York,
as Debenture Trustee
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the 13 1/4% Subordinated Exchange Debentures due 2009 (the
"Exchange Debentures") of Tuesday Morning Corporation (the "Company"), we
confirm that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of
1933, as amended (the "Securities Act")) purchasing for our own account or
for the account of such an institutional "accredited investor," and we are
acquiring the Exchange Debentures for investment purposes and not with a
view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act or other applicable securities law and we
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Exchange Debentures, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment.
2. We understand and acknowledge that the Exchange Debentures have
not been registered under the Securities Act, or any other applicable
securities law and may not be offered, sold or otherwise transferred except
in compliance with the registration requirements of the Securities Act or
any other applicable securities law, or pursuant to an exemption therefrom,
and in each case in compliance with the conditions for transfer set
<PAGE>
58
forth below. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Exchange Debentures to offer, sell or
otherwise transfer such Exchange Debentures prior to the date which is two
years after the later of the date of original issue and the last date on
which the Company or any affiliate of the Company was the owner of such
Exchange Debentures (or any predecessor thereto) (the "Resale Restriction
Termination Date") only (a) to the Company or any subsidiary thereof, (b)
pursuant to a registration statement which has been declared effective
under the Securities Act, (c) for so long as the Exchange Debentures are
eligible for resale pursuant to Rule 144A under the Securities Act ("Rule
144A"), to a person we reasonably believe is a "Qualified Institutional
Buyer" within the meaning of Rule 144A (a "QIB") that purchases for its own
account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales to non-U.S. persons that occur outside the United States within the
meaning of Regulation S under the Securities Act or (e) pursuant to any
other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement
of law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their control
and to compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Exchange
Debentures is proposed to be made pursuant to clause (d) or (e) above prior
to the Resale Restriction Termination Date, the transferor shall deliver to
the trustee (the "Debenture Trustee") under the Exchange Indenture pursuant
to which the Exchange Debentures are issued a letter from the transferee
substantially in the form of this letter, which shall provide, among other
things, that the transferee is a person or entity as defined in paragraph 1
of this letter and that it is acquiring such Exchange Debentures for
investment purposes and not for distribution in violation of the Securities
Act. We acknowledge that the Company and the Debenture Trustee reserve the
right prior to any offer, sale or other transfer of the Exchange Debentures
pursuant to clauses (d) and (e) above prior to the Resale Restriction
Termination Date to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and the
Debenture Trustee.
3. We are acquiring the Exchange Debentures purchased by us for our
own account or for one or more accounts as to each of which we exercise
sole investment discretion.
4. You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
<PAGE>
59
(Name of Purchaser)
By:____________________________
Date:__________________________
Upon transfer, the Exchange Debentures would be registered in the name
of the new beneficial owner as follows:
Name Address Taxpayer ID Number
---- ------- ------------------
Date of this Certificate _______________ __, 199__
SECTION 314. Form of Regulation S Certificate.
--------------------------------
Regulation S Certificate
------------------------
To: United States Trust Company of New York,
as Debenture Trustee (the "Debenture Trustee")
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Administration
Re: Tuesday Morning Corporation (the "Company")
13 1/4% Subordinated Exchange Debentures due 2009
(the "Exchange Debentures")
-------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate principal
amount of Exchange Debentures, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S ("Regulation S") under the
Securities Act of 1933, as amended (the "Securities Act"), and accordingly, we
hereby certify as follows:
1. The offer of the Exchange Debentures was not made to a person in
the United States (unless such person or the account held by it for which
it is acting is excluded from the definition of "U.S. person" pursuant to
Rule 902(o) of Regulation S under the circumstances described in Rule
902(i)(3) of Regulation S) or specifically targeted at an identifiable
group of U.S. citizens abroad.
<PAGE>
60
2. Either (a) at the time the buy order was originated, the buyer
was outside the United States or we and any person acting on our behalf
reasonably believed that the buyer was outside the United States or (b) the
transaction was executed in, on or through the facilities of a designated
offshore securities market, and neither we nor any person acting on our
behalf knows that the transaction was pre-arranged with a buyer in the
United States.
3. Neither we, any of our affiliates, nor any person acting on our
or their behalf has made any directed selling efforts in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable.
4. The proposed transfer of Exchange Debentures is not part of a
plan or scheme to evade the registration requirements of the Securities
Act.
5. If we are a dealer or a person receiving a selling concession or
other fee or remuneration in respect of the Exchange Debentures, and the
proposed transfer takes place before the Offshore Exchange Debenture
Exchange Date referred to in the Exchange Indenture dated as of December
29, 1997, among the Company, the guarantors thereunder and the Debenture
Trustee, or we are an officer or director of the Company or a distributor,
we certify that the proposed transfer is being made in accordance with the
provisions of Rules 903 and 904(c) of Regulation S.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[NAME OF SELLER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________ __, 199_
<PAGE>
61
SECTION 315. Form of Rule 144A Certificate.
-----------------------------
Rule 144A Certificate
---------------------
To: United States Trust Company of New York,
as Debenture Trustee (the "Debenture Trustee")
114 West 47th Street
New York, NY 10036
Attention: Corporate Trust Administration
Re: Tuesday Morning Corporation (the "Company")
13 1/4% Subordinated Exchange Debentures due 2009
(the "Exchange Debentures")
-------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____ aggregate principal
amount of Exchange Debentures, we confirm that such sale has been effected
pursuant to and in accordance with Rule 144A ("Rule 144A") under the Securities
Act of 1933, as amended (the "Securities Act"). We are aware that the transfer
of Exchange Debentures to us is being made in reliance on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A. Prior to
the date of this Certificate we have been given the opportunity to obtain from
the Company the information referred to in Rule 144A(d)(4), and have either
declined such opportunity or have received such information.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________ __, 199_
<PAGE>
62
SECTION 316. CUSIP Numbers.
-------------
The Company in issuing the Exchange Debentures may use "CUSIP" numbers
(if then generally in use) in addition to serial numbers, and, if so, the
Debenture Trustee shall use such "CUSIP" numbers in addition to serial numbers
in notices of redemption, repurchase or other notices to Holders as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such CUSIP numbers either as
printed on the Exchange Debentures or as contained in any notice of a redemption
or repurchase and that reliance may be placed only on the serial or other
identification numbers printed on the Exchange Debentures, and any such
redemption or repurchase shall not be affected by any defect in or omission of
such numbers. The Company will promptly notify the Debenture Trustee of any
change in the CUSIP numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Exchange Indenture.
------------------------------------------------
This Exchange Indenture shall, upon Company Request, cease to be of
further effect with respect to Exchange Debentures (except as to any surviving
rights of registration of transfer or exchange of the Exchange Debentures as
expressly provided for) and the Debenture Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Exchange Indenture when
(1) either
(A) all the Exchange Debentures theretofore authenticated and
delivered (other than (i) Exchange Debentures which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 306, and (ii) Exchange Debentures for whose
payment money has theretofore been deposited in trust with the
Debenture Trustee or any Paying Agent or segregated and held in trust
by the Company and thereafter repaid to the Company or discharged from
such trust as provided in Section 1003) have been delivered to the
Debenture Trustee for cancellation; or
(B) all Exchange Debentures and, in the case of (i) or (ii)
below, not theretofore delivered to the Debenture Trustee for
cancellation
(i) have become due and payable,
<PAGE>
63
(ii) will become due and payable at their Stated Maturity
within one year or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements
satisfactory to the Debenture Trustee for the giving of notice of
redemption by the Debenture Trustee in the name, and at the
expense, of the Company,
and the Company or any Subsidiary Debenture Guarantor, in the case of (i),
(ii) or (iii) above, has irrevocably deposited or caused to be deposited
with the Debenture Trustee as trust funds in trust for such purpose an
amount sufficient to pay and discharge the entire indebtedness on such
Exchange Debentures not theretofore delivered to the Debenture Trustee for
cancellation, for principal (and premium, if any) and interest on the
Exchange Debentures to the date of such deposit (in the case of Exchange
Debentures which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) no Default or Event of Default with respect to this Exchange
Indenture or the Exchange Debenture shall have occurred and be continuing
on the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute a
default under, any other instrument or agreement to which the Company or
any Subsidiary Debenture Guarantor is a party or by which it is bound;
(3) the Company or any Subsidiary Debenture Guarantor has paid or
caused to be paid all other sums payable hereunder by the Company or any
Subsidiary Debenture Guarantor;
(4) the Company has delivered irrevocable instructions to the
Debenture Trustee to apply the deposited money toward the payment of such
Exchange Debentures at maturity or the Redemption Date, as the case may be;
and
(5) the Company has delivered to the Debenture Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Exchange Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Exchange
Indenture, the obligations of the Company to the Debenture Trustee under Section
606, the obligations of the Company to any Authenticating Agent under Section
612 and, if money shall have been deposited with the Debenture Trustee pursuant
to subclause (B) of clause (1) of this Section, the obligations of the Debenture
Trustee under Section 402 and the last paragraph of Section 1003 shall survive.
<PAGE>
64
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Debenture Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Exchange
Debentures and this Exchange Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Debenture Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Debenture Trustee; but such money need not be segregated
from other funds except to the extent required by law.
If the Debenture Trustee or Paying Agent is unable to apply any money
in accordance with Section 401 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 and any
Subsidiary Debenture Guarantor's obligations under this Exchange Indenture and
the Exchange Debentures shall be revived and reinstated as though no deposit had
occurred pursuant to Section 401; provided that if the Company has made any
payment of principal of, premium, if any, or interest on any Exchange Debentures
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Exchange Debentures to receive such payment
from the money held by the Debenture Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article 12 or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest on any Exchange Debenture
when it becomes due and payable and continuance of such default for a
period of 30 days;
(2) default in the payment of the principal of, or premium, if any,
on any Exchange Debenture at its Maturity (upon acceleration, optional
redemption, required purchase or otherwise);
<PAGE>
65
(3) default in the performance, or breach, of the provisions
described in Article Eight, the failure to make or consummate a Change in
Control Offer in accordance with Section 1013 or the failure to make or
consummate an Excess Proceeds Offer in accordance with Section 1014;
(4) default in the performance, or breach, of any covenant or
warranty of the Company or any Subsidiary Debenture Guarantor contained in
this Exchange Indenture or any Debenture Guarantee (other than a default in
the performance, or breach, of a covenant or warranty which is specifically
dealt with in clause (1), (2) or (3) of this Section) and continuance of
such default or breach for a period of 30 days after there has been given
to the Company by the Debenture Trustee or to the Company and the Debenture
Trustee by the Holders of at least 25% in aggregate principal amount of all
Outstanding Exchange Debentures;
(5) (a) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Restricted
Subsidiary aggregating $10,000,000 or more, when the same becomes due and
payable at the stated maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have been
cured or waived or (b) Indebtedness of the Company or any Restricted
Subsidiary aggregating $10,000,000 or more shall have been accelerated or
otherwise declared due and payable, or required to be prepaid or
repurchased (other than by regularly scheduled required prepayment) prior
to the stated maturity thereof;
(6) one or more final judgments or orders shall be rendered against
the Company or any Restricted Subsidiary which require the payment of
money, either individually or in an aggregate amount, in excess of
$10,000,000 and shall not be discharged and either (a) an enforcement
proceeding shall have been commenced by any creditor upon such judgment or
order or (b) there shall have been a period of 60 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, was not in effect;
(7) any Debenture Guarantee ceases to be in full force and effect or
is declared null and void or any Subsidiary Debenture Guarantor denies that
it has any further liability under any Debenture Guarantee, or gives notice
to such effect (other than by reason of the termination of this Exchange
Indenture or the release of any such Debenture Guarantee in accordance with
this Exchange Indenture); or
(8) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of Bankruptcy Law: (A) commences a voluntary case; (B)
consents to the entry of an order for relief against it in an involuntary
case; (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property; (D) makes a general assignment for the
benefit of its creditors, or (E) admits in writing that it is generally not
<PAGE>
66
paying its debts (other than debts which are the subject of a bona fide
dispute) as they become due; or
(9) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that remains unstayed and in effect for 60 days and:
(A) is for relief against the Company or any of its Significant
Subsidiaries in an involuntary case; (B) appoints a Custodian of the
Company or any of its Significant Subsidiaries or for all or substantially
all of the property of the Company or any of its Significant Subsidiaries;
or (C) orders the liquidation of the Company or any of its Significant
Subsidiaries; provided that clauses (A), (B) and (C) shall not apply to an
Unrestricted Subsidiary, unless such action or proceeding has a material
adverse effect on the interests of the Company or any Restricted
Subsidiary.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
clause (8) or (9) of Section 501) occurs and is continuing, then in every such
case the Debenture Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Exchange Debentures, by written notice to
the Company (and to the Debenture Trustee if such notice is given by the
Holders), may, and the Debenture Trustee, upon the written request of such
Holders, shall declare the principal of, premium, if any, and accrued interest
on all of the Outstanding Exchange Debentures to be due and payable immediately;
provided that so long as the Senior Credit Agreement shall be in full force and
effect, if an Event of Default shall have occurred and be continuing (other than
as specified in clause (8) or (9) of Section 501 with respect to the Company),
any such acceleration shall not be effective until the earlier to occur of (x)
five Business Days following delivery of a written notice of such acceleration
of the Exchange Debentures to the agent under the Senior Credit Agreement and
(y) the acceleration of any Indebtedness under the Senior Credit Agreement. Upon
any such declaration all such amounts payable in respect of the Exchange
Debentures shall become immediately due and payable. If an Event of Default
specified in clause (8) or (9) of Section 501 occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the Outstanding
Exchange Debentures shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Debenture Trustee or any
Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Debenture Trustee as hereinafter provided in this Article, the Holders of a
majority in aggregate principal amount of the Outstanding Exchange Debentures,
by written notice to the Company and the Debenture Trustee, may rescind and
annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Debenture Trustee a sum
sufficient to pay
<PAGE>
67
(A) all overdue interest on all Outstanding Exchange Debentures,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Exchange Debentures that has become due otherwise than by
such declaration of acceleration together with interest on such unpaid
principal at the rate borne by such Exchange Debentures,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by such Exchange Debentures, and
(D) all sums paid or advanced by the Debenture Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances
of the Debenture Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal (or premium, if any, on) or interest on Exchange Debentures which
have become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Debenture Trustee.
- -----------------
The Company covenants that if
(1) default is made in the payment of any installment of interest on
any Exchange Debenture when such interest becomes due and payable and such
default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Exchange Debenture at the Maturity thereof,
then the Company will, upon demand of the Debenture Trustee, pay to the
Debenture Trustee for the benefit of the Holders of such Exchange Debentures,
the whole amount then due and payable on such Exchange Debentures for principal
(and premium, if any) and interest, and interest on any overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installment of interest, at the rate
borne by such Exchange Debentures, and, in addition thereto, such further amount
as shall be sufficient to cover the costs
<PAGE>
68
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Debenture Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any Subsidiary Debenture Guarantor (in
accordance with the applicable Debenture Guarantee) or any other obligor upon
such Exchange Debentures and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company, any
Subsidiary Debenture Guarantor or any other obligor upon such Exchange
Debentures, wherever situated.
If an Event of Default occurs and is continuing, the Debenture Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Exchange Indenture of the Debenture Guarantees by such
appropriate judicial proceedings as the Debenture Trustee shall deem most
effectual to protect and enforce any such rights, including seeking recourse
against any Subsidiary Debenture Guarantor, whether for the specific enforcement
of any covenant or agreement in this Exchange Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy,
including, without limitation, seeking recourse against any Subsidiary Debenture
Guarantor.
SECTION 504. Debenture Trustee May File Proofs of Claim.
------------------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor, including any
Subsidiary Debenture Guarantor, upon the Exchange Debentures or the property of
the Company or of such other obligor or their creditors, the Debenture Trustee
(irrespective of whether the principal of the Exchange Debentures shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Debenture Trustee shall have made any demand on the
Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Exchange
Debentures to take such other actions (including participating as a member,
voting or otherwise, of any official committee of creditors appointed in
such matter) and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Debenture Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
<PAGE>
69
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Debenture Trustee and, in the event
that the Debenture Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Debenture Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Debenture
Trustee, its agents and counsel, and any other amounts due the Debenture Trustee
under Section 607.
Nothing herein contained shall be deemed to authorize the Debenture
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Exchange Debentures or the rights of any Holder thereof or to authorize the
Debenture Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 505. Debenture Trustee May Enforce Claims Without Possession
-------------------------------------------------------
of Exchange Debentures.
- ----------------------
All rights of action and claims under this Exchange Indenture, the
Exchange Debentures or the Debenture Guarantees may be prosecuted and enforced
by the Debenture Trustee without the possession of any of the Exchange
Debentures or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Debenture Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Debenture Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Exchange Debentures in respect of
which such judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Subject to Article Twelve, any money collected by the Debenture
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Debenture Trustee and, in case of the distribution of
such money on account of principal (or premium, if any) or interest, upon
presentation of the Exchange Debentures and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid:
First: To the payment of all amounts due the Debenture Trustee under
-----
Section 607;
Second: To the payment of the amounts then due and unpaid for
------
principal of (and premium, if any, on) and interest on the Exchange
Debentures in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority
<PAGE>
70
of any kind, according to the amounts due and payable on such Exchange
Debentures for principal (and premium, if any) and interest, respectively;
and
Third: The balance, if any, to the Person or Persons entitled
-----
thereto, including the Company or any other obligor on the Exchange
Debentures, as their interests may appear or as a court of competent
jurisdiction may direct; provided that all sums due and owing to the
Holders and the Debenture Trustee have been paid in full as required by
this Exchange Indenture.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Exchange Debenture shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Exchange Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless
(1) such Holder has previously given written notice to the Debenture
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Exchange Debentures shall have made a written request to
the Debenture Trustee to institute proceedings in respect of such Event of
Default in its own name as Debenture Trustee hereunder;
(3) such Holder or Holders have offered to the Debenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Debenture Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Debenture Trustee during such 30-day period by the Holders of
a majority in principal amount of the Outstanding Exchange Debentures;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Exchange Indenture, any Exchange Debenture or any Debenture Guarantee to
affect, disturb or prejudice the rights of any other Holders, or to obtain or to
seek to obtain priority or preference over any other of such Holders or to
enforce any right under this Exchange Indenture, any Exchange Debenture or any
Debenture Guarantee, except in the manner herein provided and for the equal and
ratable benefit of all Holders.
<PAGE>
71
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Exchange Indenture, the
Holder of any Exchange Debenture shall have the right, which is absolute and
unconditional, to receive payment, as provided herein (including, if applicable,
Article Eleven) and in such Exchange Debenture of the principal of (and premium,
if any, on) and (subject to Section 307) interest on, such Exchange Debenture on
the respective Stated Maturities expressed in such Exchange Debenture (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Debenture Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Exchange Indenture or any Debenture
Guarantee and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Debenture Trustee or to such Holder,
then and in every such case, subject to any determination in such proceeding,
the Company, any Subsidiary Debenture Guarantor, any other obligor on the
Exchange Debentures, the Debenture Trustee and the Holders of Exchange
Debentures shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Debenture
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Exchange Debentures in the last
paragraph of Section 306, no right or remedy herein conferred upon or reserved
to the Debenture Trustee or to the Holders of Exchange Debentures is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Debenture Trustee or of any Holder of any
Exchange Debenture to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article or by law to the Debenture Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Debenture Trustee or by the Holders, as the case may be.
<PAGE>
72
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Exchange Debentures shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee, or exercising any trust or power conferred on the Debenture
Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Exchange Indenture,
(2) subject to Section 315 of the Trust Indenture Act, the Debenture
Trustee may take any other action deemed proper by the Debenture Trustee
which is not inconsistent with such direction, and
(3) the Debenture Trustee need not take any action which might
involve it in personal liability or be unjustly prejudicial to the Holders
of Exchange Debentures not consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
Subject to Sections 508, 902 and the last paragraph of Section 502,
the Holders of not less than a majority in aggregate principal amount of the
Outstanding Exchange Debentures (including consents obtained in connection with
a tender offer or exchange offer for the Exchange Debentures) may on behalf of
the Holders of all the Exchange Debentures waive any past default hereunder and
its consequences under this Exchange Indenture or any Debenture Guarantee,
except a default
(1) in respect of the payment of the principal of (or premium, if
any, on) or interest on any Exchange Debenture, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Exchange Debenture affected.
Upon any such waiver, any such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Exchange Indenture and the Debenture Guarantees; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
<PAGE>
73
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
Each of the Company, the Subsidiary Debenture Guarantors and any other
obligor on the Exchange Debentures covenants (to the extent that it may lawfully
do so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which would prohibit or
forgive the Company, any Subsidiary Debenture Guarantor or any such obligor from
paying all or any portion of the principal of, premium, if any, or interest on
the Exchange Debentures contemplated herein or in the Exchange Debentures or
which may affect the covenants or the performance of this Exchange Indenture;
and each of the Company, the Subsidiary Debenture Guarantors and any other
obligor on the Exchange Debentures (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Debenture Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE DEBENTURE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of a Default or an Event of
Default,
(1) the Debenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Exchange Indenture, and
no implied covenants or obligations shall be read into this Exchange
Indenture against the Debenture Trustee; and
(2) in the absence of bad faith or willful misconduct on its part,
the Debenture 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 Debenture Trustee and conforming
to the requirements of this Indenture; but in the case of any such
certificates or opinions, the Debenture Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Exchange Indenture, but not to verify the contents
thereof.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Responsible Officer of the Debenture Trustee has actual
knowledge or of which written notice of such Default or Event of Default shall
have been given to the Debenture Trustee by the Company, any other obligor of
the Exchange Debentures or by any Holder, the Debenture Trustee
<PAGE>
74
shall exercise such of the rights and powers vested in it by this Exchange
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Exchange Indenture shall be construed to
relieve the Debenture Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that
------
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(2) the Debenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be
proved that the Debenture Trustee was negligent in ascertaining the
pertinent facts;
(3) the Debenture Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in aggregate principal amount of
the Outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or
exercising any trust or power conferred upon the Debenture Trustee, under
this Exchange Indenture; and
(4) no provision of this Exchange Indenture shall require the
Debenture Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or
in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Exchange Indenture relating to the conduct or affecting the liability of or
affording protection to the Debenture Trustee shall be subject to the provisions
of this Section.
SECTION 602. Notice of Defaults.
------------------
Within ten days after the earlier of receipt from the Company of
notice of the occurrence of any Default or Event of Default hereunder or the
date when such Default or Event of Default becomes known to the Debenture
Trustee, the Debenture Trustee shall transmit, in the manner and to the extent
provided in TIA Section 313(c), notice of such Default or Event of Default
hereunder known to the Debenture Trustee, unless such Default or Event of
Default shall have been cured or waived; provided, however, that, except in the
case of a Default or Event of Default in the payment of the principal of (or
premium, if any, on) or interest on any Exchange Debenture, the Debenture
Trustee shall be protected in withholding such notice if and so long as
<PAGE>
75
the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Debenture Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders.
SECTION 603. Certain Rights of Debenture Trustee.
-----------------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d)
(determined as if the TIA were applicable to this Exchange Indenture at all
times):
(1) the Debenture Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Exchange Indenture the
Debenture Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Debenture Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, request and rely
upon an Officers' Certificate;
(4) the Debenture Trustee may consult with counsel of its selection
and the written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Debenture Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Exchange Indenture at the
request or direction of any of the Holders of Exchange Debentures pursuant
to this Exchange Indenture, unless such Holders shall have offered to the
Debenture Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(6) the Debenture Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Debenture Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and,
<PAGE>
76
if the Debenture Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(7) the Debenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Debenture Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder; and
(8) the Debenture Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Exchange Indenture.
The Debenture Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. Debenture Trustee Not Responsible for Recitals or
-------------------------------------------------
Issuance of Exchange Debentures.
- -------------------------------
The recitals contained herein and in the Exchange Debentures, except
for the Debenture Trustee's certificates of authentication, shall be taken as
the statements of the Company, and neither the Debenture Trustee nor any
Authenticating Agent assumes any responsibility for their correctness. The
Debenture Trustee makes no representations as to the validity or sufficiency of
this Exchange Indenture or of the Exchange Debentures, except that the Debenture
Trustee represents that it is duly authorized to execute and deliver this
Exchange Indenture, authenticate the Exchange Debentures and perform its
obligations hereunder and that the statements made by it in its Statement of
Eligibility on Form T-1 supplied to the Company are true and accurate, subject
to the qualifications set forth therein. Neither the Debenture Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Exchange Debentures or the proceeds thereof.
SECTION 605. May Hold Exchange Debentures.
----------------------------
The Debenture Trustee, any Authenticating Agent, any Paying Agent, any
Exchange Debenture Registrar or any other agent of the Company or of the
Debenture Trustee, in its individual or any other capacity, may become the owner
or pledgee of Exchange Debentures and, subject to TIA Sections 310(b) and 311,
may otherwise deal with the Company with the same rights it would have if it
were not Debenture Trustee, Authenticating Agent, Paying Agent, Exchange
Debenture Registrar or such other agent.
<PAGE>
77
SECTION 606. Money Held in Trust.
-------------------
All money received by the Debenture Trustee shall, until used or
applied as herein provided, be held in trust hereunder for the purposes for
which they were received. Money held by the Debenture Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Debenture Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Debenture Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Debenture Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Debenture Trustee in
accordance with any provision of this Exchange Indenture (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel and costs and expenses of collection), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify each of the Debenture Trustee or any predecessor
Debenture Trustee and its agents for, and to hold it harmless against, any
and all loss, liability, damage, claim or expense, including taxes (other
than taxes based on the income of the Debenture Trustee) incurred without
negligence or bad faith on its part, arising out of or in connection with
the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Debenture Trustee, to pay or reimburse the Debenture Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Debenture
Trustee shall constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Exchange Indenture. As security for the
performance of such obligations of the Company, the Debenture Trustee shall have
a claim prior to the Exchange Debentures upon all property and funds held or
collected by the Debenture Trustee as such, except funds held in trust for the
payment of principal of (and premium, if any, on) or interest on particular
Exchange Debentures.
When the Debenture Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or Section
501(9), the expenses (including the
<PAGE>
78
reasonable charges and expenses of its counsel) of and the compensation of the
Debenture Trustee for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Exchange Indenture.
SECTION 608. Corporate Debenture Trustee Required; Eligibility.
-------------------------------------------------
There shall at all times be an Debenture Trustee hereunder which shall
be eligible to act as Debenture Trustee under TIA Section 310(a)(1) and which
shall have an office in The City of New York, and shall have a combined capital
and surplus of at least $50,000,000. If the Debenture Trustee does not have an
office in The City of New York, the Debenture Trustee may appoint an agent in
The City of New York reasonably acceptable to the Company to conduct any
activities which the Debenture Trustee may be required under this Exchange
Indenture to conduct in The City of New York. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Debenture Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Debenture Trustee and no
appointment of a successor Debenture Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor Debenture
Trustee in accordance with the applicable requirements of Section 610.
(b) The Debenture Trustee may resign at any time with respect to the
Exchange Debentures by giving written notice thereof to the Company. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument executed by authority of the Board of
Directors, a copy of which shall be delivered to the resigning Debenture Trustee
and a copy to the successor trustee. If the instrument of acceptance by a
successor Debenture Trustee required by Section 610 shall not have been
delivered to the Debenture Trustee within 30 days after the giving of such
notice of resignation, the resigning Debenture Trustee may petition any court of
competent jurisdiction for the appointment of a successor Debenture Trustee with
respect to the Exchange Debentures.
(c) The Debenture Trustee may be removed at any time with respect to
the Exchange Debentures by Act of the Holders of not less than a majority in
principal amount of the
<PAGE>
79
Outstanding Exchange Debentures, delivered to the Debenture Trustee and to the
Company. If the instrument of acceptance by a successor Debenture Trustee
required by Section 609 shall not have been delivered to the Debenture Trustee
within 30 days after the giving of such notice of removal, the Debenture Trustee
being removed may petition any court of competent jurisdiction for the
appointment of a successor Debenture Trustee with respect to the Exchange
Debentures.
(d) If at any time:
(1) the Debenture Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of an Exchange Debenture for at
least six months, or
(2) the Debenture Trustee shall cease to be eligible under Section
608 and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of an Exchange Debenture
for at least six months, or
(3) the Debenture Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a Custodian of the Debenture Trustee
or of its property shall be appointed or any public officer shall take
charge or control of the Debenture Trustee or of its property or affairs
for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Debenture Trustee with respect to all Exchange Debentures, or (ii) subject to
TIA Section 315(e), any Holder who has been a bona fide Holder of an Exchange
Debenture for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Debenture Trustee with respect to all Exchange Debentures and the
appointment of a successor Debenture Trustee or Debenture Trustees.
(e) If the Debenture Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Debenture
Trustee for any cause, with respect to the Exchange Debentures, the Company, by
a Board Resolution, shall promptly appoint a successor Debenture Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Debenture Trustee with respect to the
Exchange Debentures shall be appointed by Act of the Holders of a majority in
aggregate principal amount of the Outstanding Exchange Debentures delivered to
the Company and the retiring Debenture Trustee, the successor Debenture Trustee
so appointed shall, forthwith upon its acceptance of such appointment, become
the successor Debenture Trustee with respect to the Exchange Debentures and to
that extent supersede the successor Debenture Trustee appointed by the Company.
If no successor Debenture Trustee with respect to the Exchange Debentures shall
have been so appointed by the Company or the Holders and accepted appointment in
the manner hereinafter provided, any Holder who has been a bona fide Holder of
an Exchange Debenture for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent
<PAGE>
80
jurisdiction for the appointment of a successor Debenture Trustee with respect
to the Exchange Debentures.
(f) The Company shall give notice of each resignation and each
removal of the Debenture Trustee with respect to the Exchange Debentures and
each appointment of a successor Debenture Trustee with respect to the Exchange
Debentures to the Holders of Exchange Debentures in the manner provided for in
Section 106. Each notice shall include the name of the successor Debenture
Trustee with respect to the Exchange Debentures and the address of its Corporate
Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
--------------------------------------
(a) Each successor Debenture Trustee appointed hereunder shall
execute, acknowledge and deliver to the Company and to the retiring Debenture
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Debenture Trustee shall become effective and such
successor Debenture Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Debenture Trustee; but, on the request of the Company or the successor Debenture
Trustee, such retiring Debenture Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Debenture
Trustee all the rights, powers and trusts of the retiring Debenture Trustee and
shall duly assign, transfer and deliver to such successor Debenture Trustee all
property and money held by such retiring Debenture Trustee hereunder.
(b) Upon request of any such successor Debenture Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Debenture Trustee all rights, powers and trusts
referred to in paragraph (a) of this Section.
(c) No successor Debenture Trustee shall accept its appointment
unless at the time of such acceptance, such successor Debenture Trustee shall be
qualified and eligible under this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Debenture Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Debenture Trustee
shall be a party, or any corporation succeeding to all or substantially all the
corporate trust business of the Debenture Trustee, shall be the successor of the
Debenture Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Exchange Debentures shall have been authenticated, but not delivered, by the
Debenture Trustee then in office, any successor by merger, conversion
<PAGE>
81
or consolidation to such authenticating Debenture Trustee may adopt such
authentication and deliver the Exchange Debentures so authenticated with the
same effect as if such successor Debenture Trustee had itself authenticated such
Exchange Debentures. In case at that time any of the Exchange Debentures shall
not have been authenticated, any successor Debenture Trustee may authenticate
such Exchange Debentures either in the name of any predecessor hereunder or in
the name of the successor Debenture Trustee. In all such cases such certificates
shall have the full force and effect which this Exchange Indenture provides for,
the certificate of authentication of the Debenture Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Debenture Trustee or to authenticate Exchange Debentures in the name
of any predecessor Debenture Trustee shall apply only to its successor or
successors by merger, conversion or consolidation.
SECTION 612. Appointment of Authenticating Agent.
-----------------------------------
At any time when any of the Exchange Debentures remain Outstanding,
the Debenture Trustee may appoint an Authenticating Agent or Agents with respect
to the Exchange Debentures which shall be authorized to act on behalf of the
Debenture Trustee to authenticate Exchange Debentures and the Debenture Trustee
shall give written notice of such appointment to all Holders of Exchange
Debentures with respect to which such Authenticating Agent will serve, in the
manner provided for in Section 106. Exchange Debentures so authenticated shall
be entitled to the benefits of this Exchange Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Debenture Trustee
hereunder. Any such appointment shall be evidenced by an instrument in writing
signed by a Responsible Officer of the Debenture Trustee, and a copy of such
instrument shall be promptly furnished to the Company. Wherever reference is
made in this Exchange Indenture to the authentication and delivery of Exchange
Debentures by the Debenture Trustee or the Debenture Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Debenture Trustee by an Authenticating Agent and a
certificate of authentication executed on behalf of the Debenture Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any state thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by federal or state authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect specified in this
Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion
<PAGE>
82
or consolidation to which such Authenticating Agent shall be a party, or any
corporation succeeding to the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Debenture
Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Debenture Trustee and to the Company. The Debenture
Trustee may at any time terminate the agency of an Authenticating Agent by
giving written notice thereof to such Authenticating Agent and to the Company.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Debenture Trustee may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall give written notice of such appointment to all Holders of
Exchange Debentures, in the manner provided for in Section 106. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Company agrees to pay to each Authenticating Agent from time to
time such compensation for its services under this Section as shall be agreed in
writing between the Company and such Authenticating Agent.
If an appointment is made pursuant to this Section, the Exchange
Debentures may have endorsed thereon, in addition to the Debenture Trustee's
certificate of authentication, an alternate certificate of authentication in the
following form:
This is one of the Exchange Debentures designated therein referred to
in the within-mentioned Exchange Indenture.
United States Trust Company of New York,
as Debenture Trustee
By: ____________________________________
as Authenticating Agent
By: ____________________________________
Authorized Officer
<PAGE>
83
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY DEBENTURE TRUSTEE
AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses.
----------------------------------------------
The Company will furnish or cause to be furnished to the Debenture
Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Debenture Trustee may reasonably require,
of the names and addresses of the Holders as of such Regular Record Date;
and
(b) at such other times as the Debenture Trustee may reasonably
request in writing, within 30 days after receipt by the Company of any such
request, a list of similar form and content to that in Subsection (a)
hereof as of a date not more than 15 days prior to the time such list is
furnished;
provided, however, that if and so long as the Debenture Trustee shall be the
Exchange Debenture Registrar, no such list need be furnished.
SECTION 702. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Exchange Debentures, by receiving and holding the
same, agrees with the Company and the Debenture Trustee that none of the Company
or the Debenture Trustee or any agent of either of them shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders in accordance with TIA Section 312, regardless of
the source from which such information was derived, and that the Debenture
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under TIA Section 312(b).
SECTION 703. Reports by Debenture Trustee.
----------------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Exchange Debentures pursuant to this Exchange
Indenture, the Debenture Trustee shall transmit to the Holders of Exchange
Debentures (with a copy to the Company at the Place of Payment), in the manner
and to the extent provided in TIA Section 313(c), a brief report dated as of
such May 15 if required by TIA Section 313(a).
<PAGE>
84
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company will not, in a single transaction or through a series of
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any other Person or Persons or permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis to any other
Person or Persons, unless at the time and immediately after giving effect
thereto:
(a) either (1) the Company shall be the continuing corporation or (2)
the Person (if other than the Company) formed by such consolidation or into
which the Company or such Restricted Subsidiary is merged or the Person
which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis (the
"Surviving Entity") (i) will be a corporation duly organized and validly
existing under the laws of the United States of America, any state thereof
or the District of Columbia and (ii) will expressly assume, by an indenture
supplemental hereto, executed and delivered to the Debenture Trustees, in
form reasonably satisfactory to the Debenture Trustee, the Company's
obligation for the due and punctual payment of the principal of (and
premium, if any) and interest on all the Exchange Debentures and the
performance and observance of every covenant of this Exchange Indenture on
the part of the Company to be performed or observed;
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any obligation of the Company or any Restricted Subsidiary incurred in
connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing;
(c) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the
assumption that the transaction or series of transactions occurred on the
first day of the four-quarter period immediately prior to the consummation
of such transaction or series of transactions with the appropriate
adjustments with respect to the transaction or series of transactions being
included in such pro forma calculations), the Company (or the Surviving
Entity if the Company is not the
<PAGE>
85
continuing obligor under the Exchange Indenture), could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 1008;
(d) each Subsidiary Debenture Guarantor, if any, unless it is the
other party to the transactions described above, shall have by supplemental
indenture confirmed that its Debenture Guarantee will apply to such
Person's obligations hereunder and the Exchange Debentures;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1012 are complied with; and
(f) the Company or the Surviving Entity shall have delivered to the
Debenture Trustee, in form and substance reasonably satisfactory to the
Debenture Trustee, an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition, and if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with this Section 801 and that all conditions precedent herein
provided for relating to such transaction have been satisfied.
SECTION 802. Subsidiary Debenture Guarantors May Consolidate, Etc.,
------------------------------------------------------
Only on Certain Terms.
- ---------------------
Each Subsidiary Debenture Guarantor, if any (other than any Subsidiary
whose Debenture Guarantee is being released pursuant to the provisions of
Section 1309 as a result of such transaction), will not, and the Company will
not permit a Subsidiary Debenture Guarantor to, in a single transaction or
through a series of related transactions, merge or consolidate with or into any
other corporation or other entity (other than the Company or any Subsidiary
Debenture Guarantor), or sell, assign, convey, transfer, lease or otherwise
dispose of its properties and assets on a consolidated basis substantially as an
entirety to any entity (other than the Company or any Subsidiary Debenture
Guarantor) unless:
(a) either (1) such Subsidiary Debenture Guarantor shall be the
continuing corporation or (2) the Person (if other than such Subsidiary
Debenture Guarantor) formed by such consolidation or into which such
Subsidiary Debenture Guarantor is merged or the entity which acquires by
sale, assignment, conveyance, transfer, lease or other disposition of all
or substantially all of the properties and assets of such Subsidiary
Debenture Guarantor, as the case may be, (i) shall be a corporation duly
organized and validly existing under the laws of the United States, any
state thereof or the District of Columbia, and (ii) shall expressly assume
by an indenture supplemental hereto, executed and delivered to the
Debenture Trustee, in form satisfactory to the Debenture Trustee, all
<PAGE>
86
obligations of such Subsidiary Debenture Guarantor under the Exchange
Debentures and the Exchange Indenture;
(b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any obligation of the Company or such Subsidiary Debenture Guarantor
incurred in connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; and
(c) such Subsidiary Debenture Guarantor or such Person shall have
delivered to the Debenture Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or disposition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture comply with this Section 802 and that all conditions precedent
herein provided for relating to such transaction have been satisfied.
SECTION 803. Successor Substituted.
---------------------
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company or any Subsidiary Debenture Guarantor in accordance with
Sections 801 and 802, the successor Person formed by such consolidation or into
which the Company or such Subsidiary Debenture Guarantor, as the case may be, is
merged or the successor Person to which such sale, assignment, conveyance,
transfer, lease or disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company or such Subsidiary
Debenture Guarantor, as the case may be, under this Exchange Indenture and/or
the Debenture Guarantees, as the case may be, with the same effect as if such
successor had been named as the Company or such Subsidiary Debenture Guarantor,
as the case may be, herein and/or the Debenture Guarantees, as the case may be.
When a Successor assumes all the obligations of its predecessor hereunder, the
Exchange Debentures or a Debenture Guarantee, as the case may be, the
predecessor shall be released from all obligations; provided that in the case of
a transfer by lease, the predecessor shall not be released from the payment of
principal and interest or other obligations on the Exchange Debentures or a
Debenture Guarantee, as the case may be.
ARTICLE NINE
SUPPLEMENTAL EXCHANGE INDENTURES
SECTION 901. Supplemental Exchange Indentures Without Consent of
---------------------------------------------------
Holders.
- -------
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87
Without the consent of any Holders, the Company or any Subsidiary
Debenture Guarantor, when authorized by or pursuant to a Board Resolution, and
the Debenture Trustee, at any time and from time to time, may enter into one or
more indentures supplemental hereto, in form satisfactory to the Debenture
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, a
Subsidiary Debenture Guarantor or any other obligor on the Exchange
Debentures, and the assumption by any such successor of the covenants of
the Company or such obligor or Subsidiary Debenture Guarantor contained
herein and in the Exchange Debentures and in any Debenture Guarantee in
accordance with Article Eight;
(2) to add to the covenants of the Company, any Subsidiary Debenture
Guarantor or any other obligor upon the Exchange Debentures for the benefit
of the Holders or to surrender any right or power conferred upon the
Company, or any Subsidiary Debenture Guarantor or any other obligor on the
Exchange Debentures, as applicable, in this Exchange Indenture and in the
Exchange Debentures or in any Debenture Guarantee;
(3) to cure any ambiguity, or to correct or supplement any provision
herein, in the Exchange Debentures or in any Debenture Guarantee which may
be defective or inconsistent with any other provision herein, in the
Exchange Debentures or in any Debenture Guarantee or to make any other
provisions with respect to matters or questions arising under this Exchange
Indenture, the Exchange Debentures or any Debenture Guarantee; provided
that, in each case, such provisions shall not adversely affect the
interests of the Holders;
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Exchange Indenture under the
Trust Indenture Act;
(5) to add a Subsidiary Debenture Guarantor of the Exchange
Debentures under this Exchange Indenture;
(6) to evidence and provide for the acceptance of the appointment of
a successor Debenture Trustee under this Exchange Indenture; or
(7) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Debenture Trustee for the benefit of the Holders as additional
security for the payment and performance of the Company's and any
Subsidiary Debenture Guarantor's obligations under this Exchange Indenture,
in any property, or assets, including any of which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Debenture Trustee pursuant to this Exchange
Indenture or otherwise.
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88
SECTION 902. Supplemental Exchange Indentures with Consent of
------------------------------------------------
Holders.
- -------
With the consent of the Holders of not less than a majority in
principal amount of all Outstanding Exchange Debentures that are affected
thereby, by Act of said Holders delivered to the Company, the Subsidiary
Debenture Guarantors and the Debenture Trustee, the Company and the Subsidiary
Debenture Guarantors, when authorized by or pursuant to their respective Board
Resolutions, and the Debenture Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Exchange Indenture or of
modifying in any manner the rights of the Holders of Exchange Debentures under
this Exchange Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Exchange Debenture
affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Exchange Debenture, or reduce the principal
amount thereof, or premium, if any, or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the coin or currency
in which the principal of any Exchange Debenture or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date);
(2) amend, change or modify any of the provisions of Section 1013 or
Section 1014 including any definitions relating thereto in any manner
materially adverse to the Holders;
(3) reduce the percentage in principal amount of Outstanding Exchange
Debentures, the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Exchange Indenture or
certain defaults hereunder and their consequences provided for in this
Exchange Indenture;
(4) modify any provisions of this Section, Section 1021 or Section
513, except to increase the percentage in principal amount of the
Outstanding Exchange Debentures required to take any of the actions
described therein or to provide that certain additional provisions of this
Exchange Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Exchange Debenture affected thereby;
(5) except as otherwise permitted under Article Eight, consent to the
assignment or transfer by the Company or any Subsidiary Debenture Guarantor
of any of their rights or obligations under this Exchange Indenture;
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89
(6) amend or modify any of the provisions of Article Thirteen in any
manner adverse to the Holders; or
(7) modify any of the provisions of this Exchange Indenture relating
to the subordination of the Exchange Debentures in a manner adverse to the
Holders.
SECTION 903. Execution of Supplemental Exchange Indentures.
---------------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Exchange Indenture, the Debenture Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Exchange Indenture. The Debenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture which affects
the Debenture Trustee's own rights, duties or immunities under this Exchange
Indenture or otherwise.
SECTION 904. Effect of Supplemental Exchange Indentures.
------------------------------------------
Upon the execution of any supplemental indenture under this Article,
this Exchange Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Exchange Indenture for all
purposes; and every Holder of Exchange Debentures theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Exchange Debentures to Supplemental
------------------------------------------------
Exchange Indentures.
- -------------------
Exchange Debentures authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Debenture Trustee, bear a notation in form approved by the Debenture
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Exchange Debentures so modified as to conform,
in the opinion of the Debenture Trustee and the Company, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Debenture Trustee in exchange for Outstanding
Exchange Debentures.
<PAGE>
90
SECTION 907. Notice of Supplemental Exchange Indentures.
------------------------------------------
Promptly after the execution by the Company, any Subsidiary Debenture
Guarantor and the Debenture Trustee of any supplemental indenture pursuant to
the provisions of Section 902, the Company shall give notice thereof to the
Holders of each Outstanding Exchange Debenture affected, in the manner provided
for in Section 106, setting forth in general terms the substance of such
supplemental indenture.
SECTION 908. Effect on Senior Indebtedness and Senior Subordinated
-----------------------------------------------------
Indebtedness.
- ------------
No supplemental indenture shall adversely affect the rights of the
holders of Senior Indebtedness and Senior Subordinated Indebtedness under
Article Twelve of this Exchange Indenture without the consent of such holders
affected thereby.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders of
Exchange Debentures that it will duly and punctually pay the principal of (and
premium, if any, on) and interest on the Exchange Debentures in accordance with
the terms of the Exchange Debentures and this Exchange Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York an office or agency
where Exchange Debentures may be presented or surrendered for payment (the
"Place of Payment"), where Exchange Debentures may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Exchange Debentures and this Exchange Indenture
may be served. The Company hereby designates the Corporate Trust Office as the
Place of Payment.
The Company will give prompt written notice to the Debenture Trustee
of the location, and any change in the location, of the Place of Payment. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Debenture Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Debenture Trustee, and the Company hereby
<PAGE>
91
appoints the Debenture Trustee as its agent to receive such respective
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Exchange Debentures may be presented or
surrendered for any or all such purposes and may from time to time rescind any
such designation; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in accordance with the requirements set forth above for Exchange
Debentures for such purposes. The Company will give prompt written notice to
the Debenture Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 1003. Money for Exchange Debentures Payments to Be Held in
----------------------------------------------------
Trust.
- -----
If the Company shall at any time act as its own Paying Agent with
respect to the Exchange Debentures, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Exchange
Debentures, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Debenture Trustee of
its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Exchange Debentures, it will, prior to or on each due date of the principal of
(and premium, if any, on) or interest on any Exchange Debentures, deposit with a
Paying Agent a sum in same day funds sufficient to pay the principal (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Debenture Trustee) the Company will promptly
notify the Debenture Trustee of its action or failure so to act.
The Company will cause each Paying Agent (other than the Debenture
Trustee) to execute and deliver to the Debenture Trustee an instrument in which
such Paying Agent shall agree with the Debenture Trustee, subject to the
provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) and interest on the Exchange Debentures in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(2) give the Debenture Trustee notice of any default by the Company
(or any other obligor upon the Exchange Debentures) in the making of any
payment of principal of (and premium, if any) or interest on the Exchange
Debentures; and
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92
(3) at any time during the continuance of any such default, upon the
written request of the Debenture Trustee, forthwith pay to the Debenture
Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Exchange Indenture or for any other purpose,
pay, or by Company Order direct any Paying Agent to pay, to the Debenture
Trustee all sums held in trust by the Company or such Paying Agent, such sums to
be held by the Debenture Trustee upon the same trusts as those upon which sums
were held by the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Debenture Trustee, such Paying Agent shall be released from
all further liability with respect to such sums.
Any money deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any) or interest on any Exchange Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Exchange Debenture shall thereafter, as an unsecured general creditor, look only
to the Company for payment thereof, and all liability of the Debenture Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Debenture Trustee or such Paying Agent, before being required to make any such
repayment to the Company, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory), licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that, subject to the other provisions
of this Exchange Indenture, the Company shall not be required to preserve any
such existence (except the Company), right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not, and will not be, disadvantageous in any
material respect to the Holders.
<PAGE>
93
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, would by
law become a material liability or lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate reserves, if necessary (in
the good faith judgment of management of the Company) are being maintained in
accordance with GAAP.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company will cause all material properties owned by the Company or
any Restricted Subsidiary or used or held for use in the conduct of its business
or the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company or any of its Restricted
Subsidiaries from discontinuing the maintenance of any of such properties if
such discontinuance is, in the judgment of the Company, desirable in the conduct
of its business or the business of any Restricted Subsidiary and not adverse in
any material respect to the Holders.
SECTION 1007. Statement by Officers as to Default.
-----------------------------------
(a) The Company and each Subsidiary Debenture Guarantor will deliver
to the Debenture Trustee, within 45 days after the end of each fiscal quarter
and within 120 days after the end of each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company or the Subsidiary
Debenture Guarantor, as the case may be, during the preceding quarter or the
preceding fiscal year, as the case may be, has been made under the supervision
of the signing officers with a view to determining whether it has kept,
observed, performed and fulfilled, and has caused each of its Subsidiaries to
keep, observe, perform and fulfill its obligations under this Indenture and
further stating, as to each such officer signing such certificate, that, to the
best of his or her knowledge, the Company during such preceding quarter or the
preceding fiscal year, as the case may be, has kept, observed, performed and
fulfilled, and has caused each of its Subsidiaries to keep, observe, perform and
fulfill each and every such covenant contained in this Indenture and no Default
or Event of Default occurred during such quarter or year, as the case may be,
and at the date of such certificate there is no Default or Event of Default
which has
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94
occurred and is continuing or, if such signers do know of such Default or Event
of Default, the certificate shall describe its status, with particularity and
that, to the best of his or her knowledge, no event has occurred and remains by
reason of which payments on the account of the principal of or interest, if any,
on the Exchange Debentures is prohibited or if such event has occurred, a
description of the event and what action each is taking or proposes to take with
respect thereto. The Officers' Certificate shall also notify the Debenture
Trustee should the Company elect to change the manner in which it fixes its
fiscal year-end. For purposes of this Section 1007(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Exchange Indenture.
(b) When any Default or Event of Default has occurred and is
continuing under this Exchange Indenture, or if the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default (other than
with respect to Indebtedness in the principal amount of less than $10,000,000),
the Company shall deliver to the Debenture Trustee by registered or certified
mail or by telegram, telex or facsimile transmission an Officers' Certificate
specifying such event, notice or other action within five Business Days of its
occurrence.
SECTION 1008. Limitation on Indebtedness.
--------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Indebtedness (including any Acquired Indebtedness), other than
Permitted Indebtedness; provided, however, that the Company and any Subsidiary
Debenture Guarantor may incur Indebtedness (including Acquired Indebtedness) if
at the time of such incurrence the Consolidated Fixed Charge Coverage Ratio for
the four full fiscal quarters immediately preceding the incurrence of such
Indebtedness for which internal financial statements are available, taken as one
period (and after giving pro forma effect to (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred,
and the application of such proceeds occurred, on the first day of such four-
quarter period, (ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Restricted Subsidiaries since the first day
of such four-quarter period as if such Indebtedness was incurred, repaid or
retired on the first day of such four-quarter period (except that, in making
such computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period) and (iii) the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any company, entity or business acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such four-
quarter period, as if such acquisition or disposition occurred on the first day
of such four-quarter period), would have been at least equal to 2.0 to 1.0.
<PAGE>
95
SECTION 1009. Limitation on Restricted Payments.
---------------------------------
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than
dividends or distributions payable solely in shares of Qualified Capital
Stock of the Company or in options, warrants or other rights to acquire
such shares of Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Affiliate of the Company or any options, warrants or other rights to
acquire such shares of Capital Stock (other than such options, warrants or
rights owned by the Company or a wholly owned Restricted Subsidiary);
(iii) declare or pay any dividend on, or make any distribution to
holders of, any shares of Capital Stock of any Restricted Subsidiary to any
Person (other than to the Company or any of its wholly owned Restricted
Subsidiaries or to all holders of Capital Stock of such Restricted
Subsidiary on a pro rata basis);
(iv) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Junior Subordinated
Indebtedness of the Company or any Subsidiary Debenture Guarantor; or
(v) make any Investment (other than any Permitted Investment) in any
Person (such payments or other actions described in (but not excluded from)
clauses (i) through (v) are collectively referred to as "Restricted
Payments"), unless at the time of, and immediately after giving effect to,
the proposed Restricted Payment (the amount of any such Restricted Payment,
if other than cash, as determined by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a Board
Resolution), (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Company could incur at least $ 1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1008
and (3) the aggregate amount of all Restricted Payments declared or made
after the Issuance Date shall not exceed the sum of:
(A) 50% of the Consolidated Adjusted Net Income of the Company
accrued on a cumulative basis during the period beginning on the first
day of the Company's first fiscal quarter after the Issuance Date and
ending on the last day of the Company's last fiscal quarter ending
prior to the date of such proposed
<PAGE>
96
Restricted Payment (or, if such aggregate cumulative Consolidated
Adjusted Net Income shall be a loss, minus 100% of such loss), plus
(B) the aggregate net cash proceeds received after the Issuance
Date by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of shares of Qualified Capital Stock of the
Company (including upon the exercise of options, warrants or fights)
or warrants, options or rights to purchase shares of Qualified Capital
Stock of the Company, plus
(C) the aggregate net cash proceeds received after the Issuance
Date by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of debt securities or Redeemable Capital Stock
that have been converted into or exchanged for Qualified Capital Stock
of the Company, to the extent such securities were originally sold for
cash, together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange, plus
(D) to the extent that any Investment constituting a Restricted
Payment that was made after the Issuance Date is sold or is otherwise
liquidated or repaid, an amount (to the extent not included in
Consolidated Adjusted Net Income) equal to the sum of (I) the lesser
of (x) the cash proceeds with respect to such Investment (less the
cost of the disposition of such Investment and net of taxes) and (y)
the initial amount of such Investment, and (II) with respect solely to
any Restricted Payment to be made pursuant to clause (v) of this
paragraph (a), the cash proceeds with respect to such Investment (less
the cost of the disposition of such Investment and net of taxes) in
excess of the amount in (I), plus
(E) $5,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its
Restricted Subsidiaries may take the following actions so long as (with respect
to clauses (ii), (iii), (iv), (v), (vi), (vii) and (viii) below) at the time of
and after giving effect thereto no Default or Event of Default shall have
occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary) of, shares of Qualified Capital
Stock of the Company;
<PAGE>
97
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Junior Subordinated Indebtedness in exchange
for, or out of the net cash proceeds of a substantially concurrent issuance
and sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company;
(iv) the purchase of any Indebtedness that is expressly subordinated
in right of payment to the Exchange Debentures at a purchase price not
greater than 101% of the principal amount thereof in the event of a Change
in Control in accordance with provisions similar to those of Section 1013;
provided that prior to such purchase the Company has made the Change in
Control Offer as provided in Section 1013 and has purchased all Exchange
Debentures validly tendered for payment in connection with such Change in
Control Offer;
(v) the repurchase, redemption or other acquisition or retirement
for value of shares of Management Stock; provided that (1) the Company is
required, by the terms of written agreements between the Company and each
of Lloyd L. Ross and Jerry M. Smith as in effect on the Issuance Date, to
effect such purchase, redemption or other acquisition or retirement for
value of such shares and (2) the aggregate consideration paid by the
Company for such shares so purchased, redeemed or otherwise acquired or
retired for value does not exceed $25,000,000 in the aggregate;
(vi) the repurchase, redemption or other acquisition or retirement
for value of shares of Capital Stock of the Company from employees who have
died (or their estates or beneficiaries) or whose employment has been
terminated; provided that such payment shall not exceed $1,500,000 in any
twelve month period, excluding any amounts used to repurchase, redeem,
acquire or retire for value shares of Capital Stock of the Company pursuant
to clause (v) above;
(vii) repurchases of Capital Stock of the Company (or warrants or
options convertible into or exchangeable for such Capital Stock) deemed to
occur upon exercise of stock options to the extent that shares of such
Capital Stock (or warrants or options convertible into or exchangeable for
such Capital Stock) represent a portion of the exercise price of such
options;
(viii) the issuance by the Company of shares of Preferred Stock as
dividends paid in kind on the Preferred Stock of the Company outstanding on
the Issuance Date or on shares of Preferred Stock so issued as payment in
kind dividends, such dividends made pursuant to the terms of the
Certificate of Designation for such Preferred Stock as in effect on the
Issuance Date; and
(ix) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Junior Subordinated Indebtedness (other than
Redeemable Capital Stock) in
<PAGE>
98
exchange for, or out of the net cash proceeds of a substantially concurrent
incurrence (other than to a Restricted Subsidiary) of, new Junior
Subordinated Indebtedness so long as (A) the principal amount of such new
Junior Subordinated Indebtedness does not exceed the principal amount (or,
if such Junior Subordinated Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Indebtedness being so purchased, redeemed, defeased,
acquired or retired, plus either the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus, in either case, the amount of reasonable expenses of the Company
incurred in connection with such refinancing, (B) such new Junior
Subordinated Indebtedness is pari passu or subordinated, as applicable, to
the Exchange Debentures to the same extent as such Indebtedness so
purchased, redeemed, defeased, acquired or retired and (C) such new
Indebtedness has an Average Life longer than the Average Life of the
Exchange Debentures and a final Stated Maturity of principal later than the
final Stated Maturity of principal of the Exchange Debentures.
The actions described in clauses (i), (ii), (iii), (iv), (v), (vi) and
(vii) of this paragraph (b) shall be Restricted Payments that shall be permitted
to be taken in accordance with this paragraph (b) but shall reduce the amount
that would otherwise be available for Restricted Payments under clause (3) of
paragraph (a) above and the actions described in clauses (viii) and (ix) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).
(c) Notwithstanding the foregoing, the Company will not, and will not
permit any Restricted Subsidiary to, pay any cash dividends on any shares of
Capital Stock of the Company which shall rank junior to the Senior Exchangeable
Preferred Stock until such time as the Notes have received a rating from Moody's
of at least "B1" or higher.
SECTION 1010. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company (i) shall not permit any Restricted Subsidiary to issue
any Capital Stock (other than to the Company or a wholly owned Restricted
Subsidiary) and (ii) shall not permit any Person (other than the Company or a
wholly owned Restricted Subsidiary) to own any Capital Stock of any Restricted
Subsidiary; provided, however, that this Section 1010 shall not prohibit (a) the
issuance and sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of this Exchange
Indenture, (b) the ownership by other Persons of Qualified Capital Stock (other
than Preferred Stock) issued prior to the time such
<PAGE>
99
Restricted Subsidiary became a Subsidiary of the Company that was neither issued
in contemplation of such Subsidiary becoming a Subsidiary nor acquired at that
time or (C) the ownership by directors of director's qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted Subsidiary, to
the extent mandated by applicable law.
SECTION 1011. Limitation on Transactions with Affiliates.
------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with, or for the
benefit of, any Affiliate of the Company or any Restricted Subsidiary (other
than the Company or a Restricted Subsidiary) (collectively, "Interested
Persons"), unless (i) such transaction or series of transactions are on terms
that are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that could have been able to be obtained in an arm's-
length transaction with third parties that are not Interested Persons, (ii) with
respect to any transaction or series of related transactions involving aggregate
consideration equal to or greater than $1,000,000, the Company has delivered an
Officers' Certificate to the Debenture Trustee certifying that such transaction
or series of transactions complies with clause (i) above and (iii) with respect
to any transaction or series of related transactions involving aggregate
consideration equal to or greater than $5,000,000, such transaction or series of
related transactions (x) has been approved by the Board of Directors of the
Company (including a majority of the Disinterested Directors of the Company) or
(y) the Company has obtained a written opinion from a nationally recognized
investment banking or valuation firm certifying that such transaction or series
of related transactions is fair to the Company or its Restricted Subsidiary, as
the case may be, from a financial point of view; provided, however, that this
Section 1011 shall not restrict (1) the Company from paying reasonable and
customary regular compensation and fees to directors of the Company or any
Restricted Subsidiary who are not employees of the Company or any Restricted
Subsidiary, (2) the payment of management fees to Permitted Holders in an
aggregate amount not to exceed $500,000 per year, (3) loans and advances to
officers, directors and employees of the Company or any Restricted Subsidiary in
the ordinary course of business in accordance with the past practices of the
Company or any Restricted Subsidiary not to exceed $3,000,000 in the aggregate
outstanding at any time, (4) any transactions made in compliance with Section
1009, (5) the issuance and sale of Qualified Capital Stock of the Company to
Persons who are stockholders of the Company at the time of such issuance and
sale and (6) the performance of any written agreement as in effect on the
Issuance Date and as amended from time to time, provided that any such amendment
is not less favorable in any material respect to the Company or any Restricted
Subsidiary than the terms of such agreement as in effect on the Issuance Date.
<PAGE>
100
SECTION 1012. Limitation on Liens.
-------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind securing Pari Passu Indebtedness or Junior Subordinated
Indebtedness of the Company on or with respect to any of its property or assets,
including any shares of stock or indebtedness of any Restricted Subsidiary,
whether owned at the Issuance Date or thereafter acquired, or any income,
profits or proceeds therefrom, or assign or otherwise convey any right to
receive income thereon, unless (x) in the case of any Lien securing Pari Passu
Indebtedness of the Company, the Exchange Debentures are secured by a Lien on
such property, assets or proceeds that is senior in priority to or pari passu
with such Lien and (y) in the case of any Lien securing Junior Subordinated
Indebtedness of the Company, the Exchange Debentures are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Lien.
(b) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien securing Pari Passu Indebtedness or Junior Subordinated Indebtedness of
such Restricted Subsidiary on or with respect to any such Restricted
Subsidiary's properties or assets, including any shares of stock or Indebtedness
of any Subsidiary of such Restricted Subsidiary, whether owned at the Issuance
Date or thereafter acquired, or any income, profits or proceeds therefrom, or
assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Pari Passu Indebtedness of the Restricted
Subsidiary, such Debenture Guarantee is secured by a Lien on such property,
assets or proceeds that is senior in priority to or pari passu with such Lien
and (y) in the case of any Lien securing Subordinated Indebtedness of the
Restricted Subsidiary, such Debenture Guarantee is secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien.
SECTION 1013. Purchase of Exchange Debentures upon Change in Control.
------------------------------------------------------
(a) If a Change in Control shall occur at any time, then each Holder
of Exchange Debentures will have the right to require that the Company purchase
such Holder's Exchange Debentures, in whole or in part in integral multiples of
$1,000, at a purchase price (the "Change in Control Purchase Price") in cash in
an amount equal to 101% of the principal amount thereof, plus accrued interest,
if any, to the date of purchase (the "Change in Control Purchase Date"),
pursuant to the offer described below (the "Change in Control Offer") and the
other procedures set forth in this Exchange Indenture.
(b) Within 30 days following any Change in Control, the Company shall
notify the Debenture Trustee thereof and give written notice of such Change in
Control Offer to each Holder by first-class mail, postage prepaid, at the
address of such Holder appearing in the Exchange Debenture Register, stating,
among other things, (i) the Change in Control Purchase Price and the Change in
Control Purchase Date, which shall be a Business Day no earlier than 30
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101
days nor later than 75 days from the date such notice is mailed, or such later
date as is necessary to comply with requirements under the Exchange Act or any
applicable securities laws or regulations; (ii) that any Exchange Debenture not
tendered will continue to accrue interest; (iii) that, unless the Company
defaults in the payment of the Change in Control Purchase Price, any Exchange
Debentures accepted for payment pursuant to the Change in Control Offer shall
cease to accrue interest after the Change in Control Purchase Date; and (iv)that
Holders electing to have any Notes purchased pursuant to a Change in Control
Offer shall be required to surrender the Notes, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Notes completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change in Control Purchase
Date; (v) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change in Control Purchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing its election to have such Notes purchased; (vi) that
Holders whose Exchange Debentures are being purchased only in part shall be
issued new Exchange Debentures equal in principal amount to the unpurchased
portion of the Exchange Debentures surrendered, which unpurchased portion must
be equal to $1,000 in principal amount or an integral multiple thereof; (vii)
the instructions that the Holders of Exchange Debentures must follow in order to
tender their Exchange Debentures; and (viii) the circumstances and relevant
facts regarding such Change in Control.
(c) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection with
a Change in Control Offer.
(d) The Company shall not, and shall not permit any Restricted
Subsidiary to, create or permit to exist or become effective any restriction
(other than restrictions existing under the Senior Credit Agreement or under
Indebtedness as in effect on the Issuance Date) that would materially impair the
ability of the Company to make a Change in Control Offer to purchase the
Exchange Debentures or, if such Change in Control Offer is made, to pay for the
Exchange Debentures tendered for purchase.
(e) Prior to complying with the provisions of this Section 1013, but
in any event within 30 days following a Change in Control, the Company shall
either terminate all commitments and repay in full all Indebtedness under the
Senior Credit Agreement and the Notes, respectively, and or obtain the requisite
consents, if any, under the Senior Credit Agreement and the Notes Indenture to
permit the purchase of the Exchange Debentures as provided for under this
Section 1013.
(f) The Company shall not, and shall not permit any Restricted
Subsidiary to, create or permit to exist or become effective any restriction
(other than restrictions existing under the Senior Credit Agreement, the Notes
Indenture or under Indebtedness as in effect on the
<PAGE>
102
Issuance Date) that would materially impair the ability of the Company to make a
Change in Control Offer to purchase the Exchange Debentures or, if such Change
in Control Offer is made, to pay for the Exchange Debentures tendered for
purchase.
SECTION 1014. Limitation on Sale of Assets.
----------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly, or indirectly, consummate any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution) and (ii) at least 75% of such
consideration consists of cash or Cash Equivalents. The amount of any (I)
Indebtedness of a Restricted Subsidiary that is not a Subsidiary Debenture
Guarantor or any Senior Indebtedness of the Company or any Subsidiary Debenture
Guarantor that is actually assumed by the transferee in such Asset Sale and from
which the Company and the Restricted Subsidiaries are fully released shall be
deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or the Restricted Subsidiaries (excluding
any liabilities that are incurred in connection with or in anticipation of such
Asset Sale) and (II) notes or other similar obligations received by the Company
or any Restricted Subsidiary from such transferee that are converted, sold or
exchanged within 30 days of the related Asset Sale by the Company or the
Restricted Subsidiaries into cash shall be deemed to be cash, in an amount equal
to the net cash proceeds realized upon such conversion, sale or exchange for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may use the Net Cash Proceeds thereof, within 12 months after
such Asset Sale, to (i) permanently repay or prepay any then outstanding Senior
Indebtedness or Senior Subordinated Indebtedness of the Company or any
Restricted Subsidiary (and to correspondingly reduce commitments with respect
thereto) or (ii) invest (or enter into a legally binding agreement to invest) in
other properties or assets to replace the properties or assets that were the
subject of the Asset Sale or in properties and assets that will be used in
businesses of the Company or its Restricted Subsidiaries, as the case may be,
existing at the time such assets are sold. If any such legally binding
agreement to invest such Net Cash Proceeds is terminated, then the Company may,
within 90 days of such termination or within 12 months of such Asset Sale,
whichever is later, invest such Net Cash Proceeds as provided in clause (i) or
(ii) (without regard to the parenthetical contained in such clause (ii)) above.
The amount of such Net Cash Proceeds not so used as set forth above in this
paragraph (b) shall constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000,
the Company shall, within 30 Business Days, make an offer to purchase (an
"Excess Proceeds Offer") from all holders of Exchange Debentures, on a pro rata
basis, in accordance with the procedures set forth below, the maximum principal
amount (expressed as an integral multiple of $1,000) of
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103
Exchange Debentures that may be purchased with the Excess Proceeds. The offer
price as to each Exchange Debenture shall be payable in cash in an amount equal
to 100% of the principal amount of such Exchange Debenture plus accrued
interest, if any (the "Offered Price"), to the date such Excess Proceeds Offer
is consummated (the "Offer Date"). To the extent that the aggregate principal
amount of Exchange Debentures tendered pursuant to an Excess Proceeds Offer is
less than the Excess Proceeds, the Company may use such deficiency for any
lawful purposes. If the aggregate principal amount of Exchange Debentures
validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, Exchange Debentures to be purchased will be selected on a pro rata
basis. Upon completion of such Exceeds Proceeds Offer, the amount of Excess
Proceeds shall be reset to zero.
(d) Whenever the Excess Proceeds received by the Company exceed
$10,000,000, such Excess Proceeds shall be set aside by the Company in a
separate account pending (i) deposit with the Debenture Trustee or a paying
agent of the amount required to purchase the Exchange Debentures tendered in an
Excess Proceeds Offer, (ii) delivery by the Company of the Offered Price to the
holders of the Exchange Debentures tendered in an Excess Proceeds Offer and
(iii) application, as set forth above, of Excess Proceeds for any lawful
purposes. Such Excess Proceeds may be invested in Cash Equivalents, provided
that the maturity date of any investment shall not be later than the Offer Date.
The Company shall be entitled to any interest or dividends accrued, earned or
paid on such Cash Equivalents.
(e) If the Company becomes obligated to make an Excess Proceeds Offer
pursuant to clause (c) above, the Exchange Debentures shall be purchased by the
Company, at the option of the Holders thereof, in whole or in part in integral
multiples of $1,000, on a date that is not earlier than 30 days and not later
than 60 days from the date the notice is given to holders, or such later date as
may be necessary for the Company to comply with the requirements under the
Exchange Act, subject to proration in the event the amount of Excess Proceeds is
less than the aggregate Offered Price of all Exchange Debentures tendered.
(f) Within 15 days after the obligation of the Company to make an
Excess Proceeds Offer arises, the Company shall notify the Debenture Trustee
thereof and give written notice of such Excess Proceeds Offer to each Holder of
Exchange Debentures by first-class mail, postage prepaid, at the address of such
Holder appearing in the Exchange Debenture Register, stating, (i) the Offered
Price and the Offer Date, which shall be a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act or any
applicable securities laws or regulations; (ii) that any Exchange Debenture not
tendered will continue to accrue interest; (iii) that, unless the Company
defaults in the payment of the Offered Price, any Exchange Debentures accepted
for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest
after the date of purchase; (iv) that Holders electing to have any Exchange
Debentures purchased pursuant to an Excess Proceeds Offer shall be required to
surrender the Exchange Debentures, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Exchange Debentures
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104
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Offer Date; (v)
that Holders shall be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Offer Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Exchange
Debentures delivered for purchase, and a statement that such Holder is
withdrawing its election to have such Exchange Debentures purchased; (vi) that
Holders whose Exchange Debentures are being purchased only in part shall be
issued new Exchange Debentures equal in principal amount to the unpurchased
portion of the Exchange Debentures surrendered, which unpurchased portion must
be equal to $1,000 in principal amount or an integral multiple thereof; (vii)
the instructions that the Holders of Exchange Debentures must follow in order to
tender their Exchange Debentures; and (viii) the circumstances and relevant
facts regarding such Excess Proceeds Offer.
(g) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection with
an Excess Proceeds Offer.
SECTION 1015. Limitations on Guarantees of Indebtedness by Restricted
-------------------------------------------------------
Subsidiaries.
- ------------
(a) The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) (A) if such Restricted
Subsidiary is not a Subsidiary Debenture Guarantor, such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture, in form
satisfactory to the Debenture Trustee, providing for a guarantee of the Exchange
Debentures by such Restricted Subsidiary and delivers to such Debenture Trustee
an Opinion of Counsel reasonably satisfactory to such Debenture Trustee to the
effect that such supplemental indenture has been duly executed and delivered by
such Restricted Subsidiary and is in compliance with the terms of this Exchange
Indenture and (B) with respect to any guarantee by a Restricted Subsidiary of
Junior Subordinated Indebtedness of the Company, any such guarantee shall be
subordinated to such Restricted Subsidiary's Debenture Guarantee at least to the
same extent as such guaranteed Indebtedness is subordinated to the Exchange
Debentures and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Debenture Guarantee.
(b) Notwithstanding the foregoing, any guarantee of the Exchange
Debentures created pursuant to the provisions described in the foregoing
paragraph (a) will provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer
to any Person not an Affiliate of the Company of all of the Company's Capital
Stock in, or all or substantially all the assets of, the applicable Subsidiary
Debenture
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105
Guarantor (which sale, exchange or transfer is otherwise in compliance with this
Exchange Indenture) or (ii) the designation of such Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with the terms of this Exchange Indenture.
SECTION 1016. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- ---------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock to the
Company or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the
Company or any other Restricted Subsidiary, (c) make loans or advances to the
Company or any other Restricted Subsidiary, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary (other than
customary restrictions on transfers of property subject to a Lien permitted
under this Exchange Indenture that would not materially adversely affect the
Company's ability to satisfy its obligations under the Exchange Debentures and
this Exchange Indenture) or (e) guarantee any Indebtedness of the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) customary provisions
restricting subletting or assignment of any lease or assignment of any other
contract to which the Company or any Restricted Subsidiary is a party or to
which any of their respective properties or assets are subject, (iii) any
agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (iv)
encumbrances and restrictions in effect on the Issuance Date pursuant to the
Senior Credit Facility and its related documentation, (v) any encumbrance or
restriction contained in contracts for sales of assets permitted by Section 1014
with respect to the assets to be sold pursuant to such contract and (vi) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (iii) and (iv); provided that the terms
and conditions of any such encumbrances or restrictions are not materially less
favorable to the Holders than those under or pursuant to the agreement so
extended, renewed, refinanced or replaced.
SECTION 1017. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into any Sale and Leaseback Transaction with
respect to any property or assets (whether now owned or hereafter acquired),
unless (i) the sale or transfer of such property or assets to be leased is
treated as an Asset Sale and the Company complies with Section 1014 and (ii) the
Company or such Restricted Subsidiary would be permitted to incur Indebtedness
under
<PAGE>
106
Section 1008 in the amount of the Capitalized Lease Obligations incurred in
respect of such Sale and Leaseback Transaction; provided, however, that the
Company and its Restricted Subsidiaries will not be required to comply with
Section 1017 with respect to the sale and leaseback of the Headquarters
Facility.
SECTION 1018. Limitation on Other Subordinated Indebtedness.
---------------------------------------------
Neither the Company nor any Restricted Subsidiary shall incur, create,
assume, guarantee or in any other manner become directly or indirectly liable
with respect to or responsible for, or permit to remain outstanding, any
Indebtedness, other than the Exchange Debentures, that is subordinate or junior
in right of payment to any Senior Subordinated Indebtedness unless such
Indebtedness is also pari passu with, or subordinate in right of payment to, the
Exchange Debentures pursuant to subordination provisions substantially similar
to those contained in this Exchange Indenture.
SECTION 1019. Limitation on Unrestricted Subsidiaries.
---------------------------------------
The Company shall not make, and shall not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to Section 1008. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
Section 1019 (i) shall be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Restricted Subsidiary and (ii) may be made in cash or property.
SECTION 1020. Reports.
-------
The Company shall file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act.
The Company shall also (a) file with the Debenture Trustee, and provide to each
Holder of Exchange Debentures (at their respective addresses set forth in the
Exchange Debenture Register), without cost to such Holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required, and (b) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, supply
at the Company's cost copies of such reports and documents to any prospective
Holder promptly upon written request.
Delivery of such reports, information and documents to the Debenture
Trustee is for informational purposes only and the Debenture Trustee's receipt
of such shall not constitute
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107
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Debenture Trustee is entitled to rely
exclusively on Officers' Certificates).
SECTION 1021. Waiver of Certain Covenants.
---------------------------
The Company and the Restricted Subsidiaries may omit in any particular
instance to comply with any term, provision or condition set forth in Sections
1007 to 1012, inclusive, and 1015 to 1019, inclusive, if before or after the
time for such compliance the Holders of at least a majority in aggregate
principal amount of all Outstanding Exchange Debentures affected by such term,
provision or covenant, by Act of such Holders, waive such compliance in such
instance with such term, provision or condition, but no such waiver shall extend
to or affect such term, provision or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company, the Restricted Subsidiaries and the duties of the Debenture Trustee, as
applicable, in respect of any such term, provision or condition shall remain in
full force and effect.
ARTICLE ELEVEN
REDEMPTION OF EXCHANGE DEBENTURES
SECTION 1101. Redemption.
----------
The Exchange Debentures may or shall be, as the case may be, redeemed,
as a whole or from time to time in part, subject to the conditions and the
Redemption Prices specified in the form of Exchange Debenture, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on relevant record dates to receive interest due on
Interest Payment Date), on the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Exchange Debentures at the election of the Company or
otherwise, as permitted or required by any provision of this Exchange Indenture,
shall be made in accordance with the terms of such Exchange Debentures and in
accordance with this Article Eleven.
SECTION 1103. Election to Redeem; Notice to Debenture Trustee.
-----------------------------------------------
The election of the Company to redeem any Exchange Debentures pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Debenture Trustee), notify the
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108
Debenture Trustee of such Redemption Date and of the principal amount of
Exchange Debentures to be redeemed and shall deliver to the Debenture Trustee
such documentation and records as shall enable the Debenture Trustee to select
the Exchange Debentures to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Debenture Trustee of Exchange Debentures
-----------------------------------------------------
to Be Redeemed.
- --------------
If less than all the Exchange Debentures are to be redeemed, the
particular Exchange Debentures to be redeemed shall be selected not more than 60
days prior to the Redemption Date by the Debenture Trustee, from the Outstanding
Exchange Debentures not previously called for redemption, in compliance with the
requirements of the principal national securities exchange, if any, on which
such Exchange Debentures are listed, or, if such Exchange Debentures are not so
listed, on a pro rata basis, by lot or by such other method as the Debenture
Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements) and which may provide for the selection for
redemption of portions of the principal of Exchange Debentures; provided,
however, that no such partial redemption shall reduce the portion of the
principal amount of an Exchange Debenture not redeemed to less than $1,000.
The Debenture Trustee shall promptly notify the Company in writing of
the Exchange Debentures selected for redemption and, in the case of any Exchange
Debentures selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Exchange Indenture, unless the context
otherwise requires, all provisions relating to redemption of Exchange Debentures
shall relate, in the case of any Exchange Debenture redeemed or to be redeemed
only in part, to the portion of the principal amount of such Exchange Debenture
which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Exchange Debentures to be redeemed. The Debenture Trustee
shall give notice of redemption in the Company's name and at the Company's
expense; provided, however, that the Company shall deliver to the Debenture
Trustee, at least 45 days prior to the Redemption Date, an Officers' Certificate
requesting that the Debenture Trustee give such notice and setting forth the
information to be stated in such notice as provided in the following items.
All notices of redemption shall state:
(1) the Redemption Date,
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109
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Exchange Debentures are to be
redeemed, the identification of the particular Exchange Debentures to be
redeemed, as well as the aggregate principal amount of Exchange Debentures
to be redeemed and the aggregate principal amount of Exchange Debentures to
be outstanding after such partial redemption,
(4) in case any Exchange Debenture is to be redeemed in part only,
the notice which relates to such Exchange Debenture shall state that on and
after the Redemption Date, upon surrender of such Exchange Debenture, the
holder will receive, without charge, a new Exchange Debenture or Exchange
Debentures of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Exchange Debenture, or the
portion thereof, to be redeemed, and, unless the Company defaults in making
the redemption payment, that interest on Exchange Debentures called for
redemption (or the portion thereof) will cease to accrue on and after said
date,
(6) the place or places where such Exchange Debentures are to be
surrendered for payment of the Redemption Price and accrued interest, if
any,
(7) the name and address of the Paying Agent,
(8) that Exchange Debentures called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price,
(9) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP number, if any, listed in such notice
or printed on the Exchange Debentures, and
(10) the paragraph of the Exchange Debentures pursuant to which the
Exchange Debentures are to be redeemed.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to 10:00 A.M. on any Redemption Date, the Company shall deposit
with the Debenture Trustee or with a Paying Agent (or, if the Company is acting
as its own Paying Agent, segregate and hold in trust as provided in Section
1003) an amount of money sufficient to pay the
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110
Redemption Price of, and accrued interest on, all the Exchange Debentures which
are to be redeemed on that date.
SECTION 1107. Exchange Debentures Payable on Redemption Date.
----------------------------------------------
Notice of redemption having been given as aforesaid, the Exchange
Debentures so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Exchange Debentures shall cease to bear interest. Upon surrender
of any such Exchange Debenture for redemption in accordance with said notice,
such Exchange Debenture shall be paid by the Company at the Redemption Price,
together with accrued interest, if any, to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Exchange Debentures,
or one or more Predecessor Exchange Debentures, registered as such at the close
of business on the relevant Regular Record Date or Special Record Date, as the
case may be, according to their terms and the provisions of Section 307.
If any Exchange Debenture called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate of
interest set forth in the Exchange Debenture.
SECTION 1108. Exchange Debentures Redeemed in Part.
------------------------------------
Any Exchange Debenture which is to be redeemed only in part (pursuant
to the provisions of this Article) shall be surrendered at a Place of Payment
therefor (with, if the Company or the Debenture Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Debenture Trustee duly executed by, the Holder thereof or such
Holders attorney duly authorized in writing), and the Company shall execute, and
the Debenture Trustee shall authenticate and deliver to the Holder of such
Exchange Debenture without service charge, a new Exchange Debenture or Exchange
Debentures, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Exchange Debenture so surrendered, provided, that each
such new Exchange Debenture will be in a principal amount of $1,000 or integral
multiple thereof.
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111
ARTICLE TWELVE
SUBORDINATION OF EXCHANGE DEBENTURES
SECTION 1201. Exchange Debentures Subordinate to Senior Indebtedness
------------------------------------------------------
and Senior Subordinated Indebtedness.
- ------------------------------------
The Company covenants and agrees, and each Holder of a Exchange
Debenture, by its acceptance thereof, likewise covenants and agrees, for the
benefit of the holders, from time to time, of Senior Indebtedness and Senior
Subordinated Indebtedness that, to the extent and in the manner hereinafter set
forth in this Article, the Indebtedness represented by the Exchange Debentures
and the payment of the principal of (and premium, if any) and interest on each
and all of the Exchange Debentures are hereby expressly made subordinate and
subject in right of payment as provided in this Article to the prior payment in
full in cash or cash equivalents of all Senior Indebtedness and Senior
Subordinated Indebtedness; provided, however, that the Exchange Debentures, the
Indebtedness represented thereby and the payment of the principal of (and
premium, if any) and interest on the Exchange Debentures in all respects shall
rank equally with, or prior to, all existing and future senior subordinated
indebtedness (including, without limitation, Indebtedness) of the Company that
is subordinated to Senior Indebtedness or Senior Subordinated Indebtedness.
SECTION 1202. Payment Over of Proceeds upon Dissolution, Etc.
----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Company or to its assets, or
(b) any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or other marshalling of
assets or liabilities of the Company (except in connection with the
consolidation or merger of the Company or its liquidation or dissolution
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety upon the terms and conditions described under
Article Eight), then and in any event:
(1) the holders of Senior Indebtedness and Senior Subordinated
Indebtedness shall first be entitled to receive payment in full in cash or
cash equivalents of all Senior Indebtedness and Senior Subordinated
Indebtedness, or provision shall be made for such payment in full, before
the Holders will be entitled to receive any payment or distribution of any
kind or character (other than any payment or distribution in the form of
equity securities or subordinated securities of the Company or any
successor obligor that, in the case of any such subordinated securities,
are subordinated in right of payment to all Senior Indebtedness and Senior
Subordinated Indebtedness that may at the time be outstanding to at least
the same extent as the Exchange Debentures are so subordinated as provided
in this
<PAGE>
112
Indenture (such equity securities or subordinated securities hereinafter
being "Permitted Junior Securities") and any payment made pursuant to
Article Fourteen from monies or U.S. Government Obligations previously
deposited with the Debenture Trustee) on account of principal of (or
premium, if any) or interest on the Exchange Debentures or on account of
the purchase or redemption or other acquisition of Exchange Debentures; and
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than a payment
or distribution in the form of Permitted Junior Securities and any payment
made pursuant to Article Fourteen from monies or U.S. Government
Obligations previously deposited with the Debenture Trustee), by set-off or
otherwise, to which the Holders or the Debenture Trustee would be entitled
but for the provisions of this Indenture shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holders of Senior Indebtedness and Senior
Subordinated Indebtedness or their representative ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness
and Senior Subordinated Indebtedness to the extent necessary to make
payment in full of all Senior Indebtedness and Senior Subordinated
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness and
Senior Subordinated Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance, transfer or lease of its properties and assets substantially as
an entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of the Company for the purposes of this Section if the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer or lease such properties and assets
substantially as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance, transfer or lease, comply with the conditions
set forth in Article Eight.
SECTION 1203. Suspension of Payment When Designated Senior
--------------------------------------------
Indebtedness in Default.
- -----------------------
(a) Unless Section 1202 shall be applicable, upon the occurrence of a
Payment Default, no payment or distribution of any assets of the Company of any
kind or character, whether in cash, property or securities (other than Permitted
Junior Securities and payments made pursuant to Article Fourteen from monies or
U.S. Government Obligations previously deposited with the Debenture Trustee),
shall be made by or on behalf of the Company on account of principal of (or
premium, if any) or interest on the Exchange Debentures or on account of the
purchase or redemption or other acquisition of Exchange Debentures unless and
until such
<PAGE>
113
Payment Default shall have been cured or waived in writing from the Agent Bank
or any other representative of a holder of Designated Senior Indebtedness or
shall have ceased to exist or such Designated Senior Indebtedness shall have
been discharged or paid in full in cash or cash equivalents, after which the
Company shall resume making any and all required payments in respect of the
Exchange Debentures, including any missed payments.
(b) Unless Section 1202 shall be applicable, upon (1) the occurrence
of a Non-Payment Default and (2) receipt by the Debenture Trustee of written
notice thereof from the Agent Bank or any other representative of a holder of
Designated Senior Indebtedness, then no payment or distribution of any assets of
the Company of any kind or character, whether in cash, property or securities
(other than Permitted Junior Securities and payments made pursuant to Article
Fourteen from monies or U.S. Government Obligations previously deposited with
the Debenture Trustee), shall be made by or on behalf of the Company on account
of any principal of (or premium, if any) or interest on the Exchange Debentures
or on account of the purchase, redemption or other acquisition of Exchange
Debentures for a period ("Payment Blockage Period") commencing on the date of
receipt by the Debenture Trustee of written notice from the Agent Bank or such
other representative and ending on the earliest of (i) 179 days thereafter
(provided that any Designated Senior Indebtedness as to which notice was given
shall not theretofore have been accelerated, in which case the provisions of
paragraph (a) shall apply), (ii) the date on which such Non-Payment Default is
cured, waived or ceases to exist or such Designated Senior Indebtedness is
discharged or paid in full in cash or cash equivalents or (iii) the date on
which such Payment Blockage Period shall have been terminated by written notice
to the Debenture Trustee or the Company from the Agent Bank or such other
representative initiating such Payment Blockage Period, after which the Company
will resume making any and all required payments in respect of the Exchange
Debentures, including any missed payments. In any event, not more than one
Payment Blockage Period may be commenced during any period of 360 consecutive
days. No event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period will be, or can be, made the basis
for the commencement of a subsequent Payment Blockage Period, unless such
default has been cured or waived for a period of not less than 90 consecutive
days subsequent to the commencement of such initial Payment Blockage Period. In
no event will a Payment Blockage Period extend beyond 179 days.
