SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-11822
__________________________
MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1943604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8000 Bent Branch Drive
Irving, Texas 75063-6041
P.O. Box 619566
DFW, Texas 75261-9566
(Address of principal executive offices, including zip code)
(972) 409-1300
(Registrant's telephone number, including area code)
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding as of
Title September 6, 1996
_________________
Common stock, par value $.10 per share 23,552,976
<PAGE>
MICHAELS STORES, INC.
FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
MICHAELS STORES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
July 28, January 28,
1996 1996
________ ___________
<S> <C> <C>
Current assets:
Cash and equivalents $ 8,565 $ 2,870
Merchandise inventories 418,791 366,102
Income taxes receivable and
deferred income taxes 38,570 35,177
Prepaid expenses and other 15,391 12,143
________ ________
Total current assets 481,317 416,292
________ ________
Property and equipment, at cost 291,162 255,386
Less accumulated depreciation (98,172) (82,157)
________ ________
192,990 173,229
Costs in excess of net assets of
acquired operations, net 141,984 143,721
Other assets 7,391 6,538
________ ________
149,375 150,259
________ ________
$823,682 $739,780
________ ________
________ ________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 99,801 $ 98,799
Short-term bank debt 19,000 -
Accrued liabilities and other 83,084 88,510
________ ________
Total current liabilities 201,885 187,309
________ ________
Bank debt - 87,200
Convertible subordinated notes 96,940 96,940
Senior notes 125,000 -
Deferred income taxes and other 43,753 32,378
________ ________
Total long-term liabilities 265,693 216,518
________ ________
467,578 403,827
________ ________
Commitments and contingencies
Shareholders' equity:
Common stock, 23,548,210
shares outstanding 2,355 2,150
Additional paid-in capital 268,676 243,325
Retained earnings 85,073 90,478
________ ________
Total shareholders' equity 356,104 335,953
________ ________
$823,682 $739,780
________ ________
________ ________
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
_______________________
July 28, July 30,
1996 1995
________ ________
<S> <C> <C>
Net sales $260,476 $259,910
Cost of sales and occupancy expense 184,574 230,133
Selling, general and administrative
expense 83,981 84,750
________ ________
Operating loss (8,079) (54,973)
Interest expense 4,824 4,537
Other (income) and expense, net (106) 1,476
________ ________
Loss before income taxes (12,797) (60,986)
Income tax benefit (4,864) (27,862)
________ ________
Net loss $ (7,933) $(33,124)
________ ________
________ ________
Loss per common share $ (.34) $(1.55)
______ ______
______ ______
Weighted average common shares outstanding 23,532 21,413
______ ______
______ ______
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
______________________
July 28, July 30,
1996 1995
________ ________
<S> <C> <C>
Net sales $562,351 $525,457
Cost of sales and occupancy expense 389,641 402,176
Selling, general and administrative
expense 172,951 162,834
________ ________
Operating loss (241) (39,553)
Interest expense 8,534 7,878
Other (income) and expense, net (373) 1,267
________ ________
Loss before income taxes (8,402) (48,698)
Income tax benefit (3,194) (23,131)
________ ________
Net loss $ (5,208) $(25,567)
________ ________
________ ________
Loss per common share $ (.23) $(1.20)
______ ______
______ ______
Weighted average common shares outstanding 22,782 21,392
______ ______
______ ______
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
_____________________
July 28, July 30,
1996 1995
________ ________
<S> <C> <C>
Operating activities:
Net loss $ (5,208) $(25,567)
Adjustments:
Depreciation and amortization 17,968 15,756
Other 362 -
Change in assets and liabilities excluding
the effects of acquisitions:
Merchandise inventories (52,689) (8,772)
Prepaid expenses and other (3,247) (7,719)
Deferred income taxes and other (1,452) (25,875)
Accounts payable 1,002 (35,646)
Accrued liabilities and other (9,637) (7,521)
________ ________
Net change in assets and liabilities (66,023) (85,533)
________ ________
Net cash used in operating activities (52,901) (95,344)
________ ________
Investing activities:
Additions to property and equipment (16,817) (30,441)
Net proceeds from sales of property
and equipment - 1,791
Net proceeds from sales of marketable
securities - 10,705
Acquisitions and other (2,672) (24,683)
________ ________
Net cash used in investing activities (19,489) (42,628)
________ ________
Financing activities:
Net borrowings (repayments) under bank
credit facilities (68,200) 135,300
Proceeds from issuance of senior notes 120,940 -
Proceeds from issuance of common stock and other 25,345 859
________ ________
Net cash provided by financing activities 78,085 136,159
________ ________
Net increase (decrease) in cash and equivalents 5,695 (1,813)
Cash and equivalents at beginning of year 2,870 1,907
________ ________
Cash and equivalents at end of period $ 8,565 $ 94
________ ________
________ ________
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months ended July 28, 1996
(Unaudited)
Note A
______
The accompanying consolidated financial statements are unaudited (except for
the Consolidated Balance Sheet as of January 28, 1996) and, in the opinion of
management, reflect all adjustments that are necessary for a fair
presentation of financial position and results of operations for the three
and six months ended July 28, 1996. All of such adjustments are of a normal
and recurring nature. Because of the seasonal nature of the Company's
business, the results of operations for the three and six months ended July
28, 1996 are not indicative of the results to be expected for the entire
year.
Note B
______
Indebtedness outstanding under the Company's bank credit agreement, as
amended (the "Credit Agreement") at the end of the second quarter of fiscal
1996 was $19.0 million versus $87.2 million at the end of the fiscal year
ended January 28,1996. Amounts outstanding under the Credit Agreement, for
which the carrying cost is at fair value, bear interest at a Eurodollar rate
plus a premium and/or at the prime rate (a blended rate of 7.52% at July 28,
1996). The Company is in compliance with all covenants in the Credit
Agreement as of July 28, 1996.
Note C
______
Investing and financing activities not affecting cash in the six months ended
July 28, 1996 included additions to property and equipment through capital
lease obligations of $18,091,000 related to the acquisition of new computer
equipment.
Note D
______
Effective January 29, 1996 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
adoption did not have a material effect on the financial condition or results
of operations of the Company.
Note E
______
Earnings per share data are based on the weighted average number of shares
outstanding, including common stock equivalents and other dilutive securities
when applicable. The assumed conversion of the convertible subordinated
notes was anti-dilutive for all periods presented and was therefore not
included in the calculation of fully diluted earnings per share data for any
of the periods.
Note F
______
In August 1995, two lawsuits were filed by certain security holders against
the Company and certain present and former officers and directors seeking
class action status on behalf of purchasers of the Company's Common Stock
between February 1, 1995 and August 23, 1995. Among other things, the
plaintiffs allege that misstatements and omissions by defendants relating to
projected and historical operating results, inventory and other matters
involving future plans resulted in an inflation of the prices of the
Company's Common Stock. The plaintiffs seek on behalf of the purported class
an unspecified amount of compensatory damages and reimbursement for the
plaintiffs' fees and expenses. The United States District Court for the
Northern District of Texas consolidated the two lawsuits on November 16,
1995. In response to motions filed by the Company and the individual
defendants, the Court dismissed certain portions of the complaint and
permitted the plaintiffs to proceed with discovery. The Company believes the
claims are without merit and intends to vigorously defend this action.
The Company is a defendant from time to time in lawsuits incidental to its
business. Based on currently available information, the Company believes
that resolution of all known contingencies, including the security holder
litigation described above, would not have a material adverse impact on the
Company's financial position. However, there can be no assurance that future
costs would not be material to results of operations of the Company for a
particular future period. In addition, the Company's estimates of future
costs are subject to change as events evolve and additional information
becomes available during the course of litigation.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Certain statements contained in this section which are not historical facts
are forward-looking statements that involve risks and uncertainties,
including, but not limited to, customer demand and trends in the arts, crafts
and decorative items industry, related inventory risks due to shifts in
customer demand, the effect of economic conditions, the impact of
competitors' locations and pricing, difficulties with respect to new
technologies such as point-of-sale systems, supply constraints or
difficulties, and the results of financing efforts.
During the first six months of fiscal 1996, the Company has focused on
certain projects to improve store operations including the implementation of
a standardized merchandising and operating format. This temporary shift in
focus diverted store labor from more traditional selling activities. During
this transition period, advertising was reduced from prior-year levels.
Comparable store sales growth during the first six months of fiscal 1996 was
negatively affected and compared unfavorably to the first six months of
fiscal 1995 (a period including promotional activity that contributed to a 9%
comparable store sales increase). However, despite the comparable store
sales decline in the first and second quarters of fiscal 1996 and additional
comparable store sales declines which the Company expects to occur in some
individual months during the remainder of the year, the Company expects to
achieve a comparable store sales increase for the second half of fiscal 1996
taken as a whole as the benefits from the standardization program and other
initiatives begin to be realized.
The Company expects that operating results will continue to be negatively
impacted by several factors in the early part of the third quarter of fiscal
1996. In connection with the reduction in merchandise assortment, the
Company has relaid substantially all stores with new planograms. As a result
of the relaying of the stores, the Company has experienced disruption in its
stores and increased labor costs. Further, the reduced inventory assortment
in the Michaels stores did not attain optimal presentation until
substantially all of the planograms were reset to a chainwide format, and
optimal in-stock position has not yet been achieved. While the favorable
effects of the Company's initiatives to improve profitability are not
expected to become apparent in the Company's operating results until late in
the third quarter of fiscal 1996, the Company continues to expect cash flow
from operations to be favorably affected throughout the year and to be higher
in fiscal 1996 than in recent years.
<PAGE>
Liquidity and Capital Resources
Cash flow from operations of negative $52.9 million was generated during the
first six months of fiscal 1996 compared to negative $95.3 million of cash
flow from operations generated during the first six months of fiscal 1995.
Indebtedness outstanding under the Company's bank credit agreement (the
"Credit Agreement") at the end of the second quarter of fiscal 1996 was $19.0
million versus $176.4 million at the end of the second quarter of fiscal
1995, reflecting the reduced level of inventories, the $25 million of
proceeds from the April 1996 Private Placement (defined below) and the
$120.9 million of net proceeds from the offering of the Notes (defined
below). Amounts outstanding under the Credit Agreement, for which the
carrying cost is at fair value, bear interest at a Eurodollar rate plus a
premium and/or at the prime rate (a blended rate of 7.52% at July 28, 1996).
In connection with the offering of the Notes (as defined below) in June 1996,
the Company also amended the Credit Agreement to reduce the amount of the
facility from a maximum of $200 million to a maximum of $100 million and to
modify certain covenants. The Company now uses the borrowings available
under the Credit Agreement primarily to finance seasonal working capital
requirements.
In April 1996 the Company completed a private placement of 2,000,000 shares
of the Company's Common Stock at a price of $12.50 per share (the "Private
Placement"). The Common Stock was sold through three private transactions
with separate entities owned by independent trusts of which family members of
Sam Wyly and Charles J. Wyly, Jr. are beneficiaries. The shares of Common
Stock sold in the Private Placement are subject to certain restrictions on
future transfer. In addition, the Company will be required to register the
shares issued in the Private Placement pursuant to the Securities Act of
1933, as amended, upon demand by the holder of the shares after one year from
the date of purchase.
In June 1996 the Company completed a public offering of $125 million of
Senior Notes due 2006 (the "Notes"). The Company used the full amount of the
net proceeds from the sale of the Notes to reduce indebtedness under the
Credit Agreement.
The Company opened eight Michaels stores during the first six months of
fiscal 1996. Capital expenditures for these stores amounted to approximately
$2.0 million. Additional capital expenditures of approximately $14.8 million
during the first six months related primarily to the expansion, relocation or
remodelling of 16 existing stores, the relocation of a distribution center
and the corporate offices, and various systems enhancements not funded
through the Company's capital lease facility with IBM Credit Corporation.
The Company expects capital expenditures during the remainder of fiscal 1996
to total approximately $25 million, relating primarily to costs for store
relocations, remodeling and for additional systems enhancements.
At July 28, 1996, the Company had working capital of $279.4 million compared
to $229.0 million at January 28, 1996. At that same date, the Company had
$66.0 million in available unused credit capacity under the Credit Agreement.
Management believes that the Company has sufficient working capital, cash
flow from operating activities, capital lease financing, and available unused
credit capacity to sustain its growth.
<PAGE>
Results of Operations
_____________________
The following table shows the percentage of net sales that each item in the
Consolidated Statements of Operations represents. This table should be read
in conjunction with the following discussion and with the Company's financial
statements, including the notes:
<TABLE>
<CAPTION>
For the For the
Quarter Ended Six Months Ended
___________________ __________________
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
________ ________ ________ ________
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy
expense 70.9 88.5 69.3 76.5
Selling, general and
administrative expense 32.2 32.6 30.7 31.0
_____ _____ _____ _____
Operating loss (3.1) (21.1) (0.0) (7.5)
Interest expense 1.9 1.7 1.5 1.5
Other (income) and expense,
net (0.1) 0.6 (0.0) 0.3
_____ _____ _____ _____
Loss before income taxes (4.9) (23.4) (1.5) (9.3)
Income tax benefit (1.9) (10.7) (0.6) (4.4)
_____ _____ _____ _____
Net loss (3.0)% (12.7)% (0.9)% (4.9)%
_____ _____ _____ _____
_____ _____ _____ _____
</TABLE>
<PAGE>
Three months ended July 28, 1996 compared to the
________________________________________________
three months ended July 30, 1995
________________________________
Net sales in the second quarter of fiscal 1996 increased $0.6 million, over
the second quarter of fiscal 1995. The results for the second quarter of
fiscal 1996 included sales from 34 Michaels stores (net of two closures) that
were opened during the twelve month period ended July 28, 1996. During the
second quarter, sales of the new stores accounted for an increase of $18.2
million. Comparable store sales declined 7 percent in the second quarter of
fiscal 1996 compared to the second quarter of fiscal 1995.
Cost of sales and occupancy expense, as a percentage of net sales, for the
second quarter of fiscal 1996 decreased by 17.6% compared to the second
quarter of fiscal 1995 due primarily to the $57.5 million charge taken in the
second quarter of fiscal 1995 to cover unusual costs and expenses associated
with the SKU reduction program. Adjusting for the 1995 charge, cost of sales
and occupancy expense for the second quarter of fiscal 1996 increased by 4.4%
from the prior year, due primarily to the negative effect of fixed occupancy
and distribution costs on a lower sales base (for comparable stores) and the
addition of 34 more stores since the second quarter of fiscal 1995 (which
have a relatively low sales base available to absorb fixed occupancy costs).
Contributing to the increase was a decline in gross margins which management
attributes to a higher percentage of promotional markdowns in the current
year compared to the prior year (net of the effect of the $57.5 million
charge). Also, distribution costs, as a percentage of net sales, increased
primarily due to less efficient utilization of shipping capacity compared to
the prior year as the new Texas facility began limited operations in the
quarter. The Company expects that the trend in higher cost of sales and
occupancy expense, as a percentage of net sales, will continue through much
of the third fiscal quarter, in part due to a special clearance sale, which
began in early September, to sell off remaining merchandise that does not fit
into a fully planogrammed Michaels store format; however, the Company expects
a return to a favorable comparison in the fourth quarter of fiscal 1996.
