<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
NOTE EXCHANGE OFFER
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MTS, INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 5735 94-1500342
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
2500 DEL MONTE STREET
WEST SACRAMENTO, CA 95691
TEL: 916-373-2500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
DEVAUGHN D. SEARSON
CHIEF FINANCIAL OFFICER
MTS, INCORPORATED
2500 DEL MONTE STREET
WEST SACRAMENTO, CA 95691
TEL: 916-373-2500
(Name, address, including zip code, and telephone number, including
area code, of agent for service for Registrant)
--------------------------
COPIES TO:
STEVEN L. BERSON, ESQ.
ANDREW J. HIRSCH, ESQ.
ERIC JOHN FINSETH, ESQ.
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Tel: 650-493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF CLASS OF AMOUNT MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER UNIT (1) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
New 9 3/8% Senior Subordinated Notes due
2005...................................... $110,000,000 99% $108,900,000 $32,125.50
</TABLE>
(1) Based on average of bid price of $98.75 and ask price of $99.25 per $100.00
principal amount of the Existing Notes at the close of business on May 27,
1998.
(2) Calculated pursuant to Rule 457(f) under the Securities Act of 1933 as the
market value of the securities to be cancelled in the exchange.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
- --------------------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................... Cover of Registration Statement; Outside Front Cover
Page of Prospectus; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Covers of Prospectus;
Available Information.
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. Prospectus Summary; Risk Factors;
4. Terms of the Transaction............................ Prospectus Summary; Risk Factors; The Exchange
Offer; Description of the Notes; Certain Federal
Income Tax Considerations
5. Pro Forma Financial Information..................... Prospectus Summary; Selected Historical and Pro
Forma Financial Information; Consolidated Financial
Statements
6. Material Contacts with the Company Being Acquired... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be
Underwriters...................................... Not Applicable
8. Interests of Named Experts and Counsel.............. Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANTS
10. Information with Respect to S-3 Registrants......... Not Applicable
11. Incorporation of Certain Information by
Reference......................................... Not Applicable
12. Information with Respect to S-2 or
S-3 Registrants................................... Not Applicable
13. Incorporation of Certain Information
by Reference...................................... Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................ Available Information; Prospectus Summary; Business;
Selected Historical and Pro Forma Consolidated
Financial Information; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Consolidated Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies........... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies..................................... Not Applicable
17. Information with Respect to Companies Other Than S-3
or S-2 Companies.................................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................... Not Applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer............................................. The Exchange Offer; Management; Ownership of Captal
Stock; Certain Transactions
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 29, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
$110,000,000
MTS, INCORPORATED
OFFER TO EXCHANGE NEW 9 3/8% SENIOR SUBORDINATED NOTES DUE 2005 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT FOR ALL OUTSTANDING 9 3/8% SENIOR
SUBORDINATED NOTES DUE 2005
[LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON
, 1998, UNLESS EXTENDED.
MTS, INCORPORATED, a California corporation (the "Company"), hereby offers upon
the terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal") (the offering pursuant to the Prospectus together with the Letter
of Transmittal herein the "Exchange Offer") to exchange up to an aggregate
principal amount of $110,000,000 of its New 9 3/8% Senior Subordinated Notes due
2005 (the "New Notes") for up to an aggregate principal amount of $110,000,000
of the Company's outstanding 9 3/8% Senior Subordinated Notes due 2005 (the
"Existing Notes"). The terms of the New Notes are substantially identical in all
material respects to those of the Existing Notes, except that the New Notes (i)
will have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and therefore will not be subject to certain restrictions on
transfer applicable to the Existing Notes, and (ii) will not be entitled to
registration or other rights under the Registration Rights Agreement (as
defined), including the provision in the Registration Rights Agreement for
payment of Additional Interest (as defined in the Registration Rights Agreement)
upon failure by the Company to consummate the Exchange Offer or the occurrence
of certain other events. See "Description of the Existing Notes." The New Notes
will be issued pursuant to, and the Holders thereof (the "New Holders") will be
entitled to the benefit of, the Indenture (as defined below) governing the
Existing Notes. In the event that the Exchange Offer is consummated, any
Existing Notes which remain outstanding after consummation of the Exchange Offer
will vote together as a single class with the New Notes issued in the Exchange
Offer for purposes of determining whether Holders of the requisite percentage in
outstanding principal amount of Notes (as defined below) have taken certain
actions or exercised certain rights under the Indenture. See "Description of New
Notes", "The Exchange Offer." Holders of Existing Notes are referred to herein
as "Existing Holders", and Existing Holders together with New Holders are
referred to herein collectively as "Holders." The New Notes together with the
Existing Notes are referred to herein collectively as the "Notes." The Indenture
dated as of April 23, 1998 between the Company and State Street Bank and Trust
Company of California, N.A., as Trustee (the "Trustee"), is hereinafter referred
to as the "Indenture." Unless otherwise indicated or defined herein, capitalized
terms followed by the parenthetical remark "(as defined)" shall have the
meanings given to them in the Indenture.
CONTINUED ON FOLLOWING PAGE
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING SENT TO EXISTING
HOLDERS ON OR ABOUT , 1998.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH EXISTING HOLDERS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1998
<PAGE>
(CONTINUATION OF COVER PAGE)
Interest on the Notes will be payable semi-annually on May 1 and November 1
of each year, commencing November 1, 1998.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after May 1, 2002, at the redemption prices (expressed
as a percentage of principal amount) set forth herein, plus accrued and unpaid
interest and Additional Interest, if any, thereon to the date of redemption. In
addition, at any time and from time to time on or prior to May 1, 2001, the
Company may, in its discretion, redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption price equal to 109.375% of the
principal amount thereof, plus accrued and unpaid interest and Additional
Interest, if any, thereon to the date of redemption, with the net proceeds of
one or more Equity Offerings (as defined); PROVIDED that at least 65% of the
original aggregate principal amount of the Notes remains outstanding immediately
after each such redemption.
Upon the occurrence of a Change of Control (as defined), the Holders of the
Notes will have the right to require the Company to repurchase their Notes, in
whole or in part, at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Additional Interest, if any,
thereon to the date of repurchase. See "Description of Notes."
The Notes will be general unsecured obligations of the Company subordinate
in right of payment to all Senior Indebtedness (as defined) of the Company. The
Company has no indebtedness junior to the Notes. As of January 31, 1998, on an
as adjusted basis, after giving effect to the issuance of the Existing Notes,
the Company would have had approximately $119.8 million of Senior Indebtedness
outstanding on a consolidated basis. See "Capitalization" and "Description of
Notes--Subordination."
On April 23, 1998, the Company issued $110.0 million in aggregate principal
amount of Existing Notes. The Existing Notes were issued pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The New Notes are being
offered under this Prospectus, which is part of a registration statement of the
Company on Form S-4 (the "Exchange Offer Registration Statement", which term
shall encompass all amendments, exhibits, annexes and schedules thereto), in
order to satisfy certain obligations of the Company under the Registration
Rights Agreement (as defined). Once the Exchange Offer is consummated, the
Company generally will have no further obligations to register any of the
Existing Notes not tendered by Existing Holders for exchange. See "Risk
Factors--Consequences of Failure to Exchange."
The New Notes generally will be issued in the form of Global Securities (as
defined) which will be deposited with, or on behalf of, the Depositary (as
defined) and registered in its name or in the name of a nominee of the
Depositary. Beneficial interests in the Global Securities representing the New
Notes will be shown on, and transfers thereof will be effected through, records
maintained by the Depositary. See "Book-Entry; Delivery and Form."
The Company will accept for exchange any and all Existing Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1998 (30 days after this Prospectus was sent to Existing Holders),
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. In the event the Company terminates the
Exchange Offer and does not accept for exchange any Existing Notes with respect
to the Exchange Offer, the Company will promptly return the Existing Notes to
the Holders thereof. The Exchange Offer is not conditioned upon any minimum
principal amount of Existing Notes being tendered for exchange, but is subject
to certain events and conditions that may be waived by the Company and to the
terms and provisions of the Registration Rights Agreement. The Existing Notes
may be tendered in whole or in part solely in integral multiples of $1,000.
ii
<PAGE>
(CONTINUATION OF COVER PAGE)
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance (the "Staff") of the Securities and
Exchange Commission (the "Commission") as set forth in the Staff's EXXON CAPITAL
HOLDINGS CORPORATION no-action letter (available May 13, 1988) (the "Exxon
Capital No-Action Letter"), MORGAN STANLEY & CO. INCORPORATED no-action letter
(available June 5, 1991) (the "Morgan Stanley No-Action Letter"), SHEARMAN &
STERLING no-action letter (available July 2, 1993) (the "Shearman & Sterling
No-Action Letter"), and other interpretive letters addressed to third parties in
other transactions. However, the Company has not sought its own interpretive
letter addressing such matters and there can be no assurance that the Staff
would make a similar determination with respect to the Exchange Offer as it has
in such interpretive letters to third parties. Based on these interpretations by
the Staff, and subject to the two immediately following sentences, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange for
Existing Notes may be offered for resale, resold and otherwise transferred by a
Holder thereof (other than a Holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. However, any
Holder of Existing Notes who (i) is an "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act), (ii) does not acquire such New
Notes in the ordinary course of its business, (iii) intends to participate in
the Exchange Offer for the purpose of distributing New Notes, or (iv) is a
broker-dealer who purchased such Existing Notes directly from the Company, (a)
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Existing Notes in the Exchange Offer, and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Existing Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Existing Notes acquired for its own
account as a result of market-making or other trading activities and exchanges
such Existing Notes for New Notes in the Exchange Offer (an "Exchanging
Dealer"), then such Exchanging Dealer may be deemed a statutory "underwriter"
within the meaning of the Securities Act and must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of such
New Notes.
Each Holder of Existing Notes who wishes to exchange Existing Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Existing Notes for its own account as a result
of market-making activities or other trading activities (and not directly from
the Company) and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such an Exchanging Dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. Based on
the position taken by the Staff in the interpretive letters referred to above,
the Company believes that Exchanging Dealers may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Existing Notes with a prospectus meeting the requirements of the Securities
Act, which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by an Exchanging Dealer during the
period referred to below in connection with resales of New Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
Exchanging Dealer for its own account as a result of market-
iii
<PAGE>
(CONTINUATION OF COVER PAGE)
making or other trading activities. Subject to certain provisions set forth in
the Registration Rights Agreement, the Company has agreed that this Prospectus,
as it may be amended or supplemented from time to time, may be used by an
Exchanging Dealer in connection with resales of such New Notes for a period of
180 days following effectiveness of the Exchange Offer Registration Statement.
See "Plan of Distribution." Any Exchanging Dealer who is an affiliate of the
Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Resales of New
Notes."
In that regard, each Exchanging Dealer who surrenders Existing Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not
misleading, or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Exchanging Dealer will suspend the sale of
New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Exchanging
Dealer or the Company has given notice that the sale of the New Notes may be
resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently is
no market. Although the Initial Purchasers have informed the Company that they
currently intend to make a market in the New Notes, they are not obligated to do
so, and any such market making may be discontinued at any time without notice.
As the Existing Notes were issued, and the New Notes are being issued, to a
limited number of institutions who typically hold similar securities for
investment, the Company does not expect that an active public market for the New
Notes will develop. Accordingly, there can be no assurance as to the
development, liquidity or maintenance of any market for the New Notes. The
Company does not currently intend to apply for listing of the New Notes on any
securities exchange or for quotation through the Nasdaq Stock Market.
Any Existing Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the Holders of Existing Notes will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such Existing Holders (except for
limited instances involving the Initial Purchasers and Existing Holders that are
not eligible to participate in the Exchange Offer) to provide for registration
under the Securities Act of the Existing Notes held by them. To the extent that
Existing Notes are tendered and accepted in the Exchange Offer, an Existing
Holder's ability to sell untendered Existing Notes could be adversely affected.
See "Risk Factors--Consequences of Failure to Exchange."
Each New Note will bear interest from the most recent date to which interest
has been paid or duly provided for on the Existing Note surrendered in exchange
for such New Note or, if no such interest has been paid or duly provided for on
such Existing Note, from April 23, 1998. Holders of the Existing Notes whose
Existing Notes are accepted for exchange will not receive accrued interest on
such Existing Notes for any period from and after the last Interest Payment Date
to which interest has been paid or duly provided for on such Existing Notes
prior to the original issue date of the New Notes or, if no such interest has
been paid or duly provided for, will not receive any accrued interest on such
Existing Notes, and will be deemed to have waived the right to receive any
interest on such Existing Notes accrued from and after such Interest Payment
Date or, if no such interest has been paid or duly provided for, from and after
April 23, 1998.
iv
<PAGE>
(CONTINUATION OF COVER PAGE)
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. The Company has agreed to pay all required expenses of the
Exchange Offer. See "The Exchange Offer--Fees and Expenses." No dealer-manager
is being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF EXISTING NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UP THROUGH AND INCLUDING , 1998 (90 DAYS AFTER THIS PROSPECTUS WAS
SENT TO EXISTING HOLDERS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A
PROSPECTUS IN CONNECTION WITH SUCH TRANSACTION.
EACH PROSPECTIVE PURCHASER OF THE NEW NOTES MUST COMPLY WITH ALL LAWS AND
REGULATIONS APPLICABLE TO IT IN FORCE IN ANY JURISDICTION IN WHICH IT PURCHASES,
OFFERS OR SELLS THE NEW NOTES OR POSSESSES OR DISTRIBUTES THIS PROSPECTUS AND
MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED TO BE OBTAINED BY IT
FOR THE PURCHASE, OFFER OR SALE BY IT OF THE NEW NOTES UNDER THE LAWS AND
REGULATIONS APPLICABLE TO IT IN FORCE IN ANY JURISDICTION TO WHICH IT IS SUBJECT
OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES, AND THE COMPANY SHALL NOT
HAVE ANY RESPONSIBILITY THEREFOR.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS
"ANTICIPATES," "BELIEVES," "ESTIMATES," "EXPECTS," "INTENDS," "PLANS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS SET FORTH HEREIN. SUCH
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE CAUTIONARY STATEMENTS SET FORTH
UNDER THE CAPTIONS "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" HEREIN. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, WITHOUT LIMITATION: (1) COMPETITION;
(2) INCREASED COSTS; (3) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4)
INCREASES IN THE COMPANY'S COST OF BORROWINGS OR INABILITY OR UNAVAILABILITY OF
ADDITIONAL DEBT OR EQUITY CAPITAL OR OTHER FORMS OF FINANCING (SUCH
v
<PAGE>
(CONTINUATION OF COVER PAGE)
AS TRADE CREDIT, EQUIPMENT LEASE TERMS, AND COOPERATIVE ADVERTISING ALLOWANCES);
(5) CHANGES IN TECHNOLOGY FOR THE DELIVERY OF RECORDED MUSIC, INCLUDING NEW
FORMS OF DISTRIBUTION OF RECORDED MUSIC SUCH AS THE INTERNET AND DIRECT DOWN
LOADING OF RECORDED MUSIC BY CONSUMERS; AND (6) CHANGES IN GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE.
MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS
MANAGEMENT. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS ARE BASED
ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. FOR FURTHER INFORMATION ON OTHER FACTORS WHICH COULD
AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS,
SEE "RISK FACTORS."
MARKET AND INDUSTRY DATA
THE INFORMATION CONTAINED HEREIN INCLUDES CERTAIN DEMOGRAPHIC AND ECONOMIC
INFORMATION FOR THE UNITED STATES AND INTERNATIONALLY. ALTHOUGH THE COMPANY HAS
OBTAINED THIS INFORMATION FROM SOURCES IT BELIEVES TO BE RELIABLE, THE COMPANY
HAS NOT INDEPENDENTLY VERIFIED THIS INFORMATION AND THERE CAN BE NO ASSURANCE AS
TO ITS ACCURACY. FURTHER, BECAUSE COMPETITORS OF THE COMPANY GENERALLY DO NOT
MAKE AVAILABLE INFORMATION REGARDING THEIR SALES IN SPECIFIC REGIONS, MARKET
SHARE INFORMATION, CERTAIN OPERATING INFORMATION AND CERTAIN OTHER INFORMATION
IS SUBJECT TO A NUMBER OF ESTIMATES AND ASSUMPTIONS. WHILE THE COMPANY BELIEVES
SUCH INFORMATION TO BE RELIABLE, THERE CAN BE NO ASSURANCE AS TO ITS ACCURACY.
UNLESS OTHERWISE STATED, ALL REFERENCES TO U.S. INDUSTRY DATA AND U.S.
INDUSTRY TRENDS ARE BASED ON INFORMATION FROM THE RECORDING INDUSTRY ASSOCIATION
OF AMERICA ("RIAA") AND ALL REFERENCES TO INTERNATIONAL INDUSTRY DATA AND
INTERNATIONAL INDUSTRY TRENDS ARE BASED ON INFORMATION FROM THE 1998 MUSIC
BUSINESS INTERNATIONAL WORLD REPORT (THE "MBI REPORT"). U.S. DATA IS REPORTED AS
THE RETAIL VALUE OF PRODUCTS SHIPPED TO MUSIC RETAILERS BY SUPPLIERS.
INTERNATIONAL DATA IS REPORTED AS RETAIL SALES.
------------------------
"TOWER," "TOWER RECORDS-VIDEO-BOOKS," and "WOW!" are among the trademarks of
the Company. This Prospectus contains other trade names and trademarks of the
Company and of other organizations.
The Company maintains a website at HTTP://WWW.TOWERRECORDS.COM and an online
store on America Online at keyword "TOWER." Information contained on the
Company's website or on America Online shall not be deemed to constitute a part
of this Prospectus.
vi
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, RISK FACTORS AND THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE REFERRED TO HEREIN OR THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO "MTS," "TOWER" OR THE "COMPANY" SHALL MEAN MTS,
INCORPORATED AND ITS CONSOLIDATED SUBSIDIARIES. ALL INFORMATION IN THIS
PROSPECTUS, INCLUDING FINANCIAL INFORMATION, REFLECTS THE REORGANIZATION (AS
DEFINED BELOW). ALL REFERENCES TO FISCAL YEARS IN THIS PROSPECTUS ARE TO THE
FISCAL YEARS ENDED ON JULY 31 OF EACH YEAR. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS AND, IN
PARTICULAR, SHOULD EVALUATE THE SPECIFIC FACTORS SET FORTH UNDER "RISK FACTORS"
FOR RISKS INVOLVED WITH AN INVESTMENT IN THE NEW NOTES.
THE COMPANY
OVERVIEW
Founded in 1960, Tower is the second largest specialty retailer of recorded
music in the United States and is one of the largest and most widely-recognized
music retailers in the world. The Company operates a total of 182 stores
worldwide, consisting of 118 U.S. stores in 20 states and 64 international
stores in 11 countries. Management believes that Tower is one of the leading
music retailers in each of the U.S. major metropolitan areas in which it
operates (many of which are the fastest growing markets in the United States).
The Company offers a diversified line of music products including compact discs,
recorded audio cassettes, recorded video cassettes, laser discs, digital video
discs ("DVD") and other complementary products, including books, magazines,
blank tapes, software titles, and accessories. For the twelve month period ended
January 31, 1998, Tower's net revenues were $1.0 billion.
Tower attracts and retains customers who buy music on a year-round basis by
providing an extensive product selection in an interactive, entertaining
environment. Tower stores feature extended store hours, in-store listening
stations and knowledgeable and motivated sales personnel. These factors,
combined with the Company's competitive pricing, make Tower stores a preferred
shopping destination. Tower offers one of the broadest selections of recorded
music, including recent releases, older releases and various other music formats
primarily in stand-alone locations in densely populated urban and suburban
areas. Tower stores are typically larger and have lower fixed overhead costs,
including significantly lower rents, than comparable mall-based locations. Most
of the Company's domestic stores exceed 10,000 square feet and carry at least
50,000 music titles. Flagship stores, which are located in major metropolitan
areas such as Boston, Buenos Aires, Chicago, Glasgow, Hong Kong, Honolulu,
London, Los Angeles, New Orleans, New York, Osaka, Philadelphia, San Francisco,
Seattle, Singapore, Taipei, Tokyo, Toronto and Washington, D.C., typically
exceed 20,000 square feet and carry between 80,000 and 120,000 music titles. By
contrast, management believes that the U.S. industry average for mall-based
music retailers is approximately 5,000 to 10,000 music titles per store (focused
primarily on deeply discounted, high-volume products from the BILLBOARD Top 50).
In addition to the BILLBOARD Top 50, Tower offers competitive pricing on the
full range of its product offerings. Management believes that Tower's success in
attracting loyal customers increases store traffic and sales throughout the year
and has been a factor in making the Company less dependent upon the success of
new music releases and calendar fourth quarter sales than many of its U.S.
competitors.
Due to Tower's high sales volume and long-standing relationships with
vendors and music manufacturers, the Company receives substantial cooperative
advertising allowances, beneficial purchasing terms, short lead times on
inventory fulfillment, product return rights, and drop shipments of orders
directly to its stores. Tower monitors the quantity and mix of inventory in each
of its stores through a central inventory management system. However, unlike
many of its competitors (who purchase and distribute from a central location),
Tower's store managers are given discretion in managing the level and mix of the
inventory in their stores in order to most effectively market to each store's
demographic customer base. The Company believes that this policy has been an
important factor in Tower's ability to
1
<PAGE>
maintain its product returns at levels significantly below most of its
competitors, thereby reducing restocking fees, improving operating margins and
sustaining favorable vendor relations.
In order to increase and diversify its revenue base, Tower became the first
U.S.-based music retailer to implement an international growth strategy. This
expansion, which commenced in 1979, initially focused on the Japanese market
(which is currently the world's second largest market for recorded music, with
net sales of approximately $6.8 billion in 1996) and enabled Tower to become a
market leader in Japan for recorded music. Tower implemented a similar expansion
strategy in the United Kingdom beginning in 1986. The Company currently has more
international locations than any other U.S.-based music retailer and, for the
1997 fiscal year, derived approximately 40% of its total net revenues from
international sales. Tower currently operates 41 stores in Japan; six in
England; three each in Hong Kong, Israel and Singapore; two each in Mexico and
Taiwan; and one each in Argentina, Canada, Ireland and Scotland. In addition,
the Company has entered into franchise agreements with local operators in
Colombia, Malaysia, South Korea and Thailand.
The Company was incorporated in California in 1960 and maintains its
principal executive office at 2500 Del Monte Street, West Sacramento, California
95691. Its telephone number is (916) 373-2500.
INDUSTRY
The worldwide market for recorded music has grown from approximately $29.4
billion in calendar 1992 to approximately $40.2 billion in calendar 1996. The
top five markets, North America, Western Europe, Japan, Latin America and Asia
(outside of Japan), individually accounted for approximately 32.9%, 32.8%,
17.0%, 6.2% and 5.6%, respectively, and collectively accounted for approximately
94.5%, of the global market in calendar 1996. Management believes that the
following factors are the primary drivers of growth in the industry globally:
(i) overall population growth in major markets, (ii) technological innovations
in the delivery of recorded music, (iii) continued compact disc format
penetration and (iv) the success of new music releases.
In the United States, there are four primary channels of recorded music
distribution: specialty music retail stores, discount and consumer electronics
stores, record clubs, and mail order and other channels, which accounted for
approximately 49.9%, 31.5%, 14.3% and 4.3% of unit shipments, respectively, in
calendar 1996. The U.S. market for recorded music has grown from approximately
$9.0 billion in calendar 1992 to approximately $12.2 billion in calendar 1997.
However, beginning in 1995, the volume of recorded music shipped to retailers
slowed and then declined by approximately 2.0% in 1997 primarily due to: (i)
overshipment of product by manufacturers to certain retailers in 1995 and 1996,
(ii) store rationalization by certain mall-based and discount music retailers
following an aggressive overexpansion of music retail square footage from 1992
to 1994, (iii) a lack of new technological innovations influencing the delivery
of recorded music, (iv) continued maturation of the compact disc format, and (v)
disappointing new releases. Management believes that the market and the outlook
for music retailers improved in the United States starting in the second half of
calendar 1997, primarily due to a reduction in domestic music retail square
footage as certain electronics retailers reduced music store selling space and
narrowed their catalog selections in response to difficulties in successfully
implementing "loss leader" music retail sales strategies, continued store
consolidation of mall-based music retailers, the release of several successful
new titles and positive demographic trends. The Company believes that it is
well-situated in the industry because of its store base, merchandising strategy
and long-standing supplier relationships. See "Market and Industry Data."
2
<PAGE>
THE RECAPITALIZATION
Prior to April 1998, substantially all of the capital stock of the Company
was owned by a revocable trust established by the Company's founder, Russell M.
Solomon (the "Russell Solomon Trust"). In April 1998, the Company consummated
certain transactions designed to consolidate substantially all of the Tower
business operations in the Company (the "Reorganization"), and also, apart from
the Reorganization, transferred certain assets to the Trusts (as defined in
"Certain Transactions--Prior Transfer of Certain Assets to Trusts"), which were
established for the benefit of Mr. Solomon's sons, Michael Solomon and David
Solomon. As a result of the Reorganization, the Company is now a wholly-owned
subsidiary of a recently formed holding company, TOWER RECORDS, INCORPORATED
("Parent"). The Reorganization included an exchange by the Company's
shareholders of their common shares in the Company for a controlling equity
interest in Parent. As part of the Reorganization, the Trusts and certain
Solomon family members contributed to Parent certain business assets (subject to
certain liabilities), including wholesale distribution operations, in exchange
for the remaining equity interest in Parent. Separately, Parent contributed such
assets and liabilities received from the Trusts and such Solomon family members
to the Company. See "The Recapitalization--The Reorganization," "Certain
Transactions--The Reorganization," and Note 2 to "Consolidated Financial
Statements."
In April 1998 the Company refinanced previously outstanding indebtedness of
approximately $168.0 million under its former $195.0 million senior revolving
credit facility (the "Former Credit Facility") and approximately $64.3 million
of other previously outstanding indebtedness by consummating the Existing Notes
Offering and entering into certain new senior secured revolving credit
facilities (such new secured credit facilities, collectively, the "New Credit
Facility" and, together with the Existing Notes Offering, the "Refinancing")
(the Refinancing and the Reorganization are hereinafter collectively referred to
as the "Recapitalization"). The New Credit Facility provides for an aggregate
$275.0 million commitment, of which approximately $150.0 million can be borrowed
in Japanese yen and a portion in British pounds. Aggregate borrowings are
subject to compliance with a borrowing base formula. As of January 31, 1998,
after giving effect to the Refinancing, an aggregate of $249.0 million would
have been available under the New Credit Facility based upon the borrowing base
formula, of which $109.6 million would have been drawn. See "The
Recapitalization--The Refinancing," "Capitalization" and "Description of New
Credit Facility."
3
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
SECURITIES OFFERED................ $110,000,000 in aggregate principal amount of New 9 3/8%
Senior Subordinated Notes due 2005.
THE EXCHANGE OFFER................ $1,000 principal amount of the New Notes in exchange for
each $1,000 principal amount of Existing Notes. As of
the date hereof, $110,000,000 aggregate principal amount
of Existing Notes are outstanding. The Company will
issue the New Notes to New Holders on or promptly after
the Expiration Date.
Based on an interpretation by the Staff set forth in
no-action letters issued to third parties, the Company
believes that New Notes issued pursuant to the Exchange
Offer in exchange for Existing Notes may be offered for
resale, resold and otherwise transferred by any Holder
thereof (other than any such Holder which is an
affiliate of the Company or is a broker-dealer which
acquired such Existing Notes directly from the Company)
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that
such New Notes are acquired in the ordinary course of
such Holder's business and that such Holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such New Notes. Each Exchanging Dealer
that acquired such Existing Notes as a result of market
making or other trading activity and that receives New
Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan
of Distribution."
Any Existing Holder who (i) is an affiliate of the
Company, (ii) does not acquire such New Notes in the
ordinary course of its business, (iii) tenders in the
Exchange Offer with the intention to participate, or for
the purpose of participating, in a distribution of the
New Notes, or (iv) is a broker-dealer which acquired
such Existing Notes directly from the Company, could not
rely on the position of the Staff enunciated in the
Exxon Capital No-Action Letter, the Morgan Stanley
No-Action Letter or similar no-action letters and, in
the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of
the Securities Act in connection with the resale of the
New Notes. Failure to comply with such requirements in
such instance may result in such Holder incurring
liability under the Securities Act for which the Holder
is not indemnified by the Company.
No federal or state regulatory requirements must be
complied with or approval obtained in connection with
the Exchange Offer, other than registration requirements
under the Securities Act and compliance with the
registration or comparable provisions of applicable
state securities laws.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
EXPIRATION DATE................... 5:00 p.m., New York City time, on , 1998 (30 days
after this Prospectus was sent to Existing Holders),
unless the Exchange Offer is extended by the Company in
its sole discretion, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended.
INTEREST ON THE NEW NOTES AND THE
EXISTING NOTES.................. Each New Note will bear interest from the most recent
date to which interest has been paid or duly provided
for on the Existing Note surrendered in exchange for
such New Note or, if no such interest has been paid or
duly provided for on such Existing Note, from April 23,
1998. Holders of the Existing Notes whose Existing Notes
are accepted for exchange will not receive accrued
interest on such Existing Notes for any period from and
after the last Interest Payment Date to which interest
has been paid or duly provided for on such Existing
Notes prior to the original issue date of the New Notes
or, if no such interest has been paid or duly provided
for, will not receive any accrued interest on such
Existing Notes, and will be deemed to have waived the
right to receive any interest on such Existing Notes
accrued from and after such Interest Payment Date or, if
no such interest has been paid or duly provided for,
from and after April 23, 1998.
CONDITIONS TO THE EXCHANGE OFFER.. The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer--Conditions."
PROCEDURES FOR TENDERING EXISTING
NOTES........................... Each Existing Holder wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver the Letter of
Transmittal, or such facsimile, together with the
Existing Notes and any other required documentation to
the Exchange Agent (as defined below) at the address set
forth in the Letter of Transmittal. PERSONS HOLDING
EXISTING NOTES THROUGH THE DEPOSITARY (INITIALLY THE
DEPOSITORY TRUST COMPANY ("DTC")) AND WISHING TO ACCEPT
THE EXCHANGE OFFER MUST DO SO PURSUANT TO DTC'S
AUTOMATED TENDER OFFER PROGRAM ("ATOP"), BY WHICH EACH
TENDERING PARTICIPANT WILL AGREE TO BE BOUND BY THE
LETTER OF TRANSMITTAL. By executing or agreeing to be
bound by the Letter of Transmittal, each Existing Holder
will represent to the Company that, among other things,
the Existing Holder or the person receiving such New
Notes, whether or not such person is the Existing
Holder, is acquiring the New Notes in the ordinary
course of business and that neither the Existing Holder
nor any such other person has any arrangement or
understanding with any person to participate in the
distribution of such New Notes within the meaning of the
Securities Act.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... Any beneficial owner whose Existing Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should
contact such registered Holder promptly and instruct
such registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Existing Notes, either
make appropriate arrangements to register ownership of
the Existing Notes in such owner's name or obtain a
properly completed bond power from the registered
Holder. The transfer of registered ownership may take
considerable time.
GUARANTEED DELIVERY PROCEDURES.... Existing Holders who wish to tender their Existing Notes
and whose Existing Notes are not immediately available
or who cannot deliver their Existing Notes, the Letter
of Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to
the Expiration Date must tender their Existing Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS................. Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date pursuant to
the procedures described under "The Exchange Offer--
Withdrawals of Tenders."
ACCEPTANCE OF EXISTING NOTES AND
DELIVERY OF NEW NOTES........... The Company will accept for exchange any and all
Existing Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time,
on the Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................... The exchange of the New Notes for the Existing Notes
pursuant to the Exchange Offer should not be taxable to
the Holders thereof for federal income tax purposes. See
"Certain Federal Income Tax Consequences."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
EFFECT ON HOLDERS OF EXISTING
NOTES........................... As a result of the making of this Exchange Offer, the
Company will have fulfilled certain of its obligations
under the Registration Rights Agreement, and Existing
Holders who do not tender their Existing Notes, except
for limited instances involving the Initial Purchasers
and Existing Holders that are not eligible to
participate in the Exchange Offer, will not have any
further registration rights under the Registration
Rights Agreement or otherwise. See "The Exchange
Offer--Purposes and Effect of Exchange Offer." Such
Existing Holders will continue to hold the untendered
Existing Notes and will be entitled to all the rights
and subject to all the limitations applicable thereto
under the Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to have
further effectiveness as a result of the Exchange Offer.
All untendered Existing Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, if any Existing Notes are tendered and
accepted in the Exchange Offer, the trading market for
the untendered Existing Notes could be adversely
affected.
EXCHANGE AGENT.................... State Street Bank and Trust Company of California, N.A.
</TABLE>
7
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Existing Notes (which they replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) the Holders of New Notes, except for
limited instances involving the Initial Purchasers and certain Holders that are
not eligible to participate in the Exchange Offer, will not be entitled to
further registration rights under the Registration Rights Agreement, which
rights will be satisfied when the Exchange Offer is consummated, and will not be
entitled to any payments of Additional Interest for failure to satisfy such
rights. The New Notes will evidence the same debt as the Existing Notes and will
be entitled to the benefits of the Indenture. See "Description of Notes."
<TABLE>
<S> <C> <C>
ISSUER............................ MTS, INCORPORATED
SECURITIES OFFERED.............................. $110,000,000 aggregate principal amount of New 9 3/8% Senior Subordinated Notes
due 2005.
MATURITY........................................ May 1, 2005.
INTEREST PAYMENT DATES.......................... May 1 and November 1, commencing November 1, 1998.
SINKING FUND.................................... None.
OPTIONAL REDEMPTION............................. Except as described below, the Company may not redeem the Notes prior to May 1,
2002. On or after such date, the Company may redeem the Notes, in whole or in
part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
and from time to time on or prior to May 1, 2001, the Company may redeem up to
35% of the aggregate principal amount of the Notes with the net cash proceeds
of one or more private or public Equity Offerings received by the Company, at a
redemption price equal to 109.375% of the principal amount to be redeemed,
together with accrued and unpaid interest, if any, to the date of redemption,
provided that at least 65% of the originally issued aggregate principal amount
of the Notes remains outstanding after each such redemption. See "Description
of the Notes--Optional Redemption."
CHANGE OF CONTROL............................... Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase the Notes at a price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. See "Risk Factors--Change of Control" and "Description of the
Notes--Offer to Purchase upon Change of Control."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
RANKING......................................... The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. The Notes rank pari
passu in right of payment with any future senior subordinated indebtedness of
the Company and rank senior to all Subordinated Indebtedness of the Company.
The Notes are effectively subordinated to all indebtedness and other
obligations of the Company's existing and future subsidiaries. As of January
31, 1998, on an as adjusted basis, after giving effect to the Refinancing, the
aggregate principal amount of the Company's outstanding Senior Indebtedness
would have been $119.8 million (excluding unused commitments) and the Company
would have had no Subordinated Indebtedness outstanding and no senior
subordinated indebtedness outstanding other than the Notes. See "Description of
the Notes--Subordination of the Notes."
RESTRICTIVE COVENANTS........................... The Indenture, under which the Existing Notes were and the New Notes will be
issued, limits, among other things, (i) the incurrence of additional
indebtedness by the Company and its Restricted Subsidiaries (as defined), (ii)
the payment of dividends on, and redemption of, capital stock of the Company
and the redemption of certain subordinated obligations of the Company, (iii)
Investments (as defined), (iv) sales of assets and Restricted Subsidiary stock,
(v) transactions with Affiliates (as defined) and (vi) consolidations, mergers
and transfers of all or substantially all of the Company's assets. The
Indenture also prohibits certain restrictions on distributions from Restricted
Subsidiaries. However, all of these limitations and prohibitions are subject to
a number of important qualifications and exceptions. See "Description of the
Notes--Certain Covenants."
TRANSFER RESTRICTIONS........................... For restrictions on transfer of the New Notes, see "The Exchange Offer--Resale
of New Notes."
USE OF PROCEEDS................................. All Existing Notes received and accepted by the Company, in its sole
discretion, for exchange in the Exchange Offer will be cancelled.
</TABLE>
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the Notes.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial information presented below as
of July 31, 1996 and 1997 and for each of the years in the three-year period
ended July 31, 1997 have been derived from and should be read in conjunction
with the audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The summary historical consolidated financial
information presented below as of July 31, 1993, 1994 and 1995 and for each of
the years in the two-year period ended July 31, 1994 have been derived from the
audited consolidated financial statements of the Company not included elsewhere
in this Prospectus. The summary historical consolidated financial information as
of January 31, 1998 and for the six months ended January 31, 1997 and 1998 have
been derived from and should be read in conjunction with the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The summary historical consolidated financial information as of
January 31, 1997 and for the twelve months ended January 31, 1998, pro forma as
adjusted, have been derived from the unaudited consolidated financial statements
of the Company not included in this Prospectus. The summary historical
consolidated financial information has been retroactively restated to give
effect to the Reorganization. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
condition and results of operations for those periods. Operating results for the
six months and twelve months ended January 31, 1998, pro forma as adjusted, are
not necessarily indicative of the results that may be expected for the year
ended July 31, 1998 or for any future period. The unaudited pro forma as
adjusted income statement data gives effect to the Refinancing as if it had
occurred on February 1, 1997. The unaudited pro forma as adjusted balance sheet
data gives effect to the Refinancing as if it had occurred on January 31, 1998
and gives effect to assets retained by the Trusts upon completion of the
Reorganization. See Note 2 to "Consolidated Financial Statements." The pro forma
information does not purport to represent what the Company's results would have
actually been if the Refinancing had occurred on the date indicated nor does
such information purport to project the results of the Company for any future
period. This data should be read in conjunction with the consolidated financial
statements and notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Selected Historical and Pro Forma
Consolidated Financial Information" and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues........................................ $ 699.4 $ 808.5 $ 950.6 $ 1,001.0 $ 991.8 $ 519.0 $ 532.8
Gross profit........................................ 225.4 264.6 310.0 324.9 322.5 166.5 171.1
Selling, general and administrative expenses........ 183.7 212.6 255.1 270.4 267.6 135.1 138.2
Depreciation and amortization....................... 15.1 17.4 20.5 20.9 21.8 11.3 11.5
--------- --------- --------- --------- --------- --------- ---------
Income from operations.............................. 26.6 34.6 34.4 33.6 33.1 20.1 21.4
Interest expense.................................... 6.7 7.8 11.5 14.9 14.3 9.4 6.9
Net income.......................................... 14.7 17.3 15.1 10.0 3.5 3.9 7.9
OTHER DATA:
Ratio of earnings to fixed charges(c)............... 2.4x 2.2x 1.8x 1.5x 1.3x 1.5x 1.8x
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................................ $ 346.9 $ 412.7 $ 505.1 $ 528.8 $ 544.6 $ 530.7 $ 538.3
Total debt (including current maturities)........... 116.2 140.5 199.6 202.8 211.3 221.7 226.2
Shareholders' equity................................ 95.0 112.1 127.5 135.1 134.0 136.8 140.6
<CAPTION>
TWELVE MONTHS
ENDED JANUARY
31, 1998
(PRO FORMA
AS ADJUSTED)
-------------
<S> <C>
INCOME STATEMENT DATA:
Net revenues........................................ $ 1,005.6
Gross profit........................................ 327.1
Selling, general and administrative expenses........ 270.7
Depreciation and amortization....................... 22.0
-------------
Income from operations.............................. 34.4
Interest expense.................................... 13.6(a)
Net income.......................................... 6.5(b)
OTHER DATA:
Ratio of earnings to fixed charges(c)............... 1.3x
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................................ $ 544.5(d)(e)
Total debt (including current maturities)........... 229.8(d)
Shareholders' equity................................ 130.4(e)
</TABLE>
See Notes to Summary Historical and Pro Forma Consolidated Financial Information
10
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) Pro forma interest expense represents interest expense adjusted to give
effect to the Refinancing as if the Refinancing had occurred at February 1,
1997, and assumes that the initial borrowings under the Refinancing remained
outstanding for the entire twelve month period.
The following table reflects the pro forma interest expense as if the
Refinancing had occurred on February 1, 1997 (dollars in millions):
<TABLE>
<S> <C>
Facility A Revolving Line ($9.6 million at 6.3%)........................................... $ 0.6
Facility B Revolving Line ($100.0 million at 1.32%)........................................ 1.3
The Notes ($110.0 million at 9.375%)....................................................... 10.3
Existing indebtedness ($10.2 million at an average rate of 7.6%)........................... 0.8
Amortization of deferred financing costs................................................... 0.6
---------
$ 13.6
---------
---------
</TABLE>
Interest rates on the Facility A Revolving Line and Facility B Revolving
Line are based upon rates applicable as of April 20, 1998. Annual facility
fees on the revolving lines are not included in pro forma interest expense.