In the event that, notwithstanding the foregoing and the provisions of
Section 1202, any payments or distribution shall be made to the Debenture
Trustee (and not paid over to the Holders of the Exchange Debentures) which is
prohibited by the foregoing provisions of this Section and the provisions of
Section 1202, then and in such event such payment shall be paid over and
delivered forthwith by the Debenture Trustee to the Agent Bank and any other
representative of holders of Designated Senior Indebtedness, as their interests
may appear, to the extent necessary to pay in full, in cash or cash equivalents
all Designated Senior Indebtedness.
<PAGE>
114
SECTION 1204. Payment Permitted if No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Exchange
Indenture or in any of the Exchange Debentures shall prevent the Company, at any
time except during the pendency of any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of creditors or
other marshalling of assets and liabilities of the Company referred to in
Section 1202 or under the conditions described in Section 1203, from making
payments at any time of principal of, and premium, if any, or interest on the
Exchange Debentures.
SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness
-------------------------------------------------------
and Senior Subordinated Indebtedness.
- ------------------------------------
Subject to the payment in full of all Senior Indebtedness and Senior
Subordinated Indebtedness, the Holders of the Exchange Debentures shall be
subrogated (equally and ratably with the holders of all Pari Passu Indebtedness
of the Company) to the rights of the holders of such Senior Indebtedness and
Senior Subordinated Indebtedness to receive payments and distributions of cash,
property and securities applicable to the Senior Indebtedness and Senior
Subordinated Indebtedness. For purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness and Senior Subordinated
Indebtedness of any cash, property or securities to which the Holders of the
Exchange Debentures or the Debenture Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness and Senior Subordinated
Indebtedness by Holders of the Exchange Debentures or on their behalf or by the
Debenture Trustee, shall, as among the Company, its creditors other than holders
of Senior Indebtedness and Senior Subordinated Indebtedness, and the Holders of
the Exchange Debentures, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness and Senior Subordinated
Indebtedness; it being understood that the provisions of this Article are
intended solely for the purpose of determining the relative rights of the
Holders of the Exchange Debentures, on the one hand, and the holders of Senior
Indebtedness and Senior Subordinated Indebtedness, on the other hand.
SECTION 1206. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness and Senior Subordinated Indebtedness on the other
hand. Nothing contained in this Article or elsewhere in this Exchange Indenture
or in the Exchange Debentures is intended to or shall (a) impair, as between the
Company and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of (and premium, if any) and
interest on the Exchange Debentures as and when the same shall become due and
payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders and creditors of the Company other than their
rights in relation to holders of Senior Indebtedness
<PAGE>
115
and Senior Subordinated Indebtedness; or (c) prevent the Debenture Trustee or
any Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Exchange Indenture, subject to the rights, if any, under
this Article of the holders of Senior Indebtedness and Senior Subordinated
Indebtedness.
SECTION 1207. Debenture Trustee to Effectuate Subordination.
---------------------------------------------
Each Holder of an Exchange Debenture by its acceptance thereof
authorizes and directs the Debenture Trustee on its behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Debenture Trustee his attorney-in-fact for any and
all such purposes. If the Debenture Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 504 hereof at least 30 days before the expiration of the time to file
such claim, the Agent Bank (if the Senior Credit Agreement is still outstanding)
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of the Exchange Debentures.
SECTION 1208. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness or Senior Subordinated Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any non-compliance by the Company
with the terms, provisions and covenants of this Exchange Indenture, regardless
of any knowledge thereof any such holder may have or be otherwise charged with.
(b) Without in any way limiting the generality of paragraph (a) of
this Section, the holders of Senior Indebtedness and Senior Subordinated
Indebtedness may, at any time and from time to time, without the consent of or
notice to the Debenture Trustee or the Holders, without incurring responsibility
to the Holders and without impairing or releasing the subordination provided in
this Article or the obligations hereunder of the Holders to the holders of
Senior Indebtedness or Senior Subordinated Indebtedness, do any one or more of
the following: (1) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness or Senior
Subordinated Indebtedness or any instrument evidencing the same or any agreement
under which Senior Indebtedness or Senior Subordinated Indebtedness is
outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness or Senior
Subordinated Indebtedness; (3) release any Person liable in any manner for the
collection of Senior Indebtedness or Senior Subordinated Indebtedness; and (4)
exercise or refrain from exercising any rights against the Company and any other
Person.
<PAGE>
116
SECTION 1209. Distribution or Notice to Representative.
----------------------------------------
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness and Senior Subordinated Indebtedness, the distribution may
be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article Twelve, the Debenture Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Debenture Trustee or to the
Holders for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and Senior
Subordinated Indebtedness and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other acts pertinent thereto or to this Article Twelve.
SECTION 1210. Notice to Debenture Trustee.
---------------------------
(a) The Company shall give prompt written notice to the Debenture
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Debenture Trustee in respect of the Exchange Debentures.
Notwithstanding the provisions of this Article or any other provision of this
Exchange Indenture, the Debenture Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Debenture Trustee in respect of the Exchange Debentures, unless and until
the Debenture Trustee shall have received written notice thereof from the
Company, the Agent Bank or a holder of Senior Indebtedness or Senior
Subordinated Indebtedness or from any trustee, fiduciary or agent therefor; and,
prior to the receipt of any such written notice, the Debenture Trustee, subject
to TIA Sections 315(a) through 315(d), shall be entitled in all respects to
assume that no such facts exist; provided, however, that, if the Debenture
Trustee shall not have received the notice provided for in this Section at least
three Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal of, and premium, if any, or interest on any Exchange
Debenture), then, anything herein contained to the contrary notwithstanding, the
Debenture Trustee shall have full power and authority to receive such money and
to apply the same to the purpose for which such money was received and shall not
be affected by any notice to the contrary which may be received by it within
three Business Days prior to such date.
(b) Subject to TIA Sections 315(a) through 315(d), the Debenture
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing itself to be a holder of Senior Indebtedness and Senior
Subordinated Indebtedness (or a trustee, fiduciary or agent therefor) to
establish that such notice has been given by a holder of Senior Indebtedness and
Senior Subordinated Indebtedness (or a trustee, fiduciary or agent therefor).
In the event that the Debenture Trustee determines in good faith that further
evidence is required with respect to the
<PAGE>
117
right of any Person as a holder of Senior Indebtedness and Senior Subordinated
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Debenture Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Debenture Trustee as to the amount of Senior
Indebtedness and Senior Subordinated Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article and, if such evidence is not furnished, the Debenture Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment.
SECTION 1211. Reliance on Judicial Order or Certificate of
--------------------------------------------
Liquidating Agent.
- -----------------
Upon any payment or distribution of assets of the Company referred to
in this Article, the Debenture Trustee, subject to TIA Sections 315(a) through
315(d), and the Holders of the Exchange Debentures shall be entitled to rely
upon any order or decree entered by any court of competent jurisdiction in which
such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Debenture Trustee or to the
Holders of Exchange Debentures, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article; provided that such court, trustee,
receiver, custodian, assignee, agent or other Person has been apprised of, or
the order, decree or certificate makes reference to, the provisions of this
Article.
SECTION 1212. Rights of Debenture Trustee as a Holder of Senior
-------------------------------------------------
Indebtedness and Senior Subordinated Indebtedness; Preservation of Debenture
- ----------------------------------------------------------------------------
Trustee's Rights.
- ----------------
The Debenture Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior Indebtedness
and Senior Subordinated Indebtedness which may at any time be held by it, to the
same extent as any other holder of Senior Indebtedness and Senior Subordinated
Indebtedness, and nothing in this Exchange Indenture shall deprive the Debenture
Trustee of any of its rights as such holder. Nothing in this Article shall
apply to claims of, or payments to, the Debenture Trustee under or pursuant to
Section 607.
SECTION 1213. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Debenture Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Debenture Trustee" as used in this Article shall in such case (unless the
context otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
<PAGE>
118
Debenture Trustee; provided, however, that Section 1212 shall not apply to the
Company or any Affiliate of the Company if it or such Affiliate acts as Paying
Agent.
SECTION 1214. No Suspension of Remedies.
-------------------------
Nothing contained in this Article shall limit the right of the
Debenture Trustee or the Holders of Exchange Debentures to take any action to
accelerate the maturity of the Exchange Debentures pursuant to Article Five or
to pursue any rights or remedies hereunder or under applicable law, except as
provided in Article Five.
SECTION 1215. Trust Moneys Not Subordinated.
-----------------------------
Notwithstanding anything contained herein to the contrary, payments
from cash or the proceeds of U.S. Government Obligations held in trust under
Article Fourteen hereof by the Debenture Trustee (or other qualifying trustee)
and which were deposited in accordance with the terms of Article Fourteen hereof
and not in violation of Section 1203 hereof for the payment of principal of (and
premium, if any) and interest on the Exchange Debentures shall not be
subordinated to the prior payment of any Senior Indebtedness or Senior
Subordinated Indebtedness or subject to the restrictions set forth in this
Article Twelve, and none of the Holders shall be obligated to pay over any such
amount to the Company or any holder of Senior Indebtedness or Senior
Subordinated Indebtedness or any other creditor of the Company.
SECTION 1216. Debenture Trustee Not Fiduciary for Holders of Senior
-----------------------------------------------------
Indebtedness or Senior Subordinated Indebtedness.
- ------------------------------------------------
The Debenture Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness or Senior Subordinated Indebtedness and shall
not be liable to any such holders if the Debenture Trustee shall mistakenly, in
the absence of gross negligence or willful misconduct, pay over or distribute to
Holders of Exchange Debentures or to the Company or to any other person cash,
property or securities to which any holders of Senior Indebtedness or Senior
Subordinated Indebtedness shall be entitled by virtue of this Article or
otherwise. With respect to the holders of Senior Indebtedness and Senior
Subordinated Indebtedness, the Debenture Trustee undertakes to perform or to
observe only such of its covenants or obligations as are specifically set forth
in this Article and no implied covenants or obligations with respect to holders
of Senior Indebtedness shall be read into this Indenture against the Debenture
Trustee.
<PAGE>
119
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Debenture Guarantees.
--------------------
Each Subsidiary Debenture Guarantor hereby jointly and severally,
absolutely, unconditionally and irrevocably guarantees the Exchange Debentures
and obligations of the Company hereunder and thereunder, and guarantees to each
Holder of an Exchange Debenture authenticated and delivered by the Debenture
Trustee, and to the Debenture Trustee on behalf of such Holder, that: (a) the
principal of (and premium, if any) and interest on the Exchange Debentures will
be paid in full when due, whether at Stated Maturity, by acceleration or
otherwise (including, without limitation, the amount that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Law), together with interest on the overdue principal, if any, and interest on
any overdue interest, to the extent lawful, and all other obligations of the
Company to the Holders or the Debenture Trustee hereunder or thereunder will be
paid in full or performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Exchange
Debentures or of any such other obligations, the same will be paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at Stated Maturity, by acceleration or otherwise, subject, however, in
the case of clauses (a) and (b) above, to the limitations set forth in Section
1305 hereof.
Each Subsidiary Debenture Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Exchange Debentures or this Exchange Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Exchange Debentures with respect to any provisions hereof or thereof, any
release of any other Subsidiary Debenture Guarantor, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.
Each Subsidiary Debenture Guarantor hereby waives (to the extent
permitted by law) the benefits of diligence, presentment, demand for payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company or any
other Person, protest, notice and all demands whatsoever and covenants that the
Debenture Guarantee of such Subsidiary Debenture Guarantor shall not be
discharged as to any Exchange Debenture except by complete performance of the
obligations contained in such Exchange Debenture and such Debenture Guarantee.
Each Subsidiary Debenture Guarantors acknowledges that the Debenture Guarantee
is a guarantee of payment and not of collection. Each of the Subsidiary
Debenture Guarantors hereby agrees that, in the event of a default in payment of
principal (or premium, if any) or interest on such Exchange Debenture, whether
at its Stated Maturity, by acceleration, purchase or otherwise, legal
proceedings may be
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120
instituted by the Debenture Trustee on behalf of, or by, the Holder of such
Exchange Debenture, subject to the terms and conditions set forth in this
Exchange Indenture, directly against each of the Subsidiary Debenture Guarantors
to enforce such Subsidiary Debenture Guarantor's Debenture Guarantee without
first proceeding against the Company or any other Subsidiary Debenture
Guarantor. Each Subsidiary Debenture Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Debenture
Trustee or any of the Holders are prevented by applicable law from exercising
their respective rights to accelerate the maturity of the Exchange Debentures,
to collect interest on the Exchange Debentures, or to enforce or exercise any
other right or remedy with respect to the Exchange Debentures, such Subsidiary
Debenture Guarantor will pay to the Debenture Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights and remedies been permitted to be exercised by the
Debenture Trustee or any of the Holders.
If any Holder or the Debenture Trustee is required by any court or
otherwise to return to the Company or any Subsidiary Debenture Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
either the Company or any Subsidiary Debenture Guarantor, any amount paid by any
of them to the Debenture Trustee or such Holder, the Debenture Guarantee of each
of the Subsidiary Debenture Guarantors, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Subsidiary Debenture
Guarantor further agrees that, as between each Subsidiary Debenture Guarantor,
on the one hand, and the Holders and the Debenture Trustee, on the other hand,
(x) subject to this Article Thirteen, the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Five hereof for the purposes of
the Debenture Guarantee of such Subsidiary Debenture Guarantor, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of any
acceleration of such obligations as provided in Article Five hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Debenture Guarantor for the purpose of the Debenture
Guarantee of such Subsidiary Debenture Guarantor.
Each Debenture Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Exchange
Debentures are, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee on the Exchange
Debentures, whether as a "voidable preference", "fraudulent transfer" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Exchange Debentures shall, to the fullest extent permitted by law,
be reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
<PAGE>
121
SECTION 1302. Severability.
------------
In case any provision of any Debenture Guarantee shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1303. Restricted Subsidiaries.
-----------------------
If the Company or any of its Restricted Subsidiaries acquires or forms
a Restricted Subsidiary organized in the United States, the Company will cause
any such Restricted Subsidiary (and any other Restricted Subsidiary as required
pursuant to Section 1015) to (i) execute and deliver to the Debenture Trustee a
supplemental indenture in accordance with the provisions of Article Nine of this
Exchange Indenture pursuant to which such Restricted Subsidiary shall guarantee
all of the obligations on the Exchange Debentures, whether for principal,
premium, if any, interest (including interest accruing after the filing of, or
which would have accrued but for the filing of, a petition by or against the
Company under Bankruptcy Law, whether or not such interest is allowed as a claim
after such filing in any proceeding under such law) and other amounts due in
connection therewith (including any fees, expenses and indemnities), on a senior
unsecured subordinated basis, and (ii) deliver to such Debenture Trustee an
Opinion of Counsel reasonably satisfactory to such Debenture Trustee to the
effect that such supplemental indenture has been duly executed and delivered by
such Restricted Subsidiary and is in compliance with the terms of this Exchange
Indenture. Upon the execution of any such supplemental indenture, the
obligations of the Subsidiary Debenture Guarantors and any such Restricted
Subsidiary under their respective Debenture Guarantees shall become joint and
several and each reference to the "Subsidiary Debenture Guarantor" in this
Indenture shall, subject to Section 1308, be deemed to refer to all Subsidiary
Debenture Guarantors, including such Restricted Subsidiary.
SECTION 1304. Subordination of Debenture Guarantees.
-------------------------------------
The Debenture Guarantee issued by any Subsidiary Debenture Guarantor
will be unsecured subordinated obligations of such Subsidiary Debenture
Guarantor, ranking pari passu with all other existing and future subordinated
indebtedness of such Subsidiary Debenture Guarantor, if any. The Indebtedness
evidenced by such Debenture Guarantee will be subordinated on the same basis to
Debenture Guarantor Senior Indebtedness and Debenture Guarantor Senior
Subordinated Indebtedness of such Subsidiary Debenture Guarantor as the Exchange
Debentures are subordinated to Senior Indebtedness and Senior Subordinated
Indebtedness under Article Twelve.
SECTION 1305. Limitation of Subsidiary Debenture Guarantors'
----------------------------------------------
Liability.
- ---------
Each Subsidiary Debenture Guarantor and by its acceptance hereof each
Holder confirms that it is the intention of all such parties that the guarantee
by each such Subsidiary
<PAGE>
122
Debenture Guarantor pursuant to its Debenture Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law or the provisions of its local law relating to
fraudulent transfer or conveyance. To effectuate the foregoing intention, the
Holders and each such Subsidiary Debenture Guarantor hereby irrevocably agree
that the obligations of such Subsidiary Debenture Guarantor under its Debenture
Guarantee shall be limited to the maximum amount that will not, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Debenture Guarantor and after giving effect to any collections from or payments
made by or on behalf of any other Subsidiary Debenture Guarantor in respect of
the obligations of such other Subsidiary Debenture Guarantor under its Debenture
Guarantee or pursuant to Section 1305 hereof, result in the obligations of such
Subsidiary Debenture Guarantor under its Debenture Guarantee constituting such
fraudulent transfer or conveyance.
SECTION 1306. Contribution.
------------
In order to provide for just and equitable contribution among the
Subsidiary Debenture Guarantors, the Subsidiary Debenture Guarantors agree,
inter se, that in the event any payment or distribution is made by any
Subsidiary Debenture Guarantor (a "Funding Guarantor") under a Debenture
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Subsidiary Debenture Guarantors in a pro rata amount based on the Adjusted
Net Assets (as defined below) of each Subsidiary Debenture Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Exchange Debentures or any other Subsidiary Debenture Guarantor's obligations
with respect to the Debenture Guarantee of such Subsidiary Debenture Guarantor.
"Adjusted Net Assets" of such Subsidiary Debenture Guarantor at any date shall
mean the lesser of (x) the amount by which the fair value of the property of
such Subsidiary Debenture Guarantor exceeds the total amount of liabilities,
including, without limitation, contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under the Debenture Guarantee of such Subsidiary
Debenture Guarantor at such date and (y) the amount by which the present fair
salable value of the assets of such Subsidiary Debenture Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Subsidiary Debenture Guarantor on its debts (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date), excluding
debt in respect of the Debenture Guarantee of such Subsidiary Debenture
Guarantor, as they become absolute and matured.
SECTION 1307. Subrogation.
-----------
Each Subsidiary Debenture Guarantor shall be subrogated to all rights
of Holders against the Company in respect of any amounts paid by any Subsidiary
Debenture Guarantor pursuant to the provisions of Section 1301; provided,
however, that, if an Event of Default has occurred and is continuing, no
Subsidiary Debenture Guarantor shall be entitled to enforce or
<PAGE>
123
receive any payments arising out of, or based upon, such right of subrogation
until all amounts then due and payable by the Company under this Exchange
Indenture or the Exchange Debentures shall have been paid in full.
SECTION 1308. Reinstatement.
-------------
Each Subsidiary Debenture Guarantor hereby agrees (and each Person who
becomes a Subsidiary Debenture Guarantor shall agree) that the Debenture
Guarantee provided for in Section 1301 shall continue to be effective or be
reinstated, as the case may be, if at any time, payment, or any part thereof, of
any obligations or interest thereon is rescinded or must otherwise be restored
by a Holder to the Company upon the bankruptcy or insolvency of the Company or
any Subsidiary Debenture Guarantor.
SECTION 1309. Release of a Subsidiary Debenture Guarantor.
-------------------------------------------
(a) If no Default exists or would exist under this Exchange Indenture,
the Debenture Guarantee issued by any Subsidiary Debenture Guarantor under this
Exchange Indenture shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer to any Person not an Affiliate of
the Company or a Restricted Subsidiary of all of the Company's Capital Stock in,
or all or substantially all the assets of, such Subsidiary Debenture Guarantor
(which sale, exchange or transfer is not prohibited by this Exchange Indenture).
(b) Concurrently with the discharge of the Exchange Debentures under
Section 401, the defeasance of the Exchange Debentures under Section 1402
hereof, or the covenant defeasance of the Exchange Debentures under Section 1403
hereof, the Subsidiary Debenture Guarantors shall be released from all their
obligations under their Debenture Guarantees under this Article Thirteen.
SECTION 1309. Benefits Acknowledged.
---------------------
Each Subsidiary Debenture Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated by
this Exchange Indenture and that its guarantee and waivers pursuant to its
Debenture Guarantee are knowingly made in contemplation of such benefits.
<PAGE>
124
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option and at any time, effect defeasance of
the Exchange Debentures under Section 1402, or covenant defeasance of the
Exchange Debentures under Section 1403, in accordance with the terms of the
Exchange Debentures and in accordance with this Article.
SECTION 1402. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1401 of the option
applicable to this Section 1402, the Company and the Subsidiary Debenture
Guarantors shall be deemed to have been discharged from their obligations with
respect to the Outstanding Exchange Debentures and the Debenture Guarantees,
respectively, on the date the conditions set forth in Section 1404 are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company and the Subsidiary Debenture Guarantors shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding Exchange
Debentures, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1405 and the other Sections of this Exchange Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under the Exchange Debentures and this Exchange Indenture insofar as
the Exchange Debentures are concerned (and the Debenture Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of such Outstanding Exchange Debentures to
receive, solely from the trust fund described in Section 1404 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any) and interest on such Exchange Debentures when such payments are due, (B)
the Company's obligations with respect to such Exchange Debentures under
Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties
and immunities of the Debenture Trustee hereunder, and the Company's obligations
in connection therewith and (D) this Article Fourteen. Subject to compliance
with this Article Fourteen, the Company may exercise its option under this
Section 1402 notwithstanding the prior exercise of its option under Section 1403
with respect to such Exchange Debentures.
SECTION 1403. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1401 of the option
applicable to this Section 1403, the Company and the Subsidiary Debenture
Guarantors shall be released from their obligations under Section 801, 802 and
Sections 1008 through 1019 with respect to the Outstanding Exchange Debentures
on and after the date the conditions set forth in Section 1404 are satisfied
(hereinafter, "covenant defeasance"), and such Exchange Debentures shall
thereafter
<PAGE>
125
be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to such Outstanding Exchange Debentures, the
Company and any Subsidiary Debenture Guarantor, as applicable, may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 501(3) or 501(4) or otherwise, as the case may be, but,
except as specified above, the remainder of this Exchange Indenture and such
Exchange Debentures shall be unaffected thereby.
SECTION 1404. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1402 or Section 1403 to the Outstanding Exchange Debentures:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Debenture Trustee (or another trustee satisfying the
requirements of Section 608 who shall agree to comply with the provisions
of this Article Fourteen applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Exchange
Debentures, (A) an amount in cash, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof
in accordance with their terms will provide, not later than one day before
the due date of any payment of principal (including any premium) and
interest, if any, on such Exchange Debentures, money in an amount, or (C) a
combination thereof, in each case in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Debenture Trustee, to pay and discharge, and which shall be applied by the
Debenture Trustee (or other qualifying trustee) to pay and discharge, the
principal of (and premium, if any, on) and interest on such Outstanding
Exchange Debentures on the Stated Maturity of such principal (and premium,
if any) or installment of interest; provided that the Debenture Trustee (or
such qualifying trustee) shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to said
payments with respect to such Exchange Debentures.
(2) No Default or Event of Default with respect to such Exchange
Debentures shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (8) and (9) of Section 501 are concerned,
at any time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
<PAGE>
126
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any material agreement to which the Company or any Subsidiary Debenture
Guarantor is a party or by which it is bound.
(4) In the case of an election under Section 1402, the Company shall
have delivered to the Debenture Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the Issuance Date, there
has been a change in the applicable federal income tax law or
interpretation of such federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm that, the
Holders of the Outstanding Exchange Debentures 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.
(5) In the case of an election under Section 1403, the Company shall
have delivered to the Debenture Trustee an Opinion of Counsel to the effect
that the Holders of such Exchange Debentures 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.
(6) In the case of defeasance under Section 1402 or covenant
defeasance under Section 1403, the Company shall have delivered to the
Debenture Trustee an Opinion of Counsel to the effect that (A) the trust
funds will not be subject to any rights of holders of Senior Indebtedness
or Senior Subordinated Indebtedness under Article Twelve hereof, and (B)
after the 91st day following the deposit or after the date such opinion is
delivered, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
(7) The Company shall have delivered to the Debenture Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the Exchange Debentures or any
Debenture Guarantee over the other creditors of either the Company or any
Subsidiary Debenture Guarantor with the intent of hindering, delaying or
defrauding creditors of either the Company or any Subsidiary Debenture
Guarantor.
(8) The Company shall have delivered to the Debenture Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 1402 or the covenant defeasance under Section 1403, as the case may
be, have been complied with.
<PAGE>
127
SECTION 1405. Deposited Money and Government Obligations to Be Held
-----------------------------------------------------
in Trust; Other Miscellaneous Provisions.
- ----------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Debenture Trustee (or other qualifying trustee, collectively for
purposes of this Section 1405, the "Debenture Trustee") pursuant to Sections
1404 and 1406 in respect of such Outstanding Exchange Debentures shall be held
in trust and applied by the Debenture Trustee, in accordance with the provisions
of such Exchange Debentures and this Exchange Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Debenture Trustee may determine, to the Holders of such
Exchange Debentures of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law. Money and U.S.
Government Obligations so held in trust are not subject to Article Twelve.
The Company shall pay and indemnify the Debenture Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 1404 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of such Outstanding Exchange
Debentures.
Anything in this Article Fourteen to the contrary notwithstanding, the
Debenture Trustee shall deliver or pay to the Company from time to time upon
Company Request any money or U.S. Government Obligations (or other property and
any proceeds therefrom) held by it as provided in Section 1404 which, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Debenture Trustee,
are in excess of the amount thereof which would then be required to be deposited
to effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article.
SECTION 1406. Reinstatement.
-------------
If the Debenture Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1405 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Exchange Indenture
and such Exchange Debentures shall be revived and reinstated as though no
deposit had occurred pursuant to Section 1402 or 1403, as the case may be, until
such time as the Debenture Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 1405; provided, however, that if the
Company makes any payment of principal of (or premium, if any) or interest on
any such Exchange Debenture following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Exchange
Debentures to receive such payment from the money held by the Debenture Trustee
or Paying Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Exchange
Indenture to be duly executed as of the day and year first above written.
TUESDAY MORNING CORPORATION
By:_________________________________________
Name: Mark E. Jarvis
Title: Senior Vice President, Chief
Financial Officer and Secretary
TMI HOLDINGS, INC.
By:_________________________________________
Name: Alan L. Oppenheimer
Title: Senior Vice President, Secretary
and Treasurer
TUESDAY MORNING, INC.
By:_________________________________________
Name: Mark E. Jarvis
Title: Senior Vice President, Chief
Financial Officer and Secretary
FRIDAY MORNING, INC.
By:________________________________________
Name: Jerry M. Smith
Title: President and Chief Operating
Officer
TMIL CORPORATION
By:_________________________________________
Name: Alan L. Oppenheimer
Title: Senior Vice President, Secretary
and Treasurer
<PAGE>
United States Trust Company of New York,
as Debenture Trustee
By:_________________________________________
Name:
Title:
<PAGE>
Exhibit A
---------
[FACE OF EXCHANGE DEBENTURE]
TUESDAY MORNING CORPORATION
13 1/4% [Series B]/1/ Subordinated Exchange Debentures due 2009
No.__________
CUSIP No.__________________________________________________________________
$ __________
TUESDAY MORNING CORPORATION, a Delaware corporation (the "Company",
-------
which term includes any successor Person under the Exchange Indenture
hereinafter referred to), for value received, promises to pay to ___________, or
its registered assigns, the principal sum of ___________________________________
Dollars ($___________), on December 15, 2009.
[Interest Rate: 13 1/4% per annum.]/1/
Interest Payment Dates: March 15, June 15, September 15 and December
15 of each year commencing on the first such
date after the Exchange Date.
Regular Record Dates: March 1, June 1, September 1 and December 1
of each year.
Reference is hereby made to the further provisions of this Exchange
Debenture set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
___________________
/1/ Include only for New Exchange Debentures.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Exchange Debenture to
be signed manually or by facsimile by its duly authorized officers.
Date:________________ TUESDAY MORNING CORPORATION
By: _______________________
Name:
Title:
<PAGE>
A-3
(Form of Debenture Trustee's Certificate of Authentication)
This is one of the 13 1/4% [Series B]/2/ Subordinated Exchange Debentures due
2009 referred to in the within-mentioned Exchange Indenture.
United States Trust Company of New York,
as Debenture Trustee
Dated: __________ By: _________________________
Authorized Signatory
___________________
/2/ Include only for New Exchange Debenture.
<PAGE>
A-4
[REVERSE SIDE OF EXCHANGE DEBENTURE]
TUESDAY MORNING CORPORATION
13 1/4% [Series B]/1/ Subordinated Exchange Debentures due 2009
1. Principal and Interest; Subordination.
-------------------------------------
The Company will pay the principal of this Exchange Debenture on
December 15, 2009.
The Company promises to pay interest on the principal amount of this
Exchange Debenture on each Interest Payment Date, as set forth below, at the
rate of 13 1/4% per annum [(subject to adjustment as provided below)]/2/ [except
that interest accrued on this Exchange Debenture pursuant to the fourth
paragraph of this Section 1 for periods prior to the applicable Exchange Date
(as such term is defined in the Registration Rights Agreement referred to below)
will accrue at the rate or rates borne by the Exchange Debentures from time to
time during such periods]./1/
Interest will be payable quarterly (to the Holders of record of the
Exchange Debentures (or any Predecessor Exchange Debentures) at the close of
business on the March 1, June 1, September 1 or December 1 immediately preceding
the Interest Payment Date) on each Interest Payment Date, commencing on the
first such date after the Exchange Date.
[The Holder of this Exchange Debenture is entitled to the benefits of
the Registration Rights Agreement, dated December 29, 1997, among the Company,
the Subsidiary Debenture Guarantors and the Initial Purchaser named therein (the
"Registration Rights Agreement"). In the event that either (a) the Exchange
Offer Registration Statement (as such term is defined in the Registration Rights
Agreement) is not filed with the Securities and Exchange Commission on or prior
to the 45th calendar day following the date of original issue of the Exchange
Debentures, (b) the Exchange Offer Registration Statement (as such term is
defined in the Registration Rights Agreement) has not been declared effective on
or prior to the 120th calendar day following the date of original issue of the
Exchange Debentures or (c) the Exchange Offer is not consummated or a Shelf
Registration Statement (as such terms are defined in the Registration Rights
Agreement) is not declared effective on or prior to the 150th calendar day
following the Issuance Date, the interest rate borne by this Exchange Debenture
shall be increased by one-quarter of one percent per annum following such 45-day
period in the case of (a) above, following such 120-day period in the case of
(b) above or following such 150-day period in the case of (c) above, which rate
will be increased by an additional one-quarter of one
_____________________
/1/ Include only for New Exchange Debenture.
/2/ Include only for Initial Exchange Debenture.
<PAGE>
A-5
percent per annum for each 90-day period that any additional interest continues
to accrue; provided that the aggregate increase in such annual interest rate
shall in no event exceed one percent. Upon (x) the filing of the Exchange Offer
Registration Statement after the 45-day period described in clause (a) above,
(y) the effectiveness of the Exchange Offer Registration Statement after the
120-day period described in clause (b) above or (z) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 150-day period described in clause (c) above, the
interest rate borne by this Exchange Debenture from the date of such filing,
effectiveness or the consummation, as the case may be, will be reduced to the
interest rate set forth above; provided, however, that, if after any such
reduction in interest rate, a different event specified in clause (a), (b) or
(c) above occurs, the interest rate may again be increased pursuant to the
foregoing provisions.]/1/
Interest on this Exchange Debenture will accrue from the most recent
date to which interest has been paid [on this Exchange Debenture or the Exchange
Debenture surrendered in exchange herefor]/2/ or, if no interest has been paid,
from the Exchange Date; provided that, if there is no existing default in the
payment of interest and if this Exchange Debenture is authenticated between a
Regular Record Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such Interest Payment Date.
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 and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the rate of interest applicable to the Exchange
Debentures.
The indebtedness evidenced by the Exchange Debentures is, to the
extent and in the manner provided in the Indenture, subordinate and subject in
right of payment to the prior payment in full of all Senior Indebtedness and
Senior Subordinated Indebtedness, and this Exchange Debenture is issued subject
to such provisions. Each Holder of this Exchange Debenture, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Debenture Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Debenture Trustee its attorney-in-fact for such
purpose.
2. Method of Payment.
-----------------
The Company will pay interest (except defaulted interest) on the
principal amount of the Exchange Debentures on each March 15, June 15, September
15 and December 15 to the Persons who are Holders (as reflected in the Exchange
Debenture Register at the close of business on the March 1, June 1, September 1
and December 1 immediately preceding the Interest Payment Date), in each case,
even if the Exchange Debenture is cancelled on
___________________
/1/ Include only for Initial Exchange Debenture.
/2/ Include only for New Exchange Debenture
<PAGE>
A-6
registration of transfer or registration of exchange after such Regular Record
Date; provided that, with respect to the payment of principal, the Company will
make payment to the Holder that surrenders this Exchange Debenture to any Paying
Agent on or after December 15, 2009.
On or prior to December 15, 2002, interest is payable in additional
Exchange Debentures having an aggregate principal amount equal to the amount of
such interest, or, at the option of the Company, in cash. Thereafter, all
interest will be payable only in cash.
The Company will pay principal (premium, if any) 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 (premium, if
any) and interest by its check payable in such money. The Company may pay
interest on the Exchange Debentures either (a) by mailing a check (or, if
Exchange Debentures have been issued as payment of interest in lieu of monies,
by such Exchange Debentures) for such interest to a Holder's registered address
(as reflected in the Exchange Debenture Register) or (b) by wire transfer to an
account located in the United States maintained by the payee. If a payment date
is a date other than a Business Day at a Place of Payment, payment may be made
at that place on the next succeeding day that is a Business Day and no interest
shall accrue for the intervening period.
3. Paying Agent and Registrar.
--------------------------
Initially, the Debenture Trustee will act as Paying Agent and
Debenture Registrar. The Company may change any Paying Agent or Debenture
Registrar upon written notice thereto. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Debenture Registrar or co-
registrar.
4. Exchange Indenture; Limitations.
-------------------------------
The Exchange Debentures may be issued under an Exchange Indenture
dated as of December 29, 1997 (the "Exchange Indenture"), among the Company, the
Subsidiary Debenture Guarantors and United States Trust Company of New York, as
trustee (the "Debenture Trustee"). Capitalized terms herein are used as defined
in the Exchange Indenture unless otherwise indicated. The terms of the Exchange
Debentures include those stated in the Exchange Indenture and those made part of
the Exchange Indenture by reference to the Trust Indenture Act. The Exchange
Debentures are subject to all such terms, and Holders are referred to the
Exchange Indenture and the Trust Indenture Act for a statement of all such
terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Exchange Debenture and the terms of the
Exchange Indenture, the terms of the Exchange Indenture shall control.
The Exchange Indenture limits the aggregate principal amount of the
Exchange Debentures to $50,000,000.
<PAGE>
A-7
5. Redemption.
----------
Optional Redemption. The Exchange Debentures may be redeemed at the
-------------------
option of the Company, in whole or in part, at any time and from time to time on
or after December 15, 2002, 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
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the 12-month period
beginning December 15 of each of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002............................... 109.938%
2003............................... 106.625%
2004............................... 103.313%
2005 and thereafter................ 100.000%
</TABLE>
In addition to the optional redemption of the Exchange Debentures in
accordance with the provisions of the preceding paragraph, at any time prior to
December 15, 2001, the Company may redeem for cash all, but not less than all,
of the Outstanding Exchange Debentures originally issued under the Exchange
Indenture within 20 days of a Public Equity Offering with the net proceeds of
such offering at a redemption price equal to 113.25% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of holders of record on relevant record dates to
receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date).
If less than all the Notes are to be redeemed pursuant to the first
paragraph, the Trustee shall select the Notes or portions thereof to be redeemed
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes being redeemed are listed, or if the Notes
are not so listed, on a pro rata basis, by lot or by such other method the
Trustee shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
Notice of a redemption will be mailed, first-class postage prepaid, at
least 30 days but not more than 60 days before the Redemption Date to each
Holder to be redeemed at such Holder's last address as it appears in the
Exchange Debenture Register. Exchange Debentures in original denominations
larger than $1,000 may be redeemed in part in integral multiples of $1,000. On
and after the Redemption Date, interest ceases to accrue on Exchange Debentures
or portions of Exchange Debentures called for redemption, unless the Company
defaults in the payment of the Redemption Price.
<PAGE>
A-8
6. Repurchase upon a Change in Control and Asset Sales.
---------------------------------------------------
Upon the occurrence of (a) a Change in Control, the Holders of the
Exchange Debentures will have the right to require that the Company purchase
such Holders outstanding Exchange Debentures, in whole or in part, at a price of
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase and (b) Asset Sales, the Company may be obligated to
make offers to purchase Exchange Debentures with a portion of the Net Cash
Proceeds of such Asset Sales at a redemption price of 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase.
7. Denominations; Transfer; Exchange.
---------------------------------
The Exchange Debentures are in registered form without coupons, in
denominations of $1,000 and multiples of $1,000 in excess thereof. A Holder may
register the transfer or exchange of Exchange Debentures in accordance with the
Exchange Indenture. The Exchange Debenture Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Exchange
Indenture. The Exchange Debenture Registrar need not register the transfer or
exchange of any Exchange Debentures selected for redemption (except the
unredeemed portion of any Exchange Debenture being redeemed in part).
8. Persons Deemed Owners.
---------------------
A Holder may be treated as the owner of an Exchange Debenture for all
purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal (premium, if any) or interest
remains unclaimed for two years, the Debenture Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Debenture Trustee and
such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Company irrevocably deposits, or causes to be deposited, with
the Debenture Trustee money or U.S. Government Obligations sufficient to pay the
then outstanding principal of (premium, if any) and accrued interest on the
Exchange Debentures (a) redemption or maturity, the Company will be discharged
from the Exchange Indenture and the Exchange Debentures, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Exchange
Indenture.
<PAGE>
A-9
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Exchange Indenture or the Exchange
Debentures may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Exchange Debentures then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Exchange Debentures then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or supplement the Exchange
Indenture or the Exchange Debentures to, among other things, cure any ambiguity,
defect or inconsistency and make any change that does not adversely affect the
rights of any Holder.
12. Restrictive Covenants.
---------------------
The Exchange Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Capital Stock of
Restricted Subsidiaries; (iv) transactions with Affiliates; (v) Liens; (vi)
purchase of Exchange Debentures upon a Change of Control; (vii) disposition of
proceeds of Asset Sales; (viii) guarantees of Indebtedness by Restricted
Subsidiaries; (ix) dividend and other payment restrictions affecting Restricted
Subsidiaries; (x) merger and certain transfers of assets; and (xi) limitation on
Unrestricted Subsidiaries. Within 120 days after the end of each fiscal year
and within 45 days after each fiscal quarter, the Company must report to the
Debenture Trustee on compliance with such limitations.
13. Successor Persons.
-----------------
When a successor person or other entity assumes all the obligations of
its predecessor under the Exchange Debentures and the Exchange Indenture, the
predecessor person will be released from those obligations.
14. Remedies for Events of Default.
------------------------------
If an Event of Default, as defined in the Exchange Indenture, occurs
and is continuing, the Debenture Trustee or the Holders of not less than 25% in
aggregate principal amount of the Exchange Debentures then outstanding may
declare all the Exchange Debentures to be immediately due and payable; provided
that so long as the Senior Credit Agreement shall be in full force and effect,
if an Event of Default shall have occurred and be continuing (other than with
respect to certain bankruptcy or insolvency defaults with respect to the
Company), any such acceleration shall not be effective until the earlier to
occur of (x) five Business Days following delivery of a written notice of such
acceleration of the Exchange Debentures to the Agent Bank under the Senior
Credit Agreement and (y) the acceleration of any indebtedness under the Senior
Credit Agreement. If a bankruptcy or insolvency default with respect to the
Company or any of its Significant Subsidiaries occurs and is continuing, the
Exchange Debentures automatically become immediately due and payable. Holders
may not enforce the Exchange Indenture or the Exchange Debentures except as
provided in the Exchange Indenture. The Debenture Trustee may require indemnity
satisfactory to it before it enforces the Exchange Indenture or the Exchange
<PAGE>
A-10
Debentures. Subject to certain limitations, Holders of at least a majority in
aggregate principal amount of the Exchange Debentures then outstanding may
direct the Debenture Trustee in its exercise of any trust or power.
15. Debenture Guarantees.
--------------------
The Company's obligations under the Exchange Debentures are fully,
irrevocably and unconditionally guaranteed on a subordinated unsecured basis, to
the extent set forth in the Exchange Indenture, by each of the Subsidiary
Debenture Guarantors.
16. Debenture Trustee Dealings with Company.
---------------------------------------
The Debenture Trustee under the Exchange Indenture, in its individual
or any other capacity, may become the owner or pledgee of Exchange Debentures
and may make loans to, accept deposits from, perform services for, and otherwise
deal with, the Company and its Affiliates as if it were not the Debenture
Trustee.
17. Authentication.
--------------
This Exchange Debenture shall not be valid until the Debenture Trustee
signs the certificate of authentication on the other side of this Exchange
Debenture.
18. Abbreviations.
-------------
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Exchange Indenture. Requests may be made to
Tuesday Morning Corporation, 14621 Inwood Road, Dallas, Texas 75244, Attention:
Chief Financial Officer.
<PAGE>
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Exchange Debenture and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
attorney to transfer such Exchange Debenture on the books of the Company with
full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Exchange Debenture occurring
prior to the date which is the earlier of the date of an effective Registration
Statement or July 9, 1999, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
---------
[_] (a) this Exchange Debenture is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
--
[_] (b) this Exchange Debenture is being transferred other than in accordance
with (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Exchange Debenture and the
Exchange Indenture.
If none of the foregoing boxes is checked, the Debenture Trustee or other
Debenture Registrar shall not be obligated to register this Exchange Debenture
in the name of any Person other than
<PAGE>
A-12
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Sections 311 and 312 of the Exchange
Indenture shall have been satisfied.
Date:_________________________
_________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee:_________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Exchange Debenture Registrar, which requirements
include membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Exchange Debenture Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.
The undersigned represents and warrants that it is purchasing this
Exchange Debenture for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, as amended, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.
Dated:_______________________ ________________________________________
NOTICE: To be executed by an executive
officer
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Exchange Debenture purchased by the Company
pursuant to Section 1013 or Section 1014 of the Exchange Indenture, check the
Box: [_].
If you wish to have a portion of this Exchange Debenture purchased by
the Company pursuant to Section 1013 or Section 1014 of the Exchange Indenture,
state the amount (in original principal amount) below:
$_____________________.
Date:________________________
Your Signature:______________
(Sign exactly as your name appears on the other side of this Exchange Debenture)
Signature Guarantee:_______________________
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Exchange Debenture Registrar, which requirements
include membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Exchange Debenture Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.
<PAGE>
SCHEDULE A
Indebtedness of the Company or any Restricted
Subsidiary Outstanding on the Issuance Date
---------------------------------------------
Indebtedness under Pacific Atlantic Systems Leasing, Inc. Capital Lease
outstanding as of the Closing Date (monthly payment: $20,928.65).
Real Estate mortgages with Compass Bank outstanding as of the Closing Date.
<PAGE>
EXHIBIT 4.5
================================================================================
TUESDAY MORNING CORPORATION,
as Borrower
and
THE GUARANTORS PARTY HERETO
______________________
$200,000,000
CREDIT AGREEMENT
Dated as of December 29, 1997
______________________
MERRILL LYNCH & CO.,
as Arranger and Syndication Agent
and
FLEET NATIONAL BANK,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions, Accounting Matters and Rules of Construction............................ 1
1.01. Certain Defined Terms.................................................................. 1
1.02. Accounting Terms and Determinations.................................................... 28
1.03. Classes and Types of Loans............................................................. 28
1.04. Rules of Construction.................................................................. 28
Section 2. Commitments, Loans, Notes, Prepayments, Replacement of Lenders and Annual Cleandown.. 29
2.01. Loans.................................................................................. 29
2.02. Borrowings............................................................................. 31
2.03. Letters of Credit...................................................................... 31
2.04. Termination and Reductions of Commitments.............................................. 35
2.05. Fees................................................................................... 36
2.06. Lending Offices........................................................................ 36
2.07. Several Obligations of Lenders......................................................... 36
2.08. Notes; Register........................................................................ 36
2.09. Optional Prepayments and Conversions or Continuations of Loans......................... 37
2.10. Mandatory Prepayments.................................................................. 37
2.11. Replacement of Lenders................................................................. 40
2.12. Annual Cleandown....................................................................... 41
Section 3. Payments of Principal and Interest................................................... 41
3.01. Repayment of Loans..................................................................... 41
3.02. Interest............................................................................... 41
Section 4. Payments; Pro Rata Treatment; Computations; Etc...................................... 42
4.01. Payments............................................................................... 42
4.02. Pro Rata Treatment..................................................................... 43
4.03. Computations........................................................................... 43
4.04. Minimum Amounts........................................................................ 43
4.05. Certain Notices........................................................................ 43
4.06. Non-Receipt of Funds by the Administrative Agent....................................... 44
4.07. Right of Setoff; Sharing of Payments, Etc.............................................. 45
Section 5. Yield Protection, Etc................................................................ 46
5.01. Additional Costs....................................................................... 46
5.02. Limitation on Types of Loans........................................................... 46
5.03. Illegality............................................................................. 47
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.04. Treatment of Affected Loans............................................................ 47
5.05. Compensation........................................................................... 48
5.06. Net Payments........................................................................... 48
Section 6. Guarantee............................................................................ 50
6.01. The Guarantee.......................................................................... 50
6.02. Obligations Unconditional.............................................................. 51
6.03. Reinstatement.......................................................................... 52
6.04. Subrogation; Subordination............................................................. 52
6.05. Remedies............................................................................... 52
6.06. Instrument for the Payment of Money.................................................... 52
6.07. Continuing Guarantee................................................................... 52
6.08. General Limitation on Guarantee Obligations............................................ 53
Section 7. Conditions Precedent................................................................. 53
7.01. Effectiveness and Initial Extension of Credit.......................................... 53
7.02. Initial and Subsequent Extensions of Credit............................................ 60
Section 8. Representations and Warranties....................................................... 60
8.01. Corporate Existence.................................................................... 61
8.02. Financial Condition; Etc............................................................... 61
8.03. Litigation............................................................................. 61
8.04. No Breach; No Default.................................................................. 61
8.05. Action................................................................................. 62
8.06. Approvals.............................................................................. 62
8.07. ERISA.................................................................................. 62
8.08. Taxes.................................................................................. 63
8.09. Investment Company Act; Public Utility Holding Company Act; Other Restrictions......... 63
8.10. Senior Subordinated Notes.............................................................. 63
8.11. Environmental Matters.................................................................. 63
8.12. Environmental Investigations........................................................... 64
8.13. Use of Proceeds........................................................................ 64
8.14. Subsidiaries........................................................................... 64
8.15. Properties............................................................................. 64
8.16. Security Interest; Absence of Financing Statements..................................... 65
8.17. Compliance with Laws................................................................... 65
8.18. True and Complete Disclosure........................................................... 65
8.19. Solvency............................................................................... 66
Section 9. Covenants............................................................................ 66
9.01. Financial Statements, Etc.............................................................. 66
9.02. Litigation, Etc........................................................................ 69
9.03. Existence; Compliance with Law; Payment of Taxes; Inspection Rights; Performance of
Obligations; Etc.................................................................... 69
9.04. Insurance.............................................................................. 70
9.05. Limitation on Lines of Business........................................................ 70
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.06. Limitation on Fundamental Changes; Limitation on Acquisitions; Limitation on
Dispositions........................................................................ 70
9.07. Limitation on Liens and Related Matters................................................ 73
9.08. Limitation on Indebtedness............................................................. 76
9.09. Limitation on Investments; Limitation on Creation of Subsidiaries...................... 79
9.10. Limitation on Dividend Payments........................................................ 81
9.11. Financial Covenants.................................................................... 82
9.12. Pledge of Additional Collateral........................................................ 86
9.13. Security Interests..................................................................... 86
9.14. Compliance with Environmental Laws..................................................... 87
9.15. Limitation on Prepayments of Senior Subordinated Notes, Etc............................ 87
9.16. Limitation on Transactions with Affiliates............................................. 87
9.17. Limitation on Accounting Changes; Limitation on Investment Company Status.............. 88
9.18. Limitation on Modifications of Certain Documents, Etc.................................. 88
9.19. Warehouse Financing.................................................................... 88
9.20. Limitation on Certain Restrictions Affecting Subsidiaries.............................. 89
9.21. Additional Obligors.................................................................... 90
9.22. Limitation on Designated Senior Indebtedness........................................... 90
9.22. Limitation on Change of Principal Place of Business or Corporate Name.................. 90
Section 10. Events of Default................................................................... 90
Section 11. The Administrative Agent............................................................ 93
11.01. General Provisions.................................................................... 93
11.02. Indemnification....................................................................... 94
11.03. Consents Under Other Credit Documents................................................. 95
11.04. Collateral Sub-Agents................................................................. 95
Section 12. Miscellaneous....................................................................... 95
12.01. Waiver................................................................................ 95
12.02. Notices............................................................................... 95
12.03. Expenses, Indemnification, Etc........................................................ 95
12.04. Amendments, Etc....................................................................... 97
12.05. Successors and Assigns................................................................ 99
12.06. Assignments and Participations........................................................ 99
12.07. Survival.............................................................................. 100
12.08. Captions.............................................................................. 101
12.09. Counterparts; Interpretation; Effectiveness........................................... 101
12.10. Governing Law; Submission to Jurisdiction; Waivers; Etc............................... 101
12.11. Confidentiality....................................................................... 101
12.12. Independence of Representations, Warranties and Covenants............................. 102
12.13. Severability.......................................................................... 102
Signatures....................................................................................... S-1
</TABLE>
-iii-
<PAGE>
ANNEX A - Commitments
SCHEDULE 1.01(a) - Applicable Margins
SCHEDULE 1.01(b) - Guarantors
SCHEDULE 1.01(c) - Refinanced Debt
SCHEDULE 1.01(d) - Specified Real Property Permitted to Be Sold
SCHEDULE 3.01(b) - Amortization Schedule
SCHEDULE 8.02 - Certain Contingent Obligations
SCHEDULE 8.03 - Litigation
SCHEDULE 8.08 - Certain Tax Matters
SCHEDULE 8.11 - Environmental Matters
SCHEDULE 8.14 - Subsidiaries of Borrower
SCHEDULE 9.07 - Certain Existing Liens
SCHEDULE 9.08 - Certain Indebtedness to Remain Outstanding
SCHEDULE 9.09 - Investments
SCHEDULE 9.16 - Existing Affiliate Agreements
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Tranche A Term Loan Note
EXHIBIT A-3 - Form of Tranche B Term Loan Note
EXHIBIT A-4 - Form of Swing Loan Note
EXHIBIT B - Form of Intercompany Note
EXHIBIT C-1 - Form of Interest Rate Certificate
EXHIBIT C-2 - Form of Borrowing Base Certificate
EXHIBIT D - Form of Security Agreement
EXHIBIT E-1 - Form of Opinion of Counsel to the Obligors
EXHIBIT E-2 - Form of Local Counsel Opinion
EXHIBIT F - Form of Notice of Assignment
EXHIBIT G - Form of Mortgage
EXHIBIT H - Form of Section 5.06 Certificate
EXHIBIT I - Form of Notice of Borrowing
EXHIBIT J - Form of Notice of Conversion/Continuation
EXHIBIT K - Form of Subordination Provisions
EXHIBIT L - Form of Joinder Agreement
EXHIBIT M - Form of Officer's Solvency Certificate
-iv-
<PAGE>
CREDIT AGREEMENT dated as of December 29, 1997 among TUESDAY MORNING
CORPORATION, a Delaware corporation ("Borrower," which term shall include its
--------
successors and assigns); the Guarantors party hereto; each of the lenders that
is a signatory hereto identified under the caption "LENDERS" on the signature
pages hereto or that, pursuant to Section 12.06(b), shall become a "Lender"
hereunder (individually, a "Lender" and, collectively, the "Lenders"); MERRILL
------ -------
LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as arranger and
syndication agent (in such capacities, together with its successors in such
capacities, the "Arranger"); and FLEET NATIONAL BANK, as administrative agent
--------
for the Lenders (in such capacity, together with its successors in such
capacity, the "Administrative Agent").
--------------------
The parties hereto agree as follows:
Section 1. Definitions, Accounting Matters and Rules of Construction
---------------------------------------------------------
1.01. Certain Defined Terms. As used herein, the following terms
---------------------
shall have the following meanings:
"Acquired Indebtedness" shall mean Indebtedness incurred or assumed in
---------------------
connection with an Acquisition permitted under Section 9.06(o), to the extent
the incurrence or assumption of Indebtedness in connection with such Acquisition
is not prohibited under Section 9.06(o); provided, however, that such
-------- -------
Indebtedness was outstanding prior to and was not created in connection with or
in contemplation of such Acquisition.
"Acquisition" shall mean, with respect to any Person, any transaction
-----------
or series of related transactions for the direct or indirect (a) acquisition of
all or substantially all of the Property of any other Person, or of any business
or division of any other Person, (b) acquisition of in excess of 50% of the
Equity Interests of any other Person, or otherwise causing any other Person to
become a Subsidiary of such Person, or (c) merger or consolidation or any other
combination with any other Person, other than for the purpose of Friday
Morning, Inc. or Tuesday Morning, Inc. reincorporating in Delaware with a
corporation with no assets or liabilities.
"Additional Collateral" see Section 9.12.
---------------------
"Additional Obligors" see Section 9.21.
-------------------
"Adjusted Net Income" shall mean, for any Measurement Period, the
-------------------
consolidated net income (loss) of Borrower and its Consolidated Subsidiaries
calculated on a consolidated basis in accordance with GAAP, adjusted by
excluding (to the extent taken into account in the calculation of such
consolidated net income (loss)) the effect of (a) gains or losses for such
period from Dispositions and Excluded Dispositions, other than the Disposition
of inventory and supplies in the ordinary course of business, and the tax
consequences thereof, (b) any non-recurring or extraordinary items of income or
expense for such period, (c) the portion of net income (loss) of any Person
(other than a Subsidiary) in which Borrower or any Subsidiary has an ownership
interest, except to the extent of the amount of cash dividends or other cash
distributions actually paid to Borrower or (subject to clause (e) below) any
Subsidiary during such period, (d) the net income (loss) of any Person combined
with Borrower or any Subsidiary on a "pooling of interests" basis attributable
to any period prior to the date of combination, and (e) the net income of any
Subsidiary to the extent that the declaration or payment of dividends or similar
distribution by such Subsidiary was not for the relevant period permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Subsidiary or its stockholders.
<PAGE>
-2-
"Administrative Agent" see the introduction to this Agreement.
--------------------
"Administrative Agent's Fee Letter" shall mean the Fee Letter dated on
---------------------------------
or about the Closing Date, by and between Fleet National Bank and Borrower.
"Advance Date" see Section 4.06.
------------
"Affiliate" shall mean, with respect to any Person, any other Person
---------
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person, or, in the case of any Lender which is an investment
fund, the investment advisor thereof and any investment fund having the same
investment advisor. As used in this definition, "control" (including, with its
-------
correlative meanings, "controlled by" and "under common control with") shall
------------- -------------------------
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
Notwithstanding the foregoing, solely for purposes of Section 9.16, Borrower
shall not be deemed an Affiliate of any Subsidiary and no Subsidiary shall be
deemed an Affiliate of any other Subsidiary or Borrower.
"Affiliate Transaction" see Section 9.16.
---------------------
"Agent" means either of the Arranger or the Administrative Agent.
-----
"Agreement" shall mean this Credit Agreement, as amended from time to
---------
time.
"Alternate Base Rate" shall mean for any day, a rate per annum that is
------------------- --- -----
equal to the higher of (i) the Prime Rate, or (ii) the Federal Funds Rate, plus
----
0.50%.
"Alternate Base Rate Loans" shall mean Loans that bear interest at
-------------------------
rates based upon the Alternate Base Rate.
"Amortization Payment" shall mean each scheduled installment of
--------------------
payments on the Term Loans as set forth in Section 3.01(b).
"Annual Retained Portion Balance" shall mean, at any date in any
-------------------------------
fiscal year (the "Applicable Year"), the Retained Portion for such Applicable
---------------
Year (which is calculated based on the Excess Cash Flow from the prior fiscal
year) less the sum of (1) all Dividend Payments made in the Applicable Year on
or prior to such date pursuant to Section 9.10(c) and (2) the aggregate amount
of cash consideration paid for all Acquisitions effected on or prior to such
date pursuant to Section 9.06(s) in the Applicable Year which, together with the
aggregate amount of Investments made on or prior to such date pursuant to
Section 9.09(v) in the Applicable Year, is in excess of the Cumulative Retained
Portion Balance as of the last day of the fiscal year prior to the Applicable
Year (with respect to such Cumulative Retained Portion Balance, after giving
effect to all Acquisitions which occurred on or prior to such last day pursuant
to Section 9.06(s) and all Investments made on or prior to such last day
pursuant to Section 9.09(v)).
"Applicable Amount" see Section 2.10(a)(ix).
-----------------
"Applicable Cumulative Year" see the definition of Cumulative Retained
--------------------------
Portion Balance.
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such type of Loan on the
<PAGE>
-3-
signature pages hereof or such other office of such Lender (or of an Affiliate
of such Lender) as such Lender may from time to time specify to the
Administrative Agent and Borrower as the office by which its Loans of such Type
are to be made and maintained.
"Applicable Margin" shall be (x) from the Closing Date to the date
-----------------
(the "Reset Date") Borrower shall have delivered to the Lenders the financial
----------
statements and Interest Rate Certificate required by Sections 9.01(a) and (e) in
respect of the second fiscal quarter of Borrower ended after the Closing Date,
the rates per annum for each applicable Type of Loan set forth opposite Tier I
--- -----
of Schedule 1.01(a), and (y) thereafter, when the Leverage Ratio at the end of
----------------
the most recently ended fiscal quarter ending after the Reset Date is as set
forth in Schedule 1.01(a), the percentage per annum set forth opposite such
---------------- --- -----
Leverage Ratio in Schedule 1.01(a). Any change in the Leverage Ratio shall be
----------------
effective to adjust the Applicable Margin as of the date of receipt by the
Administrative Agent of the Interest Rate Certificate most recently delivered
pursuant to Section 9.01(e). If Borrower fails to deliver the Interest Rate
Certificates and financial statements within the times specified in Sections
9.01(a), (b) and (e), such ratio shall be deemed to be that set forth opposite
Tier I of Schedule 1.01(a) until Borrower delivers such Interest Rate
----------------
Certificates and financial statements.
"Applicable Revolving Credit Fee Percentage" shall mean 0.50% per
------------------------------------------ ---
annum; provided, however, that from and after the Reset Date, the Applicable
- ----- -------- -------
Revolving Facility Fee Percentage shall be, when the Leverage Ratio at the end
of the most recent fiscal quarter ending after such date is as set forth below,
the percentage per annum set forth opposite such Leverage Ratio below:
--- -----
<TABLE>
<CAPTION>
=================================================================================================================
Tier APPLICABLE REVOLVING CREDIT
LEVERAGE RATIO FEE PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
I greater than 4.50:1.0 0.500%
- -----------------------------------------------------------------------------------------------------------------
II greater than 3.50:1.0 0.375%
but less than 4.50:1.0
- -----------------------------------------------------------------------------------------------------------------
III greater than 3.00:1.0 0.250%
but = 3.50:1.0
- -----------------------------------------------------------------------------------------------------------------
IV = 3.00:1.0 0.250%
=================================================================================================================
</TABLE>
Any change in the Leverage Ratio shall be effective to adjust the Applicable
Revolving Credit Fee Percentage as of the date of receipt by the Administrative
Agent of the Interest Rate Certificate most recently delivered pursuant to
Section 9.01(e). If Borrower fails to deliver the Interest Rate Certificates
and financial statements within the times specified in Sections 9.01(a), (b) and
(e), such ratio shall be deemed to be that set forth opposite Tier I above until
Borrower delivers such Interest Rate Certificates and financial statements.
"Applicable Year" see the definition of Annual Retained Portion
---------------
Balance.
"Approved Fund" shall mean, with respect to any Lender that is a fund
-------------
that invests in commercial loans, any other fund that invests in commercial
loans and is managed or advised by the same investment advisor as such Lender of
by an Affiliate of such investment advisor.
"Arranger" see the introduction to this Agreement.
--------
<PAGE>
-4-
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978.
---------------
"Benefit Arrangement" shall mean at any time an employee benefit plan
-------------------
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" see the introduction to this Agreement.
--------
"Borrowing Base" shall mean, as at any date, 50% of the aggregate
--------------
value of Eligible Inventory at said date (the "Normal Advance Rate"); provided,
------------------- --------
however, that if no Event of Default has occurred and is continuing, the Lenders
- -------
will upon Borrower's request, make advances of up to sixty percent (60%) of the
value of Eligible Inventory (the "Increased Advance Rate"); provided, however,
---------------------- -------- -------
that the Increased Advance Rate shall be in effect only during the months of
July, August, September and October of any Fiscal Year.
"Borrowing Base Certificate" shall mean a certificate of a senior
--------------------------
financial officer of Borrower, substantially in the form of Exhibit C-2 and
-----------
appropriately completed.
"Business Day" shall mean any day (a) on which commercial banks are
------------
not authorized or required to close in New York City or Dallas, Texas and (b) if
such day relates to a borrowing of, a payment or prepayment of principal of or
interest on, a Continuation or Conversion of or into, or an Interest Period for,
a LIBOR Loan or a notice by Borrower with respect to any such borrowing,
payment, prepayment, Continuation, Conversion or Interest Period, that is also a
day on which dealings in Dollar deposits are carried out in the London interbank
market.
"Capital Expenditures" shall mean, for any period, any direct or
--------------------
indirect (by way of acquisition of securities of a Person or the expenditure of
cash or the incurrences of Indebtedness) expenditures in respect of the purchase
or other acquisition of fixed or capital assets, excluding (i) normal
replacement and maintenance programs properly charged to current operations,
(ii) expenditures in an amount not to exceed the Net Available Proceeds of any
Casualty Event or any Taking, Destruction or loss of title with respect to Real
Property in each case to the extent such Net Available Proceeds are not required
to be applied to the prepayment of the Loans in accordance with Section
2.10(a)(i) or Section 2.10(a)(vi), as applicable, (iii) Acquisitions permitted
by Section 9.06(p), (q) and (r); provided, however, that Acquisitions made
-------- -------
pursuant to Section 9.06(p) shall be considered Capital Expenditures for the
purpose of the definition of Fixed Charges, (iv) any expenditure made with the
Net Available Proceeds of any Disposition effected pursuant to Section 9.06(g)
or (n), (v) any expenditures made with the proceeds of any Excluded Disposition,
and (vi) Investments permitted by Section 9.09.
"Capital Lease," as applied to any Person, shall mean any lease of any
-------------
Property by that Person as lessee which, in conformity with GAAP, is required to
be classified and accounted for as a capital lease on the balance sheet of that
Person.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a Capital Lease,
and, for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Casualty Event" shall mean, with respect to any Property (other than
--------------
Real Property) of any Person, any loss of or damage to, or any condemnation or
other taking of, such Property for which such Person or any of its Subsidiaries
receives insurance proceeds or proceeds of a condemnation award or other
compensation. Casualty Event shall not include any Taking or Destruction or
loss of title to Real Property.
<PAGE>
-5-
"CERCLA" see Section 8.11.
------
"Change of Control" shall mean any transaction or event (including,
-----------------
without limitation, an issuance, sale or exchange of Equity Interests, a merger
or consolidation, or a dissolution or liquidation) occurring on or after the
date hereof (whether or not approved by the board of directors of Borrower) as a
direct or indirect result of which (a) if such transaction or event occurs prior
to the consummation of an Initial Public Offering, the Permitted Holders fail to
own, directly or indirectly, shares of Equity Interests of Borrower representing
at least a majority (on a fully diluted basis) of the aggregate then outstanding
voting Equity Interests of Borrower or voting power of the voting Equity
Interests of Borrower at the time outstanding; (b) if such transaction or event
is an Initial Public Offering or occurs after the consummation of an Initial
Public Offering, (i) any "Person" or any "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
(other than the Permitted Holders) shall (directly or indirectly) beneficially
own in the aggregate shares of Equity Interests of Borrower having 33-1/3% or
more of the aggregate voting power of all shares of Equity Interests of Borrower
at the time outstanding; provided, however, that the foregoing shall be a Change
-------- -------
of Control only if the Permitted Holders beneficially own a lesser percentage of
the aggregate voting power of all shares of Equity Interests of Borrower at the
time outstanding than such Person or group or do not have the right or ability
by voting power, contract or otherwise to elect or designate for elections at
least a majority of the board of directors of Borrower or (ii) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the board of directors of Borrower (together with any new directors
whose election by such board of directors or whose nomination for election by
the shareholders of Borrower was approved by a vote of at least 66-2/3% of the
directors of 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 Borrower then in office; or (c) if such transaction or
event occurs at any time, whether before or after the consummation of an Initial
Public Offering, any event or circumstance constituting a "change of control" or
other similar occurrence under documentation evidencing or governing any
Indebtedness of Borrower in a principal amount in excess of $5.0 million (other
than under the Credit Documents) shall occur which results in an obligation of
Borrower to prepay, purchase, offer to purchase, redeem or defease all or a
portion of such Indebtedness. For purposes of this definition, the terms
"beneficially own" and "group" shall have the respective meanings ascribed to
---------------- -----
them pursuant to Section 13(d) of the United States Securities Exchange Act of
1934.
"Class" see Section 1.03.
-----
"Closing Date" shall mean the date on which the initial extensions of
------------
credit are made hereunder.
"Code" shall mean the United States Internal Revenue Code of 1986, as
----
amended.
"Collateral" shall mean all of the Pledged Collateral and Mortgaged
----------
Real Property.
"Collateral Account" see Section 4.01 of the Security Agreement.
------------------
"Commitment Letter" shall mean that certain amended and restated
-----------------
commitment letter between Merrill Lynch Capital Corporation and Borrower dated
October 21, 1997 together with Exhibit A thereto and incorporated therein.
"Commitments" shall mean the Revolving Credit Commitments and the Term
-----------
Loan Commitments.
<PAGE>
-6-
"Consolidated EBITDA" shall mean, for any Measurement Period, the sum
-------------------
(without duplication) of the amounts for such period of (i) Adjusted Net Income,
(ii) income tax expense to the extent deducted in determining Adjusted Net
Income for such period, (iii) interest expense to the extent deducted in
determining Adjusted Net Income for such period (but calculated net of interest
income on the shareholder loans outstanding as of the Closing Date), and (iv)
depreciation expense and amortization expense to the extent deducted in
determining Adjusted Net Income for such period, each such item described in
clauses (ii)-(iv) determined in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period, for
-----------------------------
Borrower and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP) all interest expense during such
period (whether or not actually paid during such period and net of interest
income on the shareholder loans outstanding as of the Closing Date), other than
any non-cash interest expense in respect of Indebtedness in the form of
accretion of original issue discount or pay-in-kind issuances of additional debt
in lieu of cash interest.
"Consolidated Rental Expense" shall mean, for any period, the
---------------------------
aggregate amount of all rents paid or to be incurred under all leases of Real
Property of Borrower and its Consolidated Subsidiaries as lessees (net of
sublease income), calculated in accordance with GAAP.
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary
-----------------------
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.
"Contingent Obligation" shall mean, as to any Person, any direct or
---------------------
indirect liability of such Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "primary obligations") of another Person (the
-------------------
"primary obligor"), including any obligation of such Person (i) to purchase,
- ----------------
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge of any
such primary obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary obligation
against loss in respect thereof (each of (i)-(iv), a "Guaranty Obligation"); (b)
-------------------
with respect to any Surety Instrument (other than any Letter of Credit) issued
for the account of such Person or as to which such Person is otherwise liable
for reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person if
the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract; provided, however, that the
-------- -------
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection or standard contractual indemnities entered into, in each
case in the ordinary course of business. The amount of any Contingent Obligation
shall (x) in the case of a Guaranty Obligation, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and (y) in the case of
other Contingent Obligations, be equal to the maximum reasonably anticipated
liability in respect thereof.
"Continue," "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.09 of a LIBOR Loan from one Interest Period
to the next Interest Period.
<PAGE>
-7-
"Convert," "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.09 of one Type of Loans into another Type of Loans, which
may be accompanied by the transfer by a Lender (at its sole discretion) of a
Loan from one Applicable Lending Office to another.
"Covered Taxes" see Section 5.06(a).
-------------
"Credit Documents" shall mean this Agreement, the Notes, the Letter of
----------------
Credit Documents and the Security Documents.
"Creditor" shall mean any Agent, the Issuing Lender, any Lender or any
--------
Affiliate of a Lender party to a Swap Contract with an Obligor.
"Cumulative Retained Portion Balance" shall mean, at any date in any
-----------------------------------
fiscal year (the "Applicable Cumulative Year"), the excess (if any) of (x) the
--------------------------
sum of the amounts of the Annual Retained Portion Balance as of the last day of
each fiscal year prior to the Applicable Cumulative Year, each such Annual
Retained Portion Balance to be calculated as if no Acquisitions pursuant to
Section 9.06(s) and no Investments pursuant to 9.09(v) occurred prior to the
Applicable Cumulative Year and after giving effect to all Dividends made on or
prior to such last day, plus the Retained Portion for such Applicable Cumulative
----
Year (which is calculated based on the Excess Cash Flow for the prior fiscal
year), over (y) the sum of (1) all Dividend Payments made in the Applicable
----
Cumulative Year on or prior to such date pursuant to Section 9.10(c), (2) the
aggregate amount of cash consideration paid for all Acquisitions effected since
the Closing Date and on or prior to such date pursuant to Section 9.06(s), and
(3) the aggregate amount of cash consideration paid for all Investments effected
since the Closing Date and on or prior to such date pursuant to Section 9.09(v).
"Debt Issuance" shall mean the incurrence by any Obligor of any
-------------
Indebtedness after the Closing Date (other than as permitted by Section 9.08,
except Section 9.08(h)).
"Default" shall mean an event that with notice or lapse of time or
-------
both would become an Event of Default.
"Designated Senior Management" shall mean Jerry M. Smith (President)
----------------------------
and Lloyd L. Ross (Chairman of the Board).
"Destruction" shall mean any damage to, or loss or destruction of, any
-----------
Real Property or Mortgaged Real Property. Destruction shall not include any
Casualty Event.
"Disposition" shall mean (i) any conveyance, sale, lease, assignment,
-----------
transfer or other disposition (including by way of merger or consolidation and
including any sale-leaseback transaction) of any Property (including receivables
and shares of Equity Interests of any Subsidiary or joint venture of any Person)
(whether now owned or hereafter acquired) by any Obligor or any of its
Subsidiaries to any Person, (ii) any issuance of any Equity Interests in any
Subsidiary to any Person other than Borrower or any Wholly Owned Subsidiary, and
(iii) any liquidating or other non-ordinary course dividend or distribution
received by any Obligor or any of its Subsidiaries in respect of any joint
venture or similar enterprise, excluding, however, any Excluded Disposition.
"Disposition Event" shall mean the receipt by any Obligor or any of
-----------------
its Subsidiaries of cash proceeds or cash distributions of any kind from
Property received in consideration for a Disposition.
<PAGE>
-8-
"Disqualified Capital Stock" shall mean, with respect to any Person,
--------------------------
any Equity Interests of such Person that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures (excluding any maturity as the result of an
optional redemption by the issuer thereof) or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole
option of the holder thereof, in whole or in part, on or prior to December 31,
2004; provided, however, that no Equity Interests issued to management of
-------- -------
Borrower shall be deemed Disqualified Capital Stock by virtue of the fact that
they are putable to Borrower upon the occurrence of certain events disclosed to
the Lenders prior to the Closing Date.
"Dividend Payment" shall mean dividends (in cash, Property or
----------------
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
Equity Interests of any Obligor or any of its Subsidiaries, or of any Equity
Rights, but excluding (i) dividends payable in respect of shares of Equity
Interests through the issuance of additional shares of Qualified Capital Stock,
(ii) any redemption or exchange of any Equity Interests of such Obligor through
the issuance of Qualified Capital Stock of such Obligor and (iii) cash dividends
paid in respect of any fractional shares that would otherwise be issued as
dividends.
"Document" means the Merger Agreement, the Senior Subordinated Note
--------
Documents, the Exchangeable Preferred Stock Documents, and each Related
Document.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Domestic Subsidiary" shall mean any Subsidiary that is not a Foreign
-------------------
Subsidiary.
"Eligible Inventory" shall mean Inventory valued at lower of cost or
------------------
market on a "first in-first out" ("FIFO") basis or based on specific
----
identification with respect to Inventory in the warehouse that constitutes first
quality finished goods, and that: (a) is not, in the Majority Revolving Credit
Lenders' reasonable judgment, obsolete or unmerchantable (it being understood
that Borrower is in the business of buying closeout or discontinued
merchandise); (b) upon which the Administrative Agent has a first priority
perfected security interest subject only to Prior Liens; and (c) the Majority
Revolving Credit Lenders otherwise deem eligible as the basis for Revolving
Credit Loans based on such other credit and collateral considerations as the
Majority Revolving Credit Lenders may from time to time establish in their
reasonable discretion consistent with their general policies and business
judgment. Without intending to limit the Majority Revolving Credit Lenders'
discretion to establish other criteria of eligibility, no spare parts, packaging
and shipping material, supplies, slow-moving or obsolete Inventory, sample
Inventory, scratched or dented Inventory, Inventory in transit, bill and hold
Inventory, returned or defective Inventory or Inventory delivered to Borrower on
consignment shall constitute Eligible Inventory. Eligible Inventory shall not
include Inventory stored at locations other than those locations either owned by
Borrower or locations for which an appropriate UCC filing has been signed by
Borrower and delivered to the Administrative Agent for filing in the appropriate
offices for each such location to perfect the security interest in such
Inventory created by the Security Agreement. Eligible Inventory shall not
include (a) Inventory with respect to which the representations and warranties
set forth in the Security Agreement applicable to Inventory are not true and
correct in all material respects; (b) Inventory in respect of which the Security
Agreement, after giving effect to the related filings of financing statements
that have then been made, if any, does not or has ceased to create a valid and
perfected first priority lien (subject to Prior Liens) or security interest in
favor of the Lenders securing the Obligations and as to which no other Liens
exist, other than Permitted Liens; (c) Inventory located outside the United
States which is being shipped to Borrower, other than any such Inventory which
meets each of the following conditions: (1) such Inventory would otherwise
qualify as Eligible Inventory and would not be excluded by any other clause of
this definition, (2) such Inventory is in transit to Borrower on an F.O.B.-
shipping basis, and (3) such Inventory is fully paid for by Borrower and fully
<PAGE>
-9-
insured on terms acceptable to the Agent pursuant to insurance which names the
Agent as loss payee for the benefit of the Lenders and the Agent, if it so
requests, shall have received all negotiable instruments of title issued in
connection with such shipment; provided, however, that not more than $10.0
-------- -------
million of Inventory may be included at any time pursuant to this clause (c);
and (d) Inventory located outside the United States which is not being shipped
to Borrower unless arrangements for the granting and perfection of a security
interest in such Inventory have been made in a manner acceptable to the
Administrative Agent in its sole discretion. In addition, the buying, freight
and distribution costs ("UNICAP Costs") and the product development expenses
------------
which are a component of the cost of Inventory will not be considered as part of
the value of the Inventory.
"Eligible Person" shall mean (i) a commercial bank organized under the
---------------
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100.0 million; (ii) a commercial bank organized under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
----
country, and having a combined capital and surplus in a dollar equivalent amount
of at least $100.0 million; provided, however, that such bank is acting through
-------- -------
a branch or agency located in the country in which it is organized or another
country that is also a member of the OECD; (iii) an insurance company, mutual
fund entity which is regularly engaged in making, purchasing or investing in
loans or securities or other financial institution organized under the laws of
the United States, any state thereof, any other country that is a member of the
OECD or a political subdivision of any such country with assets, or assets under
management, in a dollar equivalent amount of at least $100.0 million; (iv) any
Affiliate of a Lender; and (v) any other entity (other than a natural person)
which is an "accredited investor" (as defined in Regulation D under the United
States Securities Act of 1933, as amended) which extends credit or buys loans as
one of its regular businesses including, but not limited to, insurance
companies, mutual funds, and investment funds. With respect to any Lender that
is a fund that invests in loans, any other fund that invests in loans and is
managed or advised by the same investment advisor of such Lender or by an
Affiliate of such investment advisor shall be treated as a single Eligible
Person.
"Environmental Claim" shall mean, with respect to any Person, any
-------------------
written notice, claim, demand or other communication (collectively, a "claim")
-----
by any other Person alleging such Person's liability for any costs, cleanup
costs, response or corrective action costs, damages to natural resources or
other Property, personal injuries, fines or penalties arising out of or
resulting from (i) the presence, Release or threatened Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) any violation of any Environmental Law. The term
"Environmental Claim" shall include any claim by any Person seeking damages,
-------------------
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all present and future
------------------
applicable laws, rules or regulations of any Governmental Authority, any orders,
decrees, judgments or injunctions and the common law in each case as now or
hereafter in effect, relating to pollution or protection of human health, safety
or the environment, including without limitation, ambient air, indoor air, soil,
surface water, ground water, wetlands, land or subsurface strata, including,
without limitation, those relating to Releases or threatened Releases of
Hazardous Materials into the environment, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"Equity Financing" shall mean Newco and Borrower's gross proceeds of
----------------
at least $115 million from (i) the issuance by Borrower to Madison Dearborn or
one or more Affiliates of Madison Dearborn of common equity of Newco and
preferred equity of Borrower having terms and conditions satisfactory to the
Arranger, (ii) the Management Rollover, and (iii) Exchangeable Preferred Stock.
<PAGE>
-10-
"Equity Interests" shall mean, with respect to any Person, any and all
----------------
shares, interests, participations or other equivalents, including membership
interests (however designated, whether voting or non-voting), of capital of such
Person, including, if such Person is a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership, whether outstanding on the date
hereof or issued after the Closing Date.
"Equity Issuance" shall mean any of (a) any issuance or sale after the
---------------
Closing Date by any Obligor or Subsidiary or any direct or indirect parent of
Borrower of (x) any Equity Interests (including any Equity Interests issued upon
exercise of any Equity Rights) or any Equity Rights, or (y) any other security
or instrument representing an Equity Interest (or the right to obtain any Equity
Interest) in the issuing or selling Person, or (b) the receipt by Borrower or
any Subsidiary after the Closing Date of any capital contribution (whether or
not evidenced by any Equity Interest issued by the recipient of such
contribution) other than from Borrower or any Subsidiary, excluding (x) any
issuance of Equity Interests (or Equity Rights) to the seller or sellers in
consideration for an Acquisition, (y) the issuance of Equity Rights to
management and consultants of Borrower (and the exercise thereof) in an amount
not to exceed 10% (on a fully diluted basis) of the outstanding common Equity
Interests of Borrower, and (z) each Excluded Issuance. For purposes of this
definition, a Person shall be deemed the "direct or indirect parent" of Borrower
only if such Person's assets consist solely of Equity Interests of Borrower or
Equity Interests of another direct of indirect parent of Borrower and if
Borrower is directly or indirectly a Wholly Owned Subsidiary of such Person;
provided, however, that in no event, for purposes of this definition, shall
- -------- -------
Madison Dearborn or any other fund managed or sponsored by Madison Dearborn be
the "direct or indirect parent" of Borrower.
"Equity Rights" shall mean, with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of Equity Interests of any class of such
Person.
"ERISA" shall mean the United States Employee Retirement Income
-----
Security Act of 1974, as amended.
"ERISA Group" shall mean Borrower, any Subsidiary and all members of a
-----------
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Code.
"Event of Default" see Section 10.
----------------
"Excess Cash Flow" shall mean, for any period of calculation, (a) the
----------------
sum of (i) Consolidated EBITDA adjusted by adding back the cash portion of all
extraordinary or non-recurring items of income (other than from Dispositions and
Excluded Dispositions) to the extent excluded in calculating Adjusted Net Income
and by deducting the cash portion of all extraordinary or non-recurring items of
expense to the extent excluded in calculating Adjusted Net Income for such
period, and (ii) net decreases in Working Capital for such period minus (b) the
-----
sum of (i) Fixed Charges for such period (including after giving effect to the
Amortization Payment to occur in January of the next fiscal year), and (ii) net
increases in Working Capital for such period.
"Exchangeable Preferred Stock" shall mean the senior exchangeable
----------------------------
preferred stock of Borrower issued pursuant to the Exchangeable Preferred Stock
Documents, including any senior exchangeable preferred stock issued in exchange
therefor pursuant to any registration rights agreement entered into in
connection with the issuance thereof.
<PAGE>
-11-
"Exchangeable Preferred Stock Documents" shall mean the certificate of
--------------------------------------
designation and exchange indenture identified in the offering memorandum dated
December [_], 1997 relating to the Exchangeable Preferred Stock and all
documents relating thereto (including the registration rights agreement relating
thereto), as any such documents may be amended and in effect from time to time
in accordance with its terms and this Agreement.
"Excluded Dispositions" shall mean (i) Dispositions for fair market
---------------------
value resulting in no more than $500,000 in proceeds in any fiscal year; (ii) an
exchange of equipment or inventory for like equipment or inventory, provided
that the Person effecting such exchange receives substantially equivalent value
in such exchange for the Property disposed of; (iii) any transaction permitted
by Section 9.06 (other than clauses (g) and (n) thereof), any Lien permitted by
Section 9.07, any Investment permitted by Section 9.09 and any Dividend Payment
permitted by Section 9.10; (iv) any issuance of Equity Interests by any
Subsidiary to directors to qualify directors if required by applicable law if
resulting in de minimis proceeds; and (v) the sale of inventory in the ordinary
-- -------
course of business.
"Excluded Issuance" shall mean any issuance or sale of Qualified
-----------------
Capital Stock of Borrower (or any direct or indirect parent of Borrower) to
Madison Dearborn or any of its Affiliates (other than Borrower or any
Subsidiary).
"Existing Affiliate Agreements" see Section 9.16.
-----------------------------
"Existing Debt Repayment" shall mean the repayment of all Indebtedness
-----------------------
and cancellation of all commitments to make extensions of credit under the
Refinanced Debt.
"Existing Warehouse Facility" shall mean Borrower's warehouse facility
---------------------------
as existing on the date of this Agreement and located in Dallas, Texas and as
identified in Exhibit G hereto.
---------
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided, however, that (a) if the day for which such
-------- -------
rate is to be determined is not a Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day and (b) if such rate is not
so published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate quoted to the Administrative Agent on such Business
Day on such transactions by three federal funds brokers of recognized standing,
as determined by the Administrative Agent.
"Fee Letter" shall mean the amended and restated Fee Letter dated as
----------
of October 21, 1997 by and between Merrill Lynch Capital Corporation and
Borrower.
"Fee Letters" shall mean the Administrative Agent's Fee Letter and the
-----------
Fee Letter.
"Fixed Charges" shall mean for any period of calculation, the sum of
-------------
(i) Consolidated Interest Expense of Borrower and its Consolidated Subsidiaries,
(ii) the sum of all scheduled principal payments on any Indebtedness (other than
Indebtedness under clauses (f) or (n) of Section 9.08) of Borrower, and, other
than for purposes of Section 9.11(c), voluntary prepayments of Indebtedness
(other than Revolving Credit Loans unless and to the extent accompanied by a
permanent reduction of Revolving Credit Commitments or any other revolving
credit unless and to the extent accompanied by a permanent reduction of
commitments thereunder and
<PAGE>
-12-
other than Indebtedness under clauses (f) or (n) of Section 9.08), in each case
to the extent made from internally generated funds of Borrower and the
Subsidiaries, (iii) other than for purposes of Section 9.11(c), federal, state
and local income tax expense actually paid, (iv) other than for purposes of
Section 9.11(c), actual Capital Expenditures to the extent made from internally
generated funds of Borrower and the Subsidiaries, and (v) solely for purposes of
9.11(c), Consolidated Rental Expense. For purposes of this definition,
internally generated funds shall exclude the proceeds of Dispositions and Debt
Issuances and Equity Issuances (without regard to the exclusions from the
definitions thereof).
"Foreign Plan" see Section 8.07.
------------
"Foreign Subsidiary" shall mean any direct or indirect Subsidiary
------------------
organized outside of the United States as defined in Section 7701(a)(9) of the
Code (or any successor provision).
"Funding Date" shall mean the date of the making of any extension of
------------
credit hereunder (including the Closing Date).
"GAAP" shall mean generally accepted accounting principles set forth
----
as of the relevant date in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
date of determination.
"Governmental Authority" shall mean any government or political
----------------------
subdivision of the United States or any other country or any agency, authority,
board, bureau, central bank, commission, department or instrumentality thereof
or therein, including, without limitation, any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
"Guarantee" shall mean the guarantee of each Guarantor pursuant to
---------
Section 6.
"Guaranteed Obligations" see Section 6.01.
----------------------
"Guarantors" shall mean each Subsidiary listed on Schedule 1.01(b),
---------- ----------------
and each direct and indirect Subsidiary that guarantees the payment of the
Obligations of Borrower hereunder pursuant to Section 9.21 and the other Credit
Documents.