Selling, general and administrative expense, as a percentage of net sales,
decreased by 0.4% in the second quarter of fiscal 1996 compared to the second
quarter of fiscal 1995 due primarily to the inclusion in the prior year of
$4.9 million of unusual costs and expenses associated with the SKU reduction
program. Adjusting for these unusual costs, expenses increased, as a
percentage of net sales, by 1.5% over the second quarter of 1995, due
primarily to increases in store labor (due in part to the installation of
point-of-sale registers and the resetting of merchandise), depreciation and
administrative expense, offset in part by reductions in advertising, pre-
opening and other store selling costs.
Interest expense, as a percentage of net sales, increased by 0.2% over the
prior year primarily due to the higher interest rate on the Notes compared to
the short term bank borrowings in the prior year. Interest expense, in
comparison to the prior year, will continue to be negatively affected by the
Notes for the remainder of the year.
<PAGE>
Six months ended July 28, 1996 compared to the
______________________________________________
six months ended July 30, 1995
______________________________
Net sales in the first six months of fiscal 1996 increased $36.9 million, or
7%, over the first six months of fiscal 1995. The results for the first six
months of fiscal 1996 included sales from 34 Michaels stores (net of two
closures) that were opened during the twelve month period ended July 28, 1996
and 69 Aaron Brothers stores that were included since April 1995. During the
first six months, sales of the new and acquired stores accounted for an
increase of $59.3 million. Comparable store sales declined 4 percent in the
first six months of fiscal 1996 compared to the first six months of fiscal
1995.
Cost of sales and occupancy expense, as a percentage of net sales, for the
first six months of fiscal 1996 decreased by 7.2% compared to the first six
months of fiscal 1995 due primarily to the $57.5 million charge taken in the
second quarter of fiscal 1995 to cover unusual costs and expenses associated
with the SKU reduction program. Adjusting for the 1995 charge, cost of sales
and occupancy expense for the first six months of fiscal 1996 increased by
3.7% from the prior year, which management believes was due primarily to an
increase in promotional markdowns and increased distribution and occupancy
costs. Distribution costs, as a percentage of net sales, increased primarily
due to less efficient utilization of shipping capacity. Management believes
that transportation costs will be more effectively leveraged in the future as
the Company is in the process of moving a greater percentage of the Company's
merchandise inventories into its regional distribution centers in order to
reduce more expensive direct-to-store shipments. The increase in occupancy
costs, as a percentage of net sales, resulted from a high proportion of newer
stores having a relatively low sales base available to absorb fixed occupancy
costs.
Selling, general and administrative expense, as a percentage of net sales,
decreased by 0.3% in the first six months of fiscal 1996 compared to the
first six months of 1995 primarily due to the inclusion in the prior year of
$4.9 million of unusual costs and expenses associated with the SKU reduction
program. Adjusting for these unusual costs, expenses increased, as a
percentage of net sales, by 0.7% over the first six months of fiscal 1995,
due primarily to increases in store labor, advertising, and depreciation,
offset in part by reductions in pre-opening and other store selling costs.<PAGE>
<PAGE>
MICHAELS STORES, INC.
FORM 10-Q
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 - Bylaws of the Registrant, as amended and restated. (1)
Exhibit 3.2 - Restated Certificate of Incorporation of the
Registrant.(2)
Exhibit 4 - Indenture dated as of June 21, 1996 between Michaels Stores,
Inc. and The Bank of New York.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period covered by
this report.
(1) Previously filed as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended January 29, 1995 and
incorporated herein by reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (No. 33-54726) and incorporated herein by
reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHAELS STORES, INC.
By: /s/ R. Don Morris
__________________
R. Don Morris
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: September 11, 1996
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
3.1 Bylaws of the Registrant, as amended and restated. (1)
3.2 Restated Certificate of Incorporation of the Registrant.(2)
4 Indenture dated as of June 21, 1996 between Michaels Stores,
Inc. and the Bank of New York.
27 Financial Data Schedule.
______________________
(1) Previously filed as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended January 29, 1995 and
incorporated herein by reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8 (No. 33-54726) and incorporated herein by
reference.
<PAGE>
EXHIBIT 4
INDENTURE dated as of June 21, 1996, between MICHAELS STORES, INC.,
a Delaware corporation (the "Company"), and THE BANK OF NEW YORK, a New York
banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the
Company's 10 % Senior Notes Due 2006 (the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.1 Definitions.
"Additional Assets" means (i) any property or assets
(other than inventory in the ordinary course of business and other
than Indebtedness and Capital Stock) in a Related Business; (ii)
the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is
a Restricted Subsidiary; provided, however, that, in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other
Person, directly or indirectly, controlling or controlled by or
under direct or indirect common control with such specified Person.
For the purposes of this definition, "control" when used with
respect to any 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. For purposes of Sections 4.6 and 4.7 only,
"Affiliate" shall also mean any beneficial owner of shares
representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or
other disposition (or series of related sales, leases, transfers or
dispositions) of shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries
(including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property, assets, inventory or Temporary Cash Investments in the
ordinary course of business, (iii) for purposes of Section 4.6
only, a disposition that constitutes a Restricted Payment permitted
by Section 4.4, (iv) a disposition of duplicative or excessive real
property where less than 75% of the consideration received is in
the form of cash or Temporary Cash Investments, which disposition
occurs within one year of the acquisition thereof and (v) any
disposition of assets with an aggregate fair market value (as
determined in good faith by the Board of Directors) of less than $1
million.
"Attributable Indebtedness" in respect of a
Sale/Leaseback Transaction means, as at the time of determination,
the present value (discounted at the interest rate borne by the
Securities, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period
for which such lease has been extended); provided, however, that
"Attributable Indebtedness" shall not include any such obligations
to the extent they relate to the lease of stores, warehouses,
offices or distribution facilities, including without limitation,
the fixtures appertaining thereto, unless such obligations are
required to be recorded on the Company's balance sheet in
accordance with GAAP.
"Average Life" means, as of the date of determination,
with respect to any Indebtedness or Preferred Stock, the quotient
obtained by dividing (i) the sum of the product of the numbers of
years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Board of Directors" means the Board of Directors or
equivalent governing body of a Person (or the general partner of
such Person, as the case may be) or any committee thereof duly
authorized to act on behalf of such Board or equivalent governing
body.
"Business Day" means a day other than a Saturday, Sunday
or other day on which banking institutions in New York State are
authorized or required by law to close.
"Capitalized Lease Obligation" means an obligation that
is required to be classified and accounted for as a capitalized
lease for financial reporting purposes in accordance with GAAP, and
the amount of Indebtedness represented by such obligation shall be
the capitalized amount of such obligation determined in accordance
with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of
such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"Change of Control" means the occurrence of any of the
following events with respect to the Company:
(i) (A) any "person" (as such term is used in Sec-
tions 13(d) and 14(d) of the Exchange Act), other than
one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of more
than 35% of the total voting power of the Voting Stock of
the Company and (B) the Permitted Holders "beneficially
own" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, in the aggregate
a lesser percentage of the total voting power of the
Voting Stock of the Company than such other person and do
not have the right or ability by voting power, contract
or otherwise to elect or designate for election a
majority of the Board of Directors of the Company (for
the purposes of this clause, such other person shall be
deemed to beneficially own any Voting Stock of a
specified corporation held by a parent corporation, if
such other person "beneficially owns" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly
or indirectly, more than 35% of the voting power of the
Voting Stock of such parent corporation and the Permitted
Holders "beneficially own" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, in
the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority
of the board of directors of such parent corporation);
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constituted the Board of Directors of the Company
(together with any new directors whose election by such
Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a vote of
66-2/3% of the directors of the Company then still in
office who were either directors at the beginning of such
period or whose election or nomination for election was
previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the
Company then in office;
(iii) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of
all, or substantially all, the assets of the Company to
any Person or group of Persons (other than to any Wholly
Owned Subsidiary of the Company); or
(iv) the merger or consolidation of the Company with
or into another corporation with the effect that either
(A) immediately after such transaction any person (as
defined in clause (i) above) (other than a Permitted
Holder) shall have become the "beneficial owner" (as
defined in clause (i) above) of securities of the
surviving corporation of such merger or consolidation
representing a majority of the voting power of the Voting
Stock of the surviving corporation or (B) the securities
of the Company that are outstanding immediately prior to
such transaction and which represent 100% of the voting
power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other
consideration, (1) securities of the surviving
corporation that represent immediately after such
transaction, at least a majority of the voting power of
the Voting Stock of the surviving corporation or (2)
securities that represent immediately after such
transaction at least a majority of the voting power of
the Voting Stock of the corporation that owns, directly
or indirectly, 100% of the voting power of the Voting
Stock of the surviving corporation of that transaction.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Consolidated Coverage Ratio" as of any date of
determination means the ratio of (i) the aggregate amount of EBITDA
for the period of the most recent four consecutive fiscal quarters
ending at least 45 days prior to the date of such determination to
(ii) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of
such period that remains outstanding or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and
the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of
such period, (2) if since the beginning of such period the Company
or any Restricted Subsidiary shall have made any Asset Disposition
or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an
amount equal to the EBITDA (if negative) directly attributable
thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased
or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person
which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period
and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition or Investment occurred
on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall
be calculated as if the rate in effect on the date of determination
had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period,
the total interest expense of the Company and its consolidated
Restricted Subsidiaries, plus, to the extent not included in such
interest expense, (i) interest expense attributable to capital
leases, (ii) amortization of debt discount and debt issuance cost,
(iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing, (vi) interest
actually paid by the Company or any such Restricted Subsidiary
pursuant to a Guarantee of Indebtedness or other obligation of any
other Person, (vii) net costs associated with Hedging Obligations
(including amortization of fees), (viii) Preferred Stock dividends
in respect of all Preferred Stock of the Company and its
Subsidiaries held by Persons other than the Company or a Wholly
Owned Subsidiary and (ix) the cash contributions to any employee
stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust; provided, however,
that there shall be excluded therefrom any such interest expense of
any Unrestricted Subsidiary to the extent the related Indebtedness
is not Guaranteed or paid by the Company or any Restricted
Subsidiary.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its consolidated Subsidiaries in
accordance with GAAP; provided, however, that there shall not be
included in such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person
is not a Restricted Subsidiary, except that (A) subject to the
limitations contained in (iv) below the Company's equity in
the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or
other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person (other than
an Unrestricted Subsidiary) for such period shall be included
in determining such Consolidated Net Income,
(ii) any net income (loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition,
(iii) any net income of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (A) subject to the
limitations contained in (iv) below the Company's equity in
the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to
the aggregate amount of cash that could have been distributed
by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend to another Restricted
Subsidiary, to the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining
such Consolidated Net Income,
(iv) any gain (but not loss) realized upon the sale or
other disposition of any property, plant or equipment of the
Company or its consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and
any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person,
(v) any extraordinary gain or loss, and
(vi) the cumulative effect of a change in accounting
principles.
"Consolidated Net Worth" means the total of the amounts
shown on the balance sheet of the Company and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with
GAAP, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action
for the purpose of which the determination is being made, as (i)
the par or stated value of all outstanding Capital Stock of the
Company plus (ii) paid-in capital or capital surplus relating to
such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Credit Agreement" means the First Amended and Restated
Credit Agreement, dated as of June 18, 1994, among the Company, the
lenders parties thereto, and NationsBank of Texas, N.A., as
Administrative Lender, as it may be amended, restated, extended,
renewed, refinanced or replaced from time to time (including by the
Second Amended and Restated Credit Agreement dated as of June 20,
1996).
"Currency Agreement" means in respect of a Person any
foreign exchange contract, currency swap agreement or other similar
agreement as to which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or
passage of time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its
nominees and their respective successors.
"Disqualified Stock" means, with respect to any Person,
any Capital Stock which 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 (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or
otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the Stated Maturity of the Securities.
"EBITDA" for any period means the sum of Consolidated Net
Income for such period, plus the following to the extent deducted
in calculating such Consolidated Net Income: (i) income tax
expense, (ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense, and (v) all other non-cash
items reducing Consolidated Net Income (excluding any non-cash
items to the extent they represent an accrual of, or reserve for,
cash disbursements for any subsequent period), less all non-cash
items increasing such Consolidated Net Income, in each case for
such period. Notwithstanding the foregoing, the income tax
expense, depreciation expense and amortization expense of a
Restricted Subsidiary of the Company shall be included in EBITDA
only to the extent (and in the same proportion) that the net income
of such Subsidiary was included in calculating Consolidated Net
Income and only if a corresponding amount would be permitted at the
date of determination to be distributable to the Company by such
Subsidiary as a dividend.
"Equity Offering" means an offering for cash of common
stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Foreign Restricted Subsidiary" means a Restricted
Subsidiary that is organized and existing under the laws of any
country or other jurisdiction other than the United States of
America, any State thereof or the District of Columbia and
substantially all the assets of which are located outside the
United States of America.
"GAAP" means generally accepted accounting principles in
the United States of America as in effect as of the Issue Date,
including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by
such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP
contained in this Indenture shall be computed in conformity with
GAAP.
"Guarantee" means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of
such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations
of such Person pursuant to any Interest Rate Agreement or Currency
Agreement.
"Holder" or "Securityholder" means the Person in whose
name a Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or
otherwise become liable for; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such
Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be incurred by such
Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any
date of determination (without duplication),
(i) the principal of and premium (to the extent paid or
payable at the time of determination) in respect of
indebtedness of such Person for borrowed money;
(ii) the principal of and premium (to the extent paid or
payable at the time of determination) in respect of
obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including
reimbursement obligations with respect thereto);
(iv) all obligations of such Person to pay the deferred
and unpaid purchase price of property or services (except
Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or
taking delivery and title thereto or completion of such
services;
(v) all Capitalized Lease Obligations and all
Attributable Indebtedness of such Person;
(vi) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Subsidiary of
the Company, any Preferred Stock of that Subsidiary (but
excluding, in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided, however,
that the amount of Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent
Guaranteed by such Person; and
(ix) to the extent not otherwise included in this
definition, Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence
of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Indenture" means this Indenture as amended or
supplemented from time to time by one or more supplemental
indentures entered into pursuant to the applicable provisions
hereof or otherwise in accordance with the terms hereof.
"Independent Financial Advisor" means any independent
investment banking, actuarial, appraisal, consulting or accounting
firm experienced in the appraisal or similar review of the
applicable transaction or similar types of transactions.
"Interest Rate Agreement" means with respect to any
Person any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap
agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary
course of business that are recorded as accounts receivable on the
balance sheet of such Person) or other extension of credit
(including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and
Section 4.4, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary, if the Subsidiary is so designated after
the Issue Date; provided, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, the Company shall be
deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (x) the
Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time that such Subsidiary is
so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer, in each case
as determined in good faith by the Board of Directors and evidenced
by a resolution of such Board of Directors certified in an
Officers' Certificate to the Trustee.
"Investment Grade" means BBB- or higher by Standard &
Poor's Ratings Group and its successors and Baa3 or higher by
Moody's Investors Service, Inc. and its successors.