(b) Pro forma net income represents historical net income of $7.5 million for
the twelve months ended January 31, 1998, reduced by $1.0 million
representing the excess of pro forma interest expense of $13.6 million over
historical interest expense of $11.8 million, net of the related pro forma
income tax benefit of $0.8 million.
(c) Ratio of earnings to fixed charges is computed by dividing (i) the sum of
income before taxes and fixed charges by (ii) fixed charges. Fixed charges
consist of the sum of interest expense, interest expense capitalized, the
amortization of deferred financing costs, and 35% of rental expense
representing management's determination of a reasonable approximation of
interest costs on rents.
(d) Pro forma total assets and total debt (including current maturities) give
effect to the Refinancing as if it had occurred on January 31, 1998.
(e) Pro forma total assets and shareholders' equity are adjusted to give effect
to net assets of $10.2 million to be retained by the Trusts, net of related
deferred taxes, upon completion of the Reorganization as if it had occurred
on January 31, 1998. See Note 2 to "Consolidated Financial Statements."
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RISK FACTORS
AN INVESTMENT IN THE NEW NOTES OFFERED HEREBY IS SPECULATIVE IN NATURE AND
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE PURCHASERS OF THE NEW NOTES OFFERED
HEREBY SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, PRIOR TO MAKING AN INVESTMENT IN
THE NEW NOTES. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. SEE THE COVER PAGE,
"FORWARD-LOOKING STATEMENTS."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
After giving effect to the Recapitalization, including the Existing Notes
Offering, the initial borrowings under the New Credit Facility and the
application of the proceeds therefrom, the Company is substantially leveraged.
On such a basis, the Company's aggregate outstanding indebtedness would have
been $229.8 million and the Company's shareholders' equity would have been
$130.4 million at January 31, 1998. The Company also has substantial rental
obligations. The New Credit Facility and the Indenture permit the Company and
its subsidiaries to incur or guarantee certain additional indebtedness, subject
to certain limitations. The New Credit Facility matures prior to the maturity of
the Notes. In the event that the Company is unable to refinance the New Credit
Facility, its ability to repay the principal and interest on the Notes would be
adversely affected. See "The Recapitalization--The Refinancing," "Use of
Proceeds," "Capitalization," "Description of New Credit Facility" and
"Description of the Notes."
The Company's substantial degree of leverage could have important
consequences to its lenders, including but not limited to, the following: (i)
the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired in the future, (ii) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of principal and interest
on its indebtedness, thereby reducing the funds available to the Company for
other purposes, (iii) certain of the Company's borrowings, including those under
the New Credit Facility, will be at variable rates of interest which exposes the
Company to interest rate fluctuation risk, (iv) the Company may be hindered in
its ability to adjust rapidly to changing market conditions and (v) the Company
could be more vulnerable in the event of a downturn in general economic
conditions or its business.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness and meet its other obligations (including substantial rental
obligations) will depend on its financial and operating performance, which, in
turn, is subject to prevailing economic and competitive conditions in the United
States and other countries where it operates and to certain financial, business
and other factors, many of which are beyond the Company's control. See the cover
page, "Forward-Looking Statements."
There can be no assurance that the Company's cash flow and capital resources
will be sufficient for payment of interest on and principal of its indebtedness
in the future. If the Company's cash flow and capital resources are insufficient
to fund its debt service obligations, the Company may be forced to reduce or
delay capital expenditures, sell assets, seek to obtain additional equity
capital, or restructure its debt. There can be no assurance that any such
alternative measures would be successful or would permit the Company to meet its
scheduled debt obligations. In the absence of sufficient cash flow and capital
resources, the Company could face substantial liquidity problems and could be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to whether the Company's
lenders would consent to such actions, or as to the timing or amount of the
proceeds that the Company could realize from such actions.
The Company believes the amounts available for borrowing under the New
Credit Facility and the proceeds of the Existing Notes Offering, together with
anticipated cash flow from operations, cash on hand, equipment leases and trade
credit, should be sufficient to fund its operations as well as its
currently-planned expansion for the foreseeable future.
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SUBORDINATION OF NOTES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Indebtedness of the Company, including
all amounts owing or guaranteed under the New Credit Facility. Consequently, in
the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to the Company, assets of the Company will be available
to pay obligations on the Notes only after all Senior Indebtedness of the
Company has been paid in full, and there can be no assurance that there will be
sufficient assets to pay amounts due on any or all of the Notes. The Notes are
effectively subordinated to all indebtedness and other obligations of the
Company's existing and future subsidiaries. See "Description of the
Notes---Subordination of the Notes." At January 31, 1998, on an as adjusted
basis, after giving effect to the Refinancing, the Company would have had $119.8
million of Senior Indebtedness outstanding, of which $25.2 million would have
been indebtedness of the Company's subsidiaries.
TRENDS AFFECTING THE MUSIC INDUSTRY
The Company's business is affected by the release of "hit" music titles,
which can create cyclical trends in sales distinctive to the music industry. It
is not possible to determine the timing of these cycles or the future
availability of hit titles. The Company's business may also be affected by
changes in music entertainment technology. While technological advances such as
compact discs have had a favorable impact on industry growth in the past, there
can be no assurance that future advances will continue to have a favorable
impact on music entertainment product retailers. In particular, Internet and
cable technologies coupled with high-quality digital recording technologies
could allow direct downloading of recorded music by consumers. If the industry
experiences a dearth of hit music titles or such technological changes were to
result in significant changes in existing distribution channels for prerecorded
music, the Company's business, financial condition or results of operations
could be materially and adversely affected.
COMPETITION
The retail music business is highly competitive. The Company competes with a
wide variety of music retailers, including regional and national mall-based
music chains, international chains, deep-discount retailers, mass merchandisers,
consumer electronics outlets, mail order, record clubs and independent
operators, some of which have greater financial and other resources than the
Company. In retail music sales, some of the Company's competitors have been
expanding into the Company's markets. Further, the Company expects continued
growth in competing home entertainment options, including the Internet and
larger numbers of television and music channels offered by cable companies. Such
competition may reduce sales at music stores, put pressure on gross margins,
increase operating expenses and decrease profit margins in specific markets.
While the Company believes that the music retail business will continue to be a
viable business, that retail stores will continue to be a primary channel for
distribution of recorded music, and that the Company will continue to compete
successfully within the music retail store sector and within the music retail
business generally, there can be no assurances in this regard. See
"Business--Competition."
EFFECT OF GENERAL ECONOMIC CONDITIONS
The Company's business is directly affected by the level of consumer
spending. One of the primary factors that affects consumer spending is the
general state of the local economies in which the Company operates. Lower levels
of consumer spending in regions in which the Company has significant operations
could have a material adverse effect on the Company's business, financial
condition or results of operations.
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RISKS ASSOCIATED WITH EXPANSION
The Company's future financial prospects will depend in part on its ability
to open and operate new stores profitably. During the two year period ended July
31, 1997, the Company opened two new stores in the United States and 23 new
stores internationally. The Company intends to open additional stores in both
existing and new, U.S. and international geographic markets. However, the
opening of additional stores in an existing market could result in lower net
sales from existing Company stores in that market. The success of the Company's
planned expansion will be dependent upon many factors, including the
identification of suitable markets, the availability and leasing of suitable
store locations on acceptable terms, the hiring, training and retention of
qualified management and other store personnel, the availability of appropriate
financing and general economic conditions. To manage its planned expansion, the
Company must ensure the continuing adequacy of its existing product distribution
facilities, store management controls, financial controls and information
systems. There can be no assurance that the Company will be able to adequately
anticipate all of the demands which continuing expansion will impose on its
operating systems, that new stores will be effectively integrated into the
Company's existing operations or that such stores will be profitable.
In addition, the new geographic markets into which the Company is expanding
may present competitive and merchandising challenges that are different from
those currently faced by the Company in its existing geographic markets. The
Company may incur higher costs related to advertising and distribution in
connection with entering certain new markets. If the Company opens stores in new
markets that do not perform to the Company's expectations, if new stores do not
reach profitability as soon as expected or if stores openings are delayed, the
Company's business, financial condition or results of operations could be
materially adversely affected.
RISKS RELATING TO INTERNATIONAL OPERATIONS
The Company has substantial operations and assets located outside the United
States, primarily in the United Kingdom and Japan. With respect to international
operations, principally all of Tower's revenues and costs (including borrowing
costs) are incurred in the local currency, except that certain inventory
purchases are tied to U.S. dollars. The Company's financial performance on a
U.S. dollar-denominated basis has historically been significantly affected by
changes in currency exchange rates. The Company believes that the matching of
revenues and expenses in local currency, as well as its foreign exchange hedging
activities and borrowings in foreign currencies, mitigate the effect of
fluctuating currency exchange rates. Nonetheless, changes in certain exchange
rates could adversely affect the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
International operations are also subject to a number of other special
risks, including trade barriers, exchange controls, governmental expropriation,
political risks and risks of increases in taxes. In addition, the laws of
certain foreign countries do not protect the Company's trademark, trade name,
copyright and other intellectual property rights to the same extent as do the
laws of the United States. Also, various jurisdictions outside the United States
have laws limiting the right and ability of non-U.S. subsidiaries and affiliates
to pay dividends and remit earnings to affiliated companies unless specified
conditions are met. Earnings of international subsidiaries are subject to income
taxes of non-U.S. jurisdictions that reduce cash flow available to meet required
debt service and other obligations of the Company.
RESTRICTIVE COVENANTS
The New Credit Facility contains a number of significant covenants that
restrict the manner in which the Company conducts its business, and require the
Company to comply with specified ratios and financial tests. See "Description of
New Credit Facility." The Indenture also contains certain restrictive
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covenants. See "Description of the Notes--Certain Covenants." The Company's
ability to comply with these covenant requirements may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions. The breach of any such covenants or restrictions could result in a
default under the relevant financing agreements that would permit the relevant
lenders or debt holders to declare all amounts outstanding thereunder to be due
and payable, together with accrued and unpaid interest, and the commitments of
the lenders under the New Credit Facility to make further extensions of credit
thereunder could be terminated.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control, the
Company will be required to make an offer to repurchase all of the Notes issued
and then outstanding under the Indenture at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest thereon and other
amounts due with respect thereto through the date of repurchase. See
"Description of the Notes--Offer to Repurchase upon Change of Control." Any
Change of Control under the Indenture would constitute a default under the New
Credit Facility. Therefore, upon the occurrence of a Change of Control, the
lenders under the New Credit Facility would have the right to accelerate their
loans and the holders of the Notes would have the right to require the Company
to repurchase their Notes. Upon such event, such lenders would be entitled to
receive payment of all outstanding obligations under the New Credit Facility
before the Company may repurchase any of the Notes tendered pursuant to such an
offer. See "Description of New Credit Facility." If a Change of Control were to
occur, it is unlikely that the Company would be able to repay all of its
obligations under the New Credit Facility and the Notes unless it could obtain
alternate financing. There can be no assurance that the Company would be able to
obtain any such financing on commercially reasonable terms, or at all, and
consequently no assurance can be given that the Company would be able to
repurchase any of the Notes tendered pursuant to such an offer.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its future prospects depend to a significant
extent on the services of its executive officers, as well as its ability to
attract and retain additional key personnel with the skills and expertise
necessary to manage its planned growth. While the Company believes that it has
developed depth and experience among its key personnel, the loss or
unavailability of the services of certain of its executive officers and other
key management personnel, including its founder, Russell M. Solomon, could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Management."
CONTROL BY PRINCIPAL SHAREHOLDER
Russell M. Solomon, President and Chief Executive Officer and a director of
the Company, beneficially owns a majority of Parent's outstanding voting
securities. Accordingly, Mr. Solomon has the ability to elect all of the members
of the Board of Directors of Parent and to determine the outcome of any matter
submitted to the shareholders for approval, including corporate transactions
such as mergers, consolidations and the sale of all or substantially all of the
assets of the Company. See "Ownership of Capital Stock."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, within the
next two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. The Company has
budgeted for and is currently utilizing in-
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house information technology staff and outside consultants to analyze and
upgrade its management systems software to make it Year 2000 compliant, a
process which the Company expects to complete in late 1998. The Company also
intends to implement its ISP system in Japan in early 1999 which should make the
Company's entire inventory management system Year 2000 compliant. Failure by the
Company to complete implementation of the required changes to address Year 2000
requirements prior to the year 2000 might result in significant difficulties in
the Company's administration of corporate and inventory software systems and
consequently have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has not conducted a review of
the preparations of its major vendors, distributors and shippers to meet the
Year 2000 requirements and does not have a basis to assess the impact, if any,
that the Year 2000 requirements will have on its vendors, distributors and
shippers and consequently on the Company. Failure by the Company's vendors,
distributors, shippers and other parties with which the Company does business to
address Year 2000 requirements could adversely affect the Company's ability to
distribute products for some period of time and otherwise disrupt the Company's
business operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act or any state securities laws and, unless so registered and to the
extent not exchanged for the New Notes, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Any Existing Notes tendered and exchanged in the Exchange Offer will
reduce the aggregate principal amount of Existing Notes outstanding. Following
the consummation of the Exchange Offer, Existing Holders who did not tender
their Existing Notes generally will not have any further registration rights
under the Registration Rights Agreement, and such Existing Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for such Existing Notes could be adversely affected. The Existing
Notes are currently eligible for sale pursuant to Rule 144A through The Portal
Market of the National Association of Securities Dealers, Inc. ("Portal").
Because the Company anticipates that most Existing Holders will elect to
exchange such Existing Notes for New Notes in order to reduce restrictions on
the resale of New Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The New Notes will constitute a new issue of securities for which there is
currently no active trading market. If the New Notes are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors including general economic conditions and the
current financial condition, results of operations and business prospects of the
Company. Although the New Notes will generally be permitted to be resold or
otherwise transferred by non-affiliates of the Company without compliance with
the registration and prospectus delivery requirements of the Securities Act, the
Company does not intend to apply for a listing or quotation of the New Notes on
any securities exchange or stock market. The Initial Purchasers have informed
the Company that they currently intend to make a market in the New Notes.
However, the Initial Purchasers are not obligated to do so, and any such
market-making may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed under the Exchange
Act. Accordingly, there can be no assurance as to the development, liquidity or
maintenance of any market for the New Notes, or, in the case of non-tendering
Existing Holders, the trading market for the Existing Notes following the
Exchange Offer. If no trading market develops or is maintained, New Holders may
experience difficulty in reselling New Notes or may be unable to sell them.
The liquidity of, and trading market for, the Existing Notes or the New
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect
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such liquidity and trading markets independent of the financial performance of,
and prospects for, the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE
Existing Holders who do not exchange their Existing Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Existing Notes as set forth in the legend thereon as a
consequence of the original issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless (i) to a person
who the seller reasonably believes is a qualified institutional buyer in a
transaction meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144A under the Securities Act, (ii) in a transaction
occurring outside the United States to a foreign person, which transaction meets
the requirements of Rule 904 under the Securities Act, (iii) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (iv) to the
Company, or (v) pursuant to an effective registration statement, and, in each
case, in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. Based on interpretations by the Staff, as set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Existing Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
Holder which is an affiliate of the Company or is a broker-dealer which acquired
such Existing Notes directly from the Company) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement with any person to
participate in the distribution of such New Notes, provided that Exchanging
Dealers will be subject to prospectus delivery requirements in connection with
any resale. However, the Commission has not considered the Exchange Offer in the
context of a no-action letter addressing such matters and there can be no
assurance that the Staff would make a similar determination with respect to the
Exchange Offer.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer
(including the Indenture and the Registration Rights Agreement), which are
exhibits to the Exchange Offer Registration Statement.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company to the Initial Purchasers on
April 20, 1998, and were subsequently resold (i) to qualified institutional
buyers pursuant to Rule 144A under the Securities Act, and (ii) pursuant to
offers and sales that occurred outside the United States within the meaning of
Regulation S under the Securities Act. In connection with the offering of the
Existing Notes, the Company entered into the Registration Rights Agreement,
which requires, among other things, that the Company (i) file with the
Commission a registration statement under the Securities Act with respect to an
issue of new notes of the Company identical in all material respects (other than
transfer restrictions, registration rights and the requirement, under certain
circumstances, to pay Additional Interest) to the Existing Notes (which
obligation has been satisfied by the filing of the Exchange Offer Registration
Statement), (ii) use their best efforts to cause such registration statement to
become effective under the Securities Act and (iii) upon the effectiveness of
that registration statement, offer to the Holders of the Existing Notes the
opportunity to exchange their Existing Notes for a like principal amount of New
Notes, which would be issued without a restrictive legend and may generally be
reoffered and resold by the Holder without restrictions or limitations under the
Securities Act, subject to the terms and conditions of the Exxon Capital, Morgan
Stanley and Shearman & Sterling No-Action Letters. See the discussion set forth
on the cover page of this Prospectus and the information under the captions
"Prospectus Summary--The Exchange Offer" and "--Resale of New Notes."
Any Existing Notes tendered and exchanged in the Exchange Offer will reduce
the aggregate principal amount of Existing Notes outstanding. Following the
consummation of the Exchange Offer, Existing Holders who did not tender their
Existing Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Existing Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Existing Notes could be adversely affected. The Existing Notes
are currently eligible for sale pursuant to Rule 144A or outside the United
States pursuant to Regulation S. Because the Company anticipates that most
Existing Holders will elect to exchange such Existing Notes for New Notes due to
the reduction of restrictions on the resale of New Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any Existing
Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Existing
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time
on the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Existing Notes
accepted in the Exchange Offer. Existing Holders may tender some or all of their
Existing Notes pursuant to the Exchange Offer. However, Existing Notes may be
tendered only in integral multiples of $1,000. The form and terms of the New
Notes are the same as the form and terms of the Existing Notes except that (i)
the New Notes have been registered under the Securities Act and hence will not
bear legends restricting the transfer thereof, and (ii) New Holders generally
will not be entitled to certain rights under the Registration Rights Agreement
or Additional Interest, which rights generally will terminate upon consummation
of the
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Exchange Offer. The New Notes will evidence the same debt as the Existing Notes
and will be entitled to the benefits of the Indenture.
Existing Holders do not have any appraisal or dissenters' rights under the
California General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, including Rule 14e-1.
The Company shall be deemed to have accepted validly tendered Existing Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Existing
Holders for the purpose of receiving the New Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the tendered certificates, if any, for any such unaccepted Existing
Notes will be returned, without expense, to the tendering Existing Holder
thereof as promptly as practicable after the Expiration Date.
Existing Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all required
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS
As defined above, the term "Expiration Date" shall mean 5:00 p.m., New York
City time, on , 1998 (30 days after this Prospectus was sent to
Existing Holders), unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Existing Notes, to extend the Exchange Offer or to terminate the
Exchange Offer by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. See "--Amendments; Termination."
INTEREST ON NEW NOTES
Each New Note will bear interest from the most recent date to which interest
has been paid or duly provided for on the Existing Note surrendered in exchange
for such New Note or, if no such interest has been paid or duly provided for on
such Existing Note, from April 23, 1998. Holders of the Existing Notes whose
Existing Notes are accepted for exchange will not receive accrued interest on
such Existing Notes for any period from and after the last Interest Payment Date
to which interest has been paid or duly provided for on such Existing Notes
prior to the original issue date of the New Notes or, if no such interest has
been paid or duly provided for, will not receive any accrued interest on such
Existing Notes, and will be deemed to have waived the right to receive any
interest on such Existing Notes accrued from and after such Interest Payment
Date or, if no such interest has been paid or duly provided for, from and after
April 23, 1998. Interest on the New Notes will be payable semi-annually on each
May 1 and November 1, commencing on November 1, 1998.
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PROCEDURES FOR TENDERING
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, an Existing Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Existing Notes and any other required documents, to the Exchange Agent
so as to be received by the Exchange Agent at the address set forth below prior
to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Existing Notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the Company
the representation set forth below in the second paragraph under the heading
"--Resale of New Notes."
The tender by an Existing Holder and the acceptance thereof by the Company
will constitute an agreement between such Existing Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Existing Holder promptly and instruct
such registered Existing Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Existing Notes tendered pursuant thereto (i) are signed by the
registered Existing Holder, unless such Existing Holder has completed the box
entitled "Special Exchange Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal, or (ii) are tendered for the account of an Eligible
Institution. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Existing Notes listed therein, such Existing Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Existing Holder as such registered Existing Holder's name appears on
such Existing Notes, with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
20
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Existing Notes not properly tendered or any Existing Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Existing Holders
of defects or irregularities with respect to tenders of Existing Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Existing Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Existing Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Existing Holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
TENDER OF EXISTING NOTES HELD THROUGH DTC
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for ATOP, the DTC Automated Tender Offer Program. Accordingly, DTC
participants may, in lieu of physically completing and signing the applicable
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer
Existing Notes to the Exchange Agent in accordance with DTC's ATOP procedures
for transfer. DTC will then send an Agent's Message (as defined below) to the
Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an expressed acknowledgment from a participant in DTC that
is tendering Existing Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the applicable Letter of Transmittal (or, in the case of an Agent's
Message relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable Notice of Guaranteed Delivery), and that
the Company may enforce such agreement against such participant.
PERSONS TENDERING EXISTING NOTES THROUGH ATOP THEREBY AGREE TO BE BOUND BY
THE LETTER OF TRANSMITTAL AND WILL BE DEEMED TO HAVE MADE THE REPRESENTATION SET
FORTH BELOW IN THE SECOND PARAGRAPH UNDER THE HEADING "--RESALE OF NEW NOTES."
BOOK-ENTRY DELIVERY PROCEDURES
Within two business days after the date hereof, the Exchange Agent will
establish accounts with respect to the Existing Notes at DTC, for purposes of
the Exchange Offer. Any financial institution that is a participant in DTC may
make book-entry delivery of the Existing Notes by causing DTC to transfer such
Existing Notes into the Exchange Agent's account at DTC in accordance with DTC
procedures for such transfer. Timely book-entry delivery of Existing Notes
pursuant to the Exchange Offer, however, requires receipt of a Book-Entry
Confirmation prior to the Expiration Date. In addition, although delivery of
Existing Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal (or a manually signed
facsimile thereof), together with any required signature guarantees and any
other required documents, or an Agent's Message in connection with a book-entry
transfer, must, in any case, be delivered or transmitted to and received by the
Exchange Agent prior to the Expiration Date to receive New Notes for tendered
Existing Notes, or the guaranteed delivery
21
<PAGE>
procedure described below must be complied with. Tender will not be deemed made
until such documents or Agent's Message are received by the Exchange Agent.
Delivery of documents or information to DTC does not constitute delivery to the
Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Existing Holders who wish to tender their Existing Notes and (i) whose
Existing Notes are not immediately available, (ii) who cannot deliver their
Existing Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent, or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Existing Holder, the certificate
number(s) of such Existing Notes and the principal amount of Existing Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, on or prior to three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the Existing Notes (or a confirmation
of book-entry transfer of such Existing Notes into the Exchange Agent's
account at DTC) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at DTC)
and all other documents required by the Letter of Transmittal, are received
by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Existing Holders who wish to tender their Existing Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Existing Notes to be withdrawn (the
"Depositor"), (ii) identify the Existing Notes to be withdrawn (including the
certificate number(s) and principal amount of such Existing Notes, or, in the
case of Existing Notes transferred by book-entry transfer, the name and number
of the account at DTC to be credited), (iii) be signed by the Existing Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Existing Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee
register the transfer of such Existing Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Existing
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time or receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Existing Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Existing Notes so
22
<PAGE>
withdrawn are validly retendered. Any Existing Notes which have been tendered
but which are not accepted for exchange will be returned to the Holder thereof
without cost to such Existing Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Existing Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
AMENDMENTS; TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for any Existing
Notes, and may amend or terminate the Exchange Offer in its sole discretion
before the acceptance of such Existing Notes. By way of example, the following
constitute some, but not all, of the reasons for which the Company might choose
to amend or terminate the Exchange Offer:
(a) in the opinion of counsel to the Company or the Guarantors, if any,
the Exchange Offer or any part thereof contemplated herein violates any
applicable law or interpretation of the Staff;
(b) any action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development shall have occurred in any existing action or proceeding
with respect to either the Company or the Guarantors, if any;
(c) any governmental approval has not been obtained, which approval the
Company shall deem necessary for the consummation of the Exchange Offer as
contemplated hereby;
(d) any cessation of trading on the Nasdaq Stock Market or any exchange,
or any banking moratorium, shall have occurred, as a result of which the
Company is unable to proceed with the Exchange Offer; or
(e) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Exchange Offer
Registration Statement or proceedings shall have been initiated or, to the
knowledge of the Company, threatened for that purpose.
In its sole discretion, the Company may (i) refuse to accept any Existing
Notes and return all tendered Existing Notes to the tendering Existing Holders,
(ii) extend the Exchange Offer and retain all Existing Notes tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of
Existing Holders to withdraw such Existing Notes (see "--Withdrawals of
Tenders"), or (iii) accept all properly tendered Existing Notes which have not
been validly withdrawn.
EXCHANGE AGENT
State Street Bank and Trust Company of California, N.A., will act as
Exchange Agent for the Exchange Offer with respect to the Existing Notes.
23
<PAGE>
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Existing Notes and
requests for copies of the Notice of Guaranteed Delivery should be directed to
the Exchange Agent, addressed as follows:
<TABLE>
<S> <C>
By Hand, Overnight Courier State Street Bank and Trust Company of
or Mail: California, N.A. Exchange Agent
c/o State Street Bank and Trust Company
2 International Place, 4th Floor
Boston, MA 02110
Attention: Kellie Mullen, Corporate Trust
Dept.
By Facsimile: 617-664-5290
Confirm by Telephone: 617-664-5587
</TABLE>
FEES AND EXPENSES
The required expenses of soliciting Existing Notes for exchange will be
borne by the Company. The principal solicitation is being made by mail by the
Exchange Agent. However, additional solicitation may be made by telephone,
facsimile or in person by officers and regular employees of the Company and its
affiliates and by persons so engaged by the Exchange Agent.
The Company will pay the Exchange Agent reasonable and customary fees as
negotiated for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith and pay other registration
expenses, including fees and expenses, as negotiated, of the Trustee (as
defined), filing fees, blue sky fees and printing and distribution expenses.
RESALE OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
Staff as set forth in the Exxon Capital No-Action Letter, the Morgan Stanley
No-Action Letter and the Shearman & Sterling No-Action Letter, and other
interpretive letters addressed to third parties in other transactions. However,
the Company has not sought its own interpretive letter addressing such matters
and there can be no assurance that the Staff would make a similar determination
with respect to the Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the Staff, and subject to the
two immediately following sentences, the Company believes that New Notes issued
pursuant to this Exchange Offer in exchange for Existing Notes may be offered
for resale, resold and otherwise transferred by a Holder thereof (other than a
Holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such Holder's business and that
such Holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any Holder of Existing Notes who (i)
is an "affiliate" of the Company (within the meaning of Rule 405 under the
Securities Act), (ii) does not acquire such New Notes in the ordinary course of
its business, (iii) intends to participate in the Exchange Offer for the purpose
of distributing New Notes, or (iv) is a broker-dealer who purchased such
Existing Notes directly from the Company, (a) will not be able to rely on the
interpretations of the Staff set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Existing Notes in
the Exchange Offer, and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Existing Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, an Exchanging
Dealer may be deemed a statutory "underwriter" within the meaning of the
Securities Act and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Notes.
24
<PAGE>
Each Holder of Existing Notes who wishes to exchange Existing Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Existing Notes for its own account as a result
of market-making activities or other trading activities (and not directly from
the Company) and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such an Exchanging Dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. Based on
the position taken by the Staff in the interpretive letters referred to above,
the Company believes that Exchanging Dealers may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Existing Notes with a prospectus meeting the requirements of the Securities
Act, which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by an Exchanging Dealer during the
period referred to below in connection with resales of New Notes received in
exchange for Existing Notes where such Existing Notes were acquired by such
Exchanging Dealer for its own account as a result of market-making or other
trading activities. Subject to certain provisions set forth in the Registration
Rights Agreement, the Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by an Exchanging Dealer
in connection with resales of such New Notes for a period of 180 days following
effectiveness of the Exchange Offer Registration Statement. See "Plan of
Distribution." Any Exchanging Dealer who is an affiliate of the Company may not
rely on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. See "The Exchange Offer--Resales of New Notes."
In that regard, each Exchanging Dealer who surrenders Existing Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Exchanging Dealer will suspend the sale of New Notes
pursuant to this Prospectus until the Company has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Exchanging Dealer or the Company
has given notice that the sale of the New Notes may be resumed, as the case may
be.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of its obligations under the Registration Rights Agreement,
and Holders of Existing Notes who do not tender their Notes, except for certain
instances involving the Initial Purchasers or Existing Holders who are not
eligible to participate in the Exchange Offer, will not have any further
registration rights under the Registration Rights Agreement or otherwise or
rights to receive Additional Interest for failure to register. Accordingly, any
Holder of Existing Notes that does not exchange that Holder's Existing Notes for
New Notes will continue to hold the untendered Existing Notes and will be
entitled to all the rights and subject to all the limitations applicable thereto
under the Indenture, except to the extent that such rights or limitations, by
their terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
25
<PAGE>
The Existing Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to a person who the seller reasonably believes is a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A, in a transaction meeting the requirements of Rule 144A under the
Securities Act, (ii) in a transaction occurring outside the United States to a
foreign person, which transaction meets the requirements of Rule 904 under the
Securities Act, (iii) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Company so requests), (iv) to the Company, or (v) pursuant to an effective
registration statement, and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction.
OTHER
Participation in the Exchange Offer is voluntary and Existing Holders should
carefully consider whether to accept. Holders of the Existing Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Existing
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Existing Notes.
26
<PAGE>
THE RECAPITALIZATION
THE REORGANIZATION
Prior to April 1998, substantially all of the capital stock of the Company
was owned by the Russell Solomon Trust. In April 1998, the Company consummated
the Reorganization, which consolidated substantially all of the Tower business
operations in the Company, and also, apart from the Reorganization, transferred
certain assets to the Trusts. As a result of the Reorganization, the Company is
now a wholly-owned subsidiary of Parent. The Reorganization included an exchange
by the Company's shareholders of their common shares in the Company for a
controlling equity interest in the Parent. As part of the Reorganization, the
Trusts and certain Solomon family members contributed to Parent certain business
assets (subject to certain liabilities), including wholesale distribution
operations, in exchange for the remaining equity interest in Parent. Separately,
Parent contributed such assets and liabilities to the Company. Prior to the
consummation of the Reorganization set forth above, the Company transferred
certain assets valued at approximately $2.9 million to the Trusts in exchange
for inventory with an equal value. The purchase price of these assets sold by
the Company to the Trusts was determined based upon independent appraisals or
estimates of the fair market value that the Company believes to be reasonable.
See "Certain Transactions--The Reorganization" and Note 2 to "Consolidated
Financial Statements." As a result of the Reorganization and the planned or
already consummated elimination by merger of certain domestic U.S. subsidiaries
of the Company, substantially all of the Company's U.S. store operations and
U.K. operations will be owned directly by the Company. The Company's other
international operations will be conducted by subsidiaries of the Company or, in
certain cases, joint ventures, and the Company's U.S. distribution operations
will be conducted by a subsidiary of the Company.
THE REFINANCING
The Company refinanced previously outstanding indebtedness of approximately
$168.0 million under its $195.0 million Former Credit Facility and approximately
$64.3 million of other previously outstanding indebtedness by consummating the
Existing Notes Offering and entering into the New Credit Facility. The New
Credit Facility provides for an aggregate $275.0 million commitment, of which
approximately $150.0 million can be borrowed in Japanese yen and a portion in
British pounds. Aggregate borrowings are subject to compliance with a borrowing
base formula. As of January 31, 1998, after giving effect to the Refinancing, an
aggregate of $249.0 million would have been available under the New Credit
Facility based upon the borrowing base formula, of which $109.6 million would
have been drawn. See "Capitalization" and "Description of New Credit Facility."
The New Credit Facility is structured as two separate but interrelated
facilities: the Facility A Revolving Line and the Facility B Revolving Line. The
Facility A Revolving Line is a U.S. $125.0 million revolving credit facility
(which allows a portion to be borrowed in British pounds) and is available in
full to MTS and available in an amount not to exceed $25.0 million to Tower
Records Kabushiki Kaisha, the Company's Japanese operating subsidiary ("TRKK").
The Facility B Revolving Line is a Japanese yen revolving credit facility (which
also allows a portion to be borrowed in U.S. dollars) in an aggregate available
principal amount equal to the yen equivalent of U.S. $150.0 million and is
available to both MTS and TRKK in full. See "Description of New Credit
Facility."
27
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the Exchange Offer. In
consideration for issuing the New Notes in exchange for Existing Notes as
described in this Prospectus, the Company will receive Existing Notes in like
principal amount. The Existing Notes surrendered in exchange for the New Notes
will be retired and canceled.
The terms and conditions of the Existing Notes to be retired and canceled in
the Exchange Offer are identical in all material respects to those of the New
Notes, except that the New Notes will be registered securities whereas the
Existing Notes are not, and except that holders of the New Notes will not be
entitled to registration rights and will not be entitled to Additional Interest
under the Registration Rights Agreement.
The $110.0 million of gross proceeds from the Existing Notes Offering
(before deductions of discounts and other expenses of the Existing Notes
Offering), together with borrowings under the New Credit Facility, which were
approximately $127.0 million initially, were used to (i) refinance the Company's
$168.0 million of borrowings under the Former Credit Facility, (ii) refinance
approximately $64.3 million of other existing indebtedness, and (iii) pay fees
and expenses of approximately $3.8 million, incurred in connection with the
Recapitalization. See "Summary--The Recapitalization" and "Description of New
Credit Facility."
The amounts previously outstanding under the Former Credit Facility
consisted of revolving loans for working capital purposes which would have
matured on May 1, 1998. Such loans bore interest at variable rates determined
from time to time by adding a margin to the Eurodollar Rate ("EURO") or the
prime rate. At January 31, 1998, the interest rate was approximately 6.98%. The
other existing senior indebtedness, as adjusted to give effect to the
Refinancing as if it had occurred on January 31, 1998, consisted of (i) a
yen-denominated senior note which would have matured on May 2, 1998 in the
amount of approximately $45.6 million, bearing interest at a rate per annum of
1.88%, which was incurred to refinance certain previously existing indebtedness,
(ii) a yen-denominated senior note which would have matured on November 1, 1998
in the amount of approximately $27.0 million, bearing interest at a rate per
annum of 1.42%, which was incurred for working capital purposes, (iii)
yen-denominated revolving loans which would have matured on November 1, 1998, in
the amount of approximately $13.4 million, bearing interest at variable rates
(1.62% as of January 31, 1998), which was incurred for working capital purposes,
(iv) a yen-denominated term loan note which would have matured on March 25,
1999, in the amount of approximately $7.9 million, bearing interest at a rate
per annum of 2.40%, which was incurred to refinance certain previously existing
indebtedness and (v) a yen-denominated term loan note which would have matured
on February 25, 2002, in the amount of approximately $3.9 million, bearing
interest at a rate per annum of 2.50%, which was incurred for working capital
purposes and equipment purchases.
28
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of January 31, 1998 and (ii) on a pro forma basis after giving
effect to the Reorganization and assets retained by the Trusts in the
Reorganization, as adjusted to give effect to the Refinancing as though it
occurred on January 31,1998. See "The Recapitalization--The Reorganization,"
"Use of Proceeds" and Note 2 to "Consolidated Financial Statements." This table
should be read in conjunction with "Selected Historical and Pro Forma
Consolidated Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998
-----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 16.3 $ 16.3
------------ -------
------------ -------
Total debt (including current maturities):
Former Credit Facility........................................................... 118.0 --
New Credit Facility(a)........................................................... -- 109.6
Other existing indebtedness...................................................... 108.2(b) 10.2(c)
------------ -------
Total senior debt.............................................................. 226.2 119.8
Notes offered hereby............................................................. -- 110.0
------------ -------
Total debt..................................................................... 226.2 229.8
Shareholders' equity........................................................... 140.6 130.4(d)
------------ -------
Total capitalization........................................................... $ 366.8 $ 360.2
------------ -------
------------ -------
</TABLE>
- ------------------------
(a) The New Credit Facility provides for an aggregate $275.0 million commitment,
of which approximately $150.0 million can be borrowed in Japanese yen (and a
portion in British pounds), subject to compliance with a borrowing base
formula. As of January 31, 1998, an aggregate of approximately $249.0
million would have been available under the New Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of New Credit
Facility."
(b) Includes approximately $97.8 million of yen-denominated Senior Indebtedness
(using an exchange rate of 127.0 yen per U.S. dollar as in effect on January
31, 1998).
(c) Other existing indebtedness which will remain outstanding includes a $3.0
million 8.21% term loan note, a $3.7 million 8.50% real estate loan and $3.5
million of other obligations. See Note 7 to "Consolidated Financial
Statements."
(d) Gives effect as of January 31, 1998 to net assets of $10.2 million
(including a mortgage obligation of $0.2 million and net of related deferred
taxes) retained by the Trusts upon consummation of the Reorganization. See
Note 2 to "Consolidated Financial Statements."
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below
as of July 31, 1996 and 1997 and for each of the years in the three-year period
ended July 31, 1997 have been derived from and should be read in conjunction
with the audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The selected historical consolidated financial
information presented below as of July 31, 1993, 1994 and 1995 and for each of
the years in the two-year period ended July 31, 1994 have been derived from the
audited consolidated financial statements of the Company not included elsewhere
in this Prospectus. The selected historical consolidated financial information
as of January 31, 1998 and for the six months ended January 31, 1997 and 1998
have been derived from and should be read in conjunction with the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The selected historical financial information as of January 31, 1997
and for the twelve months ended January 31, 1998, pro forma as adjusted, have
been derived from the unaudited consolidated financial statements of the Company
not included in this Prospectus. The selected historical consolidated financial
information has been retroactively restated to give effect to the
Reorganization. The unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial condition and
results of operations for those periods. Operating results for the six months
and twelve months ended January 31, 1998, pro forma as adjusted, are not
necessarily indicative of the results that may be expected for the year ended
July 31, 1998 or for any future period. The unaudited pro forma as adjusted
income statement data gives effect to the Refinancing as if it had occurred on
February 1, 1997. The unaudited pro forma as adjusted balance sheet data gives
effect to the Refinancing as if it had occurred on January 31, 1998 and gives
effect to assets to be retained by the Trusts upon completion of the
Reorganization. See Note 2 to "Consolidated Financial Statements." The pro forma
information does not purport to represent what the Company's results would have
actually been if the Refinancing had occurred on the date indicated nor does
such information purport to project the results of the Company for any future
period. This data should be read in conjunction with the consolidated financial
statements and notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Summary Historical and Pro Forma
Consolidated Financial Information" and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues........................................ $ 699.4 $ 808.5 $ 950.6 $ 1,001.0 $ 991.8 $ 519.0 $ 532.8
Cost of sales....................................... 474.0 543.9 640.6 676.1 669.3 352.5 361.7
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 225.4 264.6 310.0 324.9 322.5 166.5 171.1
Selling, general and administrative expenses........ 183.7 212.6 255.1 270.4 267.6 135.1 138.2
Depreciation and amortization....................... 15.1 17.4 20.5 20.9 21.8 11.3 11.5
--------- --------- --------- --------- --------- --------- ---------
Income from operations.............................. 26.6 34.6 34.4 33.6 33.1 20.1 21.4
Other income (expense):
Interest expense.................................... 6.7 7.8 11.5 14.9 14.3 9.4 6.9
Foreign currency translation gain (loss)............ 4.3 1.0 5.6 (1.4) (3.6) (0.3) (0.6)
Other income (expenses)............................. 0.5 (0.4) (2.4) (0.1) (5.7) (0.4) 0.2
--------- --------- --------- --------- --------- --------- ---------
Income before taxes, minority interest, change in
accounting and extraordinary item................. 24.7 27.4 26.2 17.2 9.5 10.0 14.1
Provision for income taxes.......................... 9.8 10.7 10.9 7.0 4.5 4.8 6.1
--------- --------- --------- --------- --------- --------- ---------
Income before minority interest, change in
accounting and extraordinary item................. 14.9 16.7 15.3 10.2 5.0 5.2 8.0
Other items(c)...................................... (0.2) 0.6 (0.2) (0.2) (1.5) (1.3) (0.1)
--------- --------- --------- --------- --------- --------- ---------
Net income.......................................... $ 14.7 $ 17.3 $ 15.1 $ 10.0 $ 3.5 $ 3.9 $ 7.9
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Ratio of earnings to fixed charges(d)............... 2.4x 2.2x 1.8x 1.5x 1.3x 1.5x 1.8x
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................................ $ 346.9 $ 412.7 $ 505.1 $ 528.8 $ 544.6 $ 530.7 $ 538.3
Total debt (including current maturities)........... 116.2 140.5 199.6 202.8 211.3 221.7 226.2
Shareholders' equity................................ 95.0 112.1 127.5 135.1 134.0 136.8 140.6
<CAPTION>
TWELVE MONTHS
ENDED JANUARY
31,
1998
(PRO FORMA
AS ADJUSTED)
-------------
<S> <C>
INCOME STATEMENT DATA:
Net revenues........................................ $ 1,005.6
Cost of sales....................................... 678.5
-------------
Gross profit...................................... 327.1
Selling, general and administrative expenses........ 270.7
Depreciation and amortization....................... 22.0
-------------
Income from operations.............................. 34.4
Other income (expense):
Interest expense.................................... 13.6(a)
Foreign currency translation gain (loss)............ (3.9)
Other income (expenses)............................. (5.1)
-------------
Income before taxes, minority interest, change in
accounting and extraordinary item................. 11.8
Provision for income taxes.......................... 5.1
-------------
Income before minority interest, change in
accounting and extraordinary item................. 6.7
Other items(c)...................................... (0.2)
-------------
Net income.......................................... $ 6.5(b)
-------------
-------------
OTHER DATA:
Ratio of earnings to fixed charges(d)............... 1.3x
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................................ $ 544.5(e)(f)
Total debt (including current maturities)........... 229.8(e)
Shareholders' equity................................ 130.4(f)
</TABLE>
See Notes to Selected Historical and Pro Forma Consolidated Financial
Information
30
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) Pro forma interest expense represents interest expense adjusted to give
effect to the Refinancing as if the Refinancing occurred at February 1,
1997, and assumes that the initial borrowings under the Refinancing remained
outstanding for the entire twelve-month period.