"Guaranty Obligation" see the definition of Contingent Obligation.
-------------------
"Hazardous Material" shall mean any pollutant, contaminant, toxic,
------------------
hazardous or extremely hazardous substance, constituent or waste, or any other
constituent, waste, material, compound or substance including, without
limitation, petroleum including crude oil or any fraction thereof, or any
petroleum product, subject to regulation under any Environmental Law.
"Increased Advance Rate" see the definition of Borrowing Base.
----------------------
"Increased Facility Amount" shall mean an increase in the Revolving
-------------------------
Credit Commitments (whether by the Lenders or New Lenders) of up to $25 million,
which increase shall not require the consent of any Lender (other than any
Lender agreeing to make available the increase in the Revolving Credit
<PAGE>
-13-
Commitments), if no Default or Event of Default has occurred and is continuing
and the date of such increase is not prior to the one year anniversary of the
Closing Date.
"Indebtedness" shall mean, for any Person, without duplication, (a)
------------
all indebtedness for borrowed money of such Person; (b) all obligations issued,
undertaken or assumed by such Person as the deferred purchase price of Property
or services (other than trade payables and accrued expenses not overdue by more
than 90 days incurred in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations of such Person with
respect to Surety Instruments (such as, for example, unpaid reimbursement
obligations in respect of a drawing under a letter of credit); (d) all
obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of Property or businesses; (e) all indebtedness of such Person
created or arising under any conditional sale or other title retention
agreement, in either case with respect to Property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such Property); (f)
all Capital Lease Obligations of such Person; (g) all net obligations of such
Person with respect to Swap Contracts (such obligations to be equal at any time
to the aggregate net amount that would have been payable by such Person at the
most recent fiscal quarter end in connection with the termination of such Swap
Contracts at such fiscal quarter end); (h) all amounts required to be paid by
such Person as a guaranteed payment to partners, including any mandatory
redemption of shares or interests; (i) all indebtedness of other Persons
referred to in clauses (a) through (h) above secured by (or for which the holder
of such indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in Property (including accounts and contracts
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such indebtedness; and (j) all Contingent Obligations
of such Person in respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (i) above. Indebtedness shall not include (i)
accounts extended by suppliers in the ordinary course on normal trade terms in
connection with the purchase of goods and services, (ii) obligations under
operating leases (as well as contingent obligations in respect thereof) or (iii)
wages, salaries, accrued vacations or deferred compensation. The Indebtedness of
any Person shall include any Indebtedness of any partnership in which such
Person is the general partner.
"Indemnitee" see Section 12.03.
----------
"Initial Public Offering" shall mean a primary underwritten public
-----------------------
offering of the common stock of Borrower, other than any public offering or sale
pursuant to a registration statement on Form S-8 or a comparable form.
"Intercompany Note" shall mean a promissory note substantially in the
-----------------
form of Exhibit B.
---------
"Interest Coverage Ratio" shall mean, for any Measurement Period, the
-----------------------
ratio of (x) Consolidated EBITDA plus Consolidated Rental Expense for such
period to (y) Consolidated Interest Expense plus Consolidated Rental Expense for
such period.
"Interest Period" shall mean, with respect to any LIBOR Loan, each
---------------
period commencing on the date such LIBOR Loan is made or Converted from an
Alternate Base Rate Loan or the last day of the next preceding Interest Period
for such LIBOR Loan and (subject to the requirements of Sections 2.01(a),
2.01(b), 2.01(c) and 2.09) ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as Borrower may select
as provided in Section 4.05, except that each Interest Period that commences on
the last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period for any Revolving
Credit Loan would
<PAGE>
-14-
otherwise end after the Revolving Credit Commitment Termination Date, such
Interest Period shall end on the Revolving Credit Commitment Termination Date;
(ii) no Interest Period for any Term Loan may commence before and end after any
Principal Payment Date, unless, after giving effect thereto, the aggregate
principal amount of the Term Loans having Interest Periods that end after such
Principal Payment Date shall be equal to or less than the aggregate principal
amount of the Term Loans scheduled to be outstanding after giving effect to the
payments of principal required to be made on such Principal Payment Date; (iii)
each Interest Period that would otherwise end on a day that is not a Business
Day shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iv) notwithstanding clauses (i) and (ii) above, no Interest
Period shall have a duration of less than one month and, if the Interest Period
for any LIBOR Loan would otherwise be a shorter period, such Loan shall not be
available hereunder as a LIBOR Loan for such period.
"Interest Rate Certificate" shall mean an Officer's Certificate
-------------------------
substantially in the form of Exhibit C, delivered pursuant to Section 9.01(e),
---------
demonstrating in reasonable detail the calculation of the Leverage Ratio as of
the last day of the Measurement Period then last ended on or immediately prior
to the date such certificate is required to be delivered.
"Interest Rate Protection Agreement" shall mean, for any Person, an
----------------------------------
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"Inventory" shall mean all of Borrower's now owned and hereafter
---------
acquired inventory, goods, merchandise, and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work-in-process, finished goods, returned and
repossessed goods, and materials and supplies of any kind, nature or description
which are or might be used or consumed in Borrower's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such inventory, goods, merchandise and such other personal
property, and all documents of title or other documents representing them.
"Investment" shall mean, for any Person: (a) the acquisition (whether
----------
for cash, Property, services or securities or otherwise) of Equity Interests,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person; (b) the making of any deposit with, or advance,
loan or other extension of credit to, any other Person (including the purchase
of Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person); (c) any
capital contribution to (by means of any transfer of cash or other Property to
others or any payment for Property or services for the account or use of others)
any other Person; (d) the entering into, or direct or indirect incurrence, of
any Contingent Obligation with respect to Indebtedness or other liability of any
other Person; (e) the entering into of any Swap Contract; or (f) any agreement
to make any Investment (including any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
sale).
"Issuing Lender" shall mean Fleet National Bank, or any of its
--------------
Affiliates, or such other Lender or Lenders selected by the Administrative Agent
reasonably satisfactory to Borrower, as the issuer of Letters of Credit under
Section 2.03, together with its successors and assigns in such capacity.
"Lease" shall mean any lease, sublease, franchise agreement, license,
-----
occupancy or concession agreement.
"Lender" and "Lenders" see the introduction to this Agreement.
------ -------
<PAGE>
-15-
"Letter of Credit" see Section 2.03.
----------------
"Letter of Credit Documents" shall mean, with respect to any Letter of
--------------------------
Credit, collectively, any other agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such Letter of
Credit) governing or providing for (a) the rights and obligations of the parties
concerned or at risk with respect to such Letter of Credit or (b) any collateral
security for any of such obligations, each as the same may be modified and
supplemented and in effect from time to time.
"Letter of Credit Interest" shall mean, for each Revolving Credit
-------------------------
Lender, such Lender's participation interest (or, in the case of the Issuing
Lender, the Issuing Lender's retained interest) in the Issuing Lender's
liability under Letters of Credit and such Lender's rights and interests in
Reimbursement Obligations and fees, interest and other amounts payable in
connection with Letters of Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without duplication, at any
--------------------------
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit, plus (b) the aggregate unpaid principal amount
----
of all Reimbursement Obligations of Borrower at such time due and payable in
respect of all drawings made under such Letter of Credit.
"Leverage Ratio" shall mean, at any date, the ratio of (x) Total Debt
--------------
at such date to (y) Consolidated EBITDA for the Measurement Period ended on such
date, or, if such date is not the end of a fiscal quarter, the Measurement
Period ended immediately prior to such date.
"LIBOR Base Rate" shall mean, with respect to any LIBOR Loan for any
---------------
Interest Period therefor, the rate per annum determined by the Administrative
--- -----
Agent to be the arithmetic mean (rounded to the nearest 1/100th of 1%) of the
offered rates for deposits in Dollars with a term comparable to such Interest
Period that appears on the Telerate British Bankers Assoc. Interest Settlement
Rates Page (as defined below) at approximately 11:00 a.m., London, England time,
on the second full Business Day preceding the first day of such Interest Period;
provided, however, that if there shall at any time no longer exist a Telerate
- -------- -------
British Bankers Assoc. Interest Settlement Rates Page, "LIBOR Rate" shall mean,
----------
with respect to each day during each Interest Period pertaining to LIBOR Loans
comprising part of the same Borrowing, the rate per annum equal to the rate at
--- -----
which the Administrative Agent is offered deposits in Dollars at approximately
11:00 a.m., London, England time, two Business Days prior to the first day of
such Interest Period in the London interbank market for delivery on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to its portion of the amount of such LIBOR Loan to be
outstanding during such Interest Period. "Telerate British Bankers Assoc.
------------------------------
Interest Settlement Rates Page" shall mean the display designated as Page 3750
- ------------------------------
on the Telerate System Incorporated Service (or such other page as may replace
such page on such service for the purpose of displaying the rates at which
Dollar deposits are offered by leading banks in the London interbank deposit
market).
"LIBOR Loans" shall mean Loans that bear interest at rates based on
-----------
rates referred to in the definition of "LIBOR Base Rate" in this Section 1.01.
"LIBOR Rate" shall mean, for any LIBOR Loan for any Interest Period
----------
therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100
--- -----
of 1%) determined by the Administrative Agent to be equal to the LIBOR Base Rate
for such Loan for such Interest Period divided by 1 minus the Reserve
Requirement (if any) for such Loan for such Interest Period.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
----
pledge, claim, charge, security interest or encumbrance of any kind, or any
other type of preferential arrangement in respect of such
<PAGE>
-16-
Property, including any easement, right-of-way or other encumbrance on title to
Real Property, other than ordinary course rights of set-off of depositary banks.
For purposes of the Credit Documents, a Person shall be deemed to own subject to
a Lien any Property that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement (other than an operating lease) relating to such
Property.
"Loans" shall mean the Revolving Credit Loans, the Swing Loans and the
-----
Term Loans.
"Losses" of any Person shall mean the losses, liabilities, claims
------
(including those based upon negligence, strict or absolute liability and
liability in tort), damages, reasonable expenses, obligations, penalties,
actions, judgments, encumbrances, liens, penalties, fines, suits, reasonable and
documented costs or disbursements of any kind or nature whatsoever (including
reasonable fees and expenses of counsel in connection with any Proceeding
commenced or threatened in writing, whether or not such Person shall be
designated a party thereto) at any time (including following the payment of the
Obligations) incurred by, imposed on or asserted against such Person.
"Madison Dearborn" shall mean Madison Dearborn Partners, Inc. and
----------------
Madison Dearborn Capital Partners II, L.P., or either of them.
"Majority Lenders" shall mean (i) at any time prior to the Closing
----------------
Date, Lenders holding at least a majority of the aggregate amount of the
Commitments, and (ii) at any time after the Closing Date, Lenders holding at
least a majority of the sum of (without duplication) (a) the aggregate principal
amount of outstanding Loans (other than Swing Loans), plus (b) the aggregate
----
amount of all Letter of Credit Liabilities, plus (c) the aggregate Unutilized
----
Revolving Credit Commitments then in effect, plus (d) the aggregate amount of
----
Swing Loans then outstanding (which, for each Revolving Credit Lender, shall be
deemed such Lender's pro rata share (based on the Revolving Credit Commitments)
--- ----
of the aggregate principal amount of Swing Loans then outstanding).
"Majority Revolving Credit Lenders" shall mean (i) at any time prior
---------------------------------
to the Closing Date, Lenders holding at least a majority of the aggregate amount
of the Revolving Credit Commitments and (ii) at any time after the Closing Date,
Lenders holding at least a majority of the sum of (without duplication) (a) the
aggregate principal amount of outstanding Revolving Credit Loans, plus (b) the
----
aggregate amount of all Letter of Credit Liabilities, plus (c) the aggregate
----
Unutilized Revolving Credit Commitments then in effect.
"Majority Term Lenders" shall mean (i) at any time prior to the
---------------------
Closing Date, Lenders holding at least a majority of the Term Loan Commitments,
and (ii) at any time after the Closing Date, Lenders holding at least a majority
of the sum of the aggregate principal amount of outstanding Term Loans.
"Majority Tranche A Term Loan Lenders" shall mean (i) at any time
------------------------------------
prior to the Closing Date, Lenders holding at least a majority of the Tranche A
Term Loan Commitments, and (ii) at any time after the Closing Date, Lenders
holding at least a majority of the aggregate principal amount of outstanding
Tranche A Term Loans.
"Majority Tranche B Term Loan Lenders" shall mean (i) at any time
------------------------------------
prior to the Closing Date, Lenders holding at least a majority of the Tranche B
Term Loan Commitments and (ii) at any time after the Closing Date, Lenders
holding at least a majority of the aggregate principal amount of outstanding
Tranche B Term Loans.
<PAGE>
-17-
"Management Rollover" shall mean the equity interest in Borrower held
-------------------
by management of Borrower after giving effect to the Merger.
"Margin Stock" shall mean margin stock within the meaning of
------------
Regulations G, T, U and X.
"Material Adverse Change" shall mean a material adverse change or any
-----------------------
condition or event that could reasonably be expected to result in a material
adverse change in the business, assets, liabilities (contingent or otherwise),
operations, condition (financial or otherwise), solvency, properties or material
agreements or, prior to the Closing Date, prospects, of Borrower, individually
or together with the Subsidiaries taken as a whole.
"Material Adverse Effect" shall mean any of (a) a material adverse
-----------------------
effect or any condition or event that could reasonably be expected to result in
a material adverse effect on the business, assets, liabilities (contingent or
otherwise), operations, condition (financial or otherwise), solvency, properties
or material agreements or, prior to the Closing Date, prospects of Borrower,
individually or together with the Subsidiaries taken as a whole, (b) a material
adverse effect on the ability of the Obligors to consummate in a timely manner
the Transactions or to perform their obligations under any Credit Document or
(c) an adverse effect on the legality, binding effect or enforceability of any
material provision of any Credit Document or affecting any material rights and
remedies of the Lenders thereunder.
"Material Plan" means at any time a Plan or Plans having aggregate
-------------
Unfunded Liabilities in excess of $2.0 million as of the end of its last annual
valuation period.
"Measurement Period" shall mean the most recent four full fiscal
------------------
quarters of Borrower for which financial statements have been provided pursuant
to Section 9.01.
"Merger" shall mean the Merger of Newco with and into Borrower, with
------
Borrower as the surviving corporation.
"Merger Agreement" shall mean the Merger Agreement dated as of
----------------
September 12, 1997 by and among Madison Dearborn Partners II, L.P., a Delaware
limited partnership and an Affiliate of Madison Dearborn, Newco and Borrower, as
amended and in effect from time to time in accordance with its terms and this
Agreement.
"Mortgage" shall mean an agreement creating and evidencing a Lien on a
--------
Mortgaged Real Property, which shall be substantially in the form of Exhibit G,
---------
containing such schedules and including such additional provisions and other
deviations from such Exhibit as shall be necessary to conform such document to
applicable or local law or as shall be customary under local law, as the same
may at any time be amended, modified or supplemented in accordance with the
terms thereof and hereof.
"Mortgaged Real Property" shall mean each Real Property which shall be
-----------------------
subject to a Mortgage delivered on the Closing Date or thereafter pursuant to
Section 9.12.
"Multiemployer Plan" shall mean at any time an employee pension
------------------
benefit plan within the meaning of Section 4001(a)(3) of ERISA (i) to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions, (ii) to which any member of the ERISA Group has within the
preceding five plan years made contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such five year
period, or (iii) with respect to which Borrower or a Subsidiary could incur
liability.
<PAGE>
-18-
"NAIC" shall mean the National Association of Insurance Commissioners.
----
"Net Available Proceeds" shall mean:
----------------------
(I) in the case of any Disposition Event, the amount of Net Cash
Payments received by any Obligor or any of its Subsidiaries in connection
with such Disposition Event less deductions for amounts applied to
Indebtedness secured by Liens on the asset sold, taxes (including income
taxes) and costs of sale;
(II) in the case of any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received
by any Obligor or any of its Subsidiaries in respect of such Casualty Event
net of (A) reasonable expenses incurred by such Obligor and its
Subsidiaries in connection therewith, (B) repayments of Indebtedness to the
extent secured by a Lien on such Property and (C) any income and transfer
taxes payable by any Obligor or any of its Subsidiaries in respect of such
Casualty Event;
(III) in the case of any Equity Issuance or any Debt Issuance, the
aggregate amount of all cash received by any Obligor and its Subsidiaries
in respect thereof net of all reasonable investment banking fees, discounts
and commissions, legal fees, consulting fees, accountants' fees,
underwriting discounts and commissions and other customary fees and
expenses, actually incurred and satisfactorily documented in connection
therewith;
(IV) in the case of any Taking or Destruction, the Net Award or
Net Proceeds, as applicable, resulting therefrom; and
(V) with respect to any loss of title to all or any portion of
any Mortgaged Real Property or Real Property, any title insurance proceeds
resulting therefrom less the amount of any expenses (including, without
limitation, taxes) incurred in litigating, arbitrating, compromising or
settling any claim arising out of such loss of title.
"Net Award" shall mean the proceeds, award or payment received by any
---------
Obligor or any of its Subsidiaries in respect of any Taking, together with any
interest thereon, less the amount of any reasonable expenses (including, without
limitation, any taxes) incurred in litigating, arbitrating, compromising or
settling any claim arising out of any such Taking including repayments of any
Indebtedness secured by a Prior Lien.
"Net Cash Payments" shall mean, with respect to any Disposition Event,
-----------------
the aggregate amount of all cash payments (including any cash payments received
by way of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise, but only as and
when received) received by any Obligor or any of its Subsidiaries directly or
indirectly in connection with such Disposition Event; provided, however, that
-------- -------
Net Cash Payments shall be net (without duplication) of (i) the amount of all
reasonable fees and expenses paid by any Obligor or any of its Subsidiaries in
connection with such Disposition Event (the "Relevant Disposition"); (ii) any
--------------------
taxes paid or estimated to be payable by any Obligor and its Subsidiaries as a
result of the Relevant Disposition; (iii) any repayments by any Obligor or any
of its Subsidiaries of Indebtedness to the extent that (a) such Indebtedness is
secured by a Lien on the Property that is the subject of the Relevant
Disposition and (b) the transferee of (or holder of a Lien on) such Property
requires that such Indebtedness be repaid as a condition to the purchase of such
Property; and (iv) amounts required to be paid to any Person (other than any
Obligor or any of its Subsidiaries) owning a beneficial interest in the assets
subject to such Relevant Disposition.
<PAGE>
-19-
"Net Proceeds" shall mean the proceeds of any insurance or other
------------
payment received by any Obligor or any of its Subsidiaries in connection with
any Destruction including repayments of any Indebtedness secured by a Prior
Lien, together with any interest earned thereon, less payoff of liens, less the
amount of any reasonable expenses (including, without limitation, any taxes)
incurred in litigating, arbitrating, compromising or settling any claim arising
out of such Destruction and less the amount of any other reasonable expenses
incurred as a result of such Destruction.
"New Lenders" shall mean any financial institutions reasonably
-----------
acceptable to the Arranger and the Administrative Agent who provide any or all
of the Increased Facility Amount.
"New Warehouse Facility" shall mean Borrower's warehouse facility
----------------------
constructed or acquired with New Warehouse Financing.
"New Warehouse Financing" see Section 9.08(i).
-----------------------
"Newco" shall mean Tuesday Morning Acquisition Corp., a Delaware
-----
corporation and an Affiliate of Madison Dearborn.
"Non-U.S. Lender" see Section 5.06(b).
---------------
"Normal Advance Rate" see the definition of Borrowing Base.
-------------------
"Notes" shall mean the Revolving Credit Notes, the Term Loan Notes and
-----
the Swing Loan Note.
"Notice of Assignment" shall mean a notice of assignment pursuant to
--------------------
Section 12.06 substantially in the form of Exhibit F.
---------
"Obligations" shall mean all amounts, direct or indirect, contingent
-----------
or absolute, of every type or description, and at any time existing, owing to
any Creditor pursuant to the terms of any Credit Document or secured by any of
the Security Documents.
"Obligors" shall mean Borrower and the Guarantors.
--------
"Officer's Certificate" shall mean, as applied to any corporation, a
---------------------
certificate executed on behalf of such corporation by its Chief Executive
Officer, or one of its Vice Presidents or its Chief Financial Officer in his or
her official (and not individual) capacity and without personal liability and
which certificate, if given with respect to the compliance with a condition
precedent to the making of any Loan or the taking of any other action 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, and (ii) a statement as to
whether, in the opinion of the signer (in his or her official, but not
individual, capacity), such condition has been complied with.
"Original Lenders" shall mean the Lenders named on the signature pages
----------------
hereof who were Lenders at the Closing Date.
"Other Taxes" see Section 5.06(c).
-----------
"Participant" see Section 12.06(c).
-----------
<PAGE>
-20-
"Payor" see Section 4.06.
-----
"PBGC" shall mean the United States Pension Benefit Guaranty
----
Corporation or any successor thereto.
"Permitted Holders" shall mean Madison Dearborn and any of its
-----------------
Affiliates controlled by Madison Dearborn.
"Permitted Investments" shall mean, for any Person: (a) direct
---------------------
obligations of the United States of America, or of any agency thereof, or
obligations guaranteed as to principal and interest by the United States of
America, or by any agency thereof, in either case maturing not more than one
year from the date of acquisition thereof by such Person; (b) time deposits,
certificates of deposit, bankers' acceptances (including eurodollar deposits)
issued by any bank or trust company organized or licensed under the laws of the
United States of America or any state thereof and having capital, surplus and
undivided profits of at least $500.0 million and a deposit rating of investment
grade; (c) commercial paper rated A-1 or better by Standard & Poor's Corporation
or P-1 or better by Moody's Investors Service, Inc., respectively, maturing not
more than 270 days from the date of acquisition thereof by such Person; and (d)
money market mutual funds that invest primarily in the foregoing items.
"Permitted Liens" see Section 9.07.
---------------
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Plan" shall mean at any time an employee pension benefit plan (other
----
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code and either is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or with respect to which Borrower or a Subsidiary
could incur liability.
"Pledged Collateral" shall have the meaning set forth in the Security
------------------
Agreement.
"Prime Rate" shall mean for any day, a rate per annum that is equal to
---------- --- -----
the corporate base rate of interest announced by Administrative Agent from time
to time, changing when and as said corporate base rate changes. The corporate
base rate is not necessarily the lowest rate charged by the Administrative Agent
to its customers.
"Principal Office" shall mean the principal office of the
----------------
Administrative Agent, located on the date hereof at 1 Federal Street, Boston,
Massachusetts 02110.
"Principal Payment Date" shall mean (i) the date which is 15 days
----------------------
after each Quarterly Date commencing with October 15, 1998 through and including
the Quarterly Date immediately prior to the date which is the seventh
anniversary of the Closing Date, (ii) with respect to the Tranche A Term Loans,
the fifth anniversary of the Closing Date, and (iii) with respect to the Tranche
B Term Loans, the seventh anniversary of the Closing Date.
"Prior Liens" shall mean Liens which, pursuant to the provisions of
-----------
any Security Document, are or may be superior to the Lien of such Security
Document.
<PAGE>
-21-
"Proceeding" shall mean any claim, counterclaim, action, judgment,
----------
suit, hearing, governmental investigation, arbitration or proceeding, including
by or before any Governmental Authority and whether judicial or administrative.
"Proceeds Transaction" see Section 9.19.
--------------------
"Property" shall mean any right or interest in or to property or
--------
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible and including Equity Interests or other ownership
interests of any Person.
"Qualified Capital Stock" shall mean with respect to any Person any
-----------------------
Equity Interest of such Person that is not Disqualified Capital Stock.
"Quarter" shall mean each three month period ending on March 31, June
-------
30, September 30 and December 31.
"Quarterly Dates" shall mean the last Business Day of March, June,
---------------
September and December in each year, commencing with the last Business Day of
December 1997.
"Real Property" shall mean all right, title and interest of Borrower
-------------
or any Subsidiary (including, without limitation, any leasehold estate) in and
to a parcel of real property owned or operated by Borrower or any Subsidiary
together with, in each case, all improvements and appurtenant fixtures,
equipment, personal property, easements and other property and rights incidental
to the ownership, lease or operation thereof.
"Refinanced Debt" shall mean the Indebtedness and commitments to make
---------------
extensions of credit of Borrower and the Subsidiaries under the existing debt
instruments and credit facilities listed on Schedule 1.01(c).
----------------
"refinancing" see Section 9.08(p).
-----------
"Register" see Section 2.08.
--------
"Regulation D" shall mean Regulation D (12 C.F.R. Part 204) of the
------------
Board of Governors of the United States Federal Reserve System.
"Regulations G, T, U and X" shall mean, respectively, Regulation G (12
-------------------------
C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R.
Part 221) and Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
United States Federal Reserve System (or any successor), as the same may be
modified and supplemented and in effect from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
-----------------
after the date hereof in any law or regulations (including Regulation D) of any
Governmental Authority or the adoption or making after such date of any
interpretation, directive or request applying to a class of banks or other
financial institutions including such Lender of or under any law or regulations
of any Governmental Authority (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority or any other regulatory agency with proper
authority, including non-governmental agencies or bodies, charged with the
interpretation or administration thereof or by the NAIC.
<PAGE>
-22-
"Reimbursement Obligations" shall mean, at any time, the obligations
-------------------------
of Borrower then outstanding, or that may thereafter arise in respect of all
Letters of Credit then outstanding, to reimburse amounts paid by the Issuing
Lender in respect of any drawings under a Letter of Credit.
"Related Document" shall mean any agreement, document or instrument
----------------
entered into by any Obligor in connection with any Document, as any such
agreement, document or instrument is amended and in effect from time to time in
accordance with its terms and this Agreement.
"Related Parties" see Section 11.01.
---------------
"Release" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration of any
Hazardous Material into the environment.
"Relevant Parties" and "Relevant Party" see Section 10(b).
---------------- --------------
"Remaining Amount" see Section 9.06(j).
----------------
"Replaced Lender" see Section 2.11.
---------------
"Replacement Indebtedness" see Section 9.08(j).
------------------------
"Replacement Lender" see Section 2.11.
------------------
"Required Payment" see Section 4.06.
----------------
"Requirement of Law" shall mean as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"Reserve Requirement" shall mean, for any Interest Period for any
-------------------
LIBOR Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the United States Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D). LIBOR
Loans shall be deemed to constitute Eurocurrency liabilities and to be subject
to such reserve requirements without benefit of or credit for proration,
exceptions or offsets which may be available from time to time to any Lender
under Regulation D.
"Reset Date" see the definition of "Applicable Margin."
----------
"Responsible Officer" shall mean the chief executive officer of
-------------------
Borrower and the president of Borrower (if not the chief executive officer) and,
with respect to financial matters, the chief financial officer of Borrower.
"Restoration" see each Mortgage.
-----------
"Retained Portion" see Section 2.10(a)(v).
----------------
<PAGE>
-23-
"Revolving Credit Commitment" shall mean, for each Revolving Credit
---------------------------
Lender, the obligation of such Lender to make Revolving Credit Loans in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set opposite the name of such Lender on Annex A under the caption
-------
"Revolving Credit Commitment" (as the same may be reduced from time to time
pursuant to Section 2.04 or changed pursuant to Section 12.06(b)). The initial
aggregate principal amount of the Revolving Credit Commitments is $90.0 million.
"Revolving Credit Commitment Percentage" shall mean, with respect to
--------------------------------------
any Revolving Credit Lender, the ratio of (a) the amount of the Revolving Credit
Commitment of such Lender to (b) the aggregate amount of the Revolving Credit
Commitments of all of the Lenders.
"Revolving Credit Commitment Termination Date" shall mean the date
--------------------------------------------
which is the fifth anniversary of the Closing Date.
"Revolving Credit Commitments" shall mean the aggregate sum of the
----------------------------
Revolving Credit Commitment of all of the Revolving Credit Lenders, including
the Increased Facility Amount, if any.
"Revolving Credit Lenders" shall mean (a) on the date hereof, the
------------------------
Lenders having Revolving Credit Commitments on the signature pages hereof and
(b) thereafter, the Lenders from time to time holding Revolving Credit Loans and
Revolving Credit Commitments after giving effect to any assignments thereof
permitted by Section 12.06(b).
"Revolving Credit Loans" see Section 2.01(a).
----------------------
"Revolving Credit Notes" shall mean the promissory notes provided for
----------------------
by Section 2.08(a) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Section 5.06 Certificate" see Section 5.06(b).
------------------------
"Security Agreement" shall mean a Security Agreement substantially in
------------------
the form of Exhibit D among the Obligors and the Administrative Agent, as the
---------
same may be amended, modified or supplemented in accordance with the terms
thereof and hereof.
"Security Documents" shall mean the Security Agreement, the Mortgage,
------------------
and all Uniform Commercial Code financing statements required by this Agreement,
the Security Agreement or any Mortgage to be filed with respect to the security
interests in Property and fixtures created pursuant to the Security Agreement or
any Mortgage and any other document or instrument utilized to pledge as
Collateral for the Obligations any property or assets of whatever kind or
nature.
"Senior Debt Leverage Ratio" shall mean, at any date, the ratio of (x)
--------------------------
Total Senior Debt at such date to (y) Consolidated EBITDA for the Measurement
Period ended on or immediately prior to such date.
"Senior Subordinated Financing" shall mean the issuance by Borrower of
-----------------------------
Senior Subordinated Notes pursuant to the Senior Subordinated Note Documents for
gross cash proceeds of $100 million.
"Senior Subordinated Notes" shall mean the unsecured senior
-------------------------
subordinated notes issued pursuant to the Senior Subordinated Financing,
including the senior subordinated notes issued pursuant to a
<PAGE>
-24-
registered exchange offer therefor made pursuant to the registration rights
agreement entered into in connection with the issuance thereof on the Closing
Date.
"Senior Subordinated Note Documents" shall mean the Indenture dated
----------------------------------
December [_], 1997 pursuant to which the Senior Subordinated Notes were issued
and all documents relating thereto, as any such agreement or document may be
amended and in effect from time to time in accordance with its terms and this
Agreement.
"Solvent" and "Solvency" shall mean, for any Person on a particular
------- --------
date, that on such date (a) the fair value of the Property of such Person on a
going concern basis is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present fair
salable value of the Property of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts and liabilities beyond such Person's
ability to pay as such debts and liabilities mature, (d) such Person is not
engaged in a business or a transaction, and is not about to engage in a business
or a transaction, for which such Person's Property would constitute an
unreasonably small capital and (e) such Person is able to pay its debts as they
become due and payable.
"Specified Real Property" shall mean the parcel of land located in
-----------------------
Frankford Marsh, Texas described on Schedule 1.01(d) and owned by Borrower, to
----------------
be sold pursuant to a written agreement as in effect on the Closing Date.
"State and Local Real Property Disclosure Requirements" shall mean any
-----------------------------------------------------
state or local laws requiring notification of the buyer of real property, or
notification, registration, or filing to or with any state or local agency,
prior to the sale of any real property or transfer of control of an
establishment, of the actual or threatened presence or release into the
environment, or the use, disposal, or handling of Hazardous Materials on, at,
under, or near the real property to be sold or the establishment for which
control is to be transferred.
"Subordinated Debt" shall mean Indebtedness of Borrower which is
-----------------
subordinated to the Obligations on terms and conditions and pursuant to
documentation satisfactory to the Arranger (which shall include the Senior
Subordinated Notes); provided, however, that no Indebtedness will be deemed to
-------- -------
be subordinate merely by virtue of lack of a security interest in any
collateral.
"Subordination Provisions" see Section 10(m).
------------------------
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. Unless the context clearly requires otherwise, all references to
any Subsidiary shall mean a Subsidiary of Borrower.
"Subsidiary Guarantee" shall mean the Guarantee of each Subsidiary
--------------------
Guarantor.
<PAGE>
-25-
"Subsidiary Guarantors" shall mean each of the direct and indirect
---------------------
Domestic Subsidiaries of Borrower listed on Schedule 1.01(b) and each other
direct and indirect Domestic Subsidiary that guarantees the payment of the
Obligations of Borrower hereunder pursuant to Section 9.21 and the other Credit
Documents.
"Supermajority Lenders" shall mean (i) at any time prior to the
---------------------
Closing Date, Lenders holding at least two-thirds of the aggregate amount of the
Commitments and (ii) at any time after the Closing Date, Lenders holding at
least two-thirds of the sum of (without duplication) (a) the aggregate principal
amount of outstanding Loans (other than Swing Loans), plus (b) the aggregate
----
amount of all Letter of Credit Liabilities, plus (c) the aggregate unused amount
----
of Revolving Credit Commitments then in effect, plus (d) the aggregate amount of
----
Swing Loans then outstanding (which, for each Revolving Credit Lender, shall be
deemed such Lender's pro rata share (based on the Revolving Credit Commitments)
--- ----
of the aggregate principal amount of Swing Loans then outstanding).
"Supermajority Lenders of the Affected Class" shall mean (i) at any
-------------------------------------------
time prior to the Closing Date, Lenders holding at least two-thirds of the
aggregate amount of the Commitments of the applicable tranche of Term Loan
Commitments which would be affected by any modification, supplement or waiver
contemplated by clause (e) or (f) to the proviso to Section 12.04(i), and (ii)
at any time after the Closing Date, Lenders holding at least two-thirds of the
sum of the aggregate amount of the outstanding Loans of the applicable tranche
of Term Loans which would be affected by any modification, supplement or waiver
contemplated by clause (e) or (f) to the proviso to Section 12.04(i).
"Surety Instruments" shall mean all letters of credit (including
------------------
standby and commercial), bankers' acceptances, bank guarantees, surety bonds and
similar instruments.
"Survey" shall mean a survey of any Mortgaged Real Property (and all
------
improvements thereon): (i) prepared by a surveyor or engineer licensed to
perform surveys in the state, province or country where such Mortgaged Real
Property is located, (ii) dated (or redated) not earlier than six months prior
to the date of delivery thereof unless there shall have occurred within the six
months prior to such date of delivery any exterior construction on the site of
such Mortgaged Real Property, in which event such survey shall be dated (or
redated) after the completion of such construction or, if such construction
shall not have been completed as of such date of delivery, not earlier than 20
days prior to such date of delivery, (iii) certified by the surveyor (in a
manner reasonably acceptable to the Administrative Agent) to the Administrative
Agent and the Title Company and (iv) complying in all respects with the minimum
detail requirements of the American Land Title Association as such requirements
are in effect on the date of preparation of such survey.
"Swap Contract" means any agreement (including any master agreement
-------------
and any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward rate
agreement, commodity swap, commodity option, equity or equity index swap or
option, bond option, interest rate option, foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or any other similar agreement (including
any option to enter into any of the foregoing).
"Swing Loan Commitment" shall mean the obligation of Fleet National
---------------------
Bank to make or continue Swing Loans hereunder in an aggregate principal amount
up to but not exceeding $1,000,000, as the same may be reduced or terminated
pursuant to Section 2.04 or Section 10, it being understood that the Swing Loan
Commitment is part of the Revolving Credit Commitment of the Swing Loan Lender,
rather than a separate, independent commitment.
<PAGE>
-26-
"Swing Loan Lender" shall mean Fleet National Bank, and its successors
-----------------
and assigns in such capacity.
"Swing Loan Maturity Date" shall mean the Revolving Credit Commitment
------------------------
Termination Date.
"Swing Loan Note" shall mean the promissory note made by Borrower
---------------
evidencing the Swing Loans, in the form of Exhibit A-4.
-----------
"Swing Loans" see Section 2.01(e).
-----------
"Taking" shall mean any taking of any Mortgaged Real Property or Real
------
Property of any Obligor or any of its Subsidiaries or any part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any law, general or
special, or by reason of the temporary requisition of the use or occupancy of
any Mortgaged Real Property or Real Property of any Obligor or any of its
Subsidiaries or any part thereof, by any Governmental Authority, civil or
military. Taking shall not include any Casualty Event.
"Tax Benefit" see Section 5.06(a).
-----------
"Term Loan Commitments" shall mean the Tranche A Term Loan Commitments
---------------------
and the Tranche B Term Loan Commitments, collectively.
"Term Loan Facility" shall mean the credit facility comprising the
------------------
Term Loan Commitments.
"Term Loan Lenders" shall mean the Tranche A Term Loan Lenders and the
-----------------
Tranche B Term Loan Lenders, collectively.
"Term Loan Notes" shall mean the Tranche A Term Loan Notes and the
---------------
Tranche B Term Loan Notes, collectively.
"Term Loan Portion" see Section 9.06(j).
-----------------
"Term Loan Tranches" shall mean the Term Loans outstanding under the
------------------
Tranche A Term Loans and the Tranche B Term Loans, collectively, and "Term Loan
---------
Tranche" shall mean any of them.
- -------
"Term Loans" shall mean the Tranche A Term Loans and the Tranche B
----------
Term Loans, collectively.
"Title Company" shall mean Chicago Title Insurance Company or such
-------------
other title insurance or abstract company as shall be mutually agreeable to
Borrower and the Administrative Agent.
"Total Debt" shall mean at any date, the aggregate amount of (i)
----------
Indebtedness (other than Revolving Credit Loans, Swing Loans and Letter of
Credit Liabilities except as provided in clause (ii) and other than Indebtedness
under clauses (f) or (n) of Section 9.08), plus (ii) the average of the month
----
end aggregate total amount of Revolving Credit Loans and Swing Loans over the
Measurement Period ended on or immediately prior to such date of Borrower and
the Subsidiaries as of such date determined on a consolidated basis in
accordance with GAAP.
"Total Senior Debt" shall mean, at any date, the aggregate amount of
-----------------
(i) Indebtedness (other than Revolving Credit Loans, Swing Loans and Letter of
Credit Liabilities except as provided in clause (ii) and
<PAGE>
-27-
other than Indebtedness under clauses (f) or (n) of Section 9.08), plus (ii) the
----
average of the month end aggregate total amount of the sum of Revolving Credit
Loans and Swing Loans over the Measurement Period ended on or immediately prior
to such date of Borrower and the Subsidiaries as of such date, other than
Subordinated Debt, determined on a consolidated basis in accordance with GAAP.
"Tranche A Term Loan Commitment" shall mean, for each Tranche A Term
------------------------------
Loan Lender, the obligation of such Lender to make a Tranche A Term Loan in an
amount up to but not exceeding the amount set opposite the name of such Lender
on Annex A under the caption "Tranche A Term Loan Commitment" (as the same may
-------
be changed pursuant to Section 12.06(b)). The initial aggregate principal
amount of the Tranche A Term Loan Commitments is $40.0 million.
"Tranche A Term Loan Commitments" shall mean the aggregate sum of the
-------------------------------
Tranche A Term Loan Commitment of all the Lenders.
"Tranche A Term Loan Lenders" shall mean (a) on the date hereof, the
---------------------------
Lenders having Tranche A Term Loan Commitments on the signature pages hereof,
and (b) thereafter, the Lenders from time to time holding Tranche A Term Loans
and Tranche A Term Loan Commitments after giving effect to any assignments
thereof permitted by Section 12.06(b).
"Tranche A Term Loan Notes" shall mean the promissory notes provided
-------------------------
for by Section 2.08(b)(i) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Tranche A Term Loans" shall mean the loans provided for by Section
--------------------
2.01(b), which may be Alternate Base Rate Loans and/or LIBOR Loans.
"Tranche B Term Loan Commitment" shall mean, for each Tranche B Term
------------------------------
Loan Lender, the obligation of such Lender to make a Tranche B Term Loan in an
amount up to but not exceeding the amount set opposite the name of such Lender
on Annex A under the caption "Tranche B Term Loan Commitment" (as the same may
-------
be changed pursuant to Section 12.06(b)). The initial aggregate principal
amount of the Tranche B Term Loan Commitments is $70.0 million.
"Tranche B Term Loan Commitments" shall mean the aggregate sum of the
-------------------------------
Tranche B Term Loan Commitment of all the Lenders.
"Tranche B Term Loan Lenders" shall mean (a) on the date hereof, the
---------------------------
Lenders having Tranche B Term Loan Commitments on the signature pages hereof,
and (b) thereafter, the Lenders from time to time holding Tranche B Term Loans
and Tranche B Term Loan Commitments after giving effect to any assignments
thereof permitted by Section 12.06(b).
"Tranche B Term Loan Notes" shall mean the promissory notes provided
-------------------------
for by Section 2.08(b)(ii) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Tranche B Term Loans" shall mean the loans provided for by Section
--------------------
2.01(c), which may be Alternate Base Rate Loans and/or LIBOR Loans.
<PAGE>
-28-
"Transactions" shall mean the Merger, the Equity Financing, the Senior
------------
Subordinated Financing, the Management Rollover and the Existing Debt Repayment
and the borrowings hereunder on the Closing Date.
"Type" see Section 1.03.
----
"UCC" shall mean the Uniform Commercial Code as in effect in the
---
applicable state of jurisdiction.
"Unfunded Liabilities" shall mean, with respect to any Plan at any
--------------------
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title I
of ERISA (excluding any accrued but unpaid contributions), all determined as of
the then most recent valuation date for such Plan.
"Unutilized Revolving Credit Commitment" shall mean, for any Revolving
--------------------------------------
Credit Lender, at any time, the excess of such Lender's Revolving Credit
Commitment at such time over the sum of (i) the aggregate outstanding principal
amount of Revolving Credit Loans made by such Lender, (ii) such Lender's
Revolving Credit Commitment Percentage of the aggregate amount of Letter of
Credit Liabilities at such time, and (iii) with respect to the Swing Loan Lender
only, the aggregate principal amount of Swing Loans then outstanding.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any
-----------------------
corporation, partnership or other entity of which all of the equity securities
or other ownership interests (other than, in the case of a corporation,
directors' qualifying shares or shares required to be held by foreign nationals)
are directly or indirectly owned or controlled by such Person or one or more
Wholly Owned Subsidiaries of such Person or by such Person and one or more
Wholly Owned Subsidiaries of such Person. Unless the context clearly requires
otherwise, all references to any Wholly Owned Subsidiary shall mean a Wholly
Owned Subsidiary of Borrower.
"Working Capital" shall mean an amount determined for Borrower and the
---------------
Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP) equal to the sum of all current assets (other than cash)
less the sum of all current liabilities (other than the current portion of long-
term Indebtedness and the repayments of the Revolving Credit Loans required
pursuant to Section 2.12).
"Yearly Period" shall mean each full period of four Quarters
-------------
commencing with the Closing Date.
1.02. Accounting Terms and Determinations. Except as otherwise
-----------------------------------
provided in this Agreement, all computations and determinations as to accounting
or financial matters shall be made in accordance with GAAP, and all accounting
or financial terms shall have the meanings ascribed to such terms by GAAP as in
effect on the date hereof. All financial statements to be delivered pursuant to
this Agreement shall be prepared in accordance with GAAP. All financial
covenants are to be calculated in accordance with GAAP as in effect on the date
hereof unless such modifications are agreed to by the parties hereto.
1.03. Classes and Types of Loans. Loans hereunder are distinguished
--------------------------
by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a
-----
Loan) refers to whether such Loan is a Revolving Credit Loan, Swing Loan,
Tranche A Term Loan or Tranche B Term Loan, each of which constitutes a Class.
The "Type" of a Loan refers to whether such Loan is an Alternate Base Rate Loan
----
or a LIBOR Loan, each of which constitutes a Type. Loans may be identified by
both Class and Type.
<PAGE>
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1.04. Rules of Construction. (A) In this Agreement and each other
---------------------
Credit Document, unless the context clearly requires otherwise (or such other
Credit Document clearly provides otherwise), references to (i) the plural
include the singular, the singular the plural and the part the whole; (ii)
Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; (iii) agreements (including this Agreement), promissory notes and
other contractual instruments include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
or other modifications thereto are not prohibited by their terms or the terms of
any Credit Document; (iv) statutes and related regulations include any
amendments of same and any successor statutes and regulations; and (v) time
shall be a reference to New York City time. Where any provision herein refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(B) In this Agreement and each other Credit Document, unless the
context clearly requires otherwise (or such other Credit Document clearly
provides otherwise), (i) "amend" shall mean "amend, amend and restate,
-----
supplement or modify"; and "amended" and "amendment" shall have meanings
------- ---------
correlative to the foregoing; (ii) in the computation of periods of time from a
specified date to a later specified date, "from" shall mean "from and
----
including"; "to" and "until" shall mean "to but excluding"; and "through" shall
-- ----- -------
mean "to and including"; (iii) "hereof," "herein" and "hereunder" (and similar
------ ------ ---------
terms) in this Agreement or any other Credit Document refer to this Agreement or
such other Credit Document, as the case may be, as a whole and not to any
particular provision of this Agreement or such other Credit Document; (iv)
"including" (and similar terms) shall mean "including without limitation" (and
---------
similarly for similar terms); (v) "or" has the inclusive meaning represented by
--
the phrase "and/or"; (vi) "satisfactory to" any Creditor shall mean in form,
---------------
scope and substance and on terms and conditions satisfactory to such Creditor;
and (vii) references to "the date hereof" shall mean the date first set forth
---------------
above.
(C) In this Agreement unless the context clearly requires otherwise,
any reference to (i) an Annex, Exhibit or Schedule is to an Annex, Exhibit or
Schedule, as the case may be, attached to this Agreement and constituting a part
hereof, and (ii) a Section or other subdivision is to a Section or such other
subdivision of this Agreement.
(D) No doctrine of construction of ambiguities in agreements or
instruments against the interests of the party controlling the drafting thereof
shall apply to any Credit Document.
Section 2. Commitments, Loans, Notes, Prepayments,
Replacement of Lenders and Annual Cleandown.
-------------------------------------------
2.01. Loans.
-----
(A) Revolving Credit Loans. (I) Each Revolving Credit Lender
----------------------
severally agrees, on the terms and conditions of this Agreement, to make
revolving credit loans (the "Revolving Credit Loans") to Borrower in Dollars
----------------------
during the period from and including the Closing Date to but not including the
Revolving Credit Commitment Termination Date in an aggregate principal amount at
any one time outstanding not exceeding the amount of the Revolving Credit
Commitment of such Lender as in effect from time to time; provided, however,
-------- -------
that in no event shall the sum of the aggregate principal amount of (without
duplication) all Revolving Credit Loans then outstanding, plus the aggregate
----
principal amount of Swing Loans then outstanding, plus the aggregate amount of
----
all Letter of Credit Liabilities at any time exceed the lesser of (i) the
aggregate amount of the Revolving Credit Commitments as in effect at such time
and (ii) the Borrowing Base as in effect at such time. Subject to the terms and
conditions of this Agreement, during such period Borrower may borrow, repay and
reborrow the amount of the Revolving Credit Commitments by means of Alternate
Base Rate Loans and LIBOR
<PAGE>
-30-
Loans and may Convert Revolving Credit Loans of one Type into Revolving Credit
Loans of another Type (as provided in Section 2.09) or Continue Revolving Credit
Loans of one Type as Revolving Credit Loans of the same Type (as provided in
Section 2.09).
(II) Borrower may at any time on or after the first anniversary of the
Closing Date request that one or more Revolving Credit Lenders provide all or a
portion of the Increased Facility Amount. No Revolving Credit Lender shall have
any obligation to make available any such increase in the Revolving Credit
Commitments. To the extent existing Revolving Credit Lenders decline to make
available all of the Increased Facility Amount, Borrower may approach New
Lenders to provide such increase provided that the conditions to obtaining the
Increased Facility Amount have been satisfied; provided, however, that any such
-------- -------
New Lenders, upon the making of a Revolving Credit Commitment pursuant to the
Increased Facility Amount, shall be treated as Revolving Credit Lenders for all
purposes of this Agreement. If and to the extent agreed to be extended by any
Revolving Credit Lender or New Lender, the Increased Facility Amount shall
become part of the Revolving Credit Commitments.
(B) Tranche A Term Loans. Each Tranche A Term Loan Lender severally
--------------------
agrees, on the terms and conditions of this Agreement, to make a single term
loan to Borrower in Dollars on the Closing Date in a principal amount equal to
the Tranche A Term Loan Commitment of such Lender, such loan to be used to
finance the Merger and the Existing Debt Repayment (including fees and
expenses). Thereafter Borrower may Convert Tranche A Term Loans of one Type
into Tranche A Term Loans of another Type (as provided in Section 2.09) or
Continue Tranche A Term Loans of one Type as Tranche A Term Loans of the same
Type (as provided in Section 2.09).
Tranche A Term Loans that are repaid or prepaid may not be reborrowed.
(C) Tranche B Term Loans. Each Tranche B Term Loan Lender severally
--------------------
agrees, on the terms and conditions of this Agreement, to make a single term
loan to Borrower in Dollars on the Closing Date in a principal amount equal to
the Tranche B Term Loan Commitment of such Lender, such loan to be used to
finance the Merger and the Existing Debt Repayment (including fees and
expenses). Thereafter Borrower may Convert Tranche B Term Loans of one Type
into Tranche B Term Loans of another Type (as provided in Section 2.09) or
Continue Tranche B Term Loans of one Type as Tranche B Term Loans of the same
Type (as provided in Section 2.09).
Tranche B Term Loans that are repaid or prepaid may not be reborrowed.
(D) Limit on LIBOR Loans. No more than eight separate Interest
--------------------
Periods in respect of LIBOR Loans of any Class may be outstanding at any one
time. No LIBOR Loans shall be made on the Closing Date.
(E) Swing Loans. Subject to the terms and conditions of this
-----------
Agreement, upon request of Borrower, the Swing Loan Lender agrees to make one or
more swing loans to Borrower from time to time from and including the Closing
Date, to but excluding the Swing Loan Maturity Date, up to but not exceeding the
amount of the Swing Loan Lender's Swing Loan Commitment as then in effect.
(Such swing loans referred to in this Section 2.01(e) now or hereafter made by
the Swing Loan Lender to Borrower from and including and after the Closing Date
are hereinafter collectively called the "Swing Loans".) Prior to the Swing Loan
-----------
Maturity Date, Borrower may borrow, repay and reborrow Swing Loans up to the
Swing Loan Commitment in accordance with the terms of this Agreement. The Swing
Loan Lender shall not make any Swing Loans on or after the Swing Loan Maturity
Date. Notwithstanding anything to the contrary contained in this Section
2.01(e) or elsewhere in this Agreement, the Swing Loan Lender shall not,
pursuant to this Section 2.01(e) or otherwise, make any Swing
<PAGE>
-31-
Loan to or for the account of Borrower, and Borrower shall not be entitled to
borrow, pursuant to this Section 2.01(e), if, after giving full effect to the
requested Swing Loan, the aggregate outstanding amount of Revolving Credit
Loans, plus the aggregate outstanding amount of Swing Loans, plus the aggregate
---- ----
outstanding Letter of Credit Liabilities would exceed the lesser of (i) the
aggregate amount of the Revolving Credit Commitments as in effect at such time
and (ii) the Borrowing Base as in effect at such time. Notwithstanding anything
herein or elsewhere to the contrary, the Swing Loans will be made and maintained
only as Alternate Base Rate Loans. The Swing Loan Lender shall not make any
Swing Loan after receiving a written notice from Borrower or the Majority
Revolving Credit Lenders stating that a Default or an Event of Default exists
and is continuing until such time as the Swing Loan Lender shall have received
written notice of (i) rescission of all such notices from the party or parties
originally delivering such notice, (ii) the waiver of such Default or Event of
Default by the Majority Lenders, or (iii) the Agent's good faith determination
that such Default or Event of Default has ceased to exist. Swing Loans shall be
made and repaid in minimum amounts of $50,000 and integral multiples of $10,000
above such amount.
Upon the occurrence of a Default, each Revolving Credit Lender shall
be deemed to have purchased (and each Revolving Credit Lender hereby irrevocably
agrees to purchase on a pro rata basis (based upon each Revolving Credit
--- ----
Lender's Revolving Credit Commitment)) an irrevocable risk participation in all
outstanding Swing Loans, together with all accrued interest thereon, without any
further action by or on behalf of the Swing Loan Lender, any other Lender,
Borrower or any other Person. Upon one Business Day's notice from the Swing
Loan Lender, each other Revolving Credit Lender shall deliver to the Swing Loan
Lender an amount equal to its respective participation in such Swing Loan (as
determined pursuant to the immediately preceding sentence) in cash. In order to
evidence such participation, each Revolving Credit Lender agrees to enter into a
participation agreement at the request of the Swing Loan Lender in form and
substance satisfactory to the Swing Loan Lender and the Revolving Credit Lender.
If any Revolving Credit Lender fails to make available to the Swing Loan Lender
the amount of such Revolving Credit Lender's participation as provided in this
paragraph, the Swing Loan Lender shall be entitled to recover such amount on
demand from such Revolving Credit Lender, together with interest thereon at the
Federal Funds Rate until such amount is paid in full in cash. In the event the
Swing Loan Lender receives a payment from Borrower or any other Obligor of any
amount in which the Revolving Credit Lenders have purchased participations as
provided in this paragraph, the Swing Loan Lender shall distribute (after first
applying any such payment to any fees, costs and expenses of the Revolving
Credit Lenders) to each Revolving Credit Lender its pro rata share of such
--- ----
payment. Anything contained in this Agreement or otherwise to the contrary
notwithstanding, (A) each Revolving Credit Lender's obligation to purchase a
participation in each unpaid Swing Loan shall be absolute and unconditional and
shall not be affected by any circumstances, including, without limitation, (1)
any setoff, counterclaim, recoupment, defense or other right which such
Revolving Credit Lender may now or hereafter have against the Swing Loan Lender,
Borrower or any other Person for any reason whatsoever, (2) the occurrence or
continuation of a Default or an Event of Default, (3) any material adverse
change in the condition of Borrower or any Subsidiary, (4) any breach or default
of this Agreement or any of the Security Documents by any Person, or (5) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing, and (B) the Swing Loan Lender shall not have any obligation to
make any Swing Loans if (1) Borrower fails for whatever reason to satisfy any of
the conditions precedent set forth in Section 7.02 or (2) any Revolving Credit
Lender fails for whatever reason to comply with its obligations under this
Section 2.01(e).
2.02. Borrowings. Borrower shall give the Administrative Agent
----------
notice of each borrowing hereunder as provided in Section 4.05. The form of
such notice of borrowing shall be substantially in the form of Exhibit I. Not
---------
later than 12:00 noon New York time on the date specified for each borrowing
hereunder, each Lender shall make available the amount of the Loan or Loans to
be made by it on such date to the Administrative Agent, at an account specified
by the Administrative Agent maintained at the Principal Office, in immediately
available funds, for account of Borrower. Each borrowing of Revolving Credit
Loans shall be made by each
<PAGE>
-32-
Revolving Credit Lender pro rata based on such Lender's Revolving Credit
--- ----
Commitment Percentage. The amounts so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to Borrower by depositing the same, in immediately available funds, in an
account of Borrower maintained with the Administrative Agent at the Principal
Office designated by Borrower.
2.03. Letters of Credit. Subject to the terms and conditions hereof,
-----------------
the Revolving Credit Commitments may be utilized, upon the request of Borrower,
in addition to the Revolving Credit Loans provided for by Section 2.01(a), for
standby and commercial documentation letters of credit (herein collectively
called "Letters of Credit") issued by the Issuing Lender for the account of
-----------------
Borrower; provided, however, that in no event shall (i) the aggregate amount of
-------- -------
all Letter of Credit Liabilities, plus the aggregate principal amount of the
----
Revolving Credit Loans then outstanding, plus the aggregate principal amount of
----
Swing Loans then outstanding exceed at any time the lesser of (x) the Revolving
Credit Commitments as in effect at such time and (y) the Borrowing Base as in
effect at such time, (ii) the sum of the aggregate principal amount of Revolving
Credit Loans then outstanding made by any Revolving Credit Lender, plus such
----
Lender's pro rata share (based on the Revolving Credit Commitments) of the
--- ----
aggregate principal amount of Swing Loans then outstanding, plus such Lender's
----
pro rata share (based on the Revolving Credit Commitments) of the aggregate
- --- ----
amount of all Letter of Credit Liabilities exceed such Lender's Revolving Credit
Commitment as in effect at such time, (iii) the outstanding aggregate amount of
all Letter of Credit Liabilities exceed $15.0 million, (iv) the face amount of
any Letter of Credit be less than $10,000, (v) the expiration date of any Letter
of Credit extend beyond the earlier of (x) the fifth Business Day preceding the
Revolving Credit Commitment Termination Date (unless cash collateralized (or
backstopped by irrevocable letters of credit) beyond such date on terms and
conditions and pursuant to documentation satisfactory to the Majority Revolving
Credit Lenders) and (y) the date twelve months following the date of such
issuance for standby Letters of Credit or 270 days after the date of such
issuance for trade Letters of Credit, unless the Majority Revolving Credit
Lenders have approved such expiry date in writing (but never beyond the fifth
Business Day prior to the Revolving Credit Commitment Termination Date);
provided, however, that any standby Letter of Credit may be automatically
- -------- -------
extendible for periods of up to one year (but never beyond the fifth Business
Day preceding the Revolving Credit Commitment Termination Date) so long as such
Letter of Credit provides that the Issuing Lender retains an option satisfactory
to the Issuing Lender, to terminate such Letter of Credit prior to each
extension date, unless all of the Revolving Credit Lenders have approved such
expiry date in writing, or (vi) the Issuing Lender issue any Letter of Credit
after it has received notice from Borrower or the Majority Revolving Credit
Lenders stating that a Default or Event of Default exists until such time as the
Issuing Lender shall have received written notice of (x) rescission of such
notice from the Majority Revolving Credit Lenders, (y) waiver of such Default or
Event of Default in accordance with this Agreement or (z) the Administrative
Agent's good faith determination that such Default or Event of Default has
ceased to exist. The following additional provisions shall apply to Letters of
Credit:
(A) Borrower shall give the Administrative Agent at least three
Business Days' irrevocable prior notice (effective upon receipt) specifying
the date (which shall be no later than thirty days preceding the Revolving
Credit Termination Date) each Letter of Credit is to be issued and
describing in reasonable detail the proposed terms of such Letter of Credit
(including the beneficiary thereof) (including whether such Letter of
Credit is to be a commercial Letter of Credit or a standby Letter of
Credit). Upon receipt of any such notice, the Administrative Agent shall
advise the Issuing Lender of the contents thereof.
(B) On each day during the period commencing with the issuance by the
Issuing Lender of any Letter of Credit and until such Letter of Credit
shall have expired or been terminated, the Revolving Credit Commitment of
each Revolving Credit Lender shall be deemed to be utilized for all
purposes hereof in an amount equal to such Lender's Revolving Credit
Commitment Percentage of the then undrawn face amount of such Letter of
Credit. Each Revolving Credit Lender (other than the Issuing
<PAGE>
-33-
Lender) agrees that, upon the issuance of any Letter of Credit hereunder,
it shall automatically acquire a participation in the Issuing Lender's
liability under such Letter of Credit in an amount equal to such Lender's
Revolving Credit Commitment Percentage of such liability, and each
Revolving Credit Lender (other than the Issuing Lender) thereby shall
absolutely, unconditionally and irrevocably assume, as primary obligor and
not as surety, and shall be unconditionally obligated to the Issuing Lender
to pay and discharge when due, its Revolving Credit Commitment Percentage
of the Issuing Lender's liability under such Letter of Credit. The Issuing
Lender shall be deemed to hold a Letter of Credit Liability in an amount
equal to its retained interest in the related Letter of Credit after giving
effect to such acquisition by the Revolving Credit Lenders other than the
Issuing Lender of their participation interests.
(C) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Issuing Lender shall
promptly notify Borrower (through the Administrative Agent) of the amount
to be paid by the Issuing Lender as a result of such demand and the date on
which payment is to be made by the Issuing Lender to such beneficiary in
respect of such demand. Borrower hereby unconditionally agrees to pay and
reimburse the Issuing Lender for the amount of each demand for payment
under such Letter of Credit not later than the next Business Day after the
date on which the Issuing Lender notifies Borrower that payment is to be
made by the Issuing Lender to the beneficiary thereunder.
(D) Forthwith upon its receipt of a notice referred to in clause (c)
of this Section 2.03, Borrower shall advise the Issuing Lender whether or
not Borrower intends to borrow hereunder to finance its obligation to
reimburse the Issuing Lender for the amount of the related demand for
payment and, if it does, submit a notice of such borrowing as provided in
Section 4.05. In the event that Borrower fails to so advise the
Administrative Agent not later than one Business Day prior to the date
payment from Borrower is due to the Issuing Lender by virtue of a drawing
under a Letter of Credit, Borrower shall be deemed to have given notice of
borrowing for a Revolving Credit Loan which is an Alternate Base Rate Loan
in the exact amount owing to the Issuing Lender and the Administrative
Agent shall act accordingly. If Borrower has given such notice indicating
that it does not intend to borrow hereunder or if Borrower fails to
reimburse the Issuing Lender for a demand for payment under a Letter of
Credit by the date of notice of such payment (or the next Business Day if
received after 12:00 noon (New York time) on such date), the Administrative
Agent shall give each Revolving Credit Lender prompt notice of the amount
of the demand for payment, specifying such Lender's Revolving Credit
Commitment Percentage of the amount of the related demand for payment.
(E) Each Revolving Credit Lender (other than the Issuing Lender)
shall pay to the Administrative Agent for account of the Issuing Lender at
the Principal Office in Dollars and in immediately available funds, the
amount of such Lender's Revolving Credit Commitment Percentage of any
payment under a Letter of Credit upon notice by the Issuing Lender (through
the Administrative Agent) to such Revolving Credit Lender requesting such
payment and specifying such amount. Each such Revolving Credit Lender's
obligation to make such payments to the Administrative Agent for account of
the Issuing Lender under this clause (e), and the Issuing Lender's right to
receive the same, shall be absolute and unconditional and shall not be
affected by any circumstance whatsoever, including (i) the failure of any
other Revolving Credit Lender to make its payment under this clause (e),
(ii) the financial condition of Borrower or the existence of any Default or
(iii) the termination of the Commitments. Each such payment to the Issuing
Lender shall be made without any offset, abatement, withholding or
reduction whatsoever. Nothing in this clause (e) shall be deemed to
prejudice the right of any Revolving Credit Lender to recover from the
Issuing Lender in the event of a wrongful payment
<PAGE>
-34-
of the kind described in the proviso of the last paragraph of this Section
2.03 or with respect to the issuance of a Letter of Credit in breach of any
restriction on such issuance under Section 2.03.
(F) Upon the making of each payment by a Revolving Credit Lender to
the Issuing Lender pursuant to clause (e) above in respect of any Letter of
Credit, such Lender shall, automatically and without any further action on
the part of the Administrative Agent, the Issuing Lender or such Lender,
acquire (i) a participation in an amount equal to such payment in the
Reimbursement Obligation owing to the Issuing Lender by Borrower hereunder
and under the Letter of Credit Documents relating to such Letter of Credit
and (ii) a participation in a percentage equal to such Lender's Revolving
Credit Commitment Percentage in any interest or other amounts payable by
Borrower hereunder and under such Letter of Credit Documents in respect of
such Reimbursement Obligation. Upon receipt by the Issuing Lender from or
for the account of Borrower of any payment in respect of any Reimbursement
Obligation or any such interest or other amounts (including by way of
setoff or application of proceeds of any collateral security) the Issuing
Lender shall promptly pay to the Administrative Agent for account of each
Revolving Credit Lender entitled thereto, such Revolving Credit Lender's
Revolving Credit Commitment Percentage of such payment, each such payment
by the Issuing Lender to be made in the same money and funds in which
received by the Issuing Lender. In the event any payment received by the
Issuing Lender and so paid to the Revolving Credit Lenders hereunder is
rescinded or must otherwise be returned by the Issuing Lender, each
Revolving Credit Lender shall, upon the request of the Issuing Lender
(through the Administrative Agent), repay to the Issuing Lender (through
the Administrative Agent) the amount of such payment paid to such Lender,
with interest at the rate specified in clause (i) of this Section 2.03.
(G) Borrower shall pay to the Administrative Agent for the account of
the Issuing Lender in respect of each Letter of Credit a letter of credit
commission in an amount equal to (x) the rate per annum equal to the
--- -----
Applicable Margin for Revolving Credit Loans that would be LIBOR Loans in
effect at the time of issuance thereof, multiplied by (y) the daily average
undrawn face amount of such Letter of Credit for the period from and
including the date of issuance of such Letter of Credit (i) in the case of
a Letter of Credit which expires in accordance with its terms, to and
including such expiration date and (ii) in the case of a Letter of Credit
which is drawn in full or is otherwise terminated other than on the stated
expiration date of such Letter of Credit, to but excluding the date such
Letter of Credit is drawn in full or is terminated, such fee to be non-
refundable and to be paid in arrears quarterly, on each Quarterly Date and
on the earlier of the Revolving Credit Commitment Termination Date or the
date of the termination of the Revolving Credit Commitments or the date of
such termination, expiration or the Business Day subsequent to notice of a
drawing. The Issuing Lender shall pay to the Administrative Agent for
account of each Revolving Credit Lender (other than the Issuing Lender),
from time to time at reasonable intervals (but in any event at least
quarterly), but only to the extent actually received from Borrower, an
amount equal to such Lender's Revolving Credit Commitment Percentage of all
letter of credit commissions referred to in the first sentence of this
clause (g). In addition, Borrower shall pay to the Administrative Agent
for account of the Issuing Lender only in respect of each Letter of Credit
a letter of credit issuance fee in an amount equal to 0.25% per annum
--- -----
multiplied by the original face amount from the issue date through the
expiry date of such Letter of Credit (but in no event greater than $500 per
Letter of Credit), such amount to be payable on the date of issuance of
such Letter of Credit, plus all charges, costs and expenses in the amounts
customarily charged by the Issuing Lender from time to time in like
circumstances with respect to the issuance of each Letter of Credit and
drawings and other transactions relating thereto.
(H) Promptly following the end of each calendar month, the Issuing
Lender shall deliver (through the Administrative Agent) to each Revolving
Credit Lender and Borrower a notice describing
<PAGE>
-35-
the aggregate amount of all Letters of Credit outstanding at the end of
such month. Upon the request of any Revolving Credit Lender from time to
time, the Issuing Lender shall deliver any other information reasonably
requested by such Lender with respect to each Letter of Credit then
outstanding.
(I) To the extent that any Revolving Credit Lender fails to pay an
amount required to be paid pursuant to clause (e) or (f) of this Section
2.03 on the due date therefor, such Lender shall pay interest to the
Issuing Lender (through the Administrative Agent) on such amount from and
including such due date to but excluding the date such payment is made (i)
during the period from and including such due date to but excluding the
date three Business Days thereafter, at a rate per annum equal to the
--- -----
Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at
a rate per annum equal to the post-default rate (as in effect from time to
--- -----
time) pursuant to Section 3.02(b).
(J) The issuance by the Issuing Lender of any modification or
supplement to any Letter of Credit hereunder that would extend the expiry
date or increase the face amount thereof shall be subject to the same
conditions applicable under this Section 2.03 to the issuance of new
Letters of Credit, and no such modification or supplement shall be issued
hereunder unless either (x) the respective Letter of Credit affected
thereby would have complied with such conditions had it originally been
issued hereunder in such modified or supplemented form or (y) each
Revolving Credit Lender shall have consented thereto.
(K) Notwithstanding the foregoing, the Issuing Lender shall not be
under any obligation to issue any Letter of Credit if at the time of such
issuance, any order, judgment or decree of any Governmental Authority or
arbitrator shall purport by its terms to enjoin or restrain the Issuing
Lender from issuing such Letter of Credit or any requirement of law
applicable to the Issuing Lender or any request or directive (whether or
not having the force of law) from any Governmental Authority shall
prohibit, or request that the Issuing Lender refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon such Issuing Lender with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which the Issuing Lender
is not otherwise compensated) not in effect on the date hereof.
The obligations of Borrower under this Agreement and any Letter of Credit
Document to reimburse the Issuing Lender for a drawing under a Letter of Credit,
and to repay any drawing under a Letter of Credit converted into Revolving
Credit Loans, shall be unconditional and irrevocable, and shall be paid strictly
in accordance with the terms of this Agreement and each such other Letter of
Credit Document under all circumstances, including the following: (i) any lack
of validity or enforceability of this Agreement or any Letter of Credit
Document; (ii) the existence of any claim, setoff, defense or other right that
Borrower may have at any time against any beneficiary or any transferee of any
Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Issuing Lender or any other Person, whether in
connection with this Agreement, the transactions contemplated hereby or by the
Letter of Credit Documents or any unrelated transaction; (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; or any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any Letter of Credit; or any defense based upon the failure of
any drawing under a Letter of Credit to conform to the terms of the Letter of
Credit or any non-application or misapplication by the beneficiary of the
proceeds of such drawing; or (iv) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Borrower or a Guarantor; provided, however, that Borrower shall
-------- -------
not be obligated to reimburse the Issuing Lender for any wrongful payment
determined by a court of competent jurisdiction to have been made by the Issuing
Lender as a result of acts or omissions constituting willful misconduct or gross
negligence on the part
<PAGE>
-36-
of the Issuing Lender or which is not in accordance with the standard of care
specified in the Uniform Commercial Code of the State of New York. To the extent
that any provision of any Letter of Credit Document is inconsistent with the
provisions of this Section 2.03, the provisions of this Section 2.03 shall
control.
2.04. Termination and Reductions of Commitments. (A) (I) The
-----------------------------------------
aggregate amount of the Revolving Credit Commitments shall be automatically and
permanently reduced to zero on the Revolving Credit Commitment Termination Date.
(II) The aggregate amount of the Term Loan Commitments shall be
automatically and permanently reduced to zero immediately after the making of
the Term Loans on the Closing Date.
(B) Borrower shall have the right, at any time or from time to time
(i) so long as no Revolving Credit Loans or Letter of Credit Liabilities will be
outstanding as of the date specified for termination, to terminate the Revolving
Credit Commitments, and (ii) to reduce the aggregate amount of the then
Unutilized Revolving Credit Commitments of all the Revolving Credit Lenders;
provided, however, that (x) Borrower shall give notice of each such termination
- -------- -------
or reduction as provided in Section 4.05, and (y) each partial reduction shall
be in an aggregate amount at least equal to $5.0 million (or a larger multiple
of $100,000).
(C) The Commitments once terminated or reduced may not be reinstated.
2.05. Fees. (A) Borrower shall pay to the Administrative Agent for
----
the account of each Revolving Credit Lender a commitment fee on the daily
average amount of such Lender's Unutilized Revolving Credit Commitment, for the
period from and including the Closing Date to but not including the earlier of
the date such Revolving Credit Commitment is terminated and the Revolving Credit
Commitment Termination Date, at a rate per annum equal to the Applicable
--- -----
Revolving Credit Fee Percentage. Any accrued commitment fee under this Section
2.05(a) shall be payable in arrears on each Quarterly Date and on the earlier of
the date the Revolving Credit Commitments are terminated and the Revolving
Credit Commitment Termination Date.
(B) Borrower shall pay to the Administrative Agent for its own
account a nonrefundable administrative fee pursuant to the terms of the
Administrative Agent's Fee Letter.
2.06. Lending Offices. The Loans of each Type made by each Lender
---------------
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.07. Several Obligations of Lenders. The failure of any Lender to
------------------------------
make any Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Loan on such date, but neither
any Lender nor the Administrative Agent shall be responsible for the failure of
any other Lender to make a Loan to be made by such other Lender, and (except as
otherwise provided in Section 4.06) no Lender shall have any obligation to the
Administrative Agent or any other Lender for the failure by such Lender to make
any Loan required to be made by such Lender.
2.08. Notes; Register. (A) (I) At the request of any Lender, the
---------------
Revolving Credit Loans made by such Revolving Credit Lender shall be evidenced
by a single promissory note of Borrower substantially in the form of Exhibit A-
---------
1, dated the Closing Date, payable to such Lender and otherwise duly completed.
- -
(II) At the request of any Lender, the Tranche A Term Loans made by
such Tranche A Term Loan Lender shall be evidenced by a single promissory note
of Borrower substantially in the form of Exhibit A-2, dated the Closing Date,
-----------
payable to such Lender and otherwise duly completed.
<PAGE>
-37-
(III) At the request of any Lender, the Tranche B Term Loans made by
such Tranche B Term Loan Lender shall be evidenced by a single promissory note
of Borrower substantially in the form of Exhibit A-3, dated the Closing Date,
-----------
payable to such Lender and otherwise duly completed.
(IV) At the request of the Swing Loan Lender, the Swing Loans made
by Fleet National Bank shall be evidenced by a single promissory note of
Borrower substantially in the form of Exhibit A-4, dated the Closing Date,
-----------
payable to Fleet National Bank and otherwise duly completed.
(B) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to
Borrower, and each payment made on account of the principal thereof, shall be
recorded by such Lender on its books and, prior to any transfer of any Note
evidencing the Loans of such Class held by it, endorsed by such Lender on the
schedule attached to such Note or any continuation thereof; provided, however,
-------- -------
that the failure of such Lender to make any such recordation or endorsement
shall not affect the obligations of Borrower to make a payment when due of any
amount owing hereunder or under such Note.
(C) Borrower hereby designates the Administrative Agent to serve as
Borrower's agent, solely for purposes of this Section 2.08, to maintain a
register (the "Register") on which it will record the name and address of each
--------
Lender, the Commitment from time to time of each of the Lenders, the principal
amount of the Loans made by each of the Lenders and each repayment in respect of
the principal amount of the Loans of each Lender. Failure to make any such
recordation or any error in such recordation shall not affect Borrower's
obligations in respect of such Loans. The entries in the Register shall be
conclusive, in the absence of manifest error, and Borrower, the Administrative
Agent and the Lenders shall treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Credit Documents,
notwithstanding any notice to the contrary. The Register shall be available for
inspection by Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
2.09. Optional Prepayments and Conversions or Continuations of Loans.
--------------------------------------------------------------
Subject to Section 4.04, Borrower shall have the right to prepay Loans, or to
Convert Loans of one Type into Loans of another Type or to Continue Loans of one
Type as Loans of the same Type, at any time or from time to time to be applied
as specified by Borrower; provided, however, that: (a) Borrower shall give the
-------- -------
Administrative Agent notice of each such prepayment, Conversion or Continuation
as provided in Section 4.05 (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable hereunder);
(b) if LIBOR Loans are prepaid or Converted other than on the last day of an
Interest Period for such Loans Borrower shall at such time pay all expenses and
costs required by Section 5.05; and (c) prepayments of the Term Loans pursuant
to this Section 2.09 shall be applied pro rata among the Term Loan Tranches
--- ----
based upon the remaining unpaid amounts thereof and, as to each such Term Loan
Tranche, the amount to be applied thereto shall be applied pro rata among the
--- ----
remaining Amortization Payments of such Term Loan Tranche based upon the
remaining unpaid amounts thereof. Each notice of Conversion or Continuation
shall be substantially in the form of Exhibit J.
---------
Notwithstanding the foregoing, any Tranche B Term Loan Lender may, to
the extent that Tranche A Term Loans are outstanding, elect not to have all or
any part of voluntary prepayments applied to such Tranche B Term Loans, in which
case the aggregate amount so declined shall be applied to the Tranche A Term
Loans to the remaining Amortization Payments under the Tranche A Term Loans, pro
---
rata in accordance with the remaining unpaid amounts thereof. If no Tranche A
- ----
Term Loans are outstanding, such election to decline prepayments shall not be
available.
<PAGE>
-38-
Notwithstanding the foregoing, and without limiting the rights and
remedies of the Lenders under Section 10, in the event that any Event of Default
shall have occurred and be continuing, the Administrative Agent may (and at the
request of the Majority Lenders shall) suspend the right of Borrower to Convert
any Loan into a LIBOR Loan, or to Continue any Loan as a LIBOR Loan, in which
event all Loans shall be Converted (on the last day(s) of the respective
Interest Periods therefor) or Continued, as the case may be, as Alternate Base
Rate Loans.
2.10. Mandatory Prepayments. (A) Borrower shall prepay the Term
---------------------
Loans as follows (each such prepayment to be effected in each case in the
manner, order and to the extent specified in subsection (b) below of this
Section 2.10):
(I) Casualty Events. On the date on which Borrower or any
---------------
Subsidiary receives any Net Available Proceeds from any Casualty Event, in
an aggregate principal amount equal to 100% of such Net Available Proceeds;
provided, however, that (x) so long as no Default or Event of Default then
-------- -------
exists, such Net Available Proceeds shall not be required to be so applied
on such date to the extent that Borrower has delivered an Officer's
Certificate to the Administrative Agent on or prior to such date stating
that such proceeds shall be used to (1) repair, replace or restore any
Property in respect of which such Net Available Proceeds were paid or (2)
fund the substitution of other Property used or usable in the business of
Borrower and the Subsidiaries, in each case within 365 days following the
date of the receipt of such Net Available Proceeds, (y) all such Net
Available Proceeds shall be held in the Collateral Account and released
therefrom only in accordance with the terms of the Security Agreement, and
(z) if all or any portion of such Net Available Proceeds not required to be
applied to the prepayment of Term Loans pursuant to the preceding proviso
is not so used (or committed to be used pursuant to a binding written
agreement) within 365 days after the date of the receipt of such Net
Available Proceeds, such remaining portion shall be applied on the last day
of such period as specified in Section 2.10(b).
(II) Equity Issuance. Upon any Equity Issuance after the Closing
---------------
Date, in an aggregate principal amount equal to 50% of the Net Available
Proceeds of such Equity Issuance.
(III) Debt Issuance. Upon any Debt Issuance after the Closing Date
-------------
other than Debt Issuances made pursuant to Section 9.19, in an aggregate
principal amount equal to 100% of the Net Available Proceeds of such Debt
Issuance.
(IV) Disposition Events. Upon the date of receipt of any Net
------------------
Available Proceeds from any Disposition Event other than Dispositions made
pursuant to Section 9.19, in an aggregate principal amount equal to 100% of
the Net Available Proceeds from such Disposition Event; provided, however,
-------- -------
that (x) the Net Available Proceeds from any Disposition Event permitted by
Sections 9.06(g) and 9.06(n) shall not be required to be applied as
provided herein on such date if and to the extent that (1) no Default or
Event of Default then exists and (2) Borrower delivers an Officer's
Certificate to the Administrative Agent on or prior to such date stating
that such Net Available Proceeds shall be reinvested in capital assets of
Borrower or any Subsidiary in each case within the 365 day period following
the date of such Disposition Event (which certificate shall set forth the
estimates of the proceeds to be so expended), (y) all such Net Available
Proceeds shall be held in the Collateral Account and released therefrom
only in accordance with the terms of the Security Agreement, and (z) if all
or any portion of such Net Available Proceeds not so applied as provided
herein is not so used (or committed to be used pursuant to a binding
written agreement) within such 365 day period, such remaining portion shall
be applied on the last day of such period as specified in Section 2.10(b)
(it being understood that the foregoing shall in no way affect the
obligation of Borrower to obtain the consent of the Majority Lenders if
required pursuant to this Agreement).
<PAGE>
-39-
(V) Excess Cash Flow. Not later than 95 days after the end of each
----------------
fiscal year of Borrower commencing with the fiscal year ended December 31,
1998, in an aggregate principal amount equal to 75% of Excess Cash Flow for
such fiscal year when the Senior Debt Leverage Ratio at the end of such
fiscal year is greater than 3.50x, and 50% of Excess Cash Flow for such
fiscal year when the Senior Debt Leverage Ratio at the end of such fiscal
year is less than or equal to 3.50x (such 25% or 50% of Excess Cash Flow,
as the case may be, not required to be applied to the prepayment of the
Loans, the "Retained Portion").
----------------
(VI) Recovery Events. On the date on which Borrower or any
---------------
Subsidiary receives any Net Available Proceeds from any Taking or
Destruction or loss of title to any Mortgaged Real Property or Real
Property, in an aggregate principal amount equal to 100% of such Net
Available Proceeds; provided, however, that (x) so long as no Default or
-------- -------
Event of Default then exists, such Net Available Proceeds shall not be
required to be so applied on such date to the extent that Borrower has
delivered an Officer's Certificate to the Administrative Agent on or prior
to such date stating that such proceeds shall be used to (1) repair,
replace or restore any Mortgaged Real Property (or, if received in respect
of Real Property which is not Mortgaged Real Property, Real Property) in
respect of which such Net Available Proceeds were paid or (2) fund the
purchase of substitute or additional Mortgaged Real Property (or Real
Property if such Net Available Proceeds were received in respect of Real
Property which was not Mortgaged Real Property), in each case within the
365 day period following the date of the receipt of such Net Available
Proceeds, (y) all such Net Available Proceeds shall be held in the
Collateral Account and released therefrom only in accordance with the terms
of the applicable Mortgage or Security Agreement, and (z) if all or any
portion of such Net Available Proceeds not required to be applied to the
prepayment of Term Loans pursuant to the preceding proviso is not so used
(or committed to be used pursuant to a binding written agreement) within
such 365 day period after the date of the receipt of such Net Available
Proceeds, such remaining portion shall be applied on the last day of such
period as specified in Section 2.10(b).
(VII) Pension Plan Refund. On the date on which Borrower or any
-------------------
Subsidiary receives any cash payments (net of any reasonable costs
associated therewith, including income, excise and other taxes payable
thereon) from any return of surplus assets from any single Plan in an
amount equal to 100% of such net amount.
(VIII) Other Required Prepayments. If the terms of any agreement,
--------------------------
instrument or indenture pursuant to which any Indebtedness pari passu with
---- -----
or junior in right of payment to the Loans is outstanding (or pursuant to
which such Indebtedness is guaranteed) require prepayment of such
Indebtedness out of the proceeds of any Disposition or otherwise unless
such proceeds are used to prepay other Indebtedness, then, to the extent
not otherwise required by this Section 2.10(a), the Loans shall be repaid
in an amount equal to the amount that would be required to be prepaid at
such time as and upon such terms so that such other Indebtedness will not
be required to be prepaid pursuant to the terms of the agreement, indenture
or instrument or guarantee governing such other Indebtedness.
(IX) Merger Agreement Payments. Upon receipt by Borrower or any of
-------------------------
its Subsidiaries of any payment under the indemnification provisions of the
Merger Agreement or otherwise by reason of the breach of any representation
or warranty therein in excess of the Dollar Equivalent amount of $100,000
since the Closing Date (the "Applicable Amount"), other than any Applicable
-----------------
Amount made to reimburse Borrower or any of its Subsidiaries for any actual
out-of-pocket expenses or damages (whether currently incurred or reasonably
expected to be incurred, including legal fees and expenses), in an amount
equal to such Applicable Amount.
<PAGE>
-40-
(B) Application. The amount of any required prepayments described in
-----------
Section 2.10(a) or Section 9.19 shall be applied as follows:
(I) first, the amount of the required prepayment shall be applied
-----
to the reduction of Amortization Payments on the Term Loans required by
Section 3.01(b) pro rata among the Term Loan Tranches based upon the
--- ----
remaining unpaid amounts thereof and, as to each such Term Loan Tranche,
the amount to be applied thereto shall be applied pro rata among the
--- ----
remaining Amortization Payments of such Term Loan Tranche based on the
remaining unpaid amounts thereof; provided, however, that (x) any holder of
-------- -------
Tranche B Term Loans may, to the extent that Tranche A Term Loans are
outstanding, elect not to have all or any amount of required prepayments
applied to such holder's Tranche B Term Loans, in which case the aggregate
amount so declined shall be applied to the Tranche A Term Loans pro rata
--- ----
among the remaining Amortization Payments of the Tranche A Term Loans based
on the remaining unpaid amounts thereof, and (y) if no Tranche A Term Loans
are outstanding, such election to decline prepayments shall not be
available; and
(II) second, after such time as no Term Loans remain outstanding,
------
Revolving Credit Commitments shall be permanently reduced (at the same time
that the prepayment of the Term Loans would have been made assuming an
unlimited amount thereof then outstanding) pro rata in an amount equal to
--- ----
the amount of any such required prepayment that would have been applied to
the Term Loans (assuming an unlimited amount thereof then outstanding) and
to the extent that, after giving effect to such reduction, the aggregate
principal amount of Revolving Credit Loans, together with the aggregate
amount of all Letter of Credit Liabilities, would exceed the lesser of (x)
the Borrowing Base and (y) the Revolving Credit Commitments, Borrower
shall, first, prepay outstanding Revolving Credit Loans and, second,
----- ------
provide cover for Letter of Credit Liabilities as specified in Section
2.10(d), in an aggregate amount equal to such excess.
Notwithstanding the foregoing, if the amount of any prepayment of
Loans required under this Section 2.10 shall be in excess of the amount of the
Alternate Base Rate Loans at the time outstanding, only the portion of the
amount of such prepayment as is equal to the amount of such outstanding
Alternate Base Rate Loans shall be immediately prepaid and, at the election of
Borrower, the balance of such required prepayment shall be either (i) deposited
in the Collateral Account and applied to the prepayment of LIBOR Loans on the
last day of the then next-expiring Interest Period for LIBOR Loans or (ii)
prepaid immediately, together with any amounts owing to the Lenders under
Section 5.05. Notwithstanding any such deposit in the Collateral Account,
interest shall continue to accrue on such Loans until prepayment. Interest on
such amount held in the Collateral Account shall be for the account of Borrower
(after deduction of reasonable fees and expenses).
(C) Revolving Credit Extension Reductions. Until the Revolving
-------------------------------------
Credit Commitment Termination Date, Borrower shall from time to time immediately
prepay the Swing Loans and the Revolving Credit Loans (and/or provide cover for
Letter of Credit Liabilities as specified in Section 2.10(d)) in such amounts as
shall be necessary so that at all times the aggregate outstanding amount of the
Revolving Credit Loans, plus the aggregate outstanding amount of Swing Loans,
----
plus the aggregate outstanding Letter of Credit Liabilities shall not exceed the
- ----
Revolving Credit Commitments as in effect at such time, such amount to be
applied, first, to Swing Loans, second, to Revolving Credit Loans outstanding
----- ------
and, third, as cover for Letter of Credit Liabilities outstanding as specified
-----
in Section 2.10(d).