"Issue Date" means the date on which the Securities are
originally issued.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional
sale or other title retention agreement or lease in the nature
thereof).
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets that are the
subject of such disposition or received in any other non-cash form)
therefrom, in each case net of (i) all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and
all federal, state, provincial, foreign and local taxes required to
be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness
which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or which
must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and
other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be
provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition and (v) in the
case of an Asset Disposition by a Foreign Restricted Subsidiary,
any amount which, as a result of applicable law, may not be legally
paid as dividends, or distributed or otherwise paid or repatriated
to the Company or its Subsidiaries.
"Net Cash Proceeds", with respect to any issuance or sale
of Capital Stock, means the cash proceeds of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage,
consultant and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, any Vice
Chairman, the Chief Executive Officer, the Chief Financial Officer,
the President, any Executive Vice President, Vice President of
Finance and Business Planning (or any such other officer that
performs similar duties), the Secretary or any General Partner of
the Company.
"Officers' Certificate" means a certificate signed by two
Officers, one of which is the Chairman of the Board, the Chief
Executive Officer, the Chief Financial Officer, the President, any
Executive Vice President, Vice President of Finance and Business
Planning (or any such other officer that performs similar duties)
or any General Partner.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel
may be an employee of or counsel to the Company or the Trustee.
Opinions of Counsel required to be delivered under this Indenture
may have qualifications customary for opinions of the type required
and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials
customary for opinions of the type required, including certificates
certifying as to matters of fact.
"Permitted Holders" means Sam Wyly, Charles J. Wyly, Jr.,
Evan A. Wyly, trusts established by or for the benefit of any such
Persons or any of their lineal descendants, entities controlled by
any such trusts, and their respective Affiliates.
"Permitted Investment" means an Investment by the Company
or any Restricted Subsidiary in (i) a Restricted Subsidiary or a
Person which will, upon the making of such Investment, become a
Restricted Subsidiary; provided, however, that the primary business
of such Restricted Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted
Subsidiary; provided, however, that such Person's primary business
is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (v) payroll,
travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practice of the Company or
such Restricted Subsidiary; (vii) stock, obligations or securities
received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or
in satisfaction of judgments; (viii) Investments by the Company or
any of its Restricted Subsidiaries in one or more Unrestricted
Subsidiaries in an aggregate amount not to exceed $15 million; and
(ix) advances to vendors in the ordinary course of business in an
aggregate principal amount at any one time outstanding not to
exceed $5 million.
"Permitted Liens" means, with respect to any Person, (a)
pledges or deposits by such Person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good
faith deposits in connection with bids, tenders, contracts (other
than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States
government bonds to secure surety or appeal bonds to which such
Person is a party, or deposits as security for contested taxes or
import duties or for the payment of rent, in each case Incurred in
the ordinary course of business; (b) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review and
landlords' Liens; (c) Liens for property taxes not yet due or
payable or subject to penalties for non-payment or which are being
contested in good faith by appropriate proceedings; (d) Liens in
favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in
the ordinary course of its business; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning
or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection
with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair
their use in the operation of the business of such Person; (f)
Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under this Indenture,
secured by a Lien on the same property securing such Hedging
Obligations; (g) leases and subleases of real property which do not
interfere with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries, and which are made on
customary and usual terms applicable to similar properties; (h)
Liens existing as of the Issue Date and Liens created by this
Indenture; (i) Liens created solely for the purpose of securing
Purchase Money Debt Incurred after the Issue Date; provided,
however, that (A) the aggregate principal amount of Indebtedness
secured by such Liens shall not exceed the lesser of cost or fair
market value of the assets or property so acquired or constructed,
(B) the Indebtedness secured by such Liens shall have otherwise
been permitted to be issued under this Indenture and (C) such Liens
shall not encumber any other assets or property of the Company or
any of its Restricted Subsidiaries and shall attach to such assets
or property within 90 days of the construction, acquisition or
improvement of such assets or property; (j) Liens on the assets or
property of a Restricted Subsidiary of the Company existing at the
time such Restricted Subsidiary became a Subsidiary of the Company
and not incurred as a result of (or in connection with or in
anticipation of) such Restricted Subsidiary becoming a Subsidiary
of the Company; provided, however, that (A) any such Lien does not
by its terms cover any property or assets after the time such
Restricted Subsidiary becomes a Subsidiary which were not covered
immediately prior to such time, (B) the Incurrence of the
Indebtedness secured by such Lien shall have otherwise been
permitted to be Incurred under this Indenture, and (C) such Liens
do not extend to or cover any other property or assets of the
Company or any of its Restricted Subsidiaries; (k) Liens to secure
Capitalized Lease Obligations permitted to be Incurred under this
Indenture; (l) Liens to secure Indebtedness permitted to be
Incurred under this Indenture which is recourse solely to the
assets securing such Indebtedness; provided that (i) the fair
market value, as determined by the Board of Directors in good
faith, of the assets subject to such Liens (determined at the time
such Liens are granted) does not exceed an amount equal to 125% of
the amount of such Indebtedness and (ii) the aggregate principal
amount outstanding at any one time of all Indebtedness secured by
such Liens shall not exceed $10 million; and (m) Liens extending,
renewing or replacing in whole or in part a Lien permitted by this
Indenture; provided, however, that (A) such Liens do not extend
beyond the property subject to the existing Lien and improvements
and construction on such property and (B) the Indebtedness secured
by the Lien may not exceed the Indebtedness secured at the time by
the existing Lien;
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any
agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends, or
as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such corporation, over shares of
Capital Stock of any other class of such corporation.
"principal" of a Security means the principal of the
Security plus the premium, if any, payable on the Security which is
due or overdue or is to become due at the relevant time.
"Prospectus" means the Prospectus dated June 18, 1996,
prepared in connection with the issuance of the Securities.
"Public Market" means any time after (x) the common stock
of the Company is then registered with the SEC pursuant to Section
12(b) or 12(g) of the Exchange Act and traded either on a national
securities exchange or in the National Association of Securities
Dealers Automated Quotation System and (y) at least 20% of the
total issued and outstanding Voting Stock of the Company has been
distributed by means of an effective registration statement under
the Securities Act.
"Refinancing Indebtedness" means Indebtedness that
refunds, refinances, replaces, renews, repays or extends (including
pursuant to any defeasance or discharge mechanism) (collectively,
"refinances," and "refinanced" shall have a correlative meaning)
any Indebtedness existing on the Issue Date or Incurred in
compliance with this Indenture (including Indebtedness of the
Company that refinances Indebtedness of any Restricted Subsidiary
and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; provided,
however, that (i) the Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness
being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is
equal to or greater than the Average Life of the Indebtedness being
refinanced and (iii) such Refinancing Indebtedness is Incurred in
an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to (or, to the
extent of any applicable premium in connection with a refinancing,
greater than) or less than the sum of the aggregate principal
amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being
refinanced; provided further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted
Subsidiary that refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary
or complementary to the businesses of the Company and the
Restricted Subsidiaries on the applicable date.
"Restricted Subsidiary" means any Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement
relating to property now owned or hereafter acquired whereby the
Company or a Restricted Subsidiary transfers such property to a
Person and the Company or a Restricted Subsidiary leases it from
such Person.
"SEC" 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 the SEC is not
existing and performing the duties now assigned to it under the
TIA, then the body performing such duties at such time.
"Secured Indebtedness" means any Indebtedness of the
Company secured by a Lien.
"Securities" has the meaning set forth in the second
paragraph of this Indenture.
"Senior Indebtedness" means all Indebtedness of the
Company (including, without limitation, Indebtedness under the
Credit Agreement, and fees, costs and expenses incurred
thereunder), including interest thereon, whether outstanding on the
Issue Date or thereafter Incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are subordinated
in right of payment to the Securities; provided, however, that
Senior Indebtedness shall not include (1) any obligation of the
Company to any Subsidiary, (2) any liability for federal, state,
local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness or
obligation of the Company which is subordinate or junior expressly
by its written terms in any respect to any other Indebtedness or
obligation of the Company, including any Subordinated Obligations,
(5) any obligations with respect to any Capital Stock, (6)
Indebtedness which, when Incurred and without respect to any
election under Section 1111(b) of Title II United States Code, is
without recourse to the Company, or (7) any Indebtedness Incurred
in violation of this Indenture.
"Significant Subsidiary" means any Restricted Subsidiary
that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security,
the date specified-in such security as the fixed date on which the
payment of principal of such security is due and payable, including
pursuant to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency
beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the
Securities pursuant to a written agreement.
"Subsidiary" of any Person means any corporation,
association, partnership or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person or
(ii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of
America or any agency thereof or obligations Guaranteed by the
United States of America or any agency thereof, (ii) investments in
time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America having
capital, surplus and undivided profits aggregating in excess of
$250,000,000 (or the foreign currency equivalent thereof) and whose
long-term debt is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act),
(iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i)
above entered into with a bank or trust company meeting the
qualifications described in clause (ii) above, (iv) investments in
commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a Person (other than an Affiliate of the
Company) organized and in existence under the laws of the United
States of America, any State thereof or any foreign country
recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard & Poor's Ratings Group,
(v) investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America,
or by any political subdivision or taxing authority thereof, and
rated at least "A" by Standard & Poor's Ratings Group or "A" by
Moody's Investors Service, Inc., and (vi) investments in mutual
funds whose investment guidelines restrict such funds' investments
to investments which are substantially similar to those described
in clauses (i)-(v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
77aaa-77bbbb) as in effect on the date of this Indenture, except as
provided in Section 9.03.
"Total Assets" means, as of any date, the Company's total
consolidated assets as of such date, as determined in accordance
with GAAP.
"Trade Payables" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to
trade creditors created, assumed or Guaranteed by such Person
arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the
President or any other officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) initially, Aaron
Brothers Holdings, Inc., and Michaels of Canada, Inc., (ii) any
Subsidiary of the Company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors
in the manner provided below, and (iii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided,
however, that (i) either (A) the Subsidiary to be so designated has
total consolidated assets of $1,000 or less or (B) if such
Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under Section 4.4 and (ii) the
holders of any permitted Indebtedness of such Subsidiary do not
have direct or indirect recourse against the Company or any
Restricted Subsidiary of the Company and neither the Company nor
any Restricted Subsidiary of the Company otherwise has any
liability for any payment obligations in respect of such
Indebtedness except as permitted by Section 4.3(c). The Board of
Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after
giving effect to such designation (x) the Company could Incur $1.00
of additional Indebtedness under clause (a) of Section 4.3 and (y)
no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations
(or certificates representing an ownership interest in such
obligations) of the United States of America (including any agency
or instrumentality thereof) for the payment of which the full faith
and credit of the United States of America is pledged and which are
not callable or redeemable at the issuer's option.
"Voting Stock", with respect to a corporation, means all
classes of Capital Stock of such corporation then outstanding and
normally entitled to vote in the election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary
of the Company all the Capital Stock of which (other than
directors' qualifying shares) is owned by the Company or another
Wholly Owned Subsidiary.
SECTION 1.2. Other Definitions.
Defined in
Term Section
"Affiliate Transaction". . . . . . . . . . . . . . . . . . . . . . . . .4.7
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1
"covenant defeasance option" . . . . . . . . . . . . . . . . . . . . 8.1(b)
"Custodian". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1
"Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1
"Global Securities". . . . . . . . . . . . . . . . . . . . . . . . . . .2.1
"legal defeasance option". . . . . . . . . . . . . . . . . . . . . . 8.1(b)
"Legal Holiday". . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8
"Notice of Default". . . . . . . . . . . . . . . . . . . . . . . . . . .6.1
"Offer". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6(b)
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . .4.6(c)(2)
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . .4.6(c)(2)
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.6
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.3
"Purchase Date". . . . . . . . . . . . . . . . . . . . . . . . . .4.6(c)(1)
"Purchase Money Debt". . . . . . . . . . . . . . . . . . . . . . . . 4.3(b)
"Registrar". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.3
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . . 4.4(a)
"Securities Register". . . . . . . . . . . . . . . . . . . . . . . . . .2.3
"Successor Company". . . . . . . . . . . . . . . . . . . . . . . . . . .5.1
SECTION 1.3. Incorporation by Reference of Trust
Indenture Act. This Indenture is subject to the mandatory
provisions of the TIA which are incorporated by reference in and
made a part of this Indenture. The following TIA terms have the
following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company
and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute or
defined by SEC rule have the meanings assigned to them by such
definitions.
SECTION 1.4. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words
in the plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to secured Indebtedness merely by virtue
of its nature as unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or
other discount security at any date shall be the principal
amount thereof that would be shown on a balance sheet of the
issuer dated such date prepared in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be
(i) the maximum liquidation value of such Preferred Stock or
(ii) the maximum mandatory redemption or mandatory repurchase
price with respect to such Preferred Stock, whichever is
greater; and
(9) all references to $, US$, dollars or United States
dollars shall refer to the lawful currency of the United
States.
ARTICLE 2
The Securities
SECTION 2.1. Form and Dating. The Securities and the
Trustee's certificate of authentication shall be substantially in
the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange
rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a
form acceptable to the Company). Each Security shall be dated the
date of its authentication. The terms of the Securities set forth
in Exhibit A are part of the terms of this Indenture.
(a) Global Securities. The Securities shall be issued
initially in the form of one or more permanent Global Securities
("Global Securities") in definitive, fully registered form without
interest coupons in substantially the form of Exhibit A, which
shall be deposited on behalf of the purchasers of the Securities
represented thereby with the Trustee, at its principal corporate
trust office in New York City, as custodian for the Depositary, and
registered in the name of the Depositary or a nominee of the
Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of
the Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee in the limited circumstances hereinafter
provided.
(b) Certificated Securities. Except as provided in
Section 2.6, owners of beneficial interests in Global Securities
will not be entitled to receive physical delivery of certificated
securities.
SECTION 2.2. Execution and Authentication. An Officer
of the Company shall sign the Securities for the Company by manual
or facsimile signature.
If an Officer whose signature is on a Security no longer
holds that office at the time the Trustee authenticates the
Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized
signatory of the Trustee manually signs the certificate of
authentication on the Security. The signature shall be conclusive
evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate and make available for
delivery Securities for original issue in an aggregate principal
amount of $125,000,000, upon a written order of the Company signed
by an Officer of the Company. Such order shall specify the amount
of the Securities to be authenticated and the date on which the
original issue of Securities is to be authenticated. The aggregate
principal amount of Securities outstanding at any time may not
exceed that amount except as provided in Section 2.7.
The Trustee may appoint an authenticating agent
acceptable to the Company to authenticate the Securities, upon the
consent of the Company to such appointment. Unless limited by the
terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication
by such agent. An authenticating agent has the same rights as any
Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.3. Registrar and Paying Agent. The Company
shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the
"Registrar") and an office or agency where Securities may be
presented for payment (the "Paying Agent"). The Registrar, acting
on behalf of and as agent for the Company, shall keep a register
(the "Securities Register") of the Securities and of their transfer
and exchange. The Company may have one or more co-registrars and
one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent.