The following table reflects the pro forma interest expense as if the
Refinancing had occurred on February 1, 1997 (dollars in millions):
<TABLE>
<S> <C>
Facility A Revolving Line ($9.6 million at 6.3%)........................................... $ 0.6
Facility B Revolving Line ($100.0 million at 1.32%)........................................ 1.3
The Notes ($110.0 million at 9.375%)....................................................... 10.3
Existing indebtedness ($10.2 million at an average rate of 7.6%)........................... 0.8
Amortization of deferred financing costs................................................... 0.6
---------
$ 13.6
---------
---------
</TABLE>
Interest rates on the Facility A Revolving Line and Facility B Revolving Line
are based upon rates applicable as of April 20, 1998. Annual facility fees
on the revolving lines are not included in pro forma interest expense.
(b) Pro forma net income represents historical net income of $7.5 million for
the twelve months ended January 31, 1998, reduced by $1.0 million
representing the excess of pro forma interest expense of $13.6 million over
historical interest expense of $11.8 million, net of the related pro forma
income tax benefit of $0.8 million.
(c) Other items is comprised of minority interests in net income of
subsidiaries, cumulative effect of change in accounting principle and
extraordinary item.
(d) Ratio of earnings to fixed charges is computed by dividing (i) the sum of
income before taxes and fixed charges by (ii) fixed charges. Fixed charges
consist of the sum of interest expense, interest expense capitalized, the
amortization of deferred financing costs, and 35% of rental expense
representing management's determination of a reasonable approximation of
interest costs on rents.
(e) Pro forma total assets and total debt (including current maturities) give
effect to the Refinancing as if it had occurred on January 31, 1998.
(f) Pro forma total assets and shareholders' equity are adjusted to give effect
to certain net assets of $10.2 million retained by the Trusts, net of
related deferred taxes, upon completion of the Reorganization as if it had
occurred on January 31, 1998. See Note 2 to "Consolidated Financial
Statements."
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Information," and the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus. The results shown herein are not necessarily indicative of the
results to be expected in any future period. The following discussion contains
forward-looking statements that involve known and unknown risks and
uncertainties. Use of the words "anticipates," "believes," "estimates,"
"expects," "intends," "plans" and similar expressions is intended to identify
forward-looking statements. The Company's actual results could differ materially
from those expressed or implied by such forward-looking statements as a result
of factors set forth herein. Such factors include, but are not limited to, the
cautionary statements set forth below and under the captions "Forward-Looking
Statements" (on the cover page), "Risk Factors" and "Business" herein. All
forward-looking statements included in this Prospectus are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements.
GENERAL
Founded in 1960, Tower is the second largest specialty retailer of recorded
music in the United States and is one of the largest and most widely-recognized
music retailers in the world. The Company operates a total of 182 stores
worldwide, consisting of 118 U.S. stores in 20 states and 64 international
stores in 11 countries. Over Tower's 38-year operating history, the Company has
closed only eight stores. Management believes that Tower is one of the leading
music retailers in each of the U.S. major metropolitan areas in which it
operates (many of which are the fastest growing markets in the United States).
The Company offers a diversified line of products including compact discs,
recorded audio cassettes, recorded video cassettes, laser discs, DVD and other
complementary products, including books, magazines, blank tapes, software
titles, and accessories. Management believes that Tower's highly recognizable
brand name, prime store locations, depth of music catalog, knowledgeable
customer service and entertaining, interactive store environments enable it to
effectively target a broad music consumer demographic and to continue to foster
strong customer loyalty. For the twelve month period ended January 31, 1998,
Tower's net revenues were $1.0 billion.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998 COMPARED TO SIX MONTHS ENDED JANUARY 31,
1997
NET REVENUES. Net revenues were $532.8 million for the six months ended
January 31, 1998, an increase of $13.8 million or 2.7% (or 5.7% excluding the
unfavorable effects of U.S. dollar-Japanese yen exchange rate movements), from
$519.0 million for the six months ended January 31, 1997. The increase in net
revenues was primarily due to (i) a reduction in electronics retailers' music
selling space and a narrowing of catalog selections in response to difficulties
in successfully implementing their "loss leader" music retail sales strategies,
(ii) a decrease in overall music retail square footage as many mall-based music
retailers consolidated store locations, and (iii) an increase in the number of
popular new releases.
GROSS PROFIT. Gross profit was $171.1 million for the six months ended
January 31, 1998, an increase of $4.6 million or 2.8%, from $166.5 million for
the six months ended January 31, 1997. Gross profit as a percentage of net
revenues remained constant at 32.1% for the six months ended January 31, 1998 as
compared to the six months ended January 31, 1997. The Company believes that the
primary factors contributing to its relatively stable gross margins during these
periods were Tower's focus on customers who purchase deep-catalog (and
consequently higher margin) product, strong inventory management and favorable
purchasing terms from vendors.
32
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $138.2 million for the six months ended January 31,
1998, an increase of $3.1 million or 2.3%, from $135.1 million for the six
months ended January 31, 1997. As a percentage of net revenues, selling, general
and administrative expenses remained relatively level at 25.9% for the six
months ended January 31, 1998, as compared to 26.0% for the six months ended
January 31, 1997, primarily due to the Company's success in managing advertising
costs and miscellaneous costs. The Company continues to control general and
administrative expenses as a percentage of sales through development of
technology and consolidation of administrative efficiencies.
INCOME FROM OPERATIONS. Income from operations was $21.4 million for the
six months ended January 31, 1998, an increase of $1.3 million or 6.5% from
$20.1 million for the six months ended January 31, 1997.
NET INCOME. Net income was $7.9 million for the six months ended January
31, 1998, an increase of $4.0 million or 100.2% from $3.9 million for the six
months ended January 31, 1997.
FISCAL YEAR ENDED JULY 31, 1997 COMPARED TO FISCAL YEAR ENDED JULY 31, 1996
NET REVENUES. Net revenues were $991.8 million for the fiscal year ended
July 31, 1997, a decrease of $9.2 million or 0.9% (or a 2.5% increase excluding
the unfavorable effects of U.S. dollar-Japanese yen exchange rate movements)
from $1,001.0 million for the fiscal year ended July 31, 1996.
GROSS PROFIT. Gross profit was $322.5 million for the fiscal year ended
July 31, 1997, a decrease of $2.4 million or 0.7% from $324.9 million for the
fiscal year ended July 31, 1996. Gross profit as a percentage of net revenues
remained constant at 32.5% for the fiscal year ended July 31, 1997 compared to
the fiscal year ended July 31, 1996. The Company believes that the primary
factors contributing to its relatively stable gross profit during these periods
were Tower's focus on customers who purchase deep-catalog (and consequently
higher margin) product, strong inventory management and favorable purchasing
terms from vendors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $267.6 million for the fiscal year ended July 31,
1997, a decrease of $2.8 million or 1.0% from $270.4 million for the fiscal year
ended July 31, 1996. As a percentage of net revenues, selling, general and
administrative expenses remained constant at 27.0% for the fiscal years ended
July 31, 1997 and 1996.
INCOME FROM OPERATIONS. Income from operations was $33.1 million for the
fiscal year ended July 31, 1997, a decrease of $0.5 million or 1.4% from $33.6
million for the fiscal year ended July 31, 1996. As a percentage of net
revenues, income from operations decreased slightly to 3.3% for the fiscal year
ended July 31, 1997 from 3.4% for the fiscal year ended July 31, 1996.
OTHER EXPENSE. Other expense (net) increased $7.2 million for the fiscal
year ended July 31, 1997 compared to fiscal 1996, primarily due to costs
associated with a one time write-off of approximately $4.6 million relating to
the closure of a temporary location pending the remodeling of the Lincoln Center
store in New York City and due to foreign currency transaction losses.
EXTRAORDINARY CHARGES. An extraordinary charge (net of tax) of $1.2 million
was incurred in total in fiscal 1997 as a result of the early repayment of
certain privately placed debt.
NET INCOME. Net income was $3.5 million for the fiscal year ended July 31,
1997, a decrease of $6.5 million or 64.7% from $10.0 million for the fiscal year
ended July 31, 1996.
FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995
NET REVENUES. Net revenues were $1,001.0 million for the fiscal year ended
July 31, 1996, an increase of $50.5 million or 5.3% (or 8.9% after allowing for
the effect of U.S. dollar-Japanese yen
33
<PAGE>
exchange rate movements), from $950.6 million for the fiscal year ended July 31,
1995. The growth in revenues was primarily due to an increase in net revenues
from the Company's operations in Japan, which benefitted from the opening of ten
new stores and strong comparable same store sales.
GROSS PROFIT. Gross profit was $324.9 million for the fiscal year ended
July 31, 1996, an increase of $14.9 million or 4.8% from $310.0 million for the
fiscal year ended July 31, 1995. Gross profit as a percentage of revenues
decreased slightly to 32.5% for the fiscal year ended July 31, 1996 from 32.6%
for the fiscal year ended July 31, 1995. The Company believes that the primary
factors contributing to its relatively stable gross margins during these periods
were Tower's focus on customers who purchase deep-catalog (and consequently
higher margin) product, strong inventory management and favorable purchasing
terms from vendors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $270.4 million for the fiscal year ended July 31,
1996, an increase of $15.3 million or 6.0%, from $255.1 million for the fiscal
year ended July 31, 1995. As a percentage of net revenues, selling, general and
administrative expenses increased to 27.0% for the fiscal year ended July 31,
1996 from 26.8% for the fiscal year ended July 31, 1995. This slight increase
was primarily attributable to increased occupancy expense as more locations were
opened in Japan which commanded higher rents. The increase in occupancy expense
was partially offset by the Company's success in managing other operating
expenses, with reductions as a percentage of total revenues occurring in wages,
advertising and other variable expenses.
INCOME FROM OPERATIONS. Income from operations was $33.6 million for the
fiscal year ended July 31, 1996, a decrease of $0.8 million or 2.5%, from $34.4
million for the fiscal year ended July 31, 1995. As a percentage of net
revenues, income from operations decreased to 3.4% for the fiscal year ended
July 31, 1996 from 3.6% for the fiscal year ended July 31, 1995.
OTHER EXPENSE. Other expense (net) increased $8.2 million in the fiscal
year ended July 31, 1996, primarily due to a foreign currency translation loss
of $1.4 million compared to a $5.6 million foreign currency translation gain for
the fiscal year ended July 31, 1995.
NET INCOME. Net income was $10.0 million for the fiscal year ended July 31,
1996, a decrease of $5.1 million or 33.6% from $15.1 million for the fiscal year
ended July 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Notes and on the New Credit Facility will impose
significant liquidity demands upon the Company comparable to those of recent
years. In addition to its debt service obligations, the Company will require
liquidity for capital expenditures, lease obligations and general working
capital needs. Total capital expenditures for 1998 are expected to be
approximately $25.0 million, of which approximately $5.0 million will be related
to maintenance capital requirements.
The Company believes that the cash flow generated from its operations,
together with amounts available under the New Credit Facility, should be
sufficient to fund its debt service requirements, lease obligations, working
capital needs, its currently expected capital expenditures and other operating
expenses for the foreseeable future. The New Credit Facility provides the
Company with available borrowings up to an aggregate amount of $275.0 million,
of which approximately $150.0 million can be borrowed in Japanese yen and a
portion in British pounds, subject to compliance with the borrowing base
formula. As of January 31, 1998, approximately $249.0 million would have been
available under the New Credit Facility based upon the borrowing base formula,
of which $119.3 million would have been drawn. The Company's future operating
performance and ability to service or refinance the Notes and the New Credit
Facility will be subject to future economic conditions and to financial,
business and other
factors, many of which are beyond the Company's control. See "Risk Factors."
34
<PAGE>
The New Credit Facility and the Notes impose certain restrictions on the
Company's ability to make capital expenditures and limit the Company's ability
to incur additional indebtedness. Such restrictions could limit the Company's
ability to respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business or acquisition opportunities. The
covenants contained in the New Credit Facility and the Notes also, among other
things, limit the ability of the Company to dispose of assets, repay
indebtedness or amend other debt instruments, pay distributions, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances and make acquisitions.
SEASONALITY
Retail music sales in the United States are typically higher during the
calendar fourth quarter as a result of consumer purchasing patterns due to
increased store traffic and impulse buying by holiday shoppers. As a result, the
majority of U.S. music retailers and, more specifically, the mall-based
retailers rely heavily on the calendar fourth quarter to achieve annual sales
and profitability results. Tower's deep-catalog approach to prerecorded music
appeals to customers who purchase music on a year-round basis. Consequently,
Tower has historically been able to maintain consistency with its gross margins,
has had reduced seasonal reliance and has more operating flexibility than its
mall-based competitors. In addition, international markets exhibit less fourth
quarter seasonality than U.S. markets and Tower's international presence has
historically further reduced this reliance on the U.S. holiday shopping season.
INFLATION
The Company believes that the recent low rates of inflation in the United
States, Japan and the United Kingdom, where it primarily operates, have not had
a significant effect on its net sales or operating results. The Company attempts
to offset the effects of inflation through price increases and control of
expenses.
FOREIGN EXCHANGE MANAGEMENT
The Company has substantial operations and assets located outside the United
States, primarily in the United Kingdom and Japan. With respect to international
operations, principally all of Tower's revenues and costs (including borrowing
costs) are incurred in the local currency, except that certain inventory
purchases are tied to U.S. dollars. The Company's financial performance on a
U.S. dollar-denominated basis has historically been significantly affected by
changes in currency exchange rates. The Company believes that the matching of
revenues and expenses in local currency, as well as its foreign exchange hedging
activities and borrowings in foreign currencies, mitigate the effect of
fluctuating currency exchange rates. Nonetheless, changes in certain exchange
rates could adversely affect the Company's business, financial condition and
results of operations. The Company believes that enhancement of its
international banking relationships under the New Credit Facility will provide
additional hedging opportunities for its foreign currency exposure management.
See "Risk Factors--Risks Relating to International Operations."
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, and SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, were issued in June 1997. The Company will
adopt both of the statements beginning July 31, 1998.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income is a measure of all changes in the equity of the Company as a result
35
<PAGE>
of recognized transactions and other economic events of the period other than
transactions with shareholders in their capacity as shareholders. Had the
provisions of SFAS No. 130 been applied for the years ended July 31, 1995, 1996
and 1997, comprehensive income would have consisted primarily of net income and
foreign currency translation adjustments.
SFAS No. 131 requires that the Company report financial and descriptive
information about its reportable operating segments using the "management
approach" model. Under the management approach model, segments are defined based
on the way the Company's management internally evaluates segment performance and
decides how to allocate resources to segments. The Company is in the process of
evaluating the impact of this pronouncement on its segment disclosures.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, within the
next two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements.
The Company has budgeted for and is currently utilizing in-house information
technology staff and outside consultants to analyze and upgrade its corporate
management software to make it Year 2000 compliant, a process which the Company
expects to complete in late 1998 at a cost of approximately $250,000. The
Company also intends to implement its ISP system in Japan in early 1999 which
should make the Company's entire inventory management system Year 2000
compliant. The Company has not completed a review of the preparations of its
major vendors, distributors and shippers to meet the Year 2000 requirements and
does not yet have a basis to assess the impact, if any, that the Year 2000
requirements will have on its vendors, distributors and shippers and
consequently on the Company. Because the Company is able to order directly from
its major vendors and some independent distributors and have product
drop-shipped directly to stores, any failure of such vendors and distributors or
of shippers to institute or complete their own programs to address Year 2000
requirements could adversely impact the Company's distribution system. Failure
by the Company to complete implementation of the required changes to address
Year 2000 requirements prior to the Year 2000 might result in significant
difficulties in the Company's administration of corporate and inventory tracking
software systems. Failure by the Company's vendors and distributors, shippers
and other parties with which the Company does business to address Year 2000
requirements could significantly impact the ability of the Company to distribute
products for some period of time and otherwise disrupt the Company's business
operations. Such problems could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors--Year
2000 Compliance."
36
<PAGE>
BUSINESS
OVERVIEW
Founded in 1960, Tower is the second largest specialty retailer of recorded
music in the United States and is one of the largest and most widely-recognized
music retailers in the world. The Company operates a total of 182 stores
worldwide, consisting of 118 U.S. stores in 20 states and 64 international
stores in 11 countries. Management believes that Tower is one of the leading
music retailers in each of the U.S. major metropolitan areas in which it
operates (many of which are the fastest growing markets in the United States).
The Company offers a diversified line of music products including compact discs,
recorded audio cassettes, recorded video cassettes, laser discs, DVD and other
complementary products, including books, magazines, blank tapes, software
titles, and accessories. For the twelve month period ended January 31, 1998,
Tower's net revenues were $1.0 billion.
Tower attracts and retains customers who buy music on a year-round basis by
providing an extensive product selection in an interactive, entertaining
environment. Tower stores feature extended store hours, in-store listening
stations and knowledgeable and motivated sales personnel. These factors,
combined with the Company's competitive pricing, make Tower stores a preferred
shopping destination. Tower offers one of the broadest selections of recorded
music, including recent releases, older releases and various other music formats
primarily in stand-alone locations in densely populated urban and suburban
areas. Tower stores are typically larger and have lower fixed overhead costs,
including significantly lower rents, than comparable mall-based locations. Most
of the Company's domestic stores exceed 10,000 square feet and carry at least
50,000 music titles. Flagship stores, which are located in major metropolitan
areas such as Boston, Buenos Aires, Chicago, Glasgow, Hong Kong, Honolulu,
London, Los Angeles, New Orleans, New York, Osaka, Philadelphia, San Francisco,
Seattle, Singapore, Taipei, Tokyo, Toronto and Washington, D.C., typically
exceed 20,000 square feet and carry between 80,000 and 120,000 music titles. By
contrast, management believes that the U.S. industry average for mall-based
music retailers is approximately 5,000 to 10,000 music titles per store (focused
primarily on deeply discounted, high-volume products from the BILLBOARD Top 50).
In addition to the BILLBOARD Top 50, Tower offers competitive pricing on the
full range of its product offerings. Management believes that Tower's success in
attracting loyal customers increases store traffic and sales throughout the year
and has been a factor in making the Company less dependent upon the success of
new music releases and calendar fourth quarter sales than many of its U.S.
competitors.
Due to Tower's high sales volume and long-standing relationships with
vendors and music manufacturers, the Company receives substantial cooperative
advertising allowances, beneficial purchasing terms, short lead times on
inventory fulfillment, product return rights and drop shipments of orders
directly to its stores. Tower monitors the quantity and mix of inventory in each
of its stores through a central inventory management system. However, unlike
many of its competitors (who purchase and distribute from a central location),
Tower's store managers are given discretion in managing the level and mix of the
inventory in their stores in order to most effectively market to each store's
demographic customer base. The Company believes that this policy has been an
important factor in Tower's ability to maintain its product returns at levels
significantly below most of its competitors, thereby reducing restocking fees,
improving operating margins and sustaining favorable vendor relations.
In order to increase and diversify its revenue base, Tower became the first
U.S.-based music retailer to implement an international growth strategy. This
expansion, which commenced in 1979, initially focused on the Japanese market
(which is currently the world's second largest market for recorded music, with
net sales of approximately $6.8 billion in 1996) and enabled Tower to become a
market leader in Japan for recorded music. Tower implemented a similar expansion
strategy in the United Kingdom beginning in 1986. The Company currently has more
international locations than any other U.S.-based music retailer and, for the
1997 fiscal year, derived approximately 40% of its total net revenues from
international sales. Tower currently operates 41 stores in Japan; six in
England; three
37
<PAGE>
each in Hong Kong, Israel and Singapore; two each in Mexico and Taiwan; and one
each in Argentina, Canada, Ireland and Scotland. In addition, the Company has
entered into franchise agreements with local operators in Colombia, Malaysia,
South Korea and Thailand.
INDUSTRY
The worldwide market for recorded music has grown from approximately $29.4
billion in calendar 1992 to approximately $40.2 billion in calendar 1996. The
top five markets, North America, Western Europe, Japan, Latin America and Asia
(outside of Japan), individually accounted for approximately 32.9%, 32.8%,
17.0%, 6.2% and 5.6%, respectively, and collectively accounted for approximately
94.5%, of the global market in calendar 1996. Management believes that the
following factors are the primary drivers of growth in the industry globally:
(i) overall population growth in major markets, (ii) technological innovations
in the delivery of recorded music, (iii) continued compact disc format
penetration and (iv) the success of new music releases.
In the United States, there are four primary channels of recorded music
distribution: specialty music retail stores, discount and consumer electronics
stores, record clubs, and mail order and other channels, which accounted for
approximately 49.9%, 31.5%, 14.3% and 4.3% of unit shipments, respectively, in
calendar 1996. The U.S. market for recorded music has grown from approximately
$9.0 billion in calendar 1992 to approximately $12.2 billion in calendar 1997.
However, beginning in 1995, the volume of recorded music shipped to retailers
slowed and then declined by approximately 2.0% in 1997 primarily due to: (i)
overshipment of product by manufacturers in 1995 and 1996 to certain retailers,
(ii) store rationalization by certain mall-based and discount music retailers
following an aggressive overexpansion of music retail square footage from 1992
to 1994, (iii) a lack of new technological innovations influencing the delivery
of recorded music, (iv) continued maturation of the compact disc format, and (v)
disappointing new releases. Management believes that the market and the outlook
for music retailers improved in the United States starting in the second half of
calendar 1997, primarily due to a reduction in domestic music retail square
footage as certain electronics retailers reduced music store selling space and
narrowed their catalog selections in response to difficulties in successfully
implementing "loss leader" music retail sales strategies, continued store
consolidation of mall-based music retailers, the release of several successful
new titles and positive demographic trends. The Company believes that it is
well-situated in the industry because of its store base, merchandising strategy
and long-standing supplier relationships. See "Market and Industry Data."
OPERATIONS
Tower currently operates a total of 182 stores worldwide, consisting of 118
U.S. retail stores in 20 states and 64 international stores in 11 countries. The
Company's operating structure consists of (i) its U.S. stores and wholesaling
operations, (ii) its Asian stores and wholesaling operations, and (iii) its U.K.
and Ireland stores and wholesaling operations. The Company's operations are
directed by an Executive Committee comprised of eight executive officers. See
"Management."
UNITED STATES. The Company's U.S. operations currently consist of 118
retail stores. In the United States, Tower has organized its operations into 12
geographic regions, each headed by a regional manager who has responsibility for
sales and merchandising, day-to-day operations and administration. Tower's
corporate headquarters provides central support to each region, including
systems, distribution, accounting and national marketing programs. The corporate
headquarters also gives final approval for all new store sites and store design
and oversees quality standards and other critical elements of the Tower concept.
The Company believes that by organizing its operations in this manner, it can
more effectively manage its business, thereby enhancing its ability to achieve
its expansion plans without compromising operating standards.
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To pursue growth opportunities through new store formats and merchandising
strategies, Tower initiated an operating agreement with The Good Guys!, Inc.
("The Good Guys!"), a leading electronics retailer to open stores under the
"WOW!" name. The WOW! stores sell both recorded music and consumer electronics
equipment, offering the shopper both convenience and a broad product offering.
During calendar 1996, WOW! stores were opened in Las Vegas, Nevada and Long
Beach, California. Two additional WOW! stores are scheduled to open in Southern
California in calendar 1998. Under the WOW! store format, Tower and The Good
Guys! each manage, operate and lease from the landlord their respective sections
of the store.
ASIA. Tower's Asian operations consist of 41 stores in Japan, three in Hong
Kong, three in Singapore and two in Taiwan. All Asian store managers report to
the Director of Asian Operations located in Japan. A portion of the U.S.-sourced
product is shipped to the Asian stores through the Company's U.S. distribution
facilities. The balance of product is shipped through a variety of sources
worldwide.
UNITED KINGDOM AND IRELAND. The Company currently operates seven stores in
the United Kingdom and one store in Ireland. All store managers in the United
Kingdom and Ireland report to the Director of European Operations located in
London. A portion of U.S.-sourced product is shipped through the Company's U.S.
distribution operations. The balance of product is shipped through a variety of
sources worldwide.
JOINT VENTURES AND FRANCHISES
The Company has joint venture operations in Argentina, Israel and Mexico.
These arrangements enable Tower to enter into additional foreign markets and
obtain an improved understanding of local product demand and operating
procedures while benefiting from a sharing of capital commitments. Under joint
venture arrangements, Tower manages store operations, utilizing input from local
investors. Some product is sourced through Tower's distribution operations.
Joint venture operations are managed from Tower's corporate headquarters. The
Company anticipates that future expansion in most international markets will be
through wholly-owned subsidiaries or through franchises rather than joint
ventures.
The Company has entered into franchise agreements to operate stores in
Colombia, Malaysia, South Korea and Thailand. Additional franchised stores are
planned for other countries. The Company has focused its franchising operations
in developing markets where the operating environment makes direct operations
less desirable. Franchised stores are managed by the local operator with input
from the Company on store format and merchandising. The Company benefits from
these franchise agreements through the distribution of products as well as
through royalty income and trademark licensing fees.
STORE FORMAT AND LOCATIONS
Tower has differentiated itself from competing music retailers with its
strategic store locations, which generally feature a large, centrally-located
store in a densely populated urban area complemented by nearby urban and
suburban stand-alone stores. Tower's flagship stores in major markets typically
exceed 20,000 square feet, with the majority of all stores exceeding 10,000
square feet. Newer stores range from 15,000 to 25,000 square feet, depending on
the market and location. The Company's larger, stand-alone locations provide it
with various operating efficiencies, including lower rent expenses and lower per
unit costs than comparable mall-based retailers. The Company's large base of
high-volume, stand-alone stores enables it to receive drop-shipments of product
directly to store locations (thereby reducing the costs associated with
warehousing and distribution). Management believes that its portfolio of
strategically located stores would be difficult to replicate.
The Company believes that the selection of locations for its stores is
critical to the success of its operations. The site-selection process consists
of an in-depth analysis of regional demographics,
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<PAGE>
consumer purchasing habits and traffic within a specific area. Senior management
is actively involved in this process and grants all final site approval,
evidencing the Company's commitment to continued growth and its focus on
successful, long-lasting locations. Over Tower's 38-year operating history, the
Company has closed only eight stores.
Tower management has consistently identified and developed locations and
markets in the United States and internationally that have generated significant
sales growth and profitability. The Company has taken a disciplined approach to
new store growth, expanding from 135 stores worldwide in the fiscal year ended
July 31, 1992 to 182 stores worldwide as of January 31, 1998. During the
two-year period ended July 31, 1997, the Company opened two stores in the United
States and 23 stores internationally (including 17 in Japan), while closing or
combining four existing outlets. The Company plans to continue to leverage its
strong brand name and proven store format in new and existing markets in
locations that meet the Company's demographic and performance criteria.
PRODUCTS
The Company offers a diverse line of products including compact discs,
recorded audio cassettes, recorded video cassettes, laser discs, DVD and other
complementary products, including books, magazines, blank tapes, software
titles, and accessories.
RECORDED MUSIC. The Company's primary source of revenue is the sale of
recorded music on compact discs and audio cassettes. For the 1997 fiscal year,
recorded music sales accounted for approximately 90% of Tower's worldwide net
revenues. The Company's stores carry a wide selection of compact discs and audio
cassettes purchased from all major and most independent recording companies,
which, except for new releases and special promotions, are arranged in the
stores by genre and alphabetically by artist or group. Tower differentiates
itself from its competitors through the breadth and depth of its product
selection. Tower's strategy is to offer the broadest selection of recorded music
for its customers, including recent BILLBOARD Top 50 releases as well as a
comprehensive variety of older releases and diverse music formats. Most of the
Company's stores carry at least 50,000 music titles, while flagship stores
located in major markets, such as Boston, Buenos Aires, Chicago, Glasgow, Hong
Kong, Honolulu, London, Los Angeles, New Orleans, New York, Osaka, Philadelphia,
San Francisco, Seattle, Singapore, Taipei, Tokyo, Toronto and Washington, D.C.,
usually carry between 80,000 and 120,000 music titles. By contrast, management
believes that the U.S. industry average for mall-based music retailers is
approximately 5,000 to 10,000 music titles per store (focused primarily on
deeply discounted, high-volume products from the BILLBOARD Top 50).
VIDEO PRODUCTS. In addition to recorded music, the majority of Tower stores
sell videocassette, laser disc and DVD products. Selected stores also offer
video rentals. These video products generally command larger gross margins than
the Company's recorded music products. In late 1996, DVD was introduced as an
alternative medium that could eventually replace the laser disc. DVD offers the
consumer laser technology in a smaller disc format with superior picture quality
and audio fidelity. The Company anticipates that in the next few years, sales of
DVD players will begin to replace sales of laser disc players and video cassette
recorders as the new technology becomes more widely available. The Company
believes that it is well-positioned to capitalize on the growing DVD market and
is considered an industry leader in sales of this format.
COMPLEMENTARY PRODUCTS. To complement music buyers' interests, Tower stores
also sell books, magazines, blank tapes, software titles, and accessories. As of
January 31, 1998, the Company operated 13 stand-alone book stores. These
complementary products generally command larger gross margins than the Company's
recorded music products.
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MARKETING, ADVERTISING AND PROMOTION
Tower aggressively markets, advertises and promotes its products and its
brand image to generate customer awareness of its extensive selection of music
titles, knowledgeable customer service and interactive and entertaining store
environments. Tower advertises in a variety of national and local print and
broadcast media, including television, magazines, newspapers and billboards.
Tower targets a wide range of customers, from teenagers to senior citizens, who
purchase music on a year-round basis. The Company believes that its clustering
of stores in strategic markets allows it to maximize its use of marketing,
advertising and promotional U.S. dollars. In addition, Tower attracts large
corporate sponsors such as American Express, IBM and MasterCard for promotions
and events. Tower also produces several music publications under the names PULSE
(U.S.), BOUNCE (Japan), TOP (U.K.), PULSE LATINO (Latin America) and PASS
(Taiwan) with a combined annual circulation of approximately 625,000. Tower
maintains a reputation for unique marketing through in-store appearances and
live performances by recording artists, campaigns and promotions with suppliers
and other third parties, book signings, tie-ins with local music events (e.g.,
Nashville's Fan Fair and the Monterey Jazz Festival) as well as involvement in
national music events, such as sponsorship of the 1998 Lilith Tour.
Tower believes that its strong focus on localized marketing provides it with
a significant advantage over many of its competitors. The Company's localized
marketing approach includes local promotions of concerts and in-store
appearances by musicians, as well as providing Tower store managers discretion
(subject to parameters set by the Company's regional and national product
managers) to customize product inventory in their stores to the demographics and
buying patterns of their local market. Depending on local demographics,
merchandise mix and promotions can be shifted toward certain music genres. For
example, in New York City, Tower's Lincoln Center store places a greater
emphasis on its classical music selection than the downtown store, which
emphasizes the latest trends in rock music.
As one of the nation's largest music retailers and due to the diversity and
depth of its music selection, the Company has developed strong supplier
relationships. As a result, the Company receives substantial cooperative
advertising allowances, beneficial purchasing terms, short lead times on
inventory fulfillment, product return rights (subject to certain terms and
restocking fees), and drop shipments of orders directly to its stores, all of
which have contributed to Tower's historically favorable operating margins.
Cooperative advertising funds are provided to promote recorded music products of
a specific genre or on a label-wide basis. Tower advertises jointly with
recording companies worldwide in local and national media markets and receives
substantial financial support from them. Cooperative advertising offsets a
significant portion of the Company's advertising expenses.
The Company has also introduced an affinity MasterCard credit card which
capitalizes on the Tower brand name and enables the Company to track purchasing
patterns by cardholding customers.
SUPPLIERS
RECORDED MUSIC. The majority of Tower's music purchases come from six major
suppliers with which Tower has developed long-standing relationships. As a
result of these relationships and Tower's high sales volume, the Company
receives substantial cooperative advertising allowances, beneficial purchasing
terms, short lead times on inventory fulfillment, competitive pricing programs
and drop shipments of orders directly to its stores. In addition, the Company
purchases product from numerous independent distributors and labels. Unsold
music product may be returned to the manufacturer at any time that the title
remains in the current music catalog of a manufacturer; however, restocking fees
are assessed for returned product. Catalog changes are generally made only after
advance notice, allowing the Company to return excess inventory before a title
is discontinued. None of the Company's major suppliers limits returns of
inventory. The Company believes its product returns have historically been
substantially below the levels of most of its competitors.
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COMPLEMENTARY PRODUCTS. Book and magazine purchases require coordination
with a greater number of vendors than music purchases. Returned books and
magazines are not subject to restocking charges. Although management believes
that its current book and magazine purchasing procedures are efficient, it is
considering various alternatives that would allow Tower stores to order directly
from publishers and shorten delivery time.
Pre-recorded video cassettes, DVD products, laser discs and software titles
are purchased from a limited number of vendors for shipment through the
Company's U.S. distribution operations, or are drop-shipped directly to stores.
Unsold video products and software titles may be returned to distributors for
full refunds.
PURCHASING, INVENTORY MANAGEMENT AND DISTRIBUTION
The Company believes that it has developed state-of-the-art inventory
purchasing, management and distribution systems.
Unlike most of its competitors, Tower's purchasing is partly decentralized.
Tower store managers are given discretion to manage the levels and mix of
merchandise in their stores. These managers work closely with regional and
national product managers to customize product inventory in their stores to the
demographics and buying patterns of their local markets. The Company believes
that the skill of its store managers in merchandising to local tastes is an
important factor in Tower maintaining its historical product return levels
significantly below that of most of its competitors, thereby reducing restocking
fees and improving margins and maintaining favorable vendor relations.
The Company's ISP system enables management to monitor up-to-the-moment
levels and mix of its inventory in each of its stores. The ISP system provides
instantaneous on-line information regarding quantities on hand, turns at the
store level and on a combined basis, historical movement reports by SKU, pricing
and cost data and customer service information. The ISP system also identifies
slow-moving and deleted titles and overstocked items, and provides suggested
replenishment information to store buyers. By utilizing the ISP system, store
managers are able to pre-set and adjust quantities on hand and establish
"just-in-time" reorder points. This system enables the store managers to carry
appropriate levels of deep-catalog product and to maintain sufficient inventory
levels for fast-moving product.
The Company's U.S. distribution operations distribute products that are not
drop-shipped to Tower stores, and distribute a portion of the product to the
Company's international subsidiaries, joint ventures and franchisees. The
Company also wholesales products, particularly independent label recorded music,
to other retailers in both the U.S. and international markets. In addition, the
Company has established export wholesaling branches in Japan and the United
Kingdom. This enables the Company to export international catalog product to
music retailers, taking advantage of the economies of scale, while providing
prompt delivery.
The Company also sells recorded music both via mail order and over the
Internet. The Company maintains a website at HTTP:/ /WWW.TOWERRECORDS.COM and an
online store on America Online at keyword "TOWER." Mail order and Internet sales
are fulfilled through the Company's U.S. distribution facility allowing
overnight delivery to customers in many cases.
COMPETITION
The retail music industry is highly competitive. In the United States there
are four primary channels of recorded music distribution: specialty music retail
stores, discount and consumer electronics stores, record clubs, and mail order
and other channels, which accounted for approximately 49.9%, 31.5%, 14.3% and
4.3% of unit shipments, respectively, in calendar 1996. The Company competes
with a wide variety of music retailers, including regional and national
mall-based music chains, international chains,
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deep-discount retailers, mass merchandisers, consumer electronics outlets,
record clubs, mail order, and independent operators. The Company believes the
principal competitive factors in the retail music industry are brand name
recognition, selection, pricing, inventory management, marketing, store location
and management expertise. The Company believes that it competes favorably with
respect to each of these factors.
MAJOR INTERNATIONAL CHAINS. In certain of its major, metropolitan markets,
the Company competes directly with HMV and Virgin-large, international music
retailers-that, like the Company, emphasize a broad selection of titles.
Management believes that HMV and Virgin tend to cater to a sophisticated and
less price-sensitive customer base; Tower's customer base includes not only such
customers but also extends to a much broader demographic. Further, management
believes that Tower's approach to localized marketing, advertising and
merchandising, coupled with its more competitive pricing, differentiates Tower
from HMV and Virgin. In 1997, HMV had 15 stores in the United States, primarily
on the East Coast, while Virgin had 11 stores in the United States, located
primarily in tourist destinations. HMV and Virgin also had 20 and eight stores,
respectively, in Japan, and 105 and 38 stores, respectively, in the United
Kingdom, the other major markets in which the Company competes. HMV and Virgin
are expected to open additional stores, some of which may be in locations that
would compete directly with Tower.
MALL-BASED MUSIC RETAILERS. The Company also competes with various
mall-based music retailers such as Musicland, Transworld Entertainment,
Wherehouse Entertainment and Camelot. These competitors tend to occupy mall
locations and, in the Company's judgment, often face significant competitive
disadvantages, such as reduced inventory selection due to size constraints on
mall retail space, larger overhead costs generated by higher rent and occupancy
costs, higher per unit costs, higher costs associated with warehousing and
distribution, and lack of an international infrastructure and savvy brand-name
identity. In recent years, many of the mall-based music retailers whose revenues
are heavily dependent upon BILLBOARD Top 50 sales have had difficulty competing
effectively with the selling tactics of the large discounters, and have been
closing unprofitable stores in an attempt to minimize operating losses. Several
mall-based music retailers, including Camelot Music, Peppermint, Record Giant,
Peaches Entertainment, Strawberries and Wherehouse Entertainment, have filed for
bankruptcy.
DISCOUNTERS AND CONSUMER ELECTRONICS STORES. Specialty music retailers have
experienced increased competition from the entrance into the retail music
industry of large discounters and consumer electronics stores such as Wal-Mart,
Kmart, Target, Circuit City, Best Buy, Barnes and Noble and Borders. The market
share of specialty music retailers dropped from 70% in 1990 to 50% in 1996 while
the market share of the large discounters and consumer electronics stores
increased over the same period. These large discounters and consumer electronics
stores typically feature BILLBOARD Top 50 recordings with minimal or no gross
margin with the intent of generating additional store traffic and cross-selling
other, higher margin products, such as consumer electronics. Tower believes that
its operations have been less adversely affected than mall-based music retailers
by the selling tactics of the large discounters and consumer electronics stores
because of its emphasis on deep-catalog merchandising.