(D) Cover for Letter of Credit Liabilities. In the event that
--------------------------------------
Borrower shall be required pursuant to this Section 2.10 to provide cover for
Letter of Credit Liabilities, Borrower shall effect the same by paying to the
Administrative Agent immediately available funds in an amount equal to the
required amount, which funds shall be retained by the Administrative Agent in
the Collateral Account (as provided in the Security
<PAGE>
-41-
Agreement as collateral security in the first instance for the Letter of Credit
Liabilities) in an amount not to exceed the face amount of all unexpired Letters
of Credit in respect of which such cover was required to be provided until such
time as all Letters of Credit shall have been terminated and all of the Letter
of Credit Liabilities paid in full.
2.11. Replacement of Lenders. Borrower shall have the right, if no
----------------------
Default or Event of Default then exists, to replace such Lender (the "Replaced
--------
Lender") with one or more other Eligible Person reasonably acceptable to the
- ------
Administrative Agent (collectively, the "Replacement Lender") if (x) such Lender
------------------
is charging Borrower increased costs pursuant to Section 5.01 or Section 5.06 in
excess of those being charged generally by the other Lenders or such Lender
becomes incapable of making LIBOR Loans as provided in Section 5.03, and/or (y)
as provided in Section 12.04(ii), such Lender refuses to consent to certain
proposed amendments, waivers or modifications with respect to this Agreement or
the other Credit Documents, and/or (z) such Lender shall have failed to fund its
portion of a Loan it is obligated to fund under Section 2.01 or the Issuing
Lender shall have failed to issue any Letter of Credit it is obligated to issue
under Section 2.03; provided, however, that (i) at the time of any replacement
-------- -------
pursuant to this Section 2.11, the Replacement Lender shall enter into one or
more assignment agreements (and with all fees payable pursuant to said Section
12.06 to be paid by the Replacement Lender) pursuant to which the Replacement
Lender shall acquire all of the Commitments and outstanding Loans of, and in
each case Letter of Credit Interests by, the Replaced Lender and, in connection
therewith, shall pay to (x) the Replaced Lender, an amount equal to the sum of
(A) the principal of, and all accrued interest on, all outstanding Loans of the
Replaced Lender, (B) all Reimbursement Obligations owing to such Replaced
Lender, together with all then unpaid interest with respect thereto at such
time, and (C) all accrued, but theretofore unpaid, fees owing to the Replaced
Lender pursuant to Section 2.05, and (y) the Issuing Lender an amount equal to
such Replaced Lender's Revolving Credit Commitment Percentage of any
Reimbursement Obligations (which at such time remains a Reimbursement
Obligation) to the extent such amount was not theretofore funded by such
Replaced Lender, and (ii) all obligations of Borrower then owing to the Replaced
Lender (other than those specifically described in clause (i) above in respect
of which the assignment purchase price has been, or is concurrently being, paid)
shall be paid in full to such Replaced Lender concurrently with such
replacement. Upon the execution of the respective assignment agreement, the
payment of amounts referred to in clauses (i) and (ii) above and, if so
requested by the Replacement Lender, delivery to the Replacement Lender of Notes
executed by Borrower, the Replacement Lender shall become a Lender hereunder and
the Replaced Lender shall cease to constitute a Lender hereunder and be released
of all its obligations as a Lender, except with respect to indemnification
provisions applicable to the Replaced Lender under this Agreement, which shall
survive as to such Replaced Lender.
2.12. Annual Cleandown. For a consecutive thirty-day period during
----------------
each twelve month period, measured from April 1 - March 31, beginning in April
1998, the sum of the aggregate principal amount of Revolving Credit Loans
outstanding, plus the aggregate outstanding principal amount of Swing Loans
----
shall not exceed $15.0 million.
Section 3. Payments of Principal and Interest.
----------------------------------
3.01. Repayment of Loans.
------------------
(A) Revolving Credit and Swing Loans. Borrower hereby promises to
--------------------------------
pay to the Administrative Agent for the account of each Lender the entire
outstanding principal amount of such Lender's Revolving Credit Loans, and each
Revolving Credit Loan shall mature, on the Revolving Credit Commitment
Termination Date. Borrower hereby promises to pay to the Swing Loan Lender for
its account the entire outstanding principal amount of the Swing Loans, and the
Swing Loans shall mature, on the Swing Loan Maturity Date.
<PAGE>
-42-
(B) (1) Tranche A Term Loans. Borrower hereby promises to pay to
--------------------
the Administrative Agent for the account of the Tranche A Term Loan Lenders, in
repayment of the principal of the Tranche A Term Loans, the amounts set forth on
Schedule 3.01(b) on the dates set forth on Schedule 3.01(b) (subject to
- ---------------- ----------------
adjustment for any prepayments permitted by Section 2.09 or required by Section
2.10 to the extent actually made).
(2) Tranche B Term Loans. Borrower hereby promises to pay to the
--------------------
Administrative Agent, for the account of the Tranche B Term Loan Lenders, in
repayment of the principal of the Tranche B Term Loans, the amounts set forth in
Schedule 3.01(b) on the dates set forth in Schedule 3.01(b) (subject to
- ---------------- ----------------
adjustment for any prepayments permitted by Section 2.09 or required by Section
2.10 to the extent actually made).
3.02. Interest. (A) Borrower hereby promises to pay to the
--------
Administrative Agent for the account of each Lender interest on the unpaid
principal amount of each Loan made by such Lender for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:
--- -----
(I) during such periods as such Loan is an Alternate Base Rate
Loan, the Alternate Base Rate (as in effect from time to time), plus the
----
Applicable Margin and
(II) during such periods as such Loan is a LIBOR Loan, for each
Interest Period relating thereto, the LIBOR Rate for such Loan for such
Interest Period, plus the Applicable Margin.
----
(B) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and other overdue amounts owed by any Obligor
under the Credit Documents shall bear interest at a rate per annum equal to (x)
in the case of principal of any Loans, the rate which is 2% in excess of the
rate then borne by such Loans, (y) in the case of interest, the rate which is 2%
in excess of the rate otherwise applicable to Alternate Base Rate Loans which
are Revolving Credit Loans from time to time and (z) in the case of such other
amounts, the rate which is 2% in excess of the rate otherwise applicable to
Alternate Base Rate Loans which are Revolving Credit Loans from time to time.
Interest which accrues under this paragraph shall be payable on demand.
(C) Accrued interest on each Loan shall be payable (i) in the case of
an Alternate Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case
of a LIBOR Loan, on the last day of each Interest Period therefor and, if such
Interest Period is longer than three months, at three-month intervals following
the first day of such Interest Period and (iii) in the case of any LIBOR Loan,
upon the payment or prepayment thereof or the Conversion of such Loan to a Loan
of another Type (but only on the principal amount so paid, prepaid or
Converted), except that interest payable at the rate set forth in Section
3.02(b) shall be payable from time to time on demand. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Administrative Agent shall give notice thereof to the Lenders to which such
interest is payable and to Borrower.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
-----------------------------------------------
4.01. Payments. (A) Except to the extent otherwise provided herein,
--------
all payments of principal, interest, Reimbursement Obligations and other amounts
to be made by Borrower under this Agreement and the Notes, and, except to the
extent otherwise provided therein, all payments to be made by the Obligors under
any other Credit Document, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Administrative Agent
at its account at the Principal Office, not later than 1:00 p.m.
<PAGE>
-43-
New York time on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day).
(B) Borrower shall, at the time of making each payment under this
Agreement or any Note for the account of any Lender, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans, Reimbursement Obligations or other amounts payable by Borrower
hereunder to which such payment is to be applied (and in the event that Borrower
fails to so specify, or if an Event of Default has occurred and is continuing,
the Administrative Agent may distribute such payment to the Lenders for
application in such manner as it or the Majority Lenders, subject to Section
4.02, may determine to be appropriate).
(C) Except to the extent otherwise provided in the second sentence of
Section 2.03(g), each payment received by the Administrative Agent under this
Agreement or any Note for the account of any Lender shall be paid by the
Administrative Agent to such Lender, in immediately available funds, (x) if the
payment was actually received by the Administrative Agent prior to 1:00 p.m.
(New York time) on any day, on such day and (y) if the payment was actually
received by the Administrative Agent after 1:00 p.m. (New York time) on any day,
on the following Business Day (it being understood that to the extent that any
such payment is not made in full by the Administrative Agent, the Administrative
Agent shall pay to such Lender, upon demand, interest at the Federal Funds Rate
from the date such amount was required to be paid to such Lender pursuant to the
foregoing clauses until the date the Administrative Agent pays such Lender the
amount).
(D) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02. Pro Rata Treatment. Except to the extent otherwise provided
------------------
herein: (a) each borrowing of Loans of a particular Class from the Lenders
under Section 2.01 shall be made from the relevant Lenders, each payment of
commitment fee under Section 2.05 in respect of Commitments of a particular
Class shall be made for account of the relevant Lenders, and each termination or
reduction of the amount of the Commitments of a particular Class under Section
2.04 shall be applied to the respective Commitments of such Class of the
relevant Lenders, pro rata according to the amounts of their respective
--- ----
Commitments of such Class; provided, however, that Swing Loans shall be made
-------- -------
only by, and interest thereon shall be paid by Borrower only to, the Swing Loan
Lender (subject to such Lender's obligations in respect of any participation
therein purchased by the other Revolving Credit Lenders as provided in Section
2.01(e)); (b) except as otherwise provided in Section 5.04, LIBOR Loans of any
Class having the same Interest Period shall be allocated pro rata among the
--- ----
relevant Lenders according to the amounts of their respective Revolving Credit
and Term Loan Commitments (in the case of the making of Loans) or their
respective Revolving Credit and Term Loans (in the case of Conversions and
Continuations of Loans); (c) each payment or prepayment of principal of
Revolving Credit Loans or Term Loans by Borrower shall be made for account of
the relevant Lenders pro rata in accordance with the respective unpaid
--- ----
outstanding principal amounts of the Loans of such Class held by them; and (d)
each payment of interest on Revolving Credit Loans and Term Loans by Borrower
shall be made for account of the relevant Lenders pro rata in accordance with
the amounts of interest on such Loans then due and payable to the respective
Lenders.
4.03. Computations. Interest on LIBOR Loans shall be computed on the
------------
basis of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable and interest
on Alternate Base Rate Loans and Reimbursement Obligations shall be computed on
the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which payable. Computations of commitment fees and Letter of Credit
fees shall be based upon a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable. Notwithstanding
<PAGE>
-44-
the foregoing, for each day that the Alternate Base Rate is calculated by
reference to the Federal Funds Rate, interest on Alternate Base Rate Loans and
Reimbursement Obligations shall be computed on the basis of a year of 360 days
and actual days elapsed (including the first day but excluding the last day).
4.04. Minimum Amounts. Except for mandatory prepayments made
---------------
pursuant to Section 2.10 and Conversions or prepayments made pursuant to Section
5.04, each borrowing, Conversion and prepayment of principal of Loans (other
than Swing Loans, for which the minimum amounts thereof are in Section 2.01(e))
shall be in an amount at least equal to (1) $500,000 and in integral multiples
of $100,000 in excess thereof with respect to Alternate Base Rate Loans and (2)
$500,000 and in integral multiples of $100,000 in excess thereof with respect to
LIBOR Loans (borrowings, Conversions or prepayments of or into Loans of
different Types or, in the case of LIBOR Loans, having different Interest
Periods at the same time hereunder to be deemed separate borrowings, Conversions
and prepayments for purposes of the foregoing, one for each Type or Interest
Period). Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBOR Loans having the same Interest Period shall
be in an amount at least equal to $500,000 and in multiples of $100,000 in
excess thereof and, if any LIBOR Loans or portions thereof would otherwise be in
a lesser principal amount for any period, such Loans or portions, as the case
may be, shall be Alternate Base Rate Loans during such period.
4.05. Certain Notices. Notices by Borrower to the Administrative
---------------
Agent of terminations or reductions of the Commitments, of borrowings,
Conversions, Continuations and optional prepayments of Loans and of Classes of
Loans, of Types of Loans and of the duration of Interest Periods shall be
irrevocable and shall be effective only if received by the Administrative Agent
not later than 11:00 a.m. New York time on the number of Business Days prior to
the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified in
the table below.
NOTICE PERIODS
<TABLE>
<CAPTION>
Notice Number of Business Days Prior
- ------ -----------------------------
<S> <C>
Termination or reduction of Commitments
2
Borrowing or optional prepayment of, or Conversions
into, Alternate Base Rate Loans (including Swing
Loans) same day
Borrowing or optional prepayment of, Conversions
into, Continuations as, or duration of Interest
Periods for, LIBOR Loans
3
</TABLE>
Each such notice of termination or reduction shall specify the amount
and the Class of the Commitments to be terminated or reduced. Each such notice
of borrowing, Conversion, Continuation or prepayment shall specify the Class of
Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to
Section 4.04) and Type of each Loan to be borrowed, Converted, Continued or
prepaid and the date of borrowing, Conversion, Continuation or prepayment (which
shall be a Business Day). Each such notice of the duration of an Interest
Period shall specify the Loans to which such Interest Period is to relate. The
Administrative Agent shall promptly notify the Lenders of the contents of each
such notice. In the event that Borrower fails to select the Type of Loan, or
the duration of any Interest Period for any LIBOR Loan, within the time period
and otherwise as provided in this Section 4.05, such Loan (if outstanding as a
LIBOR Loan) will be
<PAGE>
-45-
automatically Converted into an Alternate Base Rate Loan on the last day of the
then current Interest Period for such Loan or (if outstanding as an Alternate
Base Rate Loan) will remain as, or (if not then outstanding) will be made as, an
Alternate Base Rate Loan.
4.06. Non-Receipt of Funds by the Administrative Agent. Unless the
------------------------------------------------
Administrative Agent shall have received written notice from a Lender or
Borrower (the "Payor") prior to the date on which the Payor is to make payment
-----
to the Administrative Agent of (in the case of a Lender) the proceeds of a Loan
to be made by such Lender hereunder or (in the case of Borrower) a payment to
the Administrative Agent for the account of one or more of the Lenders hereunder
(such payment being herein called the "Required Payment"), which notice shall be
----------------
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
------------
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
--- -----
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid; provided, however, that if neither the
-------- -------
recipient(s) nor the Payor shall return the Required Payment to the
Administrative Agent within three Business Days of the Advance Date, then,
retroactively to the Advance Date, the Payor and the recipient(s) shall each be
obligated to pay interest on the Required Payment as follows (without double
recovery):
(I) if the Required Payment shall represent a payment to be made by
Borrower to the Lenders, Borrower and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate set forth in Section 3.02(b) (without
duplication of the obligation of Borrower under Section 3.02 to pay
interest on the Required Payment at the rate set forth in Section 3.02(b)),
it being understood that the return by the recipient(s) of the Required
Payment to the Administrative Agent shall not limit such obligation of
Borrower under Section 3.02 to pay interest at the rate set forth in
Section 3.02(b) in respect of the Required Payment and
(II) if the Required Payment shall represent proceeds of a Loan to be
made by the Lenders to Borrower, the Payor and Borrower shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment pursuant to Section 3.02(a), it being understood that
the return by Borrower of the Required Payment to the Administrative Agent
shall not limit any claim Borrower may have against the Payor in respect of
such Required Payment.
4.07. Right of Setoff; Sharing of Payments, Etc. (a) Each Obligor
-----------------------------------------
agrees that, in addition to (and without limitation of) any right of setoff,
banker's lien or counterclaim a Lender may otherwise have, each Lender shall be
entitled, at its option (to the fullest extent permitted by law), to set off and
apply any deposit (general or special, time or demand, provisional or final), or
other indebtedness, held by it for the credit or account of such Obligor at any
of its offices, in Dollars or in any other currency, against any principal of or
interest on any of such Lender's Loans, Reimbursement Obligations or any other
amount payable to such Lender hereunder that is not paid when due (regardless of
whether such deposit or other indebtedness is then due to such Obligor), in
which case it shall promptly notify such Obligor and the Administrative Agent
thereof; provided, however, that such Lender's failure to give such notice shall
-------- -------
not affect the validity thereof.
(B) Each of the Lenders agrees that, if it should receive (other than
pursuant to Section 5) any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of
<PAGE>
-46-
setoff or banker's lien, by counterclaim or cross action, by the enforcement of
any right under the Credit Documents, or otherwise) which is applicable to the
payment of the principal of, or interest on, the Loans, Reimbursement
Obligations or fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
amounts then owed and due to such Lender bears to the total of such amounts then
owed and due to all of the Lenders immediately prior to such receipt, then such
Lender receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the respective
Obligor to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount; provided, however, that if
-------- -------
all or any portion of such excess amount is thereafter recovered from such
Lender, such purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. Borrower consents to the
foregoing arrangements.
(C) Borrower agrees that any Lender so purchasing such a
participation may exercise all rights of setoff, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Loans or other amounts (as the case may be) owing to
such Lender in the amount of such participation.
(D) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section 4.07 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
---------------------
5.01. Additional Costs. (A) If the adoption of, or any change in,
----------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority or the
NAIC made subsequent to the date hereof:
(I) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note, any Letter of Credit or any Lender's
participation therein, any Letter of Credit Document or any LIBOR Loan made
by it or change the basis of taxation of payments to such Lender in respect
thereof by any Governmental Authority (except for taxes covered by Section
5.06 and changes in the rate of tax on the overall net income of such
Lender by any Governmental Authority);
(II) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the LIBOR Rate hereunder; or
(III) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining LIBOR Loans or issuing or participating in Letters of
Credit or to reduce any amount receivable hereunder in respect thereof then, in
any such case, Borrower shall promptly pay such Lender, upon its demand, any
additional amounts necessary to compensate such Lender for such increased cost
or reduced amount receivable. If any Lender becomes entitled
<PAGE>
-47-
to claim any additional amounts pursuant to this subsection, it shall promptly
notify Borrower, through the Administrative Agent, of the event by reason of
which it has become so entitled. A certificate as to any additional amounts
setting forth the calculation of such additional amounts pursuant to this
Section 5.01 submitted by such Lender, through the Administrative Agent, to
Borrower shall be conclusive in the absence of clearly demonstrable error. This
covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
(B) In the event that any Lender shall have determined that the
adoption after the date hereof of any law, rule, regulation or guideline
regarding capital adequacy (or any change after the date hereof therein or in
the interpretation or application thereof) or compliance by any Lender or any
corporation controlling such Lender with any request or directive after the date
hereof regarding capital adequacy (whether or not having the force of law) from
any central bank or Governmental Authority or the NAIC, including, without
limitation, the issuance of any final rule, regulation or guideline, does or
shall have the effect of reducing the rate of return on such Lender's or such
corporation's capital as a consequence of its obligations hereunder or under any
Letter of Credit to a level below that which such Lender or such corporation
could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time, after submission by such Lender to Borrower (with a copy to the
Administrative Agent) of a prompt written request therefor, Borrower shall
promptly pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction.
5.02. Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if, on or prior to the determination of any LIBOR Base Rate for
any Interest Period:
(I) the Administrative Agent determines, which determination shall
be conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR Base Rate" in Section 1.01 are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for LIBOR Loans as provided
herein; or
(II) if the related Loans are Revolving Credit Loans, the Majority
Revolving Credit Lenders or, if the related Loans are Tranche A Term Loans,
the Majority Tranche A Term Loan Lenders or, if the related Loans are
Tranche B Term Loans, the Majority Tranche B Term Loan Lenders, determine,
which determination shall be conclusive, that the relevant rates of
interest referred to in the definition of "LIBOR Base Rate" in Section 1.01
upon the basis of which the rate of interest for LIBOR Loans for such
Interest Period is to be determined are not likely adequate to cover the
cost to the applicable Lenders of making or maintaining LIBOR Loans for
such Interest Period,
then the Administrative Agent shall give Borrower and each Lender prompt notice
thereof, and so long as such condition remains in effect, the affected Lenders
shall be under no obligation to make additional LIBOR Loans, to Continue LIBOR
Loans or to Convert Alternate Base Rate Loans into LIBOR Loans and Borrower
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding LIBOR Loans, either prepay such Loans or Convert such Loans into
Alternate Base Rate Loans in accordance with Section 2.09.
5.03. Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender or
its Applicable Lending Office to honor its obligation to make or maintain LIBOR
Loans hereunder (and, in the sole opinion of such Lender, the designation of a
different Applicable Lending Office would either not avoid such unlawfulness or
would be disadvantageous to such Lender), then such Lender shall promptly notify
Borrower thereof (with a copy to the Administrative Agent) and such Lender's
obligation to make or
<PAGE>
-48-
Continue, or to Convert Loans of any other Type into, LIBOR Loans shall be
suspended until such time as such Lender may again make and maintain LIBOR Loans
(in which case the provisions of Section 5.04 shall be applicable).
5.04. Treatment of Affected Loans. If the obligation of any Lender
---------------------------
to make LIBOR Loans or to Continue, or to Convert Alternate Base Rate Loans
into, LIBOR Loans shall be suspended pursuant to Section 5.03, such Lender's
LIBOR Loans shall be automatically Converted into Alternate Base Rate Loans on
the last day(s) of the then current Interest Period(s) for such LIBOR Loans (or
on such earlier date as such Lender may specify to Borrower with a copy to the
Administrative Agent as is required by law) and, unless and until such Lender
gives notice as provided below that the circumstances specified in Section 5.03
which gave rise to such Conversion no longer exist:
(I) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal which would otherwise
be applied to such Lender's LIBOR Loans shall be applied instead to its
Alternate Base Rate Loans; and
(II) all Loans which would otherwise be made or Continued by such
Lender as LIBOR Loans shall be made or Continued instead as Alternate Base
Rate Loans and all Alternate Base Rate Loans of such Lender which would
otherwise be Converted into LIBOR Loans shall remain as Alternate Base Rate
Loans.
If such Lender gives notice to Borrower with a copy to the Administrative Agent
that the circumstances specified in Section 5.03 which gave rise to the
Conversion of such Lender's LIBOR Loans pursuant to this Section 5.04 no longer
exist (which such Lender agrees to do promptly upon such circumstances ceasing
to exist) at a time when LIBOR Loans are outstanding, such Lender's Alternate
Base Rate Loans shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the
extent necessary so that, after giving effect thereto, all Loans held by the
Lenders holding LIBOR Loans and by such Lender are held pro rata (as to
--- ----
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
5.05. Compensation. (A) Borrower agrees to indemnify each Lender
------------
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (1) default by Borrower in payment when due
of the principal amount of or interest on any LIBOR Loan, (2) default by
Borrower in making a borrowing of, Conversion into or Continuation of LIBOR
Loans after Borrower has given a notice requesting the same in accordance with
the provisions of this Agreement, (3) default by Borrower in making any
prepayment after Borrower has given a notice thereof in accordance with the
provisions of the Agreement or (4) the making of a payment or a prepayment of
LIBOR Loans on a day which is not the last day of an Interest Period with
respect thereto, including in each case, any such loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate the deposits from which such funds were obtained.
(B) For the purpose of calculation of all amounts payable to a Lender
under this Section 5.05 each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of the LIBOR Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
-------- -------
each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. Any Lender requesting compensation pursuant to
this Section 5.05 will furnish to the Administrative Agent and Borrower a
certificate setting forth the basis and amount of such request and such
<PAGE>
-49-
certificate, absent manifest error, shall be conclusive. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
5.06. Net Payments. (A) All payments made by Borrower or the
------------
Guarantors hereunder or under any Note and the Guarantees will be made without
setoff, counterclaim or other defense. Except as provided in Section 5.06(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
Governmental Authority or by any political subdivision or taxing authority
thereof or therein with respect to such payments (but excluding, except as
provided in the second succeeding sentence, any tax imposed on or measured by
the net income or net profits of a Lender (a) pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or Applicable Lending Office of such Lender is located or any subdivision
thereof or therein or (b) as a result of a present or former connection between
the Administrative Agent or such Lender and the Governmental Authority imposing
such net income or net profits tax (other than any such connection arising
solely from the Administrative Agent or such Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this
Agreement, the Guarantees or any Note)) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Covered Taxes"). If any Covered Taxes are so levied or imposed, Borrower and
-------------
each Guarantor, as the case may be, agrees to pay the full amount of such
Covered Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement, the Guarantees or under any
Note, after withholding or deduction for or on account of any Covered Taxes,
will not be less than the amount provided for herein or in such Note. If any
amounts are payable in respect of Covered Taxes pursuant to the preceding
sentence, Borrower agrees to reimburse each Lender, upon the written request of
such Lender, (i) for taxes imposed on or measured by the net income or net
profits of such Lender pursuant to the laws of the jurisdiction in which such
Lender is organized or in which the principal office or Applicable Lending
Office of such Lender is located or under the laws of any political subdivision
or taxing authority of any such jurisdiction by reason of the making of payments
in respect of Covered Taxes pursuant to this Section (including pursuant to this
sentence) and (ii) for any withholding of taxes as such Lender shall determine
are payable by, or withheld from, such Lender in respect of amounts paid in
respect of Covered Taxes to or on behalf of such Lender pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Lender pursuant to this sentence; provided, however, that Borrower's obligations
-------- -------
shall be reduced by any Tax Benefit described in the following paragraph.
Borrower or the Guarantors, as the case may be, will furnish to the
Administrative Agent within 45 days after the date the payment of any Covered
Taxes is due pursuant to applicable law certified copies of tax receipts or
other documentation evidencing such payment by Borrower. Borrower and the
Guarantors agree to indemnify and hold harmless each Lender, and reimburse such
Lender upon its written request, for the amount of any Covered Taxes so levied
or imposed and paid by such Lender and any liability (including penalties,
additions to tax, interest and expenses) arising therefrom or with respect
thereto.
If Borrower or any Guarantor pays any additional amount under this
Section 5.06 to a Lender and such Lender determines in its reasonable discretion
that it has actually received or realized in connection therewith any refund or
any reduction of, or credit against, its tax liabilities in or with respect to
the taxable year in which the additional amount is paid (a "Tax Benefit"), such
-----------
Lender shall pay to Borrower or such Guarantor, as the case may be, an amount
that the Lender shall, in its reasonable discretion, determine is equal to the
net benefit, after tax, which was obtained by the Lender in such year as a
consequence of such Tax Benefit; provided, however, that (i) such Lender shall
-------- -------
not be required to make any payment under this paragraph of this Section 5.06(a)
if an Event of Default shall have occurred and be continuing; (ii) any taxes
that are imposed on a Lender as a result of a disallowance or reduction
(including through the expiration of any tax credit carryover or carryback of
such Lender that otherwise would not have expired) of any Tax Benefit with
respect to which such Lender has made a payment to Borrower or any Guarantor
pursuant to this paragraph of this Section 5.06(a) shall
<PAGE>
-50-
be treated as a tax for which Borrower or any Guarantor is obligated to
indemnify such Lender pursuant to this Section 5.06 without any exclusions or
defenses; and (iii) nothing in this paragraph of this Section 5.06(a) shall
require the Lender to disclose any confidential information to Borrower or any
Guarantor (including, without limitation, its tax returns).
(B) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) (a "Non-U.S. Lender") agrees to
---------------
deliver to Borrower and the Administrative Agent on or prior to the Closing
Date, or in the case of a Lender that is an assignee or transferee of an
interest under this Agreement pursuant to Section 12.06 (unless the respective
Lender was already a Lender hereunder immediately prior to such assignment or
transfer), on the date of such assignment or transfer to such Lender, (i) two
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a
complete exemption from, or reduction in rate of, United States withholding tax
with respect to payments to be made under this Agreement and under any Note (or,
with respect to any assignee Lender, at least as extensive as the assigning
Lender), or (ii) if the Lender is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form
1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in
the form of Exhibit H (any such certificate, a "Section 5.06 Certificate") and
--------- ------------------------
(y) two accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Lender's entitlement to a
complete exemption from, or reduction in rate of, United States withholding tax
with respect to payments to be made under this Agreement and under any Note (or,
with respect to any assignee Lender, at least as extensive as the assigning
Lender). In addition, each Lender agrees that from time to time after the
Closing Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to Borrower and the Administrative Agent two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-
8 and a Section 5.06 Certificate, as the case may be, and such other forms as
may be required in order to confirm or establish the entitlement of such Lender
to a continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or it shall immediately
notify Borrower and the Administrative Agent of its inability to deliver any
such Form or Certificate, in which case such Lender shall not be required to
deliver any such form or certificate pursuant to this Section 5.06(b).
Notwithstanding the foregoing, no Lender shall be required to deliver any such
form or certificate if a change in treaty, law or regulation has occurred prior
to the date on which such delivery would otherwise be required that renders any
such form or certificate inapplicable or would prevent the Lender from duly
completing and delivering any such form or certificate with respect to it and
such Lender so advises Borrower. Each Person that shall become a Participant
pursuant to Section 12.06 shall, upon the effectiveness of the related transfer,
be required to provide all the forms and statements required pursuant to this
Section 5.06(b), provided that in the case of a Participant such Participant
shall furnish all such required forms and statements to the Lender from which
the related participation shall have been purchased. Borrower shall not be
required to indemnify any Non-U.S. Lender, or to pay any additional amounts to
any Non-U.S. Lender, in respect of U.S. Federal withholding tax pursuant to
paragraph (a) above to the extent that (i) the obligation to withhold amounts
with respect to U.S. Federal withholding tax existed on the date such Non-U.S.
Lender became a party to this Agreement (or, in the case of a Non-U.S.
Participant, on the date such Participant became a Participant hereunder);
provided, however, that this clause (i) shall not apply to the extent that (x)
- -------- -------
the indemnity payments or additional amounts any Lender (or Participant) would
be entitled to receive (without regard to this clause (i)) do not exceed the
indemnity payment or additional amounts that the person making the assignment,
participation or transfer to such Lender (or Participant) would have been
entitled to receive in the absence of such assignment, participation or
transfer, or (y) such assignment, participation or transfer had been requested
by Borrower, (ii) the obligation to pay such additional amounts would not have
arisen but for a failure by such Non-U.S. Lender or Non-U.S. Participant to
comply with the provisions of this Section 5.06(b) or (iii) any of the
representations or certifications made by a Non-U.S. Lender or Non-U.S.
Participant pursuant to this Section 5.06(b) above are incorrect at the time a
payment hereunder is made, other than by reason of any change in treaty, law or
regulation
<PAGE>
-51-
having effect after the date such representations or certifications were made.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 5.06 and except as set forth in Section 12.06(b),
Borrower agrees to pay additional amounts and to indemnify each Lender in the
manner set forth in Section 5.06(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any amounts
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Closing Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of Covered Taxes.
(C) In addition, Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Note or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter referred to as "Other Taxes").
-----------
Section 6. Guarantee.
---------
6.01. The Guarantee. The Guarantors hereby jointly and severally
-------------
guarantee as a primary obligor and not as a surety to each Lender and the
Administrative Agent and their respective successors and assigns the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest (including any interest that would
accrue but for the provisions of the Bankruptcy Code after any bankruptcy or
insolvency petition under the Bankruptcy Code) on the Loans made by the Lenders
to, and the Notes held by each Lender of, Borrower and all other amounts from
time to time owing to the Lenders or the Administrative Agent by Borrower under
this Agreement and under the Notes and by any Obligor under any of the other
Credit Documents, and all obligations of Borrower or any Subsidiary to any
Lender or any Affiliate of any Lender in respect of any Swap Contract and all
Obligations owing to the Issuing Lender under the Letter of Credit Documents, in
each case strictly in accordance with the terms thereof (such obligations being
herein collectively called the "Guaranteed Obligations"). The Guarantors hereby
----------------------
jointly and severally agree that if Borrower shall fail to pay in full when due
(whether at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
6.02. Obligations Unconditional. The obligations of the Guarantors
-------------------------
under Section 6.01 are absolute, irrevocable and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of Borrower under this Agreement, the Notes or
any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
Guarantor (except for payment in full). Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Guarantors hereunder which shall
remain absolute, irrevocable and unconditional under any and all circumstances
as described above:
(I) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(II) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
<PAGE>
-52-
(III) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement,
the Notes or any other Credit Document or any other agreement or instrument
referred to herein or therein shall be amended, modified or waived in any
respect or any other guarantee of any of the Guaranteed Obligations or any
security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(IV) any lien or security interest granted to, or in favor of, the
Administrative Agent or any Lender or Lenders as security for any of the
Guaranteed Obligations shall fail to be perfected; or
(V) the release of any other Guarantor.
The Guarantors hereby expressly waive diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Administrative
Agent or any Lender exhaust any right, power or remedy or proceed against
Borrower under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations. The Guarantors
waive any and all notice of the creation, renewal, extension, waiver,
termination or accrual of any of the Guaranteed Obligations and notice of or
proof of reliance by any Lender upon this guarantee or acceptance of this
guarantee, and the Guaranteed Obligations, and any of them, shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this
guarantee, and all dealings between Borrower and the Lenders shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
guarantee. This guarantee shall be construed as a continuing, absolute,
irrevocable and unconditional guarantee of payment without regard to any right
of offset with respect to the Guaranteed Obligations at any time or from time to
time held by the Lenders, and the obligations and liabilities of the Guarantors
hereunder shall not be conditioned or contingent upon the pursuit by the Lenders
or any other Person at any time of any right or remedy against Borrower or
against any other Person which may be or become liable in respect of all or any
part of the Guaranteed Obligations or against any collateral security or
guarantee therefor or right of offset with respect thereto. This guarantee shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon the Guarantors and the successors and assigns thereof,
and shall inure to the benefit of the Lenders, and their respective successors
and assigns, notwithstanding that from time to time during the term of this
Agreement there may be no Guaranteed Obligations outstanding.
6.03. Reinstatement. The obligations of the Guarantors under this
-------------
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Borrower in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise. The Guarantors jointly and severally agree that
they will indemnify the Administrative Agent and each Lender on demand for all
reasonable costs and expenses (including reasonable fees of counsel) incurred by
the Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law,
other than any costs or expenses resulting from the gross negligence or bad
faith of such Creditor.
6.04. Subrogation; Subordination. Each Guarantor hereby agrees that
--------------------------
until the indefeasible payment and satisfaction in full in cash of all
Guaranteed Obligations and the expiration and termination of the Commitments of
the Lenders under this Agreement it shall not exercise any right or remedy
arising by reason of any performance by it of its guarantee in Section 6.01,
whether by subrogation or otherwise, against Borrower or any other Guarantor of
any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations. The payment of any amounts due with respect to any indebtedness of
Borrower or any other Guarantor now or
<PAGE>
-53-
hereafter owing to any Guarantor by reason of any payment by such Guarantor
under the Guarantee in this Section 6 is hereby subordinated to the prior
indefeasible payment in full in cash of the Guaranteed Obligations. Each
Guarantor agrees that it will not demand, sue for or otherwise attempt to
collect any such indebtedness of Borrower to such Guarantor until the
Obligations shall have been indefeasibly paid in full in cash. If,
notwithstanding the foregoing sentence, any Guarantor shall prior to the
indefeasible payment in full in cash of the Guaranteed Obligations collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by such Guarantor as trustee for the
Administrative Agent and the Lenders and be paid over to the Administrative
Agent on account of the Guaranteed Obligations without affecting in any manner
the liability of such Guarantor under the other provisions of the guaranty
contained herein.
6.05. Remedies. The Guarantors jointly and severally agree that, as
--------
between the Guarantors and the Lenders, the obligations of Borrower under this
Agreement and the Notes may be declared to be forthwith due and payable as
provided in Section 10 (and shall be deemed to have become automatically due and
payable in the circumstances provided in said Section 10) for purposes of
Section 6.01 notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against Borrower and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by Borrower) shall forthwith
become due and payable by the Guarantors for purposes of Section 6.01.
6.06. Instrument for the Payment of Money. Each Guarantor hereby
-----------------------------------
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or the
Administrative Agent, at its sole option, in the event of a dispute by such
Guarantor in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.
6.07. Continuing Guarantee. The guarantee in this Section 6 is a
--------------------
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08. General Limitation on Guarantee Obligations. In any action or
-------------------------------------------
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Guarantor under Section 6.01
would otherwise be held or determined to be void, voidable, invalid or
unenforceable, or subordinated to the claims of any other creditors, on account
of the amount of its liability under Section 6.01, then, notwithstanding any
other provision to the contrary, the amount of such liability shall, without any
further action by such Guarantor, any Lender, the Administrative Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
Section 7. Conditions Precedent.
--------------------
7.01. Effectiveness and Initial Extension of Credit. The
---------------------------------------------
effectiveness of the Credit Documents and the obligation of the Lenders to make
any initial extension of credit hereunder (whether by making a Loan or issuing a
Letter of Credit) is subject to the satisfaction of the conditions precedent
that:
(I) Documentation and Evidence of Certain Matters. The Arranger
---------------------------------------------
shall have received the following documents, each duly executed where
appropriate (with sufficient conformed copies for each Lender), each of
which shall be reasonably satisfactory to the Arranger (and to the extent
specified below, to each Lender) in form and substance:
<PAGE>
-54-
(1) Corporate Documents. Certified true and complete
-------------------
copies of the charter and by-laws (or equivalent documents) of each
Obligor and of all corporate authority for each Obligor (including
board of director resolutions and evidence of the incumbency,
including specimen signatures, of officers) with respect to the
execution, delivery and performance of such of the Credit Documents to
which such Obligor is intended to be a party and each other document
to be delivered by such Obligor from time to time in connection
herewith and the extensions of credit hereunder and the consummation
of the Transactions, certified as of the Closing Date as complete and
correct copies thereof by the Secretary or an Assistant Secretary of
Borrower.
(2) Officer's Certificate. An Officer's Certificate of
---------------------
Borrower, dated the Closing Date, to the effect set forth in clauses
(a) and (b) of Section 7.02(i) and to the effect that all conditions
precedent to the making of such extension of credit have been
satisfied.
(3) Opinions of Counsel. (i) Opinion of Kirkland & Ellis,
-------------------
counsel to the Obligors, substantially in the form of Exhibit E-1, and
-----------
(ii) opinion of Haynes & Boone, LLP, local counsel to the Obligors,
substantially in the form of Exhibit E-2 (and each Obligor hereby
-----------
instructs such counsel to deliver such opinion to the Lenders, the
Arranger and the Administrative Agent).
(4) The Credit Agreement. This Agreement, (i) executed and
--------------------
delivered by a duly authorized officer of Borrower, with a counterpart
for each Lender, and (ii) executed and delivered by a duly authorized
officer of each Lender and Agent.
(5) Notes. The Notes, duly completed and executed for each
-----
Lender that has requested Notes.
(6) Security Agreement. The Security Agreement (which
------------------
shall be in full force and effect), duly authorized, executed and
delivered by the Obligors and the Administrative Agent, and the
certificates identified under the name of such Obligors in Annex 1
thereto, accompanied by undated stock powers executed in blank if
applicable, and the notes identified under the name of such Obligors
in Annex 1B thereto.
(7) Consents, Licenses and Approvals. In such officer's
--------------------------------
official (and not individual) capacity and without personal liability,
a certificate of a Responsible Officer of Borrower (i) attaching
copies of all consents, authorizations and filings (other than UCC
filings) necessary to enter into and consummate the transactions
contemplated hereby and perform the obligations under the Credit
Documents and the Documents (other than filings required by this
Agreement and the other Credit Documents to effect security interests
in the Pledged Collateral), and (ii) stating that such consents,
licenses and filings are in full force and effect and that all
applicable waiting periods have expired without any action being taken
or threatened which, would restrain, prevent or otherwise impose
adverse conditions on Borrower, and each such consent, authorization
and filing shall be in form and substance satisfactory to the
Administrative Agent.
(8) Solvency Certificate and Opinion. In such officer's
--------------------------------
official (and not individual) capacity and without personal liability,
a certificate from the chief financial officer of Borrower and, at
Borrower's expense (not to exceed 50% thereof up to $25,000), an
opinion of a nationally recognized appraisal firm or valuation
consultant reasonably satisfactory to the
<PAGE>
-55-
Arranger in form and substance reasonably satisfactory to the Arranger
with respect to the Solvency of Borrower and each other Obligor
immediately after giving effect to the Transactions.
(9) Insurance. Evidence of insurance complying with the
---------
requirements of Section 9.04 and the Security Documents, in scope,
form and substance satisfactory to the Arranger and certificates
naming the Administrative Agent as an additional insured and/or loss
payee, and stating that such insurance shall not be canceled or
revised without 30 days prior written notice by the insurer to the
Administrative Agent.
(II) Date of Closing. Such extension of credit shall be made on
---------------
or before March 31, 1998.
(III) Merger Agreement and Merger. The Board of Directors of
---------------------------
Newco and Borrower shall have authorized and approved the Transactions and
the Arranger shall have received satisfactory evidence of the same. Any
amendment to the Merger Agreement shall be in form and substance reasonably
satisfactory to the Arranger. The Merger and the Existing Debt Repayment
and the financing therefor shall be in compliance in all material respects
with all laws and regulations including any state antitakeover laws
applicable to such transactions. Borrower shall not have any "poison pill"
rights or shall have redeemed such rights at a nominal price, or the
Arranger shall otherwise be reasonably satisfied that such rights are null
and void as applied to the Merger. The Arranger shall have received
copies, certified by Borrower, of all filings made with any governmental
authority in connection with the Merger and the other Transactions.
(IV) Consummation of Merger. All material conditions to the
----------------------
Merger set forth in the Merger Agreement as in effect on the date of the
Commitment Letter shall have been satisfied in all material respects, and
not waived, amended, supplemented or otherwise modified in any material
respect except with the consent of the Arranger and the Majority Lenders
(not to be unreasonably withheld or delayed), to the reasonable
satisfaction of the Arranger and the Required Lenders. The consideration
per share of common stock in the Merger shall not exceed $25 per share and
an aggregate of $325 million for all shares and options to purchase shares.
The Merger shall have been consummated.
(V) Management Rollover. The nature and amount of the
-------------------
Management Rollover shall be reasonably satisfactory to the Arranger.
(VI) Total Fees. The Arranger shall have received satisfactory
----------
evidence that fees and expenses in connection with the Transactions will
not exceed $20 million.
(VII) Senior Subordinated Financing. Borrower shall have received
-----------------------------
aggregate gross proceeds (i.e., before payment of expenses, underwriting
---
fees, discounts and the like) of at least $100 million from the Senior
Subordinated Financing pursuant to agreements, and terms and conditions
thereunder, in form and substance reasonably satisfactory to the Arranger.
(VIII) Equity Financing. Borrower and/or Newco shall have
----------------
received aggregate gross proceeds (i.e., before payment of expenses,
---
underwriting fees, discounts and the like) from the Equity Financing of at
least $115 million pursuant to agreements, and terms and conditions
thereunder, in form and substance reasonably satisfactory to the Arranger.
Any preferred stock issued to Madison Dearborn or any Affiliate of Madison
Dearborn as part of the Equity Financing shall be on terms and conditions,
and pursuant to documentation, reasonably satisfactory to the Arranger.
<PAGE>
-56-
(IX) Madison Dearborn Voting and Economic Interest. Immediately
---------------------------------------------
after the consummation of the Transactions, Madison Dearborn shall own at
least 75% (on a fully diluted basis) of the voting common equity of
Borrower and 75% of the economic interest in Borrower.
(X) Repayment of Existing Debt. All obligations of Borrower and
--------------------------
the Subsidiaries with respect to the Refinanced Debt shall have been paid
in full (or provisions made therefor reasonably satisfactory to the
Arranger) and all lending commitments thereunder terminated to the
reasonable satisfaction of the Arranger with all security interests in
favor of existing lenders being unconditionally released and evidence
thereof reasonably satisfactory to the Arranger shall have been provided in
writing. The Arranger shall have received a "pay-off" letter with respect
to all such debt repaid to the extent "pay-off" letters are customarily
issued with respect to such Indebtedness.
(XI) Borrowing Base Certificate. The Administrative Agent and
--------------------------
the Lenders shall have received and the Majority Lenders shall be satisfied
(as to form and substance) with a Borrowing Base Certificate prepared as of
the last Business Day of the month immediately preceding the Closing Date.
In the event the Borrowing Base has changed or, in Borrower's reasonable
judgment, is expected to change, as of the Closing Date, Borrower shall
deliver to the Administrative Agent and the Lenders an additional Borrowing
Base Certificate on the Closing Date.
(XII) Approvals. All governmental (domestic and foreign) and
---------
other third-party approvals and consents necessary in connection with the
Transactions and the other transactions contemplated hereby (without the
imposition of any materially burdensome or materially adverse conditions)
shall have been obtained and shall be in full force and effect (or there
shall be a plan reasonably satisfactory to the Arranger for the obtaining
thereof). All applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents, or
imposes materially adverse conditions upon the Transactions.
(XIII) Employment Arrangements of Messrs. Smith and Ross. The
-------------------------------------------------
Arranger shall be reasonably satisfied with the employment and consultant
status (as well as employment and consulting agreements) of Jerry M. Smith
(President and CEO of Borrower) and Lloyd Ross (Chairman of Borrower).
(XIV) No Material Adverse Change. There shall not have occurred
--------------------------
or become known (i) any Material Adverse Change or any condition or event
that could reasonably be expected to result in a Material Adverse Change
with respect to Newco or Borrower, as the case may be (and before and after
giving effect to the Transactions), since December 31, 1996, (ii) any facts
or circumstances discovered by the Lenders in the course of their ongoing
due diligence investigation of the Transactions, Newco, Borrower and the
Subsidiaries after giving effect to the Transactions, and the other
transactions contemplated hereby, which would be materially inconsistent
with the assumptions underlying the projections delivered to the Lenders in
syndication, (iii) any transaction (other than the Transactions) entered
into by Newco, Borrower or any Subsidiary, whether or not in the ordinary
course of business, that, in the reasonable judgment of the Majority
Lenders, would be reasonably likely to result in a Material Adverse Change
with respect to Newco or Borrower, or (iv) any dividend or distribution of
any kind since the date of the most recent audited financials declared or
paid by Borrower on its Equity Interests (except pursuant to the Merger
Agreement).
(XV) No Action or Proceeding. There shall not exist any
-----------------------
threatened or pending Proceeding by or before any Governmental Authority,
(i) challenging the consummation of any of the Transactions or which would
restrain, prevent or impose materially burdensome conditions on the
Transactions,
<PAGE>
-57-
individually or in the aggregate, or any other transaction contemplated
hereunder, (ii) seeking to prohibit the ownership or operation by Borrower
or any Subsidiary of all or a material portion of any of their businesses
or assets or (iii) seeking to obtain, or having resulted in the entry of,
any judgment, order or injunction that (a) would restrain, prohibit or
impose materially adverse conditions on the ability of the Lenders to make
the Loans under the Credit Facilities, (b) could be reasonably expected to
result in a Material Adverse Change with respect to Newco or Borrower, as
the case may be (and before and after giving effect to the Transactions),
(c) could reasonably be expected to affect the legality, validity or
enforceability of any Credit Document or any documents relating thereto or
could reasonably be expected to have a Material Adverse Effect, or (d) is
seeking any material damages as a result thereof.
(XVI) Satisfactory Capitalization and Corporate Structure. The
---------------------------------------------------
Arranger and the Majority Lenders shall be satisfied (in their reasonable
judgment) with the proposed and actual capitalization and corporate and
organizational structure of Newco and Borrower and the Subsidiaries (after
giving effect to the Transactions), including as to direct and indirect
ownership and as to the terms of the Indebtedness and Equity Interests of
Newco, Borrower, and their respective Subsidiaries. Immediately after
giving effect to the Transactions, Borrower shall have no outstanding
Indebtedness or preferred stock (or Contingent Obligation in respect
thereof) other than the Loans, the Senior Subordinated Notes, any Qualified
Capital Stock issued as part of the Equity Financing and certain other
Indebtedness reasonably acceptable to the Arranger (such as Capital Leases
and other Indebtedness disclosed to the Arranger (including outstanding
mortgage Indebtedness not to exceed an aggregate principal amount of $5.0
million)).
(XVII) No Default in Other Agreements. Any material defaults in
------------------------------
any material agreements of Newco or Borrower or any Subsidiary that may
result from the Transactions shall have been resolved or otherwise
addressed in a manner reasonably satisfactory to the Arranger; and no law
or regulation adopted, proposed or applicable after the date of the
Commitment Letter shall be applicable in the reasonable judgment of the
Arranger that restrains, prevents or imposes materially adverse conditions
upon any material component of the Transactions or the financing thereof,
including the extensions of credit under this Agreement.
(XVIII) Satisfactory Material Documentation. All other material
-----------------------------------
documentation and agreements related to the Transactions or which, in the
judgment of the Arranger, affects the extension of credit hereunder in any
material respect shall be in form and substance reasonably satisfactory to
the Arranger; and all material conditions precedent under all documentation
relating to the consummation of the Transactions (other than the conditions
precedent set forth in this Agreement) or the financing or refinancing
thereof as the case may be shall have been satisfied in all material
respects (except to the extent such conditions have been waived with the
prior consent of the Arranger and the Majority Lenders (such consent not to
be unreasonably withheld or delayed)).
(XIX) Margin Rule Compliance. All Loans and other financing to
----------------------
Newco and Borrower shall be in full compliance with all applicable
requirements of Regulations G, T, U and X.
(XX) Payment of Fees and Expenses. All accrued fees and
----------------------------
expenses (including the reasonable fees and expenses of counsel to the
Lenders, the Arranger and the Administrative Agent) of the Lenders, the
Arranger and the Administrative Agent in connection with the Credit
Documents shall have been paid.
<PAGE>
-58-
(XXI) Satisfactory Environmental Reports. The Arranger shall
----------------------------------
have received reasonably satisfactory third-party environmental reports
(including Phase 1 reports) of Borrower, and the Subsidiaries.
(XXII) Tax, ERISA and Other Matters Satisfactory. The Arranger
-----------------------------------------
shall be reasonably satisfied as to the amount and nature of all tax,
ERISA, employee retirement benefit, and other contingent liabilities to
which Newco, Borrower or any Subsidiary may be subject, and the plans of
Borrower and the Subsidiaries with respect thereto.
(XXIII) Pro Forma Financials; Historical Financials. The Lenders
-------------------------------------------
shall have received a reasonably satisfactory pro forma balance sheet of
Borrower and the Subsidiaries as at December 31, 1997 and after giving
effect to the Transactions and the financings contemplated hereby, which
pro forma balance sheet shall be substantially in conformity with that
delivered to the Lenders during syndication. The Lenders shall have
received projected cash flows and income statements for the period of seven
years following December 31, 1997, which projections shall be (i) based
upon reasonable assumptions made in good faith, (ii) reasonably
satisfactory to the Lenders and (iii) substantially in conformity with
those projections delivered to the Lenders during syndication. The Lenders
shall have received (i) audited financial statements of Borrower for 1994
through 1996 and (ii) unaudited interim combined financial statements of
Borrower for each fiscal month and quarterly period ended subsequent to
September 30, 1997 as to which such financial statements are available, and
such financial statements shall not, in the reasonable judgment of the
Lenders, reflect any Material Adverse Change with respect to Borrower as
compared with the financial statements or projections previously furnished
to the Lenders.
(XXIV) 1998 Business Plan and Budget. The Lenders shall have
-----------------------------
received a reasonably satisfactory business plan or budget for Borrower and
the Subsidiaries after giving effect to the Transactions for the remainder
of the 1997 fiscal year and the fiscal year 1998.
(XXV) Satisfactory Lien Search. The Lenders shall have received
------------------------
the results of a recent lien, tax and judgment search in each of the
jurisdictions and offices where assets of each of Newco, Borrower and their
respective Subsidiaries are located or recorded, and such search shall
reveal no liens on any of their assets except for liens permitted by the
Credit Documents or liens to be discharged in connection with the
transactions contemplated hereby.
(XXVI) Minimum Trailing Four Quarter EBITDA. For the trailing
------------------------------------
four quarter period immediately prior to the Closing Date Borrower's EBITDA
shall not be less than $33.5 million, and the Arranger shall have received
a satisfactory Officer's Certificate certifying as to the same (including
satisfactory schedules and other supporting data).
(XXVII) Field Examination. The Lenders shall have received the
-----------------
report of an independent field examination, reasonably satisfactory in form
and substance to the Lenders, with respect to the inventory of Borrower and
the Subsidiaries and shall be reasonably satisfied with the results thereof
(it being understood that Borrower shall not be responsible for more than
$10,000 of expenses for such field examination).
(XXVIII) Filings and Lien Searches. The Obligors shall have
-------------------------
authorized, executed and delivered each of the following:
<PAGE>
-59-
(1) UCC Financing Statements (Form UCC-1) in appropriate
form for filing under the UCC and any other applicable law in
each jurisdiction as may be necessary or appropriate to perfect
the Liens created, or purported to be created, by the Security
Documents;
(2) UCC, tax lien and judgment lien search reports, each
of a recent date against each Obligor as debtor and that are
filed in those jurisdictions in which any of the Collateral is
located and the jurisdictions in which each Obligor's principal
place of business is located;
(3) to the extent equipment or inventory is maintained on
a leased premise, a copy of each lease or other agreement
relating to such leased premise or, to the extent acceptable to
Arranger, abstracts of such leases or other agreements; and
(4) evidence of the completion of all filings with
respect to the Security Agreement and delivery of such other
documents as may be necessary or desirable, to perfect the Liens
created, or purported to be created, by the Security Agreement;
provided, however, that Borrower may satisfy this subclause (4)
-------- -------
to Section 7.01(xxviii) within a reasonable time after the
Closing Date.
(XXIX) Conditions Relating to Mortgaged Real Property and Real
-------------------------------------------------------
Property. On or prior to the Closing Date, Borrower and each Subsidiary to
--------
enter into a Mortgage shall have caused to be delivered to the
Administrative Agent, on behalf of the Lenders, the following documents and
instruments:
(i) a Mortgage encumbering each Mortgaged Real Property
in favor of the Administrative Agent, for the benefit of the Lenders,
in form for recording in the recording office of each jurisdiction
where each such Mortgaged Real Property is situated, together with
such other documentation as shall be required to create a lien under
applicable law, and other similar instruments as are contemplated by
the counsel opinions described in subsection 7.01(i)(3) hereof in
respect of such Mortgage, all of which shall be in form and substance
reasonably satisfactory to the Arranger, which Mortgage and other
instruments shall be effective to create a first priority Lien on such
Mortgaged Real Property subject to no Liens other than Prior Liens (or
Permitted Liens) applicable to such Mortgaged Real Property;
(ii) with respect to each Mortgaged Real Property,
Borrower shall use its best efforts to obtain such consents,
approvals, estoppels, tenant subordination agreements or other
instruments as reasonably necessary or as reasonably required by the
Arranger to consummate the transactions contemplated hereby or to
grant the Lien contemplated by the Mortgage; and
(iii) the following documents and instruments:
(1) with respect to each Mortgage, a policy (or
commitment to issue a policy) of title insurance insuring
(or committing to insure) the Lien of such Mortgage as a
valid first priority Lien (other than the Lien described in
clause (m) of the definition of Permitted Liens) on the
real property and fixtures described therein in an amount
not less than the fair market value thereof which policy
(or commitment) shall (a) be issued by the Title Company,
(b) include such reinsurance arrangements, if any (with
provisions for direct access), as shall be reasonably
acceptable to the Arranger, (c) have been supplemented by
such endorsements, to the extent available, as shall be
reasonably requested by the Arranger, (d) such affidavits
and instruments of
<PAGE>
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indemnification as shall be reasonably required to induce
the Title Company to issue the policy or policies (or
commitment) and endorsements contemplated in this
subparagraph (iii) and (e) contain no exceptions to title
other than exceptions for (x) Liens of the type described
in clauses (a), (b), (c), (d), (f), (g), (h), (i), (m), (o)
and (p) of the definition of Permitted Liens, (y) any Lien
of the type described in clause (r) of the definition of
Permitted Liens to the extent the original Lien is
permitted hereunder and (z) the Prior Liens applicable to
such Mortgaged Real Property;
(2) with respect to each Mortgaged Real Property, a
Survey;
(3) with respect to each Mortgaged Real Property,
policies or certificates of insurance as required by the
Mortgage relating thereto;
(4) with respect to each Mortgaged Real Property,
UCC, judgment and tax lien searches complying with Section
7.01(xxv) above and subclause (2) of Section 7.01 (xxviii)
above;
(5) evidence acceptable to the Arrangers of payment
by Borrower of all title insurance premiums, search and
examination charges, survey costs, mortgage recording taxes
and related charges required for the recording of the
Mortgages and issuance of the title insurance policies
referred to in subclause (iii)(1) of this Section
7.01(xxix) above;
(6) with respect to each Real Property or Mortgaged
Real Property, copies of all Leases, subleases, leases in
which Borrower holds the tenant's interest or other
agreements relating to possessory interests or, to the
extent acceptable to Arranger, abstracts of such leases or
other agreements; to the extent any of the foregoing affect
any Mortgaged Real Property, such agreement shall be
subordinate to the Lien of the Mortgage to be recorded
against such Mortgaged Real Property, and shall otherwise
be acceptable to the Arrangers; and
(7) with respect to each Mortgaged Real Property,
an Officer's Certificate or other evidence satisfactory to
the Arranger that as of the date thereof (a) there has been
issued and is in effect, to the extent required, a valid
and proper certificate of occupancy or local or foreign
equivalent for the use then being made of such Mortgaged
Real Property, (b) there has not occurred any material
Destruction of any Mortgaged Real Property that has not
been restored and there is not pending any Taking of any
Mortgaged Real Property and (c) to the best knowledge of
Borrower, except as may be disclosed in the Survey of such
Mortgaged Real Property delivered pursuant to subclause
(iii)(2) of this Section 7.01(xix) above, there are no
disputes regarding boundary lines, location, encroachment
or possession of such Mortgaged Real Property and no state
of facts existing which could give rise to any such claim.
7.02. Initial and Subsequent Extensions of Credit. The obligation of
-------------------------------------------
the Lenders to make any Loan or otherwise extend any credit to Borrower upon the
occasion of each borrowing or other extension of credit (whether by making a
Loan or issuing a Letter of Credit) hereunder (including the initial borrowing)
is subject to the further conditions precedent that:
<PAGE>
-61-
(I) No Default or Event of Default; Representations and
---------------------------------------------------
Warranties True; Borrowing Base Not Exceeded. Both immediately prior to the
--------------------------------------------
making of such Loan or other extension of credit and also after giving pro
---
forma effect thereto and to the intended use thereof:
-----
(a) no Default or Event of Default shall have occurred and
be continuing;
(b) the representations and warranties made by the
Obligors in Section 8, and by each Obligor in each of the other Credit
Documents to which it is a party, shall be true and complete in all
material respects on and as of the date of the making of such Loan or
other extension of credit with the same force and effect as if made on
and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date); and
(c) for each Revolving Credit Loan and each Letter of
Credit issuance, the Borrowing Base (as determined upon the most
recent Borrowing Base Certificate delivered hereunder) exceeds the sum
of all Revolving Credit Loans then outstanding, plus the aggregate
----
principal amount of Swing Loans then outstanding, plus the aggregate
----
amount of all Letter of Credit Liabilities then outstanding.
(II) No Legal Bar. The Loans and the use of proceeds thereof
------------
shall not contravene, violate or conflict with, nor involve any Lender in a
violation of, any law, rule, injunction, or regulation or determination of
any court of law or other Governmental Authority.
Each notice of borrowing or request for the issuance of a Letter of
Credit by Borrower hereunder shall constitute a certification by Borrower to the
effect set forth in clause (i) above (both as of the date of such notice or
request and, unless Borrower otherwise notifies the Administrative Agent prior
to the date of such borrowing or issuance, as of the date of such borrowing or
issuance).
Each notice submitted by Borrower hereunder for an extension of credit
hereunder shall constitute a representation and warranty by Borrower, as of the
date of such notice and as of the relevant borrowing date or date of issuance of
a Letter of Credit, as applicable, that the applicable conditions in Sections
7.01 and 7.02 have been satisfied in accordance with the terms hereof.
Section 8. Representations and Warranties. Each Obligor represents
------------------------------
and warrants to the Creditors that at and as of each Funding Date (in each case
immediately before and immediately after giving effect to the transactions to
occur on such date) and at and as of the date of each other extension of credit
hereunder:
8.01. Corporate Existence. Each Obligor and each Subsidiary: (a) is
-------------------
a corporation, partnership or other entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization; (b) has
all requisite corporate or other power and authority, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its Property and carry on its business as now being conducted; and (c) is
qualified to do business and is in good standing in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure to be so qualified and in good standing would reasonably be
expected to (either individually or in the aggregate) have a Material Adverse
Effect.
8.02. Financial Condition; Etc. (A) Borrower has heretofore
------------------------
delivered to the Lenders (A) the audited consolidated balance sheets of Borrower
and the Subsidiaries as of December 31, 1992, December 31,
<PAGE>
-62-
1993, December 31, 1994, December 31, 1995 and December 31, 1996, and the
related statements of earnings, changes in stockholders' equity and cash flows
for the fiscal years ended on those dates, together with reports thereon by KPMG
Peat Marwick LLP, certified public accountants, and (B) the unaudited
consolidated balance sheets of Borrower and the Subsidiaries as of September 30,
1997, and the related statements of earnings and cash flows for the fiscal
periods ended on September 30, 1997. All of said financial statements, including
in each case the related schedules and notes, are true, complete (in the case of
year-end financial statements) and correct in all material respects, have been
prepared in accordance with GAAP consistently applied and present fairly the
financial position of Borrower and the Subsidiaries as of the respective dates
of said balance sheets and the results of their operations for the respective
periods covered thereby, subject (in the case of interim statements) to period-
end audit adjustments and the absence of footnotes.
(B) Except as set forth in Schedule 8.02, no Obligor or any
-------------
Subsidiary has any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or anticipated losses from any
unfavorable commitments.
(C) Except as set forth in the financial statements referred to in
Section 8.02(a), since December 31, 1996 there has been no Material Adverse
Effect, or any event, change or circumstance which could reasonably be expected
to cause or evidence, either individually or together with any other events,
changes or circumstances, a Material Adverse Effect.
8.03. Litigation. Except as disclosed in Schedule 8.03, there are no
---------- -------------
Proceedings or investigations now pending or, to the knowledge of the Obligors,
threatened against or directly affecting any Obligor or any Subsidiary or any of
their respective Property that, if adversely determined could (either
individually or in the aggregate) be reasonably expected to have a Material
Adverse Effect.
8.04. No Breach; No Default. (A) None of the execution, delivery
---------------------
and performance by each Obligor of any Credit Document or any Document to which
it is a party and the consummation of the transactions herein and therein
contemplated will (i) conflict with or result in a breach of, or require any
consent (which has not been obtained and is in full force and effect) under, the
charter or by-laws of any Obligor, or any applicable law or regulation, or any
order, writ, injunction or decree of any Governmental Authority binding on any
Obligor, or any term or provision of any agreement or instrument to which any
Obligor or any of its Subsidiaries is a party or by which any of them or any of
their Property is bound or to which any of them is subject (other than consents
which may be required pursuant to the terms of any Lease), or (ii) constitute
(with due notice or lapse of time or both) a default under any such agreement or
instrument, or (iii) result in the creation or imposition of any Lien (except
for the Liens created pursuant to the Security Documents) upon any Property of
any Obligor or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument, except with respect to each of the foregoing which
would not (either individually or in the aggregate) reasonably be expected to
have a Material Adverse Effect.
(B) No Obligor or any Subsidiary is in default under or with respect
to any contractual obligation or any order, award or decree of any Governmental
Authority or arbitrator binding upon it or any of its Property in any respect
which would reasonably be expected to have a Material Adverse Effect.
(C) No Default or Event of Default has occurred and is continuing.
8.05. Action. Each Obligor has all necessary corporate power,
------
authority and legal right to execute, deliver and perform its obligations under
each Credit Document and each Document to which it is a party and to consummate
the transactions herein and therein contemplated; the execution, delivery and
performance by each Obligor of each Credit Document and each Document to which
it is a party and the
<PAGE>
-63-
consummation of the transactions herein and therein contemplated have been duly
authorized by all necessary corporate action on its part; and this Agreement has
been duly and validly executed and delivered by each Obligor and constitutes,
and each of the Notes, the other Credit Documents and the Documents to which it
is a party when executed and delivered by such Obligor (in the case of the
Notes, for value) will constitute, its legal, valid and binding obligation,
enforceable against such Obligor in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws of general applicability
from time to time in effect affecting the enforcement of creditors' rights and
remedies and (b) the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
8.06. Approvals. No authorizations, approvals or consents of, and no
---------
filings or registrations with, any Governmental Authority or any securities
exchange are necessary for the execution, delivery or performance by any Obligor
of the Credit Documents or Documents to which it is a party or for the legality,
validity or enforceability hereof or thereof or for the consummation of the
transactions herein and therein contemplated, except for filings and recordings
in respect of the Liens created pursuant to the Security Documents.
8.07. ERISA. Each member of the ERISA Group (x) has fulfilled its
-----
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and (y) is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code with respect to each
Benefit Arrangement. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which failure or amendment has
resulted or could reasonably be expected to result in the imposition of a Lien
or the posting of a bond or other security under ERISA or the Code, (iii)
incurred any accumulated funding deficiency (whether or not waived) with respect
to any Plan, (iv) any direct or indirect withdrawal liability with respect to
any Multiemployer Plan, or any direct or indirect potential withdrawal liability
if it were to withdraw from a Multiemployer Plan as of the date of determination
or (v) incurred any liability under Title IV of ERISA other than a liability to
the PBGC for premiums under Section 4007 of ERISA or contributions in the normal
course. The sum of the amount of unfunded benefit liabilities (within the
meaning of Section 4001(a)(18) of ERISA) under all Plans (excluding each Plan
with an amount of unfunded benefit liabilities of zero or less) is not more than
$1.0 million. There are no actions, liens, suits or claims pending or
threatened (other than routine claims for benefits) with respect to any Benefit
Arrangement that could reasonably be expected to have a Material Adverse Effect.
Borrower and each Subsidiary and each of the Foreign Plans are in compliance in
all material respects with all applicable laws and regulations with respect to
the Foreign Plans and the terms of the Foreign Plans, and all required
contributions have been made to the Foreign Plans. For purposes hereof, the
term "Foreign Plans" shall mean any employee benefit plan, program, policy,
-------------
arrangement or agreement maintained or contributed to by, or entered into with,
Borrower or any Subsidiary with respect to employees employed outside the United
States.
8.08. Taxes. Except as set forth in Schedule 8.08, each Obligor and
----- -------------
each Subsidiary has filed or caused to be filed all U.S. Federal income tax
returns and all other material tax returns, domestic or foreign, required to be
filed by it and has paid all material taxes payable by it which have become due
or any assessments made against it or any of its Property and all other material
taxes, fees or other charges imposed on it or any of its Property (including the
Mortgaged Real Property) by any Governmental Authority (other than those which,
in the aggregate, are not substantial in amount or those the amount or validity
of which are currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided on
the books of each Obligor or the Subsidiaries, as the case may be); and no tax
lien has been filed and, to the knowledge of the Obligors, no action, suit,
proceeding, investigation, audit or claim is being asserted
<PAGE>
-64-
or has been threatened by any authority with respect to any such tax, fee or
other charge, except where the existence of such would not (individually or in
the aggregate) have a Material Adverse Effect. No Obligor or any Subsidiary has
entered into an agreement or waiver extending any statute of limitations
relating to the payment or collection of taxes of any Obligor or any Subsidiary,
except where the existence of such would not (individually or in the aggregate)
have a Material Adverse Effect.
8.09. Investment Company Act; Public Utility Holding Company Act;
-----------------------------------------------------------
Other Restrictions. No Obligor or any Subsidiary is an "investment company", or
- ------------------
a company "controlled" by an "investment company", within the meaning of the
United States Investment Company Act of 1940, as amended. No Obligor or any
Subsidiary is a "holding company", or an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company", within the meaning of the United
States Public Utility Holding Company Act of 1935, as amended. No Obligor is
subject to regulation under any law or regulation of any Governmental Authority
(other than Regulation X of the Board of Governors of the Federal Reserve
System) which limits its ability to incur Indebtedness.
8.10. Senior Subordinated Notes. The subordination provisions
-------------------------
contained in the Senior Subordinated Note Documents are enforceable against
Borrower and each Subsidiary party thereto, and all Obligations are within the
definition of "Senior Indebtedness" or "Guarantor Senior Indebtedness", as the
case may be, included in such subordination provisions. Senior Subordinated
Notes, in either case, when issued and sold, will either (a) have been
registered or qualified under applicable federal and state securities laws or
(b) be exempt therefrom. The offering documents for the issuance and sale of
the Senior Subordinated Notes, as of their date, did not contain an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein not misleading (it
being understood that no representation or warranty is being made with respect
to information in respect of the initial purchasers thereof expressly provided
by them for inclusion therein).
8.11. Environmental Matters. Except as disclosed in Schedule 8.11
--------------------- -------------
and except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect: (i) each Obligor and the
Subsidiaries are in compliance with and in the last five years have been in
compliance with, and are not subject to liability under, any Environmental Laws
applicable to them and there are no Environmental Laws, including such Laws
which have been formally proposed for public comment, which would reasonably be
expected to result in material expenditures by any Obligor or any Subsidiary,
and no such Environmental Laws would reasonably be expected to interfere in any
material way with current or projected operations of any Obligor or any
Subsidiary; (ii) no Obligor or any Subsidiary has received notice that it or any
of their respective predecessors interests has been identified as a potentially
responsible party under the United States Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any similar
------
law of any Governmental Authority, nor has any Obligor or any Subsidiary
received notice that any Hazardous Materials that it or any of their respective
predecessors in interest has used, generated, stored, treated, handled,
transported or disposed of, or arranged for disposal or treatment of, have been
found at any site at which any Person is conducting or plans to conduct any
action pursuant to any Environmental Law, and no Obligor or any Subsidiary, or
to the knowledge of the Obligors, any of their respective predecessors in
interest, has disposed of, arranged for the disposal or treatment of, or
otherwise released Hazardous Materials at any site at which any Person is
conducting or plans to conduct any action under Environmental Law; (iii) no
properties now or formerly owned, leased or operated by any Obligor or any
Subsidiary or, to the knowledge of the Obligors, any of their respective
predecessors in interest, are (x) listed or, to the knowledge of any Obligor or
Subsidiary, at any Property proposed for listing on the National Priorities List
under CERCLA or (y) listed on the Comprehensive Environmental Response,
Compensation and Liability Information System List promulgated pursuant to
CERCLA or (z) included on any similar lists maintained by any Governmental
Authority; (iv) there are no past or present events, conditions, activities,
practices or actions, or any agreements, judgments, decrees or orders by
<PAGE>
-65-
which any Obligor or any Subsidiary is bound, which would reasonably be expected
to prevent any Obligor's or any Subsidiary's compliance with any Environmental
Law, or which would reasonably be expected to give rise to any liability of any
Obligor or any Subsidiary under any Environmental Law, including, without
limitation, liability under CERCLA or similar state or foreign laws; (v) no Lien
has been asserted or recorded, or to the knowledge of the Obligors, threatened,
under any Environmental Law with respect to any asset, facility, inventory or
property currently owned, leased or operated by any Obligor or any Subsidiary;
(vi) there are no underground storage tanks or related piping at any Property
owned, operated or, to the knowledge of any Obligor or Subsidiary, at any
Property leased by any Obligor or any Subsidiary; (vii) to the knowledge of any
Obligor or any Subsidiary no such tanks or related piping has been removed from
such properties; and (viii) no Obligor or any Subsidiary is subject to any
Proceeding alleging the violation of, or liability under, any Environmental Law
and, to the knowledge of the Obligors, no such Proceeding is threatened.
8.12. Environmental Investigations. All material environmental
----------------------------
investigations, studies, audits or assessments which have been conducted and
which are in the possession, custody or control of any Obligor or any Subsidiary
relating (i) to the current or prior business, operations, facilities or
Properties of any Obligor or any Subsidiary or any of their respective
predecessors in interest or (ii) to any facility or Property of any Obligor now
or previously owned, operated, leased or used by any Obligor or any Subsidiary
or any of their respective predecessors in interest have been made available to
the Administrative Agent and the Lenders.
8.13. Use of Proceeds. Neither Borrower nor any Subsidiary is
---------------
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying Margin Stock and no part of the proceeds of any extension of
credit hereunder will be used to purchase or carry any Margin Stock. Borrower
will use the proceeds of all Term Loans to consummate the Merger and to finance
the Existing Debt Repayment.
8.14. Subsidiaries. On the date hereof (after giving effect to the
------------
Transactions), Borrower does not have any Subsidiaries or interests in
partnerships, joint ventures or business trusts other than the entities set
forth in Schedule 8.14. Borrower owns, as of the Closing Date, the percentage
-------------
of the issued and outstanding Equity Interests or other evidences of the
ownership of each Subsidiary, partnership or joint venture listed on Schedule
--------
8.14 as set forth on such Schedule. No such Subsidiary, partnership or joint
- ----
venture has issued any securities convertible into shares of its Equity
Interests (or other evidence of ownership) or any Equity Rights to acquire such
shares or securities convertible into such shares (or other evidence of
ownership), and the outstanding stock and securities (or other evidence of
ownership) of such Subsidiaries, partnerships or joint ventures are owned by
Borrower and the Subsidiaries free and clear of all Liens and Equity Rights of
others of any kind whatsoever, except for Liens pursuant to the Security
Documents.
8.15. Properties. Except as otherwise contemplated or provided in
----------
the Mortgage, the other Security Documents or this Agreement, each of the
Obligors has good and marketable title to and beneficial ownership of all
Properties owned by it, including all Property reflected in the most recent
financial statements delivered pursuant to this Agreement (except as sold or
otherwise disposed of since the date of such financial statements in the
ordinary course of business and in accordance with this Agreement). Title to
each such Property that is not Collateral is held by the Obligors and each of
their respective Subsidiaries free and clear of all Liens except for Permitted
Liens. Title to such Property that constitutes Collateral is held by the
Obligors free and clear of all Liens other than Prior Liens and other Liens
expressly permitted by the applicable Security Document.
8.16. Security Interest; Absence of Financing Statements. The
--------------------------------------------------
Security Documents, once executed and delivered, will create, in favor of the
Administrative Agent for the benefit of the Lenders, as security for the
obligations purported to be secured thereby, a valid and enforceable, and upon
filing or recording
<PAGE>
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with the appropriate Governmental Authorities or the taking of other appropriate
action, depending upon the type of Collateral, perfected first priority security
interest in and Lien upon all of the Collateral, superior to and prior to the
rights of all third persons other than the holders of Prior Liens and subject to
no other Liens except Prior Liens and other liens specifically permitted by the
terms of the applicable Security Document.
Except with respect to Permitted Liens which are subordinate to the
Liens of the Security Documents, Prior Liens and the Liens created by the
Security Documents, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible future Lien on, or security interest
in, any assets or Property of Borrower or any Subsidiary or rights thereunder.
8.17. Compliance with Laws. Each Obligor is in material compliance
--------------------
with all applicable statutes, laws, ordinances, rules, orders and regulations of
any Governmental Authority in all jurisdictions in which it is presently doing
business, and each Obligor will comply and cause each of its Subsidiaries to
comply with all such laws and regulations which may be imposed in the future in
jurisdictions in which it or such Subsidiary may then be doing business, in each
case other than those the non-compliance with which would not (individually or
in the aggregate) reasonably be expected to have a Material Adverse Effect. At
the time of consummation of the Merger and the other Transactions, the Merger
and the other Transactions shall have been consummated substantially in
accordance with the terms of the Merger Agreement and all applicable
Requirements of Law and all consents and approvals of all Governmental
Authorities required to consummate the Merger and the other Transactions shall
have been obtained, given, filed or taken or waived and are or will be in full
force and effect (or effective judicial relief with respect thereto has been
obtained). Additionally, there does not exist any judgment, order or injunction
prohibiting or imposing material adverse conditions upon the Transactions, or
the performance by any Obligor of its obligations under the Credit Documents,
the Documents and all applicable laws.
8.18. True and Complete Disclosure. The information, reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of any of the Obligors to any Creditor in connection with the
negotiation, preparation or delivery of this Agreement and the other Credit
Documents or included herein or therein or delivered pursuant hereto or thereto,
including pursuant to any information memorandum distributed in connection with
the syndication of the Commitments and including the Merger Agreement, whether
prior to or after the date of this Agreement, when taken as a whole, do not, as
of the date such information was furnished, contain any untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not materially misleading. The projections and pro forma financial
--- -----
information furnished at any time by any Obligor to any Creditor pursuant to
this Agreement have been prepared in good faith based on assumptions believed by
Borrower to be reasonable at the time made, it being recognized by the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount and no Obligor, however, makes any representation
as to the ability of Borrower or any Subsidiary to achieve the results set forth
in any such projections. Borrower understands that all such statements,
representations and warranties shall be deemed to have been relied upon by the
Lenders as a material inducement to make each extension of credit hereunder.
8.19. Solvency. As of the Closing Date and each other date of an
--------
extension of credit hereunder immediately prior to and immediately following
such extension of credit each Obligor is and will be Solvent.
<PAGE>
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Section 9. Covenants. Each Obligor covenants and agrees with the
---------
Creditors that, so long as any Commitment, Loan or Letter of Credit Liability is
outstanding and until payment in full of all amounts payable by Borrower
hereunder:
9.01. Financial Statements, Etc. Borrower (for itself and on behalf
-------------------------
of the Guarantors) shall deliver to the Administrative Agent in sufficient
quantities to distribute to each of the Lenders:
(A) Quarterly Financials. As soon as available and in any event
--------------------
within 50 days after the end of each of the first three quarterly fiscal
periods of each fiscal year, consolidated and consolidating statements of
income and cash flow of Borrower and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated and consolidating
balance sheet of Borrower and its Consolidated Subsidiaries as at the end
of such period, setting forth in each case in comparative form (i) the
corresponding consolidated and consolidating statements of income for the
corresponding period in the preceding fiscal year and (ii) the
corresponding budget or plan for such period, accompanied by a certificate
of a senior financial officer of Borrower, which certificate shall state
that said consolidated and consolidating financial statements fairly
present the consolidated and consolidating financial condition and results
of operations of Borrower and its Consolidated Subsidiaries in accordance
with GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments and absence of footnotes);
(B) Annual Financials. As soon as available and in any event within
-----------------
95 days after the end of each fiscal year, consolidated and consolidating
statements of income, retained earnings and cash flow of Borrower and its
Consolidated Subsidiaries for such year and the related consolidated and
consolidating balance sheet of Borrower and its Consolidated Subsidiaries
as at the end of such year, setting forth in each case in comparative form
(i) the corresponding consolidated and consolidating figures as of the end
of and for the preceding fiscal year and (ii) the corresponding budget or
plan for such period, and accompanied by an opinion, without material
qualification, thereon of independent certified public accountants of
recognized national standing, which opinion shall state that said
consolidated and consolidating financial statements fairly present the
consolidated and consolidating financial condition and results of
operations of Borrower and its Consolidated Subsidiaries as at the end of,
and for, such fiscal year in accordance with GAAP, and a certificate of
such accountants stating that, in making the examination necessary for
their opinion, they obtained no knowledge of any Default; Borrower shall
supply such additional information and detail as to any item or items
contained on any such statement that Lenders may reasonably require; all
such information will be prepared in accordance with GAAP;
(C) Monthly Financials. As soon as available, but in any event not
------------------
later than twenty-five days after the end of each month (except year-end
and quarter-end), consolidated and consolidating unaudited balance sheets
of Borrower and its Consolidated Subsidiaries as at the end of such month,
and consolidated and consolidating unaudited statements of income and
expenses for Borrower and its Consolidated Subsidiaries for such month and
for the period from the beginning of the fiscal year to the end of such
month, all in reasonable detail, fairly presenting the financial position
and results of operation of Borrower and its Consolidated Subsidiaries as
at the date thereof and for such periods, and prepared in accordance with
GAAP consistent with the audited financial statements required pursuant to
Section 9.01(b); such statements shall be certified to fairly present the
financial position and results of operation of Borrower and its
Consolidated Subsidiaries as at the date thereof by a senior financial
officer of Borrower, subject to normal year-end adjustments and absence of
footnotes; notwithstanding the foregoing, it is agreed and understood that
with respect to the months of January and February, only
<PAGE>
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preliminary, unaudited statements will be delivered within the 25-day
period with the final reports to be submitted as part of the information
provided under Section 9.01(b);
(D) Other Financial Information. Promptly upon delivery thereof to
---------------------------
the shareholders of any Obligor or any Subsidiary generally, copies of all
financial statements and reports and proxy statements so delivered which
Borrower sends to all holders of securities of the same class and within
five days after the same are filed, copies of all financial statements and
reports which Borrower may make to or file with any securities regulatory
commission or the Securities and Exchange Commission or any successor or
analogous Governmental Authority;
(E) Interest Rate Certificates. Together with the financial
--------------------------
statements delivered pursuant to clause (a) or (b) of this Section 9.01, an
Interest Rate Certificate;
(F) Notice of Default. Within two Business Days after a Responsible
-----------------
Officer of Borrower or any Subsidiary knows or should have known that any
Default has occurred, a notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that Borrower has taken and proposes
to take with respect thereto;
(G) Environmental Matters. Written notice of any Environmental Claim
---------------------
materially affecting any Obligor or any Subsidiary, any Mortgaged Real
Property or the operations of Borrower or any Subsidiary, and of (i) the
occurrence of any release, spill or discharge of any Hazardous Material
that is reportable under any Environmental Law or the commencement of any
clean-up pursuant to or in accordance with any Environmental Law of any
Hazardous Material at, on, under or within the Mortgaged Real Property or
any part thereof, or any other condition, circumstance, occurrence or
event, any of which could reasonably be expected to result in a material
liability of Borrower or any Subsidiary under any Environmental Law; or
(ii) any matters relating to Hazardous Materials or Environmental Laws that
may impair, or threaten to impair, Lenders' security interest in the
Mortgaged Real Property or any Obligor's ability to perform any of its
material obligations under this Agreement when such performance is due;
(H) Auditors' Reports. Promptly upon receipt thereof, copies of all
-----------------
material reports submitted to Borrower by independent certified public
accountants in connection with each annual, interim or special audit of the
books of Borrower made by such accountants, including, without limitation,
any management letter commenting on Borrower's internal controls submitted
by such accountants to management in connection with their annual audit;
(I) Annual Budgets. An annual budget in reasonable detail and
--------------
financial projections made in good faith, within 60 days after the end of
each fiscal year of Borrower;
(J) Borrowing Base Audits. Periodically at the request of the Agent
---------------------
or the Majority Revolving Credit Lenders, but in no event more frequently
than twice in each fiscal year so long as no Event of Default has occurred
and is continuing, a report, the scope and cost of which shall be
reasonably acceptable to the Revolving Credit Lenders and Borrower (the
reasonable cost and expense of which, unless an Event of Default shall have
occurred and be continuing, for one shall be for the sole account of
Borrower), of an independent collateral auditor (which may be, or be
affiliated with, one of the Lenders) with respect to the Inventory included
in the Borrowing Base as at the end of a monthly accounting period, which
report shall indicate that, based upon a review by such auditors of the
Inventory (including verification as to the value, location and respective
types), the information set forth
<PAGE>
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in the Borrowing Base Certificate delivered by Borrower as at the end of
such accounting period is accurate and complete in all material respects;
(K) Borrowing Base Certificate. As soon as available and in any
--------------------------
event within 15 Business Days after the end of each monthly accounting
period (ending on the last day of each calendar month), a Borrowing Base
Certificate as of the last day of such accounting period; each Borrowing
Base Certificate shall have attached to it such additional schedules and/or
other information as the Administrative Agent may reasonably request (if
Borrower fails to deliver any such Borrowing Base Certificate within 15
Business Days after the end of any such month, then the Borrowing Base
shall be deemed to be $0 until such time as Borrower shall deliver such
required Borrowing Base Certificate); at the request of the Administrative
Agent, Borrower shall deliver to the Administrative Agent a Borrowing Base
Certificate at such time as the Increased Advance Rate is in effect, on a
weekly basis, not later than 12:00 noon, on the third Business Day after
the end of any such week; Borrower shall notify the Administrative Agent
promptly upon becoming aware of any event or condition that could
reasonably be expected to have a Material Adverse Effect on the Borrowing
Base;
(L) Lien Matters. Written notice of (1) the incurrence of any
------------
material Lien (other than Prior Liens) on, or claim asserted against any
material item of the Collateral or (2) the occurrence of any other event
which could reasonably be expected to have a Material Adverse Effect on the
aggregate value of the Collateral;
(M) Notice of Material Adverse Change. Written notice of any
---------------------------------
occurrence of any event or condition which has had or resulted in or is
reasonably likely to have or result in a Material Adverse Change or a
Material Adverse Effect;
(N) Governmental Filings. Promptly after request by the
--------------------
Administrative Agent or any Lender, copies of any other material reports or
documents that were filed by any Obligor with any Governmental Agency;
(O) ERISA Information. If and when any member of the ERISA Group (i)
-----------------
gives or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan which could
reasonably be expected to constitute grounds for a termination of such Plan
under Title IV of ERISA or other action by the PBGC with respect to the
Plan, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice
of such reportable event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV
of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate,
impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or appoint a trustee to administer any Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Code, a copy of such application; (v) gives notice of
intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such
notice and other information filed with the PBGC; (vi) gives notice of
withdrawal (or deemed withdrawal under Section 4092(e) of ERISA) from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii)
fails to make any payment or contribution to any Plan or Multiemployer Plan
or in respect of any Benefit Arrangement or makes any amendment to any Plan
or Benefit Arrangement which failure or amendment has resulted or could
reasonably be expected to result in the imposition of a Lien or the posting
of a bond or other security under ERISA or the Code, an Officer's
Certificate setting forth details as to such occurrence and action, if any,
which Borrower or the applicable member of the ERISA Group is required or
proposes to take;
<PAGE>
-70-
(P) Annual Returned Portion Balance. Together with the annual
-------------------------------
financial statements required by Section 9.09(b), an Officer's Certificate
showing the calculation of the Annual Retained Portion Balance for such
fiscal year; and
(Q) Miscellaneous. Promptly, such financial and other information
-------------
regarding Borrower and the Subsidiaries as any Creditor may from time to
time reasonably request.