The Company shall enter into an appropriate agency
agreement with any Registrar, Paying Agent or co-registrar not a
party to this Indenture, which shall incorporate the terms of the
TIA. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify the
Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such and shall be entitled to appropriate compensation
therefor pursuant to Section 7.7. The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar
and Paying Agent in connection with the Securities.
SECTION 2.4. Paying Agent To Hold Money in Trust. On
or prior to each due date of the principal and interest on any
Security, the Company shall deposit with the Paying Agent a sum
sufficient to pay such principal and interest when so becoming due.
The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money
held by the Paying Agent for the payment of principal of or
interest on the Securities and shall notify the Trustee of any
default by the Company in making any such payment. If the Company
or a Subsidiary acts as Paying Agent, it shall segregate the money
held by it as Paying Agent and hold it as a separate trust fund.
The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by
the Paying Agent. Upon complying with this Section, the Paying
Agent shall have no further liability for the money delivered to
the Trustee.
SECTION 2.5. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the most
recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee, in writing at least five Business
Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and
addresses of Securityholders; provided that as long as the Trustee
is the Registrar, no such list need be furnished.
SECTION 2.6. Transfer and Exchange. The Securities
shall be issued in registered form and shall be transferable only
upon the surrender of a Security for registration of transfer.
When a Security is presented to the Registrar or a co-registrar
with a request to register a transfer, the Registrar and the
Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Registrar
shall record in the Securities Register the transfer as requested
if the requirements of Section 8-401(1) of the Uniform Commercial
Code are met, and thereupon one or more new Securities in the same
aggregate principal amount shall be issued to the designated
assignee or transferee and the old Security will be returned to the
Company. When Securities are presented to the Registrar or a
co-registrar with a request to exchange them for an equal principal
amount of Securities of other denominations, the Registrar shall
make the exchange as requested, in the same manner, if the same
requirements are met. To permit registration of transfers and
exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co-registrar's
request. The Company may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges in
connection with any transfer or exchange pursuant to this Section.
The Company shall not be required to make and the Registrar need
not register transfers or exchanges of Securities selected for
redemption (except, in the case of Securities to be redeemed in
part, the portion thereof not to be redeemed) or any Securities for
a period of 15 days before a selection of Securities to be redeemed
or 15 days before an interest payment date.
Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat the
person in whose name a Security is registered as the absolute owner
of such Security for the purpose of receiving payment of principal
of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of
the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture will evidence the same debt
and will be entitled to the same benefits under this Indenture as
the Securities surrendered upon such transfer or exchange.
With respect to Global Securities:
(1) Each Global Security authenticated under this
Indenture shall be registered in the name of the Depositary
designated for such Global Security or a nominee thereof and
deposited with such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this
Indenture.
(2) A Global Security may not be transferred except as
a whole by the Depositary to a nominee of the Depositary or by
a nominee of the Depositary to the Depositary. A Global
Security is exchangeable for certificated Securities only if
(i) the Depositary notifies the Company that it is unwilling
or unable to continue as a Depositary for such Global Security
or if at any time the Depositary ceases to be a clearing
agency registered under the Exchange Act, (ii) the Company
executes and delivers to the Trustee a notice that such Global
Security shall be so transferable, registrable, and
exchangeable, and such transfers shall be registrable or (iii)
there shall have occurred and be continuing an Event of
Default or an event which, with the giving of notice or lapse
of time or both, would constitute an Event of Default with
respect to the Securities represented by such Global Security.
Any Global Security that is exchangeable for certificated
Securities pursuant to the preceding sentence will be
transferred to, and registered and exchanged for, certificated
Securities in authorized denominations, without legends
applicable to a Global Security, and registered in such names
as the Depositary holding such Global Security may direct.
Subject to the foregoing, a Global Security is not
exchangeable, except for a Global Security of like
denomination to be registered in the name of the Depositary or
its nominee. In the event that a Global Security becomes
exchangeable for certificated Securities, (i) certificated
Securities will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii)
payment of principal, any repurchase price, and interest on
the certificated Securities will be payable, and the transfer
of the certificated Securities will be registrable, at the
office or agency of the Company maintained for such purposes,
and (iii) no service charge will be made for any registration
or transfer or exchange of the certificated Securities,
although the Company may require payment of a sum sufficient
to cover any tax or governmental charge imposed in connection
therewith.
(3) Securities issued in exchange for a Global Security
or any portion thereof shall have an aggregate principal
amount equal to that of such Global Security or portion
thereof to be so exchanged, shall be registered in such names
and be in such authorized denominations as the Depositary
shall designate and shall bear the applicable legends provided
for herein. Any Global Security to be exchanged in whole
shall be surrendered by the Depositary to the Trustee. With
respect to any Global Security to be exchanged in part, either
such Global Security shall be so surrendered for exchange or,
if the Trustee is acting as custodian for the Depositary or
its nominee with respect to such Global Security, the
principal amount thereof shall be reduced, by an amount equal
to the portion thereof to be so exchanged, by means of an
appropriate adjustment made on the records of the Trustee.
Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such
exchange to or upon the order of the Depositary or an
authorized representative thereof.
(4) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of,
a Global Security or any portion mutilated thereof, whether
pursuant to this Section, Section 2.7 or 2.9 or otherwise,
shall be authenticated and delivered in the form of, and shall
be, a Global Security, unless such Security is registered in
the name of a Person other than the Depositary for such Global
Security or a nominee thereof.
Members of, or participants in, the Depositary
("Participants") shall have no rights under this Indenture with
respect to any Global Security held on their behalf by the
Depositary or by the Trustee as the custodian of the Depositary or
under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company
or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair,
as between the Depositary and its Participants, the operation of
customary practices of such Depositary governing the exercise of
the rights of a holder of a beneficial interest in any Global
Security.
SECTION 2.7. Replacement Securities. If a mutilated
Security is surrendered to the Trustee or Registrar or if the
Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the
requirements of Section 8-405 of the Uniform Commercial Code are
met and the Holder satisfies any other reasonable requirements of
the Trustee and the Company. Such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the
Trustee to protect the Company, the Trustee, the Paying Agent, the
Registrar and any co-registrar from any loss which any of them may
suffer if a security is replaced. The Company and the Trustee may
charge the Holder for their expenses in replacing a Security.
Every replacement Security is an obligation of the
Company under this Indenture.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost
or stolen Securities.
SECTION 2.8. Outstanding Securities. Securities
outstanding at any time are all Securities authenticated by the
Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the security.
If a Security is replaced pursuant to Section 2.7, it
ceases to be outstanding unless the Trustee and the Company receive
proof satisfactory to them that the replaced Security is held by a
bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity
date or, pursuant to Section 8.1(a), within 91 days prior thereto,
money sufficient to pay all principal and interest payable on that
redemption or maturity date with respect to the Securities (or
portions thereof) to be redeemed or maturing, as the case may be,
then on and after such date such Securities (or portions thereof)
cease to be outstanding and on and after such redemption or
maturity date interest on them ceases to accrue.
SECTION 2.9. Temporary Securities. Until definitive
Securities are ready for delivery, the Company may prepare and the
Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate
definitive Securities and deliver them in exchange for temporary
securities.
SECTION 2.10. Cancellation. The Company at any time may
deliver Securities to the Trustee for cancellation. The Registrar
and the Paying Agent shall forward to the Trustee any Securities
surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment or
cancellation and deliver such canceled Securities to the Company.
The Trustee shall from time to time provide the Company a list of
all Securities that have been canceled as requested by the Company.
The Company may not issue new Securities to replace Securities it
has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company
defaults in a payment of interest on the Securities, the Company
shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) in any lawful manner. The Company
may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company
shall fix or cause to be fixed any such special record date and
payment date to the reasonable satisfaction of the Trustee and
shall promptly mail to each Securityholder a notice that states the
special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and,
if so, the Trustee shall use "CUSIP" numbers in notices of
redemption as a convenience to Holders; provided that any such
notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or
as contained in any notice of a redemption and that reliance may be
placed only on the other identification numbers printed on the
Securities, and any such redemption 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 3
Redemption
SECTION 3.1. Notices to Trustee. If the Company elects
to redeem Securities pursuant to paragraph 5 of the Securities,
they shall notify the Trustee in writing of the redemption date,
the principal amount of Securities to be redeemed and the paragraph
of the Securities pursuant to which the redemption will occur.
The Company shall give each notice to the Trustee
provided for in this Section at least 45 days before the redemption
date unless the Trustee consents to a shorter period. Such notice
shall be accompanied by an Officers' Certificate from the Company
to the effect that such redemption will comply with the provisions
herein.
SECTION 3.2. Selection of Securities To Be Redeemed.
If fewer than all the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata or by lot or by
a method that complies with applicable legal and securities
exchange requirements, if any, and that the Trustee considers fair
and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Securities not
previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them
the Trustee selects shall be in amounts of $1,000 or a whole
multiple of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of
Securities called for redemption. The Trustee shall notify the
Company promptly of the Securities or portions of Securities to be
redeemed. In the event the Company is required to make an offer to
redeem Securities pursuant to Sections 4.6 or 4.8 and the amount
available for such offer is not evenly divisible by $1,000, the
Trustee shall promptly refund to the Company any remaining funds,
which in no event will exceed $1,000.
SECTION 3.3. Notice of Redemption. At least 30 days
but not more than 60 days before a date for redemption of
securities, the Company shall mail a notice of redemption by
first-class mail to the registered address appearing in the
Security Register of each Holder of Securities to be redeemed.
The notice shall identify the Securities (including CUSIP
numbers, if any) to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption
price;
(5) if fewer than all the outstanding Securities are to
be redeemed, the identification and principal amounts of the
particular Securities to be redeemed;
(6) that, unless the Company defaults in making such
redemption payment, interest on Securities (or portion
thereof) called for redemption ceases to accrue on and after
the redemption date;
(7) the paragraph of the Securities pursuant to which
the Securities called for redemption are being redeemed; and
(8) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice
or printed on the Securities.
At the Company's request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's
expense. In such event, the Company shall provide the Trustee with
the information required by this Section.
SECTION 3.4. Effect of Notice of Redemption. Once
notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption
price stated in the notice. Upon surrender to the Paying Agent,
such Securities shall be paid at the redemption price stated in the
notice, plus accrued interest to the redemption date. Such notice
if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the Holder receives
such notice. Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other
Holder.
SECTION 3.5. Deposit of Redemption Price. Prior to
11:00 a.m. (New York City time) on the redemption date, the Company
shall deposit with the Trustee or Paying Agent (or, if the Company
or a Subsidiary is the Paying Agent, shall segregate and hold in
trust) money sufficient to pay the redemption price of and accrued
interest (if any) on all Securities or portions thereof to be
redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the
Company to the Trustee for cancellation.
SECTION 3.6. Securities Redeemed in Part. Upon
surrender of a Security that is redeemed in part (with, if the
Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company
and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of
such Security without service charge, a new Security or Securities
of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered,
except that if a Global Security is so surrendered, the Company
shall execute, and the Trustee shall authenticate and deliver to
the Depositary for such Global Security, without service charge, a
new Global Security in denomination equal to and in exchange for
the unredeemed portion of the principal of the Global Security so
surrendered.
ARTICLE 4
Covenants
SECTION 4.1. Payment of Securities. The Company shall
promptly pay the principal of and interest on the Securities on the
dates and in the manner provided in the Securities and in this
Indenture. Principal and interest shall be considered paid on the
date due if on such date the Trustee or the Paying Agent holds in
accordance with this Indenture money sufficient to pay all
principal and interest then due.
The Company shall pay interest on overdue principal at
the rate specified therefor in the Securities, and it shall pay
interest on overdue installments of interest at the same rate to
the extent lawful.
SECTION 4.2. SEC Reports. The Company shall file with
the Trustee and provide Securityholders, as their names appear in
the Security Register, within 15 days after it files them with the
SEC, copies of the annual reports and the information, documents
and other reports which it is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall continue to file with the
SEC and provide the Trustee and Securityholders with the annual
reports and the information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA
314(a).
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 4.3. Limitation on Indebtedness. (a) The
Company will not Incur, and will not permit any Restricted
Subsidiary to Incur, any Indebtedness; provided, however, that the
Company (but not any Restricted Subsidiary other than a Foreign
Restricted Subsidiary) may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be equal to or
greater than 2.0 to 1.0 if such Indebtedness is Incurred prior to
June 15, 1998 or 2.5 to 1.0 if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding Section 4.3(a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness and letters of credit (with letters of
credit being deemed to have a principal amount equal to the
maximum face amount thereunder) of the Company or any
Restricted Subsidiary under the Credit Agreement and any
Refinancing Indebtedness with respect thereto in an aggregate
principal amount outstanding at any time not to exceed the
greater of (x) an amount equal to 50% of the book value of the
inventory of the Company and its Restricted Subsidiaries as of
any date of Incurrence calculated on a consolidated basis in
accordance with GAAP and (y) $100 million;
(ii) Indebtedness of the Company owing to and held by any
Wholly Owned Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Company or any Wholly
Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock or any other event
which results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any subsequent transfer of any
such Indebtedness (except to the Company or a Wholly Owned
Subsidiary) will be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(iii) Indebtedness represented by the Securities and any
Guarantees of the Securities by any of the Company's
Subsidiaries, any Indebtedness of the Company or any
Restricted Subsidiary (other than the Indebtedness described
in Sections 4.3(b)(i)-(ii) above) outstanding on the Issue
Date and any Refinancing Indebtedness Incurred in respect of
any Indebtedness described in Section 4.3(b)(iii) or Section
4.3(a);
(iv) (A) Indebtedness of a Restricted Subsidiary
outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company or a Restricted
Subsidiary (other than Indebtedness Incurred in connection
with, or in contemplation of, the transaction or series of
related transactions pursuant to which such Restricted
Subsidiary became a Subsidiary or was otherwise acquired by
the Company or a Restricted Subsidiary); provided, however,
that at the time such Restricted Subsidiary is acquired by the
Company or a Restricted Subsidiary, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant
to Section 4.3(a) after giving effect to the Incurrence of
such Indebtedness pursuant to this Section 4.3(b)(iv) and such
transaction or series of related transactions and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary
in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this Section 4.3(b)(iv);
(v) Indebtedness (A) in respect of performance bonds,
bankers' acceptances, letters of credit and surety or appeal
bonds provided by the Company or any Restricted Subsidiary in
the ordinary course of its business and which do not secure
other Indebtedness and (B) under Currency Agreements and
Interest Rate Agreements Incurred which, at the time of
Incurrence, is in the ordinary course of business; provided,
however, that, in the case of Currency Agreements and Interest
Rate Agreements, such Currency Agreements and Interest Rate
Agreements do not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations
in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable
thereunder;
(vi) Indebtedness (A) represented by Guarantees by the
Company of Indebtedness otherwise permitted to be Incurred
pursuant to this Section 4.3 and (B) represented by Guarantees
by a Restricted Subsidiary of Indebtedness of the Company or
another Restricted Subsidiary otherwise permitted to be
Incurred pursuant to this Section 4.3; provided, however, that
in the case of this clause (B), if a Restricted Subsidiary
Guarantees any such Indebtedness, such Restricted Subsidiary
must execute and deliver to the Trustee a supplemental
indenture in form satisfactory to the Trustee providing for
the Guarantee on an equal basis of the Securities.