OTHER. The Company expects continued growth in competing home entertainment
options, including the Internet and larger numbers of television and music
channels offered by cable companies. The further development of Internet and
cable technologies, coupled with high quality digital recording technologies,
could enable direct downloading of recorded music by consumers, which could
result in significant changes in existing distribution channels for prerecorded
music. Such a development could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Risk
Factors--Trends Affecting the Music Industry."
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TRADEMARKS
Tower regards its trademarks and service marks as having significant
worldwide value and as being important to its marketing efforts and brand name
recognition. Tower has registered its TOWER RECORDS-VIDEO-BOOKS trademark and
variations thereof, along with numerous other trademarks, with the United States
Patent and Trademark Office on the Principal Register. The Company has
applications pending for a number of additional marks. The Company also has
registered its TOWER trademark, or variations thereof, in numerous foreign
countries. The Company's policy is to pursue the registration of its marks
whenever possible and to vigorously oppose any infringement of its trademarks
and trade names.
PROPERTIES
The Company's headquarters are located in approximately 90,000 square feet
of leased facilities in West Sacramento, California. These facilities house the
Company's management, marketing and sales personnel. The lease for these
facilities terminates on April 30, 1999. The Company believes that there is
sufficient office space available at favorable leasing terms in the Sacramento
area to satisfy any additional needs of the Company that may result from future
expansion.
As of January 31, 1998, Tower's total leased space consisted of
approximately 2.1 million square feet of space worldwide. As of January 31,
1998, the Company was a party to approximately 200 real estate leases and
subleases, relating to nearly all of its store locations as well as its
administrative and warehouse facilities. Substantially all of these are recorded
as operating leases. The leases expire between 1998 and 2024, with renewal
options varying between one and 20 years. Lease terms typically provide a
minimum payment plus modifications for changes in the consumer price index
and/or other specified increases. Most of the U.S. stores operate as stand-alone
locations.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 6,800 persons,
of whom approximately 965 were employed on a part-time basis. None of the
Company's employees is covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
The Company has received a document request in connection with an
investigation by the Federal Trade Commission into certain trade practices by
major recording companies involving the implementation of minimum advertised
price ("MAP") programs in response to the deep discounting tactics of large
discounters and consumer electronic stores and the threat of withdrawal of
cooperative advertising and promotional funds for retailers which fail to
observe the MAP guidelines. The Company does not believe it is a target of the
inquiry. The Company does not expect the outcome of this investigation to have a
material effect on its business, financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE POSITION TOWER
- ---------------------------- --- ---------------------------------------------------------------- ---------------
<S> <C> <C> <C>
Russell M. Solomon.......... 72 President, Chief Executive Officer and Director 38
Michael T. Solomon.......... 49 Executive Vice President, General Counsel and Director 11
DeVaughn D. Searson......... 53 Chief Financial Officer, Secretary, Treasurer and Director 10
Stanley L. Goman............ 49 Senior Vice President--Retail Operations 30
Christopher S. Hopson....... 45 Senior Vice President--Advertising/Marketing 28
Keith Cahoon................ 42 Managing Director--Far East Operations 19
Andy D. Lown................ 32 Managing Director--European Operations 12
</TABLE>
The Company's operations are directed by an Executive Committee comprised of
the following listed officers:
RUSSELL M. SOLOMON has served as President, Chief Executive Officer and a
Director of the Company since the Company's founding in 1960, and is a member of
the Company's Executive Committee. Mr. Solomon has served as President of the
National Association of Recording Merchandisers ("NARM") and as a Board member
of the Video Software Dealers Association. Mr. Solomon is also a member of the
Board of Directors of The Good Guys!. Mr. Solomon is the father of Michael T.
Solomon.
MICHAEL T. SOLOMON has served as a Director of the Company since 1982, as
Vice President and General Counsel of the Company since 1987 and as Executive
Vice President since May 1998, and is a member of the Company's Executive
Committee. Mr. Solomon has served on several NARM subcommittees and is a member
of the California Bar Association. Mr. Solomon is the son of Russell M. Solomon.
DEVAUGHN D. SEARSON has served as Chief Financial Officer of the Company
since 1988 and is a member of the Company's Executive Committee. Mr. Searson has
also served as a Director of the Company since May 1998. Prior to joining the
Company, Mr. Searson was President and Managing Partner of Searson & Company,
CPAs, the Company's outside accounting firm at the time, and served as the
Company's outside accountant for 11 years. Mr. Searson is a certified public
accountant.
STANLEY L. GOMAN has been an employee of the Company since 1967 and
currently serves as Senior Vice President-Retail Operations. Mr. Goman is a
member of the Company's Executive Committee. Mr. Goman presently serves as
Treasurer of NARM, and has also served as Chairman of the NARM Retail Advisory
Committee.
CHRISTOPHER S. HOPSON has been an employee of the Company since 1970 and has
served as Senior Vice President-Advertising/Marketing since 1989. Mr. Hopson is
a member of the Company's Executive Committee.
KEITH CAHOON has served as Managing Director of the Company's Far East
Operations since 1984. Mr. Cahoon is a member of the Company's Executive
Committee.
ANDY D. LOWN has been an employee of the Company since 1986 and currently
serves as Managing Director of the Company's European and Middle East
operations. Mr. Lown is a member of the Company's Executive Committee. Mr. Lown
also serves on the Executive Committee, Operations Committee and Supervisory
Committee of the British Association of Record Dealers and on the Board of the
British Photographic Association.
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The Company's directors are all employees of the Company and do not receive
separate compensation for their services as directors. Each director has been
elected to serve until his successor has been elected and qualified at the next
annual meeting of the shareholders of the Company.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLES
The following table shows the total compensation of (i) the Chief Executive
Officer and (ii) the next four highest-earning executive officers of the Company
for the year ended December 31, 1997, based on combined salary plus bonuses (the
Chief Executive Officer and such executive officers are hereinafter referred to
as the "MTS Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)(A)
- ---------------------------------------------- --------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Russell M. Solomon............................ 1997 $ 630,180 $ 300,000 -- $ 6,259
President and Chief Executive Officer
Walter S. Martin.............................. 1997 531,300 300,000 -- 6,259
Executive Vice President and
Secretary/Treasurer
Michael T. Solomon............................ 1997 334,972 86,000 -- 6,259
Vice President and General Counsel
Stanley L. Goman.............................. 1997 197,200 91,000 -- 6,259
Senior Vice President--Retail Operations
Keith Cahoon.................................. 1997 173,467(b) -- $ 184,714(b) 6,259
Managing Director--Far East Operations
</TABLE>
- ------------------------
(a) Represents Company contributions to the Company's retirement plan on behalf
of the MTS Named Executive Officers.
(b) Calculated at an exchange rate of 120 Japanese yen per U.S. dollar.
EMPLOYMENT AGREEMENTS
The Company does not currently have employment agreements with any of its
employees.
ADDITIONAL AGREEMENTS, ARRANGEMENTS AND UNDERSTANDINGS
The Company's Articles of Incorporation contain provisions that eliminate
the personal liability of its directors for monetary damages to the fullest
extent permitted by law and authorize the Company to indemnify its directors and
officers to the fullest extent permitted by law. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission.
The Company has entered into indemnification agreements with its officers
and directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in the California Corporations
Code, including advancement of expenses to the indemnitee, the indemnitee's
right to select counsel and continuation of indemnification after indemnitee's
separation from the Company. The indemnification agreements may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities arising from willful misconduct of a culpable nature and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
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OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of the date of this Prospectus by: (i) each person
who is known by the Company to own beneficially more than five percent of the
Company's Common Stock, (ii) each of the Company's directors, (iii) MTS Named
Executive Officers, and (iv) all directors and MTS Named Executive Officers as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Company's Common Stock listed below have sole investment and
voting power with respect to such shares, subject to community property laws.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(A) OWNERSHIP(B)(C) OWNERSHIP
- ------------------------------------------------------------------------------------ ----------------- -------------
<S> <C> <C>
Russell M. Solomon(d)............................................................... 620 62.0%
Walter S. Martin.................................................................... -- --
Michael T. Solomon(e)............................................................... 372 37.2
Stanley L. Goman.................................................................... -- --
Keith Cahoon........................................................................ -- --
All executive officers and directors as a group (8 persons)......................... 992 99.2%
</TABLE>
- ------------------------
(a) The address of each named individual is the address of the principal
executive office of the Company as set forth herein.
(b) The numbers presented indicate the number of shares beneficially owned.
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days are deemed to be beneficially
owned by the person holding such option or warrant for computing the
percentage ownership of such person, but are not treated as outstanding for
computing the percentage of any other person. As of the date hereof, the
Company had no such options or warrants outstanding.
(c) Such share amounts solely reflect indirect ownership of the Class B Common
Stock of the Company, the only outstanding class of capital stock of the
Company. There are 1,000 shares of Class B Common Stock of the Company
outstanding, all of which are owned by Parent, and Russell Solomon
beneficially owns 620 shares, or 62.0%, and Michael Solomon beneficially
owns 372 shares, or 37.2%, of the outstanding Common Stock of Parent.
(d) Russell Solomon has sole voting and investment power with respect to such
shares as Trustee of the Russell Solomon Trust.
(e) Michael Solomon has sole voting and investment power with respect to 364 of
such shares as Trustee of the Michael Solomon 1994 Trust (the "Michael
Solomon Trust"), the David Solomon 1994 Trust (the "David Solomon Trust"),
the Andrew C. Solomon Trust, and the Aaron O. Solomon Trust, which own 180,
180, 2 and 2 of such shares, respectively. Michael Solomon is also the
beneficiary of the Michael Solomon Trust.
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CERTAIN TRANSACTIONS
PRIOR TRANSFER OF CERTAIN ASSETS TO TRUSTS
In July 1994, MTS transferred the assets of its U.S. wholesale and
distribution operations to Three A's Holdings, L.L.C., a Delaware limited
liability company ("Three A's"), which was at such time owned equally by the
Michael Solomon Trust and the David Solomon Trust (the "Trusts"), in exchange
for cash in the amount of approximately $280,000 and the assumption of certain
liabilities in the amount of approximately $3.8 million. Along with the purchase
of the distribution operations, the Trusts concurrently purchased certain
trademark and related rights to use the TOWER trademark in Japan (the "Japanese
Trademark Rights") from the Company for cash in the amount of $500,000 and a
promissory note in the amount of $11.5 million.
The $11.5 million promissory note from the Trusts to the Company bore
interest at a rate of 8.5% per annum. The largest aggregate amount of
indebtedness outstanding on such loan at any time since July 31, 1996 and the
amount outstanding on such loan as of April 20, 1998, was $9.5 million. Michael
Solomon is the trustee of both Trusts, and is the beneficiary of the Michael
Solomon Trust. As a result of the Reorganization, such promissory note was
cancelled and is no longer outstanding.
THE REORGANIZATION
The Company recently reorganized its corporate structure to consolidate
substantially all of its business operations in the Company.
In March 1998, Russell M. Solomon and the Trusts caused Parent to be formed.
In April 1998, Parent issued shares of its Common Stock to the following persons
in the following final proportions: 62.4% to the Russell Solomon Trust and
certain trusts for the benefit of his grandchildren; 0.8% to Michael Solomon;
0.8% to David Solomon; 18.0% to the Michael Solomon Trust; and 18.0% to the
David Solomon Trust. In exchange for such shares of Common Stock, Parent
received the following assets: (i) from the Russell Solomon Trust and certain
trusts for the benefit of his grandchildren, 100% of the outstanding shares of
the Company; (ii) from Michael Solomon and David Solomon, the outstanding shares
of a corporation holding certain real estate on which a store facility is
located in San Francisco, California, and the outstanding shares of a
corporation holding certain real estate on which a store parking lot is located
in Los Angeles, California; (iii) from the Trusts, the following assets and
liabilities: (a) the Japanese Trademark Rights (including the rights to certain
unpaid royalties), (b) certain intercompany receivables owed to the Trusts in
the amount of $3.5 million and intercompany payables owed by the Trusts in the
amount of $14.2 million, (c) all of the equity interests in Three A's, Jeremy's
Holdings, LLC, a Delaware limited liability company, and Tower Domestic, Inc.,
which owns one Tower store, (d) the cash surrender value rights as of April 1998
of certain life insurance policies, and (e) a loan liability of $5.0 million
which constitutes part of the Existing Indebtedness. Parent subsequently
contributed to the Company all of the assets and liabilities received by Parent
from the Trusts, Michael Solomon and David Solomon.
OTHER TRANSACTIONS
Prior to the consummation of the transactions constituting the
Reorganization set forth in the previous paragraph, the Company transferred
certain assets valued at approximately $2.9 million to the Trusts in exchange
for inventory with an equal value. The purchase price of these assets sold from
the Company to the Trusts was determined based upon independent appraisals or
estimates of the fair market value that the Company believes to be reasonable.
The Company currently anticipates that it will conduct an upstream merger to
eliminate its wholly-owned subsidiary, T.R. Services, Inc., a California
corporation which operates the Company's stores in the United Kingdom and wholly
owns a subsidiary which operates the Company's stores in Ireland.
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The Company operated four stores through four separate subsidiaries in which
there existed minority interests. The Company recently bought out the minority
interests in each of these subsidiaries at fair market value, and each such
subsidiary was subsequently eliminated in an upstream merger.
The Company also conducted upstream mergers to eliminate Tower Domestic,
Inc. and Queen Anne Record Sales, subsidiaries of the Company.
LIFE INSURANCE
The Company maintains split-value life insurance policies on the lives of
Russell M. Solomon and Doris E. Solomon for the benefit of certain family
trusts. The aggregate annual premiums on such policies paid by the Company are
approximately $3.6 million. The Company will receive the first proceeds of the
policies up to the aggregate premiums paid by the Company, except for one group
of policies, as to which the Company will receive the first proceeds of the
policies up to the aggregate premiums paid by the Company plus the cash
surrender value of the policies at April 1998. In addition, the Company
maintains key-man life insurance policies on the lives of certain executive
officers of the Company. Aggregate annual premiums on such policies are
approximately $0.3 million. The Company is the beneficiary of the key-man
policies.
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DESCRIPTION OF NEW CREDIT FACILITY
In connection with the Refinancing, the Company entered into a credit
agreement (the "Credit Agreement") with a syndicate of financial institutions
(the "Lenders") for which The Chase Manhattan Bank acts as administrative agent
(the "Administrative Agent") and Chase Securities Inc. acted as advisor and
arranger.
GENERAL. The New Credit Facility, which provides borrowing availability up
to a maximum aggregate principal amount of $275,000,000, consists of (i) a U.S.
dollar-based Facility A Revolving Line in the principal amount of up to
$125,000,000 (the "Facility A Commitment"), and (ii) a Japanese yen-based
Facility B Revolving Line in the principal amount of up to the equivalent in yen
(the "Yen Equivalent") on a date to be selected prior to the initial funding
date of $150,000,000, based on then-prevailing U.S. dollar-yen exchange rate
(the "Facility B Commitment").
A portion of the Facility A Commitment may be borrowed in British pounds
sterling ("Sterling"), such that the aggregate equivalent in U.S. dollars (the
"Dollar Equivalent") of all loans under the Facility A Revolving Line (the
"Facility A Loans") does not exceed U.S. $125,000,000. A portion of the Facility
B Commitment may be borrowed in U.S. dollars, such that the aggregate Yen
Equivalent of all loans under the Facility B Revolving Line (the "Facility B
Loans") does not exceed the Yen Equivalent of the Facility B Commitment. The
Dollar Equivalent of yen- and Sterling-denominated Facility A Loans, and the Yen
Equivalent of U.S. dollar-denominated Facility B Loans, will be calculated from
time to time, based on prevailing foreign exchange rates as of the end of each
calendar quarter, or more frequently, under certain circumstances. Prevailing
foreign exchange rates on any date will be determined with reference to the then
most recent fixing of exchange rates by (i) the Federal Reserve Bank of New
York, in the case of U.S. dollars, (ii) the Bank of Tokyo, in the case of yen,
and (iii) the Bank of England, in the case of Sterling.
Each of the Facility A Revolving Line and the Facility B Revolving Line will
be available to the Company and TRKK (collectively, the "Borrowers" and
individually, a "Borrower"). The Company may borrow up to the full principal
amount of the Credit Facilities. TRKK may borrow up to the full principal amount
of the Facility B Revolving Line and up to an aggregate of the Dollar Equivalent
of $25,000,000 under the Facility A Revolving Line.
INTEREST RATES; FEES. Interest on loans outstanding under the Credit
Facilities will accrue based on one or more rates selected by the applicable
Borrower, including (i) the alternate base rate (the "Alternate Base Rate") for
U.S. dollar-denominated loans, (ii) the money market rate (the "Money Market
Rate") for U.S. dollar-denominated loans, (iii) the yen base rate (the "Yen Base
Rate") for yen-denominated loans, (iv) a eurocurrency rate (the "LIBO Rate") for
U.S. dollar- or Sterling-denominated loans or a yen-based eurocurrency rate (the
"TIBO Rate") for yen-denominated loans, in each case plus an applicable margin
(the "Applicable Margin"), and (v) Sterling-denominated interest rate to be
agreed upon at the time the loan is made ("Special Sterling Rate") on
Sterling-denominated loans. The Alternate Base Rate is defined as, on any date,
the greatest of (x) the prime commercial lending rate of The Chase Manhattan
Bank, (y) the secondary market rate for certificates of deposit, adjusted for
reserves and assessments, plus 1%, and (z) the federal funds rate published from
time to time by the Federal Reserve Bank of New York, plus 1/2%. The Money
Market Rate is defined as the rate quoted from time to time by the
Administrative Agent and certain other Lenders designated as "Reference Banks"
for loans in U.S. dollars of a comparable principal amount and maturity. The Yen
Base Rate is the prime rate publicly announced from time to time in Tokyo, Japan
by the Facility B Swingline Lender. The LIBO Rate is defined as the rate for
eurocurrency deposits of U.S. dollars or Sterling, as applicable, for one, two,
three or six months, displayed on page 3740 or 3750 of Dow Jones Markets two
business days prior to the date the loan is to be made (or, if such rate is not
available, the rate at which such deposits are offered to the Administrative
Agent in the applicable interbank market). The TIBO Rate is defined as the rate
for eurocurrency deposits of yen for one, two, three or six months, displayed on
Reuters Screen Page TIBM
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for the average of five banks two business days prior to the date the loan is to
be made (or, if such rate is not available, the rate at which such deposits are
offered by the Facility B Swingline Lender in the Tokyo interbank market). The
Applicable Margin over the LIBO Rate and TIBO Rate will be based upon the ratio
of (x) earnings before interest expense, taxes, depreciation, amortization and
rental expense, to (y) the sum of interest expense plus rental expense plus cash
dividends paid with respect to preferred stock plus the current portion of
indebtedness for the Borrowers and their subsidiaries (the "Fixed Charge
Coverage Ratio"), and will range from 0.40% to 0.90% per annum. The initial
Applicable Margin is 0.60% per annum.
The Company will be charged a facility fee per annum on the average daily
amount of the Facility A Commitment and the Facility B Commitment, regardless of
whether such Commitments are used or unused. The amount of the facility fee will
be tied to the Fixed Charge Coverage Ratio, and will range from 0.225% to 0.35%
per annum. The initial facility fee is 0.275% per annum.
REPAYMENT. Loans under the Credit Facilities may be borrowed, repaid and
reborrowed from time to time until the third anniversary of the closing of the
Credit Agreement (the "Credit Facilities Maturity Date"), subject to certain
customary conditions on the date of any such loan. The Company may request an
extension of Credit Facilities Maturity Date prior to either or both of the
first and second anniversaries of the closing of the Credit Agreement (but in no
event beyond the fifth anniversary of the closing of the Credit Agreement).
Either or both of the Facility A Revolving Line or the Facility B Revolving Line
may be extended by the Company for a one year period if, and to the extent that,
Lenders holding at least 51% of the Facility A Commitment and/or the Facility B
Commitment, as applicable, approve such extension.
SECURITY. The obligations under the New Credit Facility and the related
documents are expected to be secured by (i) a first priority lien on the
inventory and accounts receivable of MTS, Three A's and certain other material
subsidiaries, and (ii) a pledge of 65% of the capital stock of each material
foreign subsidiary of MTS. In addition, the obligations of TRKK and each other
material foreign subsidiary under the New Credit Facility and the related
documents are expected to be secured by a first priority lien on the inventory
and receivables of TRKK and each other material foreign subsidiary. At such time
as (x) no default shall have occurred and be continuing under the New Credit
Facility and related documents, and (y) MTS shall have outstanding any senior
unsecured non-credit enhanced long-term indebtedness for borrowed money that
shall be rated BBB- or better by Standard & Poor's Rating Group and Baa3 or
better by Moody's Investors Service, Inc., such liens shall be released (the
"Collateral Release").
GUARANTEES. The obligations of TRKK under the New Credit Facility and the
related documents are expected to be guaranteed by MTS, Three A's and certain
other material subsidiaries.
PREPAYMENTS. The Borrowers may make prepayments on loans under the New
Credit Facility at any time, upon prior notice to the Administrative Agent. The
Company will be required to make prepayments on loans under the New Credit
Facility if and to the extent that, as of the end of any calendar quarter (or
more frequently, under certain circumstances), giving effect to prevailing
foreign exchange rates on such date, the Dollar Equivalent of outstanding
Facility A Loans is more than 105% of the Facility A Commitment, or the Yen
Equivalent of outstanding Facility B Loans is more than 105% of the Facility B
Commitment.
CONDITIONS AND COVENANTS. The obligations of the Lenders under the New
Credit Facility are subject to the satisfaction of certain conditions precedent
customary in similar credit facilities or otherwise appropriate under the
circumstances. MTS and its subsidiaries are subject to certain negative
covenants contained in the Credit Agreement, including without limitation
covenants that restrict, subject to specified exceptions, (i) the incurrence of
additional indebtedness and other obligations and the granting of additional
liens, (ii) mergers, acquisitions, investments and acquisitions and dispositions
of assets, (iii) investments, loans and advances, (iv) dividends, stock
repurchases and redemptions, (v) prepayment or repurchase of other indebtedness
and amendments to certain agreements governing
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indebtedness, including the Indenture and the Notes, (vi) engaging in
transactions with affiliates or subsidiaries, (vii) capital expenditures, and
(viii) sale and leaseback transactions. The Credit Agreement also contains
customary affirmative covenants, including compliance with ERISA and
environmental and other laws, payment of taxes, maintenance of corporate
existence and rights, maintenance of insurance, financial reporting, and use of
proceeds of loans. In addition, the Credit Agreement requires MTS and its
subsidiaries to maintain compliance with certain specified financial covenants,
including maximum capital expenditures, a minimum fixed charge coverage ratio
and a minimum tangible net worth. In addition, so long as the Collateral Release
shall not have occurred, the Borrowers and their subsidiaries will be required
to maintain a minimum ratio of (x) inventory and receivables with respect to
which the Lenders have a first priority lien (less reserves maintained in
accordance with GAAP (as defined)), to (y) aggregate indebtedness under the New
Credit Facility, less cash and cash equivalents (the "Balance Sheet Coverage
Ratio") of 1.25 to 1.00. Following the Collateral Release, the Balance Sheet
Coverage Ratio will no longer apply, but the Borrowers and their subsidiaries
will be required to maintain a maximum ratio of Senior Indebtedness (as defined
in the Credit Agreement) to earnings before interest expense, taxes,
depreciation and amortization. Certain of these financial, negative and
affirmative covenants are more restrictive than those set forth in the
Indenture.
EVENTS OF DEFAULT. The Credit Agreement also includes events of default
that are typical for senior credit facilities and appropriate in the context of
the Refinancing, including, without limitation, non-payment of principal,
interest or fees, violation of covenants, inaccuracy of representations and
warranties in any material respect, cross default to certain other indebtedness
and agreements, bankruptcy and insolvency events, material judgments and
liabilities, defaults or judgments under ERISA and change of control. The
occurrence of any of such events of default could result in acceleration of the
Borrowers' obligations under the Credit Agreement and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the Notes.
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DESCRIPTION OF THE NOTES
The Existing Notes were, and the New Notes will be, issued under the
Indenture, dated as of April 23, 1998, between the Company and State Street Bank
and Trust Company of California, N.A., as trustee. The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the Trust Indenture
Act, as in effect on the date of the Indenture. The Notes are subject to all
such provisions, and Holders of Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The definitions of certain terms
used in the following summary are set forth below under "--Certain Definitions."
As used in this section, the term "Company" refers to MTS, INCORPORATED and not
to any of its Subsidiaries.
The Notes are issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. Initially, the Trustee
will serve as Registrar and Paying Agent for the Notes. The Notes may be
presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office, in New
York, New York. No service charge will be made for any registration of transfer
or exchange of the Notes, except for any tax or other governmental charge that
may be imposed in connection therewith. The Company will pay principal (and
premium, if any) on the Notes at the Trustee's corporate trust office. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered addresses of the Holders as such addresses
appear in the Note register.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all current and future Senior Indebtedness,
including borrowings under the New Credit Facility. Borrowings under the New
Credit Facility are secured by the Company's accounts receivable and Inventory,
and a pledge of 65% of the capital stock of certain Foreign Subsidiaries. The
Notes rank pari passu in right of payment with all other senior subordinated
Indebtedness of the Company issued in the future, if any, and senior in the
right of payment to all subordinated Indebtedness of the Company issued in the
future, if any. To the extent the Company's future domestic Restricted
Subsidiaries meet certain materiality tests, such Restricted Subsidiaries will
guarantee the Notes on a senior subordinated basis. See "--Future Guarantees."
As of January 31, 1998, on an as adjusted basis giving effect to the
Refinancing, the Company would have had Senior Indebtedness of approximately
$119.8 million of which $25.2 million constitutes indebtedness of the Company's
Restricted Subsidiaries, (exclusive, in each case, of the unused revolving loan
availability of approximately $139.4 million under the New Credit Facility).
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited to $110.0 million aggregate principal amount and will
mature on May 1, 2005. Interest on the Notes will accrue at a rate of 9 3/8% per
annum and will be payable semi-annually in arrears on each May 1 and November 1,
commencing on November 1, 1998, to the Holders of record of Notes at the close
of business on April 15 and October 15, respectively, immediately preceding such
interest payment date. Interest will accrue from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from the date of issuance. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after May 1, 2002, at the redemption prices (expressed
as a percentage of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the redemption date (subject to the right of
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Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the twelve-month period
beginning on May 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2002............................................................................ 104.688%
2003............................................................................ 102.344%
2004............................................................................ 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to May 1, 2001,
the Company may redeem in the aggregate up to 35% of the originally issued
aggregate principal amount of the Notes with the net cash proceeds of one or
more Equity Offerings received by the Company at a redemption price in cash
equal to 109.375% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); PROVIDED, HOWEVER, that at least 65% of the
originally issued aggregate principal amount of the Notes must remain
outstanding immediately after giving effect to each such redemption (excluding
any Notes held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Equity Offering received by the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; PROVIDED, FURTHER, HOWEVER, that if a partial redemption is
made with the net cash proceeds of an Equity Offering received by the Company,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of DTC), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent for the
Notes funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash or cash equivalents of all
Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities, upon any
dissolution or winding up or total liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, (excluding any payment or distribution of Permitted Junior
Securities and excluding any payment from funds deposited in accordance with,
and held in trust for the benefit of Holders as set forth in "Legal Defeasance
and Covenant Defeasance" (a "Defeasance Trust Payment")), all Senior
Indebtedness then due shall first be paid in full in cash or cash equivalents
before the Holders of the Notes or the Trustee on behalf of such Holders shall
be entitled to receive any payment by the
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Company of the principal of, premium, if any, or interest on the Notes, or any
payment by the Company to acquire any of the Notes for cash, property or
securities, or any distribution by the Company with respect to the Notes of any
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment). Before any
payment may be made by, or on behalf of, the Company of the principal of,
premium, if any, or interest on the Notes upon any such dissolution or winding
up or total liquidation or reorganization, whether voluntary or involuntary or
in bankruptcy, insolvency, receivership or other proceedings, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment), to
which the Holders of the Notes or the Trustee on their behalf would be entitled,
but for the subordination provisions of the Indenture, shall be made by the
Company or by any receiver, trustee in bankruptcy, liquidation trustee, agent or
other Person making such payment or distribution, directly to the holders of the
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives or
to the trustee or trustees or agent or agents under any agreement or indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash or cash equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor, to or for the
holders of such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by the
Company of principal of, premium, if any, or interest on the Notes, whether
pursuant to the terms of the Notes, upon acceleration, pursuant to an Offer to
Purchase, as a payment into the Defeasance Trust or otherwise, shall be made if,
at the time of such payment, there exists a default in the payment of all or any
portion of any Senior Indebtedness, whether at maturity, on account of mandatory
redemption or prepayment, acceleration or otherwise, and such default shall not
have been cured or waived or the benefits of this sentence waived by or on
behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such event of default has
been cured or waived or has ceased to exist or such Designated Senior
Indebtedness has been discharged or repaid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment) will be made by the Company of principal of, premium, if any, or
interest on the Notes, whether pursuant to the terms of the Notes, upon
acceleration, pursuant to an Offer to Purchase or otherwise, to such Holders,
during a period (a "Payment Blockage Period") commencing on the date of receipt
of such notice by the Trustee and ending 179 days thereafter. Notwithstanding
anything in the subordination provisions of the Indenture or the Notes to the
contrary, (x) in no event will a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and (z) not more than one Payment
Blockage Period may be commenced with respect to the Notes during any period of
360 consecutive days. No event of default that existed or was continuing on the
date of commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period (to the
extent the holder of Designated Senior Indebtedness, or trustee or agent, giving
notice commencing such Payment Blockage Period had knowledge of such existing or
continuing event of default) may be, or be made, the basis for the commencement
of any other Payment Blockage Period by the holder or holders of such Designated
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
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Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not prevent, or be construed as
preventing, the occurrence of any Default or Event of Default in respect of the
Notes. See "Events of Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may be
unable to meet fully or at all its obligations with respect to the Notes.
Furthermore, by reason of such subordination, in the event of any such
insolvency of the Company, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than other creditors of the Company,
including Holders of the Notes.
FUTURE GUARANTEES
The Indenture also provides that at any time either (x) in excess of 10.0%
of the consolidated net assets of the Company are owned by Restricted
Subsidiaries (other than Foreign Subsidiaries) of the Company or (y) in excess
of 10.0% of the Consolidated EBITDA of the Company is derived from Restricted
Subsidiaries (other than Foreign Subsidiaries) of the Company, within 90 days of
the filing of the financial statements with the Commission which indicate that
either clause (x) or clause (y) above is applicable, the Company shall cause
such Restricted Subsidiaries (other than Foreign Subsidiaries) to (i) execute
and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
become a party to the Indenture and thereby unconditionally guarantee on an
unsecured senior subordinated basis (on substantially the same terms as the
subordination of the Notes) (a "Guarantee") all of the Company's Obligations
under the Notes and the Indenture on the terms set forth therein and (ii)
deliver to the Trustee an opinion of counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restricted Subsidiary
and constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary (which opinion may be subject to customary assumptions and
qualifications). Thereafter, such Restricted Subsidiary shall (unless released
in accordance with the terms of the Indenture) be a guarantor (a "Guarantor")
for all purposes of the Indenture. The Guarantee of a Guarantor will be released
upon the sale or transfer of a majority of the capital stock of such Guarantor
owned directly or indirectly by the Company, provided that such sale or transfer
complies with all of the terms of the Indenture, or such Guarantor becoming an
Unrestricted Subsidiary in accordance with the terms of the Indenture.
Each Guarantee will be a continuing guarantee and will (a) remain in full
force and effect until payment in full of all of the obligations covered
thereby, (b) be binding upon each Guarantor and (c) inure to the benefit of and
be enforceable by the Trustee, the Holders and their successors, transferees and
assigns.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall notify the Holders of the
Notes of such occurrence in the manner prescribed by the Indenture and shall,
within 60 days after the Change of Control Date, make an Offer to Purchase all
Notes then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
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If a Change of Control occurs which also constitutes an event of default
under the New Credit Facility, the lenders under the New Credit Facility would
be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the New Credit Facility.
Accordingly, any claims of such lenders with respect to the assets of the
Company will be prior to any claim of the Holders of the Notes with respect to
such assets.
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed a Default or an
Event of Default.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. The Indenture will provide that the Company
shall not, and shall not cause or permit any Restricted Subsidiary to, directly
or indirectly, Incur any Indebtedness (including Acquired Indebtedness), except
for Permitted Indebtedness; PROVIDED, HOWEVER, that the Company may Incur
Indebtedness if, at the time of and immediately after giving pro forma effect to
such Incurrence of Indebtedness and the application of the proceeds therefrom,
the Consolidated Coverage Ratio would be greater than (x) 2.0 to 1.00 if such
Indebtedness is Incurred prior to the second anniversary of the Issue Date or
(y) 2.25 to 1.00 if such Indebtedness is incurred thereafter.
The limitations contained in the preceding paragraph will not apply to the
Incurrence of any of the following (collectively, "Permitted Indebtedness"),
each of which shall be given independent effect:
(a) Indebtedness under the Notes and any Guarantees;
(b) Indebtedness Incurred under the New Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the greater of
(x) the maximum committed amount (without giving effect to any borrowing
base restrictions) under the New Credit Facility on the Issue Date or (y)
the sum of (i) the cash and Cash Equivalents of the Company and its
Restricted Subsidiaries, (ii) 80% of the then book value of accounts
receivable of the Company and its Restricted Subsidiaries as such amount
would appear on a consolidated balance sheet of the Company prepared in
accordance with GAAP, and (iii) 80% of the then book value of Inventory of
the Company and its Restricted Subsidiaries;
(c) Indebtedness of any Restricted Subsidiary of the Company owed to and
held by the Company or any Restricted Subsidiary, and Indebtedness of the
Company owed to and held by any Restricted Subsidiary and that is unsecured
and subordinated in right of payment in liquidation to the payment of the
Company's obligations under any Senior Indebtedness, the Indenture and the
Notes; PROVIDED, HOWEVER, that an Incurrence of Indebtedness that is not
otherwise permitted by this clause (c) shall be deemed to have occurred upon
(i) any sale or other disposition of any Indebtedness of the Company or any
Restricted Subsidiary of the Company referred to in this clause (c) to a
Person (other than the Company or a Restricted Subsidiary), or (ii) any sale
or other disposition of Equity Interests of any Subsidiary which holds
Indebtedness of the Company or another Subsidiary;
(d) Indebtedness under Interest Rate Protection Obligations; PROVIDED,
HOWEVER, that such Interest Rate Protection Obligations have been entered
into for bona fide business purposes and not for speculation;
(e) Purchase Money Indebtedness and Capitalized Lease Obligations of the
Company or any Restricted Subsidiary in an aggregate principal amount
(including refinancings thereof) at any one time outstanding not to exceed
5% of aggregate total revenue of the Company and its Restricted Subsidiaries
during the most recently completed four fiscal quarter period on a
consolidated basis
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(determined at the time of Incurrence); PROVIDED, HOWEVER, that the Company
and its Restricted Subsidiaries may incur any amount of additional
Indebtedness of the type specified above in this clause (e) which is secured
by real estate and any improvements thereon so long as the sole recourse of
the obligee with respect to such Indebtedness is to the real property and/or
improvements financed, fixtures related thereto and any accessions and
additions thereto, replacements and substitutions therefor and the proceeds
(including insurance proceeds thereof);
(f) Indebtedness under Currency Agreements; PROVIDED, HOWEVER, that
such Currency Agreements have been entered into for bona fide business
purposes and not for speculation;
(g) Existing Indebtedness;
(h) Indebtedness to the extent representing a replacement, renewal,
defeasance, refinancing or extension (collectively, a "refinancing") of any
outstanding Indebtedness; PROVIDED, HOWEVER, that (i) any such refinancing
shall not exceed the sum of the principal amount (or accreted amount
(determined in accordance with GAAP), if less) of the Indebtedness being
refinanced (or in the case of a refinancing of the New Credit Facility the
maximum permitted amount under clause (b) above), plus the amount of accrued
interest thereon, plus the amount of any reasonably determined prepayment
premium necessary to accomplish such refinancing and such reasonable fees
and expenses incurred in connection therewith, (ii) Indebtedness
representing a refinancing of Indebtedness other than Senior Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced and
(iii) Indebtedness that is PARI PASSU with, or subordinate to the Notes may
only be refinanced with Indebtedness that is made PARI PASSU with or
subordinate in right of payment to the Notes and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness; PROVIDED, FURTHER,
that Indebtedness of the Company may be refinanced by Indebtedness of a
Restricted Subsidiary and Indebtedness of a Restricted Subsidiary of the
Company may be refinanced by Indebtedness of the Company;
(i) guarantees by the Company or a Restricted Subsidiary of
Indebtedness Incurred by the Company or a Restricted Subsidiary so long as
the Incurrence of such Indebtedness is otherwise permitted by the terms of
the Indenture.
(j) Acquired Indebtedness and Indebtedness Incurred in connection with
the acquisition of assets; PROVIDED that such Indebtedness was incurred by
the prior owner of such assets prior to such acquisition by the Company or
one of its Subsidiaries and was not incurred in connection with, or in
contemplation of, such acquisition by the Company or one of its Restricted
Subsidiaries; PROVIDED FURTHER that the principal amount (or accreted value,
as applicable) of such Indebtedness, together with any other outstanding
Indebtedness (including refinancings thereof) incurred pursuant to this
clause (j), does not exceed $5.0 million;
(k) additional Indebtedness of Restricted Subsidiaries of the Company,
incurred after the Issue Date, in an aggregate principal amount at any time
outstanding (including refinancings thereof) not to exceed $20.0 million;
(l) Indebtedness in respect of worker's compensation, self-insurance
obligations, performance, surety, appeal and similar bonds and completion
guarantees provided in the ordinary course of business;
(m) Indebtedness incurred in connection with the acquisition of capital
stock of Restricted Subsidiaries existing on the Issue Date representing
minority interests in such Restricted Subsidiaries in an aggregate principal
amount (including refinancings thereof) not to exceed $2.0 million; and
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(n) additional Indebtedness of the Company or any of its Restricted
Subsidiaries, Incurred after the Issue Date, in an aggregate principal
amount at any time outstanding (including refinancings thereof), not to
exceed $20.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (a) through (n) above or is entitled
to be Incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof or as having been divided and incurred pursuant to more
than one of such clauses or the first paragraph hereof. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness will not be deemed to be an incurrence of Indebtedness
for purposes of this covenant. If the Indebtedness is Incurred, denominated and
payable in other than United States currency, then the Indebtedness shall be
converted into United States currency using the spot foreign exchange rate of
the currency in which such Indebtedness is Incurred, denominated and payable on
the date of Incurrence of such Indebtedness. Indebtedness Incurred under clause
(h) above as a refinancing of the New Credit Facility may be Incurred as two or
more separate facilities entered into at the same time or at different times so
long as such facilities in the aggregate constitute a refinancing of the New
Credit Facility in a maximum amount not to exceed the amount permitted under
clause (b) above.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Indenture provides that
the Company shall not, directly or indirectly, Incur, or suffer to exist, any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Notes and subordinate in right of payment to any other Indebtedness of
the Company.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
shall not, and shall not cause or permit any Restricted Subsidiary of the
Company to, directly or indirectly
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or make any payment or distribution to the direct
or indirect holders (in their capacities as such) of Equity Interests of the
Company (other than any dividends, distributions and payments made solely in
Qualified Equity Interests of the Company or in options, warrants or other
rights to purchase Qualified Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Subsidiary of the Company (other than
any such Equity Interests owned by the Company or any Restricted Subsidiary
of the Company);
(iii) make any Investment in any Person (other than Permitted
Investments); or
(iv) designate any Restricted Subsidiary as an Unrestricted Subsidiary;
(any such payment or any other action (other than any exception thereto)
described in (i), (ii) or (iii), a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the Consolidated Coverage Ratio test
set forth in the first paragraph of "--Limitation on Indebtedness;" and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date (excluding Restricted
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Payments permitted by clauses (ii) and (iv) of the next succeeding
paragraph) does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as
one period) from the beginning of the first fiscal quarter commencing
after the Issue Date and ending on the last day of the most recent fiscal
quarter immediately preceding the date of such Restricted Payment for
which consolidated financial information of the Company is available (or
if such cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss), plus (2) the aggregate net cash proceeds received by the
Company either (x) as capital contributions to the Company after the
Issue Date or (y) from the issue and sale (other than to a Subsidiary of
the Company) of its Qualified Equity Interests after the Issue Date
(excluding the net proceeds from any issuance and sale of Qualified
Equity Interests financed, directly or indirectly, using funds borrowed
from the Company or any Subsidiary of the Company until and to the extent
such borrowing is repaid), plus (3) the principal amount (or accreted
amount (determined in accordance with GAAP), if less) of any Indebtedness
of the Company or any Subsidiary of the Company Incurred after the Issue
Date which has been converted into or exchanged for Qualified Equity
Interests of the Company (minus the amount of any cash or property
distributed by the Company or any Subsidiary of the Company upon such
conversion or exchange), plus (4) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment made after
the Issue Date, an amount equal to 100% of the net cash proceeds thereof
(or dividends, distributions or interest payments received in cash
thereon), plus (5) with respect to any Unrestricted Subsidiary that has
been designated or re-designated as a Restricted Subsidiary after the
Issue Date, the direct or indirect proportionate interest of the Company
in such Subsidiary multiplied by an amount equal to the excess of (x) the
total assets of such Subsidiary, valued on an aggregate basis at Fair
Market Value, over (y) the total liabilities of such Subsidiary,
determined in accordance with GAAP, plus (6) $5.0 million.