Borrower will furnish to the Administrative Agent and each of the Lenders, at
the time it furnishes each set of financial statements pursuant to paragraph (a)
or (b) above, a certificate of a senior financial officer of Borrower (i) to the
effect that no Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable detail and
describing the action that Borrower has taken and proposes to take with respect
thereto) and (ii) setting forth in reasonable detail the computations necessary
to determine whether Borrower is in compliance with Sections 9.07, 9.08, 9.09,
9.10 and 9.11 as of the end of the respective quarterly fiscal period or fiscal
year.
9.02. Litigation, Etc. Borrower shall promptly give to the
---------------
Administrative Agent and each Lender notice of all Proceedings and any material
development in respect of such Proceedings, affecting Borrower or any
Subsidiary, except Proceedings which could not reasonably be expected to have
(individually or in the aggregate) a Material Adverse Effect.
9.03. Existence; Compliance with Law; Payment of Taxes; Inspection
------------------------------------------------------------
Rights; Performance of Obligations; Etc. Each Obligor and each Subsidiary
- ---------------------------------------
shall, (i) preserve and maintain its legal existence and all of its material
rights, privileges and franchises, the loss of which could reasonably be
expected to have a Material Adverse Effect (provided, however, that nothing in
-------- -------
this Section 9.03 shall prohibit any transaction expressly permitted under
Section 9.06); (ii) comply with the requirements of all applicable laws
(including ERISA and the rules and regulations thereunder), rules, regulations
and orders of Governmental Authorities if failure to comply with such
requirements would (individually or in the aggregate) have a Material Adverse
Effect; (iii) timely file true, accurate and complete tax returns required by
all Governmental Authorities and pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its income or profits or on
any of its Property prior to the date on which penalties attach thereto (except
for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which adequate
reserves are being maintained in accordance with GAAP) if such failure to file
or pay and discharge would (individually or in the aggregate) have a Material
Adverse Effect; (iv) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear excepted,
except to the extent that the failure to do so with respect to any such Property
would not individually or in the aggregate be reasonably likely to have a
Material Adverse Effect; (v) permit representatives of any
Creditor, during normal business hours, to examine, copy and make extracts from
its books and records, to inspect its Properties, and to discuss its business
and affairs with its officers, all to the extent reasonably requested by such
Creditor; (vi) allow the Administrative Agent to consult with Borrower's
independent public accountants and auditors with respect to the financial
affairs of Borrower and the Subsidiaries and agrees to authorize such
accountants to disclose to the Administrative Agent and the Lenders any and all
financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of Borrower and the Subsidiaries; at the
request of the Administrative Agent, Borrower shall deliver a letter addressed
to such accountants instructing them to comply with the provisions of this
Section 9.03(vi); (vii) perform in all material respects all of its obligations
under the terms of each mortgage, indenture, security agreement, other debt
instrument and material contract by which it is bound or to which it is a party,
except where such failure to so perform, singly or in the aggregate with all
other such failures, would not have a Material Adverse Effect; and (viii) keep
proper books of record and accounts, in which full and correct entries shall be
made of all financial transactions and the Property and business of each Obligor
and its Subsidiaries in all
<PAGE>
-71-
material respects in accordance with GAAP in effect from time to time or in all
material respects as otherwise required by applicable rules and regulations of
any Governmental Authority having jurisdiction over such Obligor or its
Subsidiaries, as relevant. Borrower will confer with the Lenders in enforcing or
waiving material rights of Borrower or any Subsidiary under any Document.
9.04. Insurance. Borrower and each Subsidiary shall keep insured by
---------
financially sound and reputable insurers all Property of a character usually
insured by corporations engaged in the same or similar business similarly
situated against loss or damage of the kinds and in the amounts customarily
insured against by such corporations and carry such other insurance as is
usually carried by such corporations, including, in any event, business
interruption insurance or insurance of inventory at retail consistent with past
practice and flood insurance if the property is located in an area designated by
the Secretary of Housing and Urban Development as a special flood hazard area in
an amount not to exceed that available for one hundred percent (100%)
reinsurance by the Federal Emergency Management Agency.
All policies of insurance required to be maintained by Borrower or any
Subsidiary must name the Administrative Agent on behalf of Lenders as mortgagees
(in the case of property insurance) or additional insured (in the case of
liability insurance), as applicable, and must provide that no cancellation or
modification of the policies will be made without thirty (30) days' prior
written notice to the Administrative Agent.
Each policy of insurance obtained or maintained by Borrower or any
Subsidiary shall: (i) be written by financially responsible companies selected
by Borrower and having an A.M. Best rating of "A" or better and being in a
financial size category of XII or larger, or by other companies reasonably
acceptable to the Administrative Agent and the Arranger; (ii) waive all rights
of subrogation of the insurers against the Creditors; (iii) waive any right of
the insurers to set-off or counterclaim or to make any other deduction, whether
by way of attachment or otherwise, as against any Creditor; (iv) waive all
claims for insurance premiums or commissions or additional premiums or
assessments against the Creditors; and (v) provide that, except in the case of
third-party liability insurance, the proceeds of any loss affecting real or
personal property or interests shall be applied in accordance with the terms of
the applicable Security Document.
Borrower will advise the Administrative Agent promptly of any material
policy cancellation, reduction or amendment.
Borrower will not and will not permit any Subsidiary to materially
modify any of the provisions of any policy with respect to casualty insurance
without delivering the original copy of the endorsement reflecting such
modification to the Administrative Agent.
9.05. Limitation on Lines of Business. No Obligor or Subsidiary
-------------------------------
shall directly or indirectly, engage to any material extent in any line or lines
of business activity other than the business of the type conducted by Borrower
and the Subsidiaries as of the Closing Date.
9.06. Limitation on Fundamental Changes; Limitation on Acquisitions;
--------------------------------------------------------------
Limitation on Dispositions. No Obligor or Subsidiary shall, directly or
- --------------------------
indirectly, (1) enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), (2) acquire any business or Property from, or
Equity Interests of, or be a party to any acquisition of, any Person, or effect
any Acquisition, or (3) effect any Disposition or convey, sell, lease, assign,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or a substantial part of its business or Property, whether now
owned or hereafter acquired, including receivables and leasehold interests.
Notwithstanding the foregoing provisions of this Section 9.06, each of the
following shall be permitted:
<PAGE>
-72-
(A) purchases of inventory and other Property to be sold or used in
the ordinary course of business (including Capital Expenditures permitted
by Section 9.11(e));
(B) the pledge of the Collateral pursuant to the Security Documents;
(C) any Subsidiary may be merged or consolidated or dissolved or
liquidated with or into: (i) Borrower if Borrower shall be the continuing
or surviving corporation, (ii) any Wholly Owned Subsidiary which is an
Obligor; provided, however, that a Wholly Owned Subsidiary which is an
-------- -------
Obligor shall be the continuing or surviving corporation or (iii) if such
Subsidiary effecting such transaction is not an Obligor, another Subsidiary
which is not an Obligor;
(D) any Subsidiary may sell, lease, transfer or otherwise dispose of
any or all of its Property (upon voluntary liquidation or otherwise) to
Borrower or to any Wholly Owned Subsidiary which is an Obligor or, if such
Subsidiary effecting such transaction is not an Obligor, to another
Subsidiary which is not an Obligor;
(E) Dispositions of used, worn out, obsolete or surplus Property by
Borrower or any Subsidiary, all in the ordinary course of business,
including the termination, sale or abandonment of leases for retail sites
not favorable to Borrower, if in the ordinary course of business and on
ordinary business terms;
(F) Borrower or any Subsidiary may sell or discount, in each case
without recourse, accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof
and may sell for less than face value notes or accounts receivables in
connection with trade discounts in the ordinary course of business or
consistent with past practice;
(G) Borrower or any Subsidiary may effect any Disposition for fair
market value not to exceed (1) $500,000 in the aggregate in any fiscal year
of Borrower and (2) in addition to that permitted by subclause (1) of this
Section 9.06(g) (which shall not count against this subclause (2)), $2.0
million since the Closing Date; provided, however, that in each case (1)
-------- -------
and (2) the Net Available Proceeds therefrom are reinvested as specified in
Section 2.10(a)(iv) or applied to the prepayment of the Term Loans as
specified in Section 2.10(a)(iv);
(H) Newco may merge with and into Borrower, on the Closing Date, with
Borrower as the surviving corporation;
(I) Dispositions pursuant to Section 9.19;
(J) Investments permitted by Section 9.09;
(K) any Wholly Owned Subsidiary that is a Foreign Subsidiary may
sell, lease, transfer or otherwise dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to another Wholly Owned
Subsidiary that is a Foreign Subsidiary;
(L) any Foreign Subsidiary may be merged or consolidated with or into
any one or more Wholly Owned Subsidiaries that are Foreign Subsidiaries
(provided that a Wholly Owned Subsidiary that is a Foreign Subsidiary shall
be the continuing or surviving corporation);
<PAGE>
form and substance to the Administrative Agent;
(N) the sale by Borrower of Specified Real Property; provided,
--------
however, that the Net Available Proceeds therefrom are reinvested as
-------
specified in Section 2.10(a)(iv) or applied to the prepayment of the Term
Loans as specified in Section 2.10(a)(iv);
(O) any Acquisition; provided, however, that (w) no Default or Event
-------- -------
of Default exists or will result therefrom, (x) on a pro forma basis, after
giving effect to such Acquisition(s), Borrower would have been in
compliance with Section 9.11 on the last day of the most recently completed
fiscal quarter (assuming, for purposes of Section 9.11, that such
Acquisition had occurred on the first day of the Measurement Period ending
on such last day) as evidenced in an Officer's Certificate delivered to the
Administrative Agent and each Lender at least 10 days prior to the
consummation thereof (which shall have attached thereto reasonably detailed
backup data and calculations showing such compliance), (y) the aggregate
amount of the consideration (which for each Acquisition shall be measured
at the date of consummation thereof and which shall include Indebtedness
and other liabilities incurred or assumed, working capital deficits and
deferred payments) paid for all Acquisitions consummated since the Original
Closing Date shall not exceed $5.0 million, and (z) such Acquisition shall
be effected through Borrower or a Wholly Owned Subsidiary which is an
Obligor and the Person acquired shall be merged with or into a Wholly Owned
Subsidiary which is an Obligor or shall be at the time of consummation
thereof a Wholly Owned Subsidiary which is an Obligor (it being understood
that proceeds of Loans shall not be used to finance hostile acquisitions);
(P) any Acquisition the consideration paid for which in any fiscal
year does not exceed the amount that would have been permitted at the time
of consummation of such Acquisition to be made as a Capital Expenditure
pursuant to Section 9.11(e)(1) (after taking into account the then
permitted amount thereunder and the aggregate amount of Capital
Expenditures made and the aggregate amount expended for other Acquisitions
effected pursuant to this Section 9.06(p), in each case on or prior to the
date of consummation of such Acquisition); provided, however, that (x) no
-------- -------
Default or Event of Default exists or would result therefrom, (y) on a pro
---
forma basis, immediately after giving effect to any such Acquisition,
-----
Borrower would be in compliance with all financial covenants set forth in
Section 9.11 on the last day of the most recently ended fiscal quarter
(assuming, for purposes of Section 9.11, that such Acquisition had occurred
on the first day of the Measurement Period ending on such last day) as
evidenced in an Officer's Certificate delivered to the Lenders at least 10
days prior to the consummation of such Acquisition (which shall have
attached thereto reasonably detailed backup data and calculations showing
such compliance), and (z) such Acquisition shall be effected through
Borrower or a Wholly Owned Subsidiary of Borrower which is an Obligor and
the Person acquired shall be merged with or into a Wholly Owned Subsidiary
which is an Obligor or shall be at the time of consummation thereof a
Wholly Owned Subsidiary which is an Obligor;
(Q) any Acquisition the consideration for which is paid with the
proceeds of an Excluded Issuance; provided, however, that (x) no Default or
-------- -------
Event of Default exists or would result therefrom, (y) on a pro forma
--- -----
basis, immediately after giving effect to any such Acquisition, Borrower
would be in compliance with all financial covenants set forth in Section
9.11 on the last day of the most recently ended fiscal quarter (assuming,
for purposes of Section 9.11, that such Acquisition had occurred on the
first day of the Measurement Period ending on such last day) as evidenced
in an Officer's Certificate delivered to the Lenders at least 10 days prior
to the consummation of such Acquisition (which shall have attached thereto
reasonably detailed backup data and calculations showing such compliance),
and (z) such Acquisition shall be effected through Borrower or a Wholly
Owned Subsidiary of Borrower
<PAGE>
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which is an Obligor and the Person acquired shall be merged with or into a
Wholly Owned Subsidiary which is an Obligor or shall be at the time of
consummation thereof a Wholly Owned Subsidiary which is an Obligor;
(R) any Acquisition the consideration for which is paid with the Net
Available Proceeds of any Disposition permitted by Section 9.06(g) or (n)
so long as such Net Available Proceeds are not then required to be applied
to the Loans pursuant to Section 2.10 and to the extent such Net Available
Proceeds have not been used to effect Capital Expenditures pursuant to
Section 9.11(e)(2), any Acquisition permitted by this Section 9.06 or
otherwise expended by Borrower or any Subsidiary; provided, however, that
-------- -------
(x) no Default or Event of Default exists or would result therefrom, (y) on
a pro forma basis, immediately after giving effect to any such Acquisition,
--- -----
Borrower would be in compliance with all financial covenants set forth in
Section 9.11 on the last day of the most recently ended fiscal quarter
(assuming, for purposes of Section 9.11, that such Acquisition had occurred
on the first day of the Measurement Period ending on such last day) as
evidenced in an Officer's Certificate delivered to the Lenders at least 10
days prior to the consummation of such Acquisition (which shall have
attached thereto reasonably detailed backup data and calculations showing
such compliance), and (z) such Acquisition shall be effected through
Borrower or a Wholly Owned Subsidiary of Borrower which is an Obligor and
the Person acquired shall be merged with or into a Wholly Owned Subsidiary
which is an Obligor or shall be at the time of consummation thereof a
Wholly Owned Subsidiary which is an Obligor; and
(S) any Acquisition the consideration for which is paid with the
Cumulative Retained Portion Balance in effect at any given date; provided,
--------
however, that (w) no Default or Event of Default exists or would result
-------
therefrom, (x) on a pro forma basis, immediately after giving effect to any
--- -----
such Acquisition, Borrower would be in compliance with all financial
covenants set forth in Section 9.11 on the last day of the most recently
ended fiscal quarter (assuming, for purposes of Section 9.11, that such
Acquisition had occurred on the first day of the Measurement Period ending
on such last day) as evidenced in an Officer's Certificate delivered to the
Lenders at least 10 days prior to the consummation of such Acquisition
(which shall have attached thereto reasonably detailed backup data
and calculations showing such compliance), (y) the aggregate cash
consideration paid for all Acquisitions effected pursuant to this Section
9.06(s) since the Closing Date, when added to the aggregate amount of
Investments made since the Closing Date pursuant to Section 9.09(v) (giving
effect to any such Investment to occur on the same date as such
Acquisition), shall not exceed $20 million, and (z) such Acquisition shall
be effected through Borrower or a Wholly Owned Subsidiary of Borrower which
is an Obligor and the Person acquired shall be merged with or into a Wholly
Owned Subsidiary which is an Obligor or shall be at the time of
consummation thereof a Wholly Owned Subsidiary which is an Obligor.
To the extent the Majority Lenders waive the provisions of this Section 9.06
with respect to the sale or other disposition of any Collateral, or any
Collateral is sold or otherwise disposed of as permitted by this Section 9.06,
such Collateral in each case shall be sold or otherwise disposed of free and
clear of the Liens created by the Security Documents and the Administrative
Agent shall take such actions as are appropriate in connection therewith.
9.07. Limitation on Liens and Related Matters. No Obligor or
---------------------------------------
Subsidiary shall, directly or indirectly, create, incur, assume or suffer to
exist any Lien upon or with respect to any Collateral except for Prior Liens and
other Liens expressly permitted by the applicable Security Document. No Obligor
or Subsidiary shall, directly or indirectly, create, incur, assume or suffer to
exist any Lien upon or with respect to any of their respective Property that
does not constitute Collateral, whether now owned or hereafter acquired, or sell
any such
<PAGE>
-75-
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets or assign any right to receive
income, or file or permit the filing of any financing statement under the UCC or
any other similar notice of Lien under any similar recording or notice statute,
except the following, which are herein collectively referred to as "Permitted
---------
Liens":
- -----
(A) Liens in existence on the date hereof and identified in Schedule
--------
9.07 (excluding, however, following the making of the initial Loans
----
hereunder, Liens securing any Refinanced Debt);
(B) Liens imposed by any Governmental Authority for taxes,
assessments or charges not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of Borrower or the affected Subsidiary,
as the case may be, in accordance with GAAP;
(C) Liens in respect of Property of Borrower or any Subsidiary (A)
imposed by law, (B) to the extent such Liens exist as of the Closing Date,
imposed by contract, or (C) to the extent such Liens are imposed by
contract after the Closing Date (in which case Borrower shall use its best
efforts to provide that any such Lien is created in a commercially
reasonable amount and manner), in each case which were incurred in the
ordinary course of business, such as carriers', warehousemen's, landlords'
and mechanics' Liens and other similar Liens arising in the ordinary course
of business, in each case for sums the payment of which is not delinquent
or, if delinquent, is not then required by Section 9.03;
(D) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation or the deposits securing
the liability to insurance carriers;
(E) pledges or deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(F) easements, rights-of-way, restrictions or minor defects or
irregularities in title incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Real Property or minor imperfections in title
thereto which, in the aggregate, are not material in amount, and which do
not in any case materially detract from the value of the Real Property
subject thereto or interfere with the ordinary conduct of the business of
Borrower or any Subsidiary; and precautionary UCC filings by lessors and
bailees in the ordinary course of business;
(G) Liens upon tangible personal Property acquired after the date
hereof by Borrower or any Subsidiary, each of which Liens either (A)
existed on such Property before the time of its acquisition and was not
created in anticipation thereof, or (B) was created solely for the purpose
of securing Indebtedness representing, or incurred to finance, refinance or
refund, the cost of such Property or improvements thereon; provided,
--------
however, that (x) no such Lien shall extend to or cover any Property of any
-------
Obligor or any Subsidiary other than the Property so acquired and
improvements thereon and (y) the principal amount of Indebtedness secured
by any such Lien shall at no time exceed 100% of the fair market value of
such Property at the time such Lien was created;
(H) Liens existing on any Property of any Person at the time such
Person becomes a Subsidiary or is merged or consolidated with or into a
Subsidiary and, in each case, not created in contemplation of or in
connection with such event; provided, however, that such Liens do not
-------- -------
extend to any other Property of any Obligor or any Subsidiary;
<PAGE>
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(I) Liens (excluding Liens on Collateral) not otherwise permitted
hereunder securing obligations not at any time exceeding in the aggregate
$1.0 million;
(J) Liens securing obligations under Swap Contracts with any Lender
or any Affiliate of a Lender so long as the Obligations are secured by the
same collateral on a pari passu basis;
(K) Liens consisting of judgment or judicial attachment Liens
(including prejudgment attachment) the enforcement of which is effectively
stayed or payment of which is covered in full (subject to a customary
deductible) by insurance or which do not otherwise result in an Event of
Default under Section 10(h);
(L) Liens securing obligations in respect of Capital Leases solely on
Property subject to such Capital Leases;
(M) Liens on the Existing Warehouse Facility securing only
Indebtedness incurred pursuant to Section 9.19(A);
(N) Liens on the New Warehouse Facility securing only the New
Warehouse Financing incurred pursuant to Section 9.19(B);
(O) Liens on the assets of Borrower and any Subsidiary in favor of
the lenders of the Replacement Indebtedness, but only to the extent that
such Liens (i) rank pari passu (or are subordinate) to the Liens granted in
---- -----
favor of the Lenders pursuant to the Credit Documents and encumber only
those assets in which the Lenders also have been granted a Lien pursuant to
the Credit Documents and (ii) are spread between the Obligations and
obligations in respect of the Replacement Indebtedness on a pari passu
---- -----
basis and are subject to an intercreditor agreement reflecting the
foregoing and reasonably satisfactory to the Agents and the Majority Term
Lenders;
(P) Liens arising from filing UCC financing statements for
precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which Borrower or any of its Subsidiaries
is a lessee;
(Q) Liens encumbering customary initial deposits and margin deposits,
and other Liens incurred in the ordinary course of business that are within
the general parameters customary in the industry;
(R) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Borrower or any Subsidiary in the
ordinary course of business in accordance with past practices;
(S) any extension, renewal or replacement of the foregoing; provided,
--------
however, that the Liens permitted hereunder shall not cover any additional
-------
Indebtedness or Property (other than like Property substituted for Property
covered by such Lien);
(T) interests of lessors under leases and restrictions and
encumbrances on the interests of such lessors;
(U) Liens in favor of banks which arise under Article IV of the UCC
on items in collection and the documents relating thereto and proceeds
thereof;
<PAGE>
-77-
(V) Liens in favor of customs and revenue authorities arising as a
matter of law to secure customs duties in connection with the importation
of goods; and
(W) interests of licensors of patents, trademarks and other
intellectual property.
Except with respect to (i) specific Property encumbered pursuant to a
Lien permitted to be incurred pursuant to this Section 9.07 or (ii) specific
Property to be sold pursuant to an executed agreement with respect to a
Disposition consummated in accordance with this Agreement, no Obligor will, nor
will any of them permit any of their respective Subsidiaries to, directly or
indirectly, enter into any agreement after the date hereof (other than the
Credit Documents) prohibiting or restricting in any manner (directly or
indirectly and including by way of covenant, representation or warranty or event
of default) the creation or assumption of any Lien upon its Property, whether
now owned or hereafter acquired except for customary restrictions on the
creation of Liens contained in leases and licenses affecting the Property leased
or licensed thereunder.
9.08. Limitation on Indebtedness. No Obligor or Subsidiary shall,
--------------------------
directly or indirectly, create, incur or suffer to exist or be or become liable
for any Indebtedness, except (each of which shall be given independent effect):
(A) Indebtedness under the Credit Documents;
(B) (x) the Refinanced Debt but the Refinanced Debt shall not be
outstanding (and not permitted to be outstanding hereunder) after the
Closing Date, and (y) Indebtedness outstanding on the Closing Date and
listed in Schedule 9.08 and specified on Schedule 9.08 as to remain
------------- -------------
outstanding after the Closing Date;
(C) Indebtedness of Borrower or any Wholly Owned Subsidiary owing to
Borrower or any Wholly Owned Subsidiary which is an Obligor; provided,
--------
however, that (i) if requested by the Majority Lenders, such Indebtedness
-------
shall be evidenced by an Intercompany Note which shall be pledged to the
Administrative Agent on behalf of the Lenders pursuant to the Security
Agreement and (ii) such Indebtedness shall not be held by any Person other
than Borrower or a Wholly Owned Subsidiary which is an Obligor and shall
not be subordinate to any other Indebtedness or other obligation of the
obligor other than the Loans and the Senior Subordinated Notes;
(D) Indebtedness of Borrower and the Subsidiaries secured by Liens
permitted under Section 9.07(g) or (l) not exceeding in the aggregate $2.0
million at any one time outstanding;
(E) Indebtedness of Borrower represented by the Senior Subordinated
Notes in an aggregate principal amount of $100 million less any prepayments
or repayments thereof and any senior subordinated guarantees thereof by
Subsidiary Guarantors in accordance with the terms of the Senior
Subordinated Note documents as in effect on the Closing Date;
(F) obligations to repurchase stock or stock options of Borrower
pursuant to written agreements in effect on the Closing Date and permitted
by Section 9.10;
(G) unsecured deeply subordinated Indebtedness of Borrower in an
amount not to exceed $10 million at any time outstanding; provided,
--------
however, that (i) the maturity of any principal payments thereunder shall
-------
be no earlier than one year after the final maturity of the Loans and such
Indebtedness shall not require by its terms any prepayments of any
principal amount thereunder prior to one year after the final maturity of
the Loans, (ii) such Indebtedness is subordinated to the Obligations
substantially on
<PAGE>
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the terms set forth in Exhibit K, (iii) no Default or Event of Default
---------
shall exist at the time of issuance of such Indebtedness or would arise
therefrom, (iv) such Indebtedness shall not provide for any payment of
interest in cash so long as any Loans or Reimbursement Obligations are then
outstanding, or any Commitment to make extensions of Credit is then in
existence remain outstanding or any Commitments remain in effect hereunder,
and (v) the terms and provisions thereof (including covenants, interest
rate, defaults, prepayment terms and maturities) shall be acceptable to the
Arranger and the Administrative Agent in their sole discretion;
(H) Indebtedness of Borrower in connection with the incurrence of a
mortgage on the Existing Warehouse Facility so long as incurred as and when
permitted by Section 9.19(A);
(I) Indebtedness of Borrower incurred to effect the purchase or
construction of, or to permanently refinance in full Indebtedness incurred
to effect the purchase or refinancing of, the New Warehouse Facility so
long as incurred as and when permitted by Section 9.19 (the "New Warehouse
-------------
Financing");
---------
(J) Indebtedness of Borrower in an aggregate principal amount that
does not exceed $90.0 million or, if the Increased Facility Amount is used
pursuant to Section 2.01(a)(ii), an amount to be increased by the Increased
Facility Amount (the "Replacement Indebtedness") in the form of revolving
------------------------
loans and/or letters of credit, and the guaranty of such Indebtedness by
the Subsidiaries (but only to the extent such Subsidiaries also guaranty
the Obligations of Borrower on a pari passu basis); provided, however, that
---- ----- -------- -------
the Replacement Indebtedness shall only be incurred
(I) on terms and conditions reasonably satisfactory to the
Majority Term Lenders;
(II) if all Revolving Loans, Swing Line Loans and
Reimbursement Obligations shall have been repaid, or will
simultaneously be repaid, in cash in full and each of the Revolving
Facility Commitments, all outstanding Letters of Credit, and the Swing
Loan Commitment have been permanently terminated (or have expired);
(III) if no Event of Default would result from the
incurrence of the Replacement Indebtedness; and
(IV) the Revolving Credit Commitment Termination Date has
occurred.
(K) unsecured Indebtedness incurred by any Foreign Subsidiary not to
exceed $1.0 million in the aggregate at any time outstanding;
(L) Indebtedness arising from honoring a check, draft or similar
instrument against insufficient funds; provided, however, that such
-------- -------
Indebtedness is extinguished within two Business Days of its incurrence;
(M) unsecured Indebtedness of Borrower or any Subsidiary which is an
Obligor in an aggregate principal amount not to exceed $5.0 million at any
time outstanding;
(N) Indebtedness represented by amounts declared, payable as, or set
apart for, Dividend Payments permitted by Section 9.10;
<PAGE>
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(O) Swap Contracts entered into in the ordinary course of business
and designed to protect the Obligors against fluctuations in interest
rates, currency exchange rates, commodity prices or similar risks;
(P) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this subsection (p), a "refinancing")
-----------
of any Indebtedness permitted by clauses (b)(y), (d), (e), (g), (h), (i),
(j), (k), (m) or (t) of this Section 9.08, including any successive
refinancings; provided, however, that (w) no Default or Event of Default
-------- -------
shall have occurred and be continuing or would arise therefrom, (x) any
such refinancing Indebtedness shall (I) not be on financial and other
terms, in the reasonable judgment of Borrower, that are more onerous than
the Indebtedness being refinanced, (II) not have a stated maturity or
weighted average life that is shorter than the Indebtedness being
refinanced, (III) be at least as subordinate to the Obligations as the
Indebtedness being refinanced (and unsecured if the refinanced Indebtedness
is unsecured), and (IV) be in principal amount that does not exceed the
principal amount so refinanced, plus the lesser of (1) the stated amount of
any premium or other payment required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness being refinanced and
(2) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of reasonable
expenses of Borrower or any Subsidiary incurred in connection with such
refinancing, (y) the obligor on such refinancing Indebtedness shall be
Borrower or the original obligor on such Indebtedness being refinanced
(with any guarantor on the Indebtedness being refinanced permitted to
guarantee the refinancing Indebtedness and Borrower likewise permitted to
guarantee such refinancing Indebtedness of Subsidiary Guarantors), and (z)
the incurrence of such refinancing Indebtedness shall not increase the
overall Indebtedness of Borrower and the Subsidiaries;
(Q) the guarantee of the Obligations pursuant to Section 6 and
guarantees by Subsidiary Guarantors of the Senior Subordinated Notes
pursuant to the Senior Subordinated Note documents as in effect on the
Closing Date;
(R) Contingent Obligations of Borrower or any Subsidiary in respect
of Indebtedness or other liabilities of Borrower or any Wholly Owned
Subsidiary which is an Obligor to the extent that the existence of such
Indebtedness or other liabilities is not prohibited under this Agreement;
(S) Contingent Obligations in connection with Dispositions permitted
under Section 9.06, arising in connection with indemnification and other
agreements in respect of any contract relating to such Disposition, not to
exceed the consideration received by Borrower or any Subsidiary in
connection with such sale and excluding in all cases any Contingent
Obligation with respect to any obligation of any third person incurred in
connection with the acquisition of the Property which is the subject of
such Disposition; and
(T) Acquired Indebtedness not to exceed $5.0 million in the
aggregate.
Notwithstanding anything herein to the contrary, if Borrower mortgages
the Existing Warehouse Facility pursuant to subsection (h) of this Section 9.08,
the Administrative Agent is hereby authorized and required to release, at the
request and sole cost and expense of Borrower, the Mortgage on the Existing
Warehouse Facility securing the Obligations.
All intercompany debt shall be unsecured and subordinate in right of
payment to the Obligations.
<PAGE>
-80-
No Obligor shall directly or indirectly make any optional prepayment,
redemption, retirement or defeasance, whether in cash, property, securities or a
combination thereof, on account of the principal amount of any Indebtedness,
other than (1) refinancings permitted by Section 9.08(p), (2) the Loans, and (3)
the Existing Debt Repayment.
9.09. Limitation on Investments; Limitation on Creation of
----------------------------------------------------
Subsidiaries. No Obligor or Subsidiary shall, directly or indirectly, make or
- ------------
permit to remain outstanding any Investments, except:
(A) operating deposit accounts and certificates of deposit with banks
in the ordinary course of business;
(B) Permitted Investments;
(C) Investments by Borrower or any Subsidiary in any Wholly Owned
Subsidiary that is an Obligor and Investments by any Subsidiary in
Borrower;
(D) Investments outstanding on the date hereof and identified with
particularity in Schedule 9.09 and any renewals, extensions, modifications
-------------
and replacements thereof that do not increase the amount thereof;
(E) Investments that constitute Indebtedness permitted under Section
9.08;
(F) Investments by Borrower in Swap Contracts entered into as bona
----
fide hedges and not for speculative purposes;
----
(G) advances, loans or extensions of credit by Borrower or any
Subsidiary to employees of Borrower or any Subsidiary; provided, however,
-------- -------
that the aggregate amount of all such loans, advances and extensions of
credit shall not at any time exceed in the aggregate $3.0 million (without
giving effect to any write-down or write-off thereof) and, provided,
--------
further, that no Investment shall be made pursuant to this clause (g) if
-------
any Event of Default exists;
(H) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(I) pledges or deposits required in the ordinary course of business
in connection with workmen's compensation, unemployment insurance and other
social security or similar legislation;
(J) pledges or deposits in connection with (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed money),
leases or statutory obligations, (ii) contingent obligations on surety or
appeal bonds, and (iii) other non-delinquent obligations of a like nature,
in each case incurred in the ordinary course of business;
(K) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(L) Borrower and the Subsidiaries may hold additional Investments in
any non-Wholly Owned Subsidiary or Foreign Subsidiary to the extent that
such Investments reflect an increase in the stockholders' equity of such
Subsidiary resulting from retained earnings of such Subsidiary;
<PAGE>
-81-
(M) any Foreign Subsidiary may make Investments in or to any other
Foreign Subsidiary;
(N) Capital Expenditures permitted by Section 9.11(e);
(O) Investments by Borrower or any Subsidiary in any non-Wholly Owned
Subsidiary or any Subsidiary which is not an Obligor to the extent made in
the ordinary course to fund or support the ordinary course operations of
such Subsidiary so long as no Event of Default shall have occurred and be
continuing; provided, however, that (x) the amount of such Investments made
-------- -------
pursuant to this clause (o) shall not exceed $1.0 million in the aggregate
outstanding at any time (without giving effect to any write-down or write-
off thereof) and (y) upon the request of the Majority Lenders all such
Investments evidenced by Intercompany Notes shall be pledged to the
Administrative Agent pursuant to the Security Agreement and provided,
--------
further that no Investment shall be made pursuant to this clause (o) if any
-------
Event of Default exists;
(P) Investments for the creation of any Wholly Owned Foreign
Subsidiary which is a foreign sales corporation consisting of de minimis
-- -------
capitalization;
(Q) Borrower or any Subsidiary may hold the Equity Interests,
partnership interests or other ownership or equity interest therein of any
Subsidiary existing on the Closing Date or created or acquired thereafter
in accordance with the provisions hereof and any additional Equity
Interests, partnership interests or ownership or equity interests issued in
exchange therefor or as a dividend thereon;
(R) Investments consisting of non-cash consideration received in the
form of securities, notes or similar obligations in connection with a
Disposition permitted by Section 9.06(g); provided, however, that (i) the
-------- -------
aggregate amount of such non-cash consideration received in connection with
any such Disposition shall not exceed 15% of the total consideration
received in connection with such Disposition and (ii) such non-cash
consideration is pledged pursuant to the appropriate Security Document;
(S) Investments by or through Borrower or any Wholly Owned Subsidiary
which is an Obligor made in order to consummate Acquisitions effected in
accordance with Section 9.06(o), (p), (q), (r) or (s); provided, however,
-------- -------
that no Default or Event of Default exists or will result therefrom;
(T) Investments by Foreign Subsidiaries in high quality investments
of the type similar to Permitted Investments made outside the United
States;
(U) Investments made by or through Borrower or any Wholly Owned
Subsidiary which is an Obligor with the Net Available Proceeds of any
Disposition effected in accordance with Section 9.06(g) or (n) so long as
such Net Available Proceeds are not then required to be applied to the
Loans pursuant to Section 2.10 and to the extent such Net Available
Proceeds have not been used to effect Capital Expenditures pursuant to
Section 9.11(e)(2), any Acquisition permitted by Section 9.06 or otherwise
expended by Borrower or any Subsidiary; provided, however, that (x) no
-------- -------
Default or Event of Default exists or would result therefrom, and (y) such
Investment shall be effected through Borrower or a Wholly Owned Subsidiary
which is an Obligor and, if an Acquisition, shall comply with Section 9.06;
(V) Investments in joint ventures controlled by Borrower or a Wholly
Owned Subsidiary which are in the same line of business as Borrower and the
Subsidiaries and Investments in suppliers of Borrower or the Subsidiaries,
in each case so long as with respect to any such Investment made pursuant
to this Section 9.09(v) (1) such Investment is made with the Cumulative
Retained Portion Balance in
<PAGE>
-82-
effect at any given date, (2) the aggregate amount of such Investments made
since the Closing Date pursuant to this Section 9.09(v), when added to the
aggregate amount of Acquisitions effected pursuant to Section 9.06(s)
(after giving effect to any such Acquisition to occur on the same date as
such Investment), would not exceed $20 million, and (3) the aggregate
amount of such Investments made since the Closing Date would not exceed
$7.5 million; provided, however, that no Investment shall be made pursuant
-------- -------
to this clause (v) if any Event of Default exists; and
(W) in addition to the foregoing, other Investments not exceeding
$5.0 million in the aggregate outstanding at any time (without giving
effect to any write-downs or write-offs thereof), net of any returns of
capital, cash dividends and distributions received in respect thereof and
net cash proceeds of sales thereof and; provided, however, that no
-------- -------
Investment shall be made pursuant to this clause (w) if any Event of
Default exists.
No Obligor shall, nor shall any of them permit any Subsidiary to,
directly or indirectly, create or acquire any Subsidiary without the prior
written consent of the Administrative Agent, which consent shall not be
unreasonably withheld, provided, however, that the provisions of this Section
-------- -------
9.09 shall not require the Administrative Agent's consent for the creation or
acquisition of wholly-owned direct and indirect Subsidiaries of Borrower so long
as, with respect to any such acquisition, it complies with the provisions of
Section 9.06.
9.10. Limitation on Dividend Payments. No Obligor or Subsidiary
-------------------------------
shall, directly or indirectly, declare or make any Dividend Payment at any time,
except that:
(A) any Subsidiary may declare and make Dividend Payments to the
extent made pro rata to all holders of the Equity Interests thereof;
--- ----
(B) Borrower may make Dividend Payments in the amounts payable on the
Closing Date pursuant to the Merger Agreement as in effect on the date
hereof;
(C) so long as no Default or Event of Default then exists or would
arise therefrom, Borrower may make repurchases and redemptions from
Designated Senior Management of Equity Interests or Equity Rights of
Borrower; provided, however, that:
-------- -------
(I) Such obligation is pursuant to a written agreement as in
effect on the Closing Date;
(II) All such repurchases and redemptions made in any fiscal year
shall not exceed the Annual Retained Portion Balance at such
time;
(III) Such repurchases and redemptions shall not exceed, in the
aggregate, $2.0 million in Borrower's fiscal year ending
December 31, 1999, $6.5 million in Borrower's fiscal year
ending December 31, 2000, $9.0 million in Borrower's fiscal
year ending December 31, 2001 and $11.0 million in
Borrower's fiscal year ending December 31, 2002; and
(IV) Such repurchases and redemptions shall not exceed, in the
aggregate, $25.0 million since the Closing Date; and
(D) so long as no Default or Event of Default then exists or would
arise therefrom, Borrower may repurchase, redeem or otherwise acquire or
retire for value shares of Equity Interests or Equity Rights of Borrower
from employees who have died (or their estates or beneficiaries) or whose
<PAGE>
-83-
employment has terminated; provided, however, that such payment shall not
-------- -------
exceed $1.5 million in any fiscal year, excluding any amounts used to
repurchase, redeem, acquire or retire for value shares of Equity Interests
or Equity Rights of Borrower pursuant to clause (c) above of this Section
9.10.
9.11. Financial Covenants.
-------------------
(A) Maximum Leverage Ratio. Borrower shall not permit the Leverage
----------------------
Ratio at any date set forth in the table below to exceed the ratio set forth
opposite such date in the table below:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
September 30, 1998 6.50: 1.00
December 31, 1998 6.25: 1.00
March 31, 1999 6.25: 1.00
June 30, 1999 6.25: 1.00
September 30, 1999 6.25: 1.00
December 31, 1999 5.75: 1.00
March 31, 2000 5.75: 1.00
June 30, 2000 5.75: 1.00
September 30, 2000 5.75: 1.00
December 31, 2000 5.25: 1.00
March 31, 2001 5.25: 1.00
June 30, 2001 5.25: 1.00
September 30, 2001 5.25: 1.00
December 31, 2001 4.75: 1.00
March 31, 2002 4.75: 1.00
June 30, 2002 4.75: 1.00
September 30, 2002 4.75: 1.00
December 31, 2002 4.25: 1.00
March 31, 2003 and
each March 31, June 30,
September 30 and
December 31 thereafter 4.25: 1.00
</TABLE>
(B) Minimum Interest Coverage Ratio. Borrower shall not permit the
-------------------------------
Interest Coverage Ratio for any Measurement Period ending at any date set forth
in the table below to be less than the ratio set forth opposite such date in the
table below:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
March 31, 1998 1.25: 1.00
June 30, 1998 1.25: 1.00
September 30, 1998 1.25: 1.00
</TABLE>
<PAGE>
-84-
<TABLE>
<S> <C>
December 31, 1998 1.30: 1.00
March 31, 1999 1.30: 1.00
June 30, 1999 1.30: 1.00
September 30, 1999 1.30: 1.00
December 31, 1999 1.40: 1.00
March 31, 2000 1.40: 1.00
June 30, 2000 1.40: 1.00
September 30, 2000 1.40: 1.00
December 31, 2000 1.50: 1.00
March 31, 2001 1.50: 1.00
June 30, 2001 1.50: 1.00
September 30, 2001 1.50: 1.00
December 31, 2001 1.55: 1.00
March 31, 2002 1.55: 1.00
June 30, 2002 1.55: 1.00
September 30, 2002 1.55: 1.00
December 31, 2002 1.60: 1.00
March 31, 2003 and
each March 31, June 30,
September 30 and
December 31 thereafter 1.60: 1.00
</TABLE>
(C) Minimum Fixed Charge Coverage Ratio. Borrower shall not permit
-----------------------------------
the ratio of (x) Consolidated EBITDA plus Consolidated Rental Payments less
Capital Expenditures for any Measurement Period on or after the Closing Date to
(y) Fixed Charges for such Measurement Period on or after the Closing Date at
any date set forth in the table below to be less than the ratio set forth
opposite such date in the table below:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
March 31, 1998 1.20: 1.00
June 30, 1998 1.20: 1.00
September 30, 1998 1.20: 1.00
December 31, 1998 1.20: 1.00
March 31, 1999 1.20: 1.00
June 30, 1999 1.20: 1.00
September 30, 1999 1.20: 1.00
December 31, 1999 1.20: 1.00
March 31, 2000 1.20: 1.00
June 30, 2000 1.20: 1.00
September 30, 2000 1.20: 1.00
December 31, 2000 1.20: 1.00
</TABLE>
<PAGE>
-85-
<TABLE>
<S> <C>
March 31, 2001 1.20: 1.00
June 30, 2001 1.20: 1.00
September 30, 2001 1.20: 1.00
December 31, 2001 1.20: 1.00
March 31, 2002 1.20: 1.00
June 30, 2002 1.20: 1.00
September 30, 2002 1.20: 1.00
December 31, 2002 1.20: 1.00
March 31, 2003 and
each March 31, June 30,
September 30,
December 31 thereafter 1.50: 1.00
</TABLE>
(D) Minimum Trailing Four Quarter Consolidated EBITDA. Borrower
-------------------------------------------------
shall not permit Consolidated EBITDA for any Measurement Period ending at any
date in the table below to be less than the amount set forth opposite such date
in the table below:
<PAGE>
-86-
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
March 31, 1998 $35,000,000
June 30, 1998 35,000,000
September 30, 1998 35,000,000
December 31, 1998 38,000,000
March 31, 1999 38,000,000
June 30, 1999 38,000,000
September 30, 1999 39,000,000
December 31, 1999 42,000,000
March 31, 2000 42,000,000
June 30, 2000 42,000,000
September 30, 2000 43,000,000
December 31, 2000 45,000,000
March 31, 2001 45,000,000
June 30, 2001 45,000,000
September 30, 2001 46,000,000
December 31, 2001 47,000,000
March 31, 2002 47,000,000
June 30, 2002 47,000,000
September 30, 2002 48,000,000
December 31, 2002 49,000,000
March 31, 2003 and
each March 31, June 30,
September 30,
December 31 thereafter 50,000,000
</TABLE>
(E) Capital Expenditures. (1) Borrower shall not permit the
--------------------
aggregate amount of Capital Expenditures made by Borrower and the Subsidiaries
to exceed (a) $6.0 million in Borrower's fiscal year ending December 31, 1998;
(b) $6.5 million in Borrower's fiscal year ending December 31, 1999; (c) $7.0
million in Borrower's fiscal year ending December 31, 2000; (d) $7.5 million in
Borrower's fiscal year ending December 31, 2001; (e) $8.0 million in Borrower's
fiscal year ending December 31, 2002; and (f) $8.5 million for any fiscal year
of Borrower thereafter; provided, however, that (x) if the aggregate amount of
-------- -------
Capital Expenditures for any fiscal year shall be less than the amount permitted
for such fiscal year (before giving effect to any carryover), then the shortfall
may be added to the amount of Capital Expenditures permitted for the immediately
succeeding (but not any other) fiscal year if the amount expended in such fiscal
year would not exceed 125% of the amount permitted for such fiscal year (before
any carryover) and (y) in determining whether any amount is available for
carryover, the amount expended in any fiscal year shall first be deemed to be
from the amount allocated to such year before any carryover. No amount expended
pursuant to Section 9.11(e)(2) or (3) shall count against any amount otherwise
permitted by this Section 9.11(e)(1).
(2) Notwithstanding anything herein to the contrary, so long as no
Default or Event of Default shall have occurred and be continuing, Borrower and
the Subsidiaries may make Capital Expenditures with the Net
<PAGE>
-87-
Available Proceeds of any Disposition effected in accordance with Section
9.06(g) or (n) to the extent that such Net Available Proceeds have not been
otherwise expended by Borrower or any Subsidiary.
(3) Notwithstanding anything herein to the contrary, the aggregate
amount of Capital Expenditures calculated pursuant to clause (e)(1) of this
Section 9.11 shall not include (a) expenditures from Indebtedness incurred in
connection with a New Warehouse Financing pursuant to Section 9.08(i), and (b)
expenditures from any Proceeds Transaction effected in accordance with Section
9.19.
(F) Measuring Dates. The covenants in clauses (a), (b), (c) and
---------------
(d) of this Section 9.11 shall be measured as of the Closing Date and the end of
each fiscal quarter thereafter (with respect to Section 9.11(a) and 9.11(c),
after giving effect to the Amortization Payment which occurs immediately after
the end of such fiscal quarter) and will apply to Borrower and the Subsidiaries
on a consolidated basis.
9.12. Pledge of Additional Collateral. Promptly, and in any event
-------------------------------
within 30 days, after the acquisition of any Property of the type that would
have constituted Collateral at the Closing Date (including the Equity Interests
of any Subsidiary hereafter created or acquired) other than Real Property (the
"Additional Collateral"), each Obligor and each Wholly Owned Subsidiary (other
- ----------------------
than any Foreign Subsidiary) shall take all action reasonably necessary or
desirable, including the execution and delivery of all such agreements,
assignments, documents and instruments (including amendments to the Credit
Documents) and the filing of appropriate financing statements under the
provisions of the UCC or applicable governmental requirements in each of the
offices where such filing is necessary or appropriate, to grant the
Administrative Agent for the benefit of the Lenders a duly perfected first
priority Lien (subject to Prior Liens) on such Property pursuant to and to the
full extent required by the Security Documents and this Agreement; provided,
--------
however, that not more than 65% of the Equity Interests of any "first tier"
- -------
Foreign Subsidiary need be pledged and no Equity Interests of any Foreign
Subsidiary which is not a "first-tier" Foreign Subsidiary need be pledged.
In the event that, after the Closing Date, Borrower or any Domestic
Subsidiary acquires or holds a fee interest in any Real Property with a market
or book value of $3.5 million or more (other than the Specified Real Property,
the New Warehouse Facility or, if Indebtedness is incurred under Section
9.08(h), the Existing Warehouse Facility), the Obligors and each Wholly Owned
Subsidiary shall reasonably promptly (i) take such actions and execute such
documents as the Administrative Agent shall reasonably require to confirm the
Lien of an existing Mortgage, if applicable, or to create a new Mortgage on such
additional Real Property and (ii) cause to be delivered to the Administrative
Agent, on behalf of the Lenders, the documents and instruments reasonably
requested by the Administrative Agent, including, without limitation, the items
set forth in Section 7.01 in respect of Mortgaged Real Property.
The costs of all actions taken by the parties in connection with the
pledge of Additional Collateral or in connection with any Mortgage, including
reasonable costs of counsel for the Administrative Agent, shall be paid by the
Obligors promptly following written demand.
9.13. Security Interests. (A) Each Obligor and each Subsidiary
------------------
shall, promptly, upon the reasonable request of the Administrative Agent or any
Lender, at Borrower's expense, execute, acknowledge and deliver, or cause the
execution, acknowledgment and delivery of, and thereafter register, file or
record, or cause to be registered, filed or recorded, in an appropriate
governmental office, any document or instrument supplemental to or confirmatory
of the Security Documents or otherwise deemed by the Administrative Agent
reasonably necessary or desirable for the continued validity, perfection and
priority of the Liens on the Collateral covered thereby.
<PAGE>
-88-
(B) Each Obligor and each Subsidiary shall deliver or cause to be
delivered to the Administrative Agent from time to time such other
documentation, consents, authorizations, approvals and orders in form and
substance reasonably satisfactory to the Administrative Agent as the
Administrative Agent shall reasonably deem necessary to perfect or maintain the
Liens on the Collateral.
9.14. Compliance with Environmental Laws. (A) Each Obligor and each
----------------------------------
Subsidiary shall comply with all Environmental Laws, and will keep or cause all
Real Property to be kept free of any Liens under Environmental Laws, unless
failure to do so would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; (b) in the event of the presence of
any Hazardous Material at, on, under or emanating from any Real Property which
would reasonably be expected to result in liability under or a violation of any
Environmental Law, in each case which would, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, each
Obligor and each Subsidiary shall undertake, and/or cause any of their
respective tenants or occupants to undertake, at their sole expense, any action
required pursuant to Environmental Laws to mitigate and eliminate any such
adverse effect; provided, however, that no Obligor or Subsidiary shall be
-------- -------
required to comply with any order or directive which is being contested in good
faith and by proper proceedings so long as it has maintained adequate reserves
with respect to such compliance to the extent required in accordance with GAAP;
(c) each Obligor shall promptly notify the Administrative Agent of the
occurrence of any event specified in clause (b) of this Section 9.14 and shall
periodically thereafter keep the Administrative Agent informed of any material
actions taken in response to such event and the results of such actions; and (d)
at the written request of the Administrative Agent, each Obligor will provide,
at such Obligor's sole cost and expense, an environmental site assessment
(including, without limitation, the results of any subsurface testing, conducted
if the Administrative Agent directs that such testing be conducted) concerning
any Real Property now or hereafter owned, leased or operated by such Obligor or
any Subsidiary, conducted by an environmental consulting firm proposed by such
Obligor and reasonably acceptable to the Administrative Agent indicating the
presence or absence of Hazardous Materials and the potential cost of any
required investigation or other response or any corrective action in connection
with any Hazardous Materials on, at, under or emanating from such Real Property;
provided, however, that such request may be made only if (1) there has occurred
- -------- -------
and is continuing an Event of Default, or (2) the Administrative Agent
reasonably believes that such Obligor or any Subsidiary or any such Real
Property is not in material compliance with Environmental Law which could
reasonably be expected to have a Material Adverse Effect, or (3) circumstances
exist that reasonably could be expected to form the basis of an Environmental
Claim against such Obligor, any Subsidiary or any such Real Property which could
reasonably be expected to have a Material Adverse Effect. If any Obligor fails
to provide the same within 60 days after such request was made, the
Administrative Agent may but is under no obligation to order the same, and each
Obligor shall grant and hereby grants to the Administrative Agent and its agents
access to such Real Property and specifically grants the Administrative Agent an
irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment, all at such Obligor's sole cost and expense.
9.15. Limitation on Prepayments of Senior Subordinated Notes or
---------------------------------------------------------
Exchangeable Preferred Stock, Etc. Borrower shall not, and shall not cause or
- ---------------------------------
permit any Subsidiary to make (or give any notice in respect of) any voluntary
or optional payment or prepayment or redemption or acquisition for value of the
Senior Subordinated Notes or Exchangeable Preferred Stock (including, without
limitation, by way of depositing with any trustee with respect thereto money or
securities before such Indebtedness or Exchangeable Preferred Stock is due for
the purpose of paying such Indebtedness when due).
9.16. Limitation on Transactions with Affiliates. No Obligor or
------------------------------------------
Subsidiary shall, directly or indirectly: enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any Property, the rendering of any service, or a merger or
consolidation), with any Affiliate (an "Affiliate Transaction") unless such
---------------------
Affiliate Transaction is otherwise not prohibited under this Agreement, is in
the ordinary course of the Obligor's business and is on fair and reasonable
terms that are not less favorable to the
<PAGE>
-89-
Obligor than those that would be obtainable at the time in an arm's-length
transaction with a Person who is not such an Affiliate; provided, however, that
-------- -------
so long as no Default or Event of Default shall have occurred and be continuing,
the following shall be permitted: (a) Dividend Payments permitted by Section
9.10; (b) the payment of reasonable and customary regular fees to directors of
Borrower or any Subsidiary who are not employees of Borrower or any Subsidiary;
(c) any transaction with an officer or member of the board of directors of
Borrower or any Subsidiary in the ordinary course of business involving
compensation, indemnity or employee benefit arrangements; (d) loans or advances
to employees permitted by Section 9.09; (e) transactions and agreements in
existence on the date hereof and listed and described with particularity in
Schedule 9.16 (the "Existing Affiliate Agreements") and the transactions
- ------------- -----------------------------
contemplated by each of the Existing Affiliate Agreements; (f) payments made
pursuant to management agreements with Madison Dearborn not to exceed $350,000
for Borrower's fiscal year ending December 31, 1998 and $500,000 for each fiscal
year of Borrower thereafter; (g) employment agreements and arrangements
(including, without limitation, benefits) approved by the board of directors of
Borrower; (h) any employee benefit plan available to employees of Borrower
generally; (i) transactions with Obligors; and (j) transactions in the ordinary
course of business with Subsidiaries and other transactions with Subsidiaries
not prohibited hereunder.
9.17. Limitation on Accounting Changes; Limitation on Investment
----------------------------------------------------------
Company Status. No Obligor or Subsidiary shall make or permit, any change in
- --------------
(i) accounting policies or reporting practices, except immaterial changes and
except as required by generally accepted accounting principles or (ii) its
fiscal year end (December 31 of each year). No Obligor shall be or become an
investment company subject to the registration requirements under the United
States Investment Company Act of 1940, as amended.
9.18. Limitation on Modifications of Certain Documents, Etc. No
-----------------------------------------------------
Obligor or Subsidiary shall, directly or indirectly, consent to any
modification, supplement or waiver of, or amend or modify, any of the provisions
of (1) any term or provision of the subordination provisions of any Indebtedness
incurred pursuant to Section 9.08(g), (2) any Senior Subordinated Note Document
or Exchangeable Preferred Stock Document or (3) in any manner which could
reasonably be expected to be materially adverse to the Lenders, its certificate
of incorporation or its by-laws (or any other organizational document), or any
agreement entered into with respect to its Equity Interests.
9.19. Warehouse Financing. Notwithstanding Sections 9.06, 9.07 and
-------------------
9.08, after delivery to the Administrative Agent and the Lenders of unaudited
financial statements in respect of the fiscal year ended December 31, 1998 (or
audited financial statements if then available):
(A) Borrower may effect the Disposition of, incur a Mortgage in
respect of, or enter into a sale/leaseback transaction (each, a "Proceeds
--------
Transaction") with respect to, the Existing Warehouse Facility, if:
-----------
(1) At the time of consummation of such Proceeds Transaction:
(a) no Default or Event of Default then exists or would arise
therefrom;
(b) Borrower is in compliance with all covenants in Section 9
and will be in compliance therewith on a pro forma basis after giving
effect thereto, including Section 9.11 on a pro forma basis as if the
Proceeds Transaction had occurred at the beginning of the Measurement
Period most recently ended;
(c) Borrower's Senior Debt Leverage Ratio, on a pro forma basis,
as of the Measurement Period most recently ended is less than
3.00:1.00;
<PAGE>
-90-
(d) the Net Available Proceeds therefrom are held in the
Collateral Account pending the application thereof contemplated by
clauses (2) and (3) below of this clause (A); and
(e) if such Proceeds Transaction is to be consummated prior to
the delivery of the audited financial statements in respect of the
fiscal year ended December 31, 1998 required by Section 9.01(b), at
September 30, 1998 the Senior Debt Leverage Ratio (as evidenced in an
Officer's Certificate delivered to the Administrative Agent and the
Lenders) after giving pro forma effect to the proposed Proceeds
Transaction would be less than 3:00:1.0.
(2) Within 360 days of the Proceeds Transaction, the Net Available
Proceeds therefrom are:
(a) used or committed to be used pursuant to written documents
provided to the Administrative Agent for the construction of the New
Warehouse Facility; or
(b) used to repay or prepay the New Warehouse Financing or the
Term Loans.
(3) On the 361st day after the Proceeds Transaction (or such earlier
date on which the New Warehouse Facility has been constructed or the New
Warehouse Financing shall have been repaid in full), the Term Loans shall
be prepaid as specified in Section 2.10(b) in an amount equal to 50% of any
Net Available Proceeds of the Proceeds Transaction remaining after the uses
thereof permitted by clause (2) of this clause (A) above (the "Remaining
---------
Amount"). The remaining 50% of the Remaining Amount may be used by
------
Borrower in any manner permitted by the Credit Documents.
(B) Borrower may incur the New Warehouse Financing if: (w)
immediately after giving effect thereto no Default or Event of Default
shall have occurred and be continuing or would arise therefrom, (x)
Borrower shall be in compliance with all covenants in Section 9.11 on a pro
forma basis as if such Indebtedness had been incurred at the beginning of
the most recent Measurement Period, (y) Borrower's Senior Debt Leverage
Ratio, on a pro forma basis after giving effect to the incurrence of such
Indebtedness, as of the end of the Measurement Period most recently ended
is less than 3.00 to 1.00, and (z) such Indebtedness is secured solely by
the New Warehouse Facility and no other Property of Borrower or any
Subsidiary; provided, however, that the aggregate amount of Indebtedness
-------- -------
permitted to be incurred pursuant to this clause (B) shall be (i) if such
Indebtedness is incurred after the Proceeds Transaction, incurred only
after all of the Net Available Proceeds of the Proceeds Transaction have
been applied pursuant to clause (2) of clause (A) above, and (ii) if such
Indebtedness is incurred before the Proceeds Transaction, prepaid
immediately with the Net Available Proceeds of the Proceeds Transaction.
9.20. Limitation on Certain Restrictions Affecting Subsidiaries. No
---------------------------------------------------------
Obligor or Subsidiary shall, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any direct or indirect encumbrance or
restriction on the ability of any such Subsidiary to (a) pay dividends or make
any other distributions on such Subsidiary's Equity Interests or any other
interest or participation in its profits owned by Borrower or any Subsidiary, or
pay any Indebtedness or any other obligation owed to Borrower or any Subsidiary,
(b) make Investments in or to Borrower or any Subsidiary, or (c) transfer any of
its Property to Borrower or any Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) the Credit
Documents, (iii) the Senior Subordinated Note Documents as in effect on the
Closing Date, (iv) such restrictions with respect to the transfer of those
assets subject to a Lien permitted under Section 9.07, (v) customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
or license of Borrower or any Subsidiary, (vi) with respect to restrictions
described in clause (c) only,
<PAGE>
-91-
restrictions in any agreement relating to any Disposition which is permitted
under this Agreement, and (vii) Acquired Indebtedness; provided, however, that
-------- -------
with regard to this clause (vii), (1) such restriction applies solely to the
Person acquired or to a newly formed Wholly Owned Subsidiary with only de
--
minimis assets formed expressly to make the acquisition in question and (if such
- -------
Acquisition is of Equity Interests) the Person acquired does not merge at any
time while such restriction is in effect with or into Borrower or any Subsidiary
of Borrower other than any such newly formed Wholly Owned Subsidiary and (2)
such Person acquired or such newly formed Subsidiary shall be a Guarantor.
9.21. Additional Obligors. Promptly, but in any event within 30 days
-------------------
of Borrower or any Subsidiary creating or acquiring a Wholly Owned Subsidiary
(other than a Foreign Subsidiary) after the date hereof (each such Subsidiary
referred to herein as an "Additional Obligor" and collectively as the
------------------
"Additional Obligors"), Borrower shall cause each such Subsidiary to execute and
- --------------------
deliver all such agreements, guarantees, documents and certificates (including
any amendments to the Credit Documents and a Joinder Agreement substantially in
the form of Exhibit L) as the Administrative Agent may reasonably request and do
---------
such other acts and things as the Administrative Agent may reasonably request in
order to have such Subsidiary guarantee the Obligations in accordance with the
terms of the Credit Documents.
9.22. Limitation on Designated Senior Indebtedness. Borrower will
--------------------------------------------
not and will not permit any Subsidiary to, designate or permit the designation
of any Indebtedness (other than the Obligations) as "Designated Senior
Indebtedness" or "Designated Guarantor Senior Indebtedness" for purposes of, and
as defined in, the Senior Subordinated Notes Documents.
9.23. Limitation on Change of Principal Place of Business or
------------------------------------------------------
Corporate Name. Each Obligor shall not change its principal place of business
- --------------
or its corporate name unless it shall have (a) given the Administrative Agent at
least thirty days' advance written notice of such change, and (b) filed in all
necessary jurisdictions such documents as may be necessary to continue without
impairment or interruption the perfection and priority of the liens on the
Collateral in favor of the Administrative Agent pursuant to the Security
Documents.
Section 10. Events of Default. If one or more of the following
-----------------
events (herein called "Events of Default") shall occur and be continuing:
-----------------
(A) (i) Borrower shall default in the payment when due (whether at
stated maturity upon prepayment or repayment or acceleration or otherwise)
of any principal of any Loan, or (ii) Borrower shall default in the payment
when due of interest on any Loan or any Reimbursement Obligation or any fee
or any other amount payable by it hereunder or under any other Credit
Document when due and such default under this clause (ii) shall have
continued unremedied for five or more Business Days; or
(B) Any Obligor or any Subsidiary (the Obligors and such Subsidiaries
herein collectively called the "Relevant Parties" and each, a "Relevant
---------------- --------
Party") shall default in the payment when due of any principal of or
-----
interest on any of its Indebtedness (other than the Loans) aggregating $5.0
million or more, beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created, after
giving effect to any consents or waivers relating thereto; or any event
specified in any note, agreement, indenture or other document evidencing or
relating to any Indebtedness aggregating $5.0 million or more if the effect
of such event (after giving effect to any consents or waivers relating
thereto) is to cause, or (with the giving of any notice or the lapse of
time or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by
redemption,
<PAGE>
-92-
purchase, offer to purchase or otherwise), prior to its stated maturity; or
any Relevant Party shall default in the payment when due of any amount
aggregating $1.0 million or more under any Swap Contract; or
(C) Any representation or warranty made or deemed made in any Credit
Document (or in any modification or supplement thereto) by any Relevant
Party or in any certificate furnished to any Creditor pursuant to the
provisions thereof, shall prove to have been false or misleading as of the
time made, deemed made or furnished in any material respect; or
(D) Any Obligor shall default in the performance of any of its
obligations under any of Sections 9.01(f) or 9.05 through 9.12 and 9.14
through 9.23; or any Obligor shall default in the performance of any of its
obligations under Section 5.02 of the Security Agreement; or Borrower shall
default in the performance of its obligations under Section 9.01(e) or (k)
and such default shall continue unremedied for five Business Days; or any
Obligor shall default in the performance of any of its other obligations in
this Agreement, the Security Documents or the Letter of Credit Documents
and such default shall continue unremedied for a period of thirty days
after written notice thereof to such Obligor or Borrower by the
Administrative Agent; or
(E) Any Relevant Party shall not, or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become
due; or
(F) Any Relevant Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
Property, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or readjustment of debts, (v) fail to controvert within 60
days or in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code,
or (vi) take any corporate action for the purpose of effecting any of the
foregoing; or
(G) A proceeding or case shall be commenced, without the application
or consent of the affected Relevant Party, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of
such Relevant Party or of all or any substantial part of its assets, or
(iii) similar relief in respect of such Relevant Party under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and either (1) such proceeding shall
not be actively contested by such Relevant Party, or (2) such proceeding or
case shall continue undismissed, undischarged or unbonded, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more
days; or an order for relief against any Relevant Party shall be entered in
an involuntary case under the Bankruptcy Code; or
(H) A final judgment or judgments for the payment of money in excess
of $5.0 million in the aggregate (exclusive of judgment amounts to the
extent covered by insurance) shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Relevant Party and the same shall not be discharged (or provision shall not
be made for such discharge), vacated or bonded pending appeal, or a stay of
execution thereof shall not be procured, within 45 days from the date of
entry thereof and such Relevant Party shall not, within said period of 45
days, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
<PAGE>
-93-
(I) Any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $2.5 million which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer any Material Plan; or a condition shall exist by reason of which
the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could reasonably be expected to cause one or more members of the ERISA
Group to incur a payment obligation in excess of $2.5 million; or
(J) Any Change of Control; or
(K) Any Security Document after delivery thereof at any time shall
cease to be in full force and effect or shall for any reason fail to create
or cease to maintain a valid and duly perfected first priority security
interest in and Lien upon (subject to Prior Liens) any portion of the
Collateral, except for (A) released Collateral or (B) any Collateral in
which a security interest may not be perfected by the filing of UCC
financing statements or by possession of such Collateral and possession of
such Collateral by the Administrative Agent is not required by the Security
Documents or this Agreement; or
(L) Any Guarantee ceases to be in full force and effect or any of
the Guarantors repudiates, or attempts to repudiate, any of its obligations
under any of the Guarantees (except Guarantors released from their
obligations under Section 6.02); or
(M) The subordination provisions relating to any Senior Subordinated
Note Document (the "Subordination Provisions") shall fail to be enforceable
------------------------
by the Lenders (which have not effectively waived the benefits thereof) in
accordance with the terms thereof, or any Obligation shall fail to
constitute Senior Indebtedness or Guarantor Senior Indebtedness (as defined
in the Senior Subordinated Note Documents), or Borrower or any Subsidiary
shall, directly or indirectly, disavow or contest in any manner any of the
Subordination Provisions;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10, the Administrative Agent may, and upon
written direction of the Majority Lenders shall, by notice to Borrower,
terminate the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by Borrower hereunder and under the Notes (including
any amounts payable under Section 5.05 or 5.06) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by Borrower, reduce any claim to judgment, take any other
action permitted by law and/or take any action permitted to be taken by the
Security Documents during the existence of an Event of Default; and (2) in the
case of the occurrence of an Event of Default referred to in clause (f) or (g)
of this Section 10, the Commitments shall automatically be terminated and the
principal amount then outstanding of, and the accrued interest on, the Loans,
the Reimbursement Obligations and all other amounts payable by Borrower
hereunder and under the Notes (including any amounts payable under Section 5.05
or 5.06) shall automatically become immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower.
In addition, Borrower agrees, upon the occurrence and during the
continuance of any Event of Default if the Administrative Agent has declared the
principal amount then outstanding of, and accrued interest
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on, the Revolving Credit Loans, and all other amounts payable to the Revolving
Credit Lenders hereunder and under the Notes evidencing such Loans to be due and
payable, it may and shall, if requested by the Majority Revolving Credit Lenders
through the Administrative Agent (and, in the case of any Event of Default
referred to in clause (f) or (g) of this Section 10 with respect to any Relevant
Party, forthwith, without any demand or the taking of any other action by the
Administrative Agent or such Lenders) provide cover for the Letter of Credit
Liabilities by paying to the Administrative Agent immediately available funds in
an amount equal to the then aggregate undrawn face amount of all Letters of
Credit, which funds shall be held by the Administrative Agent in the Collateral
Account as collateral security in the first instance for the Letter of Credit
Liabilities and be subject to withdrawal only as provided in the Security
Agreement.
Section 11. The Administrative Agent.
------------------------
11.01. General Provisions. Each of the Lenders and the Issuing
------------------
Lender hereby irrevocably appoints the Administrative Agent as its agent and
authorizes the Administrative Agent to take such actions on its behalf and to
exercise such powers as are delegated to the Administrative Agent by the terms
hereof, together with such actions and powers as are reasonably incidental
thereto.
The Lender or other financial institution serving as the
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not the Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
Borrower or any Subsidiary or other Affiliate thereof as if it were not the
Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default or Event of Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Majority Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 12.04), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to
Borrower or any Subsidiary that is communicated to or obtained by the financial
institution serving as Administrative Agent or any of its Affiliates in any
capacity. The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Majority Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.04) or in the absence of its own gross
negligence or willful misconduct. The Administrative Agent shall be deemed not
to have knowledge of any Default or Event of Default unless and until written
notice thereof is given to the Administrative Agent by Borrower or a Lender, and
the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement or any other Credit Document, (ii) the
contents of any certificate, report or other document delivered hereunder or
under any other Credit Document or in connection herewith, (iii) the performance
or observance of any of the covenants, agreements or other terms or conditions
set forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement or any other Credit Document or any other
agreement, instrument or document, or (v) the satisfaction of any condition set
forth in Section 7 or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed
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by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for Borrower), independent accountants
and other experts selected by it, and shall not be liable for any action taken
or not taken by it in accordance with the advice of any such counsel,
accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Affiliates, directors, officers, employees, agents and
advisors ("Related Parties"). The exculpatory provisions of the preceding
---------------
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Lender and Borrower.
Upon any such resignation, the Majority Lenders shall have the right, in
consultation with Borrower, to appoint a successor, subject to the approval of
Borrower, whose consent shall not be unreasonably withheld; provided that such
--------
Borrower approval shall not be necessary if an Event of Default shall have
occurred and be continuing. If no successor shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Lender, appoint a successor Administrative Agent which shall be a bank which
constitutes a Person with an office in New York, New York, or an Affiliate of
any such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Section 11
shall continue in effect for the benefit of such retiring Administrative Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as
Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
11.02. Indemnification. Each Lender agrees to indemnify and hold
---------------
harmless the Administrative Agent and the Arranger (to the extent not promptly
reimbursed under Section 12.03, but without limiting the obligations of Borrower
under Section 12.03), ratably in accordance with the aggregate principal amount
of the Loans and Reimbursement Obligations held by the Lenders (or, if no Loans
or Reimbursement Obligations are at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities (including
pursuant to any Environmental Law), obligations, losses, damages, penalties,
actions, judgments, deficiencies, suits, costs, expenses (including reasonable
attorney's fees) or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent or the
Arranger (including by any Lender) arising out of or by reason of any
investigation in or in any way relating to or
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arising out of any Credit Document or any other documents contemplated by or
referred to therein for any action taken or omitted to be taken by the
Administrative Agent or the Arranger under or in respect of any of the Credit
Documents or other such documents or the transactions contemplated thereby
(including the costs and expenses that Borrower is obligated to pay under
Section 12.03, including any payments under any indemnity that the
Administrative Agent is required to issue in its individual capacity in
connection with the payoff of Borrower's prior lender and including also any
payments under any indemnity that the Administrative Agent is required to issue
to any Lender referred to in Section 4.01(c) of the Security Agreement, or to
any bank referred to in Section 4.02 of the Security Agreement to which
remittances in respect of Accounts, as defined therein, are to be made, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents; provided, however, that no Lender shall be liable for
-------- -------
any of the foregoing to the extent they are determined by a court of competent
jurisdiction in a final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of the party to be indemnified. The
agreements set forth in this Section 11.02 shall survive the payment of all
Loans and other obligations hereunder and shall be in addition to and not in
lieu of any other indemnification agreements contained in any other Credit
Document.
11.03. Consents Under Other Credit Documents. Except as otherwise
-------------------------------------
provided in this Agreement and the other Credit Documents, the Administrative
Agent may, with the prior consent of the Majority Lenders (but not otherwise),
consent to any modification, supplement or waiver under any of the other Credit
Documents.
11.04. Collateral Sub-Agents. Each Lender by its execution and
---------------------
delivery of this Agreement agrees, as contemplated by Section 4.03 of the
Security Agreement, that, in the event it shall hold any Permitted Investments
referred to therein, such Permitted Investments shall be held in the name and
under the control of such Lender, and such Lender shall hold such Permitted
Investments as a collateral sub-agent for the Administrative Agent thereunder.
Borrower by its execution and delivery of this Agreement hereby consents to the
foregoing.
Section 12. Miscellaneous.
-------------
12.01. Waiver. No failure on the part of any Creditor to exercise
------
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Credit Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
12.02. Notices. All notices, requests and other communications
-------
provided for herein and under the Security Documents (including any
modifications of, or waivers, requests or consents under, this Agreement) shall
be given or made in writing (including by facsimile) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by facsimile or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid. Any
Notice of Borrowing or Notice of Continuation/Conversion shall be deemed to have
been received when actually received.
12.03. Expenses, Indemnification, Etc. (A) The Obligors, jointly
------------------------------
and severally, agree to pay or reimburse:
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(I) the Arranger and the Administrative Agent for all of their reasonable
out-of-pocket costs and expenses (including the reasonable fees and
expenses of counsel) in connection with (1) the negotiation, preparation,
execution and delivery of the Credit Documents and the extension of credit
hereunder and (2) the negotiation or preparation of any modification,
supplement or waiver of any of the terms of any Credit Document (whether or
not consummated or effective);
(II) each of the Lenders and the Administrative Agent for all reasonable
out-of-pocket costs and expenses of the Lenders and the Administrative
Agent (including the reasonable fees and expenses of legal counsel) in
connection with (1) any Default or Event of Default and any enforcement or
collection proceedings resulting therefrom, including all manner of
participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y)
judicial or regulatory proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction contemplated thereby is consummated) and (2) the enforcement of
this Section 12.03; and
(III) each of the Lenders and the Administrative Agent for all reasonable
costs, expenses, taxes, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any
security interest contemplated by any Credit Document or any other document
referred to therein.
(B) The Obligors, jointly and severally, hereby agree to indemnify
each Creditor and their respective Affiliates, directors, trustees, officers,
employees and agents (each, an "Indemnitee") from, and hold each of them
----------
harmless against, and that no Indemnitee will have any liability for, any and
all Losses incurred by any of them (including any and all Losses incurred by the
Administrative Agent, the Arranger or the Issuing Lender to any Lender, whether
or not any Creditor is a party thereto) directly or indirectly arising out of or
by reason of or relating to the negotiation, execution, delivery, performance,
administration or enforcement of any Credit Document, any of the transactions
contemplated by the Credit Documents, any breach by any Obligor of any
representation, warranty, covenant or other agreement contained in any of the
Credit Documents, the use or proposed use of any of the Loans or Letters of
Credit or the use of any collateral security for the Loans (including the
exercise by any Creditor of the rights and remedies or any power of attorney
with respect thereto and any action or inaction in respect thereof), but
excluding any such Losses to the extent arisen from the gross negligence or bad
faith of the Indemnitee.
Without limiting the generality of the foregoing, the Obligors,
jointly and severally, will indemnify each Creditor and each other Indemnitee
from, and hold each Creditor and each other Indemnitee harmless against, any
Losses described in the preceding sentence arising under any Environmental Law
as a result of (A) the past, present or future operations of Borrower or any
Subsidiary (or any predecessor in interest to Borrower or any Subsidiary), (B)
the past, present or future condition of any site or facility owned, operated or
leased at any time by Borrower or any Subsidiary (or any such predecessor in
interest), or (C) any Release or threatened Release of any Hazardous Materials
at, under or from any such site or facility, including any such Release or
threatened Release that shall occur during any period when any Creditor shall be
in possession of any such site or facility following the exercise by such
Creditor of any of its rights and remedies hereunder or under any of the
Security Documents; provided, however, that the indemnity hereunder shall be
-------- -------
subject to the exclusions from indemnification set forth in the preceding
sentence.
To the extent that the undertaking to indemnify and hold harmless set
forth in this Section 12.03 or any other provision of any Credit Document
providing for indemnification is unenforceable because it is violative of any
law or public policy or otherwise, the Obligors, jointly and severally, shall
contribute the
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maximum portion that each of them is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all indemnified liabilities
incurred by any of the Persons indemnified hereunder.
The Obligors also agree that no Indemnitee shall have any liability
(whether direct or indirect, in contract or tort or otherwise) for any Losses to
any Obligor or any Obligor's security holders or creditors resulting from,
arising out of, in any way related to or by reason of any matter referred to in
any indemnification or expense reimbursement provisions set forth in this
Agreement or any other Credit Document, except to the extent that any Loss
resulted from the gross negligence or bad faith of such Indemnitee.
The Obligors agree that, without the prior written consent of the
Administrative Agent, the Arranger and the Majority Lenders which consent shall
not be unreasonably withheld, no Obligor will settle, compromise or consent to
the entry of any judgment in any pending or threatened Proceeding in respect of
which indemnification is reasonably likely to be sought under the
indemnification provisions of this Section 12.03 (whether or not any Indemnitee
is an actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional written release of each
Indemnitee from all liability arising out of such Proceeding and does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnitee and does not involve any payment of money or
other value by any Indemnitee or any injunctive relief or factual findings or
stipulations binding on any Indemnitee.
12.04. Amendments, Etc. (i) Any provision of this Agreement or any
---------------
other Credit Document may be amended, modified or supplemented by an instrument
in writing signed by the Obligors and the Majority Lenders, or by the Obligors
and the Administrative Agent acting with the written consent of the Majority
Lenders, and any provision of this Agreement may be waived by an instrument in
writing signed by the Obligors and the Majority Lenders, or by the Obligors and
the Administrative Agent acting with the written consent of the Majority Lenders
and Borrower; provided, however, that:
-------- -------
(A) no amendment, modification, supplement or waiver shall, unless by
an instrument signed by all of the Lenders or by the Administrative Agent
acting with the written consent of each Lender (with Obligations directly
affected in the case of clause (I)): (I) extend the scheduled final
maturity of any Loan or Note, or extend the stated expiration date of any
Letter of Credit beyond the Revolving Credit Commitment Termination Date,
or reduce the rate of interest (other than any waiver of any increase in
the interest rate applicable to any of the Loans pursuant to clause (b) of
Section 3.02) or fees thereon, or extend the time of payment of interest or
fees thereon, or reduce the principal amount thereof, (II) extend the final
maturity of any of the Commitments (or reinstate any Commitment terminated
pursuant to Section 10), (III) change the currency in which any Obligation
is payable, (IV) amend the terms of this Section 12.04 or Section 4.07, 5
or 11.03, (V) reduce the percentages specified in the definition of the
term "Majority Lenders" or "Supermajority Lenders" or amend any provision
of any Credit Document requiring the consent of all the Lenders or reduce
any other percentage of the Lenders required to make any determinations or
waive any rights hereunder or to modify any provision hereof (it being
understood that, the Increased Facility Amount, if extended by any Lender,
shall be, and with the consent of the Majority Lenders, other additional
extensions of credit pursuant to this Agreement may be, included in the
determination of the Majority Lenders and Supermajority Lenders without
notice to or consent of any other Lender or Agent on substantially the same
basis as the Commitments (and related extensions of credit) are included on
the Closing Date), (VI) release any Guarantor from its obligations under
Section 6 (unless permitted by this Agreement), (VII) consent to the
assignment or transfer by any Obligor of any of its rights and obligations
under any Credit Document, (VIII) release all or substantially all the
Collateral or terminate the Lien under any Credit Document in respect of
all or substantially all the Collateral (except as permitted by the Credit
Documents, including as permitted by Section 9.06, Section 9.08 and Section
9.19 upon the incurrence
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of a mortgage on the Existing Warehouse Facility) or agree to additional
obligations (other than the Obligations and the Increased Facility Amount
and Replacement Indebtedness) being secured by the Collateral, or (IX)
amend Section 12.03 or any other indemnification and expense reimbursement
provision set forth in any Credit Document (it being understood that any
prepayment required by Section 2.10(a) may be modified, supplemented or
waived by the Majority Lenders);
(B) no such amendment, modification, supplement or waiver shall
increase the Commitments of any Lender over the amount thereof then in
effect without the consent of such Lender (it being understood that
amendments, modifications or waivers of conditions precedent, covenants,
Default or Events of Default shall not constitute an increase of the
Commitment of any Lender);
(C) any modification or supplement of or waiver with respect to
Section 11 which affects the Administrative Agent or the Arranger in their
respective capacities as such shall require the consent of the
Administrative Agent and the Arranger;
(D) no consent of any Lender need be obtained, and the Administrative
Agent is hereby authorized, to release any Lien securing the Obligations on
Property which is the subject of any Disposition permitted by this
Agreement and the other Credit Documents or to release the Lien of the
Mortgage on the Existing Warehouse Facility upon the incurrence of a
mortgage thereon in accordance with Section 9.07(m), Section 9.08(h) and
Section 9.19(A);
(E) subject to clause (a)(I) above of this proviso to this Section
12.04(i), the consent of the Supermajority Lenders of the Affected Class as
well as Supermajority Lenders shall be required with respect to any
extension of any scheduled Amortization Payment or any reduction in the
amount of any scheduled Amortization Payment (it being understood that,
subject to clause (f) below of this Section 12.04, any prepayment required
by Section 2.10 (a) may otherwise be modified, supplemented or waived by
the Majority Lenders);
(F) no modification, supplement or waiver shall, unless by an
instrument signed by the Supermajority Lenders of the Affected Class or by
the Administrative Agent acting with the written consent of the
Supermajority Lenders of the Affected Class, change the timing of the
receipt or the application of mandatory prepayments hereunder as between
the Tranche A Term Loans and the Tranche B Term Loans or the order in which
any such prepayment is applied to the Tranche A Term Loans or Tranche B
Term Loans (although any required prepayment set forth in Section 2.10(a)
may be modified, supplemented or waived by the Majority Lenders);
(G) no reduction of the percentage specified in the definition of
"Majority Revolving Credit Lenders," "Majority Tranche A Term Loan Lenders"
or "Majority Tranche B Term Loan Lenders" shall be made without the consent
of each Revolving Credit Lender, each Tranche A Term Loan Lender or each
Tranche B Term Loan Lender, respectively (it being understood that only the
Class of such Loan to which such definition relates need consent to any
such reduction and that the Increased Facility Amount, if extended by any
Lender, shall be, and with the consent of the Majority Lenders, other
additional extensions of credit pursuant to this Agreement may be, included
in any such definition without notice to or consent of any other Lender or
Agent on substantially the same terms as the Commitments (and related
extensions of credit) are included on the Closing Date);
(H) no reduction of the percentage specified in the definition of (I)
"Majority Term Lenders" shall be made without the consent of the Majority
Tranche A Term Loan Lenders and the Majority Tranche B Term Loan Lenders or
(II) "Supermajority Lenders of the Affected Tranche" shall be made
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without the consent of each Term Loan Lender (it being understood that,
with the consent of the Majority Lenders, additional extensions of credit
pursuant to this Agreement may be included in either such definition
without notice to or consent of any other Lender or Agent on substantially
the same terms as the Commitments (and related extensions of credit) are
included on the Closing Date);
(I) no amendment, modification or waiver shall make any change to
Section 2.01(e) or the definitions of "Swing Loan Commitment", "Swing Loan
Maturity Date" or "Swing Loans" or the Swing Loan Note without the consent
of the Swing Loan Lender; and
(J) no amendment, modification or waiver shall affect the rights or
duties of the Issuing Lender in its capacity as such or alter the
obligation of any Revolving Credit Lender pursuant to Section 2.03(e) or
2.03(f) without the consent of the Issuing Lender.
(ii) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
Section 12.04(i)(a) (other than clause (I) of such section), the consent of the
Majority Lenders, Majority Revolving Credit Lenders, Majority Term A Lenders,
Majority Term B Lenders, Majority Term Lenders, Supermajority Lenders or
Supermajority Lenders of the Affected Class, as the case may be, is obtained but
the consent of one or more of such other Lenders whose consent is required is
not obtained, then Borrower shall have the right to replace each such non-
consenting Lender or Lenders (so long as all non-consenting Lenders are so
replaced) with one or more Replacement Lenders pursuant to Section 2.11 so long
as at the time of such replacement, each such Replacement Lender consents to the
proposed change, waiver, discharge or termination; provided, however, that
-------- -------
Borrower shall not have the right to replace a Lender solely as a result of the
exercise of such Lender's rights (and the withholding of any required consent by
such Lender) pursuant to clause (I) of Section 12.04(i)(a).
12.05. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06. Assignments and Participations. (A) No Obligor may assign
------------------------------
its respective rights or obligations hereunder or under the Notes or any other
Credit Document without the prior written consent of all of the Lenders.
(B) Each Lender may assign to any Eligible Person any of its Loans,
its Notes, its Letter of Credit Interests and its Commitments (but only with the
consent (which shall not be unreasonably withheld or delayed) of Borrower, the
Administrative Agent and the Arranger and, in the case of the Revolving Credit
Commitments, the Issuing Lender); provided, however, that (i) no such consent by
-------- -------
Borrower, the Issuing Lender, the Arranger or the Administrative Agent shall be
required in the case of any assignment to another Lender or any Lender's
Affiliate or any Approved Fund of any Lender (in which case, the assignee and
assignor Lenders shall give notice of the assignment to the Administrative
Agent); (ii) no consent of Borrower need be obtained if any Default or Event of
Default shall have occurred and be continuing; (iii) each assignment, other than
to a Lender or any Lender's Affiliate or any Approved Fund of any Lender and
other than any assignment effected by Merrill Lynch Capital Corporation in
connection with the syndication of the Commitments (unless Borrower and the
Administrative Agent otherwise agree), shall be in an aggregate amount at least
equal to $10 million unless the assigning Lender's exposure is reduced to $0;
(iv) subject to (i) above, assignments under the Revolving Facility will require
the consent of the Issuing Lender; and (v) in no event may any such assignment
be made to any Obligor or any of its Affiliates without consent of all Lenders.
Any assignment of a Loan shall be effective only upon appropriate entries with
respect thereto being made in the Register (and each Note shall expressly so
provide). Any assignment or transfer of a Loan shall be registered on the
Register only upon surrender for registration of assignment or transfer of the
Note evidencing such Loan (if a Note was issued in respect thereof),
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accompanied by an instrument in writing substantially in the form of Exhibit F,
---------
and upon consent thereto by Borrower, the Administrative Agent, the Arranger and
the Issuing Lender to the extent required above, one or more new Notes (if
requested by the New Lender) in the same aggregate principal amount shall be
issued to the designated assignee and the old Notes shall be returned by the
Administrative Agent to Borrower marked "cancelled". Upon execution and delivery
by the assignee to Borrower, the Administrative Agent and the Arranger of an
instrument in writing substantially in the form of Exhibit F, and upon consent
---------
thereto by Borrower, the Administrative Agent and the Issuing Lender to the
extent required above, and in the case of a Loan, upon appropriate entries being
made in the Register the assignee shall have, to the extent of such assignment
(unless otherwise provided in such assignment with the consent of the
Administrative Agent), the obligations, rights and benefits of a Lender
hereunder holding the Commitment(s), Loans (or portions thereof) and Letter of
Credit Interests assigned to it (in addition to the Commitment(s), Letter of
Credit Interests and Loans, if any, theretofore held by such assignee) and the
assigning Lender shall, to the extent of such assignment, be released from the
Commitment(s) (or portion(s) thereof) so assigned. At the time of each
assignment pursuant to this Section 12.06(b) to a Person which is not already a
Lender hereunder and which is not a United States person (as such term is
defined in Section 7701(a)(3) of the Code) for Federal income tax purposes, the
respective assignee Lender shall provide to Borrower and the Administrative
Agent the appropriate Internal Revenue Service Forms (and, if applicable, a
Section 5.06 Certificate) described in Section 5.06(b). Upon any such assignment
(other than to a Lender or any Affiliate of a Lender and other than in
connection with the Arranger's initial syndication of the Loans the Arranger's
next succeeding five assignments) the assignee Lender shall pay a fee of $3,500
to the Administrative Agent. Upon any such assignment, certain rights and
obligations of the assigning Lender shall survive as set forth in Section 12.07.