(vii) Indebtedness of the Company or any Restricted
Subsidiary represented by Capitalized Lease Obligations,
mortgage financings or purchase money obligations, in each
case Incurred for the purpose of financing or refinancing all
or any part of the purchase price or cost of construction,
repairs, renovation, remodeling, expansion or other
improvement of property, plant and equipment, including
services and equipment supporting such items, used in the
Company's or any Restricted Subsidiary's business or a Related
Business (collectively, "Purchase Money Debt") in an aggregate
principal amount outstanding not to exceed 10% of Total Assets
at the time of any Incurrence thereof;
(viii) Indebtedness of the Company represented by
Capitalized Lease Obligations Incurred from time to time for
point-of-sale equipment and store systems, including services
and equipment supporting such equipment and systems, with the
aggregate capitalized amount of such obligation determined in
accordance with GAAP outstanding at any one time not to exceed
$32 million; and
(ix) other Indebtedness of the Company or any Restricted
Subsidiary in an aggregate principal amount outstanding at any
time not to exceed $10 million.
(c) Notwithstanding the foregoing, the Company shall not
Incur any Indebtedness pursuant to the foregoing Section 4.3(b) if
the proceeds thereof are used, directly or indirectly, to Refinance
any Subordinated Obligations unless such new Indebtedness shall be
subordinated to the Securities to at least the same extent as such
Subordinated Obligations being Refinanced. In addition,
notwithstanding any other provision of this Section 4.3, the
Company will not, and will not permit any Restricted Subsidiary to,
Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary
other than Guarantees by the Company of Indebtedness of
Unrestricted Subsidiaries outstanding or available pursuant to
written agreements existing on the Issue Date (as such agreements
may be renewed, modified or extended without any increase in the
maximum principal amount).
(d) For purposes of determining the outstanding
principal amount of any particular Indebtedness Incurred pursuant
to this Section 4.3, (1) Indebtedness Incurred pursuant to the
Credit Agreement prior to or on the date of this Indenture shall be
treated as Incurred pursuant to Section 4.3(b)(i), (2) Indebtedness
permitted by this Section 4.3 need not be permitted solely by
reference to one provision permitting such Indebtedness but may be
divided and classified in more than one type and permitted in part
by one such provision and in part by one or more other provisions
of this Section 4.3 permitting such Indebtedness and (3) in the
event that Indebtedness or any portion thereof meets the criteria
of more than one of the types of Indebtedness described in this
Section 4.3, the Company, in its sole discretion, shall classify
such Indebtedness or any portion thereof and only be required to
include the amount and type of such Indebtedness in one of such
provisions of this Section 4.3.
SECTION 4.4. 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 or make any distribution on or in respect of its Capital
Stock (including, without duplication, any payment in connection
with any merger or consolidation involving the Company), except (1)
dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, (2) a dividend of shares (or
rights or warrants to purchase shares) of the Capital Stock of
Aaron Brothers Holdings, Inc. (or any successor) or any of its
Subsidiaries at any time when it is an Unrestricted Subsidiary and
(3) dividends or distributions payable to the Company or another
Restricted Subsidiary (and, if such Restricted Subsidiary making
such dividend or distribution is not wholly owned, to its other
shareholders on a pro rata basis), (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of the Company held
by Persons other than the Company or another Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment
or scheduled sinking fund payment any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of
Subordinated Obligations in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each
case due within one year of the date of such purchase, repurchase
or acquisition) or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition,
retirement, Investment or payment being herein referred to as a
"Restricted Payment") if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
(1) a Default or Event of Default will have occurred and
be continuing (or would result therefrom);
(2) the Company could not Incur at least $1.00 of
additional Indebtedness under Section 4.3(a); or
(3) the aggregate amount of such Restricted Payment and
all other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by the
Board of Directors of the Company, whose determination will be
evidenced by a resolution of such Board of Directors certified
in an Officers' Certificate to the Trustee) declared or made
subsequent to the Issue Date would exceed the sum of:
(A) either (1) 50% of the Consolidated Net Income if
the Securities are rated less than Investment Grade or
(2) 75% of Consolidated Net Income if the Securities are
rated Investment Grade, in each case with respect to the
period (treated as one accounting period) from the Issue
Date to the end of the most recent fiscal quarter ending
at least 45 days prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income will be
a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary);
(C) the amount by which Indebtedness of the Company
is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Restricted
Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable
for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash or other property
distributed by the Company upon such conversion or
exchange);
(D) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from
(i) payments of dividends, repayments of the principal of
loans or advances or other transfers of assets to the
Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the designation or redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount
was included in the calculation of the amount of
Restricted Payments; and
(E) $5 million.
(b) The provisions of Section 4.4(a) will not prohibit:
(i) any purchase, redemption, defeasance or other
acquisition of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the net proceeds
of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary); provided, however, that
(A) such purchase, redemption, defeasance or other acquisition
will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such
sale will be excluded from Section 4.4(a)(3)(B);
(ii) any purchase, redemption, defeasance or other
acquisition of Subordinated Obligations made by exchange for,
or out of the net proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Company; provided,
however, that (A) the principal amount of such new
Indebtedness does not exceed the principal amount of the
Subordinated Obligations being so redeemed, purchased,
defeased, acquired or retired for value (plus the amount of
any premium required to be paid under the terms of the
instrument governing the Subordinated Obligations being so
redeemed, purchased, defeased, acquired or retired), (B) such
new Indebtedness is subordinated to the Securities at least to
the same extent as such Subordinated Obligations so purchased,
exchanged, redeemed, purchased, defeased, acquired or retired
for value, (C) such new Indebtedness has a final scheduled
maturity date later than the final scheduled maturity date of
the Securities and (D) such new Indebtedness has an Average
Life equal to or greater than the Average Life of the
Securities; provided further, however, that such purchase,
redemption, defeasance or other acquisition will be excluded
in the calculation of the amount of Restricted Payments;
(iii) any purchase, redemption, defeasance or other
acquisition of Subordinated Obligations (1) from Net Available
Cash to the extent permitted by Section 4.6; provided,
however, that such purchase or redemption will be excluded in
the calculation of the amount of Restricted Payments, or (2)
pursuant to an offer to purchase which is then required to be
made upon a change of control of the Company pursuant to the
terms of the instrument governing such Subordinated
Obligation, but only if the Company has complied with its
obligations under Section 4.8; provided, however, that such
purchase will be included in the calculation of the amount of
Restricted Payments; or
(iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such
dividend would have complied with Section 4.4(a); provided,
however, that the amount of such dividend will be included in
the calculation of the amount of Restricted Payments.
SECTION 4.5. Limitation on Restrictions on
Distributions from Restricted Subsidiaries. The Company will not,
and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other
obligation owed to the Company, (ii) make any loans or advances to
the Company or (iii) transfer any of its property or assets to the
Company or any Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or
prior to the date on which such Restricted Subsidiary was
acquired by the Company or a Restricted Subsidiary (other than
Indebtedness Incurred in connection with, or in contemplation
of, the transaction or series of related transactions pursuant
to which such Restricted Subsidiary became a Subsidiary or was
acquired by the Company or a Restricted Subsidiary) and
outstanding on such date;
(3) any encumbrance or restriction pursuant to an
agreement effecting a refinancing of Indebtedness Incurred
pursuant to an agreement referred to in clause (1) or (2) of
this Section 4.5 or contained in any amendment to an agreement
referred to in clause (1) or (2) of this Section 4.5;
provided, however, that the encumbrances and restrictions
contained in any such refinancing agreement or amendment are
no less favorable to the Securityholders than the encumbrances
and restrictions contained in such agreements as determined in
good faith by the Company and evidenced by an Officers'
Certificate;
(4) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract, (B)
by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise
prohibited by this Indenture, (C) arising or agreed to in the
ordinary course of business and that does not, individually or
in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner
material to the Company or such Restricted Subsidiary or (D)
contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to
such security agreements;
(5) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition; and
(6) encumbrances or restrictions contained in any
financing agreement of a Foreign Restricted Subsidiary or
arising or existing by reason of applicable law, including any
legal limitations restricting the ability of Foreign
Restricted Subsidiaries to pay as dividends, or distribute or
otherwise pay or repatriate funds to the Company or its
Subsidiaries.
SECTION 4.6. Limitation on Sales of Assets and
Subsidiary Stock. (a) The Company will not, and will not permit
any Restricted Subsidiary to, make any Asset Disposition unless (i)
the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Board of Directors
of the Company (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset
Disposition, (ii) at least 75% of the consideration thereof
received by the Company or such Restricted Subsidiary is in the
form of cash or Temporary Cash Investments and (iii) an amount
equal to 100% of the Net Available Cash from such Asset Disposition
is applied by the Company or such Restricted Subsidiary, as the
case may be (A) FIRST, to the extent the Company or any Restricted
Subsidiary, as the case may be, elects (or is required by the terms
of any Senior Indebtedness), to prepay, repay or purchase Senior
Indebtedness or Indebtedness (other than Disqualified Stock) of a
Wholly Owned Subsidiary (in each case other than Indebtedness owed
to the Company or an Affiliate of the Company) within 180 days from
the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (B) SECOND, to the extent of the balance
of Net Available Cash after application in accordance with clause
(A), to the extent the Company or such Restricted Subsidiary, as
the case may be, elects, to the investment by the Company or any
Restricted Subsidiary in Additional Assets within one year from the
later of the date of such Asset Disposition or the receipt of such
Net Available Cash; (C) THIRD, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A)
and (B), to make an Offer (as defined below) to purchase Securities
pursuant to and subject to the conditions set forth in Section
4.6(b) within 45 days after the later of the application of Net
Available Cash in accordance with clauses (A) and (B) and the date
that is one year from the receipt of such Net Available Cash; and
(D) FOURTH, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), to
(x) the acquisition by the Company or any Wholly Owned Subsidiary
of Additional Assets, (y) the prepayment, repayment, purchase or
other acquisition of Indebtedness of the Company (other than
Indebtedness owed to an Affiliate of the Company and other than
Disqualified Stock of the Company) or Indebtedness of any
Restricted Subsidiary (other than Indebtedness owed to the Company
or an Affiliate of the Company) or (z) to general corporate
purposes (other than to the payment of dividends or distributions
in respect of, or repurchases of, Capital Stock), in each case
within 45 days after the later of one year from the receipt of such
Net Available Cash and the date the Offer described in paragraph
(b) below is consummated; provided, however, that in connection
with any prepayment, repayment, purchase or other acquisition of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company
or such Restricted Subsidiary will, to the extent such Indebtedness
is not revolving Indebtedness, retire such Indebtedness and,
subject to clause (i) of Section 4.3(b), will cause any related
loan commitment or availability (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or
purchased.
For the purposes of this Section, the following are
deemed to be cash: (x) the assumption by the transferee of
Indebtedness of the Company (other than Disqualified Stock of the
Company) or any Restricted Subsidiary and the release of the
Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y)
securities received by the Company or any Restricted Subsidiary
from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires
the purchase of Securities pursuant to Section 4.6(a)(iii)(C), the
Company will be required to purchase Securities tendered pursuant
to an offer by the Company for the Securities (the "Offer") at a
purchase price of 100% of their principal amount plus accrued
interest to the date of purchase in accordance with the procedures
(including prorating in the event of oversubscription) set forth in
Section 4.6(c). If the aggregate purchase price of Securities
tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Securities, the Company will apply
the remaining Net Available Cash in accordance with Section
4.6(a)(iii)(D) above. The Company and its Restricted Subsidiaries
shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance
with this Section exceeds $5,000,000. The Company shall not be
required to make an Offer for Securities pursuant to this Section
if the Net Available Cash available therefor (after application of
the proceeds as provided in clauses (A) and (B)) are less than
$10,000,000 for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining
whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 30 days after
the Company becomes obligated to make an Offer, the Company shall
be obligated to deliver to the Trustee and send, by first-class
mail to each Holder, at the address appearing in the Security
Register, a written notice stating that the Holder may elect to
have his Securities purchased by the Company either in whole or in
part (subject to prorationing as hereinafter described in the event
the Offer is oversubscribed) in integral multiples of $1,000 of
principal amount, at the applicable purchase price. The notice
shall specify a purchase date not less than 30 days nor more than
60 days after the date of such notice (the "Purchase Date") and
shall contain (i) the most recently filed Annual Report on Form
10-K (including audited consolidated financial statements) of the
Company, the most recent subsequently filed Quarterly Report on
Form 10-Q of the Company and any Current Report on Form 8-K of any
the Company filed subsequent to such Quarterly Report, other than
Current Reports describing Asset Dispositions otherwise described
in the offering materials (or corresponding successor reports),
(ii) a description of material developments in the Company's
business subsequent to the date of the latest of such Reports, and
(iii) if material, appropriate pro forma financial information and
all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in
clause (3).
(2) Not later than the date upon which written notice of
an Offer is delivered to the Trustee as provided below, the Company
shall deliver to the Trustee an Officers' Certificate as to (i) the
amount of the Offer (the "Offer Amount"), (ii) the allocation of
the Net Available Cash from the Asset Dispositions pursuant to
which such Offer is being made and (iii) the compliance of such
allocation with the provisions of Section 4.6(a). Upon the
expiration of the period for which the Offer remains open (the
"Offer Period"), the Company shall deliver to the Trustee for
cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. Not
later than 11:00 a.m. (New York City time) on the Purchase Date,
the Company shall irrevocably deposit with the Trustee or with a
paying agent (or, if the Company is acting as Paying Agent,
segregate and hold in trust) an amount in cash sufficient to pay
the Offer Amount for all Securities properly tendered to and
accepted by the Company. The Trustee shall, on the Purchase Date,
mail or deliver payment to each tendering Holder in the amount of
the purchase price.
(3) Holders electing to have a Security purchased will
be required to surrender the Security, together with all necessary
endorsements and other appropriate materials duly completed, to the
Company at the address specified in the notice at least three
Business Days prior to the Purchase Date. Holders will be entitled
to withdraw their election in whole or in part if the Trustee or
the Company receives not later than one Business Day prior to the
Purchase Date, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security (which
shall be $1,000 or an integral multiple thereof) which was
delivered for purchase by the Holder, the aggregate principal
amount of such Security (if any) that remains subject to the
original notice of the Offer and that has been or will be delivered
for purchase by the Company and a statement that such Holder is
withdrawing his election to have such Security purchased. If at
the expiration of the Offer Period the aggregate principal amount
of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata
basis (with such adjustments as may be deemed appropriate by the
Company so that only securities in denominations of $1,000, or
integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part will be issued new Securities
equal in principal amount to the unpurchased portion of the
Securities surrendered.
(4) A Security shall be deemed to have been accepted for
purchase at the time the Trustee, directly or through an agent,
mails or delivers payment therefor to the surrendering Holder.
(d) The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the
repurchase of Securities pursuant to this Section. To the extent
that the provisions of any securities laws or regulations conflict
with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed
to have breached its obligations under this Section by virtue
thereof.