The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date or declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent issue and sale (other than to a Subsidiary of
the Company) of, Qualified Equity Interests received by the Company; PROVIDED,
HOWEVER, that any such net cash proceeds or any Equity Interest issued in
exchange for such retired Equity Interests are excluded from clause (c)(2) of
the preceding paragraph (and were not included therein at any time) and are not
used to redeem the Notes pursuant to "Optional Redemption" above; (iii) payments
by the Company to, or to enable Parent to, purchase, redeem or acquire for value
shares of capital stock of the Company or Parent (other than Disqualified Equity
Interests) or options on such shares held by officers or employees or former
officers or employees (or their estates or beneficiaries under their estates)
upon the death, disability, retirement or termination of employment of such
current or former officers or employees pursuant to the terms of an employee
benefit plan or any other agreement pursuant to which such shares of capital
stock or options were issued or pursuant to a severance, buy-sell or right of
first refusal agreement with such current or former officer or employee;
PROVIDED, HOWEVER, that the aggregate cash consideration paid, or distributions
made, pursuant to this clause (iii) do not in any one fiscal year exceed $5.0
million; (iv) Investments constituting Restricted Payments made as a result of
the receipt of non-cash consideration from any Asset Sale made pursuant to and
in compliance with "--Disposition of Proceeds of Asset Sales" below; (v) the
purchase of capital stock representing minority interests in Restricted
Subsidiaries; PROVIDED, HOWEVER, that the aggregate cash consideration paid
pursuant to this clause (v) does not exceed $5.0 million; (vi) the payment of
premiums in connection with the maintenance of Permitted Life Insurance; (vii)
payments by the Company to Parent to fund the payment by Parent of audit,
accounting, legal or other similar expenses, to pay
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franchise or other similar taxes and to pay other corporate overhead expenses,
so long as such dividends are paid as and when needed by Parent so long as the
aggregate amount of payments pursuant to this clause (vii) does not exceed $1.0
million in any fiscal year; and (viii) payments by the Company to fund taxes of
Parent for a given taxable year in an amount equal to the Company's "separate
return liability," as if the Company were the parent of a consolidated group
(for purposes of this clause (viii) "separate return liability" for a given
taxable year shall mean the hypothetical United States tax liability of the
Company defined as if the Company had filed its own U.S. federal tax return for
such taxable year); PROVIDED, HOWEVER, that in the case of each of clauses (ii),
(iii) and (iv), no Default or Event of Default shall have occurred and be
continuing or would arise therefrom.
The amount of any non-cash Restricted Payment shall be deemed to be equal to
the Fair Market Value thereof at the date of the making of such Restricted
Payment.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indenture provides that the Company shall not, and shall not
cause or permit any Restricted Subsidiary of the Company to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary of the
Company to (a) pay dividends or make any other distributions to the Company or
any Restricted Subsidiary of the Company on its Equity Interests or with respect
to any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any Restricted Subsidiary of the
Company, (b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, or make any Investment in, the Company or any Restricted
Subsidiary of the Company or (c) transfer any of its properties or assets to the
Company or any Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of (i) the New Credit
Facility as in effect on the Issue Date, any other agreement of the Company or
its Restricted Subsidiaries outstanding on the Issue Date as in effect on the
Issue Date and any other agreement of the Company or its Restricted Subsidiaries
outstanding from time to time governing Senior Indebtedness, and any amendments,
restatements, renewals, replacements or refinancings thereof; (ii) applicable
law; (iii) any instrument governing Indebtedness or Equity Interests of an
Acquired Person acquired by the Company or any Restricted Subsidiary of the
Company as in effect at the time of such acquisition (except to the extent such
Indebtedness was Incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); PROVIDED, HOWEVER, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary of the Company, or the properties or assets of the Company
or any Restricted Subsidiary of the Company, other than the Acquired Person;
(iv) customary non-assignment, subletting or restriction on transfer provisions
or restrictions on cash or other deposits or net worth maintenance provisions
under leases, licenses or other contracts entered into in the ordinary course of
business; (v) Purchase Money Indebtedness for property acquired in the ordinary
course of business that only imposes encumbrances and restrictions on the
property so acquired and the proceeds thereof; (vi) any agreement for the sale
or disposition of the Equity Interests or assets of any Subsidiary of the
Company; PROVIDED, HOWEVER, that such encumbrances and restrictions described in
this clause (vi) are only applicable to such Subsidiary or assets, as
applicable, and any such sale or disposition is made in compliance with
"Disposition of Proceeds of Asset Sales" below to the extent applicable thereto;
(vii) refinancing Indebtedness permitted under clause (h) of the second
paragraph of "Limitation on Indebtedness" above; or (viii) the Indenture.
LIMITATION ON LIENS. The Indenture provides that the Company shall not, and
shall not cause or permit any Restricted Subsidiary of the Company to, directly
or indirectly, Incur, or suffer to exist, any Liens of any kind against or upon
any of their respective properties or assets now owned or hereafter acquired, or
any proceeds therefrom or any income or profits therefrom, to secure any
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Notes and all other amounts due under the Indenture, equally and
ratably with such Indebtedness (or, in the event that such Indebtedness is
subordinated in right of payment to the Notes prior to such Indebtedness) with a
Lien on
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the same properties and assets securing such Indebtedness for so long as such
Indebtedness is
secured by such Lien, except for (i) Liens securing Senior Indebtedness and (ii)
Permitted Liens.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company shall not, and shall not cause or permit any Restricted Subsidiary of
the Company to, directly or indirectly, make any Asset Sale, unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of, and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of (a) cash or Cash Equivalents or (b) property or assets that are
used or useful in a Permitted Business, or Equity Interests of any Person
primarily engaged in a Permitted Business if, as a result of the acquisition by
the Company or any Restricted Subsidiary thereof, such Person becomes a
Restricted Subsidiary; PROVIDED that the amount of (x) any liabilities of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities of the Company that are by their terms subordinated to the Notes or
any guarantee thereof) that are assumed by the transferee of any such assets
pursuant to the customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received) within 360 days following the closing of such Asset Sale, will be
deemed to be cash for purposes of this provision; PROVIDED FURTHER that the 75%
limitation referred to above shall not apply to any sale, transfer or other
disposition of assets in which the cash portion of the consideration received
therefor, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation.
The Company or such Restricted Subsidiary of the Company, as the case may
be, may (i) apply the Net Cash Proceeds of any Asset Sale within 360 days of
receipt thereof to repay Senior Indebtedness, or (ii) make an Investment in
property or assets that are used or useful in a Permitted Business, or Equity
Interests of any Person primarily engaged in a Permitted Business if, as a
result of the acquisition by the Company or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied as described in clause (i) or (ii) of the immediately preceding
paragraph within the time periods set forth therein (the "Net Proceeds
Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"),
the Company shall, within 20 days after such Net Proceeds Utilization Date, make
an Offer to Purchase all outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
PROVIDED, HOWEVER, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $15.0 million,
at which time the entire amount of such Unutilized Net Cash Proceeds, and not
just the amount in excess of $15.0 million, shall be applied as required
pursuant to this paragraph.
With respect to any Offer to Purchase affected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased pro rata
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not required to be applied to repurchase Notes tendered pursuant to
such Offer for any purpose consistent with the other terms of the Indenture.
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In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.
MERGER, SALE OF ASSETS, ETC. The Indenture provides that the Company shall
not consolidate with or merge with or into any other Person and the Company
shall not sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Company's properties and assets to any entity in a
single transaction or series of related transactions, unless: (i) either (x) the
Company shall be the Surviving Person or (y) the Surviving Person (if other than
the Company) shall be a Person organized and validly existing under the laws of
the United States of America or any State thereof or the District of Columbia
and shall, in any such case, expressly assume by a supplemental indenture, the
due and punctual payment of the principal of, premium, if any, and interest on
all the Notes and the performance and observance of every covenant of the
Indenture and the Exchange and Registration Rights Agreement to be performed or
observed on the part of the Company; and (ii) immediately thereafter on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries of the Company the Equity Interests of which constitutes all or
substantially all the properties and assets of the Company shall be deemed to be
the transfer of all or substantially all the properties and assets of the
Company.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company shall
not and shall not cause or permit any Restricted Subsidiary of the Company to,
directly or indirectly, conduct any business or enter into any transaction (or
series of related transactions) with or for the benefit of any of their
respective Affiliates (including, without limitation, any Unrestricted
Subsidiary or the Company) or any officer, director or employee of the Company
or any Subsidiary of the Company (each an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms which are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party and (ii)
if such Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments or other consideration having a Fair Market Value in
excess of $5.0 million in any fiscal year, such Affiliate Transaction is in
writing and a majority of the disinterested members, if any, of the Board of
Directors of the Company shall have approved such Affiliate Transaction and
determined that such Affiliate Transaction complies with the foregoing
provisions. In addition, any Affiliate Transaction involving aggregate payments
or other consideration having a Fair Market Value in excess of $10.0 million
will also require a written opinion from an Independent Financial Advisor (filed
with the Trustee) stating that the terms of such Affiliate Transaction are fair,
from a financial point of view, to the Company or its Subsidiaries involved in
such Affiliate Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries or between the Company
and/or one or more of its Restricted Subsidiaries on the one hand, and
Non-Affiliated Joint Ventures, on the other hand; (ii) reasonable fees and
compensation (including customary benefit, deferred compensation, retirement and
stock incentive or similar plans) paid or made available to and indemnity
provided on behalf of, officers, directors, employees,
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consultants or agents of the Company or any Restricted Subsidiary of the Company
as determined in good faith by the Company's Board of Directors; (iii) advances
and loans to employees for relocation, entertainment and travel expenses,
drawing accounts and other matters in the ordinary course of business, (iv) any
transactions undertaken pursuant to any contractual obligations in existence on
the Issue Date (as in effect on the Issue Date), (v) any Restricted Payments
made in compliance with "Limitation on Restricted Payments" above, and (vi)
transactions in connection with the maintenance of Permitted Life Insurance.
PROVISION OF FINANCIAL INFORMATION. The Indenture provides that whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provision thereto, the Company shall file with the SEC (if permitted
by SEC practice and applicable law and regulations) the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the SEC pursuant to such Section 13(a) or 15(d) or any successor
provision thereto if the Company were so subject, such documents to be filed
with the SEC on or prior to the respective dates (the "Required Filing Dates")
by which the Company would have been required so to file such documents if the
Company were so subject. The Company shall also in any event (a) within 15 days
of each Required Filing Date (whether or not permitted or required to be filed
with the SEC) (i) transmit (or cause to be transmitted) by mail to all Holders,
as their names and addresses appear in the Note register, without cost to such
Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly
reports and other documents which the Company is required to file with the SEC
pursuant to the preceding sentence, or, if such filing is not so permitted,
information and data of a similar nature, and (b) if, notwithstanding the
preceding sentence, filing such documents by the Company with the SEC is not
permitted by SEC practice or applicable law or regulations, promptly upon
written request supply copies of such documents to any Holder. In addition, for
so long as any Notes remain outstanding and prior to the later of the
consummation of the Exchange Offer and the filing of the initial Shelf
Registration Statement, if required, the Company will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial Holder of Notes, if not obtainable from
the SEC, information of the type that would be filed with the SEC pursuant to
the foregoing provisions, upon the request of any such Holder. The first such
report will be for the fiscal period ending April 30, 1998.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Indenture will provide that
the Company may designate after the Issue Date any Subsidiary of the Company as
an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) immediately after giving effect to such Designation, the Company
could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Indebtedness" covenant; and
(iii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the effectiveness
of such Designation) pursuant to the first paragraph of the "Limitation on
Restricted Payments" covenant in an amount (the "Designation Amount") equal
to the Fair Market Value of the parent's proportionate interest in the net
worth of such Subsidiary on such date calculated in accordance with GAAP.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for or guarantee any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness); provided, that the Company may pledge Equity Interests or
Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis such that the
pledgee has no claim whatsoever against the Company other than to obtain such
pledged property, (y) be directly or indirectly
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liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Indebtedness which provides that the holder thereof
may (upon notice, lapse of time or both) declare a default thereon or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity upon the occurrence of a default with respect to any Indebtedness of
any Unrestricted Subsidiary, except for any non-recourse guarantee given solely
to support the pledge by the Company of the capital stock of any Unrestricted
Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of
the Company as an Unrestricted Subsidiary shall be deemed to include the
Designation of all of the Subsidiaries of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at such
time, be permitted to be Incurred for all purposes of the Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary was
an Unrestricted Subsidiary would be permitted by the "Transactions with
Affiliates" covenant described below as if such transaction (or series of
related transactions) had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
EVENTS OF DEFAULT AND REMEDIES
The occurrence of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the Indenture
described under "Subordination of the Notes" above); (b) failure to pay any
interest on any Note when due, continued for 30 days or more (whether or not
prohibited by the provisions of the Indenture described under "Subordination of
the Notes" above); (c) default in the payment of principal of or interest on any
Note required to be purchased pursuant to any Offer to Purchase required by the
Indenture when due and payable or failure to pay on the Purchase Date the
purchase price for any Note validly tendered pursuant to any Offer to Purchase
(whether or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (d) failure to perform or comply with any
of the provisions described under "Certain Covenants--Merger, Sale of Assets,
etc." above; (e) failure to perform any other covenant, warranty or agreement of
the Company under the Indenture or in the Notes, continued for 30 days or more
after written notice to the Company by the Trustee or Holders of at least 25% in
aggregate principal amount of the outstanding Notes; (f) default or defaults
under the terms of one or more instruments evidencing or securing Indebtedness
of the Company or any Significant Restricted Subsidiaries having an outstanding
principal amount of $15.0 million or more individually or in the aggregate that
has resulted in the acceleration of the payment of such Indebtedness or failure
by the Company or any Significant Restricted Subsidiary to pay principal when
due at the stated maturity of any such Indebtedness and such default or defaults
shall have continued after any applicable grace period and shall not have been
cured or waived; (g) the rendering of a final judgment or judgments (not subject
to appeal) against the Company or any Significant Restricted Subsidiary in an
amount of $15.0 million or more (net of any amounts covered by reputable and
creditworthy insurance companies) which remains undischarged or unstayed for a
period of 60 days after the date on which the right to appeal has expired; or
(h) certain events of bankruptcy, insolvency or reorganization affecting the
Company or any of its Significant Restricted Subsidiaries.
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If an Event of Default with respect to the Notes (other than an Event of
Default described in clause (h) of the preceding paragraph) occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Notes, by notice in writing to the Company may declare
the unpaid principal of (and premium, if any) and accrued interest to the date
of acceleration on all the outstanding Notes to be due and payable immediately
and, upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in the Indenture or the
Notes to the contrary, will become immediately due and payable. If an Event or
Default specified in clause (i) of the preceding paragraph with respect to the
Company occurs under the Indenture, the Notes will ipso facto become immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder of the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred an
such Trustee.
Any such declaration with respect to the Notes may be rescinded and annulled
by the Holders of a majority in aggregate principal amount of the outstanding
Notes upon the conditions provided in the Indenture. For information as to
waiver of defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; PROVIDED, HOWEVER, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants--Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding, and
the Trustee shall have not have received from the Holders of a majority in
aggregate principal amount of such outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted by a Holder of
such a Note for enforcement of payment of the principal of and premium, if any,
or interest on such Note on or after the respective due dates expressed in such
Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any material default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR,
MANAGER AND SHAREHOLDERS
No director, officer, employee, incorporator, manager or shareholder of the
Company or any of its Affiliates, as such, shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive
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liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, noncallable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service, a ruling or (B) since the Issue Date, 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 Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal 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 Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries in a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Indebtedness,
including, without limitation, those
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arising under the Indenture and (B) assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the date of the
deposit and that no Holder is an insider of the Company, after the 91st day
following the date of the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied. Notwithstanding the foregoing, the opinion
of counsel required by clause (ii) above need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable on the maturity date within one year or
(z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
GOVERNING LAW
The Indenture, the Notes and the Guarantees, if any, are governed by the
laws of the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications, waivers and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); PROVIDED,
HOWEVER, that no such modification, waiver or amendment to the Indenture may,
without the consent of the Holder of each Note affected thereby, (a) change the
maturity of the principal of or any installment of interest on any such Note or
alter the optional redemption or repurchase provisions of any such Note or the
Indenture in a manner adverse to the Holders of the Notes; (b) reduce the
principal amount of (or the premium of) any such Note; (c) reduce the rate of or
extend the time for payment of interest on any such Note; (d) change the place
or currency of payment of principal of (or premium) or interest on any such
Note; (e) modify any provisions of the Indenture relating to the waiver of past
defaults (other than to add sections of the Indenture or the Notes subject
thereto) or the right of the Holders of Notes to institute suit for the
enforcement of any payment on or with respect to any such Note or Guarantee or
the modification and amendment provisions of the Indenture and the Notes (other
than to add sections of the Indenture or the Notes which may not be modified,
amended, supplemented or waived without the consent of each Holder affected);
(f) reduce the percentage of the principal amount of outstanding Notes necessary
for amendment to or waiver of compliance with any provision of the Indenture or
the Notes or for waiver of any Default in respect thereof; (g) waive a default
in the payment of principal of, interest on, or redemption payment with respect
to, the Notes (except a rescission of acceleration of the Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration); (h) modify the ranking or priority of any Note
in respect thereof in any manner adverse to the Holders or modify the definition
of Senior Indebtedness or amend or modify the subordination provisions of the
Indenture in any manner adverse to the Holders of the Notes; or (i) modify the
provisions of any covenant (or the related definitions) in the Indenture
requiring the Company to make an Offer to Purchase in a manner materially
adverse to the Holders of Notes affected thereby otherwise than in accordance
with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. Subject to certain rights
of the Trustee, as provided in the Indenture, the Holders of a majority in
aggregate principal amount of the Notes, on behalf of all Holders, may waive any
past default under the Indenture (including any such waiver obtained in
connection with a tender offer or exchange offer for the Notes), except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any Notes tendered pursuant to an Offer to Purchase, or
a default in respect of a provision that under the indenture cannot be modified
or amended without the consent of the Holder of each Note that is affected.
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THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claim as security or otherwise. The Trustee is
permitted to engage in other transactions with the Company or an Affiliate of
the Company; PROVIDED, HOWEVER, that if it acquires any conflicting interest (as
defined in the Indenture or in the Trust Indenture Act), it must eliminate such
conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person, or (b) existing at the time
such Person becomes a Subsidiary of the Company or is merged or consolidated
with or into the Company or any Restricted Subsidiary of the Company, in each
case other than Indebtedness of the Acquired Person actually repaid concurrent
with any such transaction.
"ACQUIRED PERSON" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"ACQUISITION" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary of the Company to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted Subsidiary
of the Company, in either case pursuant to which such Person shall become a
Subsidiary of the Company or shall be consolidated with or merged into the
Company or any Restricted Subsidiary of the Company or (ii) any acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person which constitute substantially all of an operating unit or line of
business of such Person or which is otherwise outside of the ordinary course of
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 purposes of this definition, "control,"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. Unrestricted
Subsidiaries of the Company shall be deemed Affiliates of the Company.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger or consolidation) to any Person other than the Company or
a Restricted Subsidiary, in one transaction or a series of related transactions,
of (i) any Equity Interest of any Restricted Subsidiary of the Company (other
than directors' qualifying shares, to the extent mandated by applicable law);
(ii) any assets of the Company or any Restricted Subsidiary of the Company which
constitute substantially all of an operating unit or line of business of the
Company or any Restricted Subsidiary of the Company; or (iii) any other property
or
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asset of the Company or any Restricted Subsidiary of the Company outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "Certain Covenants--Merger, Sale of
Assets, etc." above and the creation of any Lien not prohibited by "Certain
Covenants--Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary of the
Company, as the case may be; (c) any transaction consummated in compliance with
"Certain Covenants--Limitation on Restricted Payments" above; (d) a transfer of
assets from the Company to a Restricted Subsidiary, from a Restricted Subsidiary
to the Company or from a Restricted Subsidiary to another Restricted Subsidiary.
In addition, solely for purposes of "Certain Covenants--Disposition of Proceeds
of Asset Sales" above, any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series of
related transactions, involving assets with a Fair Market Value not in excess of
$2.0 million in any fiscal year, shall be deemed not to be an Asset Sale. For
purposes of this definition, "ordinary course of business" shall be deemed to
include, without limitation, (i) the sale of rental inventory, consistent with
past practices, and (ii) closure of a store.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and lease-back transaction
means, as at the time of determination, the present value (discounted according
to GAAP at the cost of indebtedness implied in the lease) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such sale and lease-back transaction (including any period for
which such lease has been extended).
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, New York or Los Angeles, California are
not required to be open.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP; PROVIDED that liabilities in respect of real property leases shall
not be deemed Capital Lease Obligations regardless of their classification in
accordance with GAAP.
"CASH EQUIVALENTS" means: (a) United States dollars, (b) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (c) certificates of deposit, time deposits
and eurodollar time deposits with maturities of not more than one year from the
date of acquisition, bankers' acceptances with maturities of not more than one
year from the date of acquisition and overnight bank deposits, in each case with
any lender party to the New Credit Facility or any Indebtedness Incurred as a
refinancing of the New Credit Facility or with any commercial bank having
capital and surplus in excess of $500.0 million, (d) repurchase obligations with
a term of not more than thirty days for underlying securities of the types
described in clauses (b) and (c) above entered into with any financial
institution meeting the qualifications specified in clause (c) above, (e)
commercial paper rated at least P-2 by Moody's Investors Service, Inc. or at
least A-2 by Standard & Poor's Ratings Services with maturities of not more than
270 days from the date of acquisition, (f) readily marketable direct obligations
issued by any State of the United States of America or any political subdivision
thereof having maturities of not more than one year from the date of acquisition
and rated at least A by Moody's Investors Service, Inc. or A by Standard &
Poor's Ratings Services, (g) investment funds investing 95% of their assets in
securities of the types described in clauses (a) through (f) above; and (h) in
the case of any
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Foreign Subsidiary, Investments: (i) in direct obligations of the sovereign
nation (or any agency thereof) in which such Foreign Subsidiary is organized and
is conducting business or in obligations fully and unconditionally guaranteed by
such sovereign nation (or any agency thereof) or (ii) of the type and maturity
described in clauses (b) and (c) above of foreign obligers, which Investment or
obligers (or the parents of such obligers) have ratings described in such
clauses or equivalent ratings from comparable foreign rating agencies and (h)
other Investments which would constitute cash equivalents in accordance with
GAAP.
"CHANGE OF CONTROL" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company); (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders and their Related Parties, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 50% of the total
voting power of the then outstanding Voting Equity Interests of the Company;
(ii) the Company consolidates with, or merges with or into, another Person
(other than a Wholly Owned Restricted Subsidiary) or the Company or any of its
Restricted Subsidiaries sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of the assets of the Company and its
Restricted Subsidiaries (determined on a consolidated basis) to any Person
(other than the Company or any Wholly Owned Restricted Subsidiary), other than
any such transaction where immediately after such transaction the Person or
Persons that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time)
immediately prior to such transaction, directly or indirectly, a majority of the
total voting power of the then outstanding Voting Equity Interests of the
Company "beneficially own" (as so determined), directly or indirectly, a
majority of the total voting power of the then outstanding Voting Equity
Interests of the surviving or transferee Person; (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period of whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under
"--Merger, Sale of Assets, etc." For purposes of this definition, beneficial
ownership of Parent shall be deemed to be pro rata beneficial ownership of that
portion of the Company owned by Parent.
"CHANGE OF CONTROL DATE" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter Period") to (ii) Consolidated
Interest Expense for such Four Quarter Period; PROVIDED, HOWEVER, that (1) if
the Company or any Restricted Subsidiary of the Company has incurred any
Indebtedness since the beginning of such Four Quarter Period that remains
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter 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
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day of such Four Quarter Period (PROVIDED that if such Indebtedness is revolving
Indebtedness the amount thereof deemed to be incurred as of the first day of
such Four Quarter Period shall be the average daily balance of such Indebtedness
during the period since such revolving Indebtedness was initially incurred) and
the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
of the Company shall have made any Asset Sale, the Consolidated EBITDA for such
Four Quarter Period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets that are the subject of
such Asset Sale for such Four Quarter Period or increased by an amount equal to
the Consolidated EBITDA (if negative) directly attributable thereto for such
Four Quarter Period and Consolidated Interest Expense for such Four Quarter
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 of the Company repaid, repurchased or otherwise discharged with
respect to the Company and its continuing Subsidiaries in connection with such
Asset Sale for such Four Quarter Period (or, if the Equity Interests of any
Restricted Subsidiary of the Company are sold, the Consolidated Interest Expense
for such Four Quarter Period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Subsidiaries
are no longer liable for such Indebtedness after such sale), (3) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
of the Company (by merger or otherwise) shall have made an Investment in any
Subsidiary of the Company (or any Person that becomes a Restricted Subsidiary of
the Company) 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, Consolidated EBITDA and Consolidated Interest Expense for such Four
Quarter 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 Four Quarter Period, (4) if since
the beginning of such Four Quarter Period any Person (that subsequently became a
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
of the Company since the beginning of such Four Quarter Period) shall have made
any Asset Sale or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Subsidiary of the Company during such Four Quarter Period,
Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter
Period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of assets occurred on, with respect to any
Investment or acquisition, the first day of such Four Quarter Period and, with
respect to any Asset Sale, the day prior to the first day of such Four Quarter
Period, and (5) if since the beginning of such period the Company shall have
received the proceeds of an Equity Offering, 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 Restricted Subsidiaries in connection with such
receipt of proceeds of such Equity Offering for 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
accordance with Regulation S-X under the Securities Act as in effect on the date
of such calculation. 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 agreement under
which Interest Rate Protection Obligations are outstanding applicable to such
Indebtedness if such agreement under which such Interest Rate Protection
Obligations are outstanding has a remaining term as at the date of determination
in excess of 12 months); PROVIDED, HOWEVER, that the Consolidated Interest
Expense of the Company attributable to interest on any Indebtedness Incurred
under a revolving
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credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the Four Quarter Period.
"CONSOLIDATED EBITDA" means, for any period, the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated
Non-cash Charges for such period, less all non-cash items increasing
Consolidated Net Income for such period.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to the Company for any
period, the provision for Federal, state, local and foreign income taxes of the
Company and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (e) all capitalized interest and all accrued interest, (f) non-cash
interest expense and (g) interest on Indebtedness of another Person that is
guaranteed by the Company or any Subsidiary of the Company actually paid by the
Company or any Subsidiary of the Company, (ii) preferred stock dividend
requirements on the preferred stock described in clause (h) of the definition of
Indebtedness and (iii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the Company and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP. Notwithstanding the foregoing, Consolidated Interest
Expense shall not include any expense of the Company incurred as one-time
payments in connection with the extension of certain Indebtedness of the Company
in February 1998.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net income
(loss) of the Company and its Subsidiaries, 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 of the Company, except
that the Company's equity in the net income of any such Person for such period
shall be included in determining 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 distribution; (ii)
any net income (loss) of any Person acquired by the Company or a Restricted
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; PROVIDED that there shall not be any such
exclusion of the net income (loss) of any Person acquired in connection with the
Reorganization; (iii) any net income (but not loss) of any Restricted Subsidiary
of the Company that is not a Guarantor if such Restricted Subsidiary is subject
to restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to the
Company to the extent of such restrictions; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or its Restricted
Subsidiaries (including pursuant to any sale/lease-back transaction) outside of
the ordinary course of business including, without limitation, on or with
respect to Investments (and excluding dividends, distributions or interest
thereon); (v) any extraordinary gain or loss in accordance with GAAP; (vi) the
cumulative effect of a change in accounting principles after the Issue Date; and
(vii) any restoration to income of any contingency reserve of an extraordinary,
non-recurring or unusual nature, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time following
the Issue Date.
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"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period the sum of (a) depreciation, (b) amortization and (c) other non-cash
items presented on such Person's consolidated statement of cash flows as
"Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities," determined on a consolidated basis in accordance with GAAP.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement relating to fluctuations in
currency values.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding
under the New Credit Facility and (b) any other Senior Indebtedness which, at
the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $10.0
million, if the instrument governing such other Senior Indebtedness expressly
states that such Indebtedness is "Designated Senior Indebtedness" for purposes
of the Indenture.
"DISPOSITION" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"DISQUALIFIED EQUITY INTEREST" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Notes or the date on which no Notes remain
outstanding.
"DOMESTIC SUBSIDIARY" means, with respect to a Subsidiary, a Subsidiary
whose jurisdiction of incorporation or formation is the United States, any state
thereof or the District of Columbia.
"EQUITY INTEREST" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"EQUITY OFFERING" means (i) an underwritten public offering of Qualified
Equity Interests of Parent or the Company pursuant to an effective registration
statement filed under the Securities Act (excluding registration statements
filed on Form S-8) or (ii) a private offering of Qualified Equity Interests of
Parent or the Company pursuant to an exemption from registration under the
Securities Act in an aggregate purchase price of not less than $50.0 million.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the Issue Date, until such amounts are repaid.
"EXPIRATION DATE" has the meaning set forth in the definition of "Offer to
Purchase" below.
"FAIR MARKET VALUE" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash or other
consideration, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction; PROVIDED, HOWEVER,
that the Fair Market Value of any such asset shall be determined conclusively by
the Board of Directors of the Company acting in good
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faith, and, with respect to any determination of Fair Market Value in excess of
$10.0 million, shall be evidenced by a Board Resolution delivered to the
Trustee.
"FOREIGN SUBSIDIARY" means, with respect to a Subsidiary, a Subsidiary other
than a Domestic Subsidiary.
"FOUR QUARTER PERIOD" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the Issue Date
and which are consistently applied for all applicable periods, including those
set forth in (i) the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) statements
and pronouncements of the Financial Accounting Standards Board, and (iii) such
other statements by such other entity as approved by a significant segment of
the accounting profession.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"GUARANTORS" means each Subsidiary of the Company (other than Foreign
Subsidiaries and Unrestricted Subsidiaries) which is required to become a
Guarantor pursuant to the terms of the Indenture.
"HOLDERS" means the registered holders of the Notes.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Subsidiary of
the Company (or is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company), whether or not such Indebtedness was
Incurred in connection with, as a result of, or in contemplation of, such
Acquired Person becoming a Restricted Subsidiary of the Company (or being merged
into or consolidated with the Company or any Restricted Subsidiary), shall be
deemed Incurred at the time any such Acquired Person becomes a Subsidiary or
merges into or consolidates with the Company or any Restricted Subsidiary.
"INDEBTEDNESS" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person, (a) the
principal amount of every obligation of such Person for money borrowed; (b) the
principal amount of every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including the principal amount
of such obligations incurred in connection with the acquisition of property,
assets or businesses; (c) reimbursement obligations of such Person with respect
to letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person; (d) the principal amount of obligations of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable incurred in the ordinary course of business and
payable in accordance with industry practices, or other accrued liabilities
arising in the ordinary course of business); (e) Capital Lease Obligations of
such Person; (f) net obligations under Interest Rate Protection Obligations or
similar agreements or Currency Agreements of such Person; (g) Attributable
Indebtedness; (h) any Disqualified Equity Interests of the Company or any
preferred stock of any Restricted Subsidiary of the Company not held by the
Company or a Restricted
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Subsidiary; (i) obligations of the type referred to in clauses (a) through (j)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise; and (j) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (a) through (i) above. Indebtedness (i) with respect to reimbursement
obligations as described under clause (c) above, shall not be deemed Incurred if
satisfied within 15 Business Days of such Incurrence and (ii) which provides
that an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be deemed to be Incurred or
outstanding in an amount equal to the accreted value thereof at the date of
determination.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized accounting,
appraisal, investment banking firm or consultant (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INTEREST" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined under "Exchange and Registration Rights
Agreement" below) on the Notes.
"INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements relating to fluctuations in interest rates.
"INVENTORY" means, with respect to any Person as of any date of
determination, the then book value of inventory which would appear on the
consolidated balance sheet of such Person in accordance with GAAP, plus the then
book value of video rental product recorded on the books of such Person in
accordance with GAAP.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan,
advance, guarantee or other extension of credit or capital contribution to (by
means of transfers of cash or other property or assets to others or payments for
property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; PROVIDED, HOWEVER, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. In determining the
amount of any investment involving a transfer of any property or asset other
than cash, such property shall be valued at its fair market value at the time of
such transfer, as determined in good faith by the Board of Directors (or
comparable body) of the Person making such transfer.
"ISSUE DATE" means the original issue date of the Notes.
"LIEN" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"MATURITY DATE" means the date, which is set forth on the face of the Notes,
on which the Notes will mature.
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"NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or Cash
Equivalents received by the Company or any Restricted Subsidiary of the Company
in respect of any Asset Sale, including all cash or Cash Equivalents received
upon any sale, liquidation or other exchange of proceeds of Asset Sales received
in a form other than cash or Cash Equivalents, net of (a) the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sales; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale; including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been reversed
or are not otherwise required to be retained as a reserve); and (e) with respect
to Asset Sales by a Restricted Subsidiary, the portion of such cash payments
attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"NET PROCEEDS UTILIZATION DATE" has the meaning set forth in the second
paragraph under "Certain Covenants-Disposition of Proceeds of Asset Sales"
above.
"NEW CREDIT FACILITY" means the Credit Agreement dated April 23, 1998, by
and among the Company, the Subsidiaries of the Company identified on the
signature pages thereto, the lenders named therein, and The Chase Manhattan
Bank, as Agent, as amended, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor, whether by or with
the same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantee and note agreements and other instruments
and agreements executed in connection therewith.
"NON-AFFILIATED JOINT VENTURE" means any Person (other than a Subsidiary) in
which the Company or its Subsidiaries have an ownership interest in excess of
25% and in which no Affiliate of the Company has any other interest; provided,
however, that the business of such joint venture relates to the development,
marketing or sale of products of the Company and its Subsidiaries.
"OBLIGATIONS" means any principal, interest (including, without limitation,
Post-Petition Interest), premium, if any, penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"OFFER" has the meaning set forth in the definition of "Offer to Purchase"
below.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each Holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 30 nor more than 90 days after the date of such Offer, and a
settlement date (the "Purchase Date") for purchase of Notes to occur no later
than five Business Days after the Expiration Date. The Company shall notify the
Trustee at least 15 Business Days (or such shorter period as is acceptable to
the Trustee) prior to the mailing of the Offer of the Company's obligation to
make an Offer to Purchase, and the Offer shall be mailed by the Company or, at
the Company's request, by the Trustee in the name and at the expense of the
Company. The Offer shall contain all the information required by applicable law
to be included therein and shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Offer to
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Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant
to which the Offer to Purchase is being made and (2) the circumstances and
relevant facts and relevant financial information regarding the Offer to
Purchase.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"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.
"PERMITTED BUSINESS" means the businesses engaged in by the Company and its
Subsidiaries as of the Issue Date, businesses utilizing the TOWER trademark, and
businesses which are reasonably related or incidental to the foregoing or which
are extensions thereof.
"PERMITTED HOLDER" means each of Russell M. Solomon, Doris E. Solomon, the
Trusts, Michael Solomon, David Solomon, Stanley Goman, DeVaughn Searson and
Christopher Hopson.
"PERMITTED INDEBTEDNESS" has the meaning set forth in the second paragraph
of "Certain Covenants--Limitation on Indebtedness" above.
"PERMITTED INVESTMENTS" means (a) Investments in Cash Equivalents or deposit
accounts maintained in the ordinary course of business; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c)
Investments under Interest Rate Protection Obligations and Currency Agreements;
(d) Investments received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers, in each case arising in the
ordinary course of business; (e) Investments in the Company and Investments in a
Restricted Subsidiary of the Company and Investments in a Person which is
engaged in (or immediately after such Investment will be engaged in) a Permitted
Business and if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary; (f) Investments
acquired in exchange for Qualified Equity Interests; (g) loans or advances to
officers or employees of the Company and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes of the Company and
its Subsidiaries (including travel and moving expenses); (h) any Investment
existing on the Issue Date and any amendment, modification, restatement,
supplement, extension, renewal, refunding, replacement, refinancing, in whole or
in part, thereof; (i) any Investment accepted as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Certain
Covenants--Disposition of Proceeds of Asset Sales;" (j) advances and extensions
of credit in the nature of accounts receivable or notes receivable arising from
the sale or lease of goods or services or the licensing of property in the
ordinary course of business; (k) Investments in Non-Affiliated Joint Ventures in
an aggregate amount not to exceed $5.0 million during any fiscal year; (l) other
Investments by the Company or any Restricted Subsidiary in any Person having an
aggregate fair market value (measured as of the date each such Investment is
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (l) that are at
the time outstanding, not to exceed $15.0 million; and (l) intercompany
Investments permitted under clauses (c), (h) and (i) of the covenant described
under the caption "--Certain Covenants-- Limitation on Indebtedness."
"PERMITTED JUNIOR SECURITIES" means any securities of the Company or any
other Person that are (i) Equity Interests or (ii) debt securities expressly
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding (and any Indebtedness or debt securities issued in exchange for
Senior Indebtedness), to substantially the same extent as, or to a greater
extent than, the Notes are subordinated as provided in the Indenture, in any
event pursuant to a court order so providing
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and as to which (a) the rate of interest on such securities shall not exceed the
effective rate of interest on the Notes on the Issue Date, (b) such securities
shall not be entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such securities than those in effect with respect
to the Notes on the Issue Date and (c) such securities shall not provide for
amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness (as modified by the plan of reorganization of
readjustment pursuant to which such securities are issued).