(C) A Lender may sell or agree to sell to one or more other Eligible
Persons a participation in all or any part of any Loans and Letter of Credit
Interests held by it, or in its Commitments, in which event each purchaser of a
participation (a "Participant") shall be entitled to the rights and benefits of
-----------
the provisions of Section 5 (provided, however, that no Participant shall be
-------- -------
entitled to receive any greater amount pursuant to Section 5 than the transferor
Lender would have been entitled to receive in respect of the participation
effected by such transferor Lender had no participation occurred) with respect
to its participation in such Loans, Letter of Credit Interests and Commitments
as if such Participant were a "Lender" for purposes of said Section, but, except
as otherwise provided in Section 4.07(c), shall not have any other rights or
benefits under this Agreement or any Note or any other Credit Document (the
Participant's rights against such Lender in respect of such participation to be
those set forth in the agreements executed by such Lender in favor of the
Participant). All amounts payable by Borrower to any Lender under Section 5 in
respect of Loans, Letter of Credit Interests and its Commitments, shall be
determined as if such Lender had not sold or agreed to sell any participation in
such Loans, Letter of Credit Interests and Commitments, and as if such Lender
were funding each of such Loan, Letter of Credit Interests and Commitments in
the same way that it is funding the portion of such Loan, Letter of Credit
Interests and Commitments in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Credit
Document, except that such Lender may agree with the Participant that it will
not, without the consent of the Participant, agree to any modification or
amendment set forth in subclauses (I), (II), (III) or (VIII) of clause (a) of
the proviso to Section 12.04.
(D) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, any Lender may assign and pledge
all or any portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular issued
by such Federal Reserve Bank and, in the case of a Lender that is an investment
fund, any such Lender may assign or pledge any portion of its Loans and its
Notes to its trustee in support of its obligations to its trustee, without
notice to or consent of Borrower or the Administrative Agent. No such
assignment shall release the assigning Lender from its obligations hereunder.
<PAGE>
-102-
(E) A Lender may furnish any information concerning Borrower or any
Subsidiary in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants) subject,
however, to the provisions of Section 12.11. In addition, each of the
Administrative Agent and the Arranger may furnish any information concerning any
Obligor or any of its Affiliates in the Administrative Agent's or the Arranger's
possession to any Affiliate of the Administrative Agent or the Arranger. The
Obligors shall assist any Lender (at such Lender's cost and expense, except as
provided in the Commitment Letter in respect of syndication) in effectuating any
assignment or participation pursuant to this Section 12.06 (including during
syndication) in whatever manner such Lender reasonably deems necessary,
including participation in meetings with prospective transferees.
12.07. Survival. The obligations of the Obligors under Sections
--------
5.01, 5.05, 5.06 and 12.03, the obligations of each Guarantor under Section
6.03, and the obligations of the Lenders under Sections 5.06 and 11.05, shall
survive the repayment of the Loans and Reimbursement Obligations and the
termination of the Commitments and, in the case of any Lender that may assign
any interest in its Commitments, Loans or Letter of Credit Interest hereunder,
shall (to the extent relating to such time as it was a Lender) survive the
making of such assignment, notwithstanding that such assigning Lender may cease
to be a "Lender" hereunder. In addition, each representation and warranty made,
or deemed to be made by a notice of any extension of credit, herein or pursuant
hereto shall survive the execution and delivery of this Agreement and the Notes
and the making of any extension of credit hereunder.
12.08. Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09. Counterparts; Interpretation; Effectiveness. This Agreement
-------------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof, other than the
indemnity, confidentiality, waiver of jury trial and governing law provisions of
the Commitment Letter, which are not superseded and survive. Except as provided
in Section 7.01, this Agreement shall become effective when it shall have been
executed by the Administrative Agent and when the Administrative Agent shall
have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
12.10. Governing Law; Submission to Jurisdiction; Waivers; Etc. (A)
-------------------------------------------------------
Each Credit Document shall be governed by, and construed in accordance with, the
law of the State of New York, without regard to the principles of conflicts of
laws thereof (except in the case of the other Credit Documents, to the extent
otherwise expressly stated therein). Each Obligor hereby irrevocably and
unconditionally: (a) submits for itself and its property in any Proceeding
relating to any Credit Document to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof; (b) consents that any such Proceeding may be brought in such
courts and waives trial by jury and any objection that it may now or hereafter
have to the venue of any such Proceeding in any such court or that such
Proceeding was brought in an inconvenient court and agrees not to plead or claim
the same; (c) agrees that service of process in any such Proceeding may be
effected by mailing a copy thereof by
<PAGE>
-103-
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to Borrower at its address set forth in Section 12.02 or at
such other address of which the Administrative Agent shall have been notified
pursuant thereto; and (d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction.
(B) Each Obligor hereby irrevocably appoints and designates CT
Corporation System, whose address is 1633 Broadway, New York, New York 10019, as
its true and lawful attorney and duly authorized agent for service of legal
process of such Obligor.
12.11. Confidentiality. Each Creditor agrees to take normal and
---------------
reasonable precautions to maintain the confidentiality of information provided
to it by Borrower or any Subsidiary in connection with this Agreement to the
extent it is not a matter of general public knowledge or it was not previously
known to the Lender at the time such information was provided to it or if
previously known, had become known to the Lender or provided to it in violation
of an agreement of confidentiality; provided, however, that any Creditor may
-------- -------
disclose such information (a) at the request of any bank regulatory or
securities authority or the NAIC or in connection with an examination of such
Creditor by any such authority or the NAIC, (b) pursuant to subpoena or other
court process, (c) when required to do so in accordance with the provisions of
any applicable law, (d) at the discretion of any other Governmental Authority,
(e) to such Creditor's Affiliates, independent auditors and other professional
advisors or (f) to any transferee or potential transferee or participant or
potential participant or to any direct or indirect contractual counterparties in
swap agreements or to the professional advisors of such swap counterparties;
provided, however, that they agree to comply with the provisions of this Section
- -------- -------
12.11.
12.12. Independence of Representations, Warranties and Covenants.
---------------------------------------------------------
The representations, warranties and covenants contained herein shall be
independent of each other and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exception be deemed to permit any action or omission that would be in
contravention of applicable law.
12.13. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
[Signature Pages Follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
TUESDAY MORNING CORPORATION
By: ___________________________________________
Name: Benjamin Chereskin
Title:
Address for Notices:
Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75224
Attention: Benjamin Chereskin
Telecopier No.: (312) 895-1306
Telephone No.: (312) 895-1320
<PAGE>
S-2
TMI HOLDINGS, INC.
By: ___________________________________________
Name: Benjamin Chereskin
Title:
Address for Notices:
c/o Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75224
Attention: Benjamin Chereskin
Telecopier No.: (312) 895-1306
Telephone No.: (312) 895-1320
<PAGE>
S-3
TUESDAY MORNING, INC.
By: ___________________________________________
Name: Benjamin Chereskin
Title:
Address for Notices:
c/o Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75224
Attention: Benjamin Chereskin
Telecopier No.: (312) 895-1306
Telephone No.: (312) 895-1320
<PAGE>
S-4
FRIDAY MORNING, INC.
By: ___________________________________________
Name: Benjamin Chereskin
Title:
Address for Notices:
c/o Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75224
Attention: Benjamin Chereskin
Telecopier No.: (312) 895-1306
Telephone No.: (312) 895-1320
<PAGE>
S-5
TMIL CORPORATION
By: ___________________________________________
Name: Benjamin Chereskin
Title:
Address for Notices:
c/o Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75224
Attention: Benjamin Chereskin
Telecopier No.: (312) 895-1306
Telephone No.: (312) 895-1320
<PAGE>
S-6
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED,
as Arranger and Syndication Agent
By: ___________________________________________
Name: Brian O'Callahan
Title: Vice President
Address for Notices:
World Financial Center
c/o Merrill Lynch & Co.
North Tower
250 Vesey Street
New York, New York 10281-1307
Attention: Christopher Reilly
Telecopier No.: (212) 449-2372
Telephone No.: (212) 449-8405
<PAGE>
S-7
FLEET NATIONAL BANK,
as Administrative Agent
By: ___________________________________________
Name:
Title:
Address for Notices:
Attention:
Telecopier No.:
Telephone No.:
<PAGE>
S-8
LENDERS
-------
MERRILL LYNCH CAPITAL CORPORATION,
as a Lender
By: ___________________________________________
Name: Brian O'Callahan
Title: Vice President
Lending Office for all Loans:
World Financial Center
c/o Merrill Lynch & Co.
North Tower - 7th Floor
250 Vesey Street
New York, New York 10281-1307
Address for Notices:
World Financial Center
c/o Merrill Lynch & Co.
North Tower
250 Vesey Street
New York, New York 10281-1307
Attention: Christopher Reilly
Telecopier No.: (212) 449-2372
Telephone No.: (212) 449-8405
<PAGE>
S-9
FLEET NATIONAL BANK,
as a Lender
By: ___________________________________________
Name:
Title:
Lending Office for all Loans:
Address for Notices:
Attention:
Telecopier No.:
Telephone No.:
<PAGE>
ANNEX A
-------
TUESDAY MORNING ALLOCATIONS
(dollars in millions)
<TABLE>
<CAPTION>
Allocation
------------------------------------------------------------------------------------
REVOLVING CREDIT TRANCHE A TERM TRANCHE B TERM
INSTITUTION COMMITMENTS LOAN COMMITMENT LOAN COMMITMENT TOTAL
- ------------------------------ ---------------------- -------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Merrill Lynch 13.8400 4.1600 45.000
Capital Corporation
Fleet National Bank 8.5000 4.0000
Heller Financial, Inc. 8.5000 4.0000
Credit Lyonnais 8.5000 4.0000
National Westminster Bank 7.8200 3.6800
Credit Agricole Indosuez 7.8200 3.6800
Bank Leumi 6.8000 3.2000
LaSalle National Bank 6.8000 3.2000
Union Bank of California 6.8000 3.2000
Prime Income Trust 12.5000
Pilgrim America 12.5000
---------------------- -------------------- ------------------ ------------------
Total $90.0000 $40.0000 $70.0000 $200.0000
====================== ==================== ================== ==================
</TABLE>
<PAGE>
SCHEDULE 1.01(a)
----------------
REVOLVING CREDIT LOANS AND TRANCHE A TERM LOANS
<TABLE>
<CAPTION>
Alternate
Tier Leverage Ratio LIBOR Loans Base Rate Loans
- ---- -------------- ----------- ---------------
<S> <C> <C> <C>
I (greater than) 5:00:1.0 2.500% 1.500%
II (greater than) 4.50:1.0 but (less than) 5.00:1.0 2.250% 1.250%
III (greater than) 4:00:1.0 but (less than) 4.50:1.0 2.000% 1.000%
IV (greater than) 3.50:1.0 but (less than) 4.00:1.0 1.750% 0.750%
V (greater than) 3.00:1.0 but (less than) 3.50:1.0 1.500% 0.5000%
VI (less than or equal to) 3.00:1.0 1.250% 0.250%
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TRANCHE B TERM LOANS
Tier Leverage Ratio LIBOR Loans Base Rate Loans
- ---- -------------- ----------- ---------------------------------
<S> <C> <C> <C>
I (greater than) 5.00 1.0 3.000% 2.000%
II (greater than) 4.00:1.0 but (less than) 5.00:1.0 2.750% 1.750%
III (less than or equal to) 4.00:1.0 2.500% 1.500%
</TABLE>
<PAGE>
SCHEDULE 1.01(b)
----------------
GUARANTORS
<PAGE>
SCHEDULE 1.01(c)
----------------
REFINANCED DEBT
<PAGE>
SCHEDULE 3.01(b)
----------------
AMORTIZATION PAYMENTS
---------------------
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B
DATE TERM LOAN TERM LOAN
---- --------- ---------
<S> <C> <C>
October 15, 1998 $ 1,000,000 $ 350,000
January 15, 1999 1,000,000 350,000
April 15, 1999 600,000 105,000
July 15, 1999 600,000 105,000
October 15, 1999 800,000 140,000
January 15, 2000 2,000,000 350,000
April 15, 2000 1,200,000 105,000
July 15, 2000 1,200,000 105,000
October 15, 2000 1,600,000 140,000
January 15, 2001 4,000,000 350,000
April 15, 2001 1,800,000 105,000
July 15, 2001 1,800,000 105,000
October 15, 2001 2,400,000 140,000
January 15, 2002 6,000,000 350,000
April 15, 2002 2,100,000 105,000
July 15, 2002 2,100,000 105,000
October 15, 2002 2,800,000 140,000
December 29, 2002 7,000,000 0
January 15, 2003 0 350,000
April 15, 2003 0 105,000
July 15, 2003 0 105,000
October 15, 2003 0 140,000
January 15, 2004 0 350,000
April 15, 2004 0 16,450,000
July 15, 2004 0 16,450,000
October 15, 2004 0 16,450,000
December 29, 2004 0 16,450,000
----------- -----------
$40,000,000 $70,000,000
=========== ===========
</TABLE>
<PAGE>
Exhibit 4.6
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of December 29, 1997 among
---------
TUESDAY MORNING CORPORATION, a Delaware corporation ("Borrower"); EACH OF THE
--------
SUBSIDIARIES party hereto (the "Subsidiary Guarantors"); and FLEET NATIONAL
---------------------
BANK, as administrative agent for the lenders or other financial institutions or
entities party, as lenders, to the Credit Agreement referred to below (in such
capacity, together with its successors in such capacity, the "Administrative
--------------
Agent").
- -----
Borrower, the Subsidiary Guarantors, certain lenders, Merrill Lynch &
Co., as Arranger and Syndication Agent, and the Administrative Agent are parties
to a Credit Agreement dated as of the date hereof (as amended, amended and
restated or otherwise modified and supplemented and in effect from time to time,
the "Credit Agreement"), providing, subject to the terms and conditions thereof,
----------------
for extensions of credit (by the making of loans and the issuance of letters of
credit) to be made by said lenders to Borrower.
To induce said lenders to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Debtor (as
hereinafter defined) has agreed to pledge, mortgage and grant a security
interest in the Pledged Collateral (as hereinafter defined) as security for the
Secured Obligations (as hereinafter defined). Accordingly, the parties hereto
agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement are
-----------
used herein as defined therein. In addition, as used herein:
"Accounts" see Section 3(f) hereof.
--------
"Agreement" see the introduction hereto.
---------
"Collateral Account" see Section 4.01(a) hereof.
------------------
"Contracts" shall mean all contracts, undertakings, or other
---------
agreements, including, without limitation, all documents, agreements and
instruments relating to any Acquisition, as the same may be amended from time to
time, and including, without limitation, (a) all rights of any Debtor to receive
moneys due and to become due thereunder or in connection therewith, (b) all
rights of any Debtor to damages arising out of or for breach or default in
respect thereof, and (c) all rights of any Debtor to exercise remedies
thereunder.
"Copyright Collateral" shall mean all Copyrights, whether now owned or
--------------------
hereafter acquired by any Debtor, including each Copyright identified in Annex 2
-------
hereto. Notwithstanding the foregoing, the Copyright Collateral does not and
shall not include any Copyright that would be rendered invalid, abandoned, void
or unenforceable by reason of its being included as part of Copyright
Collateral.
"Copyrights" shall mean all copyrights, copyright registrations and
----------
applications for copyright registrations, including, without limitation, all
renewals and extensions thereof, the right to recover for all
<PAGE>
-2-
past, present and future infringements thereof, and all other rights of any kind
whatsoever accruing thereunder or pertaining thereto.
"Debtor" shall mean each of Borrower and each Subsidiary Guarantor.
------
"Documents" see Section 3(l) hereof.
---------
"Equipment" see Section 3(j) hereof.
---------
"Instruments" see Section 3(g) hereof.
-----------
"Intellectual Property" shall mean, collectively, all Copyright
---------------------
Collateral, all Patent Collateral and all Trademark Collateral, together with
(a) all inventions, processes, production methods, proprietary information,
know-how and trade secrets; (b) all licenses or user or other agreements granted
to any Debtor with respect to any of the foregoing, in each case whether now or
hereafter owned or used including, without limitation, the licenses or other
agreements with respect to the Copyright Collateral, the Patent Collateral or
the Trademark Collateral, listed in Annex 5 hereto; (c) all information,
-------
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, engineering
reports, test reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery software and
programs; (d) all field repair data, sales data and other information relating
to sales or service of products now or hereafter manufactured; (e) all
accounting information and all media in which or on which any information or
knowledge or data or records may be recorded or stored and all computer
programs used for the compilation or printout of such information, knowledge,
records or data; (f) all licenses, consents, permits, variances, certifications
and approvals of governmental agencies now or hereafter held by any Debtor; and
(g) all causes of action, claims and warranties now or hereafter owned or
acquired by the Debtors in respect of any of the items listed above.
"Interests" shall mean, as to any Debtor (i) all right, title and
---------
interest, now existing or hereafter acquired, of such Debtor in any LLC but not
any of its obligations from time to time as a member (unless the Administrative
Agent shall become a member as a result of its express exercise of remedies
herein) of any LLC; (ii) any and all moneys due and to become due to such Debtor
now or in the future by way of a distribution made to such Debtor in its
capacity as a member of or an owner of any LLC; (iii) any other Property of any
LLC to which such Debtor now or in the future may be entitled in its capacity as
a member of or an owner of any LLC by way of distribution, return of capital or
otherwise; (iv) any other claim in respect of any LLC to which such Debtor now
or in the future may be entitled in its capacity as a member of or an owner of
any LLC and its Property, including any rights under any operating agreement or
other agreement governing or pertaining to such interests; (v) the certificates,
if any, representing all such rights and interests; (vi) all rights of such
Debtor under each limited liability company or operating agreement of each LLC;
and (vii) to the extent not otherwise included, all proceeds of any of the
foregoing.
"Inventory" see Section 3(h) hereof.
---------
<PAGE>
-3-
"Issuers" shall mean, collectively, the respective corporations
-------
identified beneath the names of the Debtors on Annex 1A hereto under the caption
--------
"Issuer," together with any corporation created or acquired after the date
------
hereof, the capital stock of which is required to be pledged hereunder pursuant
to this Agreement or the Credit Agreement.
"LLC" shall mean, collectively, the respective limited liability
---
companies identified beneath the name of the Debtors on Annex 1A hereto under
--------
the caption "LLC", together with any limited liability company created or
---
acquired after the date hereof, the Interests in which are required to be
pledged hereunder pursuant to this Agreement or the Credit Agreement.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers and
--------------
other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"Partnership" shall mean, collectively, the respective partnerships
-----------
identified beneath the name of the Debtors on Annex 1A hereto under the caption
--------
"Partnership", together with any partnerships created or acquired after the date
-----------
hereof, the Partnership Interests in which are required to be pledged hereunder
pursuant to this Agreement or the Credit Agreement.
"Partnership Interests" shall mean, as to any Debtor (i) all right,
---------------------
title and interest, now existing or hereafter acquired, of such Debtor in any
Partnership but not any of its obligations from time to time as a partner
(unless the Administrative Agent shall become a partner as a result of its
express exercise of remedies herein) of any Partnership; (ii) any and all moneys
due and to become due to such Debtor now or in the future by way of a
distribution made to such Debtor in its capacity as a member of or an owner of
any Partnership; (iii) any other Property of any Partnership to which such
Debtor now or in the future may be entitled in its capacity as a member of or an
owner of any Partnership by way of distribution, return of capital or otherwise;
(iv) any other claim in respect of any Partnership to which such Debtor now or
in the future may be entitled in its capacity as a member of or an owner of any
Partnership and its Property, including any rights under any partnership
agreement or other document governing or pertaining to such interests; (v) the
certificates, if any, representing all such rights and interests; (vi) all
rights of such Debtor under each partnership agreement or limited partnership
agreement of each Partnership; and (vii) to the extent not otherwise included,
all proceeds of any of the foregoing.
"Patent Collateral" shall mean all Patents, whether now owned or
-----------------
hereafter acquired by any Debtor, including each Patent identified in Annex 3
-------
hereto, excluding, however, the Patents identified as "Excluded Patents" on said
Annex 3. Notwithstanding the foregoing, the Patent Collateral does not and
- -------
shall not include any Patent that would be rendered invalid, abandoned, void or
unenforceable by reason of its being included as part of Patent Collateral.
"Patents" shall mean all patents and patent applications, including,
-------
without limitation, the inventions and improvements described and claimed
therein together with the reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, all income, royalties, damages and
payments now or hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments
<PAGE>
-4-
for past or future infringements thereof, the right to sue for past, present and
future infringements thereof, and all rights corresponding thereto throughout
the world.
"Permitted Encumbrances" shall mean (a) with respect to the Securities
----------------------
Collateral, the Intellectual Property Collateral, the Collateral Account and the
proceeds of each of the foregoing, Liens of the type described in clause (b),
(h), (k) and (w) of the definition of Permitted Liens and (b) with respect to
all other Pledged Collateral, Liens of the type described in clauses (a), (b),
(c), (f), (g), (h), (j), (k), (m), (n), (o), (p), (q), (r), (t), (u), (v) and,
to the extent the original Lien is permitted hereunder, (l), of the definition
of Permitted Liens.
"Pledged Collateral" see Section 3 hereof.
------------------
"Pledged Interests" see Section 3(d) hereof.
-----------------
"Pledged Obligations" shall mean all of each Debtor's right, title and
-------------------
interest, if any, in and to any and all obligations owed to such Debtor by any
Person, whether now existing or hereafter incurred, and in and to all collateral
granted to such Debtor or for the benefit of such Debtor as collateral security
for such obligations.
"Pledged Securities" shall mean the Pledged Interests and the Pledged
------------------
Stock, collectively.
"Pledged Stock" see Section 3(a) hereof.
-------------
"Prior Liens" shall mean (a) the Liens set forth on Schedule 3 hereto
----------- ----------
and (b) with respect to each applicable type of Pledged Collateral, Permitted
Encumbrances, but only to the extent that the law or regulation creating or
authorizing such Lien provides that such Lien must be superior to the Lien and
security interest created and evidenced by this Agreement.
"Secured Obligations" shall mean, collectively, (a) the principal of
-------------------
and interest (including any interest that would accrue but for the provisions of
the Bankruptcy Code) on the Loans made by the Lenders to, and the Notes held by
each Lender of, Borrower and all other amounts from time to time owing to the
Creditors by Borrower under the Credit Documents, including, without limitation,
all Reimbursement Obligations and interest thereon, (b) all obligations of
Borrower or any other Obligor arising under any Swap Contract between Borrower
or any other Obligor and any Lender or any Affiliate of any Lender, (c) all
obligations of the Subsidiary Guarantors under the Credit Agreement and the
other Credit Documents (including, without limitation, in respect of their
Guarantees under Section 6 of the Credit Agreement), and (d) all obligations of
the Debtors to the Creditors hereunder.
"Securities Act" shall mean the United States Securities Act of 1933,
--------------
as amended.
"Securities Collateral" shall mean, collectively, the Pledged
---------------------
Collateral described in clauses (a) through (e) of Section 3 hereof and the
proceeds of and to any such property and, to the extent related to any such
property or such proceeds, all books, correspondence, credit files, records,
invoices and other papers.
<PAGE>
-5-
"Trademark Collateral" shall mean all Trademarks, whether now owned or
--------------------
hereafter acquired by any Debtor, including each Trademark identified in Annex 4
-------
hereto. Notwithstanding the foregoing, the Trademark Collateral does not and
shall not include any Trademark that would be rendered invalid, abandoned, void
or unenforceable by reason of its being included as part of the Trademark
Collateral.
"Trademarks" shall mean all trade names, trademarks and service marks,
----------
logos, trademark and service mark registrations, and applications for trademark
and service mark registrations, including, without limitation, all renewals of
trademark and service mark registrations, all rights corresponding thereto
throughout the world, the right to recover for all past, present and future
infringements thereof, all other rights of any kind whatsoever accruing
thereunder or pertaining thereto, together, in each case, with the product lines
and goodwill of the business connected with the use of, and symbolized by, each
such trade name, trademark and service mark.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
-----------------------
effect from time to time in each applicable jurisdiction.
"Voting Powers" see Section 5.04(a)(2) hereof.
-------------
Section 2. Representations, Warranties and Covenants. Each Debtor
-----------------------------------------
represents and warrants to and covenants and agrees with the Creditors that:
(a) Such Debtor is the sole beneficial (and, with respect to the
Pledged Securities, record) owner of, or holds valid and subsisting leases
or licenses to, the Pledged Collateral in which it purports to grant a
security interest pursuant to Section 3 hereof and no Lien exists or will
exist upon such Pledged Collateral at any time (and no right or option to
acquire the same (other than those, if any, arising in the ordinary course
of business with respect to Dispositions permitted under the Credit
Agreement) exists in favor of any other Person), except for Prior Liens,
Permitted Encumbrances and the pledge and security interest in favor of the
Administrative Agent for the benefit of the Lenders created or provided for
herein, which pledge and security interest shall constitute a first
priority perfected pledge and security interest in and to all of such
Pledged Collateral (except with respect to Pledged Collateral as to which
perfection is not presently required) subject only to Prior Liens and
except for permitted dispositions each Debtor will make no assignment,
pledge, hypothecation or transfer of, or create or permit to exist any
security interest in or other Lien on, the Pledged Collateral, other than
Prior Liens, Permitted Encumbrances and the Lien pursuant hereto; and,
subject to Section 5.04 hereof, will cause any and all Pledged Securities,
to the extent certificated, whether for value paid by any Debtor or
otherwise, to be forthwith deposited with the Administrative Agent and
pledged or assigned hereunder.
(b) The Pledged Stock represented by the certificates identified
under the name of such Debtor in Annex 1A hereto is, and all other Pledged
--------
Stock in which such Debtor shall hereafter grant a security interest
pursuant to Section 3 hereof will be, duly authorized, validly existing,
fully paid and non-assessable and none of such Pledged Stock is or will be
subject to any contractual restric
<PAGE>
-6-
tion, or any restriction under the charter or by-laws of the respective
Issuer of such Pledged Stock, upon the transfer of such Pledged Stock
(except for any such restriction contained herein or in the Credit
Agreement or as permitted by the Credit Agreement).
(c) The Pledged Stock represented by the certificates identified
under the name of such Debtor in Annex 1A hereto constitutes (x) with
--------
respect to each Subsidiary other than a Foreign Subsidiary all of the
issued and outstanding shares of capital stock of any class of such Issuers
beneficially owned by such Debtor, and (y) with respect to each first tier
Foreign Subsidiary, all of the issued and outstanding shares of capital
stock of any class of such Issuers beneficially owned by such Debtor which
in the aggregate represent not less than (and, subject to Section 3(a)
hereof, not more than) 65% of the total combined voting power of all
classes of capital stock of any such Issuer (in each case, whether or not
registered in the name of such Debtor) and said Annex 1A correctly
--------
identifies, as at the date hereof, or, with respect to any Issuer created
or acquired after the date hereof, as of the date of pledge hereunder, the
respective Issuers of such Pledged Stock, the respective class and par
value of the shares comprising such Pledged Stock and the respective number
of shares (and registered owners thereof) represented by each such
certificate.
(d) The Pledged Obligations identified on Annex 1B hereto constitute
--------
all of the Pledged Obligations of such corporations as identified on Annex
-----
1B hereto, and, other than the Pledged Obligations, no Debtor owns,
--
directly or indirectly, any other Pledged Obligations of any Subsidiary
(other than a Foreign Subsidiary).
(e) Annexes 2, 3 and 4 hereto, respectively, set forth under the name
------------------
of such Debtor a complete and correct list of all material Copyrights,
Patents and Trademarks owned by such Debtor on the date hereof, which have
been registered or for which an application for registration has been made.
Except pursuant to licenses and other user agreements entered into by such
Debtor in the ordinary course of business that are listed in Annex 5
-------
hereto, (i) such Debtor owns and possesses the right to use, and has done
nothing to authorize or enable any other Person to use, any Copyright,
Patent or Trademark listed in said Annexes 2, 3 and 4, and (ii) all
------------------
registrations listed in said Annexes 2, 3 and 4 are valid and in full force
------------------
and effect. Except as may be set forth in said Annex 5, such Debtor owns
-------
and possesses the right to use all Copyrights, Patents and Trademarks
material to its business.
(f) Annex 5 hereto sets forth a complete and correct list of all
-------
material licenses and other user agreements included in the Intellectual
Property.
(g) To such Debtor's knowledge: (i) except as set forth in Annex 5
-------
hereto, there is no violation by others of any right of such Debtor with
respect to any material Copyright, Patent or Trademark listed in Annexes 2,
----------
3 and 4 hereto, respectively, under the name of such Debtor, and (ii) such
-------
Debtor is not infringing in any respect upon any material Copyright, Patent
or Trademark of any other Person; and no proceedings have been instituted
or are pending against such Debtor or, to such Debtor's knowledge,
threatened, and no claim
<PAGE>
-7-
against such Debtor has been received by such Debtor, alleging any such
violation, except as may be set forth in said Annex 5.
-------
(h) Any goods now or hereafter produced by such Debtor or any of its
Subsidiaries included in the Pledged Collateral have been and will be
produced by such Debtor in compliance with the applicable requirements of
the Fair Labor Standards Act of 1938, as amended, except where the failure
to comply could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(i) The Interests of each Debtor identified under the name of such
Debtor on Annex 1A hereto pledged hereunder, and in respect of which a
--------
security interest has been granted hereunder, constitute all of the issued
and outstanding Interests, limited liability company interests or other
ownership or equity interests in any LLC owned by the Debtors; the
Partnership Interests of each Debtor identified under the name of such
Debtor on Annex 1A hereto pledged hereunder, and in respect of which a
--------
security interest has been granted hereunder, constitute all of the issued
and outstanding Partnership Interests or other ownership or equity
interests in any Partnership owned by the Debtors; and none of the Pledged
Interests is or will be subject to any contractual restriction, or any
restriction under the organizational or other organic documents of the
respective issuer of such Pledged Interests upon the transfer of such
Pledged Interests (except for any such restriction contained herein or in
the Credit Agreement or as permitted by the Credit Agreement). The Pledged
Interests have been duly authorized and validly issued, and all payments
required to be made by any holder of such Pledged Interests in respect of
such interests have been made.
(j) Each Debtor has the corporate power and authority to grant the
security interest in the Pledged Collateral pursuant to this Agreement and
has taken all necessary corporate action to grant the security interest in
the Pledged Collateral pursuant to this Agreement.
(k) None of the Pledged Stock constitutes margin stock, as defined in
Regulation G or Regulation U of the Board of Governors of the Federal
Reserve System.
(l) Other than Prior Liens and Permitted Encumbrances, no security
agreement, financing statement, equivalent security or lien instrument or
continuation statement covering all or part of the Pledged Collateral is on
file or of record in any public office, except such as may have been or
will be filed in favor of the Administrative Agent in favor of the
Creditors pursuant to this Agreement.
(m) Upon filing of the financing statements in the offices referred
to on Schedule 1 hereto, the security interest created by this Agreement in
----------
all Pledged Collateral other than the Pledged Securities and other Pledged
Collateral which is either not disclosed in the financing statements or as
to which filing a financing statement is not the sole perfection method
will constitute a valid, perfected first priority security interest
(subject to prior liens) in such Pledged Collateral to the extent provided
in the Uniform Commercial Code, enforceable in accordance with its terms
against all creditors of such Debtor and any Persons purporting to purchase
any such Pledged Col
<PAGE>
-8-
lateral from such Debtor, except as enforcement of such security interest
may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or general equitable principles (whether
considered in a proceeding in equity or at law), and except that the
priority of any security interest is subject to the priority rules
established by the Uniform Commercial Code and the enforceability of any
security interest against other creditors and purchasers is subject to the
provisions of the Uniform Commercial Code and of the Credit Agreement and
other Credit Documents that provide in certain circumstances for purchasers
and other creditors to take free of a prior perfected or unperfected
security interest or otherwise limit the enforceability, priority or effect
of any such security interest.
(n) The Interests in each LLC and the Partnership Interests in each
Partnership are not represented by certificates.
(o) Each Debtor's principal place of business, chief executive office
and the place where its records concerning the Pledged Collateral are kept
is at the address listed on Schedule 2 hereto, and such Pledgor will not
----------
change such principal place of business or chief executive office or remove
such records without giving the Administrative Agent at least 30 days prior
written notice thereof and taking such action to maintain the perfection or
priority of the Administrative Agent's security interest in the Pledged
Collateral as is necessary or reasonably requested by the Administrative
Agent; and such Debtor will not change its name, identity or structure in
any manner, or take any other action, which might make any financing
statement filed in respect of the Pledged Collateral seriously misleading
unless it shall have given the Administrative Agent at least 30 days prior
written notice thereof.
(p) No consent or approval of any Governmental Authority or any
securities exchange or any other Person was or is necessary for the
validity of the security interest granted herein and the pledge effected
hereby.
(q) By virtue of the execution and delivery by the Debtors of this
Agreement, when the Pledged Securities, certificates, instruments or other
documents representing or evidencing such Pledged Securities are delivered
to the Administrative Agent in accordance with this Agreement, duly
endorsed or, in the case of Pledged Securities constituting uncertificated
securities, when the steps required by Articles 8 and 9 of the Uniform
Commercial Code have been taken to perfect the Administrative Agent's
security interest therein, the security interest created by this Agreement
in the Pledged Securities to the extent provided in the Uniform Commercial
Code is enforceable in accordance with its terms against all creditors of
such Debtor and any Person purporting to purchase any such Pledged
Collateral from such Debtor, except as enforcement of such security
interest may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or general equitable principles (whether
considered in a proceeding in equity or at law), and except that the
priority of any security interest is subject to the priority rules
established by the Uniform Commercial Code and the enforceability of any
security interest against other creditors and purchasers is sub-
<PAGE>
-9-
ject to the provisions of the Uniform Commercial Code and of the Credit
Agreement and other Credit Documents that provide in certain circumstances
for purchasers and other creditors to take free of a prior perfected or
unperfected security interest or otherwise limit the enforceability,
priority or effect of any such security interest.
(r) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Securities. The Pledged
Securities are not subject to any put, call, option or other right in favor
of any other Person whatsoever.
(s) Neither the execution and delivery of this Agreement by each
Debtor nor the consummation of the transactions herein contemplated nor the
fulfillment of the terms hereof (i) violates any Debtor's, or any of its
Subsidiaries', charter or by-laws or any organizational or other organic
document of any Issuer, LLC or Partnership, (ii) violates the terms of any
agreement, indenture, mortgage, deed of trust, equipment lease, instrument
or other document to which any Debtor, or any of its Subsidiaries, is a
party, or by which any of them may be bound or to which any of their
Property may be subject, which violation or conflict, individually or in
the aggregate, would have a Material Adverse Effect, or a material adverse
effect on the value of the Pledged Collateral taken as a whole or a
material adverse effect on the security interests hereunder (it being
understood that each Debtor makes no representation that upon foreclosure
the fair market value or fair value or any particular value would be
realized), or (iii) conflicts with any law, order, rule or regulation
applicable to any Debtor, or any of its Subsidiaries, of any Governmental
Authority having jurisdiction over any Debtor, or any of its Subsidiaries,
or their Property, or (iv) results in or requires the creation or
imposition of any Lien (other than the Lien contemplated hereby) upon or
with respect to any of the Property now owned or hereafter acquired by any
Debtor, or any of its Subsidiaries.
(t) Upon reasonable request to a Debtor, the Administrative Agent
shall have full and free access during normal business hours to all of the
books, correspondence and records of such Debtor relating to the Pledged
Collateral, and the Administrative Agent and its representatives may
examine the same, take extracts therefrom and make photocopies thereof, and
such Debtor agrees to render to the Administrative Agent, at such Debtor's
cost and expense, such clerical and other assistance as may be reasonably
requested by the Administrative Agent with regard thereto.
(u) In the event that the Administrative Agent desires to exercise
any remedies, voting or consensual rights or attorney-in-fact powers set
forth in this Agreement and determines it necessary to obtain any approvals
or consents of any Governmental Authority or any other Person therefor,
then, upon the reasonable request of the Administrative Agent, each Debtor
agrees to use its diligent best efforts to assist and aid the
Administrative Agent to obtain as soon as practicable any necessary
Approvals for the exercise of any such remedies, rights and powers.
(v) There are no voting trusts or other agreements or understandings
to which any Debtor is a party or by which it may be bound
<PAGE>
-10-
with respect to voting, managerial consent, election or other rights of any
Debtor relating to the Pledged Securities.
(w) Such Debtor is not in default in the payment of any portion of
any mandatory capital contribution, if any, required to be made under any
agreement to which such Debtor is a party relating to its Interests or
Partnership Interests, and such Debtor is not in violation of any other
material provisions of any such agreement to which such Debtor is a party,
or otherwise in default or violation thereunder; no Interest or Partnership
Interest is subject to any defense, offset or counterclaim, nor have any of
the foregoing been asserted or alleged against such Debtor by any Person
with respect thereto and as of the date hereof, there are no certificates,
instruments, documents or other writings (other than the operating
agreements, partnership agreements and certificates, if any, delivered to
the Administrative Agent) which evidence any Interest or Partnership
Interest of such Debtor.
Section 3. Pledged Collateral; Registration of Pledge of Pledged
-----------------------------------------------------
Interests; Acknowledgments; Delivery of Pledged Securities and Pledged
- ----------------------------------------------------------------------
Obligations. (a) As collateral security for the prompt payment in full when
- -----------
due (whether at stated maturity, by acceleration or otherwise) of the Secured
Obligations owing by such Debtor, each Debtor hereby pledges and mortgages to
the Administrative Agent, for the benefit of the Creditors as hereinafter
provided, and grants to the Administrative Agent, for the benefit of the
Creditors as hereinafter provided, a security interest in, all of such Debtor's
right, title and interest in the following property, whether now owned by such
Debtor or hereafter acquired and whether now existing or hereafter coming into
existence (all being collectively referred to herein as "Pledged Collateral"):
------------------
(a) the shares of common and/or preferred stock of the Issuers
represented by the certificates identified in Annex 1A hereto under the
--------
name of such Debtor and each other corporation hereafter acquired or formed
by any Debtor and all other shares of capital stock of whatever class of
the Issuers now or hereafter owned by such Debtor and all Equity Rights of
any such Issuer which is a first tier Foreign Subsidiary owned by any
Debtor, in each case together with the certificates evidencing the same,
subject, in the case of any Foreign Subsidiary, to the limitation that
shares of capital stock of any such Issuer which represent in excess of 65%
of the combined voting power of all classes of capital stock of such Issuer
shall not be pledged and that no shares of any Foreign Subsidiary which is
not a first tier Foreign Subsidiary shall be pledged; provided, however,
-------- -------
that if following a change in the relevant sections of the Code or the
regulations, rules, rulings, notices or other official pronouncements
issued or promulgated thereunder which would permit a pledge of 66-2/3% or
more of the total combined voting power of all classes of capital stock of
any Foreign Subsidiary entitled to vote without causing the undistributed
earnings of such Foreign Subsidiary as determined for United States Federal
income taxes to be treated as a deemed dividend to the Debtors for United
States Federal income tax purposes, then the 65% limitation set forth above
shall no longer be applicable and the Debtors shall duly pledge and deliver
to the Administrative Agent such of the capital stock not theretofore
required to be pledged hereunder (collectively, the "Pledged Stock");
-------------
<PAGE>
-11-
(b) all shares, securities, moneys or Property representing a
dividend on any of the Pledged Stock, or representing a distribution or
return of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) all Pledged Obligations identified on Annex 1B hereto under the
--------
name of any Debtor; provided, however, if following a change in the
-------- -------
relevant sections of the Code or the regulations, rules, rulings, notices
or other official pronouncements issued or promulgated thereunder which
would permit a pledge of any promissory note issued by any Foreign
Subsidiary without causing the undistributed earnings of such Foreign
Subsidiary as determined for United States Federal income taxes to be
treated as a deemed dividend to the Pledgor for United States Federal
income tax purposes, then each Debtor shall duly pledge and deliver to the
Administrative Agent such of the Pledged Obligations of each Foreign
Subsidiary not theretofore required to be pledged hereunder;
(d) all Interests or Partnership Interests now or hereinafter owned
by any Debtor and any limited liability company interest, partnership
interest or other ownership or equity securities or certificate (including,
without limitation, any certificate representing a distribution in
connection with any reclassification, increase or reduction of capital or
any certificate issued in connection with any reorganization), option or
rights, whether in addition to, in substitution of, as a conversion of, or
in exchange for Interests or Partnership Interests, or otherwise in respect
thereof (collectively, the "Pledged Interests");
-----------------
(e) without affecting the obligations of such Debtor under any
provision prohibiting such action hereunder or under the Credit Agreement,
in the event of any consolidation or merger in which an Issuer, LLC or
Partnership is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation or interests or certificates
of the successor limited liability company or partnership owned by the
Debtors (unless such successor is such Debtor itself) formed by or
resulting from such consolidation or merger;
(f) all accounts and general intangibles (each as defined in the
Uniform Commercial Code) of such Debtor constituting any right to the
payment of money, including (but not limited to) all moneys due and to
become due to such Debtor in respect of any loans or advances or for
Inventory or Equipment or other goods sold or leased or for services
rendered, all moneys due and to become due to such Debtor under any
guarantee (including a letter of credit) of the purchase price of
Inventory or Equipment sold by such Debtor and all tax refunds (such
accounts, general intangibles and moneys due and to become due being herein
called collectively "Accounts");
--------
(g) all instruments, chattel paper or letters of credit (each as
defined in the Uniform Commercial Code) of such Debtor evidencing,
representing, arising from or existing in respect of, relating to, or
securing or otherwise supporting the payment of, any of the Accounts,
<PAGE>
-12-
including (but not limited to) promissory notes, drafts, bills of exchange
and trade acceptances (herein collectively called "Instruments");
-----------
(h) all inventory (as defined in the Uniform Commercial Code) of such
Debtor, all goods obtained by such Debtor in exchange for such inventory,
any products made or processed from such inventory including all
substances, if any, commingled therewith or added thereto, and any such
inventory as is temporarily out of such Debtor's custody or possession,
including inventory held by others on consignment, inventory on the
premises of others and items in transit (herein collectively called
"Inventory");
----------
(i) all intellectual property and all other accounts or general
intangibles (each as defined in the Uniform Commercial Code) which is not
otherwise within the definition of Intellectual Property or Accounts;
(j) all equipment (as defined in the Uniform Commercial Code) of such
Debtor, including all Motor Vehicles (herein collectively called
"Equipment");
---------
(k) all Contracts;
(l) all documents of title (as defined in the Uniform Commercial
Code) or other receipts of such Debtor covering, evidencing or representing
Inventory or Equipment (herein collectively called "Documents");
---------
(m) all rights, claims and benefits of such Debtor against any Person
arising out of, relating to or in connection with Inventory or Equipment
purchased by such Debtor, including, without limitation, any such rights,
claims or benefits against any Person storing or transporting such
Inventory or Equipment;
(n) the balance from time to time in the Collateral Account;
(o) all other tangible and intangible personal property and fixtures
of such Debtor, including, without limitation, all proceeds, products,
accessions, rents, profits, income, benefits, substitutions and
replacements of and to any of the property of such Debtor described in the
preceding clauses of this Section 3 (including, without limitation, any
proceeds of insurance thereon and all causes of action, claims and
warranties now or hereafter held by any Debtor in respect of any of the
items listed above) and, to the extent related to any property described in
said clauses or such proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other papers, including
without limitation all tapes, cards, computer runs and other papers and
documents in the possession or under the control of such Debtor or any
computer bureau or service company from time to time acting for such
Debtor; and
(p) all Intellectual Property.
Notwithstanding the foregoing, the Pledged Collateral does not and shall not
include any Contract, lease or license (or any property subject to any
<PAGE>
-13-
such lease or license) to which any Debtor is a party which would be rendered
void or unenforceable by reason of its being included as part of the Pledged
Collateral or which is not assignable by its terms, or any property subject to a
purchase money security interest permitted under the Credit Agreement which
under the terms of such purchase money security interest or related
documentation may not be further encumbered or transferred, unless a consent to
the assignment has been received by such Debtor and/or the Administrative Agent.
(b) Concurrently with the execution of this Agreement and with the
creation or acquisition of any securities or interests in any Issuer, LLC or
Partnership the securities or interests in which are required pursuant to the
terms hereof or of the Credit Agreement to be pledged hereunder, each Debtor
shall deliver to the Administrative Agent an Acknowledgment in form of Exhibit B
---------
hereto of each Issuer, LLC or Partnership whose securities or interests are
Pledged Securities hereunder.
(c) Each Debtor hereby delivers to the Administrative Agent all of
the certificates evidencing the Pledged Stock owned by such Debtor which is
represented by certificates, endorsed in blank or accompanied with appropriate
undated stock powers executed in blank. If at any time any Pledged Stock which
is not represented by a certificate shall be represented by one or more
certificates, then each Debtor shall promptly deliver the same to the
Administrative Agent accompanied by stock powers duly executed in blank, with
signature properly guaranteed. All other shares of Pledged Stock subsequently
acquired by each Debtor shall be pledged to the Administrative Agent and if
represented by a certificate, certificates representing the same shall be
delivered to the Administrative Agent contemporaneously with the acquisition
thereof, accompanied by stock powers duly executed in blank, with signature
properly guaranteed.
(d) Each Debtor has executed and delivered to the Administrative
Agent such financing statements as the Administrative Agent has requested with
respect to that portion of the Pledged Collateral in which a Lien may be
perfected by the filing of a financing statement against such Debtor. Each
Debtor has caused the Lien of the Administrative Agent in and to the Interests
and the Partnership Interests to be registered upon the books of the issuers of
such Interests and Partnership Interests. If at any time any Interests or
Partnership Interests shall be represented by one or more certificates or by any
documents that are instruments (as defined in the Uniform Commercial Code), then
the appropriate Debtor shall promptly deliver the same to the Administrative
Agent accompanied by duly executed transfer powers endorsed in blank respecting
such certificates or documents, with signature properly guaranteed.
(e) Each Debtor hereby delivers to the Administrative Agent all of
the promissory notes, instruments and agreements evidencing the Pledged
Obligations held by such Debtor in suitable form for transfer by endorsement and
delivery or accompanied by duly executed instruments of transfer or assignment
in blank. If any Debtor shall become entitled to receive or shall receive any
promissory notes, instruments or agreements constituting Pledged Collateral
after the date hereof (including, without limitation, any certificate
representing any distribution in connection with any recapitalization,
reclassification or increase or reduction of capital, or issued in connection
with any reorganization of the obligor on any Pledged Obligations) in respect of
the Pledged Obligations, such Debtor agrees: (i) to accept the same as the
agent of the Administrative Agent, (ii) to hold the same in trust on behalf of
and for the benefit of the Ad-
<PAGE>
-14-
ministrative Agent, and (iii) to deliver any and all promissory notes,
instruments or agreements evidencing the same to the Administrative Agent within
ten (10) days following the receipt thereof by such Debtor, in the exact form
received, with the endorsement in blank of such Debtor when necessary and with
an appropriate undated instrument of transfer or assignment duly executed in
blank (with signature properly guaranteed), to be held by the Administrative
Agent subject to the terms of this Agreement, as additional Pledged Collateral.
(f) Each delivery of such Pledged Securities or Pledged Obligations
after the date hereof shall be accompanied by a schedule describing the
securities and/or indebtedness theretofore and then being pledged hereunder,
which schedule shall be attached hereto and made a part hereof. Each schedule
so delivered shall supersede any prior schedules so delivered.
Notwithstanding the foregoing provisions of this Section 3, the
Pledged Collateral shall not include property or assets hereafter acquired by
Debtor in accordance with clause (g), (h) or (l) of the definition of Permitted
Liens in the Credit Agreement; provided, that at such time, in the case of
--------
clause (g) or (l), as such property or asset is no longer subject to any Lien or
security interest securing purchase money or Capital Lease in respect of such
property or asset, or in the case of clause (h) at the said time as such
property or asset is no longer subject to any Lien or security interest
permitted under such clause (h), such property or asset shall (without any act
or delivery by any Person) constitute Pledged Collateral hereunder.
Section 4. Cash Proceeds of Collateral.
---------------------------
4.01. Collateral Account.
------------------
(a) There is hereby established with the Administrative Agent a cash
collateral account (the "Collateral Account") in the name and under the control
------------------
of the Administrative Agent (1) into which there shall be deposited from time to
time (i) the cash proceeds (including pursuant to any Disposition thereof) of
any of the Pledged Collateral (other than in accordance with 9.19 of the Credit
Agreement), (ii) the cash proceeds of any Taking or Destruction or loss of title
with respect to any Real Property (including proceeds of Casualty Events and
proceeds of insurance covering the Pledged Collateral or any Real Property), and
(iii) any cash in respect of any Pledged Collateral which the Administrative
Agent is entitled to pursuant to Section 5.04 hereof, and (2) into which the
Debtors may from time to time deposit any additional amounts that any of them
wishes to pledge to the Administrative Agent for the benefit of the Lenders as
additional collateral security hereunder and which, as provided in Section 10 of
the Credit Agreement, it is required to pledge as additional collateral security
hereunder.
(b) The balance from time to time in the Collateral Account shall
constitute part of the Pledged Collateral hereunder and shall not constitute
payment of the Secured Obligations until applied as hereinafter provided. So
long as no Event of Default has occurred and is continuing, the Administrative
Agent shall, subject to the further provisions hereof, remit the collected
balance outstanding to the credit of the Collateral Account to or upon the order
of the respective Debtor as such Debtor shall from time to time instruct;
provided, however, that any amounts deposited
- -------- -------
<PAGE>
-15-
in the Collateral Account in respect of any Disposition effected pursuant to
Section 9.06(g) or (h) or 9.19(A)(i)(d) of the Credit Agreement or Casualty
Events or Takings, Destructions or loss of title with respect to Real Property
shall be disbursed to the relevant Debtor in periodic installments upon
submission of reasonable evidence that such amount is to be applied as permitted
by Section 2.10(a) or 9.19 of the Credit Agreement, and any amounts deposited in
the Collateral Account in respect of prepayments or reductions of Loans or
Commitments under Section 2.10 of the Credit Agreement which are to be applied
to LIBOR Loans as provided in the penultimate sentence of Section 2.10(b) of the
Credit Agreement shall be held by the Administrative Agent until the end of the
respective Interest Periods of such LIBOR Loans at which time, whether or not an
Event of Default has occurred, the Administrative Agent shall cause such monies
to be applied to such LIBOR Loans. However, at any time following the occurrence
and during the continuance of an Event of Default, the Administrative Agent may
(and, if instructed by the Lenders as specified in Section 11.03 of the Credit
Agreement, shall) in its (or their) sole and absolute discretion apply or cause
to be applied (subject to collection) the balance from time to time outstanding
to the credit of the Collateral Account to the payment of the Secured
Obligations in the manner specified in Section 5.09 hereof. The balance from
time to time in the Collateral Account shall be subject to withdrawal only as
provided herein.
(c) If requested by Borrower and agreed to by any Lender that is an
Original Lender, and subject to documentation reasonably satisfactory to the
Administrative Agent and such Lender, the Administrative Agent shall designate
such Lender as a collateral sub-agent for the Administrative Agent in respect of
all or any portion of the Collateral Account and provide written notice to
Borrower of such designation.
4.02. Proceeds of Accounts. At any time after the occurrence and
--------------------
during the continuance of an Event of Default, each Debtor shall, upon the
request of the Administrative Agent, instruct all account debtors and other
Persons obligated in respect of all Accounts to make all payments in respect of
the Accounts either (a) directly to the Administrative Agent (by instructing
that such payments be remitted to a post office box which shall be in the name
and under the control of the Administrative Agent), or (b) to one or more other
banks in the United States of America (by instructing that such payments be
remitted to a post office box which shall be in the name and under the control
of the Administrative Agent) under arrangements, in form and substance
satisfactory to the Administrative Agent, pursuant to which such Debtor shall
have irrevocably instructed such other bank (and such other bank shall have
agreed) to remit all proceeds of such payments directly to the Administrative
Agent for deposit into the Collateral Account. All payments made to the
Administrative Agent as provided in the preceding sentence shall be immediately
deposited in the Collateral Account. In addition to the foregoing, each Debtor
agrees that, at any time after the occurrence and during the continuance of an
Event of Default if the proceeds of any Pledged Collateral hereunder (including
the payments made in respect of Accounts) shall be received by it, such Debtor
shall as promptly as possible deposit such proceeds into the Collateral Account.
Until so deposited, all such proceeds shall be held in trust by such Debtor for
and as the property of the Administrative Agent and the Lenders and shall not be
commingled with any other funds or property of such Debtor.
4.03. Investment of Balance in Collateral Account. Amounts on
-------------------------------------------
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the Borrower (or, after the occurrence and
<PAGE>
-16-
during the continuance of an Event of Default, the Administrative Agent) shall
determine, which Permitted Investments shall be held in the name and be under
the control of the Administrative Agent; provided, however, that (i) at any time
-------- -------
after the occurrence and during the continuance of an Event of Default, the
Administrative Agent may (and, if instructed by the Lenders as specified in
Section 11.03 of the Credit Agreement, shall) in its (or their) sole and
absolute discretion at any time and from time to time elect to liquidate any
such Permitted Investments and to apply or cause to be applied the proceeds
thereof to the payment of the Secured Obligations in the manner specified in
Section 5.09 hereof, and (ii) if requested by the Borrower, such Permitted
Investments may be held in the name and under the control of one or more of the
Lenders (and in that connection each Lender, pursuant to Section 11.04 of the
Credit Agreement, has agreed that such Permitted Investments shall be held by
such Lender as a collateral sub-agent for the Administrative Agent hereunder).
4.04. Cover for Letter of Credit Liabilities. Amounts deposited into
--------------------------------------
the Collateral Account as cover for Letter of Credit Liabilities under the
Credit Agreement pursuant to Section 10 thereof shall be held by the
Administrative Agent in a separate sub-account (designated "Letter of Credit
Liabilities Sub-Account") and all amounts held in such sub-account shall
constitute collateral security first for the Letter of Credit Liabilities
-----
outstanding from time to time, and second as collateral security for the other
------
Secured Obligations hereunder, which funds shall be retained by the
Administrative Agent in the Collateral Account (as provided in this Agreement as
collateral security in the first instance for the Letter of Credit Liabilities)
until such time as all Letters of Credit shall have been terminated and all of
the Letter of Credit Liabilities paid in full.
Section 5. Covenants; Further Assurances; Remedies. In furtherance
---------------------------------------
of the grant of the pledge and security interest pursuant to Section 3 hereof,
the Debtors hereby jointly and severally agree with each Lender and the
Administrative Agent as follows:
5.01. Delivery and Other Perfection. Each Debtor shall:
-----------------------------
(a) if there shall be received by such Debtor any of the above-
described shares, securities or property required to be pledged by such
Debtor under clauses (a), (b), (c), (d) and (e) of Section 3 hereof or any
distribution of capital shall be made on or in respect of the Pledged
Interests or any Property shall be distributed upon or with respect to the
Pledged Interests pursuant to the recapitalization or reclassification of
the capital of any LLC or Partnership, or pursuant to the reorganization
thereof, forthwith either (x) transfer and deliver to the Administrative
Agent such shares, capital, Property or securities so received by such
Debtor (together with the certificates for any such shares and securities
duly endorsed in blank or accompanied by undated stock powers duly executed
in blank), all of which thereafter shall be held by the Administrative
Agent, pursuant to the terms of this Agreement, as part of the Pledged
Collateral, or (y) take such other action as the Administrative Agent shall
reasonably deem necessary or appropriate to duly record the Lien created
hereunder in such shares, securities, capital or Property in said clauses
(a), (b), (c), (d) and (e) and until such time of transfer hold such
shares, securities, money, property or capital in trust for the sole
benefit of the Lenders, segregated from the other property of each Debtor;
<PAGE>
-17-
(b) deliver and pledge to the Administrative Agent any and all
Instruments, endorsed and/or accompanied by such instruments of assignment
and transfer in such form and substance as the Administrative Agent may
request; provided, however, that so long as no Event of Default shall have
-------- -------
occurred and be continuing, such Debtor may retain for collection in the
ordinary course any Instruments received by such Debtor in the ordinary
course of business and the Administrative Agent shall, promptly upon
request of such Debtor, make appropriate arrangements for making any other
Instrument pledged by such Debtor available to such Debtor for purposes of
presentation, collection or renewal (any such arrangement to be effected,
to the extent deemed appropriate by the Administrative Agent, against trust
receipt or like document);
(c) maintain the security interest created by this Agreement as a
first priority perfected security interest subject only to Prior Liens and
Permitted Encumbrances and except to the extent perfection is not required
hereunder and defend such security interest against claims and demands of
all Persons whomsoever and give, execute, deliver, file and/or record any
financing statement, continuation statement, notice, instrument, document,
agreement or other papers that may be necessary or desirable (in the
reasonable judgment of the Administrative Agent) to create, preserve,
perfect or validate the security interest granted pursuant hereto or to
enable the Administrative Agent to exercise and enforce its rights
hereunder with respect to such pledge and security interest (and each
Debtor authorizes the Administrative Agent to file any such financing or
continuation statement without the signature of each Debtor to the extent
permitted by applicable law), including, without limitation, after the
occurrence and during the continuance of an Event of Default, causing any
or all of the Securities Collateral to be transferred of record into the
name of the Administrative Agent or its nominee (and the Administrative
Agent agrees that if any Securities Collateral is transferred into its name
or the name of its nominee, the Administrative Agent will thereafter
promptly give to the respective Debtor copies of any notices and
communications received by it with respect to the Securities Collateral)
and if any amount payable under or in connection with any of the Interests
or Partnership Interests shall be or become evidenced by any instrument
(including any promissory note) or chattel paper (in each case as defined
in the Uniform Commercial Code), such instrument or chattel paper shall be
immediately delivered to the Administrative Agent, duly endorsed in a
manner satisfactory to the Administrative Agent, to be held as Pledged
Collateral pursuant to this Agreement;
(d) keep full and accurate books and records relating to the Pledged
Collateral, and stamp or otherwise mark all such material books and records
in such manner as the Administrative Agent may reasonably require in order
to reflect the security interests granted by this Agreement;
(e) furnish to the Administrative Agent upon its request, but not
more than quarterly, statements and schedules further identifying and
describing the material Copyright Collateral, the material Patent
Collateral and the material Trademark Collateral, respectively, and such
other reports in connection with such Copyright Collateral, Patent
Collateral and Trademark Collateral, as the Administrative Agent may
reasonably request, all in reasonable detail;
<PAGE>
-18-
(f) promptly upon the reasonable request of the Administrative Agent,
following receipt by the Administrative Agent of any statements, schedules
or reports pursuant to clause (e) above, modify this Agreement by amending
Annexes 2, 3 and/or 4 hereto, as the case may be, to include any material
---------------------
Copyright, Patent or Trademark that becomes part of the Pledged Collateral
under this Agreement;
(g) permit representatives of the Administrative Agent, upon
reasonable notice, at any time during normal business hours to inspect and
make abstracts from its books and records pertaining to the Pledged
Collateral;
(h) upon the occurrence and during the continuance of any Event of
Default, permit representatives of the Administrative Agent to be present
at such Debtor's place of business to receive copies of all communications
and remittances relating to the Pledged Collateral, and forward copies of
any notices or communications received by such Debtor with respect to the
Pledged Collateral, all in such manner as the Administrative Agent may
require;
(i) upon the occurrence and during the continuance of any Event of
Default, upon request of the Administrative Agent, promptly notify (and
such Debtor hereby authorizes the Administrative Agent so to notify) each
account debtor in respect of any Accounts or Instruments that such Pledged
Collateral has been assigned to the Administrative Agent for the benefit of
the Lenders hereunder, and that any payments due or to become due in
respect of such Pledged Collateral are to be made directly to the
Administrative Agent; and
(j) to the extent permitted by law, pay, and save the Administrative
Agent and the Lenders harmless from, any and all liabilities with respect
to, or resulting from any delay in paying, any and all stamp, excise, sales
or other similar taxes which may be payable or determined to be payable
with respect to any of the Pledged Collateral or in connection with any of
the transactions contemplated by this Agreement.
5.02. Other Financing Statements and Liens. Without the prior
------------------------------------
written consent of the Administrative Agent (granted with the authorization of
the Lenders as specified in Section 11.03 of the Credit Agreement), no Debtor
shall file or suffer to be on file, or authorize or permit to be filed or to be
on file, in any jurisdiction, any financing statement or like instrument with
respect to the Pledged Collateral in which the Administrative Agent is not named
as the sole secured party for the benefit of the Lenders other than with respect
to Prior Liens and Permitted Encumbrances.
5.03. Preservation of Rights. Regardless of whether or not there
----------------------
shall have occurred any Event of Default, the Administrative Agent may institute
and maintain, or cause in its name or in the name of the Debtors to be
instituted and maintained, such suits and proceedings as the Administrative
Agent may reasonably deem to be necessary or expedient to prevent any impairment
of the security interest in or perfection of the Pledged Collateral in
contravention of the terms of the Credit Documents. Without limiting their
right to make dispositions or abandonments of Collateral to the extent permitted
by the Credit Agreement, the Debtors agree not to knowingly take or permit to be
taken any action which would impair
<PAGE>
-19-
the Pledged Collateral or the Administrative Agent's rights in the Pledged
Collateral. The Administrative Agent shall not be required to take steps
necessary to preserve any rights against prior parties to any of the Pledged
Collateral.
5.04. Special Provisions Relating to Certain Collateral.
-------------------------------------------------
(a) Pledged Securities and Pledged Obligations.
------------------------------------------
(1) The Debtors will cause the Pledged Stock to constitute at all
times, with respect to (x) any Issuer other than a Foreign Subsidiary, all of
the shares of each class of capital stock of each such Issuer then owned by any
Debtor, and (y) any first tier Foreign Subsidiary, such amount of the shares of
capital stock of each such Issuer as will (subject to Section 3(a) hereof)
result in not less than (nor greater than) 65% of the total combined voting
power of all classes of capital stock of any such Issuer.
(2) So long as no Event of Default shall have occurred and be
continuing, the Debtors shall have the right to exercise all voting, consensual,
partnership, managerial and membership rights and powers and other powers of
ownership pertaining to the Pledged Securities (collectively, the "Voting
------
Powers") for all purposes not inconsistent with the terms of this Agreement, the
- ------
other Credit Documents or any other instrument or agreement referred to herein
or therein; provided, however, that each Debtor agrees that no vote shall be
-------- -------
cast or membership or partnership right exercised or other action taken which
materially impair the Pledged Securities (other than pursuant to a transaction
expressly permitted under the Credit Agreement) or which would be inconsistent
with or result in any violation of any provision of any of this Agreement or any
other Credit Document. The Administrative Agent shall execute and deliver to
the Debtors or cause to be executed and delivered to the Debtors all such
proxies, powers of attorney, dividend and other orders, and all such
instruments, in each case without recourse or warranty, as the Debtors may
reasonably request for the purpose of enabling the Debtors to exercise the
Voting Powers that they are entitled to exercise pursuant to this Section
5.04(a)(2). Upon the occurrence and during the continuance of an Event of
Default, at the Administrative Agent's sole and absolute option and following
written notice from the Administrative Agent to the Debtors (such written notice
to be effective immediately upon the giving thereof as provided below) all
rights of the Debtors to exercise the Voting Powers they are entitled to
exercise pursuant to this Section 5.04(a)(2), and the obligations of the
Administrative Agent under this Section 5.04(a)(2), shall cease, and all such
Voting Powers shall thereupon become transferred to and vested in the
Administrative Agent, which shall have the sole and exclusive right and
authority to exercise such Voting Powers, including, without limitation, the
right to act by shareholder, partner, member or other interestholder consent.
Such authorization shall constitute an irrevocable voting proxy from each Debtor
to the Administrative Agent or, at the Administrative Agent's option, to the
Administrative Agent's nominee.
(3) Subject to Section 5.04(a)(4) below, the Debtors shall be
entitled to receive and retain any dividends or distributions on the Pledged
Securities to the extent that the payment of such dividends is permitted by the
Credit Agreement.
<PAGE>
-20-
(4) If any Event of Default shall have occurred, then so long as such
Event of Default shall continue, and whether or not the Administrative Agent or
any Lender exercises any available right to declare any Secured Obligation due
and payable or seeks or pursues any other relief or remedy available to it under
applicable law or under this Agreement, the Credit Agreement, the Notes or any
other agreement relating to such Secured Obligation, all dividends and other
distributions on the Pledged Securities shall be paid directly to the
Administrative Agent and retained by it as part of the Pledged Collateral,
subject to the terms of this Agreement, and, if the Administrative Agent shall
so request in writing, the Debtors jointly and severally agree to execute and
deliver to the Administrative Agent appropriate additional dividend,
distribution and other orders and documents to that end; provided, however, that
-------- -------
if such Event of Default is cured, any such dividend or distribution theretofore
paid to the Administrative Agent shall (except to the extent theretofore applied
to the Secured Obligations) promptly be returned by the Administrative Agent to
the Debtors, without interest and without recourse or warranty.
(5) The Administrative Agent, on behalf of the Lenders, shall have
the right (in its sole and absolute discretion) to hold the Pledged Securities
in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent)
or the name of the applicable Debtor, endorsed or assigned in blank or in favor
of the Administrative Agent. The applicable Debtor will promptly give to the
Administrative Agent copies of any notices or other communications received by
it with respect to Pledged Securities registered in the name of such Pledgor.
The Administrative Agent shall at all times have the right to exchange the
certificates representing Pledged Securities for certificates of smaller or
larger denominations for any reasonable purpose consistent with this Agreement.
(6) Upon the occurrence and during the continuance of an Event of
Default, in order to fully effectuate the Administrative Agent's Voting Powers
pertaining to the Pledged Securities, such Debtor, upon the request of the
Administrative Agent, shall secure (if not already secured by the Administrative
Agent) executed resignations of the officers, directors or representatives of
any members committee of or the officers or directors of the general partner of
each issuer whose securities constitute Pledged Securities in order that the
Administrative Agent may elect or appoint the officers, directors or
representatives of such members committee of or the officers or directors of the
general partner of such issuer. After the occurrence and during the continuance
of any such Event of Default, this Section 5.04(a)(6) shall constitute and grant
an irrevocable proxy which shall become effective and shall entitle the
Administrative Agent, at its election, to vote the Pledged Securities upon any
and all corporate, limited liability company or partnership matters; provided,
--------
however, that the foregoing proxy shall be construed so that, and shall be
- -------
limited to the extent necessary so that, the Administrative Agent shall not be
or become liable as a general partner or member.
(7) So long as no Event of Default has occurred and be continuing,
and to the extent not prohibited by the Credit Agreement, each Debtor shall be
entitled to receive and retain principal and interest payments, if any, paid on
the Pledged Obligations.
(8) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of each Debtor to receive or demand, as the case may be,
principal and interest payments which such Debtor is authorized to receive or
demand pursuant to Section 5.04(a)(7) shall cease,
<PAGE>
-21-
and all such rights shall thereupon become vested in the Administrative Agent,
which shall have the sole and exclusive right and authority to receive or
demand, as the case may be, and retain such principal and interest payments (and
all other payments in respect of the Pledged Obligations); in addition, all
principal and interest payments (and all other payments in respect of the
Pledged Obligations) which are received by any Debtor contrary to the provisions
of this Section 5.07(a)(8) shall be received in trust for the benefit of the
Administrative Agent, shall be segregated from other property or funds of such
Debtor and shall be forthwith delivered to the Administrative Agent as Pledged
Collateral in the same form as so received (with any necessary endorsement), and
(ii) all rights of each Debtor to exercise any rights and powers (including the
right to receive and retain payments on the Pledged Obligations) which it would
otherwise be entitled to exercise pursuant to Section 5.04(a)(7) shall cease,
and all such rights shall thereupon become vested in the Administrative Agent,
which shall have the sole and exclusive right and authority to exercise all such
rights and powers until such Event of Default shall have been cured or waived in
accordance with the Credit Agreement, at which time all such rights shall
thereupon become revested in such Debtor and amounts not applied to Loans shall
be remitted to such Debtor. Any and all money and other Property paid over to or
received by the Administrative Agent as Pledged Collateral and retained by the
Administrative Agent pursuant to the provisions of this Section 5.04(a)(8) shall
be retained by the Administrative Agent in the Collateral Account upon receipt
of money or other property and shall be applied in accordance with the
provisions of Section 5.09 hereof. Upon the occurrence and during the
continuance of an Event of Default, each Debtor further agrees that so long as
the Pledged Obligations continue to be Pledged Collateral under this Agreement,
such Debtor will not permit any of the notes, instruments or other agreements
evidencing the Pledged Obligations to be amended, modified or changed in any
way, nor will such Obligor accept any waiver, indulgence, modification or other
departure by any obligor under such Pledged Obligations from any provision of
the Pledged Obligations, without first obtaining written consent of the
Administrative Agent.
(9) Each Debtor hereby represents and warrants that it has made its
own arrangements for keeping informed of changes or potential changes affecting
the Pledged Securities and the Pledged Obligations (including, without
limitation, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights of the
Pledged Securities), and each Debtor agrees that the Administrative Agent shall
have no responsibility or liability for informing such Debtor of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereto.
(10) The Administrative Agent may, upon the occurrence and during the
continuation of an Event of Default, without notice and at its option, transfer
or register the Pledged Securities and the Pledged Obligations or any part
thereof, into its or its nominee's name, or endorse any of the Pledged
Obligations for negotiation, without any indication that such Pledged Collateral
is subject to the security interest hereunder.
(b) Intellectual Property.
---------------------
(1) For the purpose of enabling the Administrative Agent, during the
continuance of an Event of Default, to exercise rights and remedies under
Section 5.05 hereof at such time as the Administrative Agent shall be lawfully
entitled to exercise such rights and remedies, and for no
<PAGE>
-22-
other purpose, each Debtor hereby grants to the Administrative Agent, to the
extent assignable, an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to such Debtor) to use, assign, license
or sublicense any of the Intellectual Property now owned or hereafter acquired
by such Debtor, wherever the same may be located, including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof.
(2) Notwithstanding anything contained herein to the contrary, but
subject to the provisions of Section 9.06 of the Credit Agreement that limit the
right of the Debtors to dispose of their respective property, so long as no
Event of Default shall have occurred and be continuing, the Debtors will be
permitted to exploit, use, enjoy, protect, license, sublicense, assign, abandon,
sell, dispose of or take other actions with respect to the Intellectual Property
in the ordinary course of the business of the Debtors. In furtherance of the
foregoing, unless an Event of Default shall have occurred and be continuing, the
Administrative Agent shall from time to time, upon the request of the respective
Debtor, execute and deliver any instruments, certificates or other documents, in
the form so requested, that such Debtor shall have certified are appropriate (in
its judgment) to allow it to take any action permitted above (including
relinquishment of the license provided pursuant to Section 5.04(b)(1) as to any
specific Intellectual Property). Further, upon the payment in full of all of
the Secured Obligations (other than contingent obligations and indemnities which
survive) and cancellation or termination of the Commitments and Letter of Credit
Liabilities or earlier expiration of this Agreement or release of the Pledged
Collateral, the Administrative Agent shall grant back to the Debtors the license
granted pursuant to Section 5.04(b)(1). The exercise of rights and remedies
under Section 5.05 hereof by the Administrative Agent shall not terminate the
rights of the holders of any licenses or sublicenses theretofore granted by the
Debtors in accordance with the first sentence of this Section 5.04(b)(2).
(c) Motor Vehicles. At any time after the occurrence and during the
--------------
continuance of an Event of Default, each Debtor shall, upon the request of the
Administrative Agent, deliver to the Administrative Agent originals of the
certificates of title or ownership for the Motor Vehicles, and any other
Equipment covered by certificates of title or ownership, owned by it with the
Administrative Agent listed as lienholder.
5.05. Events of Default; Remedies; Etc. During the period during
--------------------------------
which an Event of Default shall have occurred and be continuing:
(a) each Debtor shall, at the request of the Administrative Agent,
assemble the Pledged Collateral owned by it at such place or places in the
contiguous United States, reasonably convenient to both the Administrative
Agent and such Debtor, designated in its request;
(b) the Administrative Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Pledged Collateral
and may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms, of any of the Pledged Collateral;
(c) the Administrative Agent shall have all of the rights and
remedies with respect to the Pledged Collateral of a secured party
<PAGE>
-23-
under the Uniform Commercial Code (whether or not the Uniform Commercial
Code is in effect in the jurisdiction where the rights and remedies are
asserted) and such additional rights and remedies to which a secured party
is entitled under the laws in effect in any jurisdiction where any rights
and remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the Pledged
Collateral as if the Administrative Agent were the sole and absolute owner
thereof (and each Debtor agrees to take all such action as may be
appropriate to give effect to such right);
(d) the Administrative Agent in its sole and absolute discretion may,
in its name or in the name of the Debtors or otherwise, demand, sue for,
collect or receive any money or property at any time payable or receivable
on account of or in exchange for any of the Pledged Collateral, but shall
be under no obligation to do so; and
(e) the Administrative Agent may, upon ten business days' prior
written notice to the Debtors of the time and place, with respect to the
Pledged Collateral or any part thereof that shall then be or shall
thereafter come into the possession, custody or control of the
Administrative Agent, the Lenders or any of their respective agents, sell,
lease, assign or otherwise dispose of all or any part of such Pledged
Collateral, at such place or places as the Administrative Agent deems best,
and for cash or for credit or for future delivery (without thereby assuming
any credit risk), at public or private sale, without demand of performance
or notice of intention to effect any such disposition or of the time or
place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Administrative Agent or any Lender
or anyone else may be the purchaser, lessee, assignee or recipient of any
or all of the Pledged Collateral so disposed of at any public sale (or, to
the extent permitted by law, at any private sale) and thereafter hold the
same absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of the Debtors,
any such demand, notice and right or equity being hereby expressly waived
and released. In the event of any sale, assignment, or other disposition
of any of the Trademark Collateral, the goodwill connected with and
symbolized by the Trademark Collateral subject to such disposition shall be
included, and the Debtors shall supply to the Administrative Agent or its
designee, for inclusion in such sale, assignment or other disposition, all
Intellectual Property relating to such Trademark Collateral. The
Administrative Agent may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the sale may be so adjourned, subject to
notice as may be required by law. In case any sale of all or any part of
the Pledged Collateral is made on credit or for future delivery, the
Pledged Collateral so sold may be retained by the Administrative Agent
until the sale price is paid in full by the purchaser or purchasers
thereof, but the Administrative Agent shall not incur any liability in case
any such purchaser or purchasers shall fail to take up and pay for the
Pledged Collateral so sold and, in case of any such failure, such Pledged
Collateral may be sold again upon like notice. For purposes hereof, (i) a
written agreement to purchase the Pledged Collateral or any portion thereof
<PAGE>
-24-
shall be treated as a sale thereof, (ii) the Administrative Agent shall be
free to carry out such sale pursuant to such agreement, and (iii) no Debtor
shall be entitled to the return of the Pledged Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the
Administrative Agent shall have entered into such an agreement all Events
of Default shall have been remedied and the Obligations paid in full. As
an alternative to exercising the power of sale herein conferred upon it,
the Administrative Agent may proceed by a suit or suits at law or in equity
to foreclose upon the Pledged Collateral and to sell the Pledged Collateral
or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a court
appointed receiver. Any sale pursuant to the provisions of this Section
5.05 shall be deemed to conform to the commercially reasonable standards as
provided in Section 9-504(3) of the Uniform Commercial Code or its
equivalent in other jurisdictions. If under mandatory requirements of
applicable law, the Administrative Agent shall be required to make
disposition of the Pledged Collateral within a period of time that does not
permit the giving of notice to the Debtors as herein before provided, the
Administrative Agent need give the Debtors only such notice of disposition
as shall be reasonably practicable in view of such mandatory requirements
of law.
The proceeds of each collection, sale or other disposition under this Section
5.05, including by virtue of the exercise of the license granted to the
Administrative Agent in Section 5.04(b) hereof, shall be applied in accordance
with Section 5.09 hereof.
The Debtors recognize that, by reason of certain prohibitions
contained in the Securities Act, and applicable state securities laws, the
Administrative Agent may be compelled, with respect to any sale of all or any
part of the Pledged Securities or Pledged Obligations, to limit purchasers to
those who will agree, among other things, to acquire such Pledged Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. The Debtors acknowledge that any such private sales may be at
prices and on terms less favorable to the Administrative Agent and the Debtors
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agree that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that the
Administrative Agent shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Securities or Pledged Obligations
for the period of time necessary to permit the respective Issuer or issuer
thereof to register it for public sale.
Anything herein to the contrary notwithstanding, in any such event the
Administrative Agent, in its sole and absolute discretion, (i) may proceed to
make a private sale of the Pledged Securities notwithstanding that a
registration statement for the purpose of registering such Pledged Securities or
part thereof shall have been filed under such Securities Act, (ii) may approach
and negotiate with a single possible purchaser to effect such sale, and (iii)
may restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Pledged Securities or part thereof. In the
event of any such sale, the Administrative Agent shall incur no responsibility
or liability to any Debtor for selling all or any part of the Pledged Securities
at a price which the Administrative Agent may in good faith deem reasonable
under the
<PAGE>
-25-
circumstances, notwithstanding the possibility that a substantially higher price
might be realized if the sale were deferred until the registration as aforesaid.
Each of the Debtors further agrees to use its diligent best efforts to
do or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Securities or Pledged Obligations
pursuant to this Section 5.05 valid and binding and in compliance with any and
all other applicable Requirements of Law, but none of the Debtors shall have an
obligation to register or qualify such sale under any federal or state
securities laws. Each of the Debtors further agrees that a breach of any of the
covenants contained in this Section 5.05 will cause irreparable injury to the
Administrative Agent and the Lenders, that the Administrative Agent and the
Lenders have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 5.05 shall
be specifically enforceable against such Debtor, and, to the extent permitted by
law, such Debtor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that no
Event of Default has occurred and is continuing.
5.06. Deficiency. If the proceeds of sale, collection or other
----------
realization of or upon the Pledged Collateral pursuant to Section 5.05 hereof
are insufficient to cover the costs and expenses of such realization and the
payment in full of the Secured Obligations, the Debtors shall remain liable for
any deficiency.
5.07. Removals, Name Change, Etc. Without at least 30 days' prior
--------------------------
written notice to the Administrative Agent, no Debtor shall (i) maintain any of
its books and records with respect to the Pledged Collateral at any office or
maintain its principal place of business at any place other than at the address
set forth in Schedule 2 hereto, or permit any Inventory or Equipment to be
----------
located anywhere, other than at one of the locations identified in Annex 6
-------
hereto or at the premises of a Person processing or storing such Inventory (if
as to any Inventory or Equipment with an aggregate fair market value in excess
of $1.0 million such Person has executed Uniform Commercial Code Financing
Statements naming such Debtor as secured party (which financing statements are
hereby assigned to the Administrative Agent) or such Person has executed a
supplier subordination agreement satisfactory to the Majority Lenders in form
and substance) or in transit from one of such locations to another, or (ii)
change its corporate name, or the name under which it does business, from the
name shown on the signature pages hereto.
5.08. Private Sale. No Creditor shall incur liability as a result of
------------
the sale of the Pledged Collateral, or any part thereof, at any private sale
pursuant to Section 5.05 hereof conducted in a commercially reasonable manner.
Each Debtor hereby waives any claims against any Creditor arising by reason of
the fact that the price at which the Pledged Collateral may have been sold at
any such private sale held in a commercially reasonable manner was less than the
price that might have been obtained at a public sale or was less than the
aggregate amount of the Secured Obligations, even if the Administrative Agent
accepts the first offer received and does not offer the Pledged Collateral to
more than one offeree.
5.09. Application of Proceeds. Except as otherwise herein expressly
-----------------------
provided and except as provided below in this Section 5.09, the
<PAGE>
-26-
proceeds of any collection, sale or other realization of all or any part of the
Pledged Collateral pursuant hereto, and any other cash at the time held by the
Administrative Agent under Section 4 hereof or this Section 5, shall be applied
by the Administrative Agent:
First, to the payment of the reasonable costs and expenses of such
-----
collection, sale or other realization, including out-of-pocket costs and
expenses of the Administrative Agent and the fees and expenses of its
agents and counsel, and all reasonable expenses incurred and advances made
by the Administrative Agent in connection therewith;
Next, to the payment in full of the Secured Obligations, in each case
----
equally and ratably in accordance with the respective amounts thereof then
due and owing or as the Lenders holding the same may otherwise agree; and
Finally, to the payment to the respective Debtor, or its successors or
-------
assigns, or as a court of competent jurisdiction may direct, of any surplus
then remaining.
As used in this Section 5, "proceeds" of Pledged Collateral shall mean cash,
--------
securities and other property realized in respect of, and distributions in kind
of, Pledged Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Debtors or any issuer of or obligor on
any of the Pledged Collateral. Notwithstanding the foregoing, the proceeds of
any cash or other amounts held in the "Letter of Credit Liabilities Sub-Account"
of the Collateral Account pursuant to Section 4.04 hereof shall be applied first
-----
to the Letter of Credit Liabilities outstanding from time to time, and second to
------
the other Secured Obligations in the manner provided above in this Section 5.09.
5.10. Attorney-in-Fact. Without limiting any rights or powers
----------------
granted by this Agreement to the Administrative Agent while no Event of Default
has occurred and is continuing, upon the occurrence and during the continuance
of any Event of Default the Administrative Agent is hereby appointed the
attorney-in-fact of each Debtor for the purpose of carrying out the provisions
of this Section 5 and taking any action and executing any instruments that the
Administrative Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, upon and during the
continuance of any Event of Default, so long as the Administrative Agent shall
be entitled under this Section 5 to make collections in respect of the Pledged
Collateral, the Administrative Agent shall have the right and power to receive,
endorse and collect all checks made payable to the order of any Debtor
representing any dividend, payment or other distribution in respect of the
Pledged Collateral or any part thereof and to give full discharge for the same.
Each Debtor agrees, in the absence of willful wrongdoing or gross negligence,
that neither the Administrative Agent nor any of its agents, designees or
attorneys-in-fact will be liable for any acts of commission or omission, or for
any error of judgment or mistake of fact or law with respect to the exercise of
the power of attorney granted under this Section 5.10.
5.11. Perfection. Prior to or concurrently with the execution and
----------
delivery of this Agreement and upon the acquisition or creation of any
securities of or interests in any Issuer, LLC or Partnership the securities
<PAGE>
-27-
or interests in which are required to be pledged hereunder, each Debtor shall
(i) file such financing statements and other documents in such offices as the
Administrative Agent may request to perfect the security interests granted by
Section 3 of this Agreement, (ii) deliver to the Administrative Agent all
certificates identified in Annex 1A hereto, accompanied by undated stock powers
--------
duly executed in blank, and (iii) deliver to the Administrative Agent all
Pledged Obligations identified on Schedule 1B hereto.
-----------
5.12. Termination. When all Secured Obligations shall have been paid
-----------
in full (other than surviving indemnities and other contingent obligations) and
the Commitments of the Lenders under the Credit Agreement and all Letter of
Credit Liabilities shall have expired or been terminated, this Agreement shall
terminate, and the Administrative Agent shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Pledged Collateral and money received
in respect thereof, to or on the order of the respective Debtor and to be
released and canceled all licenses and rights referred to in Section 5.04(b)
hereof. The Administrative Agent shall also execute and deliver to the
respective Debtor upon such termination or upon the sale or other disposition of
Property permitted by Section 9.06 of the Credit Agreement such Uniform
Commercial Code termination statements, certificates for terminating the Liens
on the Motor Vehicles and such other documentation as shall be reasonably
requested by the respective Debtor to effect the termination and release of the
Liens on the Pledged Collateral.
5.13. Expenses. The Debtors jointly and severally agree to pay to
--------
the Administrative Agent all reasonable out-of-pocket expenses (including
reasonable expenses for legal services of every kind) of, or incident to, the
enforcement of any of the provisions of this Section 5, or performance by the
Administrative Agent of any obligations of the Debtors in respect of the Pledged
Collateral which the Debtors have failed or refused to perform, or any actual or
attempted sale, or any exchange, enforcement, collection, compromise or
settlement in respect of any of the Pledged Collateral, and for the care of the
Pledged Collateral and defending or asserting rights and claims of the
Administrative Agent in respect thereof, by litigation or otherwise, including
expenses of insurance, and all such expenses shall be Secured Obligations to the
Administrative Agent secured under Section 3 hereof.
5.14. Further Assurances. Each Debtor agrees that, from time to time
------------------
upon the written request of the Administrative Agent, such Debtor will execute
and deliver such further documents and do such other acts and things as the
Administrative Agent may reasonably request in order fully to effect the
purposes of this Agreement.
5.15. Irrevocable Authorization and Instruction to Issuers, LLCs and
--------------------------------------------------------------
Partnerships. Each of the Debtors hereby authorizes and instructs each Issuer,
- ------------
LLC and Partnership to comply with any instruction received by it from the
Administrative Agent in writing that (a) states that an Event of Default has
occurred and is continuing, and (b) is otherwise in accordance with the terms of
this Agreement and any other Credit Document to which it is a party, without any
other or further instructions from such Debtor, and such Debtor agrees that each
Issuer, LLC and Partnership shall be fully protected in so complying.