SECTION 4.7. Limitation on Transactions with
Affiliates. (a) The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into any
agreement or conduct any transaction or series of related
transactions (including the purchase, sale, lease or exchange of
any property, or rendering of any service) with any Affiliate of
the Company (an "Affiliate Transaction") unless (i) the terms of
such transaction or agreement are no less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that
could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in
excess of $1,000,000, the terms of such transaction or agreement
shall have been approved by a majority of the members of the Board
of Directors having no personal stake in such Affiliate Transaction
(and such majority determines that such Affiliate Transaction
satisfies the criteria in clause (i) above) and (iii) in the event
such Affiliate Transaction involves an aggregate amount in excess
of $5,000,000, the Company has received a written opinion from a
nationally recognized Independent Financial Advisor that such
Affiliate Transaction is either fair to the Company from a
financial point of view or is on terms no less favorable to the
Company than could be obtained in an arm's length transaction from
a Person who is not an Affiliate.
(b) The foregoing provisions of Section 4.7(a) shall not
apply to (i) any Restricted Payment permitted to be made pursuant
to Section 4.4, (ii) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or
the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors or the payment
of fees and indemnities to directors of the Company and its
Restricted Subsidiaries in the ordinary course of business, (iii)
loans or advances to employees in the ordinary course of business,
(iv) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries, (v) transactions
pursuant to written agreements in existence on the Issue Date or
(vi) any transaction between the Company or any Wholly Owned
Subsidiary, on the one hand, and a Restricted Subsidiary, on the
other hand, in the ordinary course of business on terms that are
customary in the industry or consistent with past practice.
SECTION 4.8. Change of Control. (a) Upon a Change of
Control, each Holder shall have the right to require that the
Company repurchase all or any part of such Holder's Securities at
a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of
repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the related
interest payment date), in accordance with the terms contemplated
in Section 4.8(b).
(b) Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder with a copy to the
Trustee stating:
(1) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such
Holder's Securities at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the
right of Holders of record on a record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and pro forma
financial information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is
mailed); and
(4) the instructions determined by the Company,
consistent with this Section, that a Holder must follow in
order to have its Securities purchased.
(c) Holders electing to have a Security purchased will
be required to surrender the Security, together with all necessary
endorsements and other appropriate materials duly completed, to the
Company at the address specified in the notice at least three
Business Days prior to the purchase date. Holders will be entitled
to withdraw their election if the Trustee or the Company receives
not later than one Business Day prior to the purchase date, a
facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security which was delivered
for purchase by the Holder as to which such notice of withdrawal is
being submitted and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by
the Company under this Section shall be delivered to the Trustee
for cancellation, and the Company shall pay the purchase price plus
accrued and unpaid interest, if any, to the Holders entitled
thereto.
(e) The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the
repurchase of Securities pursuant to this Section. To the extent
that the provisions of any securities laws or regulations conflict
with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed
to have breached its obligations under this Section by virtue
thereof.
(f) Notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to repurchase the
Securities or otherwise comply with this Section if the Company has
irrevocably elected to redeem all the Securities in accordance with
Article Three; provided that the Company does not default in its
redemption obligations pursuant to such election.
SECTION 4.9. Compliance Certificate. The Company shall
deliver to the Trustee within 120 days after the end of each fiscal
year of the Company an Officers' Certificate, one of the signers of
which shall be the principal executive, financial or accounting
officer of the Company, stating that in the course of the
performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and
whether or not the signers know of any Default that occurred during
such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or
proposes to take with respect thereto. The Company also shall
comply with TIA 314(a)(4).
SECTION 4.10. Further Instruments and Acts. Upon
request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purpose of
this Indenture.
SECTION 4.11. Limitation on Liens. The Company will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create or permit to exist any Lien on any of its
property or assets (including Capital Stock), whether owned on the
Issue Date or thereafter acquired, securing any obligation other
than Permitted Liens, unless contemporaneously therewith effective
provision is made to secure the Securities equally and ratably with
(or on a senior basis to, in the case of Subordinated Obligations)
such obligation for so long as such obligation is so secured.
SECTION 4.12. Limitation on Sale/Leaseback Transactions.
The Company will not, and will not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction with respect to any
property unless (i) the Company or such Restricted Subsidiary would
be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Indebtedness with respect to such Sale/Leaseback
Transaction pursuant to Section 4.3 (including without limitation
Section 4.3(b)(vi)) and (B) create a Lien, if any, on such property
securing such Attributable Indebtedness without equally and ratably
securing the Securities pursuant to Section 4.11, (ii) the net cash
proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal
to the fair value (as determined by the Board of Directors of the
Company and certified in an Officer's Certificate to the Trustee)
of such property and (iii) the transfer of such property is
permitted by, and the Company or such Restricted Subsidiary applies
the proceeds of such transaction in compliance with, Section 4.6.
SECTION 4.13. Limitation on Sale of Subsidiary Capital
Stock. The Company (i) will not, and will not permit any
Restricted Subsidiary of the Company to, transfer, convey, sell,
lease or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than to the Company or a Wholly
Owned Subsidiary), unless (a) such transfer, conveyance, sale,
lease or other disposition is of all the Capital Stock of such
Restricted Subsidiary (or, in the case of a non Wholly Owned
Restricted Subsidiary, all of the Capital Stock held by the Company
or its Restricted Subsidiaries) and (b) the net cash proceeds from
such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the terms of Section 4.6 and (ii) will
not permit any Restricted Subsidiary to issue any of its Capital
Stock (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than
to the Company or a Wholly Owned Subsidiary; provided that any
Restricted Subsidiary may issue in an underwritten public offering
or otherwise sell any shares of any class of its common stock so
long as (x) no more than 20% of such class, after giving effect to
any such issuance or sale, is then held by Persons other than the
Company or any Restricted Subsidiary and (y) the net cash proceeds
from such public offering or sale are applied in accordance with
the terms of Section 4.6.
ARTICLE 5
Successor Company
SECTION 5.1. When the Company May Merge or Transfer
Assets. Except as otherwise provided in Section 4.13, the Company
will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any
Person, unless:
(i) the resulting, surviving or transferee Person
(the "Successor Company") will be a corporation organized
and existing under the laws of the United States of
America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) will
expressly assume, by supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the
Securities and this Indenture;
(ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any Restricted
Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default
or Event of Default will have occurred and be continuing;
(iii) immediately after giving effect to such
transaction, the Successor Company would be able to Incur
an additional $1.00 of Indebtedness under Section 4.3(a);
(iv) immediately after giving effect to such
transaction, the Successor Company will have a
Consolidated Net Worth in an amount which is not less
than the Consolidated Net Worth of the Company
immediately prior to such transaction; provided that this
clause (iv) will not restrict the Company's ability to
consolidate with or merge with any Person in a
transaction accounted for as a pooling of interests where
the successor Company's Consolidated Net Worth is no more
than 5% less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and
(v) the Company will have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with this
Indenture.
The Successor Company will succeed to, and be substituted
for, and may exercise every right and power of, the Company under
this Indenture, but the predecessor Company in the case of a lease
of all its assets or a conveyance, transfer or lease of
substantially all its assets will not be released from the
obligation to pay the principal of and interest on the Securities.
Notwithstanding the foregoing clauses (ii) and (iii), any
Wholly Owned Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
ARTICLE 6
Defaults and Remedies
SECTION 6.1. Events of Default. An "Event of Default"
occurs if:
(1) the Company defaults in any payment of interest on
any Security when the same becomes due and payable, and such
default continues for a period of 30 days;
(2) the Company (i) defaults in the payment of the
principal or premium, if any, of any Security when the same
becomes due and payable at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or
otherwise or (ii) fails to redeem or purchase Securities when
required pursuant to this Indenture or the Securities;
(3) the Company fails to comply with Section 5.1;
(4) the Company fails to comply with Section 4.2, 4.3,
4.4, 4.5, 4.6, 4.7, 4.8, 4.11, 4.12 or 4.13 (other than a
failure to purchase Securities when required under Section 4.6
or 4.8) and such failure continues for 30 days after the
notice specified below;
(5) the Company fails to comply with any of its
agreements in the Securities or this Indenture (other than
those referred to in (1), (2), (3) or (4) above) and such
failure continues for 60 days after the notice specified
below;
(6) the Company or any Significant Subsidiary of the
Company fails to pay any Indebtedness within any applicable
grace period after final maturity or the acceleration of any
such Indebtedness by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or
accelerated exceeds $5,000,000 or its foreign currency
equivalent at the time;
(7) the Company or any Significant Subsidiary of the
Company pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case in which it is the
debtor;
(C) consents to the appointment of a Custodian of
it or for any substantial part of its property; or
(D) makes a general assignment for the benefit of
its creditors;
or takes any comparable action under any foreign laws relating
to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary of the Company in an involuntary
case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for any
substantial part of the property of the Company or
Significant Subsidiary; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the
order or decree remains unstayed and in effect for 60 days; or
(9) any final, non-appealable judgment or decree for the
payment of money in excess of $5,000,000 or its foreign
currency equivalent at the time is entered against the Company
or any Significant Subsidiary of the Company and either:
(A) an enforcement proceeding has been commenced by
any creditor upon such judgment or decree; or
(B) such judgment or decree remains unpaid and
outstanding for a period of 60 days following such
judgment and is not discharged, waived or stayed.
The foregoing will constitute Events of Default whatever
the reason for any such Event of Default and whether it is
voluntary or involuntary or is effected by operation of law or
pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States
Code, as amended, or any similar federal or state law for the
relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator, custodian or similar official under
any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of
Default until the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Securities notify the
Company of the Default and the Company does not cure such Default
within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days
after the occurrence thereof, written notice in the form of an
Officers' Certificate of any Event of Default under clause (6) and
any event which with the giving of notice or the lapse of time
would become an Event of Default under clause (4), (5) or (9), its
status and what action the Company is taking or proposes to take
with respect thereto.
SECTION 6.2. Acceleration. If an Event of Default
(other than an Event of Default specified in Section 6.1(7) or (8)
with respect to the Company) occurs and is continuing, the Trustee
by notice to the Company, or the Holders of at least 25% in
aggregate principal amount of the outstanding Securities by notice
to the Company and the Trustee, may declare the principal of and
accrued interest on all the Securities to be due and payable. Upon
such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default specified in Section
6.1(7) or (8) with respect to the Company occurs and is continuing,
the principal of and accrued interest on all the Securities shall
ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any
Securityholders. The Holders of a majority in aggregate principal
amount of the outstanding Securities by notice to the Trustee may
rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.3. Other Remedies. If an Event of Default
occurs and is continuing, the Trustee may pursue any available
remedy to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in
the proceeding. A delay or omission by the Trustee or any
Securityholder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute
a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are, to the
extent permitted by law, cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of
a majority in aggregate principal amount of the Securities then
outstanding by notice to the Trustee may waive any past or existing
Default and its consequences except (i) a Default in the payment of
the principal of or interest on a Security or (ii) a Default in
respect of a provision that under Section 9.2 cannot be amended
without the consent of each Securityholder affected. When a
Default is waived, it is deemed cured, and any Event of Default
arising therefrom shall be deemed to have been cured, but no such
waiver shall extend to any subsequent or other Default or impair
any consequent right.
SECTION 6.5. Control by Majority. The Holders of a
majority in aggregate principal amount of the Securities then
outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising
any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this
Indenture or, subject to Section 7.1, that the Trustee determines
is unduly prejudicial to the rights of other Securityholders or
would involve the Trustee in personal liability; provided, however,
that the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to
indemnification from the Securityholders satisfactory to it in its
sole discretion against all losses and expenses caused by taking or
not taking such action.
SECTION 6.6. Limitation on Suits. A Securityholder may
not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice
stating that an Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding make a written
request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss, liability
or expense;
(4) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of security
or indemnity; and
(5) the Holders of a majority in aggregate principal
amount of the Securities then outstanding do not give the
Trustee a direction inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice
the rights of another Securityholder or to obtain a preference or
priority over another Securityholder.
SECTION 6.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on the
Securities held by such Holder, on or after the respective due
dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such
Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event
of Default specified in Section 6.1(1) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole
amount then due and owing (together with interest on any unpaid
interest to the extent lawful) and the amounts provided for in
Section 7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The
Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Trustee and the Securityholders allowed in any judicial proceedings
relative to the Company, its creditors or its property and, unless
prohibited by law or applicable regulations, may vote on behalf of
the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such
judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee
under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any
money or property pursuant to this Article 6, it shall pay out the
money or property in the following order, subject to applicable
law:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on
the Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and
THIRD: to the Company.
The Trustee may, upon prior written notice to the
Company, fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before
such record date, the Company shall mail to each Securityholder and
the Trustee a notice that states the record date, the payment date
and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for
the enforcement of any right or remedy under this Indenture or in
any suit against the Trustee for any action taken or omitted by it
as Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against
any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.7 or a suit by Holders of more than
10% in aggregate principal amount of the outstanding Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The
Company (to the extent it may lawfully do so) shall not at any time
insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Indenture; and the Company
(to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and shall not hinder,
delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.1. Duties of Trustee. (a) If an Event of
Default has occurred and is continuing, the Trustee shall exercise
the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent Person
would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of
Default:
(1) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, in
the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its
own wilful misconduct, except that:
(1) this paragraph does not limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of
this Section.
(e) Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
(f) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if it
shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(g) Every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Section and
to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. (a) The Trustee may
rely on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel. The
Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on the Officers' Certificate or
Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be
authorized or within its rights or powers; provided, however, that
the Trustee's conduct does not constitute wilful misconduct or
negligence.
(e) The Trustee may consult with counsel of its
selection, and the advice or opinion of counsel with respect to
legal matters relating to this Indenture and the Securities shall
be full and complete authorization and protection from liability in
respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction.
SECTION 7.3. Individual Rights of Trustee. The Trustee
in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or
its respective Affiliates with the same rights it would have if it
were not Trustee. Any Paying Agent, Registrar, co-registrar or
co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall
not be responsible for and makes no representation as to the
validity or adequacy of this Indenture or the Securities, it shall
not be accountable for the Company's use of the proceeds from the
Securities, and it shall not be responsible for any statement of
the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities
other than the Trustee's certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default occurs
and is continuing and if it is known to the Trustee, the Trustee
shall mail to each Securityholder notice of the Default within the
90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Security (including
payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so
long as a committee of its Trust Officers in good faith determines
that withholding the notice is in the interests of Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As
promptly as practicable after each May 15 beginning with the May 15
following the date of this Indenture, and in any event prior to
July 15 in each year, the Trustee shall mail to each Securityholder
a brief report dated as of May 15 that complies with TIA 313(a).
The Trustee also shall comply with TIA 313(b). The Trustee shall
promptly deliver to the Company a copy of any report it delivers to
Holders pursuant to Section 7.6.
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange
(if any) on which the Securities are listed. The Company agrees to
notify promptly the Trustee whenever the Securities become listed
on any stock exchange and of any delisting thereof.