"PERMITTED LIENS" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries; (ii) Liens existing on the Issue Date; (iii) Liens
on the assets of the Company or any of its Restricted Subsidiaries to secure
Interest Rate Protection Obligations and Currency Agreements permitted by the
Indenture to be incurred; (iv) Liens on property of a Person existing at the
time such Person or such Person's parent corporation becomes a Subsidiary of the
Company or any Subsidiary of the Company; PROVIDED THAT such Liens were in
existence prior to the contemplation of such transaction and do not extend to
any assets other than those of such Person; (v) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
PROVIDED THAT such Liens were in existence prior to the contemplation of such
acquisition and extend only to the property so acquired and the proceeds
thereof; (vi) Liens to secure any Indebtedness permitted by clause (h) of the
covenant described above under the caption "--Certain Covenants--Limitation on
Indebtedness" incurred to refinance any Indebtedness secured by any Lien
referred to in the foregoing clauses (i) through (v), PROVIDED, HOWEVER, that
such new Lien shall be limited to all or part of the same property that secured
the original Lien (PROVIDED THAT such Liens may extend to after-acquired
property, including any assets or Equity Interests of any subsequently formed or
acquired Subsidiary, if such original Lien included such property or assets as
collateral) and the Indebtedness secured by such Lien at such time is not
increased to any amount greater than permitted under the covenant described
above under the caption "--Certain Covenants--Limitation on Indebtedness," or,
in the case of other Senior Debt, or, in the case of other Indebtedness, the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (i) through (v), as the case may be, at the
time the original Lien became a Permitted Lien; (vii) Liens in favor of the
Company or any Guarantor; (viii) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit and accruals in the ordinary course of business) and
(b) do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Restricted Subsidiary; (ix) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds, letters of credit,
deposits to secure the performance of bids, trade contracts, government
contracts, leases or licenses or other obligations of a like nature incurred in
the ordinary course of business (including, without limitation, landlord Liens
on leased properties); (x) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently prosecuted,
PROVIDED THAT any reserve or other appropriate provision as shall be required to
conform with GAAP shall have been made therefor; (xi) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (e) of
the covenant described above under the caption "--Certain Covenants--Limitation
on Indebtedness" covering only the assets acquired or financed with such
Indebtedness, together with any additions and accessions thereto and
replacements, substitutions and proceeds (including insurance proceeds) thereof;
(xii) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business in
respect of obligations not overdue for a period in excess of 90 days or which
are being contested in good faith by appropriate proceedings promptly instituted
and diligently prosecuted; PROVIDED, that any reserve or other appropriate
provision as shall be required to conform with GAAP shall have been made
therefor; (xiii) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred, or leases or subleases
granted to others, in the ordinary course of business, which do not in any case
materially
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detract from the value of the property subject thereto or do not interfere with
or adversely affect in any material respect the ordinary conduct of the business
of the Company and its Restricted Subsidiaries taken as a whole; (xiv) Liens in
favor of customs and revenue authorities to secure payment of customs duties in
connection with the importation of goods in the ordinary course of business and
other similar Liens arising in the ordinary course of business; (xv) leases or
subleases granted to third Persons not interfering with the ordinary course of
business of the Company or its Restricted Subsidiaries; (xvi) Liens (other than
any Lien imposed by ERISA or any rule or regulation promulgated thereunder)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance, and other types of social
security; (xvii) deposits made in the ordinary course of business to secure
liability to insurance carriers, and Liens on the proceeds of insurance granted
to insurance carriers solely to secure the payment of financed premiums; (xviii)
any attachment or judgment Lien not constituting an Event of Default under
clause (g) of the first paragraph of the section described above under the
caption "--Events of Default and Remedies;" (xix) any interest or title of a
lessor or sublessor under any operating lease; (xx) Liens arising by virtue of
any common law, statutory or contractual provision relating to bankers' liens,
rights of set-off or similar rights and remedies as to deposit or securities
accounts maintained in the ordinary course of business; (xxi) Liens in favor of
a trustee under any indenture securing amounts due to the trustee in connection
with its services under such indenture, (xxii) Liens under licensing agreements
for use of intellectual property entered into in the ordinary course of
business; (xxiii) purchase money Liens on Inventory and the proceeds thereof
securing obligations owed to vendors in the ordinary course of business; and
(xxiv) Liens arising out of consignments or similar arrangements for the sale of
goods entered into in the ordinary course of business.
"PERMITTED LIFE INSURANCE" means life insurance on the lives of Russell M.
Solomon and Doris Solomon, the beneficiaries of which are the Company (up to the
amounts of the premiums paid by the Company) and the Trusts, and certain other
similar life insurance policies maintained on the lives of executive officers of
the Company, in each case described under the caption "Certain Transactions."
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"PREFERRED EQUITY INTEREST," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"PRINCIPAL" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"PURCHASE DATE" has the meaning set forth in the definition of "Offer to
Purchase" above.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any
Subsidiary of the Company (including, without limitation, conditional sale
obligations and title retention agreements) Incurred for the purpose of
financing all or any part of the purchase price or the cost of construction or
improvement of any property (real or personal) (if incurred within 270 days of
the date of purchase or completion of such construction or improvement);
PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof,
plus any premium required to accomplish such refinancing, as of the date of
refinancing.
"QUALIFIED EQUITY INTEREST" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
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"RELATED PARTY" with respect to any Permitted Holder means (i) any
controlling stockholder, 51% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Permitted Holder or (ii)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a 51% or more
controlling interest of which consist of such Permitted Holder and/or such other
Persons referred to in the immediately preceding clause (i).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to the "Designation of Unrestricted Subsidiaries" covenant.
Any such designation may be revoked by a resolution of the Board of Directors of
the Company delivered to the Trustee, subject to the provisions of such
covenant.
"SEC" means the Securities and Exchange Commission.
"SENIOR INDEBTEDNESS" means, at any date, (a) all Indebtedness of the
Company under the New Credit Facility; (b) all other Indebtedness of the
Company, unless the instrument under which such Indebtedness of the Company is
Incurred expressly provides that such Indebtedness is not senior or superior in
right of payment to the Notes, and (c) all Obligations with respect to the
foregoing. Notwithstanding the foregoing, Senior Indebtedness shall not include
(a) to the extent that it may constitute Indebtedness, any Obligation for
Federal, state, local or other taxes; (b) any Indebtedness among or between the
Company and any Subsidiary of the Company or any Affiliate of the Company or any
of such Affiliate's Subsidiaries; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) that portion of any Indebtedness that is Incurred in violation
of the Indenture; (e) Indebtedness evidenced by the Notes; (f) Indebtedness of
the Company that is expressly subordinate or junior in right of payment to any
other Indebtedness of the Company; (g) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; and (h) any obligation that by operation
of law is subordinate to any general unsecured obligations of the Company. No
Indebtedness shall be deemed to be subordinated to other Indebtedness solely
because such other Indebtedness is secured.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, at any date of determination, (a)
any Subsidiary of the Company that together with its Subsidiaries (i) for the
most recent fiscal year of the Company accounted for more than, 10.0% of the
consolidated revenues of the Company and its Subsidiaries or (ii) as of the end
of such fiscal year, owned more than 10.0% of the consolidated assets of the
Company and its Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Subsidiaries for such year prepared in
conformity with GAAP, and (b) any Subsidiary of the Company which, when
aggregated with all other Subsidiaries of the Company that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (h) of "Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"STATED MATURITY" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
"SUBORDINATED INDEBTEDNESS" means, with respect to the Company, any
Indebtedness of the Company which is expressly subordinated in right of payment
to the Notes.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of which
the outstanding Voting Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such Person, or (b) any other Person of which at
least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
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"SURVIVING PERSON" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"TRUSTS" means, collectively, The Michael Solomon 1994 Trust and The David
Solomon 1994 Trust created under the trust agreement, dated as of July 29, 1994,
known as The Russell M. and Doris E. Solomon 1994 Children's Trust, as amended.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as
such pursuant to the "Designation of Unrestricted Subsidiaries" covenant. Any
such designation may be revoked by a resolution of the Board of Directors of the
Company delivered to the Trustee, subject to the provisions of such covenant.
"UNUTILIZED NET CASH PROCEEDS" has the meaning set forth in the third
paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
"VOTING EQUITY INTERESTS" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of the
Company all of the outstanding Voting Equity Interests (other then directors'
qualifying shares) of which are owned, directly or indirectly, by the Company.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth a summary of the material anticipated federal
income tax consequences expected to result to Holders from the Exchange Offer
and from the purchase, ownership and disposition of the New Notes. The tax
consequences of these transactions are uncertain. The discussion of the federal
income tax consequences set forth below is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), and judicial decisions and administrative
interpretations thereunder, as of the date hereof, and such authorities may be
repealed, revoked, modified or otherwise interpreted or applied so as to result
in federal income tax consequences different from those discussed below. There
can be no assurance that the Internal Revenue Service (the "IRS") will not
challenge one or more of the tax consequences described herein, and the Company
has not obtained, nor does it intend to obtain, a ruling from the IRS or an
opinion of counsel with respect to the U.S. federal income tax consequences of
acquiring or holding New Notes. The discussion below pertains only to U.S.
Holders, except as described below under the caption "Non-U.S. Holders." As used
herein, U.S. Holders means (i) citizens or residents (within the meaning of
Section 7701(b) of the Code) of the United States, (ii) corporations,
partnerships or other entities created in or under the laws of the United States
or any political subdivision thereof, (iii) estates, the income of which is
subject to United States federal income taxation regardless of its source, and
(iv) in general, trusts subject to the primary supervision of a court within the
United States and the control of a United States person as described in Section
7701(a)(30) of the Code.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular Holder in light of the
Holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, it is not intended to be wholly applicable to
all categories of investors, some of which (such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and persons holding New
Notes as part of a hedging or conversion transaction or straddle or persons
deemed to sell New Notes under the constructive sale provisions of the Code) may
be subject to special rules. The discussion below is premised upon the
assumption that the New Notes and Existing Notes constitute indebtedness for
U.S. federal income tax purposes, and that the Existing Notes and New Notes are
held (or would be held if acquired) as capital assets within the meaning of
Section 1221 of the Code. This summary does not discuss the tax considerations
applicable to subsequent purchasers. The discussion also does not discuss any
aspect of state, local or foreign law, nor federal estate and gift tax law.
EACH PROSPECTIVE HOLDER AND, SUBSEQUENT TO THE EXCHANGE OFFER, EACH HOLDER,
OF NEW NOTES IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR INCLUDING WITH
RESPECT TO ITS PARTICULAR TAX SITUATION THE TAX EFFECTS OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
EXCHANGE OF NOTES
The exchange of Existing Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for U.S. federal income tax purposes.
Accordingly, a Holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Existing Notes immediately
before the exchange.
STATED INTEREST
The New Notes will be issued without original issue discount. Stated
interest on the Existing Notes and New Notes will be includable in the Holder's
income under such Holder's method of accounting.
BOND PREMIUM
Generally, if the New Notes are purchased, or if the Existing Notes were
purchased, for an amount in excess of the amount payable at the maturity date
(or a call date, if appropriate) of the New Notes, such
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excess will constitute amortizable bond premium that the Holder may elect to
amortize under the constant interest method over the period from the date of
acquisition to the date of maturity (or until an earlier call date). If bond
premium is amortized, the amount required to be included in the Holder's income
each year with respect to interest on the Note will be reduced by the amount of
amortizable bond premium allocable to such year. An election to amortize bond
premium is available only if the New Notes are held as capital assets. This
election is revocable only with the consent of the IRS and applies to all
obligations owned or subsequently acquired by the Holder. To the extent the
excess is deducted as amortizable bond premium, the Holder's adjusted tax basis
in the New Notes will be reduced.
MARKET DISCOUNT ON THE NEW NOTES
To the extent a Holder had market discount with respect to an Existing Note,
the Holder generally will have market discount with respect to a New Note. Any
principal payment or gain realized by a Holder on disposition or retirement of a
New Note will be treated as ordinary income to the extent that there is accrued
market discount on the New Note. Unless a Holder elects to accrue under a
constant-interest method, accrued market discount is the total market discount
multiplied by a fraction, the numerator of which is the number of days the
Holder has held the obligation and the denominator of which is the number of
days from the date the Holder acquired the obligation under its maturity. A
Holder may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry a New Note purchased with market discount. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includable in income. If the Holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the Holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
SALE, EXCHANGE OR RETIREMENT OF THE NEW NOTES
Upon the sale, exchange or retirement of a New Note, the Holder generally
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement (which does not include any amount
attributable to accrued but unpaid interest) and the Holder's adjusted tax basis
in the New Note. A Holder's adjusted tax basis in a New Note will generally
equal the Holder's adjusted basis for the Existing Note exchanged therefor
increased by any original issue discount or market discount previously included
in income by such Holder with respect to such New Note and decreased by any
payments received thereon that are not qualified stated interest and the amount
of any amortizable bond premium applied to reduce interest on the New Note.
Gain or loss realized on the sale, exchange or retirement of a New Note will
be capital (subject to the market discount rules, discussed above), and will be
long-term if at the time of sale, exchange or retirement the New Note has been
held or deemed held for more than one year. Gain on most capital assets held or
deemed held by an individual for more than 18 months is subject to tax at a
maximum rate of tax of 20%, and gain on most capital assets held or deemed held
by an individual for more than one year and up to 18 months is subject to tax at
a maximum rate of 28%. The deductibility of capital losses is subject to
limitations.
NON-U.S. HOLDERS
The following sets forth a summary of certain U.S. federal income and estate
tax considerations of the ownership and disposition of New Notes by Non-U.S.
Holders. As used herein, a Non-U.S. Holder means any Holder other than a U.S.
Holder.
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INTEREST
Interest paid by the Company to a Non-U.S. Holder generally will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Holder and pursuant to the "portfolio interest
exception" such Non-U.S. Holder: (i) does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company; (ii) is not a controlled foreign corporation with respect to which the
Company is a "related person" within the meaning of the code; and (iii)
certifies, under penalties of perjury, that such Holder is not a United States
person and provides such Holder's name and address. Recently adopted Treasury
Regulations that will be effective beginning January 1, 2000 (the "New
Regulations") would modify the foregoing certification requirement in certain
respects. Prospective holders are urged to consult their own tax advisors as to
the certification and other requirements under the New Regulations.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale, redemption or other disposition of a
New Note unless: (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder; or (ii) in
the case of a Non-U.S. Holder who is a nonresident alien individual and holds
the Note as a capital asset, such Holder is present in the United States for 183
or more days in the taxable year and certain other requirements are met.
FEDERAL ESTATE TAXES
If interest on the New Notes is exempt from withholding of United States
federal income tax under the portfolio interest exception described above, the
New Notes will generally not be included in the estate of a deceased Non-U.S.
Holder for United States federal estate tax purposes.
BACKUP WITHHOLDING
A Holder of the New Notes may be subject to backup withholding at a rate of
31% with respect to interest paid or accrued on, and gross proceeds of a sale
of, the New Notes unless (i) such Holder is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A Holder of the New Notes who does
not provide such Holder's correct taxpayer identification number may be subject
to penalties imposed by the IRS.
In general, payment of the proceeds from the sale of Notes to or through a
United States office of a broker is subject to both United States backup
withholding and information reporting unless the Holder or beneficial owner
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption. United States information reporting and backup
withholding generally will not apply to a payment made outside the United States
of the proceeds of a sale of Notes through an office outside the United States
of a non-United States broker. However, United States information reporting
requirements (but not backup withholding) will apply to a payment made outside
the United States of the proceeds of a sale of Notes through an office outside
the United States of a broker that is a United States person, that derives 50%
or more of its gross income for a specified three-year period from the conduct
of a trade or business in the United States, or that is a "controlled foreign
corporation" as to the United States, unless the broker has documentary evidence
in its files that the Holder or beneficial owner is a non-United States person
or the Holder or beneficial owner otherwise establishes an exemption.
The New Regulations would modify the application of the information
reporting requirements and the backup withholding tax to Non-U.S. Holders
beginning January 1, 2000. Amounts withheld under the
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backup withholding rules may be credited against a Holder's tax liability, and a
Holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY, DOES NOT CONSTITUTE TAX ADVICE, AND IS NOT BASED UPON
ANY OPINION OF COUNSEL. ACCORDINGLY, EACH HOLDER OF THE EXISTING NOTES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time, may
be used by Exchanging Dealers in connection with resales of New Notes received
in exchange for Existing Notes where such Existing Notes were acquired as a
result of market-making activities or other trading activities. Each Exchanging
Dealer that receives New Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Company has agreed that under certain
circumstances, for a period of up to 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any Exchanging
Dealer for use in connection with any such resale. In addition, up through and
including , 1998 (90 days after this Prospectus was sent to Existing
Holders), all dealers effecting transactions in the New Notes, whether or not
participating in the Exchange Offer, may be required to deliver a prospectus in
connection with such transaction.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any Exchanging Dealer
that acquired Existing Notes as a result of market making activities or other
trading activities and who resells New Notes that were received by it pursuant
to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, an Exchanging Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of up to 180 days following effectiveness of the Exchange Offer
Registration Statement, and subject to certain conditions, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all required
expenses incident to the Exchange Offer (including the expenses of one counsel
for the Existing Holders) other than commissions or concessions of any
broker-dealers and will indemnify the Existing Holders (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets as of July 31, 1996 and 1997 and the
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended July 31, 1997 of MTS, INCORPORATED and
Subsidiaries included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their report appearing herein.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Exchange Offer Registration
Statement on Form S-4 pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the Exchange
Offer Registration Statement. For further information with respect to the
Company and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are necessarily
incomplete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
As a result of the effectiveness of the Exchange Offer Registration
Statement, the Company is now subject to the informational requirements of
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), by virtue of Section 15(d) of the Exchange Act, and in accordance
therewith will file reports and other information as required with the
Commission as long as such reporting is required under Section 15(d) of the
Exchange Act. Periodic reports and other information filed by the Company can be
inspected and copied at the public reference facilities of the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the regional offices of the Commission at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661. Copies of such material can be
obtained from the public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a website (http://www.sec.gov) that
also contains certain reports and other information filed by the Company.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the Holders and, to the extent permitted
by applicable law or regulation, file with the Commission all annual reports,
quarterly reports and other documents which the Company would have been required
to file pursuant to Section 13(a) or 15(d) of the Exchange Act.
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MTS, INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of July 31, 1996, and 1997, and January 31, 1998 (unaudited) and Pro Forma
January 31, 1998 (unaudited)............................................................................. F-3
Consolidated Statements of Income for the fiscal years ended July 31, 1995, 1996, and 1997, and for the six
months ended January 31, 1997 and 1998 (unaudited)....................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended July 31, 1995, 1996,
and 1997, and for the six months ended January 31, 1998 (unaudited)...................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended July 31, 1995, 1996, and 1997, and for the
six months ended January 31, 1997 and 1998 (unaudited)................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of MTS, INCORPORATED
and Subsidiaries
West Sacramento, California
We have audited the accompanying consolidated balance sheets of MTS,
INCORPORATED and Subsidiaries as of July 31, 1996 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended July 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MTS,
INCORPORATED and Subsidiaries as of July 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Sacramento, California
October 29, 1997, except for
Notes 2 and 3 as to which the
dates are April 20, 1998 and
March 20, 1998, respectively
F-2
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31,
------------------------
1996 1997
----------- ----------- JANUARY 31, PRO FORMA
1998 JANUARY 31,
------------ 1998
(NOTE 2)
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 8,253 $ 6,607 $ 16,289 $ 16,264
Receivables, net.......................................... 22,248 20,698 20,747 20,334
Merchandise inventories................................... 273,726 282,015 272,364 272,364
Prepaid expenses.......................................... 12,796 9,085 7,507 7,499
Deferred tax assets....................................... -- 425 994 6,795
----------- ----------- ------------ ------------
Total current assets.................................. 317,023 318,830 317,901 323,256
Fixed assets, net........................................... 188,631 190,357 182,488 181,962
Deferred tax assets......................................... -- 7,566 7,525 7,525
Other assets................................................ 23,116 27,825 30,393 31,795
----------- ----------- ------------ ------------
Total assets.......................................... $ 528,770 $ 544,578 $ 538,307 $ 544,538
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 8,671 $ 163,171 $ 207,214 $ 1,644
Accounts payable.......................................... 148,771 163,956 133,467 133,467
Accrued liabilities....................................... 29,588 28,876 28,240 28,240
Income taxes payable...................................... 3,029 191 -- --
Distribution payable to trusts (Note 2)................... -- -- -- 12,891
Deferred revenue, current portion......................... 2,229 2,877 7,375 7,375
Deferred tax liabilities.................................. 4,068 -- -- --
----------- ----------- ------------ ------------
Total current liabilities............................. 196,356 359,071 376,296 183,617
Long-term liabilities:
Long-term debt, less current maturities................... 194,099 48,096 19,025 228,136
Deferred revenue, less current portion.................... 196 184 176 176
----------- ----------- ------------ ------------
Total liabilities..................................... 390,651 407,351 395,497 411,929
----------- ----------- ------------ ------------
Minority equity in subsidiaries............................. 2,972 3,196 2,211 2,211
----------- ----------- ------------ ------------
Commitments and contingencies (Notes 10 and 15)
Shareholders' equity:
Common stock:
Class A, no par value; 5,000,000 shares authorized; 500
shares issued and outstanding at July 31, 1996 and
1997; none at January 31, 1998........................ 3 3 -- --
Class B, no par value; 10,000,000 shares authorized; 500
shares issued and outstanding at July 31, 1996 and
1997; 1,000 issued and outstanding at January 31,
1998.................................................. 3 3 6 6
Additional paid-in capital................................ 780 780 780 780
Retained earnings......................................... 134,361 133,245 139,813 129,612
----------- ----------- ------------ ------------
Total shareholders' equity............................ 135,147 134,031 140,599 130,398
----------- ----------- ------------ ------------
Total liabilities and shareholders' equity............ $ 528,770 $ 544,578 $ 538,307 $ 544,538
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED JULY 31, JANUARY 31,
----------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997
------------- ------------- -----------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
Net revenue............................... $ 950,561 $ 1,001,035 $ 991,810 $ 518,987 $ 532,770
Cost of sales............................. 640,587 676,155 669,279 352,526 361,707
------------- ------------- ----------- ----------- -----------
Gross profit.......................... 309,974 324,880 322,531 166,461 171,063
Selling, general and administrative
expenses................................ 255,140 270,353 267,620 135,116 138,206
Depreciation and amortization............. 20,397 20,938 21,784 11,277 11,476
------------- ------------- ----------- ----------- -----------
Income from operations................ 34,437 33,589 33,127 20,068 21,381
Other income and (expenses):
Interest expense........................ (11,467) (14,905) (14,298) (9,379) (6,908)
Foreign currency translation gain
(loss)................................ 5,622 (1,425) (3,552) (275) (615)
Other income and (expenses)............. (2,367) (62) (5,735) (395) 204
------------- ------------- ----------- ----------- -----------
Income before taxes, extraordinary
item and minority interest.......... 26,225 17,197 9,542 10,019 14,062
Provision for income taxes................ 10,920 7,013 4,543 4,769 6,085
------------- ------------- ----------- ----------- -----------
Income before extraordinary item and
minority interest................... 15,305 10,184 4,999 5,250 7,977
Minority interest in net income of
subsidiaries............................ 192 149 224 76 93
------------- ------------- ----------- ----------- -----------
Income before extraordinary item...... 15,113 10,035 4,775 5,174 7,884
Extraordinary loss on extinguishment of
debt, net of income taxes of $824....... -- -- 1,236 1,236 --
------------- ------------- ----------- ----------- -----------
Net income............................ $ 15,113 $ 10,035 $ 3,539 $ 3,938 $ 7,884
------------- ------------- ----------- ----------- -----------
------------- ------------- ----------- ----------- -----------
Basic earnings per share:
On income before extraordinary item..... $ 15,113.47 $ 10,035.73 $ 4,774.83 $ 5,173.81 $ 7,884.48
------------- ------------- ----------- ----------- -----------
------------- ------------- ----------- ----------- -----------
On net income........................... $ 15,113.47 $ 10,035.73 $ 3,539.31 $ 3,938.29 $ 7,884.48
------------- ------------- ----------- ----------- -----------
------------- ------------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------------
COMMON STOCK SERIES A SERIES B
------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1994............................ 500 $ 6 -- $ -- -- $ --
Reissuance of common stock....................... (500) (6) 500 6 500 --
Stock dividend accounted for as a stock split.... -- -- -- (3) -- 3
Trust distributions.............................. -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
Tranlation adjustment, net of income taxes....... -- -- -- -- -- --
--- ----------- --- ----------- ----- -----------
Balance, July 31, 1995............................. -- -- 500 3 500 3
Trust distributions.............................. -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
Translation adjustment, net of income taxes...... -- -- -- -- -- --
--- ----------- --- ----------- ----- -----------
Balance, July 31, 1996............................. -- -- 500 3 500 3
Trust distributions.............................. -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
Translation adjustment, net of income taxes...... -- -- -- -- -- --
--- ----------- --- ----------- ----- -----------
Balance, July 31, 1997............................. -- -- 500 3 500 3
Trust distribution (unaudited)................... -- -- -- -- -- --
Net income (unaudited)........................... -- -- -- -- -- --
Translation adjustment, net of income taxes
(unaudited).................................... -- -- -- -- -- --
Conversion of Class A to Class B common shares as
part of Reorganization (unaudited)............. -- -- (500) (3) 500 3
--- ----------- --- ----------- ----- -----------
Balance, January 31, 1998 (unaudited).............. -- $ -- -- $ -- 1,000 $ 6
--- ----------- --- ----------- ----- -----------
--- ----------- --- ----------- ----- -----------
<CAPTION>
RETAINED EARNINGS
-------------------------------------
BEFORE AFTER
ADDITIONAL CUMULATIVE CUMULATIVE CUMULATIVE
PAID-IN TRANSLATION TRANSLATION TRANSLATION
CAPITAL ADJUSTMENT ADJUSTMENT ADJUSTMENT TOTAL
------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1994............................ $ 780 $ 122,209 $ (10,923) $ 111,286 $ 112,072
Reissuance of common stock....................... -- -- -- -- --
Stock dividend accounted for as a stock split.... -- -- -- -- --
Trust distributions.............................. -- (175) -- (175) (175)
Net income....................................... -- 15,113 -- 15,113 15,113
Tranlation adjustment, net of income taxes....... -- -- 454 454 454
----- ----------- ----------- ----------- ---------
Balance, July 31, 1995............................. 780 137,147 (10,469) 126,678 127,464
Trust distributions.............................. -- (357) -- (357) (357)
Net income....................................... -- 10,035 -- 10,035 10,035
Translation adjustment, net of income taxes...... -- -- (1,995) (1,995) (1,995)
----- ----------- ----------- ----------- ---------
Balance, July 31, 1996............................. 780 146,825 (12,464) 134,361 135,147
Trust distributions.............................. -- (126) -- (126) (126)
Net income....................................... -- 3,539 -- 3,539 3,539
Translation adjustment, net of income taxes...... -- -- (4,529) (4,529) (4,529)
----- ----------- ----------- ----------- ---------
Balance, July 31, 1997............................. 780 150,238 (16,993) 133,245 134,031
Trust distribution (unaudited)................... -- (24) -- (24) (24)
Net income (unaudited)........................... -- 7,884 -- 7,884 7,884
Translation adjustment, net of income taxes
(unaudited).................................... -- -- (1,292) (1,292) (1,292)
Conversion of Class A to Class B common shares as
part of Reorganization (unaudited)............. -- -- -- -- --
----- ----------- ----------- ----------- ---------
Balance, January 31, 1998 (unaudited).............. $ 780 $ 158,098 $ (18,285) $ 139,813 $ 140,599
----- ----------- ----------- ----------- ---------
----- ----------- ----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------
1995 1996 1997
--------- ------------ --------- FOR THE SIX MONTHS ENDED
JANUARY 31,
------------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 15,113 $ 10,035 $ 3,539 $ 3,938 $ 7,884
Adjustments to reconcile net income to net cash
provided by operating actvities:
Depreciation and amortization................. 25,957 26,784 27,546 14,253 14,123
Provision (recovery) for losses on accounts
receivable.................................. 145 (95) 23 (76) 67
Loss on disposal of depreciable assets........ 6,044 2,432 7,259 1,526 975
Exchange (gain) loss.......................... (3,008) 763 1,902 2,376 1,928
Other non-cash expense........................ 411 249 834 155 171
Provision for deferred taxes.................. 5,280 789 360 428 (21)
Minority interests in net income of
subsidiaries................................ 192 149 223 76 93
Extraordinary loss on extinguishment of
debt........................................ -- -- 1,236 1,236 --
(Decrease) increase in cash resulting from
changes in:
Accounts receivable......................... (1,233) 3,960 1,551 1,760 302
Inventories................................. (52,634) (26,624) (8,290) 5,905 9,651
Prepaid expenses............................ (8,451) 287 3,711 (507) 1,577
Accounts payable............................ 11,141 19,260 15,183 (14,462) (30,488)
Accrued liabilities......................... 1,663 10,140 (3,549) (1,701) (828)
Deferred revenue............................ 169 77 635 4,435 4,491
--------- ------------ --------- ----------- -----------
Net cash provided by operating
activities.............................. 789 48,206 52,163 19,342 9,925
--------- ------------ --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets..................... (50,163) (48,730) (45,012) (24,021) (10,099)
Acquisition of investments and artwork.......... (716) (7,025) (5,467) (2,736) (2,986)
Increase in deposits............................ (933) (835) (1,701) (1,338) (1,446)
Refund of deposits.............................. 2,369 791 121 33 1,384
Increase in intangibles......................... (922) (3,080) (681) (281) (295)
--------- ------------ --------- ----------- -----------
Net cash used in investing activities..... (50,365) (58,879) (52,740) (28,343) (13,442)
--------- ------------ --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholders, officers and employees... (657) (345) (223) (137) (519)
Proceeds from employee loan repayments.......... 218 520 572 299 68
Trust distributions............................. (175) (357) (126) (85) (24)
Principal payments under long-term financing
agreements.................................... (45,651) (32,523) (93,672) (88,816) (12,029)
Proceeds from issuance of long-term financing
agreements.................................... 143,082 38,941 102,169 110,855 27,000
Net repayments under line-of-credit
aggrements.................................... (40,000) -- -- -- --
--------- ------------ --------- ----------- -----------
Net cash provided by financing
activities.............................. 56,817 6,236 8,720 22,116 14,496
--------- ------------ --------- ----------- -----------
Effect of exchange rate changes on cash........... (3,662) (7,289) (9,789) (10,783) (1,297)
--------- ------------ --------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. 3,579 (11,726) (1,646) 2,332 9,682
Cash and cash equivalents, beginning of period.... 16,400 19,979 8,253 8,253 6,607
--------- ------------ --------- ----------- -----------
Cash and cash equivalents, end of period.......... $ 19,979 $ 8,253 $ 6,607 $ 10,585 $ 16,289
--------- ------------ --------- ----------- -----------
--------- ------------ --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY--The consolidated financial statements include the
accounts of MTS, INCORPORATED and its majority and wholly owned subsidiaries
(Company). As the result of a reorganization in April 1998 of the retail
business assets of the shareholder and his family, the financial statements
include, on a retroactive basis, the accounts of businesses previously held by
two trusts for the benefit of the shareholder's sons (Trusts) as well as the
accounts of two S corporations owned by the shareholder's sons (S Corporations)
(Note 2).
The Company has 50% investments in certain foreign joint ventures that are
accounted for using the equity method. In September 1995, the Company acquired
the stock of two joint ventures from its former partners; consequently, income
or loss of those operations is included in the consolidated statement of income
from the date that the Company acquired a controlling interest.
All material intercompany balances and transactions have been eliminated in
consolidation.
GENERAL--The Company operates retail stores under the name Tower offering a
diversified line of recorded music products and other complementary products
throughout the United States, Japan, the United Kingdom and other parts of the
world.
INTERIM RESULTS (UNAUDITED)--The accompanying balance sheet as of January
31, 1998, and the statements of income, changes in stockholders' equity and cash
flows for the six-month periods ended January 31, 1997 and 1998, are unaudited.
In the opinion of management, these statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for the fair
presentation of the results of the interim periods. The data disclosed in these
notes to the financial statements for those interim periods are also unaudited.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid temporary
cash investments with maturities of three months or less when purchased to be
cash equivalents for purposes of the statement of cash flows. The Company's bank
deposits generally exceed the federally insured limit.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
PROPERTY AND EQUIPMENT--Property and equipment are carried at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from 20 to 40 years for real property and 5
to 10 years for equipment. Leasehold improvements are amortized using the
straight-line method over the shorter of their estimated useful lives or the
lease term. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and betterments
are capitalized.
STORE PREOPENING COSTS--Costs of a noncapital nature incurred prior to
opening of new stores are expensed as incurred.
INTANGIBLES--Intangibles primarily represent the excess of cost over the
fair value of businesses acquired and debt issuance costs. The Company amortizes
goodwill using the straight-line method over
F-7
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
40 years. Debt issuance costs are amortized over the term of the related debt
using the effective interest rate method.
INCOME TAXES--The Company accounts for income taxes under the liability
method. Deferred taxes are recorded based on the difference between the
financial statement and tax basis of assets and liabilities. A valuation
allowance would be established to reduce deferred tax assets if it is more
likely than not that all, or a portion, of the deferred tax asset will not be
realized. No allowance against deferred tax assets was provided at July 31, 1997
or January 31, 1998.
EARNINGS PER SHARE--Effective January 31, 1998, the Company adopted the
provisions of SFAS No. 128, EARNINGS PER SHARE, which was effective for
accounting periods ending after December 15, 1997. SFAS No. 128 changed the
method of calculating earnings per share and requires a dual presentation of
basic and diluted earnings per share. In accordance with the provisions of SFAS
No. 128, earnings per share information for all periods presented have been
stated under the methodology and disclosures specified in SFAS No. 128.
TRANSLATION OF FOREIGN CURRENCY--The value of the U.S. dollar rises and
falls day-to-day on foreign currency exchanges. Since the Company does business
in several foreign countries, these fluctuations affect the Company's financial
position and results of operations. In accordance with SFAS No. 52, FOREIGN
CURRENCY TRANSLATION, all foreign assets and liabilities have been translated at
the exchange rates prevailing at the respective balance sheet dates, and all
income statement items have been translated using the weighted average exchange
rates during the respective years. The net gain or loss resulting from
translation upon consolidation into the combined financial statements is
reported as a separate component of retained earnings. Some transactions of the
Company and its foreign subsidiaries are made in currencies different from their
own. Translation gains and losses from these transactions are included in income
as they occur.
RISK MANAGEMENT INSTRUMENTS--The Company enters into foreign exchange
contracts as a hedge against variations in exchange rates on accounts and notes
payable due in foreign currency. Market value gains and losses related to
foreign exchange contracts are recognized and offset foreign exchange gains and
losses on foreign accounts and notes payable. Counterparties to risk management
instruments are major financial institutions. Credit loss from counterparty
nonperformance is not anticipated.
ADVERTISING EXPENSE--Advertising expenses are recorded as expense when
incurred. Cooperative advertising rebates are recognized as reductions of
advertising expense in the period the advertisements are run.
RECLASSIFICATIONS--Certain reclassifications of accounts within the
previously presented consolidated financial statements for the years ended July
31, 1995, 1996 and 1997 have been made to provide consistency with the
presentation of the unaudited consolidated financial statements for the
six-month period ended January 31, 1998. These reclassifications had no effect
on shareholders' equity or net income and were not significant to operating
income.
F-8
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting Standards
(SFAS) No. 130, REPORTING COMPREHENSIVE INCOME, and SFAS No. 131, DISCLOSURE
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, were issued in June
1997. The Company will adopt both of the statements beginning July 31, 1998.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income is a measure of all changes in the equity of the Company as a result of
recognized transactions and other economic events of the period other than
transactions with shareholders in their capacity as shareholders. Had the
provisions of SFAS No. 130 been applied for the years ended July 31, 1995, 1996
and 1997, comprehensive income would have consisted primarily of net income and
foreign currency translation adjustments.
SFAS No. 131 requires that the Company report financial and descriptive
information about its reportable operating segments using the "management
approach" model. Under the management approach model, segments are defined based
on the way the Company's management internally evaluates segment performance and
decides how to allocate resources to segments. The Company is in the process of
evaluating the impact of this pronouncement on its segment disclosures
NOTE 2--REORGANIZATION
In April 1998, the Company consummated certain transactions designed to
consolidate substantially all of the Tower business operations into the Company
(such transactions collectively, the "Reorganization") as a result of which the
Company became a wholly owned subsidiary of TOWER RECORDS, INCORPORATED
(Parent). The Company also, apart from the Reorganization, transferred certain
assets to the Trusts. The Reorganization included an exchange by the Company's
shareholders of their common shares in the Company for a controlling equity
interest in the Parent. As part of the Reorganization, two irrevocable trusts
established by the Company's principal shareholder for the benefit of his sons
(the Trusts) and the shareholders of two S corporations (the S Corporations),
contributed certain assets, liabilities and equity ownership interests in
businesses to the Parent in exchange for the remaining equity interest in the
Parent. The assets, liabilities and businesses contributed by the Trusts and the
shareholders of the S Corporations consist of one Tower store, land used in the
Tower business, trademark rights to the Tower name in Japan and all royalties
accrued in connection therewith on and after February 1, 1998, a recorded music
wholesale operation, intercompany receivables and payables, bank debt and the
cash surrender value as of April 1998 (see Note 6) of certain second-to-die
split value life insurance policies on the lives of the Parent's principal
shareholder and his wife. The Parent then contributed to the Company the assets
and liabilities it received from the Trusts and the shareholders of the S
corporations.
F-9
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 2--REORGANIZATION (CONTINUED)
The Reorganization was a combination of businesses under common control and,
accordingly, has been accounted for in a manner similar to a
pooling-of-interests. Accordingly, the assets and liabilities the Company
received from the Parent in the Reorganization and the historical results of
operations of such business assets are included, on a retroactive basis, in the
Company's consolidated balance sheets and statements of income for all periods
presented at the previous accounting basis of the Trusts and shareholders of the
S corporations.
Also, it is the Company's intention that T.R. Services, a subsidiary of the
Company, will be eliminated by upstream merger of the subsidiary into the
Company. The Company recently reacquired all minority interests in certain
subsidiaries of MTS, INCORPORATED which the Company eliminated through upstream
mergers into the Company. The Company also eliminated Tower Domestic, Inc. and
Queen Anne Record Sales, subsidiaries of the Company, through upstream mergers
into the Company.
Prior to and apart from the Reorganization, the Company transferred to the
Trusts certain assets valued at $2,908,000 in exchange for inventory with an
equal value. The sale price of these assets was determined based on independent
appraisals or estimates of the fair market value of the assets that the Company
believes to be reasonable.
In the Reorganization, the Trusts transferred to the Parent certain business
assets and liabilities, intercompany accounts, and the cash surrender value of
certain life insurance policies and retained their cash, certain receivables and
other assets and liabilities with an aggregate net book value of $10,201,000,
net of related deferred taxes. The principal asset retained is a noninterest
bearing trademark royalty receivable from the Company amounting to $12,891,000
at January 31, 1998, offset by a related deferred tax liability of $5,801,000.
Since the Company's consolidated financial statements are inclusive of the
Trusts' transactions after retroactive restatement, the assets retained by the
Trusts will be reflected as distributions of retained earnings on the date of
the Reorganization.
The pro forma (unaudited) consolidated balance sheet as of January 31, 1998
gives effect to the distributions of assets with a net book value of $10,201,000
as described above that occurred as part of the Reorganization and the
refinancing of its debt on a long-term basis (see Note 7) as though they
occurred on January 31, 1998.
In accordance with the Company's articles of incorporation, each outstanding
share of its Class A common stock automatically converted to one share of Class
B common stock upon exchange of the Company's common shares by the shareholders
for shares of the Parent as part of the Reorganization. Shareholders' equity has
been presented to reflect the conversion of such shares as of January 31, 1998.
F-10
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 3--EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations under SFAS No. 128 is as follows (in thousands,
except per share information):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED JULY 31, JANUARY 31,
------------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
------------- ------------- ------------ ------------ -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income available to common shareholders
before extraordinary item............. $ 15,113 $ 10,035 $ 4,775 $ 5,174 $ 7,884
Extraordinary item...................... -- -- (1,236) (1,236) --
------------- ------------- ------------ ------------ -----------
$ 15,113 $ 10,035 $ 3,539 $ 3,938 $ 7,884
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
Weighted average shares outstanding for
determination of:
Basic earnings per share.............. 1,000 1,000 1,000 1,000 1,000
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
Diluted earnings per share............ 1,000 1,000 1,000 1,000 1,000
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
Basic earnings per share:
On income before extraordinary item... $ 15,113.47 $ 10,035.73 $ 4,774.83 $ 5,173.81 $ 7,884.48
On extraordinary item................. -- -- (1,235.52) (1,235.52) --
------------- ------------- ------------ ------------ -----------
On net income......................... $ 15,113.47 $ 10,035.73 $ 3,539.31 $ 3,938.29 $ 7,884.48
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
</TABLE>
Diluted earnings per share is the same as basic earnings per share since the
Company has a simple capital structure with only common shares outstanding.
F-11
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 4--RECEIVABLES
Receivables consist of (in thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------- JANUARY 31,
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Trade receivables, less allowance for doubtful accounts
of $448, $420 and $527................................. $ 15,387 $ 16,914 $ 16,334
Officers and employee receivables, including notes, less
allowance for doubtful accounts of $98, $103 and $86... 2,199 1,736 2,165
Notes receivable, shareholders and family members,
current portion........................................ 371 371 371
Other receivables........................................ 4,291 1,677 1,877
--------- --------- ------------
$ 22,248 $ 20,698 $ 20,747
--------- --------- ------------
--------- --------- ------------
</TABLE>
The Company has receivables of approximately $5,011,000, $4,930,000 and
$5,279,000 from sales of product for resale and supplies to unconsolidated
foreign joint ventures at July 31, 1996 and 1997, and January 31, 1998
respectively.