<PAGE>
-28-
5.16. Effect of Sale, etc. (a) Any sale or resales pursuant to the
-------------------
provisions of this Agreement, whether under any right or power granted hereby or
thereby or pursuant to any legal proceedings, shall operate to divest, to the
full extent permitted by applicable law, each Debtor of all right, title,
interest, claim and demand whatsoever either at law or in equity, of, in and to
the Pledged Collateral, or any part thereof, so sold, and any Property so sold
shall, to the full extent permitted by applicable law, be free and clear of any
and all rights of redemption by, through or under such Debtor. At any such sale
any Lender may bid for and purchase the Pledged Collateral sold, to the full
extent permitted by applicable law, and may make payment therefor as set forth
in clause (b) of this Section 5.16, and any such Lender so purchasing any such
Pledged Collateral, upon compliance with the terms of sale, may hold, retain and
dispose of such Pledged Collateral without further accountability.
(b) The receipt by the Administrative Agent, or by any Person
authorized under any judicial proceedings to make such sale, of the proceeds of
any such sale shall be a sufficient discharge to any purchaser of the Pledged
Collateral, or of any part thereof, sold as aforesaid; and no such purchaser
shall be bound to see to the application of such proceeds, or be bound to
inquire as to the authorization, necessity or propriety of any such sale. In
the event that, at any such sale, any Lender is the successful purchaser, it
shall be entitled, for the purpose of making settlement or payment, to use and
apply such Pledged Collateral to the Secured Obligations by crediting thereon
the amount apportionable and applicable thereto out of the net proceeds of such
sale.
Section 6. Miscellaneous.
-------------
6.01. No Waiver. No failure on the part of the Administrative Agent
---------
or any of its agents to exercise, and no course of dealing with respect to, and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Administrative
Agent or any of its agents of any right, power or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
6.02. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York without regard to
principles of conflicts of law thereof.
6.03. Notices. All notices, requests, consents and demands hereunder
-------
shall be in writing and telecopied or delivered to the intended recipient at its
"Address for Notices" specified pursuant to Section 12.02 of the Credit
Agreement and shall be deemed to have been given at the times specified in said
Section 12.02.
6.04. Waivers, Etc. The terms of this Agreement may be waived,
------------
altered or amended only by an instrument in writing duly executed by each Debtor
and the Administrative Agent (with the consent of the Lenders as specified in
Section 11.09 of the Credit Agreement). Any such amendment or waiver shall be
binding upon each Creditor, each holder of any of the Secured Obligations and
each Debtor.
6.05. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the respective successors and assigns of each
Debtor, the Creditors and each holder of any of the Secured Obliga-
<PAGE>
-29-
tions (provided, however, that no Debtor shall assign or transfer its rights or
--------- --------
obligations hereunder without the prior written consent of the Creditors).
6.06. Captions. The captions and section headings appearing herein
--------
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
6.07. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
6.08. Agents. The Administrative Agent may employ agents and
------
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
6.09. Severability. If any provision hereof is invalid and
------------
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Creditors in order
to carry out the intentions of the parties hereto as nearly as may be possible,
and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
6.10. Administrative Agent Not a Member. Nothing contained in this
---------------------------------
Agreement shall be construed or interpreted (a) to transfer to the
Administrative Agent or any Lender any of the obligations of a partner of a
Partnership or a member or manager of any LLC, or (b) to constitute the
Administrative Agent or any Lender a partner of a Partnership or a member or
manager of any LLC.
6.11. Restoration of Rights and Remedies. If the Administrative
----------------------------------
Agent shall have instituted any proceeding to enforce any right or remedy under
this Agreement and such proceeding shall have been discontinued or abandoned for
any reason, or shall have been determined adversely to the Administrative Agent,
then and in every such case the Administrative Agent and the Debtors and the
Lenders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions under this Agreement and
under the other Credit Documents, and thereafter all rights and remedies of the
Administrative Agent shall continue as though no such proceeding had been
instituted.
6.12. Cumulative Remedies. No remedy under this Agreement is
-------------------
intended to be exclusive of any other remedy, but each and every remedy shall be
cumulative and in addition to any and every other remedy given under this
Agreement or otherwise existing; nor shall the giving, taking or enforcement of
any other or additional security, collateral or guaranty for the payment or
performance of the Secured Obligations operate to prejudice, waive or affect the
security of this Agreement or any rights, powers or remedies under this
Agreement, nor shall the Administrative Agent or any Lender be required to look
first to, enforce or exhaust any such other or additional security, collateral
or guaranties.
6.13. [Intentionally Omitted]
<PAGE>
-30-
6.14. Waivers by Debtors. (a) Except as otherwise provided in this
------------------
Agreement, THE DEBTORS HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE ADMINISTRATIVE AGENT'S TAKING
POSSESSION OR THE ADMINISTRATIVE AGENT'S DISPOSITION OF ANY OF THE PLEDGED
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
DEBTORS WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR OF ANY STATE THEREOF, and, to the full extent permitted by applicable
law, each Debtor hereby further waives:
(i) all damages occasioned by such taking of possession except
any damages which are the direct result of the Administrative Agent's gross
negligence, bad faith or willful misconduct;
(ii) all other requirements as to the time, place and terms of
sale or other requirements, with respect to the enforcement of the
Administrative Agent's rights and powers hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
marshaling of assets, extension or moratorium, existing at law or in
equity, by statute or otherwise, now or hereafter in force, in order to
prevent or delay the enforcement of this Agreement or the sale or other
disposition of the Pledged Collateral or any portion thereof, and each
Debtor, for itself and all who may claim under it, insofar as it now or
hereafter lawfully may, hereby waives all such rights.
(b) Each Debtor hereby waives notice of acceptance of this Agreement
and of extensions of credit under the Credit Documents or under any other
agreement, note, document or instrument now or at any time or times hereafter
executed by such Debtor and delivered to the Administrative Agent or any Lender.
Each Debtor further waives presentment and demand for payment of any of the
Secured Obligations, protest and notice of dishonor or default with respect to
any of the Secured Obligations, and all other notices to which such Debtor might
otherwise be entitled, except as otherwise expressly provided in this Agreement
or in the other Credit Documents.
(c) Each Debtor (to the extent that it may lawfully do so) covenants
that it will not at any time insist upon or plead, or in any manner claim or
take the benefit or advance of, any stay (except in connection with a pending
appeal), valuation, appraisal, redemption or extension law now or at any time
hereafter in force that, but for this waiver, might be applicable to any sale
made under any judgment, order or decree based on this Agreement or any other
Credit Document; and each Debtor (to the extent that it may lawfully do so)
hereby expressly waives and relinquishes all benefit and advance of any and all
such laws and hereby covenants that it will not hinder, delay or impede the
execution of any power in this Agreement or therein granted and delegated to the
Administrative Agent, but that it will suffer and permit the execution of every
such power as though no such law or laws had been made or enacted.
6.15. Additional Collateral. Without notice or consent of any Debtor
---------------------
and without impairment of the security interests and rights created by this
Agreement, the Administrative Agent may accept from any person or persons
additional collateral or other security for the Secured Obligations. Neither
the creation of the security interests created hereunder nor the acceptance of
any such additional collateral or security shall pre-
<PAGE>
-31-
vent the Administrative Agent from resorting to such additional collateral or
security or to the Pledged Collateral, in any order without affecting the
Administrative Agent's rights hereunder.
6.16. Obligations Absolute. Subject to non-waivable provisions of
--------------------
applicable law, the liability of each Debtor under this Agreement shall remain
in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by (a) any change in the
time, place or manner of payment of all or any of the Secured Obligations, or in
any other term of the Credit Documents, the Notes, any waiver, indulgence,
renewal, extension, amendment or modification of or addition, consent or
supplement to or deletion from or any other action or inaction under or in
respect of the Notes or any other Credit Document or any assignment or transfer
thereof; (b) any lack of validity or enforceability, in whole or in part, of the
Notes or any other Credit Document; (c) any furnishing of any additional
security for the Secured Obligations or any acceptance thereof or any release or
non-perfection of any security interest in the Pledged Collateral; (d) any
limitation on any party's liability or obligations under the Notes or any other
Credit Document; (e) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to a
Debtor, or any action taken with respect to this Agreement by any trustee or
receiver, or by any court, in any such proceeding, whether or not any Debtor
shall have notice or knowledge of any of the foregoing; (f) any exchange,
release or amendment or waiver of or consent to departure from any agreement
pursuant to which a Lien is created in favor of the Administrative Agent for the
benefit of the Creditors, pursuant to which a person other than any Debtor has
granted a security interest; or (g) to the extent permitted by law, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any Debtor.
6.17. Waiver of Jury Trial. Each Debtor and the Administrative Agent
--------------------
each hereby irrevocably waives all right to a trial by jury in any action,
proceeding or counterclaim arising out of or relating to this Agreement or the
transactions contemplated hereby.
[Signature Pages Follow]
<PAGE>
-32-
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the day and year first above
written.
TUESDAY MORNING CORPORATION
By:____________________________________
Name:
Title:
TMI HOLDINGS, INC.
By:____________________________________
Name:
Title:
TUESDAY MORNING, INC.
By:____________________________________
Name:
Title:
FRIDAY MORNING, INC.
By:____________________________________
Name:
Title:
TMIL CORPORATION
By:____________________________________
Name:
Title:
<PAGE>
-33-
FLEET NATIONAL BANK,
as Administrative Agent
By:____________________________________
Name:
Title:
<PAGE>
ANNEX 1A TO
SECURITY AGREEMENT
------------------
PLEDGED STOCK
-------------
TUESDAY MORNING CORPORATION
- ---------------------------
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ---------- ----------------
[NAME OF DEBTOR]
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ---------- ----------------
[NAME OF DEBTOR]
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ---------- ----------------
[Name of Debtor]
Certificate Registered
Issuer Nos. Owner Number of Shares
- ------ ----------- ---------- ----------------
<PAGE>
PLEDGED INTERESTS
-----------------
[Name of Debtor]
LLC Interests
- --- ---------
Partnership Partnership Interests
- ----------- ----------------------
<PAGE>
ANNEX 1B TO
SECURITY AGREEMENT
------------------
PLEDGED OBLIGATIONS
-------------------
[Name of Debtor]:
Original Final
Name of Principal Date of Maturity
Obligor Amount Note Date
- ------- --------- ------- --------
<PAGE>
ANNEX 2 TO
SECURITY AGREEMENT
------------------
COPYRIGHTS
----------
<PAGE>
ANNEX 3 TO
SECURITY AGREEMENT
------------------
PATENTS
-------
<PAGE>
ANNEX 4 TO
SECURITY AGREEMENT
------------------
TRADEMARKS
----------
<PAGE>
ANNEX 5 TO
SECURITY AGREEMENT
------------------
LICENSE AND OTHER USER AGREEMENTS
---------------------------------
<PAGE>
ANNEX 6 TO
SECURITY AGREEMENT
------------------
INVENTORY LOCATIONS
-------------------
<PAGE>
SCHEDULE 1 TO
SECURITY AGREEMENT
------------------
Uniform Commercial Code Filings
-------------------------------
State Filing Office Document Filed
- ----- ------------- --------------
<PAGE>
SCHEDULE 2 TO
SECURITY AGREEMENT
------------------
Principal Place of Business, Chief Executive Office
and Location of Records
---------------------------------------------------
<PAGE>
SCHEDULE 3 TO
SECURITY AGREEMENT
------------------
Prior Liens
-----------
<PAGE>
EXHIBIT A TO
SECURITY AGREEMENT
------------------
INITIAL TRANSACTION STATEMENT
[Date]
To: Fleet National Bank, as Administrative Agent
[Address]
Attention: [Name]
This statement is to advise you that a pledge of the following
uncertificated securities has been registered in the name of [Name], as
Administrative Agent, as follows:
1. Uncertificated Securities:
The entire limited liability company interests of each of [Name
Debtors] in the undersigned [limited liability company] [partnership].
2. Registered Owners:
[Name]
[Address]
Taxpayer Identification Number: [ ]
[Name]
[Address]
Taxpayer Identification Number: [ ]
3. Registered Pledgee:
[Name], as Administrative Agent
Taxpayer Identification Number: [ ]
4. There are no liens or restrictions of the undersigned limited
liability company and no adverse claims to which the uncertificated
securities are or may be subject known to the undersigned [limited
liability company] [partnership].
5. The pledge was registered on [Date].
<PAGE>
-2-
THIS STATEMENT IS MERELY A RECORD OF THE RIGHTS OF THE ADDRESSEE AS OF
THE TIME OF ITS ISSUANCE. DELIVERY OF THIS STATEMENT, OF ITSELF, CONFERS NO
RIGHTS ON THE RECIPIENT. THIS STATEMENT IS NEITHER A NEGOTIABLE INSTRUMENT NOR
A SECURITY.
Very truly yours,
[ ]
By: ______________________
Title:
<PAGE>
EXHIBIT B TO
SECURITY AGREEMENT
------------------
ACKNOWLEDGMENT AND CONSENT
[ ] (the "[ ]") hereby acknowledges receipt of a copy
of the foregoing Security Agreement (the "Security Agreement"; terms used herein
------------------
and not defined herein shall have the meaning given to them in the Security
Agreement) and agrees to be bound thereby and to comply with the terms thereof
insofar as such terms are applicable to it. [ ] agrees that the terms
of paragraph 5.05 of the Security Agreement shall apply to it, mutatis mutandis,
------- --------
with respect to all actions that may be required of it under or pursuant to or
arising out of Section 5.05 of the Security Agreement.
[Date] [ ]
By: ________________________
Title:
Address for notices:
<PAGE>
Exhibit 4.7
EXECUTION COPY
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
among
TUESDAY MORNING CORPORATION
COMPANY
TMI HOLDINGS, INC.
TUESDAY MORNING, INC.
FRIDAY MORNING, INC.
TMIL CORPORATION SUBSIDIARY GUARANTORS
and
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
GOLDMAN, SACHS & CO.
INITIAL PURCHASERS
Dated: December 29, 1997
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of December 29, 1997, by and among Tuesday Morning Corporation, a
Delaware corporation (the "Company"),TMI Holdings, Inc. ("TMI"), Tuesday
Morning, Inc. ("Tuesday Morning"), Friday Morning, Inc. ("Friday Morning") and
TMIL Corporation ("TMIL"), as guarantors, and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Goldman, Sachs
& Co. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated December
15, 1997 among the Company, the Subsidiary Guarantors (as defined herein) and
the Initial Purchasers (the "Purchase Agreement"), which provides for the sale
by the Company and the Subsidiary Guarantors to the Initial Purchasers of
$100,000,000 aggregate principal amount of the Company's 11% Senior Subordinated
Notes due 2007 (the "Notes"). The obligations of the Company under the Notes
and the Indenture (as defined herein) will be guaranteed by (i) TMI, Tuesday
Morning, Friday Morning, TMIL and (ii) any future domestic subsidiaries of the
Company which are Restricted Subsidiaries (as defined in the Indenture)
(collectively, the "Subsidiary Guarantors"), on an unsecured subordinated basis
pursuant to the terms of the Indenture (the "Subsidiary Guarantees"). In order
to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company and the Subsidiary Guarantors have agreed to provide to the Initial
Purchasers and their direct and indirect transferees and assigns the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the SEC promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the SEC promulgated
thereunder.
"Closing Time" shall mean the Closing Time as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble of this
Agreement and also includes the Company's successors.
<PAGE>
2
"Depositary" shall mean The Depositary Trust Company, or any other
depositary appointed by the Company, provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City of
New York.
"Exchange Notes" shall mean Series B Senior Subordinated Notes due
2007 issued by the Company which are unconditionally guaranteed on a senior
subordinated unsecured basis by the Subsidiary Guarantors under the
Indenture containing terms identical to the Notes (except that (i) interest
thereon shall accrue from the last date on which interest was paid on the
Notes or, if no such interest has been paid, from December 29, 1997, (ii)
the transfer restrictions thereon shall be eliminated and (iii) certain
provisions relating to an increase in the stated rate of interest thereon
shall be eliminated) to be offered to Holders of Notes in exchange for
Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their successors, assigns and direct and
indirect transferees who become registered owners of Registrable Notes
under the Indenture.
"Indenture" shall mean the Indenture relating to the Notes dated as of
December 29, 1997, among the Company, the Subsidiary Guarantors and Harris
Trust and Savings Bank, as trustee, as the same may be amended from time to
time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble
of this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company or any of its affiliates (as such term is defined in Rule 405 under
the 1933 Act) (other than the Initial Purchasers or subsequent holders of
<PAGE>
3
Registrable Notes if such subsequent holders are deemed to be such
affiliates solely by reason of their holding of such Registrable Notes)
shall be disregarded in determining whether such consent or approval was
given by the Holders of such required percentage or amount.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration Statement,
and by all other amendments and supplements to a prospectus, including
post-effective amendments, and in each case including all material
incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the preamble
of this Agreement.
"Registrable Notes" shall mean the Notes and the Subsidiary
Guarantees; provided, however, that the Notes and the Subsidiary Guarantees
shall cease to be Registrable Notes when (i) a Registration Statement with
respect to such Notes and Subsidiary Guarantees shall have been declared
effective under the 1933 Act and such Notes and Subsidiary Guarantees shall
have been disposed of pursuant to such Registration Statement, (ii) such
Notes and Subsidiary Guarantees shall have been sold to the public pursuant
to Rule 144 (or any similar provision then in force, but not Rule 144A)
under the 1933 Act, (iii) such Notes and Subsidiary Guarantees shall have
ceased to be outstanding or (iv) such Notes and Subsidiary Guarantees have
been exchanged for Exchange Notes upon consummation of the Exchange Offer.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company and the Subsidiary Guarantors
with this Agreement, including without limitation: (i) all SEC, stock
exchange or National Association of Securities Dealers, Inc. ("NASD")
registration and filing fees, (ii) all fees and expenses incurred in
connection with compliance with state or other securities or blue sky laws
and compliance with the rules of the NASD (including reasonable fees and
disbursements of one counsel for any underwriters and Holders in connection
with state or other securities or blue sky qualification of any of the
Exchange Notes or Registrable Notes), (iii) all expenses of any Persons in
preparing, or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales
agreements, certificates
<PAGE>
4
representing the Exchange Notes and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) all fees and expenses incurred in connection with the listing, if
any, of any of the Registrable Notes on any securities exchange or
exchanges, (vi) all fees and disbursements relating to the qualification of
the Indenture under applicable securities laws, (vii) the fees and
disbursements of counsel for the Company and the Subsidiary Guarantors and,
in the case of a Shelf Registration Statement, the reasonable fees and
disbursements (including the expenses of preparing and distributing any
underwriting or securities sales agreement) of one counsel (in addition to
appropriate local counsel) for the Holders (which counsel shall be selected
in writing by the Majority Holders), (viii) the fees and expenses of the
independent public accountants of the Company and the Subsidiary
Guarantors, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (ix)
the fees and expenses of a "qualified independent underwriter" as defined
by Conduct Rule 2720 of the NASD, if required by the NASD rules, in
connection with the offering of the Registrable Securities, (x) the fees
and expenses of the trustee, including its counsel, and any escrow agent or
custodian, and (xi) any fees and disbursements of the underwriters
customarily required to be paid by issuers or sellers of securities and the
reasonable fees and expenses of any special experts retained by the Company
and the Subsidiary Guarantors in connection with any Registration
Statement, but excluding underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Registrable
Notes by a Holder.
"Registration Statement" shall mean any registration statement of the
Company and the Subsidiary Guarantors which covers any of the Exchange
Notes or Registrable Notes pursuant to the provisions of this Agreement,
and all amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company and the Subsidiary Guarantors pursuant to the
provisions of Section 2(b) of this Agreement which covers all of the then
Registrable Notes on an appropriate form under Rule 415 under the 1933 Act,
or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
<PAGE>
5
"Subsidiary Guarantees" shall have the meaning set forth in the
preamble of this Agreement.
"Subsidiary Guarantors" shall have the meaning set forth in the
preamble of this Agreement and shall also include the Subsidiary
Guarantors' successors.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
2. Registration Under the 1933 Act. (a) Exchange Offer Registration.
To the extent not prohibited by any applicable law or applicable interpretation
of the staff of the SEC, the Company and the Subsidiary Guarantors shall (i)
file within 45 days after the Closing Time an Exchange Offer Registration
Statement covering the offer by the Company and the Subsidiary Guarantors to the
Holders to exchange all of the Registrable Notes for Exchange Notes, (ii) use
their best efforts to cause such Exchange Offer Registration Statement to be
declared effective by the SEC within 120 days after the date hereof, (iii) use
their best efforts to cause such Exchange Offer Registration Statement to remain
effective until the closing of the Exchange Offer and (iv) use their best
efforts to consummate the Exchange Offer within 150 days following the date
hereof. The Exchange Notes will be issued under the Indenture. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company and the
Subsidiary Guarantors shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder (other than Participating
Broker-Dealers (as defined in Section 3(f)) eligible and electing to exchange
Registrable Notes for Exchange Notes (assuming that such Holder (i) is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (ii)
acquires the Exchange Notes in the ordinary course of such Holder's business and
(iii) has no arrangements or understandings with any person to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes) to trade
such Exchange Notes from and after their receipt without any limitations or
restrictions under the 1933 Act and without material restrictions under the
securities laws of a reasonable number of the several states of the United
States, such that a sufficient trading market for the Exchange Notes is
available.
In connection with the Exchange Offer, the Company and the Subsidiary
Guarantors shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 20 business days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) use the services of the Depositary for the Exchange Offer with
respect to Notes evidenced by global certificates;
<PAGE>
6
(iv) permit Holders to withdraw tendered Registrable Notes at any time
prior to the close of business, New York City time, on the last business
day on which the Exchange Offer shall remain open, by sending to the
institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Notes delivered for exchange, and a statement that
such Holder is withdrawing its election to have such Notes exchanged; and
(v) otherwise comply in all respects with all applicable laws relating
to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company and the Subsidiary Guarantors shall:
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the Company
and the Subsidiary Guarantors; and
(iii) cause the Trustee promptly to authenticate and deliver Exchange
Notes to each Holder of Registrable Notes equal in amount to the
Registrable Notes of such Holder so accepted for exchange.
Interest on each Exchange Note will accrue from the last date on which
interest was paid on the Registrable Notes surrendered in exchange therefor or,
if no interest has been paid on the Registrable Notes, from December 29, 1997.
The Exchange Offer shall not be subject to any conditions, other than that the
Exchange Offer, or the making of any exchange by a Holder, does not violate
applicable law or any applicable interpretation of the staff of the SEC. Each
Holder of Registrable Notes (other than Participating Broker-Dealers) who wishes
to exchange such Registrable Notes for Exchange Notes in the Exchange Offer
shall have represented that (i) it is not an affiliate (as defined in Rule 405
under the 1933 Act) of the Company, (ii) any Exchange Notes to be received by it
were acquired in the ordinary course of business, (iii) at the time of the
commencement of the Exchange Offer it has no arrangement with any person to
participate in the distribution (within the meaning of the 1933 Act) of the
Exchange Notes and (iv) it is not acting on behalf of any person who could not
make the representations in clauses (i) through (iii). The Company shall inform
the Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchasers shall have the right to
contact such Holders and otherwise facilitate the tender of Registrable Notes in
the Exchange Offer.
<PAGE>
7
(b) Shelf Registration. (i) If, because of any change in law or
applicable interpretations thereof by the staff of the SEC, the Company and the
Subsidiary Guarantors are not permitted to effect the Exchange Offer as
contemplated by Section 2(a) hereof, or (ii) if for any other reason the
Exchange Offer is not consummated within 150 days following the date hereof, or
(iii) if any Holder (other than an Initial Purchaser) is not eligible to
participate in the Exchange Offer or (iv) upon the written request of any
Initial Purchaser (with respect to any Registrable Notes which it acquired from
the Company) following the consummation of the Exchange Offer if any such
Initial Purchaser shall hold Registrable Notes which it acquired directly from
the Company and if such Initial Purchaser is not permitted, in the opinion of
counsel to such Initial Purchaser, pursuant to applicable law or applicable
interpretation of the staff of the SEC to participate in the Exchange Offer, the
Company and the Subsidiary Guarantors shall, at their own cost:
(A) as promptly as practicable, file with the SEC a Shelf Registration
Statement relating to the offer and sale of the then outstanding
Registrable Notes by the Holders from time to time in accordance with the
methods of distribution elected by the Majority Holders of such Registrable
Notes and set forth in such Shelf Registration Statement, and use their
best efforts to cause such Shelf Registration Statement to be declared
effective by the SEC by the 150th day after the date hereof (or promptly in
the event of a request by any Initial Purchaser pursuant to clause (iv)
above). In the event that the Company and the Subsidiary Guarantors are
required to file a Shelf Registration Statement upon the request of any
Holder (other than an Initial Purchaser) not eligible to participate in the
Exchange Offer pursuant to clause (iii) above or upon the request of any
Initial Purchaser pursuant to clause (iv) above, the Company and the
Subsidiary Guarantors shall file and use their best efforts to have
declared effective by the SEC both an Exchange Offer Registration Statement
pursuant to Section 2(a) with respect to all Registrable Notes and a Shelf
Registration Statement (which may be a Registration Statement combined with
the Exchange Offer Registration Statement) with respect to offers and sales
of Registrable Notes held by such Holder or such Initial Purchaser after
completion of the Exchange Offer;
(B) use their best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years from the Closing
Time (or one year from the date the Shelf Registration Statement is
declared effective if such Shelf Registration Statement is filed upon the
request of any Initial Purchaser pursuant to clause (iv) above) or such
shorter period which will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement or all of the Registrable Notes become
eligible for resale pursuant to Rule 144 under the 1933 Act without volume
restrictions; and
<PAGE>
8
(C) notwithstanding any other provisions hereof, use their best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act,
(ii) any Shelf Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to
such Prospectus (as amended or supplemented from time to time), does not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
The Company and the Subsidiary Guarantors further agree, if necessary,
to supplement or amend the Shelf Registration Statement if reasonably requested
by the Majority Holders with respect to information relating to the Holders and
otherwise as required by Section 3(b) below, to use all reasonable efforts to
cause any such amendment to become effective and such Shelf Registration to
become usable as soon as practicable thereafter and to furnish to the Holders of
Registrable Notes copies of any such supplement or amendment promptly after its
being used or filed with the SEC.
(c) Expenses. The Company and the Subsidiary Guarantors shall pay all
Registration Expenses in connection with the registration pursuant to Section
2(a) and 2(b). Each Holder shall pay all expenses of its counsel other than as
set forth in the preceding sentence, underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Notes pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company and the
Subsidiary Guarantors will be deemed not to have used their best efforts to
cause a Registration Statement to become, or to remain, effective during the
requisite periods set forth herein if the Company or the Subsidiary Guarantors
voluntarily take any action that would result in any such Registration Statement
not being declared effective or in the Holders of Registrable Notes covered
thereby not being able to exchange or offer and sell such Registrable Notes
during that period unless (A) such action is required by applicable law or (B)
such action is taken by the Company or the Subsidiary Guarantors in good faith
and for valid business reasons (but not including avoidance of the Company's or
the Subsidiary Guarantors', as applicable, obligations hereunder), including a
material corporate transaction, so long as the Company and the Subsidiary
Guarantors promptly comply with the requirements of Section 3(k) hereof, if
applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Registration
<PAGE>
9
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that (i) the Exchange
Offer Registration Statement is not filed with the SEC on or prior to the 45th
day following the date hereof, (ii) the Exchange Offer Registration Statement is
not declared effective on or prior to the 120th day following the date hereof or
(iii) the Exchange Offer is not consummated prior to the 150th day following the
date hereof or a Shelf Registration Statement with respect to the Registrable
Notes is not declared effective on or prior to the 150th day following the date
hereof, the interest rate borne by the Notes shall be increased by one-quarter
of one percent per annum following such 45-day period in the case of clause (i)
above, following such 120-day period in the case of clause (ii) above or
following such 150-day period in the case of clause (iii) above, which rate will
be increased by an additional one-quarter of one percent per annum for each 90-
day period that any additional interest continues to accrue, provided that the
aggregate increase in such interest rate will in no event exceed one percent per
annum. Upon (x) the filing of the Exchange Offer Registration Statement after
the 45-day period described in clause (i) above, (y) the effectiveness of the
Exchange Offer Registration Statement, after the 120-day period described in
clause (ii) above or (z) consummation of the Exchange Offer, or the
effectiveness of the Shelf Registration Statement, as the case may be, after the
150-day period described in clause (iii) above, the interest rate borne by the
Notes from the date of such filing, effectiveness or consummation, as the case
may be, will be reduced to the original interest rate if the Company and the
Subsidiary Guarantors are otherwise in compliance with this paragraph; provided,
however, that, if after any such reduction in interest rate, a different event
specified in clauses (i), (ii) or (iii) above occurs, the interest rate will
again be increased and thereafter reduced pursuant to the foregoing conditions.
If the Company and the Subsidiary Guarantors issue a notice that the Shelf
Registration Statement is unusable pending the announcement of a material
corporate transaction or otherwise pursuant to Section 3(k) hereof, or such a
notice is required under applicable securities laws to be issued by the Company
and the Subsidiary Guarantors, and the aggregate number of days in any
consecutive twelve-month period for which all such notices are issued or
required to be issued exceeds 30 days per occurrence or more than 60 days in the
aggregate, then the interest rate borne by the Notes will be increased by one-
quarter of one percent per annum following the date that such Shelf Registration
Statement ceases to be usable beyond the period permitted above, which rate
shall be increased by an additional one-quarter of one percent per annum for
each subsequent 90-day period that such additional interest continues to accrue;
provided that the aggregate increase in such annual interest rate may in no
event exceed one percent. Upon the Company and the Subsidiary Guarantors
declaring that the Shelf Registration Statement is usable after the interest
rate has been increased pursuant to the preceding sentence, the interest rate
borne by the Notes will be reduced to the original interest rate if the Company
and the Subsidiary Guarantors are otherwise in compliance with this paragraph;
provided, however, that if after any such reduction in interest rate the Shelf
Registration Statement again ceases to be
<PAGE>
10
usable beyond the period permitted above, the interest rate will again be
increased and thereafter reduced pursuant to the foregoing conditions.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company and the Subsidiary
Guarantors acknowledge that any failure by the Company and the Subsidiary
Guarantors to comply with their respective obligations under Sections 2(a) and
2(b) hereof may result in material irreparable injury to the Initial Purchasers
or the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's and the Subsidiary
Guarantors' obligations under Sections 2(a) and 2(b) hereof.
3. Registration Procedures. In connection with the obligations of the
Company and the Subsidiary Guarantors with respect to the Registration
Statements pursuant to Sections 2(a) and 2(b) hereof, the Company and the
Subsidiary Guarantors shall:
(a) prepare and file with the SEC a Registration Statement, within the
time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be selected by the Company and the Subsidiary
Guarantors, (ii) shall, in the case of a Shelf Registration, be available
for the sale of the Registrable Notes by the selling Holders thereof and
(iii) shall comply as to form in all material respects with the
requirements of the applicable form required by the SEC and include or
incorporate by reference all financial statements required by the SEC to be
filed therewith, and use their best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to (i) the Exchange Offer Registration Statement as may be
necessary under applicable law to keep such Exchange Offer Registration
Statement effective for the period required to comply with Section 2(a)
(except to the extent the Company is unable to consummate the Exchange
Offer and the Company complies with Section 2(b), subject in all respects
to Section 3(f) hereof), and (ii) the Shelf Registration Statement as may
be necessary under applicable law to keep such Shelf Registration Statement
effective for the period required pursuant to Section 2(b) hereof; cause
each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act;
and comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by each Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the selling Holders thereof;
<PAGE>
11
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being filed
and advising such Holders that the distribution of Registrable Notes will
be made in accordance with the method elected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Notes, to counsel for the
Initial Purchasers, to counsel for the Holders and to each underwriter of
an underwritten offering of Registrable Notes, if any, without charge, as
many copies of each Prospectus, including each preliminary Prospectus, and
any amendment or supplement thereto and such other documents as such Holder
or underwriter may reasonably request, including financial statements and
schedules and, if the Holder so requests, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Notes; and (iii) subject to the last
paragraph of Section 3, hereby consent to the use of the Prospectus,
including each preliminary Prospectus, or any amendment or supplement
thereto by each of the selling Holders of Registrable Notes in connection
with the offering and sale of the Registrable Notes covered by the
Prospectus or any amendment or supplement thereto;
(d) use their best efforts to register or qualify the Registrable
Notes under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Notes shall reasonably request in writing by the time the applicable
Registration Statement is declared effective by the SEC, to cooperate with
the Holders in connection with any filings required to be made with the
NASD, keep each such registration or qualification effective during the
period such Registration Statement is required to be effective and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Notes owned by such Holder; provided,
however, that neither the Company nor the Subsidiary Guarantors shall be
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where they would not otherwise be required
to qualify but for this Section 3(d) or (ii) take any action which would
subject them to general service of process or taxation in any such
jurisdiction if they are not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for such Holders promptly and, if requested
by such Holder or counsel, confirm such advice in writing promptly (i) when
a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by
the SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of
the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if ,
<PAGE>
12
between the effective date of a Registration Statement and the closing of
any sale of Registrable Notes covered thereby, the representations and
warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
such offering cease to be true and correct in all material respects, (v) of
the receipt by the Company or the Subsidiary Guarantors of any notification
with respect to the suspension of the qualification of the Registrable
Notes for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (vi) of the happening of any event or the
discovery of any facts during the period a Shelf Registration Statement is
effective which makes any statement made in such Shelf Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Shelf Registration Statement or
Prospectus in order to make the statements therein not misleading and (vii)
of any determination by the Company and the Subsidiary Guarantors that a
post-effective amendment to a Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange Notes,
(ii) furnish to each broker-dealer who desires to participate in the
Exchange Offer, without charge, as many copies of each Prospectus included
in the Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such broker-dealer
may reasonably request, (iii) include in the Exchange Offer Registration
Statement a statement that any broker-dealer who holds Registrable Notes
acquired for its own account as a result of market-making activities or
other trading activities (a "Participating Broker-Dealer"), and who
receives Exchange Notes for Registrable Notes pursuant to the Exchange
Offer, may be a statutory underwriter and must deliver a prospectus meeting
the requirements of the 1933 Act in connection with any resale of such
Exchange Notes, (iv) subject to the last paragraph of Section 3, hereby
consent to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any
broker-dealer in connection with the sale or transfer of the Exchange Notes
covered by the Prospectus or any amendment or supplement thereto, and (v)
include in the transmittal letter or similar documentation to be executed
by an exchange offeree in order to participate in the Exchange Offer (x)
the following provision:
"If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for
Registrable Notes, it represents that the Registrable Notes to be
exchanged for Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges
that it will deliver
<PAGE>
13
a prospectus meeting the requirements of the 1933 Act in connection
with any resale of such Exchange Notes pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the 1933 Act;"
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer
will not be deemed to admit that it is an underwriter within the meaning
of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates in the
Exchange Offer, the Company and the Subsidiary Guarantors shall use their
best efforts to cause to be delivered at the request of an entity
representing the Participating Broker-Dealers (which entity shall be one of
the Initial Purchasers, unless it elects not to act as such representative)
only one, if any, "cold comfort" letter with respect to the Prospectus in
the form existing on the last date for which exchanges are accepted
pursuant to the Exchange Offer and with respect to each subsequent
amendment or supplement, if any, effected during the period specified in
clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in the
Exchange Offer, the Company and the Subsidiary Guarantors shall use their
best efforts to maintain the effectiveness of the Exchange Offer
Registration Statement for a period of one year following the closing of
the Exchange Offer; and
(D) the Company and the Subsidiary Guarantors shall not be required to
amend or supplement the Prospectus contained in the Exchange Offer
Registration Statement as would otherwise be contemplated by Section 3(b),
or take any other action as a result of this Section 3(f), for a period
exceeding 180 days after the last date for which exchanges are accepted
pursuant to the Exchange Offer (as such period may be extended by the
Company) and Participating Broker-Dealers shall not be authorized by the
Company to, and shall not, deliver such Prospectus after such period in
connection with resales contemplated by this Section 3.
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as
practicable and provide notice as soon as practicable to each Holder of the
withdrawal of any such order;
<PAGE>
14
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and cause such Registrable Notes to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if
any, may reasonably request at least one business day prior to the closing
of any sale of Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use their best efforts to prepare a supplement or post-
effective amendment to a Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Notes, such Prospectus will not contain at the time of such
delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company and the
Subsidiary Guarantors have amended or supplemented the Prospectus to
correct such misstatement or omission. At such time as such public
disclosure is otherwise made or the Company determines that such disclosure
is not necessary, in each case to correct any misstatement of a material
fact or to include any omitted material fact, the Company agrees promptly
to notify each Holder of such determination and to furnish each Holder such
numbers of copies of the Prospectus, as amended or supplemented, as such
Holder may reasonably request;
(l) obtain CUSIP number for all Exchange Notes, or Registrable Notes,
as the case may be, not later than the effective date of a Registration
Statement, and provide the Trustee with printed certificates for the
Exchange Notes or the Registrable Notes, as the case may be, in a form
eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
the Exchange Notes, or Registrable Notes, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use their best
efforts to cause the Trustee to execute, all documents as may be required
to effect such
<PAGE>
15
changes, and all other forms and documents required to be filed with the
SEC to enable the Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of such
Registrable Notes and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii) obtain opinions of counsel to the Company and the Subsidiary
Guarantors and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the holders of a majority in principal
amount of the Registrable Notes being sold) addressed to each selling
Holder and the underwriters, if any, covering the matters customarily
covered in opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested by
such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's and the Subsidiary Guarantors' independent certified public
accountants addressed to the underwriters, if any, and will use best
efforts to have such letters addressed to the selling Holders of
Registrable Notes, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters to
underwriters in connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders and
an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be in
form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same
to set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth
in Section 5 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section; and
<PAGE>
16
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings.
The above shall be done at (i) the effectiveness of such Shelf Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to the
extent required thereunder. In the case of any underwritten offering, the
Company and the Subsidiary Guarantors shall provide written notice to the
Holders of all Registrable Notes of such underwritten offering at least 30
days prior to the filing of a prospectus supplement for such underwritten
offering. Such notice shall (x) offer each such Holder the right to
participate in such underwritten offering, (y) specify a date, which shall
be no earlier than 10 days following the date of such notice, by which such
Holder must inform the Company of its intent to participate in such
underwritten offering and (z) include the instructions such Holder must
follow in order to participate in such underwritten offering;
(o) in the case of a Shelf Registration, make available for inspection
by representatives of the Holders of the Registrable Notes and any
underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any counsel or accountant retained by such
Holders or underwriters, upon reasonable notice, at reasonable times and in
a reasonable manner, all relevant financial and other records, pertinent
corporate documents and properties of the Company and the Subsidiary
Guarantors reasonably requested by any such persons, and cause the
respective officers, directors, employees, and any other agents of the
Company and the Subsidiary Guarantors to supply all relevant information
reasonably requested by any such representative, underwriter, special
counsel or accountant in connection with such Shelf Registration Statement;
provided, however, that such Persons shall first agree in writing with the
Company and the Subsidiary Guarantors that any information that is
reasonably and in good faith designated by the Company and the Subsidiary
Guarantors as confidential at the time of delivery of such information
shall be kept confidential by such Persons, unless (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements
pursuant to Federal securities laws in connection with the filing of such
Shelf Registration Statement or use of any Prospectus), (iii) such
information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard such information by such
Person or (iv) such information becomes available to such Person from a
source other than the Company and the Subsidiary Guarantors and such source
is not bound by a confidentiality agreement; and provided, further, that
the foregoing investigation shall be coordinated on behalf of the Holders
by one representative designated by and on behalf of such Holders and any
such confidential information shall be available from such representative
to such Holders so long as any Holder agrees to be bound by such
confidentiality agreement.
<PAGE>
17
(p) (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or
supplement to a Prospectus, provide copies of such document to the Initial
Purchasers, and make such changes in any such document prior to the filing
thereof as any of the Initial Purchasers or their counsel may reasonably
request; provided, however, that the sole basis for such changes shall be
to correct a material misstatement or omission in the Exchange Offer
Registration Statement; (ii) in the case of a Shelf Registration, a
reasonable time prior to filing any Shelf Registration Statement, any
Prospectus forming a part thereof, any amendment to such Shelf Registration
Statement or amendment or supplement to such Prospectus, provide copies of
such document to the Holders of Registrable Notes, to the Initial
Purchasers, to counsel on behalf of the Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Notes, if any, and
make such changes in any such document prior to the filing thereof as the
Holders of Registrable Notes, the Initial Purchasers on behalf of such
Holders, their counsel and any underwriter may reasonably request; and
(iii) cause the representatives of the Company and the Subsidiary
Guarantors to be available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Notes, the Initial
Purchasers on behalf of such Holders or any underwriter and shall not at
any time make any filing of any such document of which such Holders, the
Initial Purchasers on behalf of such Holders, their counsel or any
underwriter shall not have previously been advised and furnished a copy or
to which such Holders, the Initial Purchasers on behalf of such Holders,
their counsel or any underwriter shall reasonably object;
(q) in the case of a Shelf Registration, use their best efforts to
cause all Registrable Securities to be listed on any securities exchange on
which similar debt securities issued by the Company or the Subsidiary
Guarantors are then listed if requested by the Majority Holders or by the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;
(r) in the case of a Shelf Registration, unless the rating in effect
for the Notes applies to the Exchange Notes and the Notes to be sold
pursuant to a Shelf Registration, use their best efforts to cause the
Registrable Notes to be rated with the appropriate rating agencies, if so
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Registrable Notes, if any, unless the
Registrable Notes are already so rated;
(s) otherwise use their best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the 1933 Act and Rule 158 thereunder; and
<PAGE>
18
(t) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes as the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section 3(e)(ii)-
(vi) hereof, such Holder will forthwith discontinue disposition of Registrable
Notes pursuant to a Registration Statement until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 3(k)
hereof, and, if so directed by the Company and the Subsidiary Guarantors, such
Holder will deliver to the Company and the Subsidiary Guarantors (at their
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Notes
current at the time of receipt of such notice. If the Company and the
Subsidiary Guarantors shall give any such notice to suspend the disposition of
Registrable Notes pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(vi) hereof, the Company and the Subsidiary Guarantors shall be
deemed to have used their best efforts to keep the Shelf Registration Statement
effective during such period of suspension provided that the Company and the
Subsidiary Guarantors shall use their best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement to
the Shelf Registration Statement and shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes covered
by any Shelf Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Majority Holders of such Registrable Notes
included in such offering and shall be reasonably acceptable to the Company and
the Subsidiary Guarantors.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
<PAGE>
19
5. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Initial Purchaser, each Holder, including
Participating Broker-Dealers, their respective affiliates, and their respective
directors, officers, employees, agents and each Person, if any, who controls any
of such parties within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
(or any amendment thereto) pursuant to which Exchange Notes or Registrable
Notes were registered under the 1933 Act, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
5(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred (including
fees and disbursements of counsel chosen by any indemnified party),
reasonably incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any court or governmental
agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, any Holder, including Participating Broker-Dealers,
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or the Prospectus (or any amendment or supplement thereto). The
foregoing indemnity with respect to any untrue statement contained in or any
omission from a Prospectus shall not inure to the benefit of any Initial
Purchaser, Holder (in its capacity as Holder), including Participating Broker-
Dealers (or any person who controls such party within the meaning of Section 15
of the 1933 Act or
<PAGE>
20
Section 20 of the 1934 Act) from whom the person asserting any such loss,
liability, claim, damage or expense purchased any of the Notes that are the
subject thereof, was not sent or given a copy of such Prospectus (as amended or
supplemented) by such Initial Purchaser or such selling Holder (in its capacity
as Holder) to the extent such Initial Purchaser or such Holder (in its capacity
as Holder) was required by law to deliver such Prospectus as amended or
supplemented, at or prior to the written confirmation of the sale of such Notes
and the untrue statement contained in or the omission from such Prospectus was
corrected in such amended or supplemented Prospectus, unless such failure
resulted from noncompliance by the Company with its obligations hereunder to
furnish such Initial Purchaser or such Holder (in its capacity as Holder), as
the case may be, with copies of such Prospectus as amended or supplemented.
(b) In the case of a Shelf Registration, each Holder agrees, severally
and not jointly, to indemnify and hold harmless the Company, the Subsidiary
Guarantors, each Initial Purchaser and the other selling Holders and each of
their respective directors and officers (including each officer of the Company
and the Subsidiary Guarantors who signed the Registration Statement) and each
Person, if any, who controls the Company, the Subsidiary Guarantors, any Initial
Purchaser or any other selling Holder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity contained in
Section 5(a) hereof, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company and the Subsidiary Guarantors by such Holder, as the
case may be, expressly for use in the Registration Statement (or any amendment
thereto), or the Prospectus (or any amendment or supplement thereto); provided,
however, that no such Holder shall be liable for any claims hereunder in excess
of the amount of net proceeds received by such Holder from the sale of
Registrable Notes pursuant to such Shelf Registration Statement.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to either paragraph (a) or
paragraph (b) above, such person (the "indemnified party") shall give notice as
promptly as reasonably practicable to each person against whom such indemnity
may be sought (the "indemnifying party"), but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action; provided, however,
that counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying party or parties be liable for the fees and expenses of more
than one counsel (in addition to any local counsel) for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. In case any such action is brought against any indemnified
party, and it notifies
<PAGE>
21
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 5 for any subsequent legal
or other expenses incurred pursuant to such action, other than reasonable costs
of investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, selected by any indemnified party in
the case of Section 5(a), representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 5 hereof (whether or not the indemnified parties
are actual or potential parties thereof), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) Except with respect to fees and expenses not required to be
reimbursed pursuant to the assumption of the defense of an action in accordance
with Section 5(c) above, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such
<PAGE>
22
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by such indemnifying party or parties on the one hand, and
such indemnified party or parties on the other hand from the offering of the
Exchange Notes or Registrable Notes included in such offering or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of such indemnifying party or
parties on the one hand, and such indemnified party or parties on the other
hand, in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party or
parties on the one hand, and such indemnified party or parties on the other hand
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by such indemnifying
party or parties and such indemnified party or parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Initial Purchasers and the Holders
of the Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Initial Purchasers were treated as one entity, and the Holders were
treated as one entity, for such purpose) or by another method of allocation
which does not take account of the equitable considerations referred to above in
Section 5. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
5 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by an governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1993 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each person, if any, who controls an Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as such Initial Purchaser or Holder, and each
director of the Company, each officer of the Company who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the
<PAGE>
23
Company. The parties hereto agree that any underwriting discount or commission
or reimbursement of fees paid to any Initial Purchaser pursuant to the Purchase
Agreement shall not be deemed to be a benefit received by any Initial Purchaser
in connection with the offering of the Exchange Securities or Registrable
Securities in such offering.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder, that if it ceases to be so required to file such
reports, it will upon the request of any Holder of Registrable Notes (i) make
publicly available such information as is necessary to permit sales pursuant to
Rule 144 under the 1933 Act, (ii) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933
Act and it will take such further action as any Holder of Registrable Notes may
reasonably request in writing, and (iii) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Holder to sell its Registrable Notes without registration
under the 1933 Act within the limitation of the exemptions provided by (x) Rule
144 under the 1933 Act, as such Rule may be amended from time to time, (y) Rule
144A under the 1933 Act, as such Rule may be amended from time to time, or (z)
any similar rules or regulations hereafter adopted by the SEC. Upon the written
request of any Holder of Registrable Notes, the Company will deliver to such
Holder a written statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. Neither the Company nor the
Subsidiary Guarantors have entered into nor will the Company or the Subsidiary
Guarantors on or after the date of this Agreement enter into any agreement which
is inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's or the
Subsidiary Guarantors' other issued and outstanding securities under any such
agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Subsidiary Guarantors have obtained
the written consent of Holders of at least a majority in aggregate principal
amount of the outstanding Registrable Notes affected by such amendment,
modification, supplement, waiver or departure; provided, however, that no
amendment, modification, supplement or waiver or consent to any departure from
the provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Notes unless consented to in writing by such Holder.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telecopier, or any
<PAGE>
24
courier guaranteeing overnight delivery (i) if to a Holder (other than an
Initial Purchaser), at the most current address set forth on the records of the
Registrar under the Indenture, (ii) if to an Initial Purchaser, at the most
current address given by such Initial Purchaser to the Company and the
Subsidiary Guarantors by means of a notice given in accordance with the
provisions of this Section 6(d), which address initially is the address set
forth in the Purchase Agreement; and (iii) if to the Company or the Subsidiary
Guarantors, initially at the address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms hereof or of the Purchase Agreement or the Indenture.
If any transferee of any Holder shall acquire Registrable Notes, in any manner,
whether by operation of law or otherwise, such Registrable Notes shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Registrable Notes, such Person shall be conclusively deemed to have agreed to be
bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Subsidiary Guarantors on the one hand, and the Initial Purchasers, on the other
hand, and shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE>
25
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE>
26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TUESDAY MORNING CORPORATION
By
----------------------------------------
Name: Mark E. Jarvis
Title: Senior Vice President, Chief
Financial Officer and Secretary
TMI HOLDINGS, INC.
By
----------------------------------------
Name: Alan L. Oppenheimer
Title: Senior Vice President, Secretary
and Treasurer
TUESDAY MORNING, INC.
By
----------------------------------------
Name: Mark E. Jarvis
Title: Senior Vice President, Chief
Financial Officer and Secretary
FRIDAY MORNING, INC.
By
----------------------------------------
Name: Jerry M. Smith
Title: President and Chief Operating Officer
TMIL CORPORATION
By
----------------------------------------
Name: Alan L. Oppenheimer
Title: Senior Vice President, Secretary
and Treasurer
<PAGE>
27
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
GOLDMAN, SACHS & CO.
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By:
-----------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
----------------------
THIS AGREEMENT (this "Agreement") is made as of December 26, 1997, by
---------
and between Tuesday Morning Acquisition Corp., a Delaware corporation (the
"Company"), and each of the Persons set forth on the "Schedule of Subscribers"
------- -----------------------
attached hereto (hereinafter referred to collectively as the "Subscribers" and
-----------
individually as a "Subscriber"). Except as otherwise indicated, capitalized
----------
terms used herein are defined in Section 6 hereof.
WHEREAS, pursuant to a merger agreement (the "Merger Agreement"),
----------------
dated as of September 12, 1997, by and among Tuesday Morning Corporation, a
Delaware corporation ("Tuesday Morning"), the Company and Madison Dearborn
---------------
Partners II, L.P., a Delaware limited partnership ("MDP"), (i) the Company will
---
merge with and into Tuesday Morning and Tuesday Morning will continue as the
surviving corporation (the "Surviving Corporation"); and (ii) each share of the
---------------------
Company's common stock, par value $.01 per share (the "Common"), the Company's
------
non-voting cumulative junior redeemable preferred stock, par value $.01 per
share (the "Junior Redeemable Preferred"), and the Company's non-voting
---------------------------
cumulative junior perpetual preferred stock, par value $.01 per share (the
"Junior Perpetual Preferred," collectively with the Common and the Junior
--------------------------
Redeemable Preferred, referred to herein as the "Securities"), issued and
----------
outstanding immediately prior to the merger will be converted into and become
one fully paid and nonassessable share of the common stock, par value $.01 per
share, the non-voting cumulative junior redeemable preferred stock, par value
$.01 per share, and the non-voting cumulative junior perpetual preferred stock,
par value $.01 per share, respectively, of the Surviving Corporation (the
"Merger"); and
------
WHEREAS, the Subscribers desire to subscribe to purchase, and the
Company desires to sell to the Subscribers, shares of the Company's Securities;
NOW, THEREFORE, in consideration of the foregoing and the
representations and warranties and agreements contained herein, the parties
hereto, intending to be legally bound, hereby agree as follows:
Section 1. Authorization of Issuance and Sale of Stock.
-------------------------------------------
1A. The Company will authorize the issuance and sale to the
Subscribers of an aggregate of :
(i) 283,964 shares of the Common, for a purchase price of $1.428574
per share;
(ii) 5,204.072 shares of the Junior Redeemable Preferred, for a
purchase price of $1,000.00 per share; and
(iii) 1,929.763 shares of the Junior Perpetual Preferred, for a
purchase price of $1,000.00 per share.
<PAGE>
Section 2. Subscription of the Securities.
------------------------------
2A. Subscription. Each Subscriber hereby subscribes to purchase the
------------
number of shares of the Common, the Junior Redeemable Preferred and the Junior
Perpetual Preferred set forth next to such Subscriber's name on the Schedule of
Subscribers and does hereby agree to transfer to the Company as consideration
therefor the purchase price set forth next to such Subscriber's name on the
Schedule of Subscribers (the "Purchase Price). The sale to and purchase by each
--------------
Subscriber of the Securities to be purchased by such Subscriber hereunder will
constitute a separate sale and purchase.
2B. The Closing. The closing of the separate sales and purchases of
-----------
the Common Stock (the "Closing") will occur on the effective date of the Merger.
-------
At the Closing, the Company will deliver to each Subscriber a certificate or
certificates evidencing the number of shares of the Securities to be purchased
by such Subscriber, registered in such name as such Subscriber shall designate,
against payment of the Purchase Price therefor. The Purchase Price may be
payable in cash by check or by wire transfer of immediately available funds or
in shares of the common stock, par value $.01 per share, of Tuesday Morning (the
"TMC Common"). At the Closing, each Subscriber who will pay the Purchase Price
----------
in shares of the TMC Common hereby agrees to assign and transfer to the Company
the number of shares of the TMC Common set forth next to such Subscriber's name
on the Schedule of Subscribers and represented by the certificate or
certificates endorsed (in blank or otherwise), or a stock power or powers
attached to such certificate or certificates. If the shares of the TMC Common
to be used as the Purchase Price are to be acquired by the exercise of stock
options held by a Subscriber, such Subscriber shall have exercised such stock
options and shall have received the certificate or certificates representing
such shares of the TMC Common no later than one day prior to the date of the
Closing.
Section 3. Restrictions on Transfers.
-------------------------
3A. Restrictions. The Securities are only transferable pursuant to
------------
(i) public offerings registered under the Securities Act, (ii) Rule 144 or Rule
144A of the Securities and Exchange Commission (or any similar rules then in
force) if such rules are available, and (iii) subject to the conditions
specified in Section 3B below, any other legally available means of transfer
pursuant to the Securities Act.
3B. Procedure for Transfer. In connection with the transfer of any
----------------------
Securities (other than a transfer referred to in clauses (i) or (ii) of Section
3A above), the holder thereof will deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Kirkland & Ellis or other counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters to the
effect that such transfer of Securities may be effected without registration of
such Securities under the Securities Act.
-2-
<PAGE>
3C. Transferees. Upon request of any Subscriber, the Company shall
-----------
promptly supply to such Subscriber or its prospective transferees all
information required to be delivered in connection with a transfer pursuant to
Rule 144A of the Securities and Exchange Commission.
Section 4. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the Subscribers that as of the
Closing:
4A. Organization, etc. The Company is a corporation duly organized,
-----------------
validly existing and in good standing under the laws of the State of Delaware.
The Company has corporate power and authority to carry on its business as now
conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement.
4B. Authorization; No Breach. The execution, delivery and
------------------------
performance of this Agreement and all other agreements and transactions
contemplated hereby have been duly authorized by the Company. This Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to the availability of equitable remedies and
to the laws of bankruptcy and other similar laws affecting creditors' rights
generally. The execution and delivery by the Company of this Agreement and all
other agreements and instruments contemplated hereby to be executed by the
Company and the offering, sale and issuance of the Common Stock hereunder, do
not and will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any lien, security interest, charge or encumbrance upon the
Company's capital stock or assets pursuant to, (iv) give any third party the
right to accelerate any obligation under, (v) result in a violation of, or (vi)
require any authorization, consent, approval, exemption or other action by or
notice to any court or administrative or governmental body (other than in
connection with certain state and federal securities laws) pursuant to, the
amended certificate of incorporation or the bylaws, or any law, statute, rule,
regulation, instrument, order, judgment or decree to which the Company is
subject or any agreement or instrument to which the Company is a party.
4C. No Registration. Assuming the truth and accuracy of the
---------------
representations set forth in Section 5 hereof, the offers and sales of the
Securities pursuant to the terms hereof are not required to be registered under
the Securities Act or any state securities laws.
Section 5. Subscribers' Representations and Warranties
-------------------------------------------
5A. Subscriber's Investment Representations. Each Subscriber hereby
---------------------------------------
represents that it is acquiring the Securities purchased hereunder or acquired
pursuant hereto for its own account with the present intention of holding such
securities for investment purposes and that it has no intention of selling such
securities in a public distribution in violation of the federal securities laws
or any applicable state securities laws; provided that nothing contained herein
will prevent any Subscriber and the subsequent holders of Securities from
transferring such securities in compliance with the provisions of Section 3
hereof.
-3-
<PAGE>
5B. Other Representations and Warranties of the Subscribers. Each
-------------------------------------------------------
Subscriber hereby severally represents and warrants to the Company that:
(i) if such Subscriber will pay the Purchase Price in shares of
the TMC Common, such Subscriber owns, or will own as of no later than one
day prior to the date of the Closing, beneficially and of record, the
shares of the TMC Common set forth next to such Subscriber's name on the
Schedule of Subscribers and that such shares will be transferred at the
Closing to the Company free and clear of any claims, liens, charges,
equities, and encumbrances or other restrictions;
(ii) such Subscriber has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the Securities
purchased hereunder and has had full access to such other information
concerning the Company (including access to the Merger Agreement, the
Tuesday Morning's offering memoranda with respect to the offering of its
senior subordinated notes and units, and the other financing documents
relating to the Merger) as such Subscriber may have requested and that in
making its decision to invest in the Securities being purchased hereunder
such Subscriber is not in any way relying on the fact that any other Person
has decided to be a Subscriber hereunder or to invest in the Securities;
(iii) such Subscriber is sophisticated in financial matters and
is able to evaluate the merits and risks of investment in the Securities,
is able to bear the economic risk of such investment and, at the present
time, is able to afford a complete loss of such investment;
(iv) (a) such Subscriber has the requisite power and authority
to purchase the Securities to be purchased by such Subscriber hereunder and
has authorized the purchase of such Securities and (b) if the Subscriber is
not an individual, the purchase of the Securities being purchased by it
hereunder does not violate its charter, by-laws or other organizational
documents;
(v) this Agreement constitutes the legal, valid and binding
obligation of each Subscriber, enforceable in accordance with its terms,
and the execution, delivery and performance of this Agreement by Subscriber
do not and shall not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Subscriber is a party or any
judgment, order or decree to which such Subscriber is subject; and
(vi) such Subscriber understands that at the effective time of
the Merger, the Company will be merged with and into Tuesday Morning,
pursuant to which, among other things, (i) each share of the Securities to
be purchased hereunder shall be converted into and become one fully paid
and nonassessable share of securities of like tenor of the Surviving
Corporation, (ii) the separate corporate existence of the Company shall
cease, and (iii) Tuesday Morning shall continue as the Surviving
Corporation.
-4-
<PAGE>
Section 6. Definitions.
-----------
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Rule 144" means Rule 144 promulgated by the Securities and Exchange
--------
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"Rule 144A" means Rule 144A promulgated by the Securities and Exchange
---------
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
----------------------------------
agency succeeding to the functions thereof.
Section 7. Miscellaneous.
-------------
7A. Proxy. Each Subscriber hereby grants to MDP the right to vote
-----
(including by written consent) his or her shares of the capital stock of the
Surviving Corporation issued in the Merger for an amended and restated
certificate of incorporation which is consistent with the capitalization of
Tuesday Morning contemplated in the final offering memorandum of Tuesday Morning
with respect to its 11% senior subordinated notes.
7B. Remedies. The holders of the Securities acquired hereunder
--------
(directly or indirectly) will have all of the rights and remedies set forth in
this Agreement and the certificate of incorporation, and all of the rights and
remedies which such holders have been granted at any time under any other
agreement or contract, and all of the rights and remedies which such holders
have under any law. Any Person having any rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement, and to
exercise all other rights granted by law.
7C. Amendments and Waivers. Except as otherwise provided herein, no
----------------------
modification, amendment or waiver of any provision hereof shall be effective
against the Company or the Subscribers unless such modification, amendment or
waiver is approved in writing by the holders of a majority of the Securities
purchased hereunder; provided, however, that in the event that such amendment or
waiver would adversely affect, directly or indirectly, any holder or group of
holders of Securities in a manner different than any other holder or group of
holders of Securities, then such amendment or waiver will require the consent of
such holders of Securities or a majority of the Securities held by such group of
holders adversely affected. The failure of any party to enforce
-5-
<PAGE>
any provision of this Agreement or under any agreement contemplated hereby or
under the certificate of incorporation or the bylaws shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement, any
agreement referred to herein, the certificate of incorporation, or the bylaws in
accordance with their terms.
7D. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement, regardless
of any investigation made by the Company or any Subscriber or on its behalf.
7E. Successors and Assigns.
----------------------
(i) Except as otherwise expressly provided herein, all covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto will bind and inure to the benefit of the respective successors and
assigns of such parties whether so expressed or not. In addition, and whether
or not any express assignment has been made, the provisions of this Agreement
which are for any Subscriber's benefit as the purchaser or holder of Securities,
as the case may be, are also for the benefit of and enforceable by any
subsequent holder of such Subscriber's Securities.
(ii) If a sale, transfer, assignment or other disposition of any
Securities is made in accordance with the provisions of this Agreement to any
Person, such Person shall, at or prior to the time such common stock is
acquired, execute a counterpart of this Agreement with such modifications
thereto as may be necessary to reflect such acquisition, and such other
documents as are necessary to confirm such Person's agreement to become a party
to, and to be bound by, all covenants, terms and conditions of this Agreement as
theretofore amended.
7F. Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule in any jurisdiction,
such provision will be ineffective only to the extent of such invalidity,
illegality or unenforceability in such jurisdiction, without invalidating the
remainder of this Agreement in such jurisdiction or any provision hereof in any
other jurisdiction.
7G. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
7H. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
-6-
<PAGE>
7I. Governing Law. All issues concerning the enforceability,
-------------
validity and binding effect of this Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.
7J. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
received by certified mail, return receipt requested, or sent by guaranteed
overnight courier service. Notices, demands and communications will be sent to
each Subscriber at such Subscriber's address as indicated in the Company's books
and records of the Company's transfer agent and registrar and to the Company at
the addresses indicated below:
If to the Company:
Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75244
Attention: Mark E. Jarvis
Facsimile: (972) 392-1558
With a copy to:
Carter W. Emerson, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile: (312) 861-2200
or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Subscription
Agreement on the day and year first above written.
TUESDAY MORNING ACQUISITION CORP.
By______________________________________
Its:______________________________________
_________________________________________
Lloyd L. Ross
_________________________________________
Jerry M. Smith
_________________________________________
Mark E. Jarvis
_________________________________________
George M. Anderson
_________________________________________
Duane A. Huesers
_________________________________________
Karen T. Costigan
_________________________________________
Richard E. Nance
<PAGE>
_________________________________________
Alan L. Oppenheimer
_________________________________________
William H. Kendall
_________________________________________
Rebecca M. Gully
_________________________________________
Stella M. Knable
_________________________________________
Tom G. Gress
<PAGE>
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
----------------------
THIS AGREEMENT (the "Agreement") is made as of December 29, 1997, by
---------
and between Tuesday Morning Corporation, a Delaware corporation (the "Company"),
-------
and Madison Dearborn Partners Capital Partners II, L.P., a Delaware limited
partnership ("MDCP II").
-------
The parties hereby agree as follows:
1. Authorization. The Company hereby authorizes the issuance and
-------------
sale to MDCP II of an aggregate of:
(i) 3,216,030 shares of the Common Stock, par value $.01 per share
(the "Common Stock"), for a purchase price of $3,216,030; and
------------
(ii) 80,794.164 shares of the Series B-1 Cumulative Junior Redeemable
Preferred Stock, par value $.01 per share (the "Preferred Stock";
---------------
together, with the Common Stock, the "Securities"), for a
----------
purchase price of $80,794,164.
2. Subscription. MDCP II hereby subscribes for the Common Stock and
------------
the Preferred Stock of the Company and does hereby agree to pay as consideration
therefor, at such time or times as determined by the Board of Directors of the
Company, cash (or such other consideration as shall be approved by the Board of
Directors of the Company) in the aggregate amount of $84,010,194.
3. Investment Representations. MDCP II represents that it will
--------------------------
acquire the Securities for its account for the purpose of investment and not
with a view to the distribution or resale thereof in violation of federal or
state securities laws. MDCP II further represents that it has such knowledge
and experience in financial and business matters and that it is capable of
evaluating the merits and risks of purchasing such shares. MDCP II understands
that the Securities have not been registered under the Securities Act of 1933
(the "Act") or under any state securities law or blue sky law of any
---
jurisdiction ("Blue Sky Law") and, therefore, none of such shares can be sold,
------------
assigned, transferred, pledged or otherwise disposed of without registration
under the Act and under applicable Blue Sky Law or unless an exemption from
registration thereunder is available. MDCP II shall not sell, assign, transfer,
pledge or otherwise dispose of any such shares (or any interest therein) without
registration under the Act and under applicable Blue Sky Law or unless an
exemption from registration thereunder is available. MDCP II understands that
the stock certificate evidencing such shares will bear a legend to the effect of
the foregoing.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Subscription
Agreement on the day and year first above written.
TUESDAY MORNING CORPORATION
By______________________________________
Its:____________________________________
MADISON DEARBORN CAPITAL PARTNERS II,
L.P.
By: Madison Dearborn Partners II, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
________________________________________
By: Benjamin D. Chereskin
Its: Vice President
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of December 29, 1997, between Tuesday
Morning Corporation, a Delaware corporation (the "Company"), and Jerry M. Smith
-------
("Executive").
----------
The execution and delivery of this Agreement by the Company and
Executive is a condition to consummation of the merger (the "Merger")
------
contemplated in the Agreement and Plan of Merger, dated as of September 12,
1997, among Madison Dearborn Partners II, L.P., Tuesday Morning Acquisition
Corp., a Delaware corporation, and the Company.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
----------
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the effectiveness of the
Merger and ending as provided in paragraph 4 hereof (the "Employment Period").
-----------------
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the normal
duties, responsibilities and authority consistent with such titles, subject to
the power of the Board of Directors of the Company (the "Board") to expand or
-----
limit such duties, responsibilities and authority. Executive's duties shall
include searching for, recruiting and training his successor. Executive shall,
with appropriate support from the Company, use his reasonable best efforts to
recruit his successor within the first 18 months of the Employment Period and
train his successor in the unique operations of the Company during the remainder
of the Employment Period. It is understood by the parties hereto that when a
successor is hired, such successor may replace Executive as President of the
Company; provided, that such succession shall in no way affect any of the other
terms hereunder. Notwithstanding any replacement of Executive by a successor for
the role of President, Executive shall continue as Chief Executive Officer for
the duration of the Employment Period. Executive will also serve as a director
of the Company during the Employment Period. Upon the termination of the
Employment Period, Executive shall resign as a director of the Company.
(b) Executive shall report to the Board and Executive shall devote
his best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company and its subsidiaries. Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
<PAGE>
3. Salary, Benefits and Bonus.
--------------------------
(a) During the Employment Period, Executive's base salary shall be
$475,000 per annum or such higher rate as the Board may designate from time to
time (the "Base Salary"), payable in regular installments in accordance with the
-----------
Company's general payroll practices and subject to customary withholding. In
addition, during the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its subsidiaries are generally eligible,
and Executive shall be entitled to five weeks of paid vacation each year.
Executive's employee benefits and perquisites shall be maintained at their
current levels during the Employment Period.
(b) In addition to the Base Salary, the Board shall award a bonus to
Executive following the end of each fiscal year during the Employment Period
beginning in 1998 of up to 50% of the Base Salary for such fiscal year based
upon performance relative to mutually acceptable goals (both financial and
qualitative) determined at the beginning of the fiscal year.
(c) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
4. Term.
----
(a) Unless renewed by the mutual agreement of the Company and
Executive, the Employment Period shall end on December 31, 2000; provided that
(i) the Employment Period shall terminate prior to such date upon Executive's
resignation, death or permanent disability or incapacity (as determined by the
Board in its good faith judgment) and (ii) the Employment Period may be
terminated by the Company at any time prior to such date for Cause (as defined
below) or without Cause.
(b) If (i) the Employment Period is terminated by the Company without
Cause prior to December 31, 2000 or (ii) the Employment Period terminates due to
Executive's resignation following a directive by the Company to re-locate his
residence outside the Dallas, Texas area, then Executive shall be entitled to
receive, if Executive has not breached and does not breach the provisions of
paragraphs 5 and 6 hereof, his Base Salary at the rate then in effect through
December 31, 2000 and a bonus promptly after the first anniversary of such
termination equal to the bonus to which he would have been entitled (based upon
performance relative to goals as described in paragraph 3(b)) for the portion of
the fiscal year in which termination occurs.
(c) If the Employment Period is terminated by the Company for Cause,
Executive shall be entitled to receive his Base Salary through the date of
termination.
(d) If the Employment Period is terminated pursuant to clause (a)(i)
above, Executive or his estate's duly authorized representative shall be
entitled to receive his Base Salary
-2-
<PAGE>
for six months following such termination and a bonus promptly after such six-
month period in an amount calculated as provided in clause (b) above.
(e) All of Executive's rights to benefits, except as required by law
(such as "COBRA"), and, except as otherwise provided herein, to bonuses
hereunder shall cease upon termination of the Employment Period. Upon such
termination, the Company may offset any amounts Executive owes it or its
subsidiaries against any amounts it owes Executive hereunder.
(f) For purposes of this Agreement, "Cause" shall mean (i) the
-----
commission of a felony or a crime involving moral turpitude or the commission of
any other act or omission involving dishonesty, disloyalty or fraud with respect
to the Company or any of its subsidiaries, (ii) conduct tending to bring the
Company or any of its subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to the Company or any of its subsidiaries or (v) any other material
breach of this Agreement.
5. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data obtained by him while employed by the Company
(including prior to the date of this Agreement) concerning the business or
affairs of the Company and its subsidiaries ("Confidential Information") are the
------------------------
property of the Company and its subsidiaries. Therefore, Executive agrees that
he shall not disclose to any unauthorized person or use for his own purposes any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions. Executive shall deliver to the Company at the termination of the
Employment Period, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential Information
or the business of the Company or any subsidiary which he may then possess or
have under his control.
6. Non-Compete, Non-Solicitation.
-----------------------------
(a) In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that in the course of his employment
with the Company he has become and will continue to be familiar with the
Company's and its subsidiaries' trade secrets and with other Confidential
Information and that his services have been and shall be of special, unique and
extraordinary value to the Company and its subsidiaries. Therefore, Executive
agrees that, during the Employment Period and for three years thereafter (the
"Noncompete Period"), he shall not directly or indirectly own any interest in,
-----------------
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company or
its subsidiaries, as such businesses exist or are in process on the date of the
termination of Executive's employment, within any geographical area in which the
Company or its subsidiaries engage or plan to engage in such businesses. Nothing
herein shall prohibit Executive from being a passive owner or not more than 2%
of the outstanding stock of any class of a corporation which is publicly traded,
so long as Executive has no active participation in the business of such
corporation.
-3-
<PAGE>
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary, or in any way interfere with the relationship between the Company or
any subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any subsidiary at any time during the Employment
Period or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Company or any subsidiary
to cease doing business with the Company or such subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation and the Company or any subsidiary (including, without
limitation, making any negative statements or communications about the Company
or its subsidiaries).
(c) If, at the time of enforcement of this paragraph 6, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this paragraph 6 are reasonable.
(d) Because Executive's services are unique and because Executive has
access to Confidential Information, the parties hereto agree that money damages
would not be an adequate remedy for any breach of this Agreement. In the event
of the breach or a threatened breach by Executive of any of the provisions of
this paragraph 6, the Company, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security). In addition, in the event of an
alleged breach or violation by Executive of this paragraph 6, the Noncompete
Period shall be tolled until such breach or violation has been duly cured.
7. Executive's Representations. Executive hereby represents and
---------------------------
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (c) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
8. The Company's Representations. The Company hereby represents and
-----------------------------
warrants to Executive that (a) the execution, delivery and performance of this
Agreement have been duly authorized by all requisite action on the part of the
Company and do not and shall not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order or decree to which the
Company or any of its subsidiaries is a party or by which any of them is bound
and
-4-
<PAGE>
(b) upon the execution and delivery of this Agreement by Executive, this
Agreement shall be the valid and binding obligation of the Company, enforceable
in accordance with its terms.
9. Survival. Paragraphs 4(b), 5 and 6 and paragraphs 9 through 17
--------
shall survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
10. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
--------------------
Mr. Jerry M. Smith
3250 Potomac
Dallas, TX 75205
Notices to Company:
------------------
Tuesday Morning Corporation
c/o Madison Dearborn Partners, Inc.
Three First National Plaza
Suite 3800
Chicago, IL 60602
Attention: William J. Hunckler, III
with a copy to:
Carter W. Emerson, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other jurisdiction, but this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
-5-
<PAGE>
12. Complete Agreement. This Agreement embodies the complete
------------------
agreement and understanding among the parties with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
13. No Strict Construction. The language used in this Agreement shall
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
16. Choice of Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Texas, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of Texas or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas.
17. Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall effect the validity, binding effect or
enforceability of this Agreement.
* * * * *
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
TUESDAY MORNING CORPORATION
By_____________________________________
Its____________________________________
_______________________________________
Jerry M. Smith
<PAGE>
Exhibit 10.4
CONSULTING AND NON-COMPETITION AGREEMENT
----------------------------------------
THIS AGREEMENT is entered into as of December 29, 1997, by and between
Lloyd L. Ross ("Consultant") and Tuesday Morning Corporation, a Delaware
----------
corporation (the "Company"). The Company and Consultant are sometimes
-------
collectively referred to herein as the "Parties" and individually as a "Party".
------- -----
Consultant founded and has been an officer, director and stockholder of the
Company, and as such, possesses special knowledge, abilities and experience
regarding the business of the Company. The Company and Tuesday Morning
Acquisition Corp., a Delaware corporation ("Merger Sub"), are parties to an
----------
Agreement and Plan of Merger, dated as of September 12, 1997 (the "Merger
------
Agreement"), whereby Merger Sub shall merge with and into the Company and the
- ---------
Company shall be the surviving corporation in the merger (the "Merger"). Upon
------
the Merger becoming effective, the Company desires to obtain the services of
Consultant to consult with and perform services as an independent contractor for
the Company with respect to its businesses, and Consultant desires to provide
services to the Company upon the terms and conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements set forth herein,
the Parties agree as follows:
1. Consulting Services.
-------------------
(a) The Company hereby engages Consultant as an independent contractor,
and not as an employee, to render consulting services to the Company as
hereinafter provided, and Consultant hereby accepts such engagement, for a
period commencing on the Closing Date (as defined in the Merger Agreement) and
terminating on thesecond anniversary of such date (the "Consulting Period").
-----------------
Consultant shall not have any authority to bind or act on behalf of the Company.
Consultant shall perform his services to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(b) During the Consulting Period, Consultant shall serve as a director of
the Company and as Chairman of the Board of the Company.
(c) During the Consulting Period, Consultant shall render such consulting
services as the Chief Executive Officer, the Vice President, Buying or the Board
of Directors (the "Board") may reasonably request from time to time. Such
-----
consulting services are expected to include, among other things, advice on
strategic issues and assistance in maintaining supplier and other third party
relationships.
(d) Notwithstanding anything in this Agreement to the contrary, (i)
Consultant's services to the Company shall be limited to 60 business days per
year and (ii) Consultant's travel obligations shall be limited compared to his
travel obligations prior to the Closing.
<PAGE>
2. Compensation; Reimbursement. During the Consulting Period:
---------------------------
(a) The Company shall pay a retainer fee to Consultant of $250,000 per
annum (the "Consulting Payment").
------------------
(b) Consultant shall be entitled to receive fringe benefits (including
health insurance) and perquisites from the Company which are comparable to those
he received prior to the Closing and an automobile allowance not to exceed
$10,000 per annum.
(c) The Company shall reimburse Consultant for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement in
accordance with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses.
(d) Consultant shall receive secretarial and administrative support
services from the Company which are comparable to those he received prior to the
Closing.
3. Confidential Information. Consultant acknowledges that the
------------------------
information, observations and data obtained by him while employed by the Company
(including prior to the date of this Agreement) concerning the business or
affairs of the Company and its subsidiaries ("Confidential Information") are the
------------------------
property of the Company and its subsidiaries. Therefore, Consultant agrees that
he shall not disclose to any unauthorized person or use for his own purposes any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Consultant's acts or
omissions. Consultant shall deliver to the Company at the end of the Consulting
Period, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential Information
or the business of the Company or any subsidiary which he may then possess or
have under his control.
4. Non-Compete, Non-Solicitation.
-----------------------------
(a) In further consideration of the compensation to be paid to Consultant
hereunder, Consultant acknowledges that in the course of his employment with the
Company he has become and will continue to be familiar with the Company's and
its subsidiaries' trade secrets and with other Confidential Information and that
his services have been and shall be of special, unique and extraordinary value
to the Company and its subsidiaries. Therefore, Consultant agrees that, during
the Consulting Period and for three years thereafter (the "Noncompete Period"),
-----------------
he shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company or its subsidiaries,
as such businesses exist or are in process on the date of the termination of
Consultant's employment, within any geographical area in which the Company or
its subsidiaries engage or plan to engage in such businesses. Nothing herein
shall prohibit Consultant from being
2
<PAGE>
a passive owner or not more than 2% of the outstanding stock of any class of a
corporation which is publicly traded, so long as Consultant has no active
participation in the business of such corporation.
(b) During the Noncompete Period, Consultant shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary, or in any way interfere with the relationship between the Company or
any subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any subsidiary at any time during the Consulting
Period or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Company or any subsidiary
to cease doing business with the Company or such subsidiary, or in any way
interfere with the relationship between any such customer, supplier, licensee or
business relation and the Company or any subsidiary (including, without
limitation, making any negative statements or communications about the Company
or its subsidiaries).
(c) If, at the time of enforcement of this paragraph 4, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances then existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law. Consultant agrees that the restrictions contained in this
paragraph 4 are reasonable.
(d) Because Consultant's services are unique and because Consultant has
access to Confidential Information, the parties hereto agree that money damages
would not be an adequate remedy for any breach of this Agreement. In the event
of the breach or a threatened breach by Consultant of any of the provisions of
this paragraph 4, the Company, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security). In addition, in the event of an
alleged breach or violation by Consultant of this paragraph 4, the Noncompete
Period shall be tolled until such breach or violation has been duly cured.
5. Tax Returns. Consultant shall file all tax returns and reports
-----------
required to be filed by him on the basis that Consultant is an independent
contractor, rather than an employee, as defined in Treasury Regulation
(S)31.3121(d)-1(c)(2), and Consultant shall indemnify the Company for the amount
of any employment taxes paid by the Company as the result of Consultant not
withholding employment taxes from the Consulting Payment.
6. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the Company and its affiliates, successors and assigns and
shall be binding upon and inure to the benefit of Consultant and his legal
representatives and assigns; provided that in no event shall Consultant's
obligations to perform future services for the Company be delegated or
transferred by Consultant without the prior written consent of the Company
(which consent may be withheld
3
<PAGE>
in its sole discretion). The Company may assign or transfer its rights hereunder
to any of its affiliates or to a successor corporation in the event of merger,
consolidation or transfer or sale of all or substantially all of the assets of
the Company.
7. Modification of Waiver. No amendment, modification or waiver of this
----------------------
Agreement shall be binding or effective for any purpose unless it is made in a
writing signed by the Party against who enforcement of such amendment,
modification or waiver is sought. No course of dealing between the Parties to
this Agreement shall be deemed to affect or to modify, amend or discharge any
provision or term of this Agreement. No delay on the part of the Company or
Consultant in the exercise of any of their respective rights or remedies shall
operate as a waiver thereof, and no single or partial exercise by the Company or
Consultant of any such right or remedy shall preclude other or further exercises
thereof. A waiver of right or remedy on any one occasion shall not be construed
as a bar to or waiver of any such right or remedy on any other occasion.
8. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION,
-------------
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND
SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF TEXAS OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF TEXAS.
9. Severability. Whenever possible each provision and term of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then such provision or
term shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement;
provided that if a court having competent jurisdiction shall find that the
covenant contained in paragraph 4(a) hereof is not reasonable, such court shall
have the power to reduce the duration and/or geographic area and/or scope of
such covenant, and the covenant shall be enforceable in this reduced form.
10. No Strict Construction. The language used in this Agreement shall be
----------------------
deemed to be the language chosen by the Parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
11. Consultant's Representations. Consultant represents and warrants to
----------------------------
the Company that (i) his execution, delivery and performance of this Agreement
does not and shall not conflict with, or result in the breach of or violation
of, any other agreement, instrument, order, judgment or decree to which he is a
party or by which he is bound, (ii) he is not a party to or bound by any
employment agreement, noncompete agreement or confidentiality agreement with any
other person or entity and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of his, enforceable in accordance with its terms.
4
<PAGE>
12. Notice. Any notice required or permitted hereunder shall be given in
------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office mail, postage prepaid, addressed to the
other Party hereto at his or its address shown below:
If to the Company:
-----------------
Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75244
Attention: President
with a copy to each of:
Madison Dearborn Partners, Inc.
Three First National Plaza
Suite 3800
Chicago, IL 60602
Attention: William J. Hunckler, III
and
Carter W. Emerson, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
If to Consultant:
----------------
Mr. Lloyd L. Ross
Holiday House Island Road
Tondren Island, Milford Bay
Ontario, Canada POB 1EO
and
Mr. Lloyd L. Ross
c/o Kentfields
34580 Kentfields Lane
Middleburg, VA 2211
5
<PAGE>
and
Mr. Lloyd L. Ross
5637 Prestwick Ln.
Dallas, TX 75252
or at such other address as such Party may designate by ten days advance written
notice to the other Party.
13. Captions. The captions used in this Agreement are for convenience of
--------
reference only and do not constitute a part of this Agreement and shall not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
14. Counterparts. This Agreement may be executed in counterparts, any one
------------
of which need not contain the signatures of more than one party, but all such
counterparts taken together shall constitute one and the same instrument.
15. Termination. In the event that Consultant is removed as a director
-----------
or as Chairman of the Board prior to the end of the Consulting Period, he shall
nonetheless be entitled to receive the compensation and benefits set forth in
Section 2 through the end of the Consulting Period (unless he is removed for
Cause or by reason of Permanent Disability). In the event that Consultant dies
or becomes subject to a Permanent Disability prior to the end of the Consulting
Period, the Company shall be required to pay compensation and benefits with
respect to periods through the date of death or the determination of Permanent
Disability, but the Company shall not be required to pay compensation or
benefits with respect to any periods thereafter. As used in this Agreement, the
term "Cause" shall mean (i) the commission of a felony or a crime involving
-----
moral turpitude or the commission of any other act or omission involving
dishonesty, disloyalty or fraud with respect to the Company or any of its
subsidiaries, (ii) conduct tending to bring the Company or any of its
subsidiaries into substantial public disgrace or disrepute, (iii) substantial
and repeated failure to perform duties as reasonably directed by the Board, (iv)
gross negligence or willful misconduct with respect to the Company or any of its
subsidiaries or (v) any other material breach of this Agreement. "Permanent
---------
Disability" shall be determined by the Board in its good faith judgment.
- ----------
* * * *
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Consulting and
Employment Agreement as of the date first above written.
TUESDAY MORNING CORPORATION
By:________________________________
Its:_______________________________
___________________________________
Lloyd L. Ross
7
<PAGE>
EXHIBIT 10.5
EMPLOYMENT PUT AGREEMENT
------------------------
THIS AGREEMENT (this "Agreement") is made as of December 29, 1997, by
---------
and between Tuesday Morning Corporation, a Delaware corporation (the "Company")
-------
and Jerry M. Smith ("Executive"). Capitalized terms used herein and not
---------
otherwise defined are defined in the Stockholders Agreement, dated as of the
date hereof, by and between the Company and Executive, Madison Dearborn Capital
Partners II, L.P., a Delaware limited partnership, and the executives listed on
Schedule I attached thereto.
Executive and Tuesday Morning Acquisition Corp., a Delaware
corporation ("Merger Sub"), are parties to a Subscription Agreement dated as of
----------
the date hereof (the "Subscription Agreement"), pursuant to which Executive has
----------------------
acquired 49,527 shares of the common stock, par value $.01 per share, and
1,244.246 shares of the non-voting cumulative junior perpetual preferred stock,
par value $.01 per share, of Merger Sub.
Pursuant to that certain Agreement and Plan of Merger, dated as of
September 12, 1997, by and among Tuesday Morning Corporation, a Delaware
corporation (the "Pre-Merger Company"), Merger Sub and Madison Dearborn Partners
------------------
II, L.P., a Delaware limited partnership, on the date hereof, (i) Merger Sub is
merging with and into the Pre-Merger Company and the Company will continue as
the surviving corporation and (ii) each share of the common stock and non-voting
cumulative junior perpetual preferred stock of Merger Sub issued and outstanding
immediately prior to the merger (including those shares acquired by Executive
under the Subscription Agreement) is being converted into and becoming one fully
paid and nonassessable share of the common stock, par value $.01 per share (the
"Common Stock"), and non-voting junior perpetual preferred stock, par value $.01
------------
per share (the "Junior Preferred Stock"), respectively, of the Company.
----------------------
The parties hereto agree as follows:
1. Put.
---
(a) At any time on or after December 31, 2000 (or, if earlier, upon
the occurrence of a Put Event (defined below)), Executive may (but shall not be
obligated to) require the Company to repurchase all of (but not less than all)
37,663 shares of Common Stock and 946.195 shares of Junior Preferred Stock then
held by Executive and any Permitted Transferee of Executive(the "Put
---
Securities") pursuant to the terms and conditions in this Agreement (the "Put").