SECTION 7.7. Compensation and Indemnity. The Company
shall pay to the Trustee from time to time such compensation for
its services as the Company and the Trustee shall from time to time
agree in writing. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to such compensation for its services,
except any such expense, disbursement or advance as may arise from
its negligence, wilful misconduct or bad faith. Such expenses
shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company
reasonable notice of any expenditure not in the ordinary course of
business; provided that prior approval by the Company of any such
expenditure shall not be a requirement for the making of such
expenditure nor for reimbursement by the Company thereof. The
Company shall indemnify each of the Trustee and any predecessor
Trustees against any and all loss, damage, claim, liability or
expense (including attorneys' fees and expenses) (other than taxes
applicable to the Trustee's compensation hereunder) incurred by it
in connection with the acceptance or administration of this trust
and the performance of its duties hereunder. The Trustee shall
notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall
not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee may have separate counsel,
which counsel must be reasonably acceptable to the Company and the
Company will pay the reasonable fees and expenses of such counsel
. The Company need not reimburse any expense or indemnify against
any loss, liability or expense incurred by the Trustee through the
Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this
Section, the Trustee shall have a lien prior to the Securities on
all money or property held or collected by the Trustee other than
money or property held in trust to pay principal of and interest on
particular Securities.
The Company's payment obligations pursuant to this
Section shall survive the discharge of this Indenture. When the
Trustee incurs expenses after the occurrence of a Default specified
in Section 6.1(7) or (8) with respect to the Company, the expenses
are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may
resign at any time by so notifying the Company. The Holders of a
majority in principal amount of the Securities then outstanding,
may remove the Trustee by so notifying the Trustee and may appoint
a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes
charge of the Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by
the Holders of a majority in principal amount of the Securities and
such Holders do not reasonably promptly appoint a successor
Trustee, or if a vacancy exists in the office of Trustee for any
reason (the Trustee in such event being referred to herein as the
retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Company.
Thereupon the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to
Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to
the lien provided for in Section 7.7.
If a successor Trustee does not take office within 60
days after the retiring Trustee resigns or is removed, the retiring
Trustee or the Holders of 10% in principal amount of the Securities
may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor
Trustee.
Notwithstanding the replacement of the Trustee pursuant
to this Section, the Company, obligations under Section 7.7 shall
continue for the benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the
Trustee consolidates with, merges or converts into, or transfers
all or substantially all its corporate trust business or assets to,
another corporation or banking association, the resulting,
surviving or transferee corporation without any further act shall
be the successor Trustee, provided that such corporation shall be
eligible under this Article Seven and TIA Section 3.10(a).
In case at the time such successor or successors by
merger, conversion or consolidation to the Trustee shall succeed to
the trusts created by this Indenture any of the Securities shall
have been authenticated but not delivered, any such successor to
the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Securities so authenticated;
and in case at that time any of the Securities shall not have been
authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in
the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in
the Securities or in this Indenture provided that the certificate
of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The
Trustee shall at all times satisfy the requirements of TIA
310(a). The Trustee shall have a combined capital and surplus of
at least $50,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA
310(b); provided, however, that there shall be excluded from the
operation of TIA 310(b)(1) any indenture or indentures under
which other securities or certificates of interest or participation
in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA 310(b)(1) are
met.
SECTION 7.11. Preferential Collection of Claims Against
Company. The Trustee shall comply with TIA 311(a), excluding any
creditor relationship listed in TIA 311(b). A Trustee who has
resigned or been removed shall be subject to TIA 311(a) to the
extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.1. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Company delivers to the Trustee all
outstanding Securities (other than Securities replaced pursuant to
Section 2.7) for cancellation or (ii) all outstanding Securities
have become due and payable, whether at maturity or as a result of
the mailing of a notice of redemption pursuant to Article 3 hereof
or the Securities will become due and payable at their Maturity
within 91 days, or the securities are to be called for redemption
within 91 days 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, in each case of this clause
(ii), the Company irrevocably deposits or causes to be deposited
with the Trustee funds sufficient to pay at maturity or upon
redemption all outstanding Securities, including interest thereon
to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.7), and if in either case the Company pays
all other sums payable hereunder by the Company, then this
Indenture shall, subject to Section 8.1(c), cease to be of further
effect. The Trustee shall acknowledge satisfaction and discharge
of this Indenture on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company
that all conditions precedent provided herein for relating to
satisfaction and discharge of this Indenture have been complied
with and at the cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at
any time may terminate (i) all of its obligations under the
Securities and this Indenture ("legal defeasance option") or (ii)
its obligations under Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8,
4.9, 4.10, 4.11, 4.12 and 4.13 and the operation of Sections
6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a
Significant Subsidiary), 6.1(8) (but only with respect to a
Significant Subsidiary), 6.1(9) and 5.1(ii), 5.1(iii) and 5.1(iv)
("covenant defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Company exercises its legal defeasance option,
payment of the Securities may not be accelerated because of an
Event of Default. If the Company exercises its covenant defeasance
option, payment of the Securities may not be accelerated because of
an Event of Default specified in Section 6.1(4), 6.1(5), 6.1(6),
6.1(7) (but only with respect to a Significant Subsidiary), 6.1(8)
(but only with respect to a Significant Subsidiary) or 6.1(9) or
because of the failure of the Company to comply with Sections
5.1(ii), 5.1(iii) and 5.1(iv).
Upon satisfaction of the conditions set forth herein and
upon request of the Company, the Trustee shall acknowledge in
writing the discharge of those obligations that the Company
terminates.
(c) Notwithstanding clauses (a) and (b) above, the
Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7,
7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been
paid in full. Thereafter, the Company's obligations in Sections
7.7, 8.4 and 8.5 shall survive.
SECTION 8.2. Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance
option only if:
(1) the Company irrevocably deposits or causes to be
deposited in trust with the Trustee money or U.S. Government
Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms
will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all
outstanding Securities (except Securities replaced pursuant to
Section 2.7) to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate
from a nationally recognized firm of independent accountants
expressing their opinion that the payments of principal and
interest when due and without reinvestment on the deposited
U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts
as will be sufficient to pay principal and interest when due
on all outstanding Securities (except Securities replaced
pursuant to Section 2.7) to maturity or redemption, as the
case may be;
(3) 91 days pass after the deposit is made and during
the 91-day period no Default specified in Section 6.1(7) or
(8) with respect to the Company occurs which is continuing at
the end of the period;
(4) the deposit does not constitute a default under any
other material agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the
deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the
Company shall have delivered to the Trustee an Opinion of
Counsel stating that (i) the Company have received from, or
there has been published by, the Internal Revenue Service a
ruling, or (ii) since the date of this Indenture there has
been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Securityholders will not
recognize income, gain or loss for federal income tax purposes
as a result of such deposit and 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
deposit and defeasance had not occurred;
(7) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Securityholders will not
recognize income, gain or loss for federal income tax purposes
as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such deposit
and covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the
Securities as contemplated by this Article 8 have been
complied with.
Opinions of Counsel required to be delivered under this
Section may have qualifications customary for opinions of the type
required and counsel delivering such Opinions of Counsel may rely
on certificates of the Company or government or other officials
customary for opinions of the type required, including certificates
certifying as to matters of fact.
Before or after a deposit, the Company may make
arrangements satisfactory to the Trustee for the redemption of
Securities at a future date in accordance with Article 3.
SECTION 8.3. Application of Trust Money. The Trustee
shall hold in trust money or U.S. Government Obligations deposited
with it pursuant to this Article 8. It shall apply the deposited
money and the money from U.S. Government Obligations either
directly or through the Paying Agent (including the Company acting
as its own Paying Agent as the Trustee may determine) and in
accordance with this Indenture to the payment of principal of and
interest on the Securities.
SECTION 8.4. Repayment to Company. The Trustee and the
Paying Agent shall promptly turn over to the Company upon request
any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the
Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or
interest that remains unclaimed for two years, and, thereafter,
Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.5. Indemnity for Government Obligations. The
Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against deposited U.S.
Government Obligations or the principal and interest received on
such U.S. Government Obligations other than any such tax, fee or
other charge which by law is for the account of the Holders of the
defeased Securities; provided that the Trustee shall be entitled to
charge any such tax, fee or other charge to such Holder's account.
SECTION 8.6. Reinstatement. If the Trustee or Paying
Agent is unable to apply any money or U.S. Government Obligations
in accordance with this Article 8 by reason of any legal proceeding
or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had
occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with this Article 8; provided,
however, that, (a) if the Company has made any payment of interest
on or principal of any Securities following the reinstatement of
their obligations, the Company shall be subrogated to the rights of
the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying
Agent and (b) unless otherwise required by any legal proceeding or
any order or judgment of any court or governmental authority, the
Trustee or Paying Agent shall return all such money and U.S.
Government Obligations to the Company promptly after receiving a
written request therefor at any time, if such reinstatement of the
Company's obligations has occurred and continues to be in effect.
ARTICLE 9
Amendments
SECTION 9.1. Without Consent of Holders. The Company
and the Trustee may amend this Indenture or the Securities without
notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition
to or in place of certificated Securities; provided, however,
that the uncertificated Securities are issued in registered
form for purposes of Section 163(f) of the Code or in a manner
such that the uncertificated Securities are as described in
Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities;
(5) to secure the Securities;
(6) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power
herein conferred upon the Company;
(7) to make any change that does not adversely affect
the rights of any Securityholder; or
(8) to comply with any requirements of the SEC in
connection with qualifying this Indenture under the TIA.
After an amendment under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly
describing such amendment. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect
the validity of an amendment under this section.
SECTION 9.2. With Consent of Holders. The Company and
the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the
Holders of at least a majority in principal amount of the
Securities then outstanding. However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must
consent to an amendment;
(2) reduce the rate of or extend the time for payment of
interest on any Security;
(3) reduce the principal of or extend the Stated
Maturity of any Security;
(4) reduce the premium payable upon the redemption of
any Security or change the time at which any Security may be
redeemed in accordance with Article 3;
(5) make any Security payable in money other than that
stated in the Security;
(6) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Securities on or
after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's
Securities; or
(7) make any change in Section 6.4 or 6.7 or the second
sentence of this Section.
It shall not be necessary for the consent of the Holders
under this Section to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly
describing such amendment. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall comply
with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and
Waivers. A consent to an amendment or a waiver by a Holder of a
Security shall bind the Holder and every subsequent Holder of that
Security or portion of the Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent
or waiver is not made on the Security. After an amendment or
waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Securityholders
entitled to give their consent or take any other action described
above or required or permitted to be taken pursuant to this
Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to give such
consent or to revoke any consent previously given or to take any
such action, whether or not such Persons continue to be Holders
after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If
an amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security
regarding the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determine, the
Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or to issue a new Security
shall not affect the validity of such amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee
shall sign any amendment authorized pursuant to this Article 9 if
the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee
may but need not sign it. In signing such amendment the Trustee
shall be entitled to receive indemnity reasonably satisfactory to
it and to receive, and (subject to Section 7.1) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion
of Counsel stating that such amendment complies with the provisions
of Article 9 of this Indenture.
ARTICLE 10
Miscellaneous
SECTION 10.1. Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this
Indenture by the TIA, the required provision shall control. If
this Indenture excludes any provision of the TIA that is required
to be included, such provision shall be deemed included herein.
SECTION 10.2. Notices. Any notice or communication
shall be in writing and delivered in person, by overnight courier
or facsimile (if to the Company, with receipt confirmed by an
Officer) or mailed by first-class mail addressed as follows:
if to the Company:
Before August 1, 1996:
Michaels Stores, Inc.
5931 Campus Circle Drive
Irving, TX 75063
Attention: General Counsel
From and after August 1, 1996:
Michaels Stores, Inc.
8000 Bent Branch Drive
Irving, TX 75063
Attention: General Counsel
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee
Administration
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices
or communications.
Any notice or communication mailed or sent by overnight
courier or facsimile to a Securityholder shall be sent to the
Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given
if so sent within the time prescribed.
Failure to send a notice or communication to a
Securityholder or any defect in it shall not affect its sufficiency
with respect to other Securityholders. If a notice or
communication is sent in the manner provided above, it is duly
given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice.
SECTION 10.3. Communication by Holders with Other
Holders. Securityholders may communicate pursuant to TIA 312(b)
with other Securityholders with respect to their rights under this
Indenture or the Securities. The Company, the Trustee, the
Registrar and anyone else shall have the protection of TIA
312(c).
SECTION 10.4. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the
Trustee to take or refrain from taking any action under this
Indenture, each the Company shall furnish to the Trustee:
(1) an Officers' Certificate (which in connection with
the original issuance of the Securities need only be executed
by one Officer for the Company) in form and substance
reasonably satisfactory to the Trustee stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee stating that, in the
opinion of such counsel, all such conditions precedent have
been complied with.
SECTION 10.5. Statements Required in Certificate or
Opinion. Each certificate or opinion with respect to compliance
with a covenant or condition provided for in this Indenture shall
include:
(1) a statement that the individual making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual,
he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
such individual, such covenant or condition has been complied
with.
SECTION 10.6. When Securities Disregarded. In
determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or by any Person directly or
indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not
to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee
actually knows are so owned shall be so disregarded. Also, subject
to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 10.7. Rules by Trustee, Paying Agent and
Registrar. The Trustee may make reasonable rules for action by or
a meeting of Securityholders. The Trustee shall provide the
Company reasonable notice of such rules; provided that neither
prior notice to the Company of such rules nor prior approval by the
Company of such rules shall be a requirement for their
effectiveness. The Registrar and the Paying Agent may make
reasonable rules for their functions.
SECTION 10.8. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not
required to be open in the State of New York. If a payment date is
a Legal Holiday, payment shall be made on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday,
the record date shall not be affected.
SECTION 10.9. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with,
the laws of the State of New York but without giving effect to
applicable principles of conflict of laws to the extent that the
application of the laws of another jurisdiction would be required
thereby.
SECTION 10.10. No Recourse Against Others. A
director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on,
in respect of or by reason of such obligations or their creation.
By accepting a Security, each Securityholder shall waive and
release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.
SECTION 10.11. Successors. All agreements of the
Company in this Indenture and the Securities shall bind the
Company's successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may
sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
SECTION 10.13. Table of Contents; Headings. The
table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not intended to be considered a
part hereof and shall not modify or restrict any of the terms or
provisions hereof.
SECTION 10.14. Severability Clause. In case any
provision in this Indenture or in the Securities shall be invalid,
illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or
impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Indenture to be duly executed as of the date first written above.
MICHAELS STORES, INC.
By:
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By:
Name:
Title:
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, 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 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 DTC OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
No. 1 $125,000,000
10 % Senior Notes Due 2006
CUSIP No. 594087AD0
MICHAELS STORES, INC., a Delaware corporation, promises
to pay to [ ], or registered assigns, the principal sum of One
hundred twenty-five million
Dollars on June 15, 2006.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
Additional provisions of this Security are set forth on
the other side of this Security.
MICHAELS STORES, INC.
By:
Name:
Title:
Dated: [ ], 1996
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the within-mentioned
Indenture.