NOTE 5--FIXED ASSETS
Fixed assets consist of (in thousands):
<TABLE>
<CAPTION>
JULY 31,
------------------------ JANUARY 31,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Land.................................................. $ 10,362 $ 9,876 $ 9,526
Buildings............................................. 19,355 19,708 19,747
Leasehold improvements................................ 137,913 134,876 135,639
Video rental cassettes................................ 20,538 20,241 19,542
Store fixtures........................................ 38,877 41,910 43,301
Equipment............................................. 98,341 115,982 116,291
Vehicles.............................................. 822 581 545
----------- ----------- ------------
326,208 343,174 344,591
Less: accumulated depreciation and amortization....... 137,577 152,817 162,103
----------- ----------- ------------
$ 188,631 $ 190,357 $ 182,488
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The cost to build new store fixtures and improvements includes a portion of
the interest expense. Interest capitalized was $487,000, $135,000 and $192,000,
for the years ended July 31, 1995, 1996 and 1997 respectively, and $47,000 and
$120,000 for the six-month periods ended January 31, 1997 and 1998,
respectively.
F-12
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 5--FIXED ASSETS (CONTINUED)
Depreciation and amortization of fixed assets was $25,636,000, $26,330,000
and $26,898,000 for the years ended July 31, 1995, 1996 and 1997, respectively,
and $13,841,000 and $13,819,000 for the six-month periods ended January 31, 1997
and 1998, respectively.
NOTE 6--OTHER ASSETS
Other assets consist of (in thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------- JANUARY 31,
1996 1997 1998
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Notes receivable, shareholders and family members, less
current portion........................................ $ 400 $ 785 $ 784
Notes receivable, officers and employees, less current
portion................................................ 2,040 2,280 1,593
Investment in foreign joint ventures..................... 1,021 1,962 3,036
Securities and artwork................................... 736 994 1,277
Cash surrender value of officers' life insurance......... 5,554 8,956 10,392
Deposits................................................. 6,714 7,298 8,116
Goodwill, debt issuance costs and other intangible
assets, net of accumulated amortization of $1,655,
$3,336 and $3,896...................................... 6,651 5,550 5,195
--------- --------- ------------
$ 23,116 $ 27,825 $ 30,393
--------- --------- ------------
--------- --------- ------------
</TABLE>
Cash surrender value of life insurance at July 31, 1997 includes $6,496,000
($7,932,000 at January 31, 1998) as to split value life insurance policies on
the lives of the Company's Parent's principal shareholder and his wife for the
benefit of certain family trusts. Under the terms of the policies, the Company
will receive the first proceeds of the policies up to the aggregate premiums
paid by the Company, except for one group of policies as to which the Company
will receive the first proceeds of the policies up to the sum of the aggregate
premiums paid by the Company plus $7,634,000 representing the cash surrender
value of the policies when received by the Company in April 1998 as part of the
Reorganization. The balance of the proceeds will be paid to the Trusts. Premiums
on the policies amount to $3.6 million per year which are recorded as expense,
net of increases in the cash surrender value of the policies. Life insurance
expense related to these policies amounted to $220,000, $352,000 and $274,000 in
the years ended July 31, 1995, 1996 and 1997, and $127,000 and $250,000 in the
six month periods ended January 31, 1997 and 1998, respectively.
F-13
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 7--LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
JULY 31,
------------------------ JANUARY 31,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
7.37% to 10.05% Senior notes, uncollateralized, interest payable
quarterly, retired in January 1997...................................... $ 48,364 $ -- $ --
Revolving credit line, uncollateralized, variable interest payable monthly
(6.63% at July 31, 1997 and 6.98% at January 31, 1998), principal due
May 1998................................................................ 134,000 102,000 118,000
Revolving credit line, uncollateralized, variable interest payable monthly
(1.62% at January 31, 1998), principal due November 1998................ -- -- 13,386
1.88% Senior note, uncollateralized, interest payable quarterly, principal
due May 1998............................................................ -- 49,374 45,642
1.42% Senior note, uncollateralized, interest payable quarterly, principal
due November 1998....................................................... -- 29,175 26,969
2.40% to 2.50% term loan notes, uncollateralized, principal and interest
payable quarterly through February 2002................................. 18,142 17,017 11,799
Other obligations, 8.21% to 12.5%, principal and interest generally due in
monthly installments, collateralized by certain real property, equipment
and leasehold improvements.............................................. 2,264 13,701 10,443
----------- ----------- ------------
Total Long-term Debt...................................................... 202,770 211,267 226,239
Less Current Portion...................................................... 8,671 163,171 207,214
----------- ----------- ------------
Noncurrent Debt........................................................... $ 194,099 $ 48,096 $ 19,025
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
In April, 1998 the Company refinanced on a long-term basis certain
obligations which, at January 31, 1998, amounted to $118.0 million outstanding
under its $195.0 million revolving credit line and an aggregate of $97.8 million
under its $15.0 million revolving credit line, senior notes and term notes by
consummating an offering of $110.0 million of 9.375% senior subordinated notes
(Notes) and entering into a new senior revolving credit facility (New Credit
Facility) of up to $275.0 million.
The Notes mature May 2005 with interest payable semiannually and have
options to redeem in part at various premiums throughout the duration of the
indenture. The New Credit Facility consists of two sub-facilities (one for
$125.0 million and one for Japanese yen of 19,810,500,000, which amounted to
$150.0 million at inception) and matures in April 2001 with two provisions to
extend for an additional one-year period subject to certain terms and
conditions. Maximum borrowings under the New Credit Facility are subject to a
borrowing base formula and are collateralized by a majority of the Company's
inventory, accounts receivable and a pledge of 65% of the capital stock of its
Japanese subsidiary. The New Credit Facility bears interest at various variable
rates, including (as defined in the agreements) a Money Market Rate, ABR rate,
Yen Base Rate and Euro Rate, plus an annual facility fee.
F-14
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 7--LONG-TERM DEBT (CONTINUED)
There are various restrictive terms and covenants under the senior notes,
term notes and revolving credit lines (some of which were amended in 1997),
relating to occurrence of material adverse financial or operating conditions,
minimum levels of net worth, minimum ratios of current assets to current
liabilities, net worth to debt, cash flow to fixed charges, inventory and
receivables to certain debt and certain limitations on additional indebtedness,
liens or encumbrances on assets, long-term lease transactions, capital
expenditures, and issuance of capital stock.
In connection with retirement of Senior Notes in January 1997, the Company
recorded an extraordinary loss consisting of prepayment penalties.
As of July 31, 1997, maturities of long-term debt obligations are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- ---------------------------------------------------------------------------------
<S> <C>
1998............................................................................. $ 163,171
1999............................................................................. 36,067
2000............................................................................. 2,872
2001............................................................................. 2,827
2002............................................................................. 1,837
Thereafter....................................................................... 4,493
-----------
Total........................................................................ $ 211,267
-----------
-----------
</TABLE>
NOTE 8--DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments approximates
the related carrying value. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS AND NOTES RECEIVABLE--The carrying amount
approximates fair value because of the short-term maturity of these instruments.
LONG-TERM DEBT--The fair value of the Company's fixed rate long-term debt
was estimated based upon the discounted amount of future cash flows using rates
offered to the Company for debt of a similar nature using remaining average
maturities and taking into account the global markets in which funds are
available to the Company. The carrying value of the Company's variable rate debt
approximates fair value due to the variable nature of interest rates.
RISK MANAGEMENT INSTRUMENTS--Foreign exchange and interest rate risk
management instruments are recorded at their estimated value based on quoted
market prices of comparable contracts.
DEPOSITS--The fair value is not determinable since there is no market for
these deposits and the date of recovery of the amount on deposit depends on
future events.
F-15
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 9--SHAREHOLDERS' EQUITY
COMMON STOCK--The Company's articles of incorporation authorize issuance of
two classes of common stock: Class A and Class B. Class A and Class B Common
Stock have no par value and have the same rights and privileges except that
Class A common has ten votes per share on all matters and Class B common has one
vote per share on all matters. Also, Class B common has priority voting rights,
as a separate class, to elect twenty-five percent of the total membership of the
Board of Directors. If the number of outstanding shares of Class A common is
less than twelve and one-half percent of the total number of outstanding common
shares, including any common shares into which outstanding preferred shares may
be convertible, then the holders of Class B common will be entitled to
participate with the holders of Class A common in the election of the remaining
directors. In such event, Class A common shares will each have ten votes and
Class B common shares will each have one vote. Dividends or distributions may be
declared and paid on Class A Common Stock provided that identical dividends or
distributions are declared and paid on Class B Common Stock.
In accordance with the Company's Articles of Incorporation, each share of
Class A common automatically converted into one share of Class B common stock
for each share of Class A upon the exchange of the Company's Common Stock shares
by the shareholders for shares of the Parent as part of the Reorganization (see
Note 2).
PREFERRED STOCK--Preferred stock (1,000,000 shares authorized) may be issued
from time to time in one or more series. The Board of Directors is authorized to
determine the rights, preferences, privileges and restrictions granted to or
imposed upon unissued series of preferred stock and to fix the number of shares
of any such series.
NOTE 10--LEASES
OPERATING LEASES--The Company leases substantially all of its retail stores,
warehouses and administrative facilities. Those operating lease agreements
expire through 2023 and generally have renewal options of one to twenty years.
The terms of the leases provide for fixed or minimum payments plus, in some
cases, contingent rents based on the consumer price index, or percentages of
sales in excess of specified minimum amounts or other specified increases. The
Company is generally responsible for maintenance, insurance and property taxes.
Minimum future obligations on noncancelable operating leases are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- ---------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 38,805
1999........................................................................... 38,462
2000........................................................................... 36,372
2001........................................................................... 31,521
2002........................................................................... 30,097
Thereafter..................................................................... 185,596
-----------
Total Minimum Future Rental Payments......................................... $ 360,853
-----------
-----------
</TABLE>
F-16
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 10--LEASES (CONTINUED)
Total rental expenses (including taxes and maintenance, when included in
rent, contingent rents and accruals to recognize minimum rents on the
straight-line basis over the term of the lease) relating to all operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED JULY 31, JANUARY 31,
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1997 1998
1995 1996 1997 ----------- -----------
--------- --------- ---------
(UNAUDITED) (UNAUDITED)
Minimum rentals.................................... $ 53,276 $ 62,318 $ 64,808 $ 32,468 $ 32,860
Contingent rentals................................. 4,089 4,211 5,141 2,288 2,700
--------- --------- --------- ----------- -----------
$ 57,365 $ 66,529 $ 69,949 $ 34,756 $ 35,560
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
NOTE 11--INCOME TAXES
The provision for income taxes is allocated between income from operations,
extraordinary loss on extinguishment of debt and cumulative translation
adjustments to retained earnings. The provision for income taxes on income from
operations consists of:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Current:
U.S. Federal................................................................... $ -- $ 4,220 $ 843
State and Local................................................................ 1,352 (185) 424
Foreign........................................................................ 4,288 2,189 2,916
--------- --------- ---------
5,640 6,224 4,183
--------- --------- ---------
Deferred:
U.S. Federal................................................................... 2,178 (3,467) 1,106
State and Local................................................................ 919 773 237
Foreign........................................................................ 2,183 3,483 (983)
--------- --------- ---------
5,280 789 360
--------- --------- ---------
Provision for income taxes....................................................... $ 10,920 $ 7,013 $ 4,543
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 11--INCOME TAXES (CONTINUED)
The effective tax rates (i.e. provision for income taxes as a percent of
income before income taxes) differs from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 % 1996 % 1997 %
--------- --------- --------- --------- --------- ---------
Federal income tax, at statutory rate......................... $ 9,179 35.0% $ 6,019 35.0% $ 3,339 35.0%
Trust taxes in excess of (less than) C corporation rate....... (1,140) (4.3) 170 0.8 229 2.4
State and local income taxes, net of federal benefit.......... 1,534 5.8 871 5.2 362 3.8
Foreign taxes................................................. 6,470 25.6 5,672 32.7 1,933 20.3
Foreign tax credit recognized................................. (5,207) (20.8) (5,672) (32.7) (1,933) (20.3)
Other, principally permanent differences...................... 84 0.3 (47) (0.2) 613 6.4
--------- --------- --------- --------- --------- ---------
Provision for income taxes.................................... $ 10,920 41.6% $ 7,013 40.8% $ 4,543 47.6%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
The effective tax rate is influenced by higher statutory tax rates
applicable to trust income than to C corporation income and deductibility of
distributions of trust income within certain time frames of when earned.
Deferred income tax assets and liabilities consist of the tax effects of
temporary differences related to the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Deferred tax assets:
Foreign tax credits.................................................. $ 10,145 $ 11,816
Cumulative translation adjustment to retained earnings............... 8,873 12,896
Other................................................................ 8,327 7,916
--------- ---------
Total deferred tax assets.......................................... 27,345 32,628
--------- ---------
Deferred tax liabilities:
Depreciation and amortization........................................ 20,712 19,558
Other................................................................ 10,701 5,079
--------- ---------
Total deferred tax liabilities..................................... 31,413 24,637
--------- ---------
Net deferred tax assets (liabilities)............................ $ (4,068) $ 7,991
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 11--INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are reflected in the Company's
consolidated balance sheets as follows (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Current deferred tax assets (liabilities)............................... $ (4,068) $ 425
Non-current deferred tax assets (liabilities)........................... -- 7,566
--------- ---------
Net deferred tax assets (liabilities)............................... $ (4,068) $ 7,991
--------- ---------
--------- ---------
</TABLE>
NOTE 12--OTHER INCOME AND EXPENSES
Other income and (expenses) consist of (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED JULY 31, JANUARY 31,
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1997 1998
1995 1996 1997 ----------- -----------
--------- --------- ---------
(UNAUDITED) (UNAUDITED)
Loss on disposition of fixed assets................. $ (6,044) $ (2,432) $ (7,259) $ (1,526) $ (975)
Other, net.......................................... 3,677 2,370 1,524 1,131 1,179
--------- --------- --------- ----------- -----------
$ (2,367) $ (62) $ (5,735) $ (395) $ 204
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
NOTE 13--PENSION PLAN
PROFIT SHARING--Substantially all full-time domestic employees with
twenty-four months of service who have attained age twenty-one participate in
the Company's profit sharing retirement programs. The plans provide for
discretionary contributions as determined annually by the Board of Directors of
up to 15% of all eligible compensation. Costs under the plans are funded on an
annual basis.
The Company also maintains a plan for employees of their Japanese
subsidiary. The plan covers substantially all employees of the Japanese
operations. The plan provides for a lump sum payment upon termination without
cause based on term of service and compensation level. A liability for plan
payments is accrued equal to the amount that would result from termination of
all employees based on service to date and current compensation levels. As
permitted by Japanese law, the plan is not funded.
Pension expense under the pension plans amounted to $1,889,000, $1,792,000
and $1,719,000 for the years ended July 31, 1995, 1996 and 1997, respectively,
and $600,000 and $600,000 were accrued for the six month periods ended January
31, 1997 and 1998, respectively.
F-19
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 14--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates predominantly in the recorded music retail industry.
Financial information relating to the Company's principal foreign operations
is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED JULY 31, JANUARY 31,
--------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1997 1998
1995 1996 1997 ----------- -----------
----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
Net Revenue:
United States:
Unaffiliated customer sales.............. $ 560,484 $ 520,960 $ 553,292 $ 287,087 $ 311,000
Interarea transfers...................... 44,651 63,392 44,092 25,521 21,251
----------- ------------- ----------- ----------- -----------
605,135 584,352 597,384 312,608 332,251
----------- ------------- ----------- ----------- -----------
Japan:
Unaffiliated customer sales.............. 284,309 334,586 304,630 158,769 149,475
Interarea transfers...................... 0 0 0 0 0
----------- ------------- ----------- ----------- -----------
284,309 334,586 304,630 158,769 149,475
----------- ------------- ----------- ----------- -----------
Great Britain and Ireland:
Unaffiliated customer sales.............. 53,145 56,590 59,774 30,922 32,798
Interarea transfers...................... 1,575 1,045 1,858 2,256 3,415
----------- ------------- ----------- ----------- -----------
54,720 57,635 61,632 33,178 36,213
----------- ------------- ----------- ----------- -----------
Other:
Unaffiliated customer sales.............. 6,397 24,462 28,164 14,432 14,831
Interarea transfers...................... 0 0 0 0 0
----------- ------------- ----------- ----------- -----------
6,397 24,462 28,164 14,432 14,831
----------- ------------- ----------- ----------- -----------
$ 950,561 $ 1,001,035 $ 991,810 $ 518,987 $ 532,770
----------- ------------- ----------- ----------- -----------
----------- ------------- ----------- ----------- -----------
Operating income (loss):
United States.............................. $ 15,171 $ 13,747 $ 17,412 $ 9,255 $ 15,067
Japan...................................... 18,030 19,605 14,825 9,532 6,655
Great Britain and Ireland.................. 935 440 1,081 1,126 591
Other...................................... 301 (203) (191) 155 (932)
----------- ------------- ----------- ----------- -----------
$ 34,437 $ 33,589 $ 33,127 $ 20,068 $ 21,381
----------- ------------- ----------- ----------- -----------
----------- ------------- ----------- ----------- -----------
</TABLE>
F-20
<PAGE>
MTS, INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE SIX MONTH PERIODS
ENDED JANUARY 31, 1997 AND 1998)
NOTE 14--SEGMENT AND GEOGRAPHIC INFORMATION: (CONTINUED)
<TABLE>
<CAPTION>
JULY 31,
------------------------------------- JANUARY 31,
1995 1996 1997 1998
----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Identifiable assets:
United States.............................................. $ 368,302 $ 359,735 $ 373,273 $ 369,089
Japan...................................................... 106,789 122,952 121,778 117,724
Great Britain and Ireland.................................. 27,700 30,077 29,937 31,731
Other...................................................... 2,303 16,006 19,590 19,763
----------- ----------- ----------- ------------
$ 505,094 $ 528,770 $ 544,578 $ 538,307
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
United States net revenue includes export sales to non-affiliated customers
of $-0-, $-0- and $3,856,000 for the years ended July 31, 1995, 1996 and 1997,
respectively, and $-0- and $1,692,000 for the six-month periods ended January
31, 1997 and 1998, respectively.
NOTE 15--FORWARD EXCHANGE CONTRACTS
At July 31, 1997, the Company had outstanding forward exchange contracts
maturing on dates through July 1998, to buy approximately $16,000,000 in foreign
currency (1,825 million yen at the spot rate). The contracts are for the purpose
of hedging foreign currency exposure on specific commitments and a net exposed
liability position of the Company's operations in Japan, as well as to take
advantage of expected changes in exchange rates. At January 31, 1998, the
Company had outstanding forward exchange contracts maturing through October
1998, to buy approximately $9,000,000 in foreign currency (1,084 million yen at
the spot rate).
NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION
During the twelve months ending July 31, 1995, 1996 and 1997, the Company
made income tax payments of $13,964,000, $4,057,000 and $5,440,000, and interest
payments (net of amounts capitalized) of $11,173,000, $13,562,000 and
$17,434,000, respectively.
During the six months ending January 31, 1997 and 1998, the Company made
income tax payments of $5,620,000 and $4,904,000, respectively, and interest
payments (net of amounts capitalized) of $9,996,000 and $7,540,000,
respectively.
F-21
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF EXISTING NOTES FOR NEW NOTES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
- -------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
The Exchange Offer........................................................ 18
The Recapitalization...................................................... 27
Use of Proceeds........................................................... 28
Capitalization............................................................ 29
Selected Historical Pro Forma Consolidated Financial Information.......... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 32
Business.................................................................. 37
Management................................................................ 45
Ownership of Capital Stock................................................ 47
Certain Transactions...................................................... 48
Description of New Credit Facility........................................ 50
Description of the Notes.................................................. 53
Certain Federal Income Tax Considerations................................. 83
Plan of Distribution...................................................... 86
Legal Matters............................................................. 87
Independent Accountants................................................... 87
Additional Information.................................................... 87
Index to Financial Statements............................................. F-1
</TABLE>
PROSPECTUS
$110,000,000
MTS, INCORPORATED
EXCHANGE OFFER WITH RESPECT TO 9 3/8% SENIOR SUBORDINATED NOTES DUE 2005
[LOGO]
EXCHANGE AGENT:
State Street Bank and Trust Company
of California Exchange Agent
c/o State Street Bank and Trust Company
2 International Place, 4th Floor
Boston, MA 02110
Attn: Kellie Mullen, Corporate Trust Dept.
Tel: 617-664-5587
Fax: 617-664-5290
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers who are parties or are threatened to be made parties to any
proceeding (with certain exceptions) by reason of the fact that the person is or
was an agent of the corporation, against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with the
proceeding if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation. This
limitation on liability has no effect on a director's liability (i) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iii) relating to
any transaction from which a director derived an improper personal benefit, (iv)
for acts or omissions that show a reckless disregard for the director's duty to
the corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the corporation or its
shareholders, (v) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, (vi) under Section 310 of the California
General Corporation Law (concerning contracts or transactions between the
corporation and a director) or (vii) under Section 316 of the California General
Corporation Law (directors' liability for improper dividends, loans and
guarantees).
In accordance with Section 317, the Articles of Incorporation, as amended
(the "Articles"), of the Company limit the liability of a director to the
Company or its shareholders for monetary damages to the fullest extent
permissible under California law, and authorize the Company to provide
indemnification to its agents (including officers and directors), subject to the
limitations set forth above.
Pursuant to the authority provided in the Articles, the Company has entered
into, or anticipates that it will soon enter into, indemnification agreements
with each of its officers and directors, indemnifying them against certain
potential liabilities that may arise as a result of their service to the
Company, and providing for certain other protection.
The Company also maintains insurance policies which insure its officers and
directors against certain liabilities.
The foregoing summaries are necessarily subject to the complete text of the
statute, the Articles and the agreements referred to above and are qualified in
their entirety by reference thereto.
ITEM 21. EXHIBITS
A list of exhibits included as part of the Registration Statement is set
forth below:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Restated Articles of Incorporation of MTS, INCORPORATED filed with the California Secretary of State on
September 22, 1994
3.2* By-Laws of MTS, INCORPORATED
4.1 Purchase Agreement dated April 20, 1998 between the Registrant, Chase Securities, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
4.2 Indenture dated as of April 23, 1998 (the "Indenture") by and between the Registrant and State Street
Bank and Trust Company of California, N.A., as Trustee
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.3 Exchange and Registration Rights Agreement dated as of April 20, 1998 by and among the Registrant and
Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as the Initial Purchasers
4.4 $104,720,000 Existing 144A Global 9 3/8% Senior Subordinated Note due 2005
4.5 $5,280,000 Existing Regulation S Global 9 3/8% Senior Subordinated Note due 2005
4.6* Form of New 9 3/8% Senior Subordinated Note due 2005
5.1* Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of securities being registered
10.1 Credit Agreement dated as of April 23, 1998 by and among the Registrant, Tower Records Kabushiki Kaisha,
the Lenders party thereto, and The Chase Manhattan Bank as Administrative Agent
10.2* Japanese Security Agreement dated as of April 23, 1998
10.3* MTS, INCORPORATED Security Agreement dated as of April 23, 1998
12.1 Statement re Computation of Ratios
21.1 List of Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1)
25.1* Statement of Eligibility on Form T-1 for State Street Bank and Trust Company of California, N.A., as
Trustee under the Indenture
27.1 Financial Data Schedule
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To respond to requests for information that is incorporated by reference
into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
2. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of an action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of their counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sacramento, State of
California, this May 29, 1998.
MTS, INCORPORATED
/S/ DEVAUGHN D. SEARSON
--------------------------------------
DeVaughn D. Searson,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ------------------------------------------- ----------------
<S> <C> <C>
/s/ RUSSELL M. SOLOMON President, Chief Executive Officer and May 29, 1998
- --------------------------------------- Director (Principal Executive Officer)
Russell M. Solomon
/s/ MICHAEL T. SOLOMON Executive Vice President, General Counsel May 29, 1998
- --------------------------------------- and Director
Michael T. Solomon
/s/ DEVAUGHN D. SEARSON Chief Financial Officer, Secretary, May 29, 1998
- --------------------------------------- Treasurer and Director (Principal Financial
DeVaughn D. Searson Officer and Principal Accounting Officer)
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Restated Articles of Incorporation of MTS, INCORPORATED filed with the California Secretary of State on
September 22, 1994
3.2* By-Laws of MTS, INCORPORATED
4.1 Purchase Agreement dated April 20, 1998 between the Registrant, Chase Securities, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
4.2 Indenture dated as of April 23, 1998 (the "Indenture") by and between the Registrant and State Street
Bank and Trust Company of California, N.A., as Trustee
4.3 Exchange and Registration Rights Agreement dated as of April 20, 1998 by and among the Registrant and
Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as the Initial Purchasers
4.4 $104,720,000 Existing 144A Global 9 3/8% Senior Subordinated Note due 2005
4.5 $5,280,000 Existing Regulation S Global 9 3/8% Senior Subordinated Note due 2005
4.6* Form of New 9 3/8% Senior Subordinated Note due 2005
5.1* Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of securities being registered
10.1 Credit Agreement dated as of April 23, 1998 by and among the Registrant, Tower Records Kabushiki Kaisha,
the Lenders party thereto, and The Chase Manhattan Bank as Administrative Agent
10.2* Japanese Security Agreement dated as of April 23, 1998
10.3* MTS, INCORPORATED Security Agreement dated as of April 23, 1998
12.1 Statement re Computation of Ratios
21.1 List of Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1)
25.1* Statement of Eligibility on Form T-1 for State Street Bank and Trust Company of California, N.A., as
Trustee under the Indenture
27.1 Financial Data Schedule
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
Exhibit 4.1
MTS, INCORPORATED
$110,000,000
9 3/8% Senior Subordinated Notes due 2005
PURCHASE AGREEMENT
------------------
April 20, 1998
CHASE SECURITIES INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
c/o CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
MTS, INCORPORATED (the "COMPANY"), a California corporation, proposes
to issue and sell $110,000,000 aggregate principal amount of its 9 3/8% Senior
Subordinated Notes due 2005 (the "SECURITIES"). The Securities will be issued
pursuant to an Indenture to be dated as of April 23, 1998 (the "INDENTURE")
between the Company and State Street Bank and Trust of California, N.A., as
trustee (the "TRUSTEE"). The Company hereby confirms its agreement with Chase
Securities Inc. ("CSI") and Merrill Lynch, Pierce, Fenner & Smith Incorporated
(collectively, the "INITIAL PURCHASERS") concerning the purchase of the
Securities by the Initial Purchasers.
The Securities will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), in reliance upon exemptions therefrom. The Company has
prepared a preliminary offering memorandum dated April 3, 1998 (the "PRELIMINARY
OFFERING MEMORANDUM") and an offering memorandum dated the date hereof (the
"FINAL OFFERING MEMORANDUM") setting forth information concerning the Company
and the Securities. Copies of the Preliminary Offering Memorandum have been,
and copies of the Final Offering Memorandum will be, delivered by the Company to
the Initial Purchasers pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum and the Final Offering Memorandum
shall be deemed to in-
<PAGE>
-2-
clude all amendments and supplements thereto, unless otherwise noted. The
Company hereby confirms that it has authorized the use of the Preliminary
Offering Memorandum and the Final Offering Memorandum in connection with the
offering and resale of the Securities by the Initial Purchasers in accordance
with Section 2.
Holders of the Securities (including the Initial Purchasers and their
direct and indirect transferees) will be entitled to the benefits of a
Registration Rights Agreement, substantially in the form attached hereto as
ANNEX A (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company
will agree to file with the Securities and Exchange Commission (the
"COMMISSION") (i) a registration statement under the Securities Act (the
"EXCHANGE OFFER REGISTRATION STATEMENT") registering an issue of senior
subordinated notes of the Company (the "EXCHANGE SECURITIES") which are
identical in all material respects to the Securities (except that the Exchange
Securities will not contain terms with respect to transfer restrictions or
liquidated damages) and (ii) under certain limited circumstances, a shelf
registration statement with respect to the resale of the Securities pursuant to
Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT").
As described in the Offering Memorandum, the Securities are being
offered in connection with Recapitalization (as defined below) of the Company.
As part of the Recapitalization, the Company will refinance indebtedness under
its existing credit facility and certain other existing indebtedness through the
establishment by the Company of a new credit facility under a Credit Agreement
with certain financial institutions (the "NEW CREDIT FACILITY"). In addition,
as part of the Recapitalization, the Company will consummate the Reorganization
(the "REORGANIZATION, together with the New Credit Facility, the
"RECAPITALIZATION"). Capitalized terms used but not defined herein shall have
the meanings given to such terms in the Final Offering Memorandum.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to, and agrees with, the Initial Purchasers on
and as of the date hereof and the Closing Date (as defined in Section 3) that:
(a) Each of the Preliminary Offering Memorandum and the Final
Offering Memorandum, as of its date, did not, and on the Closing Date the
Final Offering Memorandum will not, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representation or warranty as to information contained in or omitted from
the Preliminary Offering Memorandum or the Final Offering Memorandum in
reliance upon and in conformity with written information relating to the
Initial Purchasers furnished to the Company by or on behalf of the Initial
Purchasers expressly for use therein (the "INITIAL PURCHASERS'
INFORMATION").
<PAGE>
-3-
(b) Each of the Preliminary Offering Memorandum and the Final
Offering Memorandum, as of its respective date, contains all of the
information that, if requested by a prospective purchaser of the
Securities, would be required to be provided to such prospective purchaser
pursuant to Rule 144A(d)(4) under the Securities Act; and the Securities
satisfy the eligibility requirements of Rule 144A(d)(3) under the
Securities Act.
(c) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchasers and the
offer, resale and delivery of the Securities by the Initial Purchasers in
the manner contemplated by this Agreement and the Final Offering
Memorandum, to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "TRUST INDENTURE ACT").
(d) The Company and each of the Subsidiaries (as defined in paragraph
(e) below) have been duly incorporated or organized, as the case may be,
and are validly existing as corporations or limited liability companies, as
the case may be, in good standing (to the extent applicable to foreign
subsidiaries) under the laws of their respective jurisdictions of
incorporation or organization, are duly qualified to do business as foreign
corporations or limited liability companies, as the case may be, in each
jurisdiction in which their respective ownership or lease of property or
the conduct of their respective businesses require such qualification and
have all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged, except
where the failure to so qualify or have such power or authority would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), results of operations, business or
prospects of the Company and the Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(e) As of the dates set forth therein, the Company had the
authorized, issued and outstanding capitalization as set forth in the
Offering Memorandum under the heading "Capitalization"; all of the
outstanding shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable. The
entities listed on SCHEDULE 2 hereto are the only subsidiaries, direct and
indirect of the Company, other than inactive and immaterial subsidiaries
(collectively, the "SUBSIDIARIES"). All of the outstanding shares of
capital stock of each Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly or indirectly by the Company, free and clear of any lien, charge,
encumbrance, security interest, restriction upon voting or transfer or any
other claim of any third party. There were no material (i) options, war-
<PAGE>
-4-
rants or other rights to purchase, (ii) agreements or other obligations of
the Company to issue or (iii) other rights to convert any obligation into,
or exchange any securities for, shares of capital stock of or ownership
interests in the Company or any of the Subsidiaries outstanding.
(f) The Company has all requisite power and authority to execute and
deliver this Agreement, the Indenture, the Registration Rights Agreement,
the Securities, and the New Credit Facility (collectively, the "TRANSACTION
DOCUMENTS") and to perform its obligations hereunder and thereunder; and
all corporate action required to be taken by the Company for the due
authorization, execution and delivery of each of the Transaction Documents
to which it is a party and the consummation of the transactions
contemplated thereby have been duly and validly taken.
(g) This Agreement has been duly authorized, executed and delivered
by the Company.
(h) The Registration Rights Agreement has been duly authorized by the
Company and, when duly executed and delivered in accordance with its terms
by each of the parties thereto, will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that (i) such enforceability may be
subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in
a proceeding in equity or at law) and (ii) the enforceability of rights to
indemnification and contribution thereunder may be limited by federal or
state securities laws or regulations or the public policy underlying such
laws or regulations.
(i) The Indenture has been duly authorized by the Company and, when
duly executed and delivered in accordance with its terms by each of the
parties thereto, will constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that such enforceability may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(j) The Securities have been duly authorized by the Company and, when
duly executed, authenticated, issued and delivered as provided in the
Indenture and paid for as provided herein, will be duly and validly issued
and outstanding and will constitute valid and binding obligations of the
Company entitled to the benefits of the
<PAGE>
-5-
Indenture, enforceable against the Company in accordance with their terms,
except to the extent that such enforceability may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(k) The Exchange Securities have been duly authorized by the Company
and, when executed, authenticated, issued and delivered as provided in the
Indenture and the Registration Rights Agreement in exchange for the Notes,
will be duly and validly issued and outstanding and will constitute valid
and binding obligations of the Company entitled to the benefits of the
Indenture, enforceable against the Company in accordance with their terms,
except to the extent that such enforceability may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(l) As of the Closing Date, the New Credit Facility will be duly
authorized, executed and delivered by the Company and TRKK and constitutes
a valid and legally binding agreement of the Company and TRKK, enforceable
against the Company and TRKK in accordance with its terms.
(m) All corporate and other actions necessary to effect the
Reorganization have been taken by the Company and each of the other Persons
that are parties to the agreements, documents, instruments and certificates
that are required to consummate the Reorganization (collectively, the
"REORGANIZATION DOCUMENTS"); and each of the Reorganization Documents has
been duly executed and delivered by each of the parties thereto and
constitute the valid and binding obligations of the parties thereto,
enforceable in accordance with their terms, except to the extent that such
enforceability may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally
and (B) general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(n) The Recapitalization conforms in all material respects to the
description thereof contained in the Final Offering Memorandum.
(o) Each Transaction Document conforms in all material respects to
the description thereof contained in the Final Offering Memorandum.
<PAGE>
-6-
(p) The execution, delivery and performance by the Company of each of
the Transaction Documents to which it is a party and each of the
Reorganization Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by the
Company with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents and the Reorganization Documents
do not and will not (i) conflict with or result in a breach or violation of
any of the terms or the provisions of, or constitute a default under, or,
with notice or lapse of time or both, constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of any of the Company pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company is a party or by which the Company is bound
or to which any of the property or assets of the Company is subject or (ii)
result in any violation of the provisions of (a) the charter or by-laws or
similar organizational documents of the Company or (b) any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or
governmental agency or body having jurisdiction over the Company or any of
its properties or assets, except, in the case of clauses (i) and (ii)(b)
above, for any such event, conflict, breach, violation or default which
would not, individually or in the aggregate, have a Material Adverse Effect
or affect the ability of the Company to enter into each of the Transaction
Documents and the Reorganization Documents and consummate each of the
transactions contemplated thereby; and no consent, approval, authorization
or order of, or filing or registration with, any such court or arbitrator
or governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required for the execution, delivery and
performance by the Company of each of the Transaction Documents and the
Reorganization Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by the
Company with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents and the Reorganization Documents,
except for such consents, approvals, authorizations, filings, registrations
or qualifications (a) which shall have been obtained or made prior to the
Closing Date, (b) as may be required to be obtained or made under the
Securities Act and applicable state securities laws as provided in the
Registration Rights Agreement or (c) which would not, individually or in
the aggregate, have a Material Adverse Effect.
(q) Coopers & Lybrand L.L.P. is an independent certified public
accountant with respect to the Company and its consolidated subsidiaries
within the meaning of the Securities Act and the rules and regulations
thereunder. The historical financial statements (including the related
notes) contained in the Final Offering Memorandum comply in all material
respects with the requirements applicable to a registration statement on
Form S-1 under the Securities Act (except that certain supporting sched-
<PAGE>
-7-
ules are omitted); such historical financial statements have been prepared
in accordance with generally accepted accounting principles in the United
States, consistently applied throughout the periods covered thereby and
present, in all material respects, the financial position of the entities
purported to be covered thereby at the respective dates indicated and the
results of their operations and their cash flows for the respective periods
indicated; and the historical financial information contained in the Final
Offering Memorandum under the headings "Summary -- Summary Historical and
Pro Forma Consolidated Financial Information", "Selected Historical and Pro
Forma Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is derived from
the accounting records of the entities purported to be covered thereby and
fairly presents in all material respects the information purported to be
shown thereby. The pro forma financial statements contained in the Final
Offering Memorandum have been prepared on a basis consistent with the
historical financial statements contained in the Final Offering Memorandum
(except for the pro forma adjustments specified therein), include all
material adjustments to the historical financial statements required by
Rule 11-02 of Regulation S-X under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to reflect the
transactions described in the Final Offering Memorandum, and are based on
good faith estimates and assumptions believed by the Company to be
reasonable and the adjustments used therein are appropriate to give effect
to the transactions described in the Final Offering Memorandum (including
the transactions contemplated by the Transaction Documents and the
Reorganization Documents). The other historical financial and operating
and other financial data included in the Final Offering Memorandum fairly
present, in all material respects, the information purported to be shown
thereby.
(r) There are no legal or governmental proceedings pending to which
the Company or any of the Subsidiaries is a party or of which any property
or assets of the Company or any of the Subsidiaries is the subject which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or which could reasonably be expected to prevent or
adversely affect the issuance of the Securities or challenge the validity
or enforceability of any of the Transaction Documents or the Reorganization
Documents or any action taken or to be taken pursuant to the Transaction
and the Transaction Documents or the Reorganization Documents; and, to the
best knowledge of the Company, no such proceedings are overtly threatened
or contemplated by governmental authorities or threatened by others.
(s) Neither the Company nor any of the Subsidiaries is (i) in
violation of its charter or by-laws, (ii) in default, and no event has
occurred which, with notice or lapse of time or both, would constitute such
a default, in the due performance or ob-
<PAGE>
-8-
servance of any term, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which it is a party or by which it is bound or to which any
of its property or assets is subject except for any such default which
would not, individually or in the aggregate with all other such defaults,
have a Material Adverse Effect or (iii) in violation of any law, ordinance,
governmental rule or regulation or any order, judgment or decree to which
it or its property or assets may be subject, except for such violation
which would not, individually or in the aggregate, have a Material Adverse
Effect.
(t) To the best knowledge of the Company, no action has been taken
and no statute, rule, regulation, injunction or order has been enacted,
adopted or issued by any governmental agency or body which prevents the
issuance of the Securities or suspends the sale of the Securities in any
jurisdiction; to the best knowledge of the Company, no injunction,
restraining order or order of any nature by any federal or state court of
competent jurisdiction has been issued with respect to the Company which
would prevent or suspend the issuance or sale of the Securities or the use
of the Preliminary Offering Memorandum or the Final Offering Memorandum in
any jurisdiction; no action, suit or proceeding is pending against or, to
the best knowledge of the Company, threatened against or affecting the
Company before any court or arbitrator or any governmental agency, body or
official, domestic or foreign, which could reasonably be expected to
interfere with or adversely affect the issuance of the Securities or in any
manner draw into question the validity or enforceability of any of the
Transaction Documents or the Reorganization Documents or any action taken
or to be taken pursuant to the Transaction and the Transaction Documents or
the Reorganization Documents; and the Company has complied with any and all
requests by any securities authority in any jurisdiction for additional
information to be included in the Preliminary Offering Memorandum or the
Final Offering Memorandum.
(u) The Company and the Subsidiaries possess all material licenses,
certificates, authorizations and permits issued by, and have made all
declarations and filings with, the appropriate federal, state, local or
foreign regulatory agencies or bodies which are necessary for the ownership
of their respective properties or the conduct of their respective
businesses as described in the Final Offering Memorandum, except where the
failure to possess or make the same would not, individually or in the
aggregate, have a Material Adverse Effect, and neither the Company nor any
of the Subsidiaries has received notification of any revocation or
modification of any such license, certificate, authorization or permit or
has any reason to believe that any such license, certificate, authorization
or permit will not be renewed in the ordinary course.
(v) The Company and each of the Subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to be
filed through the date
<PAGE>
-9-
hereof and have paid all taxes due thereon (except such as are being
contested in good faith), and no tax deficiency has been determined
adversely to the Company or any of the Subsidiaries which has had (nor does
the Company or any of the Subsidiaries have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of the
Subsidiaries, could reasonably be expected to have) a Material Adverse
Effect.
(w) Neither the Company nor any of the Subsidiaries is an "investment
company" or a company "controlled by" an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT
COMPANY ACT"), and the rules and regulations of the Commission thereunder.
(x) The Company and the Subsidiaries maintain reasonably adequate
insurance covering their respective properties, operations, personnel and
businesses.