- ---------- ---
(b) A "Put Event" means:
---------
(i) any termination of Executive's employment with the Company
prior to December 31, 2000 due to Executive's death, permanent disability
or incapacity (as determined by the Board in its good faith judgment); or
<PAGE>
(ii) any termination of Executive's employment with the Company
prior to December 31, 2000 due to the Company's termination of Executive
without Cause (as defined in the Employment Agreement, dated as of the date
hereof, between the Company and Executive).
(c) Executive may exercise the Put by delivering a written notice
(the "Put Notice") to the Company at any time after the Put has become
----------
exercisable; provided that Executive must give a Put Notice within 60 days
following the occurrence of a Put Event (and, if Executive fails to do so, he
shall be deemed to have waived his right to exercise the Put with respect to the
Put Event in question (but shall retain the right to exercise the Put (x) with
respect to subsequent Put Events and (y) after December 31, 2000) and provided
further that if the Put Event is the event described in paragraph (b)(i) above,
the Put may not be exercised until after August 31, 1998.
(d) The purchase price (the "Put Price") for the Put Securities will
---------
be equal to, in the case of the Common Stock, the Fair Market Value (computed as
of the date of the Closing (defined below)), and in the case of the Junior
Preferred Stock, the liquidation value plus any accrued but unpaid dividends
thereon (computed as of the date of the Closing).
(e) "Fair Market Value" of the Common Stock means:
-----------------
(i) the average of the closing prices of the sales of such
security on all securities exchanges on which such security may at the time
be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which the Fair Market Value is being determined
and the 20 consecutive business days prior to such day; or
(ii) with respect to any security which is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market for the entire 21-day averaging period specified above, the fair
value of such security as reasonably determined by the Board in good faith.
(f) The closing of the purchase of the Put Securities (the "Closing")
-------
will take place on the date designated by the Company in a written notice to
Executive, which date shall not be more than 90 days after the Put Event. The
Company shall have the option to pay the Put Price (i) 100% in cash by check or
by wire transfer of immediately available funds or (ii) 25% in cash by check or
wire transfer of immediately available funds and 75% by the issuance of a
subordinated promissory note payable in three equal annual installments and
bearing interest (payable annually) at a floating rate per annum equal to the
prime or base rate of interest published from time to time
-2-
<PAGE>
in The Wall Street Journal; provided that the Company's payment obligations
-----------------------
under such note shall be tolled as and to the extent required under (x) the
terms of the Company's credit facilities and other instruments of indebtedness
(together, the "Borrowing Documents") or (y) any restrictions under applicable
-------------------
law.
(g) Notwithstanding anything to the contrary in this Agreement, all
repurchases by the Company pursuant to this Agreement shall be subject to any
restrictions contained in the Company's Borrowing Documents and applicable law.
If any such restrictions prohibit such repurchases which the Company is
otherwise required to make, the time periods provided in this paragraph shall be
suspended, and the Company shall make such repurchases as soon as it is
permitted to do so under such restrictions.
(h) The right of Executive to require the Company to repurchase
securities held by Executive and any Permitted Transferee of Executive will
terminate immediately after the consummation of (i) a sale of the Company to an
independent third party or group of independent third parties pursuant to which
such party or parties acquire (A) all or substantially all of the capital stock
of the Company possessing the voting power under normal circumstances to elect a
majority of the Board (whether by merger, consolidation or sale or transfer of
the Company's capital stock) or (B) all or substantially all of the Company's
assets determined on a consolidated basis (other than as a result of a sale in a
public offering registered under the 1933 Act of shares of the Company's Common
Stock) or (ii) a Qualified Public Offering.
(g) The share numbers referred to in this paragraph 1 shall be
subject to adjustment for stock splits, stock combinations, stock dividends,
recapitalizations, reorganizations and the like.
2. Assignment. Except for assignments made to Permitted
----------
Transferees, neither party may assign any obligations hereunder to any other
party without the prior written consent of the other party; such consent shall
not be unreasonably withheld. The assignor shall remain liable for the
performance of any assignee.
3. Successors. This Agreement and all the obligations and
----------
benefits hereunder shall inure to the successors and assigns (and with respect
to Executive, his estate and personal representative) of the parties.
4. Counterparts. This Agreement may be executed and delivered by
------------
each party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute but one and the same agreement.
5. Entire Agreement; Modification; Governing Law. The terms and
---------------------------------------------
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions thereof shall be binding upon
either party unless
-3-
<PAGE>
approved in writing by an authorized representative of such party. All issues
concerning this agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the law of any jurisdiction
other than the State of Delaware.
* * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Put
Agreement as of the date first written above.
TUESDAY MORNING CORPORATION
By: ________________________________
Its: ________________________________
____________________________________
Jerry M. Smith
<PAGE>
EXHIBIT 10.6
TERM PUT AGREEMENT
------------------
THIS AGREEMENT (this "Agreement") is made as of December 29, 1997, by
---------
and among Tuesday Morning Corporation, a Delaware corporation (the "Company"),
-------
Madison Dearborn Capital Partners II, L.P., a Delaware limited partnership
("MDCP") and Lloyd L. Ross ("Executive"). Capitalized terms used herein and
---- ---------
not otherwise defined are defined in the Stockholders Agreement, dated as of
the date hereof, by and between the Company, MDCP and the executives listed on
Schedule I attached thereto.
Executive and Tuesday Morning Acquisition Corp., a Delaware
corporation ("Merger Sub"), are parties to a Subscription Agreement dated as
----------
of the date hereof (the "Subscription Agreement"), pursuant to which Executive
----------------------
has acquired 207,149 shares of the common stock, par value $.01 per share, and
5,204.072 shares of the non-voting junior redeemable preferred stock, par
value $.01 per share, of Merger Sub.
Pursuant to that certain Agreement and Plan of Merger, dated as of
September 12, 1997, by and among Tuesday Morning Corporation, a Delaware
corporation (the "Pre-Merger Company"), Merger Sub and Madison Dearborn Partners
------------------
II, L.P., a Delaware limited partnership and the general partner of MDCP, on the
date hereof, (i) Merger Sub is merging with and into the Pre-Merger Company and
the Company will continue as the surviving corporation and (ii) each share of
the common stock and non-voting junior redeemable preferred stock of Merger Sub
issued and outstanding immediately prior to the merger (including those shares
acquired by Executive under the Subscription Agreement) is being converted into
and becoming one fully paid and nonassessable share of the common stock, par
value $.01 per share (the "Common Stock"), and non-voting junior redeemable
------------
preferred stock, par value $.01 per share (the "Junior Preferred Stock"),
----------------------
respectively, of the Company.
The parties hereto agree as follows:
1. Put.
---
(a) On or after December 29, 1999, Executive may (but shall not be
obligated to) require the Company to repurchase all (but not less than all) of
the shares of Junior Preferred Stock then held by Executive and any Permitted
Transferee of Executive (the "Put Securities") pursuant to the terms and
--------------
conditions in this Agreement (the "Put").
---
(b) Executive may exercise the Put by delivering a written notice
(the "Put Notice") to the Company and MDCP at any time after the Put has become
----------
exercisable.
(c) The purchase price (the "Put Price") for the Put Securities will
---------
be equal to the liquidation value plus any accrued but unpaid dividends thereon
(computed as of the date of the Closing (defined below)).
<PAGE>
(d) The closing of the purchase of the Put Securities (the "Closing")
-------
will take place on the date designated by the Company in a written notice to
Executive, which date shall not be more than 90 days after the delivery of the
Put Notice. If the Company is, for any reason, restricted from or otherwise
unable to purchase the Put Securities within such time period, the Put
Securities shall be purchased by MDCP and the Closing will take place on the
date designated by MDCP in a written notice to Executive, which date shall not
be more than 120 days after the delivery of the Put Notice. At the Closing, the
Company or MDCP, as the case may be, shall pay for the Put Securities by check
or by wire transfer of immediately available funds.
(e) Simultaneously with the Closing, Executive shall transfer or cause
to be transferred all (but not less than all) of the shares of Common then held
by Executive and any Permitted Transferee of Executive to the Company or MDCP,
as the case may be, for no additional consideration.
(f) The right of Executive to require the Company or MDCP to
repurchase securities held by Executive and any Permitted Transferee of
Executive will terminate immediately after the consummation of (i) a sale of the
Company to an independent third party or group of independent third parties
pursuant to which such party or parties acquire (A) capital stock of the Company
possessing the voting power under normal circumstances to elect a majority of
the Board (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (B) all or substantially all of the Company's assets
determined on a consolidated basis (other than as a result of a sale in a public
offering registered under the 1933 Act of shares of the Company's Common Stock)
or (ii) a Qualified Public Offering.
2. Assignment. Neither party may assign any obligations hereunder to
----------
any other party without the prior written consent of the other party; such
consent shall not be unreasonably withheld. The assignor shall remain liable for
the performance of any assignee.
3. Successors. This Agreement and all the obligations and benefits
----------
hereunder shall inure to the successors and assigns of the parties.
4. Counterparts. This Agreement may be executed and delivered by
------------
each party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and both of which taken together shall
constitute but one and the same agreement .
5. Entire Agreement; Modification; Governing Law. The terms and
---------------------------------------------
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions thereof shall be binding upon
either party unless approved in writing by an authorized representative of such
party. All issues concerning this agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State
-2-
<PAGE>
of Delaware or any other jurisdiction) that would cause the application of the
law of any jurisdiction other than the State of Delaware.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Term Put Agreement as of
the date first written above.
TUESDAY MORNING CORPORATION
By: ________________________________
Its: _________________________________
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By Madison Dearborn Partners II, L.P.
Its General Partner
By Madison Dearborn Partners, Inc.
Its General Partner
By __________________________
Its Vice President
____________________________________
LLOYD L. ROSS
<PAGE>
EXHIBIT 10.7
STOCK PLEDGE AGREEMENT
----------------------
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is made as of December
----------------
29, 1997, between Jerry M. Smith ("Pledgor"), and Tuesday Morning Corporation, a
-------
Delaware corporation (the "Company").
-------
Pledgor has delivered to the Company a promissory note (the "Note") on
----
the date hereof. This Pledge Agreement provides the terms and conditions upon
which the Note is secured by a pledge to the Company of Pledgor's 11,864 shares
of the Company's common stock, $.01 par value per share, and 298.051 shares of
the Company's non-voting cumulative junior perpetual preferred stock
(collectively, the "Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note,
Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note or hereunder, Pledgor shall be entitled
to all voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge
-----------------------------------
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
<PAGE>
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of Texas or otherwise available
to the Company under applicable law. Without limiting the foregoing, the Company
is authorized to sell, assign and deliver at its discretion, from time to time,
all or any part of the Pledged Shares at any private sale or public auction, on
not less than ten days written notice to Pledgor, at such price or prices and
upon such terms as the Company may deem advisable. Pledgor shall have no right
to redeem the Pledged Shares after any such sale or assignment. At any such sale
or auction, the Company may bid for, and become the purchaser of, the whole or
any part of the Pledged Shares offered for sale. In case of any such sale, after
deducting the costs, reasonable attorneys' fees and other expenses of sale and
delivery, the remaining proceeds of such sale shall be applied to the principal
of and accrued interest on the Note; provided that after payment in full of the
indebtedness evidenced by the Note, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Shares remaining in the hands of the Company. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Note in full, including the fees of any attorneys
employed by the Company to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that it has good and valid title to all of the Pledged Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement or (ii) sell or otherwise
transfer any Pledged Shares or any interest therein.
-2-
<PAGE>
9. Further Assurances. Pledgor agrees that at any time and from
------------------
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as the Company may reasonably request in order to effect
the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
------------------------------
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the parties hereunder shall together with the
rights and remedies of the parties hereunder, inure to the benefit of the
parties and their successors and assigns. This Pledge Agreement shall be
governed by, and be construed and interpreted in accordance with, the laws of
the State of Illinois.
* * * * *
-3-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
TUESDAY MORNING CORPORATION
By:____________________________
Its:___________________________
________________________________
JERRY M. SMITH
<PAGE>
EXHIBIT 10.8
STOCK PLEDGE AGREEMENT
----------------------
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is made as of December
----------------
29, 1997, between Lloyd L. Ross ("Pledgor"), and Tuesday Morning Corporation, a
-------
Delaware corporation (the "Company").
-------
Pledgor has delivered to the Company a promissory note (the "Note") on
----
the date hereof. This Pledge Agreement provides the terms and conditions upon
which the Note is secured by a pledge to the Company of Pledgor's 207,149 shares
of the Company's common stock, $.01 par value per share, and 5,204.072 shares of
the Company's non-voting cumulative junior perpetual preferred stock
(collectively, the "Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note,
Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
------
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
--------------------------
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note or hereunder, Pledgor shall be entitled
to all voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, Pledgor shall no
longer be able to vote the Pledged Shares and the Company shall retain all such
cash dividends payable on the Pledged Shares as additional security hereunder.
4. Stock Dividends; Distributions, etc. If, while this Pledge
-----------------------------------
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
<PAGE>
5. Default. If Pledgor defaults in the payment of the principal or
-------
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of Texas or otherwise available
to the Company under applicable law. Without limiting the foregoing, the
Company is authorized to sell, assign and deliver at its discretion, from time
to time, all or any part of the Pledged Shares at any private sale or public
auction, on not less than ten days written notice to Pledgor, at such price or
prices and upon such terms as the Company may deem advisable. Pledgor shall have
no right to redeem the Pledged Shares after any such sale or assignment. At any
such sale or auction, the Company may bid for, and become the purchaser of, the
whole or any part of the Pledged Shares offered for sale. In case of any such
sale, after deducting the costs, reasonable attorneys' fees and other expenses
of sale and delivery, the remaining proceeds of such sale shall be applied to
the principal of and accrued interest on the Note; provided that after payment
in full of the indebtedness evidenced by the Note, the balance of the proceeds
of sale then remaining shall be paid to Pledgor and Pledgor shall be entitled to
the return of any of the Pledged Shares remaining in the hands of the Company.
Pledgor shall be liable for any deficiency if the remaining proceeds are
insufficient to pay the indebtedness under the Note in full, including the fees
of any attorneys employed by the Company to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
-------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
-----------------------------------------------------
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents
-------------------------------------
and warrants that it has good and valid title to all of the Pledged Shares, free
and clear of all liens, security interests and other encumbrances, and Pledgor
hereby covenants that, until such time as all of the outstanding principal of
and interest on the Note has been repaid, Pledgor shall not (i) create, incur,
assume or suffer to exist any pledge, security interest, encumbrance, lien or
charge of any kind against the Pledged Shares or Pledgor's rights or a holder
thereof, other than pursuant to this Agreement or (ii) sell or otherwise
transfer any Pledged Shares or any interest therein.
-2-
<PAGE>
9. Further Assurances. Pledgor agrees that at any time and from time
------------------
to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as the Company may reasonably request in order to effect
the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any act,
------------------------------
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the parties hereunder shall together with the
rights and remedies of the parties hereunder, inure to the benefit of the
parties and their successors and assigns. This Pledge Agreement shall be
governed by, and be construed and interpreted in accordance with, the laws of
the State of Illinois.
* * * * *
-3-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
TUESDAY MORNING CORPORATION
By:___________________________
Its:___________________________
________________________________
LLOYD L. ROSS
<PAGE>
Exhibit 10.9
TUESDAY MORNING CORPORATION
1997 LONG-TERM EQUITY INCENTIVE PLAN
------------------------------------
1. Purpose.
-------
This plan shall be known as the Tuesday Morning Corporation 1997 Long-
Term Equity Incentive Plan (the "Plan"). The purpose of the Plan shall be to
promote the long-term growth and profitability of Tuesday Morning Corporation
(the "Company") and its Subsidiaries by (i) providing certain directors,
officers and key employees of, and certain other key individuals who perform
services for, the Company and its Subsidiaries with incentives to maximize
stockholder value and otherwise contribute to the success of the Company and
(ii) enabling the Company to attract, retain and reward the best available
persons for positions of substantial responsibility. Grants of incentive or
nonqualified stock options, stock appreciation rights ("SARs"), either alone or
in tandem with options, restricted stock, performance awards, or any combination
of the foregoing may be made under the Plan.
2. Definitions.
-----------
(a) "Board of Directors" and "Board" mean the board of directors of
------------------ -----
the Company.
(b) "Cause" means the occurrence of one of the following events:
-----
(i) the commission of a felony or a crime involving moral
turpitude or the commission of any other act or omission involving dishonesty,
disloyalty or fraud with respect to the Company or any of its Subsidiaries;
(ii conduct tending to bring the Company or any of its
Subsidiaries into substantial public disgrace or disrepute;
(iii) substantial and repeated failure to perform duties properly
assigned or as reasonably directed by the Board, as determined by the Company;
(iv) gross negligence or willful misconduct with respect to the
Company or any of its subsidiaries; or
(iv) breach of duty of loyalty to the Company or a Subsidiary or
other act of fraud or dishonesty with respect to the Company or a Subsidiary.
<PAGE>
(c) "Change in Control" means the occurrence of one of the following
-----------------
events:
(i) if any "person" or "group" as those terms are used in
Sections 13(d) and 14(d) of the Exchange Act, other than an Exempt Person, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
or
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation (A) which would result in all or a portion of the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) by which the corporate
existence of the Company is not affected and following which the Company's chief
executive officer and directors retain their positions with the Company (and
constitute at least a majority of the Board); or
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets, other than a sale to
an Exempt Person.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means the Compensation Committee of the Board. The
---------
membership of the Committee shall be constituted so as to comply at all times
with the applicable requirements of Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code.
(f) "Common Stock" means the Common Stock, par value $.01 per share,
------------
of the Company, and any other shares into which such stock may be changed by
reason of a recapitalization, reorganization, merger, consolidation or any other
change in the corporate structure or capital stock of the Company.
(g) "Competition" is deemed to occur if a person whose employment with
-----------
the Company or its Subsidiaries has terminated obtains a position as a full-time
or part-time employee of, as a member of the board of directors of, or as a
consultant or advisor with or to, or acquires an ownership interest in excess of
5% of, a corporation, partnership, firm or other entity that engages in any of
the businesses of the Company or any Subsidiary with which the person was
involved in a management role at any time during his or her last five years of
employment with or other service for the Company or any Subsidiaries.
(h) "Disability" means a disability that would entitle an eligible
----------
participant to payment of monthly disability payments under any Company
disability plan or as otherwise determined by the Committee.
-2-
<PAGE>
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(j) "Exempt Person" means (i) Madison Dearborn Capital Partners II,
-------------
L.P., (ii) any person, entity or group controlling, controlled by or under
common control with the party included in clause (i), or (iii) any employee
benefit plan of the Company or a trustee or other administrator or fiduciary
holding securities under an employee benefit plan of the Company.
(k) "Fair Market Value" means, with respect the Common Stock:
-----------------
(i) the average of the closing prices of the sales of such
security on all securities exchanges on which such security may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day such security is not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System as of
4:00 P.M., New York time, or, if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
the Fair Market Value is being determined and the 20 consecutive business days
prior to such day; or
(ii) with respect to any security which is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market for the entire 21-day averaging period specified above, the fair value of
such security as reasonably determined by the Board in good faith.
(l) "Incentive Stock Option" means an option conforming to the
----------------------
requirements of Section 422 of the Code and any successor thereto.
(m) "Non-Employee Director" has the meaning given to such term in Rule
---------------------
16b-3 under the Exchange Act.
(n) "Nonqualified Stock Option" means any stock option other than an
-------------------------
Incentive Stock Option.
(o) "Other Company Securities" mean securities of the Company other
------------------------
than Common Stock, which may include, without limitation, unbundled stock units
or components thereof, debentures, preferred stock, warrants and securities
convertible into or exchangeable for Common Stock or other property.
(p) "Retirement" means retirement as defined under any Company pension
----------
plan or retirement program or termination of one's employment on retirement with
the approval of the Committee.
(q) "Subsidiary" means a corporation or other entity of which
----------
outstanding shares or ownership interests representing 50% or more of the
combined voting power of such corporation
-3-
<PAGE>
or other entity entitled to elect the management thereof, or such lesser
percentage as may be approved by the Committee, are owned directly or indirectly
by the Company .
3. Administration.
--------------
The Plan shall be administered by the Committee; provided that the
Board may, in its discretion, at any time and from time to time, resolve to
administer the Plan, in which case the term "Committee" shall be deemed to mean
the Board for all purposes herein. The Committee shall consist of at least two
directors. Subject to the provisions of the Plan, the Committee shall be
authorized to (i) select persons to participate in the Plan, (ii) determine the
form and substance of grants made under the Plan to each participant, and the
conditions and restrictions, if any, subject to which such grants will be made,
(iii) modify the terms of grants made under the Plan, (iv) interpret the Plan
and grants made thereunder, (v) make any adjustments necessary or desirable in
connection with grants made under the Plan to eligible participants located
outside the United States and (vi) adopt, amend, or rescind such rules and
regulations, and make such other determinations, for carrying out the Plan as it
may deem appropriate. Decisions of the Committee on all matters relating to the
Plan shall be in the Committee's sole discretion and shall be conclusive and
binding on all parties. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with applicable federal and state laws and rules and regulations promulgated
pursuant thereto. No member of the Committee and no officer of the Company
shall be liable for any action taken or omitted to be taken by such member, by
any other member of the Committee or by any officer of the Company in connection
with the performance of duties under the Plan, except for such person's own
willful misconduct or as expressly provided by statute.
The expenses of the Plan shall be borne by the Company. The Plan
shall not be required to establish any special or separate fund or make any
other segregation of assets to assume the payment of any award under the Plan,
and rights to the payment of such awards shall be no greater than the rights of
the Company's general creditors.
4. Shares Available for the Plan.
-----------------------------
Subject to adjustments as provided in Section 15, an aggregate of
416,666 shares of Common Stock (the "Shares") may be issued pursuant to the
Plan. Such Shares may be in whole or in part authorized and unissued, or shares
which are held by the Company as treasury shares. If any grant under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited as to
any Shares, such unpurchased or forfeited Shares shall thereafter be available
for further grants under the Plan unless, in the case of options granted under
the Plan, related SARs are exercised.
Without limiting the generality of the foregoing provisions of this
Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any
other section of this Plan, the Committee may, at any time or from time to time,
and on such terms and conditions (that are consistent with and not in
contravention of the other provisions of this Plan) as the Committee may, in its
sole discretion, determine, enter into agreements (or take other actions with
respect to the options) for new options containing terms (including exercise
prices) more (or less) favorable than outstanding options.
-4-
<PAGE>
5. Participation.
-------------
Participation in the Plan shall be limited to those directors
(including Non-Employee Directors), officers (including non-employee officers)
and key employees of, and other key individuals performing services for, the
Company and its Subsidiaries selected by the Committee (including participants
located outside the United States). Nothing in the Plan or in any grant
thereunder shall confer any right on a participant to continue in the employ of
or the performance of services for the Company or shall interfere in any way
with the right of the Company to terminate the employment or performance of
services of a participant at any time. By accepting any award under the Plan,
each participant and each person claiming under or through him or her shall be
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action taken under the Plan by the Company, the Board or the
Committee.
Incentive Stock Options or Nonqualified Stock Options, SARs , alone or
in tandem with options, restricted stock awards, performance awards, or any
combination thereof, may be granted to such persons and for such number of
Shares as the Committee shall determine (such individuals to whom grants are
made being sometimes herein called "optionees" or "grantees," as the case may
be). Determinations made by the Committee under the Plan need not be uniform
and may be made selectively among eligible individuals under the Plan, whether
or not such individuals are similarly situated. A grant of any type made
hereunder in any one year to an eligible participant shall neither guarantee nor
preclude a further grant of that or any other type to such participant in that
year or subsequent years.
6. Incentive and Nonqualified Options.
----------------------------------
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof;
provided that the Committee may grant Incentive Stock Options only to eligible
employees of the Company or its subsidiaries (as defined for this purpose in
Section 424(f) of the Code). The options granted shall take such form as the
Committee shall determine, subject to the following terms and conditions.
It is the Company's intent that Nonqualified Stock Options granted
under the Plan not be classified as Incentive Stock Options, that Incentive
Stock Options be consistent with and contain or be deemed to contain all
provisions required under Section 422 of the Code and any successor thereto, and
that any ambiguities in construction be interpreted in order to effectuate such
intent. If an Incentive Stock Option granted under the Plan does not qualify as
such for any reason, then to the extent of such nonqualification, the stock
option represented thereby shall be regarded as a Nonqualified Stock Option duly
granted under the Plan, provided that such stock option otherwise meets the
Plan's requirements for Nonqualified Stock Options.
(a) Price. The price per Share deliverable upon the exercise of each
-----
option ("exercise price") shall be established by the Committee, except that in
the case of the grant of any Incentive Stock Option, the exercise price may not
be less than 100% of the Fair Market Value of a share of Common Stock as of the
date of grant of the option, and in the case of the grant of any Incentive Stock
Option to an employee who, at the time of the grant, owns more than 10% of the
-5-
<PAGE>
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the exercise price may not be less that 110% of the Fair Market
Value of a share of Common Stock as of the date of grant of the option, in each
case unless otherwise permitted by Section 422 of the Code.
(b) Payment. Options may be exercised, in whole or in part, upon
-------
payment of the exercise price of the Shares to be acquired. Unless otherwise
determined by the Committee, payment shall be made (i) in cash (including check,
bank draft or money order), (ii) by delivery of outstanding shares of Common
Stock with a Fair Market Value on the date of exercise equal to the aggregate
exercise price payable with respect to the options' exercise, (iii) by
simultaneous sale through a broker reasonably acceptable to the Committee of
Shares acquired on exercise, as permitted under Regulation T of the Federal
Reserve Board, (iv) by authorizing the Company to withhold from issuance a
number of Shares issuable upon exercise of the options which, when multiplied by
the Fair Market Value of a share of Common Stock on the date of exercise is
equal to the aggregate exercise price payable with respect to the options so
exercised or (v) by any combination of the foregoing. Options may also be
exercised upon payment of the exercise price of the Shares to be acquired by
delivery of the optionee's promissory note, but only to the extent specifically
approved by and in accordance with the policies of the Committee.
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (ii) above, (A) only a whole number of
share(s) of Common Stock (and not fractional shares of Common Stock) may be
tendered in payment, (B) such grantee must present evidence acceptable to the
Company that he or she has owned any such shares of Common Stock tendered in
payment of the exercise price (and that such tendered shares of Common Stock
have not been subject to any substantial risk of forfeiture) for at least six
months prior to the date of exercise, and (C) Common Stock must be delivered to
the Company. Delivery for this purpose may, at the election of the grantee, be
made either by (A) physical delivery of the certificate(s) for all such shares
of Common Stock tendered in payment of the price, accompanied by duly executed
instruments of transfer in a form acceptable to the Company, or (B) direction to
the grantee's broker to transfer, by book entry, such shares of Common Stock
from a brokerage account of the grantee to a brokerage account specified by the
Company. When payment of the exercise price is made by delivery of Common
Stock, the difference, if any, between the aggregate exercise price payable with
respect to the option being exercised and the Fair Market Value of the share(s)
of Common Stock tendered in payment (plus any applicable taxes) shall be paid in
cash. No grantee may tender shares of Common Stock having a Fair Market Value
exceeding the aggregate exercise price payable with respect to the option being
exercised (plus any applicable taxes).
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (iv) above, (A) only a whole number of
Share(s) (and not fractional Shares) may be withheld in payment and (B) such
grantee must present evidence acceptable to the Company that he or she has owned
a number of shares of Common Stock at least equal to the number of Shares to be
withheld in payment of the exercise price (and that such owned shares of Common
Stock have not been subject to any substantial risk of forfeiture) for at least
six months prior to the date of exercise. When payment of the exercise price is
made by withholding of Shares, the difference, if any, between the aggregate
exercise price payable with respect to the option being exercised and the
-6-
<PAGE>
Fair Market Value of the Share(s) withheld in payment (plus any applicable
taxes) shall be paid in cash. No grantee may authorize the withholding of Shares
having a Fair Market Value exceeding the aggregate exercise price payable with
respect to the option being exercised (plus any applicable taxes). Any withheld
Shares shall no longer be issuable under such option.
(c) Terms of Options. The term during which each option may be
----------------
exercised shall be determined by the Committee, but, except as otherwise
provided herein, in no event shall an option be exercisable in whole or in part,
in the case of a Nonqualified Stock Option or an Incentive Stock Option (other
than as described below), more than ten years from the date it is granted or, in
the case of an Incentive Stock Option granted to an employee who at the time of
the grant owns more than 10% of the total combined voting power of all classes
of stock of the Company or any of its Subsidiaries, if required by the Code,
more than five years from the date it is granted. All rights to purchase Shares
pursuant to an option shall, unless sooner terminated, expire at the date
designated by the Committee. The Committee shall determine the date on which
each option shall become exercisable and may provide that an option shall become
exercisable in installments. The Shares constituting each installment may be
purchased in whole or in part at any time after such installment becomes
exercisable, subject to such minimum exercise requirements as may be designated
by the Committee. Unless otherwise provided herein or in the terms of the
related grant, an optionee may exercise an option only if he or she is, and has
continuously since the date the option was granted, been a director, officer or
employee of or performed other services for the Company or a Subsidiary. Prior
to the exercise of an option and delivery of the Shares represented thereby, the
optionee shall have no rights as a stockholder with respect to any Shares
covered by such outstanding option (including any dividend or voting rights).
(d) Limitations on Grants. If required by the Code, the aggregate Fair
---------------------
Market Value (determined as of the grant date) of Shares for which an Incentive
Stock Option is exercisable for the first time during any calendar year under
all equity incentive plans of the Company and its Subsidiaries (as defined in
Section 422 of the Code) may not exceed $100,000.
(e) Termination; Change in Control.
------------------------------
(i) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company and any Subsidiary
due to death or Disability, (A) all of the participant's options and SARs that
were exercisable on the date of such cessation shall remain exercisable for, and
shall otherwise terminate at the end of, a period of one year from the date of
such death or Disability, but in no event after the expiration date of the
options or SARs; and (B) all of the participant's options and SARs that were not
exercisable on the date of such cessation shall be forfeited immediately upon
such cessation. Notwithstanding the foregoing, if the Disability giving rise to
the termination of employment is not within the meaning of Section 422(e)(3) of
the Code, Incentive Stock Options not exercised by such participant within 90
days after the date of termination of employment will cease to qualify as
Incentive Stock Options and will be treated as Nonqualified Stock Options under
the Plan if required to be so treated under the Code.
(ii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company and any Subsidiary
upon the occurrence of his or her
-7-
<PAGE>
Retirement, (A) all of the participant's options and SARs that were exercisable
on the date of Retirement shall remain exercisable for, and shall otherwise
terminate at the end of, a period of up to three years after the date of
Retirement, but in no event after the expiration date of the options or SARs;
provided that the participant does not engage in Competition during such three-
year period unless he or she receives written consent to do so from the Board or
the Committee, and (B) all of the participant's options and SARs that were not
exercisable on the date of Retirement shall be forfeited immediately upon such
Retirement. Notwithstanding the foregoing, Incentive Stock Options not exercised
by such participant within 90 days after Retirement will cease to qualify as
Incentive Stock Options and will be treated as Nonqualified Stock Options under
the Plan if required to be so treated under the Code.
(iii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company or a Subsidiary due
to Cause, all of the participant's options and SARs shall be forfeited
immediately upon such cessation, whether or not then exercisable.
(iv) Unless otherwise determined by the Committee, if a
participant ceases to be a director, officer or employee of, or to otherwise
perform services for, the Company or a Subsidiary for any reason other than
death, Disability, Retirement or Cause, (A) all of the participant's options and
SARs that were exercisable on the date of such cessation shall remain
exercisable for, and shall otherwise terminate at the end of, a period of 90
days after the date of such cessation, but in no event after the expiration date
of the options or SARs; provided that the participant does not engage in
Competition during such 90-day period unless he or she receives written consent
to do so from the Board or the Committee, and (B) all of the participant's
options and SARs that were not exercisable on the date of such cessation shall
be forfeited immediately upon such cessation.
(v) If there is a Change in Control of the Company, all of the
participant's options and SARs shall become fully vested and exercisable
immediately prior to such Change in Control and shall remain so until the
expiration date of the options and SARs.
(f) Grant of Reload Options. The Committee may provide (either at the
-----------------------
time of grant or exercise of an option), in its discretion, for the grant to a
grantee who exercises all or any portion of an option ("Exercised Options") and
who pays all or part of such exercise price with shares of Common Stock, of an
additional option (a "Reload Option") for a number of shares of Common Stock
equal to the sum (the "Reload Number") of the number of shares of Common Stock
tendered or withheld in payment of such exercise price for the Exercised Options
plus, if so provided by the Committee, the number of shares of Common Stock, if
any, tendered or withheld by the grantee or withheld by the Company in
connection with the exercise of the Exercised Options to satisfy any federal,
state or local tax withholding requirements. The terms of each Reload Option,
including the date of its expiration and the terms and conditions of its
exercisability and transferability, shall be the same as the terms of the
Exercised Option to which it relates, except that (i) the grant date for each
Reload Option shall be the date of exercise of the Exercised Option to which it
relates and (ii) the exercise price for each Reload Option shall be the Fair
Market Value of the Common Stock on the grant date of the Reload Option.
-8-
<PAGE>
7. Stock Appreciation Rights.
-------------------------
The Committee shall have the authority to grant SARs under this Plan,
either alone or to any optionee in tandem with options (either at the time of
grant of the related option or thereafter by amendment to an outstanding
option). SARs shall be subject to such terms and conditions as the Committee
may specify.
No SAR may be exercised unless the Fair Market Value of a share of
Common Stock of the Company on the date of exercise exceeds the exercise price
of the SAR or, in the case of SARs granted in tandem with options, any options
to which the SARs correspond. Prior to the exercise of the SAR and delivery of
the cash and/or Shares represented thereby, the participant shall have no rights
as a stockholder with respect to Shares covered by such outstanding SAR
(including any dividend or voting rights).
SARs granted in tandem with options shall be exercisable only when, to
the extent and on the conditions that any related option is exercisable. The
exercise of an option shall result in an immediate forfeiture of any related SAR
to the extent the option is exercised, and the exercise of an SAR shall cause an
immediate forfeiture of any related option to the extent the SAR is exercised.
Upon the exercise of an SAR, the participant shall be entitled to a
distribution in an amount equal to the difference between the Fair Market Value
of a share of Common Stock on the date of exercise and the exercise price of the
SAR or, in the case of SARs granted in tandem with options, any option to which
the SAR is related, multiplied by the number of Shares as to which the SAR is
exercised. The Committee shall decide whether such distribution shall be in
cash, in Shares having a Fair Market Value equal to such amount, in Other
Company Securities having a Fair Market Value equal to such amount or in a
combination thereof.
All SARs will be exercised automatically on the last day prior to the
expiration date of the SAR or, in the case of SARs granted in tandem with
options, any related option, so long as the Fair Market Value of a share of
Common Stock on that date exceeds the exercise price of the SAR or any related
option, as applicable. An SAR granted in tandem with options shall expire at
the same time as any related option expires and shall be transferable only when,
and under the same conditions as, any related option is transferable.
8. Restricted Stock.
----------------
The Committee may at any time and from time to time grant Shares of
restricted stock under the Plan to such participants and in such amounts as it
determines. Each grant of restricted stock shall specify the applicable
restrictions on such Shares, the duration of such restrictions (which shall be
at least six months except as otherwise provided in the third paragraph of this
Section 8), and the time or times at which such restrictions shall lapse with
respect to all or a specified number of Shares that are part of the grant.
-9-
<PAGE>
The participant will be required to pay the Company the aggregate par
value of any Shares of restricted stock (or such larger amount as the Board may
determine to constitute capital under Section 154 of the Delaware General
Corporation Law, as amended) within ten days of the date of grant, unless such
Shares of restricted stock are treasury shares. Unless otherwise determined by
the Committee, certificates representing Shares of restricted stock granted
under the Plan will be held in escrow by the Company on the participant's behalf
during any period of restriction thereon and will bear an appropriate legend
specifying the applicable restrictions thereon, and the participant will be
required to execute a blank stock power therefor. Except as otherwise provided
by the Committee, during such period of restriction the participant shall have
all of the rights of a holder of Common Stock, including but not limited to the
rights to receive dividends and to vote, and any stock or other securities
received as a distribution with respect to such participant's restricted stock
shall be subject to the same restrictions as then in effect for the restricted
stock.
Except as otherwise provided by the Committee, immediately prior to a
Change in Control or at such time as a participant ceases to be a director,
officer or employee of, or to otherwise perform services for, the Company and
its Subsidiaries due to death, Disability or Retirement during any period of
restriction, all restrictions on Shares granted to such participant shall lapse.
At such time as a participant ceases to be a director, officer or employee of,
or to otherwise perform services for, the Company or its Subsidiaries for any
other reason, all Shares of restricted stock granted to such participant on
which the restrictions have not lapsed shall be immediately forfeited to the
Company.
9. Performance Awards.
------------------
Performance awards may be granted to participants at any time and from
time to time as determined by the Committee. The Committee shall have complete
discretion in determining the size and composition of performance awards so
granted to a participant and the appropriate period over which performance is to
be measured (a "performance cycle"). Performance awards may include (i)
specific dollar-value target awards (ii) performance units, the value of each
such unit being determined by the Committee at the time of issuance, and/or
(iii) performance Shares, the value of each such Share being equal to the Fair
Market Value of a share of Common Stock.
The value of each performance award may be fixed or it may be
permitted to fluctuate based on a performance factor (e.g., return on equity)
selected by the Committee.
The Committee shall establish performance goals and objectives for
each performance cycle on the basis of such criteria and objectives as the
Committee may select from time to time, including, without limitation, the
performance of the participant, the Company, one or more of its Subsidiaries or
divisions or any combination of the foregoing. During any performance cycle,
the Committee shall have the authority to adjust the performance goals and
objectives for such cycle for such reasons as it deems equitable.
The Committee shall determine the portion of each performance award
that is earned by a participant on the basis of the Company's performance over
the performance cycle in relation to the performance goals for such cycle. The
earned portion of a performance award may be paid out
-10-
<PAGE>
in Shares, cash, Other Company Securities, or any combination thereof, as the
Committee may determine.
A participant must be a director, officer or employee of, or otherwise
perform services for, the Company or its Subsidiaries at the end of the
performance cycle in order to be entitled to payment of a performance award
issued in respect of such cycle.
10. Withholding Taxes.
-----------------
(a) Participant Election. Unless otherwise determined by the Committee, a
--------------------
participant may elect to deliver shares of Common Stock (or have the Company
withhold shares acquired upon exercise of an option or SAR or deliverable upon
grant or vesting of restricted stock, as the case may be) to satisfy, in whole
or in part, the amount the Company is required to withhold for taxes in
connection with the exercise of an option or SAR or the delivery of restricted
stock upon grant or vesting, as the case may be. Such election must be made on
or before the date the amount of tax to be withheld is determined. Once made,
the election shall be irrevocable. The fair market value of the shares to be
withheld or delivered will be the Fair Market Value as of the date the amount of
tax to be withheld is determined. In the event a participant elects to deliver
shares of Common Stock pursuant to this Section 10(a), such delivery must be
made subject to the conditions and pursuant to the procedures set forth in
Section 6(b) with respect to the delivery of Common Stock in payment of the
exercise price of options.
(b) Company Requirement. The Company may require, as a condition to any
-------------------
grant or exercise under the Plan or to the delivery of certificates for Shares
issued hereunder, that the grantee make provision for the payment to the
Company, either pursuant to Section 10(a) or this Section 10(b), of any federal,
state or local taxes of any kind required by law to be withheld with respect to
any grant or any delivery of Shares. The Company, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee, an amount equal to any
federal, state or local taxes of any kind required by law to be withheld with
respect to any grant or to the delivery of Shares under the Plan, or to retain
or sell without notice a sufficient number of the Shares to be issued to such
grantee to cover any such taxes, the payment of which has not otherwise been
provided for in accordance with the terms of the Plan, provided that the Company
shall not sell any such Shares if such sale would be considered a sale by such
grantee for purposes of Section 16 of the Exchange Act that is not exempt from
matching thereunder.
11. Written Agreement; Vesting.
--------------------------
Each employee to whom a grant is made under the Plan shall enter into
a written agreement with the Company that shall contain such provisions,
including without limitation vesting requirements, consistent with the
provisions of the Plan, as may be approved by the Committee. Unless the
Committee determines otherwise and except as otherwise provided in Sections 6,
7, 8 and 9 in connection with a Change of Control or certain occurrences of
termination, no grant under this Plan may be exercised, and no restrictions
relating thereto may lapse, within six months of the date such grant is made.
-11-
<PAGE>
12. Transferability.
---------------
Unless the Committee determines otherwise, no option, SAR, performance
award, or restricted stock granted under the Plan shall be transferable by a
participant otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code. Unless
the Committee determines otherwise, an option, SAR, or performance award may be
exercised only by the optionee or grantee thereof or his guardian or legal
representative; provided that Incentive Stock Options may be exercised by such
guardian or legal representative only if permitted by the Code and any
regulations promulgated thereunder.
13. Listing, Registration and Qualification.
---------------------------------------
If the Committee determines that the listing, registration or
qualification upon any securities exchange or under any law of Shares subject to
any option, SAR, performance award or restricted stock grant is necessary or
desirable as a condition of, or in connection with, the granting of same or the
issue or purchase of Shares thereunder, no such option or SAR may be exercised
in whole or in part, no such performance award may be paid out and no Shares may
be issued unless such listing, registration or qualification is effected free of
any conditions not acceptable to the Committee.
It is the intent of the Company that the Plan comply in all respects
with Section 162(m) of the Code, that awards made hereunder comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Section 162(m), such provision shall be deemed null and void to
the extent required to permit the Plan to comply with Section 162(m), as the
case may be.
14. Transfer of Employee.
--------------------
The transfer of an employee from the Company to a Subsidiary, from a
Subsidiary to the Company, or from one Subsidiary to another shall not be
considered a termination of employment; nor shall it be considered a termination
of employment if an employee is placed on military or sick leave or such other
leave of absence which is considered by the Committee as continuing intact the
employment relationship.
15. Adjustments.
-----------
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustment as it deems appropriate in the number and
kind of Shares or other property reserved for issuance under the Plan, in the
number and kind of Shares or other property covered by grants previously made
under the Plan, and in the exercise price of outstanding options and SARs. Any
such adjustment shall be final, conclusive and binding for all purposes of the
Plan. In the event of any merger, consolidation or other reorganization in
which the Company is not the surviving or continuing corporation or in
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<PAGE>
which a Change in Control is to occur, all of the Company's obligations
regarding options, SARs performance awards, and restricted stock that were
granted hereunder and that are outstanding on the date of such event shall, on
such terms as may be approved by the Committee prior to such event, be assumed
by the surviving or continuing corporation or canceled in exchange for property
(including cash).
Without limitation of the foregoing, in connection with any
transaction of the type specified by clause (iii) of the definition of a Change
in Control in Section 2(c), the Committee may, in its discretion, (i) cancel any
or all outstanding options under the Plan in consideration for payment to the
holders thereof of an amount equal to the portion of the consideration that
would have been payable to such holders pursuant to such transaction if their
options had been fully exercised immediately prior to such transaction, less the
aggregate exercise price that would have been payable therefor, or (ii) if the
amount that would have been payable to the option holders pursuant to such
transaction if their options had been fully exercised immediately prior thereto
would be less than the aggregate exercise price that would have been payable
therefor, cancel any or all such options for no consideration or payment of any
kind. Payment of any amount payable pursuant to the preceding sentence may be
made in cash or, in the event that the consideration to be received in such
transaction includes securities or other property, in cash and/or securities or
other property in the Committee's discretion.
16. Termination and Modification of the Plan.
----------------------------------------
The Board of Directors or the Committee, without approval of the
stockholders, may modify or terminate the Plan, except that no modification
shall become effective without prior approval of the stockholders of the Company
if stockholder approval would be required for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
listing requirement of the principal stock exchange on which the Common Stock is
then listed.
17. Amendment or Substitution of Awards under the Plan.
--------------------------------------------------
The terms of any outstanding award under the Plan may be amended from
time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any award and/or payments thereunder or of the date of lapse of restrictions
on Shares); provided that, except as otherwise provided in Section 15, no such
amendment shall adversely affect in a material manner any right of a participant
under the award without his or her written consent. The Committee may, in its
discretion, permit holders of awards under the Plan to surrender outstanding
awards in order to exercise or realize rights under other awards, or in exchange
for the grant of new awards, or require holders of awards to surrender
outstanding awards as a condition precedent to the grant of new awards under the
Plan.
18. Commencement Date; Termination Date.
-----------------------------------
The date of commencement of the Plan shall be December 29, 1997,
subject to approval by the shareholders of the Company. Unless previously
terminated upon the adoption of
-13-
<PAGE>
a resolution of the Board terminating the Plan, the Plan shall terminate at the
close of business on December 29, 2007; provided that the Board may, prior to
such termination, extend the term of the Plan for up to five years for the grant
of awards other than Incentive Stock Options. No termination of the Plan shall
materially and adversely affect any of the rights or obligations of any person,
without his consent, under any grant of options or other incentives theretofore
granted under the Plan.
19. Governing Law. The Plan shall be governed by the corporate laws of the
-------------
State of Delaware, without giving effect to any choice of law provisions.
-14-
<PAGE>
EXHIBIT 10.10
TUESDAY MORNING CORPORATION
INCENTIVE STOCK OPTION AGREEMENT EVIDENCING
A GRANT OF AN INCENTIVE STOCK OPTION
THIS AGREEMENT (this "Agreement") is made as of the 29th day of
December, 1997, between Tuesday Morning Corporation, a Delaware corporation (the
"Company"), and Jerry M. Smith ("Grantee").
1. Grant of Option. Pursuant to the 1997 Long-term Equity Incentive
---------------
Plan of Tuesday Morning Corporation (the "Plan"), the Company hereby grants to
Grantee, as of the grant date specified above, an incentive stock option to
purchase the number of shares of common stock, par value $0.01 per share (the
"Common Stock"), of the Company specified on Exhibit A hereto (which number of
---------
shares may be adjusted pursuant to Paragraph 6 below) at the option price per
share specified on Exhibit A hereto, subject to the terms and conditions set
---------
forth herein and in the Plan.
2. Grantee Bound by Plan. Enclosed is a copy of the Plan which is
---------------------
incorporated herein by reference and made a part hereof. Grantee hereby
acknowledges receipt of a copy of the Plan and agrees to be bound by all the
terms and provisions thereof. Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Plan. The Plan and any
prospectus then in effect should be carefully examined before any decision is
made to exercise the option.
3. Exercisability. Subject to the earlier termination of the option
--------------
as provided in the Plan, the option will have vested and become exercisable with
respect to the cumulative percentage of shares of Common Stock set forth
opposite such date if Executive is, and has been, continuously employed by the
Company or its Subsidiaries from the date of this Agreement through such date:
Cumulative Percentage of
Date option Shares Vested
---- --------------------
December 29, 1998 33 1/3%
December 29, 1999 66 2/3%
December 29, 2000 100%
The option will vest ratably on a daily basis and the vested portion may be
exercised in whole or in part, by written notice to the Company in the form
attached as Exhibit B hereto, at any time and from time to time after the date
---------
of grant. An option shall not be exercisable in any event after the expiration
of ten years from the date of grant; provided, however, that if Grantee is a
"10-Percent Shareholder" within the meaning of (S)422(b)(6) of the Code on the
date of grant, an option shall not be exercisable after the expiration of five
years from the date of grant. An option may not be exercised for a fraction of a
share of Common Stock.
<PAGE>
4. Conditions to Exercise. The option may not be exercised by
----------------------
Grantee unless all of the following conditions are met:
(a) Legal counsel for the Company must be satisfied at the time
of exercise that the issuance of shares of Common Stock upon exercise will
be in compliance with the Securities Act of 1933, as amended (the "Act"),
and applicable United States federal, state, local and foreign laws;
(b) Grantee must pay at the time of exercise the full purchase
price for the shares of Common Stock being acquired hereunder, by (i)
paying in United States dollars by cash, (ii) tendering shares of Common
Stock owned by Grantee which have a fair market value equal to the full
purchase price for the shares of Common Stock being acquired, such fair
market value to be determined by the Board of Directors of the Company in
good faith or as may be required in order to comply with or conform to the
requirements of any applicable or relevant laws or regulations, (iii)
paying in such other form as the Board of Directors of the Company may
determine in its sole discretion, or (iv) tendering a combination of the
forms of payment provided for in Subparagraphs 4(b)(i) through 4(b)(iii)
above; and
(c) Grantee's spouse, if requested by the Company, shall have
duly executed and delivered to the Company a Stockholders Agreement in the
form attached as Exhibit C hereto (the "Stockholders Agreement").
---------
5. Transferability. The option may not be sold, assigned,
---------------
transferred, pledged, hypothecated or otherwise disposed of by Grantee, except
by will or the laws of descent and distribution and is exercisable during
Grantee's lifetime only by Grantee. If Grantee or anyone claiming under or
through Grantee attempts to violate this Paragraph 5, such attempted violation
shall be null and void and without effect, and the Company's obligation to make
any further payments (stock or cash) hereunder shall terminate. If at the time
of Grantee's death the option has not been fully exercised, Grantee's estate or
any person who acquires the right to exercise the option by bequest or
inheritance or by reason of Grantee's death may, at any time within one year
after the date of Grantee's death (but in no event after the expiration of ten
years from the grant date), exercise the portion of the option which has vested
by the time of Grantee's death in whole or in part. The applicable requirements
of Paragraph 4 above must be satisfied at the time of such exercise.
6. Adjustments. In the event of any change in the number of shares
-----------
of Common Stock outstanding by reason of any stock split, reverse stock split,
stock dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, sale by the Company of all or part of its assets, distribution to
shareholders other than a normal cash dividend, or other extraordinary or
unusual event occurring after the grant date specified above and prior to its
exercise in full, the number and kind of shares of Common Stock for which the
option may then be
<PAGE>
exercised and the option price per share shall be adjusted so as to reflect such
change, all as determined by the Board of Directors of the Company. In the event
of the proposed dissolution or liquidation of the Company, the option shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board of Directors of the Company.
7. Withholding of Tax. It shall be a condition to the obligation of
------------------
the Company to furnish shares of Common Stock upon exercise of an option (i)
that Grantee (or any person acting under Paragraph 5 above) pay to the Company
or its designee, upon its demand, in accordance with the Plan, such amount as
may be demanded for the purpose of satisfying the Company's obligation to
withhold federal, state, local or foreign income, employment or other taxes
incurred by reason of the exercise of the option or the transfer of shares
thereupon, and (ii) that Grantee (or any person acting under Paragraph 5 above)
provide the Company with any forms, documents or other information reasonably
required by the Company in connection with the grant. If the amount requested
for the purpose of satisfying the withholding obligation is not paid, the
Company may refuse to furnish shares of Common Stock upon exercise of the
option.
8. Amendment or Substitution of Awards. The terms of this Agreement
-----------------------------------
may be amended from time to time by the Board of Directors of the Company in its
sole discretion in any manner that it deems appropriate, provided, however, that
no such amendment shall adversely affect in a material manner any right of
Grantee under this Agreement without Grantee's written consent, unless the Board
of Directors of the Company determines in its sole discretion that there have
occurred or are about to occur, significant changes in economic, legislative,
regulatory, tax, accounting or cost/benefit conditions which are determined by
the Board of Directors of the Company in its sole discretion to have or to be
expected to have a substantial adverse effect on the Company, on the Plan or on
this grant under the Plan. The Board of Directors of the Company may, in its
sole discretion, permit Grantee to surrender this grant in order to exercise or
realize the rights under other awards under the Plan, or in exchange for the
grant of new awards under the Plan, or require Grantee to surrender this grant
as a condition precedent to the grant of new awards under the Plan.
9. Administration. Any action taken or decision made by the
--------------
Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction, administration, interpretation or effect of
the Plan or this Agreement shall lie within its sole and absolute discretion, as
the case may be, and shall be final, conclusive and binding on Grantee and all
persons claiming under or through Grantee. By accepting this grant or other
benefit under the Plan, Grantee and each person claiming under or through
Grantee shall be conclusively deemed to have indicated acceptance and
ratification of, and consent to, any action taken under the Plan by the Company,
the Board or the Committee or its delegates.
10. No Rights as Stockholder. Unless and until a certificate or
------------------------
certificates representing such shares of Common Stock shall have been issued to
Grantee (or any person
<PAGE>
acting under Paragraph 5 above), Grantee shall not be or have any of the rights
or privileges of a stockholder of the Company with respect to shares of Common
Stock acquirable upon exercise of the option. Except as set forth in Section 6,
no adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued to
Grantee.
11. Investment Representation. Grantee hereby acknowledges that the
-------------------------
shares of Common Stock which Grantee may acquire by exercising the option shall
be acquired for investment without a view to distribution, within the meaning of
the Act, and shall not be sold, transferred, assigned, pledged or hypothecated
in the absence of an effective registration statement for the shares under the
Act and applicable state securities laws or an applicable exemption from the
registration requirements of the Act and any applicable state securities laws.
Grantee also agrees that the shares of Common Stock which Grantee may acquire by
exercising the option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state.
12. Approved Sale. In the event of an "Approved Sale" (as defined in
-------------
Exhibit C), Grantee will consent to and raise no objections against the Approved
- ---------
Sale or the process pursuant to which the Approved Sale was arranged. Grantee
will take all necessary and desirable actions as directed by the Board of
Directors of the Company in connection with the consummation of any Approved
Sale of the Company, including the execution and delivery of all documents and
instruments as the Board of Directors of the Company may reasonably request to
effect the Approved Sale. In connection with an Approved Sale, the Board of
Directors of the Company may require the Grantee to sell all or part of the
option or to cancel all or part of the option for an amount of consideration per
option share underlying the option being sold or canceled equal to the per-share
consideration received by the Madison Dearborn Capital Partners II, L.P. in the
Approved Sale, less the exercise price per option share. On the closing date of
the Approved Sale, Grantee shall deliver such instruments and documents as the
Board of Directors of the Company may reasonably request to evidence such sale
or cancellation.
13. Listing and Registration of Common Stock. The Company, in its
----------------------------------------
discretion, may postpone the issuance and/or delivery of shares of Common Stock
upon any exercise of the option until completion of such stock exchange listing,
or registration, or other qualification of such shares under any state and/or
federal law, rule or regulation as the Company may consider appropriate.
14. Rights of Participants. Neither this Agreement nor the Plan
----------------------
creates any employment rights in Grantee and the Company shall have no liability
for terminating Grantee's employment. Grantee shall have no rights under the
Plan other than as an unsecured general creditor of the Company except that
insofar as Grantee may have become entitled to payment
<PAGE>
of additional compensation by performance of services, Grantee shall have the
same rights as other employees under general law.
15. Notices. Any notice hereunder to the Company shall be addressed
-------
to:
Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75244
Attention: Mark E. Jarvis
Facsimile: (972) 392-1558
and any notice hereunder to Grantee shall be addressed to Grantee at Grantee's
last address on the records of the Company, subject to the right of either party
to designate at any time hereafter in writing some other address. Any notice
shall be deemed to have been duly given when delivered personally or enclosed in
a properly sealed envelope, addressed as set forth above, and deposited (with
first class postage prepaid) in the United States mail.
16. Counterparts. This Agreement may be executed in one or several
------------
counterparts, each of which shall constitute one and the same instrument.
17. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of any successors to the Company and all persons lawfully
claiming under Grantee.
18. Governing Law. The validity, construction, interpretation,
-------------
administration and effect of the Plan, and of its rules and regulations, and
rights relating to the Plan and to this Agreement, shall be governed by the
substantive laws, but not the choice of law rules, of the State of Delaware.
19. Miscellaneous. This option is intended to be an "incentive stock
-------------
option" under (S)422 of the Code and shall be deemed to be consistent with and
contain all provisions required by (S)422 and any other applicable provisions of
the Code and any implementing regulations (and any successor provisions thereof)
and any ambiguities in the Plan or this Agreement shall be interpreted so as to
effectuate such intent.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have executed this Option
Agreement as of the date first above written.
TUESDAY MORNING CORPORATION
By: _____________________________
Its: Vice President
GRANTEE
_________________________________
Employee's Signature
_________________________________
Name of Employee (Print)
_________________________________
Social Security Number
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Number of Shares Option Price
Subject to Option Per Share
----------------- ------------
<S> <C>
125,000 $1.428574
</TABLE>
<PAGE>
EXHIBIT B
---------
Form of Letter to be Used on
Exercise of Incentive Stock Option
_______________
Date
Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75244
Attention: President
Dear Sir:
I wish to exercise the stock option granted on ____________, 199_ and
evidenced by my Incentive Stock Option Agreement dated ____________, 199_ to the
extent of ________ shares of the Common Stock of Tuesday Morning Corporation, at
the option price of $1.428574 per share. My check in the amount of $________ in
payment of the entire purchase price for these shares accompanies this letter.
Please issue a certificate for these shares in the following name:
___________________________________
Name
___________________________________
Street Address
___________________________________
City/State/Zip
Very truly yours,
___________________________________
Signature
___________________________________
Typed or Printed Name
___________________________________
Social Security Number
<PAGE>
Exhibit 10.11
STOCKHOLDERS AGREEMENT
----------------------
THIS AGREEMENT (this "Agreement") is made as of December 29, 1997 by
---------
and among Tuesday Morning Corporation, a Delaware corporation (the "Company"),
-------
Madison Dearborn Capital Partners II, L.P., a Delaware limited partnership
("MDCP") and the executives listed on Schedule I attached hereto (the
-----
"Executives") or their Permitted Transferees (as defined below). MDCP, the
----------
spouses of the Executives executing a Spousal Signature Page attached hereto,
the Executives and their Permitted Transferees are collectively referred to as
the "Stockholders" and individually as a "Stockholder." Capitalized terms used
------------ -----------
herein are defined in paragraph 8 hereof.
The Company and the Stockholders desire to enter into this Agreement
for the purposes, among others, of (i) assuring continuity in the management and
ownership of the Company, (ii) limiting the manner and terms by which the
Executives' Stockholders Shares may be transferred, (iii) providing certain
participation rights to Executives and (iv) providing certain registration
rights to the Stockholders.
The parties to this hereby agree as follows:
1. Restrictions on Transfer of Stockholder Shares held by Executives.
-----------------------------------------------------------------
(a) Retention of Stockholder Shares. No Executive shall sell,
-------------------------------
transfer, assign, pledge or otherwise dispose of ("Transfer") any interest in
--------
any Stockholder Shares, except for (i) Transfers pursuant to a Qualified Public
Offering, (ii) Transfers pursuant to paragraphs 2, 3 and 4 hereof, (iii)
Transfers made with the prior written consent of MDCP, (iv) Transfers to
Permitted Transferees pursuant to paragraph 1(b) below, (v) Transfers by Jerry
M. Smith pursuant to the Put Agreement, dated as of the date hereof, by and
among Mr. Smith, MDCP and the Company and (vi) Transfers by Lloyd L. Ross
pursuant to the Put Agreement, dated as of the date hereof, by and among Mr.
Ross, MDCP and the Company
(b) Certain Permitted Transfers. The restrictions contained in this
---------------------------
paragraph 1 will not apply with respect to Transfers of Stockholder Shares (i)
pursuant to applicable laws of descent and distribution or (ii) in the case of
any Executive, among such Executive's family group (transferees pursuant to
clauses (i) and (ii), are herein collectively "Permitted Transferees"); provided
---------------------
that such restrictions will continue to be applicable to the Stockholder Shares
after any such Transfer and the Permitted Transferees of such Stockholder Shares
shall, as a condition to such Transfer, agree in writing to be bound by the
provisions of this Agreement (with the Permitted Transferees then being treated
as "Stockholders" for all purposes of this Agreement); and provided, further,
that any Transfer of Stockholder Shares by any Executive or his or her Permitted
Transferees shall be of both Junior Preferred Stock and Common Stock in the same
proportions as the numbers of shares of Junior Preferred Stock and Common Stock
owned by such Executive or his or her Permitted Transferees on the date of
Transfer. An Executive's "family group" means such Executive's spouse and
------------
descendants (whether natural or adopted) and any trust or limited partnership
solely for the benefit of such Executive and/or such Executive's spouse and/or
descendants.
<PAGE>
(c) Termination of Restrictions. The restrictions on the Transfer of
---------------------------
Stockholder Shares set forth in this paragraph 1 will terminate upon the closing
of a Qualified Public Offering.
2. Approved Sale.
-------------
(a) In the event of an Approved Sale, each holder of Stockholder
Shares (including, without limitation, each Permitted Transferee) will consent
to and raise no objections against the Approved Sale or the process pursuant to
which the Approved Sale was arranged and waive any dissenter's rights and other
similar rights. Such holder will take all necessary and desirable actions as
directed by the Board or MDCP in connection with the consummation of any
Approved Sale, including the execution and delivery of all documents and
instruments as the Board or MDCP may reasonably request to effect the Approved
Sale; provided, however, that no holder shall be required to incur
indemnification obligations in excess of the net proceeds received by such
holder.
(b) In connection with an Approved Sale, MDCP may require each holder
of Stockholder Shares (including, without limitation, each Permitted Transferee)
to sell, or cause to be sold, the same proportionate number of Stockholder
Shares (and in the same proportion of Junior Preferred Stock and Common Stock)
owned by each such holder as are proposed to be sold or transferred by MDCP for
the same consideration per share and otherwise on the same terms and conditions
obtained by MDCP in the Approved Sale. On the closing date of the sale of such
Stockholder Shares under this paragraph 2, the consideration then due such
holder of Stockholder Shares shall be paid in full to such holder against
delivery of a certificate or certificates, as the case may be, representing the
Stockholder Shares sold by such holder duly endorsed for transfer.
(c) Each holder of Stockholder Shares (including, without limitation,
each Permitted Transferee) will bear such holder's pro rata share (based upon
the number of shares sold) of the reasonable costs of any sale of Stockholder
Shares pursuant to an Approved Sale to the extent such costs are incurred for
the benefit of all selling Stockholders and are not otherwise paid by the
Company or the acquiring party. Costs incurred by any holder of Stockholder
Shares on such holder's own behalf will not be considered costs of the
transaction hereunder.
(d) The provisions of this paragraph 2 shall terminate immediately
prior to the closing of any Qualified Public Offering.
3. Co-Sale Rights.
--------------
(a) In the event that (i) MDCP proposes to effect a Transfer (other
than a pledge) of Stockholder Shares to persons other than its affiliates or
partners and (ii) such Transfer would result in (or occurs after) a "25% MDCP
--------
Reduction" (as defined below), MDCP shall promptly give written notice (the "Co-
- --------- --
Sale Notice") to the Company and the other Stockholders at least 30 days
- -----------
-2-
<PAGE>
prior to the closing of such Transfer. The Co-Sale Notice shall describe in
reasonable detail the proposed Transfer including, without limitation, the name
of, and the number (by class) of Stockholder Shares to be purchased by, the
transferee, the purchase price of each Stockholder Share to be sold, the number
of shares MDCP or its affiliate proposes to Transfer, any other significant
terms of the proposed Transfer and the date the proposed Transfer will be
consummated, it being understood that if such proposed Transfer by MDCP or its
affiliates is in a Public Sale, the provisions of this paragraph 3 shall not
apply. For purposes of this paragraph 3(a), a "25% MDCP Reduction" shall mean
the Transfer or series of Transfers by MDCP or its affiliates of Stockholder
Shares to persons other than affiliates and partners of MDCP representing 25% of
the Stockholder Shares held by MDCP on the date of this Agreement. The share
numbers referred to in this paragraph 3(a) shall be subject to adjustment for
stock splits, stock combinations, stock dividends, recapitalizations,
reorganizations and the like.
(b) Each Stockholder other than MDCP may elect to participate in the
contemplated Transfer by delivering irrevocable written notice to MDCP setting
forth the number of Stockholder Shares such Stockholder desires to sell in the
contemplated Transfer within 20 days after delivery of the Co-Sale Notice. If
any Stockholders have elected to participate in such Transfer, each such
Stockholder shall be entitled to sell in the contemplated Transfer, at the same
price and on the same terms, a number of Stockholder Shares (in the same
proportion of Junior Preferred Stock and Common Stock as is proposed to be sold
by MDCP) equal to the product of (i) the quotient determined by dividing the
number of Stockholder Shares owned by such Stockholder by the aggregate number
of Stockholder Shares owned by MDCP and its affiliates and all Stockholders and,
as to any proposed Transfer of Common Stock, the aggregate number of shares of
Common Stock owned by holders of Common Stock having rights equivalent to those
conferred in this paragraph (b) (the "Equivalent Holders") by that certain
------------------
Common Stock Registration Rights Agreement, dated as of the date hereof, by and
among the Company, MDCP and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Common Stock Registration Rights Agreement"), and (ii)
------------------------------------------
the number of Stockholder Shares to be sold in the contemplated Transfer.
(c) MDCP or its affiliates shall use reasonable best efforts to obtain
the agreement of the prospective transferee(s) to such participation of the
Stockholders in any contemplated Transfer, and MDCP and its affiliates may not
Transfer any of their respective Stockholder Shares to the prospective
transferee(s) if the prospective transferee(s) declines to allow such
participation of the Stockholders.
(d) Each Stockholder will bear its pro rata share (based upon the
number of shares sold) of the reasonable costs of any sale of Stockholder Shares
pursuant to a sale subject to this paragraph 3 to the extent such costs are
incurred for the benefit of all selling Stockholders and are not otherwise paid
by the Company or the acquiring party. Costs incurred by the Stockholders on
their own behalf will not be considered costs of the transaction hereunder.
-3-
<PAGE>
(e) The provisions of this paragraph 3 shall terminate immediately
prior to the closing of any Qualified Public Offering.
4. Repurchase Upon Termination for Cause.
-------------------------------------
(a) In the event that any Executive shall be terminated for Cause (the
"Termination"), (i) the Original Shares owned by such Executive or Executive's
-----------
Permitted Transferees shall be subject to repurchase by the Company for the
greater of their Original Cost and Fair Market Value and (ii) the Option Shares
owned by such Executive or Executive's Permitted Transferees shall be subject to
repurchase by the Company, at the Company's option, for the lesser of their
Original Cost or Fair Market Value (the "Repurchase Option"). Any such shares
-----------------
subject to the Repurchase Option under this Section 4 are referred to herein as
the "Available Shares."
----------------
(c) The Board may elect to cause the Company to purchase all or any
portion of the Available Shares by delivering written notice (the "Repurchase
----------
Notice") to the holder or holders of the Available Shares with respect to such
- ------
terminated Executive within 90 days after the Termination. The Repurchase
Notice will set forth the number of Available Shares to be acquired from each
such holder, the aggregate consideration to be paid for such Available Shares
and the time and place for the closing of the transaction. The number of
Available Shares to be repurchased by the Company shall first be satisfied to
the extent possible from the Available Shares held by the terminated Executive
at the time of delivery of the Repurchase Notice. If the number of Available
Shares then held by the Executive is less than the total number of Available
Shares the Company has elected to purchase, the Company shall purchase the
remaining Available Shares elected to be purchased from the other holder(s) of
Available Shares with respect to such terminated Executive, pro rata according
to the number of Available Shares held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share).
(d) The closing of the purchase of the Available Shares pursuant to
the Repurchase Option shall take place at the location and on the date
designated by the Company in the Repurchase Notice, which date shall not be more
than 90 days nor less than five days after the delivery of such notice. The
Company will pay for the Available Shares to be purchased pursuant to the
Repurchase Option by delivery of a check or wire transfer of funds.
5. Registration Rights.
-------------------
(a) At any time following the date of this Agreement, MDCP may require
the Company to effect up to three registrations of all or any portion of its
Stockholder Shares (the "MDCP Registrable Securities") on Form S-1 or, if
---------------------------
available, on Form S-2 or S-3 (or any similar "short form") under the Securities
Act (the "MDCP Demand Registrations"). A registration will not count as one of
-------------------------
the permitted MDCP Demand Registrations unless MDCP has been able to register
and sell at least 90% of the MDCP Registrable Securities requested to be
registered by MDCP;
-4-
<PAGE>
provided that in any event the Company will pay all Registration Expenses in
connection with any registration initiated as an MDCP Demand Registration
whether or not it is counted as one of the permitted MDCP Demand Registrations
under this sentence.
(b) Whenever the Company proposes to register any of its Common Stock
or securities convertible into or exchangeable for Common Stock under the
Securities Act (other than a registration statement on Form S-8 or Form S-4 or
successor forms thereto) and the registration form to be used may be used for
the registration of the Stockholder Shares of any Stockholder (such Stockholder
Shares, other than Junior Preferred Stock, the "Registrable Securities"), the
----------------------
Company will give prompt written notice to all holders of Registrable Securities
of its intention to effect such a registration and, subject to the provisions of
this paragraph 5, shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
within 30 days after the receipt of the Company's notice (a "Piggyback
---------
Registration").
- ------------
(c) If a Piggyback Registration is an underwritten primary
registration on behalf of the Company and the managing underwriter advises the
Company that in its opinion the number of shares requested to be included in
such registration exceeds the number of shares which can be sold in such
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
Stockholder Shares on the percentage of the outstanding Registrable Securities
held by each such holder, provided that prior to the exercise of a demand
registration right by the Equivalent Holders under the Common Stock Registration
Rights Agreement, "Registrable Securities" and "Stockholder Shares" solely for
purposes of this clause (ii) shall include shares of the Common Stock owned by
the Equivalent Holders and (iii) third, the other securities requested to be
included in such registration by stockholders exercising contractual piggyback
registration rights (if any), pro rata among such holders on the basis of the
number of shares requested to be included therein by each holder.
(d) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities and the managing
underwriter advises the Company that in its opinion the number of shares
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include in such registration the
securities requested to be included therein by the holders initiating the
registration and the Registrable Securities requested to be included in such
registration, pro rata among the holders of such securities and such
Registrable Securities based on the aggregate percentage of securities held by
each such holder, provided that prior to the exercise of a demand registration
right by the Equivalent Holders under the Common Stock Registration Rights
Agreement, "Registrable Securities" solely for purposes of this paragraph (d)
shall include shares of the Common Stock owned by the Equivalent Holders.
-5-
<PAGE>
(e) The Company shall bear the costs of the MDCP Demand Registrations
and Piggyback Registrations pursuant to this paragraph 5, in each case,
including the reasonable fees and expenses of one counsel for the selling
Stockholders but excluding any underwriting discounts or commissions on the sale
of Registrable Securities or the fees and expenses of any additional counsel
retained by the selling Stockholders (the "Registration Expenses"). The Company
---------------------
shall, and as a condition to the inclusion of Registrable Securities of any
holder in any registration, such holder shall, execute an underwriting agreement
or similar agreement in a form reasonably acceptable to the Company, MDCP and
the underwriter(s), if any, for such offering containing customary
indemnification and holdback provisions and provisions obligating the selling
Stockholders to supply customary information for inclusion in the registration
statement. Notwithstanding the foregoing, (i) no holder of Registrable
Securities shall be required to incur indemnification obligations in excess of
the net proceeds received by such holder pursuant to such registration or that
relate to information not supplied by such holder for inclusion in the
registration statement, and (ii) the Company shall indemnify each holder of
Registrable Securities with respect to liabilities arising from such
registration statement other than as a result of information supplied by such
holder of Registrable Securities for inclusion therein.
(f) Each Stockholder agrees not to effect any public sale or
distribution (including sales pursuant to Rule 144) of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and the 180-day period beginning
on the effective date of any underwritten MDCP Demand Registration or any
underwritten Piggyback Registration in which Registrable Securities are included
(except as part of such underwritten registration) if so requested by the
underwriters managing the registered public offering.
(g) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten MDCP Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
6. Legends.
-------
-6-
<PAGE>
(a) Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF
DECEMBER 29, 1997 AMONG THE ISSUER OF SUCH SECURITIES
(THE "COMPANY") AND CERTAIN OF THE COMPANY'S
STOCKHOLDERS. A COPY OF SUCH STOCK HOLDERS AGREEMENT
WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE
HOLDER HEREOF UPON WRITTEN REQUEST."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Stockholder Shares in accordance with the provisions of
this Agreement.
(b) Each certificate evidencing Stockholder Shares shall also bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON DECEMBER 29, 1997, HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
No holder of Stockholder Shares may sell, transfer or dispose of any Stockholder
Shares (except pursuant to an effective registration statement under the
Securities Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the Securities Act and applicable state
securities laws is required in connection with such transfer.
7. Transfer. Prior to Transferring any Stockholder Shares (other
--------
than in a Public Sale) to any person or entity, the Transferring Stockholder
shall cause the prospective transferee to execute and deliver to the Company and
the other Stockholders a counterpart of this Agreement.
-7-
<PAGE>
8. Definitions.
-----------
"Agreement" has the meaning set forth in the preamble.
---------
"Approved Sale" means the sale of the Company, in a single transaction
-------------
or a series of related transactions, to a third party that is not an affiliate
of MDCP or its respective affiliates or the Company (a) pursuant to which such
third party proposes to acquire a majority of the outstanding voting securities
of the Company (whether by merger, consolidation, recapitalization,
reorganization, purchase of the outstanding voting securities of the Company or
otherwise) or all or substantially all of the consolidated assets of the
Company, (b) which has been approved by holders of at least a majority of the
outstanding Stockholder Shares and (c) pursuant to which all holders of each
class (treating all Junior Preferred Stock as one class) of the Company's equity
securities receive (whether in such transaction or, with respect to an asset
sale, upon a subsequent liquidation) the same form and amount of consideration
per share or, if any holders are given an option as to the form and amount of
consideration to be received, all holders are given the same option.
"Available Shares" has the meaning set forth in Section 4(a).
----------------
"Board" means the Company's board of directors.
-----
"Cause" means (i) (A) with respect to the Original Shares, the
-----
conviction of a felony or a crime involving moral turpitude or the commission of
any other act or omission involving dishonesty, disloyalty or fraud with respect
to the Company or any of its subsidiaries and (B) with respect to the Option
Shares, the commission of a felony or a crime involving moral turpitude or the
commission of any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its subsidiaries, (ii) conduct
tending to bring the Company or any of its subsidiaries into substantial public
disgrace or disrepute, (iii) substantial and repeated failure to perform duties
as reasonably directed by the Board, (iv) gross negligence or willful
misconduct with respect to the Company or any of its subsidiaries or (v) any
other material breach of this Agreement; provided that the conduct described in
clauses (iii), (iv) and (v) above shall not constitute Cause if such conduct is
of the nature that can be cured and such conduct has been so cured no later than
10 days after notice by the Company that such conduct gives rise to Cause
hereunder.
"Common Stock" means the common stock of the Company, par value $.01
------------
per share.
"Company" has the meaning set forth in the preamble.
-------
"Co-Sale Notice" has the meaning set forth in Section 3(a).
--------------
"Executives" has the meaning set forth in the preamble.
----------
-8-
<PAGE>
"Fair Market Value" means, with respect the Common Stock:
-----------------
(i) the average of the closing prices of the sales of such security on
all securities exchanges on which such security may at the time be listed, or,
if there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day such security is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days prior to
such day; or
(ii) with respect to any security which is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market for the entire 21-day averaging period specified above, the fair value of
such security as reasonably determined by the Board in good faith.
"Junior Preferred Stock" means the non-voting junior redeemable
----------------------
preferred stock, par value $.01 per share, and non-voting junior non-redeemable
preferred stock, par value $.01 per share, of the Company.
"MDCP" has the meaning set forth in the preamble.
----
"MDCP Demand Registrations" has the meaning set forth in Section 5(a).
-------------------------
"MDCP Registrable Securities" has the meaning set forth in Section
---------------------------
5(a).
"Original Cost" means, with respect to the Common Stock, $1.428574 per
-------------
share.
"Option Shares" means (i) any Common Stock acquired by any Stockholder
-------------
pursuant to the exercise of stock options granted under the Company's 1997 Long-
Term Equity Incentive Plan or (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Original Shares" means (i) any Common Stock acquired by any
---------------
Stockholder on the date hereof at the Original Cost or (ii) any equity
securities issued or issuable directly or indirectly with respect to the Common
Stock referred to in clause (i) above by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
-9-
<PAGE>
"Permitted Transferees" has the meaning set forth in Section 1(b).
---------------------
"Public Sale" means any sale of Stockholder Shares to the public
-----------
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
(or any similar provision then in force) adopted under the Securities Act.
"Piggyback Registration" has the meaning set forth in Section
----------------------
"Qualified Public Offering" means the sale in an underwritten public
-------------------------
offering registered under the Securities Act of shares of the Company's Common
Stock having an aggregate price to the public of at least $30 million and a per
share price to the public of at least three times the Original Cost.
"Registration Expenses" has the meaning set forth in Section 5(e).
---------------------
"Registrable Securities" has the meaning set forth in Section 5(b).
----------------------
"Repurchase Notice" has the meaning set forth in Section 4(c).
-----------------
"Repurchase Option" has the meaning set forth in Section 4(a).
-----------------
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Stockholder Shares" means the (i) any Junior Preferred Stock or
------------------
Common Stock held by any Stockholder on the date hereof or acquired by any
Stockholder on or after the date hereof or (ii) any equity securities issued or
issuable directly or indirectly with respect to the Junior Preferred Stock or
Common Stock referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorgan ization. As to any particular shares
constituting Stockholder Shares, such shares shall cease to be Stockholder
Shares when they have been (x) effectively registered under the Securities Act
and disposed of in accordance with the registration statement covering them or
(y) sold in a Public Sale.
"Stockholders" has the meaning set forth in the preamble.
------------
"Termination" has the meaning set forth in Section 4(a).
-----------
"Transfer" has the meaning set forth in Section 1(a).
--------
9. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the
-10-
<PAGE>
Company shall not record such Transfer on its books or treat any purported
transferee of such Stockholder Shares as the owner of such shares for any
purpose.
10. Conflicting Agreements. Each Stockholder represents that he, she
----------------------
or it has not granted and is not a party to any proxy, voting trust or other
agreement which is inconsistent with or conflicts with the provisions of this
Agreement, and no holder of Stockholder Shares shall grant any proxy or become
party to any voting trust or other agreement which is inconsistent with or
conflicts with the provisions of this Agreement.
11. Amendment and Waiver. No modification, amendment or waiver of
--------------------
any provision of this Agreement shall be effective against the Company or the
Stockholders unless such modification, amendment or waiver is approved in
writing by the Company and the holders of a majority of the Stockholder Shares
then held by MDCP and its transferees a majority of the Stockholder Shares then
held by the Executives and their Permitted Transferees. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
15. Counterparts. This Agreement may be executed in separate
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
-11-
<PAGE>
16. Remedies. The Company, MDCP and the Executives shall be entitled
--------
to enforce their rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company, MDCP and any Executive may in
its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
17. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid). Notices will be deemed to have been given hereunder when delivered
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service. Such notices shall be delivered to
the following addresses:
If to the Company:
Tuesday Morning Corporation
14621 Inwood Road
Dallas, TX 75244
Attention: Mark E. Jarvis
Facsimile: (972) 392-1558
With a copy to:
Carter W. Emerson, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile: (312) 861-2200
If to MDCP:
Madison Dearborn Capital Partners II, L.P.
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
Attention: William J. Hunckler III
Facsimile: (312) 895-1001
-12-
<PAGE>
With a copy to:
Carter W. Emerson, P.C.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile: (312) 861-2200
If to Executives:
at the addresses set forth on the signature pages hereto
or at such address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party.
18. Governing Law. THE CORPORATE LAW OF DELAWARE SHALL GOVERN ALL
-------------
ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL
OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS,
OF ILLINOIS.
19. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
20. Spouse. By executing this Agreement, the spouse of each Executive
------
agrees to be bound in all respects by the terms of this Agreement to the same
extent as the Executive. Such spouse further agrees that should she or he
predecease such Executive or should she or he become divorced from such
Executive, any of the Stockholder Shares which such spouse may own or in which
she or he may have any interest shall remain subject to all of the restrictions
and to all of the rights of the parties to this Agreement.
* * * * *
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the day and year first above written.
TUESDAY MORNING CORPORATION
By ______________________________________
Its:__________________________________
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By Madison Dearborn Partners II, L.P.
Its General Partner
By Madison Dearborn Partners, Inc.
Its General Partner
By ______________________________
Benjamin D. Chereskin
Its Vice President
EXECUTIVES:
__________________________________________
Lloyd L. Ross
Address: 5637 Prestwick Ln.
Dallas, TX 75252
__________________________________________
Jerry M. Smith
Address: 3520 Potomac
Dallas, TX 75205
<PAGE>
__________________________________________
Mark E. Jarvis
Address: 707 Findlay Dr.
Arlington, TX 76012
_________________________________________
George M. Anderson
Address: 4142 Woodside Knoll
Grapevine, TX 76051
_________________________________________
Duane A. Huesers
Address: 169 Asher Ct.
Coppell, TX 75019
_________________________________________
Karen T. Costigan
Address: 12608 Breckenridge
Dallas, TX 75230
_________________________________________
Richard E. Nance
Address: 17 Creekmere Dr.
Trophy Club, TX 76262
_________________________________________
Alan L. Oppenheimer
Address: 3828 Arizona Place
Plano, TX 75023
<PAGE>
_________________________________________
William H. Kendall
Address: 3417 Marquette
Dallas, TX 75225
_________________________________________
Rebecca M. Gully
Address: 4508 B. University
Dallas, TX 75205
_________________________________________
Stella M. Knable
Address: 1112 Raleigh Dr.
Lewisville, TX 75067
_________________________________________
Tom G. Gress
Address: 680 Oak Hill
Southlake, TX 76092
<PAGE>
SCHEDULE I
SCHEDULE OF EXECUTIVES
Lloyd L. Ross
Jerry M. Smith
Mark E. Jarvis
George M. Anderson
Duane A. Huesers
Karen T. Costigan
Richard E. Nance
Alan L. Oppenheimer
William H. Kendall
Rebecca M. Gully
Stella M. Knable
Tom G. Gress
<PAGE>
SPOUSAL SIGNATURE PAGE
I, the undersigned, being the spouse of an Executive, hereby acknowledge
that I have read and understand the foregoing Stockholders Agreement, and I
agree to be bound by the terms thereof, including, but not limited to, Section 1
thereof.
Signature: ______________________________
Please Print Name: ______________________
<PAGE>
Exhibit 11.1
Tuesday Morning Corporation
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Pro Forma Pro forma
Twelve Months Nine Months
9 months Ended Ended
Year Ended December 31 September 30 December 31 September 30
------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings 10,215 (2,572) 4,016 7,264 18,508 712 8,585 (4,175) (8,279)
-------------------------------------------------------------------------------------------------
Interest on debt 771 1,689 2,289 3,063 2,589 2,014 2,261 23,590 18,862
Interest on capitalized leases 169 267 178 133 69 178 69
Interest on operating leases 2,803 3,564 3,927 4,192 4,656 3,418 3,984 4,656 3,984
-------------------------------------------------------------------------------------------------
Total 3,574 5,253 6,385 7,522 7,423 5,565 6,314 28,424 22,915
-------------------------------------------------------------------------------------------------
Total available gross income 13,789 2,681 10,401 14,786 25,931 6,277 14,899 24,249 14,636
=================================================================================================
-------------------------------------------------------------------------------------------------
Ratio 3.9 0.5 1.6 2.0 3.5 1.1 2.4 0.9 0.6
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 11.2
TUESDAY MORNING CORPORATION
RATIOS OF EARNINGS COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND
REQUIREMENTS
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Twelve Months Twelve Months
9 months Ended Ended
Year Ended December 31 September 30 December 31 September 30
---------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes 10,215 (2,572) 4,016 7,264 18,508 712 8,585 (4,175) (8,279)
Preferred dividend - - - - - - - (11,033) (8,275)
----------------------------------------------------------------------------------------------------
Total 10,215 (2,572) 4,016 7,264 18,508 712 8,585 (15,208) (16,554)
----------------------------------------------------------------------------------------------------
Interest on debt 771 1,689 2,289 3,063 2,589 2,014 2,261 23,590 18,862
Interest on capitalized leases 169 267 178 133 69 178 69
Interest on operating leases 2,803 3,564 3,927 4,192 4,656 3,418 3,984 4,656 3,984
Preferred dividend - - - - - - - 11,033 8,275
----------------------------------------------------------------------------------------------------
Total fixed charges 3,574 5,253 6,385 7,522 7,423 5,565 6,314 39,457 31,190
----------------------------------------------------------------------------------------------------
Total available income 13,789 2,681 10,401 14,786 25,931 6,277 14,899 24,249 14,636
====================================================================================================
----------------------------------------------------------------------------------------------------
Ratio 3.9 0.5 1.6 2.0 3.5 1.1 2.4 0.6 0.5
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY AND EACH OF THE SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Corporation Subsidiary or Subsidiares
----------- -------------------------
- ----------------------------------------------------------------------
<S> <C>
Tuesday Morning Corporation TMI Holdings, Inc.
(Delaware corporation) (Delaware corporation)
Tuesday Morning, Inc.
(Texas corporation)
Friday Morning, Inc.
(Texas corporation)
TMIL Corporation
(Delaware corporation)
- ----------------------------------------------------------------------
TMI Holdings, Inc. Tuesday Morning, Inc.
(Delaware corporation) (Texas corporation)
Friday Morning, Inc.
(Texas corporation)
TMIL Corporation
(Delaware corporation)
- ----------------------------------------------------------------------
Tuesday Morning, Inc. Friday Morning, Inc.
(Texas corporation) (Texas corporation)
TMIL Corporation
(Delaware corporation)
- ----------------------------------------------------------------------
Friday Morning, Inc. None
(Texas corporation)
- ----------------------------------------------------------------------
TMIL Corporation None
(Delaware corporation)
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23.1
[Letterhead of KPMG Peat Marwick LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors
Tuesday Morning Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
February 6, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> CT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and related consolidated statement of income of
Tuesday Morning Corporation and subsidiaries as of September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<TOTAL-ASSETS> 199,215
0
0
<COMMON> 123
<OTHER-SE> 81,090
<TOTAL-LIABILITY-AND-EQUITY> 199,215
<TOTAL-REVENUES> 179,058
<INCOME-TAX> 3,219
<INCOME-CONTINUING> 5,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,366
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