By:
Authorized Signatory
REVERSE OF SECURITY
10 % Senior Note Due 2006
1. Interest
MICHAELS STORES, INC., a Delaware corporation (such
entity, and its successors and assigns under the Indenture
hereinafter referred to, being herein called the "Company"),
promises to pay interest on the principal amount of this Security
at the rate per annum shown above. The Company will pay interest
semiannually on June 15 and December 15 of each year commencing
December 15, 1996. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest
has been paid, from June 21, 1996. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal at the rate borne by the
Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of
Securities at the close of business on the June 1 or December 1
next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts. However,
the Company may pay principal and interest by check payable in such
money and may mail an interest check to a Holder's registered
address. All payments of principal of, premium, if any, and
interest on the Securities will be made by the Company in
immediately available funds.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking
corporation ("Trustee"), will act as Paying Agent and Registrar.
The Company may appoint and change any Paying Agent, Registrar or
co-registrar without notice. The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as
Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture
dated as of June 21, 1996 (the "Indenture"), among the Company and
the Trustee. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-77bbbb) as in
effect on the date of the Indenture (the "TIA"). Terms defined in
the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the
TIA for a statement of those terms. Any conflict between this Note
and the Indenture will be governed by the Indenture.
The Securities are general unsecured obligations of the
Company limited to $125,000,000 aggregate principal amount (subject
to Section 2.7 of the Indenture). The Indenture imposes certain
limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the existence of liens, the payment of
dividends on, and redemption of, the Capital Stock of the Company
and its Subsidiaries and the redemption of certain subordinated
obligations of the Company and its Subsidiaries, restricted
payments, the sale or transfer of assets and Subsidiary stock, the
issuance or sale of Capital Stock of Restricted Subsidiaries, sale
and leaseback transactions, the investments of the Company and its
Restricted Subsidiaries, consolidations, mergers and transfers of
all or substantially all the assets of the Company, and
transactions with Affiliates. In addition, the Indenture limits
the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities
may not be redeemed prior to June 15, 2001. On and after that
date, the Company may redeem as provided in, and subject to the
terms of, the Indenture the Securities in whole at any time or in
part from time to time at the following redemption prices
(expressed in percentages of principal amount), plus accrued
interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the
related interest payment date):
if redeemed during the 12-month period beginning June 15,
Period Percentage
2001 . . . . . . . . . . . . . . . . 105.438%
2002 . . . . . . . . . . . . . . . . 103.625%
2003 . . . . . . . . . . . . . . . . 101.812%
2004 and thereafter. . . . . . . . .100.000 %
In addition, at any time and from time to time prior to
June 15, 1999, the Company may redeem in the aggregate up to $25
million principal amount of the Securities with the proceeds of one
or more Equity Offerings so long as there is a Public Market at the
time of such redemption, at a redemption price (expressed as a
percentage of principal amount) of 110% plus accrued interest, if
any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the
relevant interest payment date) as provided in, and subject to the
terms of, the Indenture; provided, however, that at least $100
million principal amount of the Securities must remain outstanding
after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the redemption date
to each Holder of Securities to be redeemed at his registered
address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on
all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the
redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Securities (or
such portions thereof) called for redemption. If a notice or
communication is sent in the manner provided in the Indenture, it is
duly given, whether or not the addressee receives it. Failure to
send a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other
Securityholders.
In addition, in the event of certain Asset Dispositions,
the Company will be required to make an offer to purchase Securities
at a purchase price of 100% of their principal amount plus accrued
interest to the date of purchase (subject to the rights of Holders
of record on the relevant record date to receive interest due on the
relevant interest payment date) as provided in, and subject to the
terms of, the Indenture.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will
have the right to require the Company to repurchase all or any part
of the Securities of such Holder at a repurchase price in cash equal
to 101% of the principal amount of the Securities to be repurchased
plus accrued interest to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive
interest due on the related interest payment date) as provided in,
and subject to the terms of, the Indenture.
8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may
transfer or exchange Securities in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture, including
any transfer tax or other similar governmental charge payable in
connection therewith. The Registrar need not register the transfer
of or exchange any Securities selected for redemption (except, in
the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days
before an interest payment date.
9. Persons Deemed Owners
The registered Holder of this Security may be treated as
the owner of it for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the
money back to the Company at its written request unless an abandoned
property law designates another Person. After any such payment,
Holders entitled to the money must look only to the Company and not
to the Trustee for payment.
11. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and
the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on
the Securities to redemption or maturity, as the case may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture,
(i) the Indenture or the Securities may be amended with the written
consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (ii) any default or noncompliance
with any provision may be waived with the written consent of the
Holders of a majority in principal amount outstanding of the
Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company
and the Trustee may amend the Indenture or the Securities to cure
any ambiguity, omission, defect or inconsistency, or to comply with
Article 5 of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or
to add guarantees with respect to the Securities, or to secure the
Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to make any change that does not
adversely affect the rights of any Securityholder or to comply with
any request of the SEC in connection with qualifying the Indenture
under the TIA.
13. Defaults and Remedies
Under the Indenture, Events of Default include
(i) default for 30 days in payment of interest on the Securities;
(ii) default in payment of principal on the Securities at maturity,
upon redemption pursuant to paragraphs 5 or 6 above, upon
acceleration or otherwise, or failure by the Company to redeem or
purchase Securities when required; (iii) failure by the Company to
comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period
after final maturity) of other Indebtedness of the Company and any
Significant Subsidiary if the amount accelerated (or so unpaid)
exceeds $5 million; (v) certain events of bankruptcy or insolvency
with respect to the Company and its Significant Subsidiaries; and
(vi) certain judgments or decrees for the payment of money is in
excess of $5 million.
If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the
Securities then outstanding may declare all the Securities to be due
and payable. Certain events of bankruptcy or insolvency are Events
of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Securities unless it receives
reasonable indemnity or security. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it
determines that withholding notice is in the interest of the
Holders.
1. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the
Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may
otherwise deal with and collect obligations owed to it by the
Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have
if it were not Trustee.
2. No Recourse Against Others
A director, officer, employee or stockholder, as such, of
the Company or the Trustee shall not have any liability for any
obligations of the Company under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the
Securities.
3. Governing Law
The Indenture and the Securities shall be governed by, and
construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflict of laws
to the extent that the application of the laws of another
jurisdiction would be required thereby.
4. Authentication
This Security shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs
the certificate of authentication on the other side of this
Security.
5. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common),
TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with
rights of survivorship and not as tenants in common), CUST
(=custodian), and U/G/M/A (=Uniform Gift to Minors Act).
6. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee
on Uniform Security Identification Procedures the Company has caused
CUSIP numbers to be printed on the Securities and have directed the
Trustee to use CUSIP numbers in notices of redemption as a
convenience to Securityholders. No representation is made as to the
accuracy of such numbers either as printed on the Securities or as
contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
The Company will furnish to any Securityholder upon
written request and without charge to the Securityholder a copy of
the Indenture which has in it the text of this Security in larger
type. Requests may be made as follows:
Before August 1, 1996:
Michaels Stores, Inc.
5931 Campus Circle Drive
Irving, TX 75063
Attention: General Counsel
From and after August 1, 1996:
Michaels Stores, Inc.
8000 Bent Branch Drive
Irving, TX 75063
Attention: General Counsel
_____________________________________________________
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Date: Your Signature:
Signature Guarantee:
(Signature must be guaranteed)
Sign exactly as your name appears on the other side of this
Security.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by
the Company pursuant to Section 4.6 or 4.8 of the Indenture, check
the box:
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.6 or 4.8 of the
Indenture, state the amount: $
Date: Your Signature:
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee:
(Signature must be guaranteed)
EXECUTION COPY
MICHAELS STORES, INC.
10 % Senior Notes Due 2006
INDENTURE
Dated as of June 21, 1996
THE BANK OF NEW YORK,
as Trustee
CROSS REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . 2.5; 10.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . 4.2; 4.10; 10.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 10.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . 10.6
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
N.A. means Not Applicable.
_______________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture.
TABLE OF CONTENTS
Page
ARTICLE 1
Definitions and Incorporation by Reference . . . . . . . 1
SECTION 1.1 Definitions.. . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Other Definitions . . . . . . . . . . . . . . . . . . 18
SECTION 1.3. Incorporation by Reference of Trust Indenture Act . . 18
SECTION 1.4. Rules of Construction . . . . . . . . . . . . . . . . 19
ARTICLE 2
The Securities . . . . . . . . . . . . . . 19
SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . 19
SECTION 2.2. Execution and Authentication. . . . . . . . . . . . . 20
SECTION 2.3. Registrar and Paying Agent. . . . . . . . . . . . . . 21
SECTION 2.4. Paying Agent To Hold Money in Trust . . . . . . . . . 21
SECTION 2.5. Securityholder Lists. . . . . . . . . . . . . . . . . 21
SECTION 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . 21
SECTION 2.7. Replacement Securities. . . . . . . . . . . . . . . . 24
SECTION 2.8. Outstanding Securities. . . . . . . . . . . . . . . . 24
SECTION 2.9. Temporary Securities. . . . . . . . . . . . . . . . . 25
SECTION 2.10. Cancellation. . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.11. Defaulted Interest. . . . . . . . . . . . . . . . . . 25
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3
Redemption . . . . . . . . . . . . . . . 26
SECTION 3.1. Notices to Trustee. . . . . . . . . . . . . . . . . . 26
SECTION 3.2. Selection of Securities To Be Redeemed. . . . . . . . 26
SECTION 3.3. Notice of Redemption. . . . . . . . . . . . . . . . . 26
SECTION 3.4. Effect of Notice of Redemption. . . . . . . . . . . . 27
SECTION 3.5. Deposit of Redemption Price . . . . . . . . . . . . . 27
SECTION 3.6. Securities Redeemed in Part . . . . . . . . . . . . . 27
ARTICLE 4
Covenants . . . . . . . . . . . . . . . 28
SECTION 4.1. Payment of Securities . . . . . . . . . . . . . . . . 28
SECTION 4.2. SEC Reports . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.3. Limitation on Indebtedness. . . . . . . . . . . . . 28
SECTION 4.4. Limitation on Restricted Payments . . . . . . . . . . 31
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries . . . . . . . . . . . . . . . 33
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock. . 35
SECTION 4.7. Limitation on Transactions with Affiliates. . . . . . 37
SECTION 4.8. Change of Control . . . . . . . . . . . . . . . . . . 38
SECTION 4.9. Compliance Certificate. . . . . . . . . . . . . . . . 39
SECTION 4.10. Further Instruments and Acts. . . . . . . . . . . . . 40
SECTION 4.11. Limitation on Liens . . . . . . . . . . . . . . . . . 40
SECTION 4.12. Limitation on Sale/Leaseback Transactions . . . . . . 40
SECTION 4.13. Limitation on Sale of Subsidiary Capital Stock. . . . 40
ARTICLE 5
Successor Company . . . . . . . . . . . . . 41
SECTION 5.1. When the Company May Merge or Transfer Assets . . . . 41
ARTICLE 6
Defaults and Remedies . . . . . . . . . . . . 42
SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . 42
SECTION 6.2. Acceleration. . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.3. Other Remedies. . . . . . . . . . . . . . . . . . . . 44
SECTION 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . 45
SECTION 6.5. Control by Majority . . . . . . . . . . . . . . . . . 45
SECTION 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . 45
SECTION 6.7. Rights of Holders To Receive Payment. . . . . . . . . 46
SECTION 6.8. Collection Suit by Trustee. . . . . . . . . . . . . . 46
SECTION 6.9. Trustee May File Proofs of Claim. . . . . . . . . . . 46
SECTION 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . 47
SECTION 6.12. Waiver of Stay or Extension Laws. . . . . . . . . . . 47
ARTICLE 7
Trustee. . . . . . . . . . . . . . . . 47
SECTION 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . 47
SECTION 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . 48
SECTION 7.3. Individual Rights of Trustee. . . . . . . . . . . . . 49
SECTION 7.4. Trustee's Disclaimer. . . . . . . . . . . . . . . . . 49
SECTION 7.5. Notice of Defaults. . . . . . . . . . . . . . . . . . 49
SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . 49
SECTION 7.7. Compensation and Indemnity. . . . . . . . . . . . . . 50
SECTION 7.8. Replacement of Trustee. . . . . . . . . . . . . . . . 50
SECTION 7.9. Successor Trustee by Merger . . . . . . . . . . . . . 51
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . 52
SECTION 7.11. Preferential Collection of Claims Against Company . . 52
ARTICLE 8
Discharge of Indenture; Defeasance . . . . . . . . . 52
SECTION 8.1. Discharge of Liability on Securities; Defeasance. . . 52
SECTION 8.2. Conditions to Defeasance. . . . . . . . . . . . . . . 53
SECTION 8.3. Application of Trust Money. . . . . . . . . . . . . . 54
SECTION 8.4. Repayment to Company. . . . . . . . . . . . . . . . . 55
SECTION 8.5. Indemnity for Government Obligations. . . . . . . . . 55
SECTION 8.6. Reinstatement . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 9
Amendments . . . . . . . . . . . . . . . 55
SECTION 9.1. Without Consent of Holders. . . . . . . . . . . . . . 55
SECTION 9.2. With Consent of Holders . . . . . . . . . . . . . . . 56
SECTION 9.3. Compliance with Trust Indenture Act . . . . . . . . . 57
SECTION 9.4. Revocation and Effect of Consents and Waivers . . . . 57
SECTION 9.5. Notation on or Exchange of Securities . . . . . . . . 57
SECTION 9.6. Trustee To Sign Amendments. . . . . . . . . . . . . . 58
ARTICLE 10
Miscellaneous . . . . . . . . . . . . . . 58
SECTION 10.1. Trust Indenture Act Controls. . . . . . . . . . . . . 58
SECTION 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.3. Communication by Holders with Other Holders . . . . . 59
SECTION 10.4. Certificate and Opinion as to Conditions Precedent. . 59
SECTION 10.5. Statements Required in Certificate or Opinion . . . . 60
SECTION 10.6. When Securities Disregarded . . . . . . . . . . . . . 60
SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. . . . . 60
SECTION 10.8. Legal Holidays. . . . . . . . . . . . . . . . . . . . 60
SECTION 10.9. Governing Law . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.10. No Recourse Against Others.. . . . . . . . . . . 61
SECTION 10.11. Successors.. . . . . . . . . . . . . . . . . . . 61
SECTION 10.12. Multiple Originals . . . . . . . . . . . . . . . 61
SECTION 10.13. Table of Contents; Headings. . . . . . . . . . . 61
SECTION 10.14. Severability Clause. . . . . . . . . . . . . . . 61
Exhibit A - Form of Security
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000740670
<NAME> MICHAELS STORES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-2-1997
<PERIOD-END> JUL-28-1996
<CASH> 8,565
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 418,791
<CURRENT-ASSETS> 481,317
<PP&E> 291,162
<DEPRECIATION> 98,172
<TOTAL-ASSETS> 823,682
<CURRENT-LIABILITIES> 201,885
<BONDS> 221,940
0
0
<COMMON> 2,355
<OTHER-SE> 353,749
<TOTAL-LIABILITY-AND-EQUITY> 823,682
<SALES> 562,351
<TOTAL-REVENUES> 562,351
<CGS> 389,641
<TOTAL-COSTS> 562,592
<OTHER-EXPENSES> (373)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,534
<INCOME-PRETAX> (8,402)
<INCOME-TAX> (3,194)
<INCOME-CONTINUING> (5,208)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,208)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