(y) The Company and the Subsidiaries own or possess or can acquire on
reasonable terms, adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and know-
how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) materially
necessary for the conduct of their respective businesses; and the Company
and the Subsidiaries have not received any notice of any infringement of or
claim or conflict with, any such rights of others except for any such
infringement, claim or conflict which, individually or in the aggregate
with all other such defaults could not reasonably be expected to have a
Material Adverse Effect.
(z) The Company and the Subsidiaries have good and marketable title
in fee simple to, or have valid rights to lease or otherwise use, all items
of real property described as being owned by them in the Final Offering
Memorandum, in each case free and clear of all liens, encumbrances, claims
and defects and imperfections of title other than (i) liens, encumbrances
and claims securing the New Credit Facility or which are otherwise
permitted under the Indenture or (ii) liens, encumbrances, claims and
defects and imperfections of title that (a) are described in the Final
Offering Memorandum or (b) do not materially interfere with the use made of
such property or could not reasonably be expected to have a Material
Adverse Effect.
(aa) No labor disturbance by or dispute with the employees of the
Company or any of the Subsidiaries exists or, to the best knowledge of the
Company, is contemplated or threatened; there is no significant unfair
labor practice complaint pending against the Company or any of the
Subsidiaries nor, to the best knowledge of the Company, threatened against
any of them, before the National Labor Relations Board,
<PAGE>
-10-
any state or local labor relations board or any foreign labor relations
boards, and no significant grievance or significant arbitration proceeding
arising out of or under any collective bargaining agreement is pending
against the Company or any or the Subsidiaries or, to the best knowledge of
the Company, threatened against any of them except those which could not
reasonably be expected to have a Material Adverse Effect.
(bb) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section
4975 of the Internal Revenue Code of 1986, as amended from time to time
(the "CODE")) or "accumulated funding deficiency" (as defined in Section
302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice requirement
under Section 4043 of ERISA has been waived) has occurred with respect to
any employee benefit plan of the Company or any of the Subsidiaries, or any
entity that together with the Company or any Subsidiary is treated as a
single employer under Section 414 (b), (c), (m) or (e) of the Code, which
could reasonably be expected to have a Material Adverse Effect; each such
employee benefit plan is in compliance in all material respects with
applicable law, including ERISA and the Code; the Company and each of the
Subsidiaries have not incurred and do not expect to incur material
liability under Title IV of ERISA with respect to the termination of, or
withdrawal from, any pension plan for which the Company or any of the
Subsidiaries would have any liability; and each such pension plan that is
intended to be qualified under Section 401(a) of the Code is so qualified
in all material respects and nothing has occurred, whether by action or by
failure to act, which could reasonably be expected to have a Material
Adverse Effect.
(cc) Except as would not individually or in the aggregate have a
Material Adverse Effect, (A) each of the Company and each Subsidiary is in
material compliance with all applicable Environmental Laws, (B) each of the
Company and each Subsidiary has all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or, to the knowledge of
the Company, threatened Environmental Claims against the Company or any
Subsidiary, and (D) there are no conditions with respect to any property or
operations of the Company or any Subsidiary that could reasonably be
anticipated to form the basis of an Environmental Claim against the Company
or any Subsidiary.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any United States (or other
applicable jurisdictions) federal, state, provincial, local or municipal
statute, law, rule, regulation, ordinance, code, policy or rule of common
law and any judicial or administrative inter-
<PAGE>
-11-
pretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety or any
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority. "Environmental Claims" means
any and all administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(dd) Neither the Company, any of the Subsidiaries nor, to the best
knowledge of the Company, any director, officer, agent, employee or other
person associated with or acting on behalf of the Company or any of the
Subsidiaries has (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(ee) Prior to and immediately after the closing of the transactions
contemplated herein, the Company will be Solvent. As used in this
paragraph, the term "Solvent" means, with respect to the Company, at a
particular time, that at such time (i) the present fair market value (or
present fair saleable value) of the assets of the Company is not less than
the total amount required to pay the probable liabilities of the Company on
its total existing debts and liabilities (including contingent liabilities)
as they become absolute and matured, (ii) the Company is able to realize
upon its assets and pay its debts and other liabilities, contingent
obligations and commitments as they mature and become due in the normal
course of business, (iii) the Company has not incurred and is not incurring
debts or liabilities beyond its ability to pay as such debts and
liabilities mature and (iv) the Company is not engaged in any business or
transaction, and does not intend to engage in any business or transaction,
for which its property would constitute unreasonably small capital. In
computing the amount of such contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in the
light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
(ff) Neither the Company nor any of the Subsidiaries owns any "margin
securities" as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "FEDERAL RESERVE BOARD"), and
none of the proceeds of the sale of the Securities will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any in-
<PAGE>
-12-
debtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Securities
to be considered a "purpose credit" within the meanings of Regulation G, T,
U or X of the Federal Reserve Board.
(gg) Neither the Company nor any of its respective affiliates (as
defined in Rule 501(b) of Regulation D under the Securities Act
("REGULATION D")) ("AFFILIATES") has, directly or through any agent, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as such term is defined in the Securities Act),
which is or will be integrated with the sale of the Securities in a manner
that would require registration of the Securities under the Securities Act
or (ii) engaged, in connection with the offering of the Securities, in any
form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act or has solicited offers for, or has
offered and sold, the Securities in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act.
(hh) There are no holders of securities of the Company who, by reason
of the execution by the Company of any of the Transaction Documents or the
Reorganization Documents, or the consummation of the transactions
contemplated therein (except as contemplated by the Registration Rights
Agreement), have the right to request or demand that the Company register
under the Securities Act any securities held by them.
(ii) The statistical and market-related data included in the Final
Offering Memorandum are based on or derived from sources which the Company
believes to be reliable.
(jj) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, the Company nor any of its respective
affiliates (as defined in Rule 501(b) of Regulation D under the Securities
Act ("REGULATION D")) ("AFFILIATES") has, directly or through any
authorized agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as such term is defined
in the Securities Act), which is or will be integrated with the sale of the
Securities in a manner that would require registration of the Securities
under the Securities Act or (ii) engaged, in connection with the offering
of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act or
has solicited offers for, or has offered and sold, the Securities in any
manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.
<PAGE>
-13-
(kk) There are no securities of the Company registered under the
Exchange Act, listed on a national securities exchange or quoted in a U.S.
automated inter-dealer quotation system.
(ll) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act in
connection with the offering of the Securities.
(mm) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in the
Final Offering Memorandum has been made or reaffirmed without a reasonable
basis or has been disclosed other than in good faith.
(nn) Since the date as of which information is given in the Final
Offering Memorandum, except as otherwise expressly stated therein, (i)
there has been no material adverse change or any development involving a
prospective material adverse change in the condition (financial or
otherwise), or in the results of operations, affairs, management or
prospects of the Company and the Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business, (ii) neither the Company
nor any Subsidiary has incurred any material liability or obligation,
direct or contingent, other than in the ordinary course of business, (iii)
neither the Company nor any Subsidiary has entered into any material
transaction other than in the ordinary course of business and (iv) there
has not been any change in the capital stock or long-term debt of the
Company and the Subsidiaries, or any distribution of any kind declared,
paid or made by the Company or any of the Subsidiaries on any class of its
capital stock.
2. PURCHASE AND RESALE OF THE SECURITIES. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Company agrees to issue and sell to
the Initial Purchasers and the Initial Purchasers agree, severally and not
jointly, to purchase from the Company, the principal amount of Securities set
forth opposite the names of such Initial Purchasers on Schedule II hereto at a
purchase price equal to 97% of the principal amount thereof. The Company shall
not be obligated to deliver any of the Securities except upon payment for all of
the Securities to be purchased as provided herein.
(b) The Initial Purchasers have advised the Company that they propose
to offer the Securities for resale upon the terms and subject to the conditions
set forth herein and in the Offering Memorandum. Each Initial Purchaser,
severally and not jointly, represents, warrants and agrees with the Company that
(i) it is purchasing the Securities pursuant to a private sale exempt from
registration under the Securities Act, (ii) it has not solicited offers for, or
offered or sold, and will not solicit offers for, or offer or sell, the
Securities by means of any form of
<PAGE>
-14-
general solicitation or general advertising within the meaning of Rule 502(c) of
Regulation D under the Securities Act or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act and (iii) it
has solicited and will solicit offers for the Securities only from, and has
offered or sold and will offer, sell or deliver the Securities, as part of their
initial offering, only (A) within the United States to persons whom it
reasonably believes to be qualified institutional buyers ("QUALIFIED
INSTITUTIONAL BUYERS"), as defined in Rule 144A under the Securities Act ("RULE
144A"), or if any such person is buying for one or more institutional accounts
for which such person is acting as fiduciary or agent, only when such person has
represented to it that each such account is a Qualified Institutional Buyer to
whom notice has been given that such sale or delivery is being made in reliance
on Rule 144A and in each case, in transactions in accordance with Rule 144A and
(B) outside the United States to persons other than U.S. persons in reliance on
Regulation S under the Securities Act ("REGULATION S").
(c) The Company acknowledges and agrees that the Initial Purchasers
may sell Securities to any affiliate of the Initial Purchasers and that any such
affiliate may sell Securities purchased by it to the Initial Purchasers.
(d) In connection with the offer and sale of Securities in reliance
on Regulation S, each Initial Purchaser, severally and not jointly, represents,
warrants and agrees that:
(i) The Securities have not been registered under the Securities Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, "U.S. persons" (as defined in Regulation S under the
Securities Act) except pursuant to an exemption from, or in transactions not
subject to, the registration requirements of the Securities Act.
(ii) Such Initial Purchaser has offered and sold the Securities, and
will offer and sell the Securities, (A) as part of their distribution at any
time and (B) otherwise until 40 days after the later of the commencement of the
offering of the Notes and the Closing Date, only in accordance with Regulation S
or Rule 144A or any other available exemption from registration under the
Securities Act.
(iii) None of such Initial Purchaser or any of its affiliates or any
other person acting on its or their behalf has engaged or will engage in any
"directed selling efforts" (as defined in Rule 144A) with respect to the
Securities, and all such persons have complied and will comply with the offering
restrictions requirement of Regulation S.
(iv) at or prior to the confirmation of sale of any Securities sold
in reliance on Regulation S, it will have sent to each distributor, dealer or
other person receiving a selling concession, fee or other remuneration that
purchase Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
<PAGE>
-15-
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their distribution at any
time or (ii) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the date of
original issuance of the Securities, except in accordance with
Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(v) it has not and will not enter into any contractual arrangement
with any distributor with respect to the distribution of the Securities, except
with its affiliates or with the prior written consent of the Company.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
3. DELIVERY OF AND PAYMENT FOR THE SECURITIES. (a) Delivery of and
payment for the Securities shall be made at the offices of Cahill Gordon &
Reindel, New York, New York, or at such other place as shall be agreed upon by
the Initial Purchasers and the Company, at 10:00 A.M., New York City time, on
April [ ], 1998, or at such other time or date, not later than seven full
business days thereafter, as shall be agreed upon by the Initial Purchasers and
the Company (such date and time of payment and delivery being referred to herein
as the "CLOSING DATE").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of same-
day funds to such account or accounts as the Company shall specify prior to the
Closing Date or by such other means as the parties hereto shall agree prior to
the Closing Date against delivery to the Initial Purchasers of the certificates
evidencing the Securities. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligations of the Initial Purchasers hereunder. Upon delivery, the
Securities shall be in global form, registered in such names and in such
denominations as CSI on behalf of the Initial Purchasers shall have requested in
writing not less than two full business days prior to the Closing Date. The
Company agrees to make one or more global certificates evidencing the Securities
available for inspection by the Initial Purchasers in New York, New York at
least 24 hours prior to the Closing Date.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
Initial Purchasers:
<PAGE>
-16-
(a) to advise the Initial Purchasers promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Final Offering Memorandum
untrue and which requires the making of any additions to or changes in the
Final Offering Memorandum (as amended or supplemented from time to time) in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; to advise the Initial
Purchasers promptly of any order preventing or suspending the use of the
Preliminary Offering Memorandum or the Final Offering Memorandum, of any
suspension of the qualification of the Securities for offering or sale in
any jurisdiction and of the initiation or threatening of any proceeding for
any such purpose; and to use its best efforts to prevent the issuance of
any such order preventing or suspending the use of the Preliminary Offering
Memorandum or the Final Offering Memorandum or suspending any such
qualification and, if any such suspension is issued, to obtain the lifting
thereof at the earliest possible time;
(b) to furnish promptly to each of the Initial Purchasers and counsel
for the Initial Purchasers, without charge, as many copies of the
Preliminary Offering Memorandum and the Final Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the Final Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchasers and
counsel for the Initial Purchasers and not to effect any such amendment or
supplement to which the Initial Purchasers shall reasonably object by
notice to the Company after a reasonable period to review unless the
Company is advised by counsel that such amendment or supplement is legally
required;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchasers, any event shall occur, information
shall become known or a condition shall exist as a result of which it is
necessary, in the reasonable opinion of counsel for the Initial Purchasers
or counsel for the Company, to amend or supplement the Final Offering
Memorandum in order that the Final Offering Memorandum will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Final Offering
Memorandum to comply with applicable law, to promptly prepare (subject to
Section 4(c) above) such amendment or supplement as may be necessary to
correct such untrue statement or omission or so that the Final Offering
Memorandum, as so amended or supplemented, will comply with applicable law;
<PAGE>
-17-
(e) for so long as the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities, upon request of such holders, the
information, if any, required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act, unless the Company is then subject to and in
compliance with Section 13 or 15(d) of the Exchange Act (the foregoing
agreement being for the benefit of the holders from time to time of the
Securities and prospective purchasers of the Securities designated by such
holders);
(f) for so long as the Securities are outstanding and, to furnish to
the Initial Purchasers copies of any annual reports, quarterly reports and
current reports filed by the Company with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and information as shall be
furnished by the Company to the Trustee or to the holders of the Securities
pursuant to the Indenture or the Exchange Act or any rule or regulation of
the Commission thereunder;
(g) to promptly take from time to time such actions as the Initial
Purchasers may reasonably request to qualify the Securities for offering
and sale under the state securities or Blue Sky laws of such jurisdictions
as the Initial Purchasers may designate and to continue such qualifications
in effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchasers
may reasonably request; PROVIDED, HOWEVER, that the Company shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which
it is not currently so qualified or to file a general consent to service of
process in any jurisdiction;
(h) to assist the Initial Purchasers in arranging for the Securities
to be designated Portal Market securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
("NASD") relating to trading in the Portal Market and for the Securities to
be eligible for clearance and settlement through The Depository Trust
Company ("DTC");
(i) not to, and to cause its Affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, not to, and to cause its Affiliates not to, and not to authorize or
knowingly permit any person acting on
<PAGE>
-18-
their behalf to, solicit any offer to buy or offer to sell the Securities
by means of any form of general solicitation or general advertising within
the meaning of Regulation D or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act; and not to offer,
sell, contract to sell or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act to cease to be applicable to the offering and sale of the
Securities as contemplated by this Agreement and the Final Offering
Memorandum;
(k) for a period of 180 days from the date of the Final Offering
Memorandum, not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement for,
or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company (other than the
Securities) without the prior written consent of the Initial Purchasers
other than the Exchange Securities and the Private Exchange Securities (as
defined in the Registration Rights Agreement), if any;
(l) until consummation of the Exchange Offer, without the prior
written consent of the Initial Purchasers, not to, and not permit any of
its Affiliates to, resell any of the Securities that have been reacquired
by them, except for Securities purchased by the Company or any of its
respective Affiliates and resold in a transaction registered under the
Securities Act;
(m) in connection with the offering of the Securities, until CSI on
behalf of the Initial Purchasers shall have notified the Company of the
completion of the resale of the Securities, not to, and to cause its
affiliated purchasers (as defined in Regulation M under the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated purchasers
has a beneficial interest, any Securities, or attempt to induce any person
to purchase any Securities; and not to, and to cause its affiliated
purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the
Securities;
(n) to do and perform all things required to be done and performed by
it under this Agreement and the Registration Rights Agreement that are
within its control prior to or after the Closing Date, and to use its best
efforts to satisfy all conditions precedent on its part to the delivery of
the Securities;
(o) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to the Company, its condition (financial or otherwise) or
earnings, business affairs or busi-
<PAGE>
-19-
ness prospects (except for routine communications in the ordinary course of
business and consistent with the past practices of the Company), without
the prior written consent of the Initial Purchasers, unless in the judgment
of the Company and its counsel, and after notification to the Initial
Purchasers, such press release or communication is reasonably necessary or
advisable;
(p) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(q) to furnish to the Initial Purchasers on the date hereof a copy of
the independent accountants' report included in the Final Offering
Memorandum signed by the accountants rendering such report;
(r) not to take any action prior to the execution and delivery of the
Indenture which, if taken after such execution and delivery, would have
resulted in a default or an event of default as defined under the
Indenture;
(s) not to take any action prior to the Closing Date which would
require the Final Offering Memorandum to be amended or supplemented
pursuant to Section 4(d);
(t) to apply the net proceeds from the sale of the Securities as set
forth in the Final Offering Memorandum under the heading "Use of Proceeds;"
and
(u) to effect the merger of T. R. Services, Incorporated, a
California Corporation, with and into the Company on or before July 21,
1998.
5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The respective
obligations of the several Initial Purchasers hereunder are subject to the
accuracy, on and as of the date hereof and the Closing Date, of the
representations and warranties of the Company contained herein, to the accuracy
of the statements of the Company and its respective officers made in any
certificates delivered pursuant hereto, to the performance by the Company of its
respective obligations hereunder and to each of the following additional terms
and conditions:
(a) The Final Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchasers as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchasers
may agree; and no stop order suspending the sale of the Securities shall
have been issued by the Commission and no proceeding for that purpose shall
have been commenced or shall be pending or threatened.
<PAGE>
-20-
(b) None of the Initial Purchasers shall have discovered and
disclosed to the Company on or prior to the Closing Date that the Final
Offering Memorandum or any amendment or supplement thereto contains an
untrue statement (other than with respect to information supplied by the
Initial Purchasers) of a fact which, in the opinion of counsel for the
Initial Purchasers, is material or omits to state any fact which, in the
opinion of such counsel, is material or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Final Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby (including
any agreements or documents executed and delivered in connection
therewith), shall be reasonably satisfactory in all material respects to
the Initial Purchasers, and the Company shall have furnished to the Initial
Purchasers all documents and information that they or their counsel may
reasonably request to enable them to pass upon such matters.
(d) Wilson Sonsini Goodrich & Rosati, Professional Corporation shall
have furnished to the Initial Purchasers their written opinion, as counsel
to the Company, addressed to the Initial Purchasers and dated the Closing
Date, in form and substance reasonably satisfactory to the Initial
Purchasers, substantially to the effect set forth in ANNEX B hereto and
Japanese counsel to TRKK shall have furnished to the Initial Purchasers
their written opinion, as counsel to TRKK, addressed to the Initial
Purchasers and dated the Closing Date, substantially to the effect set
forth in Annex C hereto.
(e) The Initial Purchasers shall have received from Cahill Gordon &
Reindel, counsel for the Initial Purchasers, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchasers may reasonably require, and the Company shall have furnished to
such counsel such documents and information as they may reasonably request
for the purpose of enabling them to pass upon such matters.
(f) The Report of Independent Accountants which appears with a
qualifying footnote regarding the Reorganization on page F-2 of the
Preliminary Offering Memorandum shall be delivered without such footnote
and shall appear without such footnote in the Final Offering Memorandum.
(g) The Company shall have furnished to the Initial Purchasers an
initial comfort letter (the "INITIAL COMFORT LETTER") of Coopers & Lybrand
L.L.P., addressed to the Initial Purchasers and dated the date hereof, in
form and substance previously approved by the Initial Purchasers.
<PAGE>
-21-
(h) The Company shall have furnished to the Initial Purchasers a
letter (the "BRING-DOWN COMFORT LETTER") of Coopers & Lybrand L.L.P.,
addressed to the Initial Purchasers and dated the Closing Date, (i)
confirming that they are independent public accountants with respect to the
Company and its subsidiaries within the meaning of Rule 101 of the Code of
Professional Conduct of the AICPA and its interpretations and rulings
thereunder, (ii) stating, as of the date of the Bring-Down Comfort Letter
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Final Offering Memorandum, as of a date not more than three business
days prior to the date of the Bring-Down Comfort Letter), that the
conclusions and findings of such accountants with respect to the financial
information and other matters covered by the Initial Comfort Letter are
accurate and (iii) confirming in all material respects the conclusions and
findings set forth in the Initial Comfort Letter.
(i) The Company shall have furnished to the Initial Purchasers a
certificate, dated the Closing Date, of its chief executive officer and its
chief financial officer stating that (A) such officers have carefully
examined the Final Offering Memorandum, (B) in their opinion, the Final
Offering Memorandum, as of its date, did not include any untrue statement
of a material fact and did not omit to state a material fact required or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and since the
date of the Final Offering Memorandum, no event has occurred which should
have been set forth in a supplement or amendment to the Final Offering
Memorandum so that the Final Offering Memorandum (as so amended or
supplemented) would not include any untrue statement of a material fact and
would not omit to state a material fact or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (C) as of the Closing Date, the representations
and warranties of the Company in this Agreement are true and correct in all
material respects, the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
on or prior to the Closing Date, and subsequent to the date of the most
recent financial statements contained in the Final Offering Memorandum,
there has been no material adverse change in the financial position or
results of operations of the Company or any of the Subsidiaries, or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the Company and
the Subsidiaries taken as a whole, except as expressly set forth in the
Final Offering Memorandum.
<PAGE>
-22-
(j) The Initial Purchasers shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Company.
(k) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(l) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Final Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchasers shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the
Initial Purchasers reasonably in advance of the Closing Date.
(m) The Securities shall have been approved by the NASD for trading
in The Portal Market.
(n) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Final Offering
Memorandum (exclusive of any amendment or supplement thereto), other than
as contemplated by the Final Offering Memorandum, there shall not have been
any material decrease in the capital stock or material increase in the
long-term debt (other than borrowings under the New Credit Facility in the
ordinary course of business) or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the financial condition, results of operations or business
prospects of the Company and the Subsidiaries taken as a whole, the effect
of which, in any such case described above, is, in the reasonable judgment
of CSI, so material and adverse as to make it impracticable or inadvisable
to proceed with the sale or delivery of the Securities on the terms and in
the manner contemplated in this Agreement and the Final Offering Memorandum
(exclusive of any amendment or supplement thereto).
(o) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the judgment of the Initial Purchasers would materially impair the
ability of the Initial Purchasers to purchase, hold or effect resales of
the Securities as contemplated hereby.
(p) No action shall have been taken by and no statute, rule,
regulation or order shall have been enacted, adopted or issued by, any
governmental agency or body
<PAGE>
-23-
which would, as of the Closing Date, prevent the issuance, sale or resale
of the Securities in the manner contemplated by the Final Offering
Memorandum; and no injunction, restraining order or order of any other
nature by any federal or state court of competent jurisdiction shall have
been issued as of the Closing Date which would prevent the issuance, sale
or resale of the Securities in the manner contemplated by the Final
Offering Memorandum.
(q) Subsequent to the execution and delivery of this Agreement,
(i) no downgrading shall have occurred in the rating accorded the
Securities or any of the Company's other debt securities or preferred stock
by any "nationally recognized statistical rating organization", as such
term is defined by the Commission for purposes of Rule 436(g)(2) of the
rules and regulations of the Commission under the Securities Act and
(ii) no such organization shall have publicly announced that it has under
surveillance or review (other than an announcement with positive
implications of a possible upgrading), its rating of the Securities or any
of the Company's other debt securities or preferred stock.
(r) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
the Company on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by federal or New York state authorities or
(iii) an outbreak or escalation of hostilities or a declaration by the
United States of a national emergency or war or (iv) a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) the effect of which, in the case of clauses (iii) and
(iv), is, in the reasonable judgment of the Initial Purchasers, so material
and adverse as to make it impracticable or inadvisable to proceed with the
sale or the delivery of the Securities on the terms and in the manner
contemplated in this Agreement and in the Final Offering Memorandum
(exclusive of any amendment or supplement thereto).
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
6. TERMINATION. The obligations of the Initial Purchasers hereunder
may be terminated by the Initial Purchasers, in their absolute discretion, by
notice given to and re-
<PAGE>
-24-
ceived by the Company prior to delivery of and payment for the Securities if,
prior to that time, any of the events described in Section 5(n), (o), (p), (q)
or (r) shall have occurred and be continuing.
7. DEFAULTING INITIAL PURCHASERS. (a) If, on the Closing Date, any
Initial Purchaser defaults in the performance of its obligations under this
Agreement, the non-defaulting Initial Purchaser may make arrangements for the
purchase of the Securities which such defaulting Purchaser agreed but failed to
purchase by other persons satisfactory to the Company and the non-defaulting
Initial Purchaser, but if no such arrangements are made within 36 hours after
such default, this Agreement shall terminate without liability on the part of
the non-defaulting Initial Purchaser or the Company, except that the Company
will continue to be liable for the payment of expenses to the extent set forth
in Sections 8 and 12 and except that the provisions of Sections 9, 10, 14 and 17
shall not terminate and shall remain in effect. As used in this Agreement, the
term "Initial Purchasers" includes, for all purposes of this Agreement unless
the context otherwise requires, any party not listed in Schedule 1 hereto that,
pursuant to this Section 7, purchases Securities which a defaulting Initial
Purchaser agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Initial
Purchaser of any liability it may have to the Company or any non-defaulting
Initial Purchaser for damages caused by its default. If other persons agree to
purchase the Securities of a defaulting Initial Purchaser, either the non-
defaulting Initial Purchaser or the Company may postpone the Closing Date for up
to seven full business days in order to effect any changes that in the
reasonable opinion of counsel for the Company or counsel for the Initial
Purchasers may be necessary in the Offering Memorandum or in any other document
or arrangement, and the Company agrees to reasonably promptly prepare any
amendment or supplement to the Final Offering Memorandum that effects any such
changes.
8. REIMBURSEMENT OF INITIAL PURCHASERS' EXPENSES. If (a) this
Agreement shall have been terminated pursuant to Section 6 (except in the case
of a failure of the condition specified in Section 5(o), 5(p) or 5(r)), (b) the
Company shall fail to tender the Securities for delivery to the Initial
Purchasers for any reason or (c) the Initial Purchasers shall decline to
purchase the Securities for any reason permitted under this Agreement, the
Company shall reimburse the Initial Purchasers for such out-of-pocket expenses
(including reasonable fees and disbursements of counsel) as shall have been
reasonably incurred by the Initial Purchasers in connection with this Agreement
and the proposed purchase and resale of the Securities.
9. INDEMNIFICATION. (a) The Company shall indemnify and hold
harmless each Initial Purchaser, their affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively
<PAGE>
-25-
referred to for purposes of this Section 9(a) and Section 10 as an "INITIAL
PURCHASERS"), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, without limitation, any
loss, claim, damage, liability or action relating to purchases and sales of the
Securities), to which such Initial Purchasers may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Final Offering
Memorandum or in any amendment or supplement thereto or in any information
provided by the Company pursuant to Section 4(d) or (ii) the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse the Initial Purchasers promptly upon
demand for any legal or other expenses reasonably incurred by the Initial
Purchasers in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with any Initial Purchasers' Information; PROVIDED, FURTHER, HOWEVER, that with
respect to any such untrue statement in or omission from the Preliminary
Offering Memorandum, the indemnity agreement contained in this Section 9(a)
shall not inure to the benefit of the Initial Purchasers to the extent that the
sale to the person asserting any such loss, claim, damage, liability or action
was an initial resale by the Initial Purchasers and any such loss, claim,
damage, liability or action of or with respect to the Initial Purchasers results
from the fact that both (A) to the extent required by applicable law, a copy of
the Final Offering Memorandum was not sent or given to such person at or prior
to the written confirmation of the sale of such Securities to such person and
(B) the untrue statement in or omission from the Preliminary Offering Memorandum
was corrected in the Final Offering Memorandum, unless, in either case, such
failure to deliver the Final Offering Memorandum was a result of non-compliance
by the Company with Section 4(b).
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless the Company, its respective affiliates, its
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively, referred to for
purposes of this Section 9(b) and Section 10 as the "COMPANY"), from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common
<PAGE>
-26-
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum or
the Final Offering Memorandum or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Initial Purchasers'
Information, and shall reimburse the Company promptly upon demand for any legal
or other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying
party in writing of such claim or the commencement of such action; PROVIDED,
HOWEVER, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 9 except to the extent
that the indemnifying party was otherwise unaware of such claim or the
commencement of such action and it has been materially prejudiced (through the
forfeiture of substantive rights or defenses) by such failure; PROVIDED FURTHER,
HOWEVER, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party otherwise than
under this Section 9. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; PROVIDED, HOWEVER, that an indemnified party shall have
the right to employ its own counsel in any such action, but the fees, expenses
and other charges of such counsel for the indemnified party will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based upon advice of counsel to
the indemnified party) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, (3) a conflict or potential conflict exists (based upon
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the in-
<PAGE>
-27-
demnifying party will not have the right to direct the defense of such action on
behalf of the indemnified party) or (4) the indemnifying party has not in fact
employed counsel reasonably satisfactory to the indemnified party to assume the
defense of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim.
No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld or delayed), but if settled with its written consent or if
there be a final judgment for the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party (which consent shall not be unreasonably withheld or delayed), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party in form and substance
satisfactory to such indemnified party from all liability on claims that are the
subject matter of such proceeding and does not contain an admission of fault or
culpability.
The obligations of the Company and the Initial Purchasers in this
Section 9 and in Section 10 are in addition to any other liability that the
Company or the Initial Purchasers, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
10. CONTRIBUTION. If the indemnification provided for in Section 9
is unavailable or insufficient to hold harmless an indemnified party under
Section 9(a) or 9(b) (to the extent contemplated by such Sections), then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
from the offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law or if the indemnified party failed
to give notice as required in Section 9(c) above, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the
<PAGE>
-28-
relative fault of the Company on the one hand and the Initial Purchasers on the
other with respect to the statements or omissions that resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Initial Purchasers on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by or on behalf of the Company, on the one hand, and the total discounts and
commissions received by the Initial Purchasers with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Securities under this Agreement, in each case, as set forth
in the table on the cover page of the Final Offering Memorandum. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to the Company or information supplied
by the Company on the one hand or to any Initial Purchasers' Information on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission, and any other equitable considerations appropriate in the
circumstances.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contributions pursuant to this Section 10 were to be determined
by PRO RATA allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 10
shall be deemed to include, for purposes of this Section 10, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 10, no Initial Purchaser shall be
required to contribute any amount in excess of the amount by which the price at
which the aggregate amount of the Securities sold by the Initial Purchasers
exceeds the amount of any damages which such Initial Purchasers has otherwise
paid or become liable to pay by reason of any untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers and the
Company and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 9 and 10 with respect to affiliates, officers, directors,
employees, representatives, agents and controlling persons of the Company and
the Initial Purchasers and in Section 4(e) with respect to holders and
prospective purchasers of the
<PAGE>
-29-
Securities. Nothing in this Agreement is intended or shall be construed to give
any person, other than the persons referred to in this Section 11, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
12. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company agrees
with the Initial Purchasers to pay (a) the costs incident to the authorization,
issuance, sale, preparation and delivery of the Securities and any taxes payable
in that connection; (b) the costs incident to the preparation, printing and
distribution of the Preliminary Offering Memorandum, the Final Offering
Memorandum and any amendments or supplements thereto; (c) the costs of
reproducing and distributing each of the Transaction Documents; (d) the costs
incident to the preparation, printing and delivery of the certificates
evidencing the Securities, including stamp duties and transfer taxes, if any,
payable upon issuance of the Securities; (e) the fees and expenses of the
Company's counsel and independent accountants; (f) the fees and expenses of
qualifying the Securities under the securities laws of the several jurisdictions
as provided in Section 4(g) and of preparing, printing and distributing the Blue
Sky memoranda; (g) any fees charged by rating agencies for rating the
Securities; (h) the fees and expenses of the Trustee and any paying agent
(including related fees and expenses of any counsel to such parties); (i) all
expenses and application fees incurred in connection with the application for
the inclusion of the Securities on The Portal Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement which are not otherwise specifically provided for in this Section 12;
PROVIDED, HOWEVER, that except as expressly provided in this Section 12 and
Section 8, the Initial Purchasers shall pay their own costs and expenses
(including, without limitation, fees and expenses of counsel for the Initial
Purchasers).
13. SURVIVAL. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Company and the Initial
Purchasers contained in this Agreement or made by or on behalf of the Company or
the Initial Purchasers pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any of their respective affiliates, officers,
directors, employees, representatives, agents or controlling persons.
14. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: James Casey (telecopier no.:
(212) 270-0994); or
<PAGE>
-30-
(b) if to the Company, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum, Attention: DeVaughn Searson (telecopier no.: (916) 373-3006);
PROVIDED, HOWEVER, that any notice to an Initial Purchaser pursuant to
Section 9(c) shall also be delivered or sent by mail to such Initial Purchaser
at its address set forth on the signature page hereof. Any such statements,
requests, notices or agreements shall take effect at the time of receipt
thereof.
15. DEFINITION OF TERMS. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading and (b) except where otherwise expressly provided, the term
"affiliate" has the meaning set forth in Rule 405 under the Securities Act.
16. INITIAL PURCHASERS' INFORMATION. The parties hereto acknowledge
and agree that for all purposes of this Agreement (including, but not limited
to, Section 1(a), Section 9 and Section 10) the Initial Purchasers' information
(but only as to such Initial Purchaser) consists solely of the following
information in the Preliminary Offering Memorandum and the Final Offering
Memorandum: (i) the last paragraph on the front cover page concerning the terms
of the offering by the Initial Purchasers; (ii) the first paragraph on page "i"
concerning stabilization activities by the Initial Purchasers; and (iii) the
statements concerning the Initial Purchasers contained in the first and second
sentence of the third paragraph, the fifth paragraph, the second sentence of the
ninth paragraph, the twelfth paragraph and the last paragraph under the heading
"Plan of Distribution."
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
19. AMENDMENTS. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
20. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
-31-
[Signature Pages Follow]
<PAGE>
S-1
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the Initial
Purchasers in accordance with its terms.
Very truly yours,
MTS, INCORPORATED
By: /s/ DeVaughn D. Searson
-----------------------------
Name: DeVaughn D. Searson
Title: CFO
CHASE SECURITIES INC.
By: /s/ James P. Casey
--------------------------------
Authorized Signatory
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Jack Mann
--------------------------------
Authorized Signatory
<PAGE>
S-2
Address for notices pursuant to Section 9(c):
270 Park Avenue
New York, New York 10017
Attention: Legal Department
<PAGE>
SCHEDULE I
SUBSIDIARIES
CAMPBELL RECORD SALES, INCORPORATED, a California corporation
FRESNO RECORD SALES, INCORPORATED, a California corporation
QUEEN ANNE RECORD SALES, INC., a Washington corporation
SAN DIEGO RECORD SALES, INCORPORATED, a California corporation
STOCKTON RECORD SALES, INCORPORATED, a California corporation
T.R. SERVICES, INCORPORATED, a California corporation
TOWER RECORDS INC. (KABUSHIKI KAISHA), a Japanese corporation
TOWER RECORDS HONG KONG LIMITED, a Hong Kong corporation
TOWER RECORDS CANADA, INC., a Canadian corporation
TOWER RECORDS (SINGAPORE) PTE LTD, a Singapore corporation
TOWER RECORDS (TAIWAN) LTD., a Taiwanese corporation
TOWER RECORDS, LTD, an Irish corporation
<PAGE>
SCHEDULE II
Principal
Amount of
Initial Purchasers Securities
- ------------------ ----------
Chase Securities Inc...................................... $ 88,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................. $ 22,000,000
------------
Total.............................................. $110,000,000
------------
------------
<PAGE>
ANNEX A
[Form of Registration Rights Agreement]
A-1
<PAGE>
ANNEX B
[Form of Opinion of Counsel for the Company]
We have acted as counsel to MTS, INCORPORATED, a California
corporation (the "Company") and Three A's Holdings, L.L.C., a Delaware limited
liability company ("Three A's"), in connection with that certain Purchase
Agreement, dated April 20, 1998 (the "Purchase Agreement"), among the Company
and you pursuant to which you are purchasing from the Company on the date hereof
$100,000,000 aggregate principal amount of the Company's % Senior
Subordinated Notes due 2005 (the "Securities"). The Securities are being issued
pursuant to an indenture, dated as of April __, 1998 (the "Indenture"), between
the Company and State Street Bank and Trust Company of California, N.A., as
trustee (the "Trustee"). This opinion is being furnished to you pursuant to
Section 5(d) of the Purchase Agreement. Capitalized terms used herein shall
have the meanings given to them in the Purchase Agreement unless otherwise
defined herein.
In this regard, we have examined executed originals or copies of the
following:
(a) The Purchase Agreement;
(b) The Indenture;
(c) The Registration Rights Agreement;
(d) The Offering Memorandum of the Company, dated April 20,
1998, relating to the offering of the Securities (the "Final
Memorandum");
(e) Resolutions of the Board of Directors of the Company adopted on
April __, 1998;
(f) Resolutions of the Pricing Committee of the Company adopted on
April 20, 1998;
(g) The Articles of Incorporation, as amended (the "Articles"),
and Bylaws of the Company (the "Bylaws"), each as in effect on
the date hereof;
(h) The Operating Agreement of Three A's, as in effect
on the date hereof;
(i) Specimen certificates representing the Securities;
(j) The certificates of various officers of the Company, Three
A's and others delivered to you pursuant to the Purchase
Agreement;
B-1
<PAGE>
(k) The certificates of certain state authorities and filing
officers, copies of which are being delivered to you on the date
hereof;
(l) The other documents delivered by the Company, the Trustee and
you on the date hereof;
(m) The agreements listed on Exhibit A hereto (the "Reviewed
Agreements"); and
(n) Such other records of the Company and such other certificates
of public officials, certificates of officers or other
representatives of the Company and others as we have deemed
necessary or appropriate as a basis for the opinions set forth
herein.
The Purchase Agreement, the Registration Rights Agreement, the
Indenture and the Securities are sometimes referred to collectively herein as
the "Agreements."
With your permission we have assumed the following: (a) the
authenticity of original documents and the genuineness of all signatures (other
than those of the Company on the Agreements); (b) the conformity to the
originals of all documents submitted to us as copies; (c) the truth, accuracy
and completeness of the information, factual matters, representations and
warranties contained in the records, documents, instruments and certificates we
have reviewed as of their stated dates and as of the date hereof; (d) the legal
capacity of natural persons; (e) except as specifically covered in the opinions
set forth below, the due authorization, execution and delivery on behalf of the
respective parties thereto of documents referred to herein and that such
agreements constitute legal, valid and binding obligations of the parties
thereto; and (f) the absence of any evidence extrinsic to the provisions of the
written agreements between the parties that the parties intended a meaning
contrary to that expressed by those provisions. In addition, we have, with your
permission, assumed that the representations and warranties as to factual
matters made by the Company in the Purchase Agreement and pursuant thereto are
true, correct and complete.
Whenever a statement herein is qualified by the phrase "known to us"
or "to our knowledge" or a similar expression, it is intended to indicate that
no information that would give us current actual knowledge of the inaccuracy of
such statement has come to the attention of the attorneys of this firm who have
rendered legal services to the Company in connection with the representation
described in the first paragraph of this opinion letter. However, we have not
undertaken any independent investigation or review to determine the accuracy of
any such statement, and any limited inquiry undertaken by us during the
preparation of this opinion letter should not be regarded as such an
investigation or review; no inference as to our knowledge of any matters bearing
on the accuracy of any such statement should be drawn from the fact of our
representation of the Company or its affiliates in this or other matters.
B-2
<PAGE>
The opinions set forth below are subject to the following exceptions,
qualifications, limitations, comments and additional assumptions:
A. We express no opinion as to any matter relating to laws of any
jurisdiction other than the laws of the State of California, the General
Corporation Law of the State of Delaware and the federal laws of the United
States, as such are in effect on the date hereof, and we have made no
inquiry into, and we express no opinion as to, any statutes, regulations,
treaties, common laws or other laws of any other nation, state or
jurisdiction. In this regard, we note that the Agreements purport to be
governed by the laws of the State of New York. The opinions expressed
herein concerning the validity, binding effect and enforceability of the
Agreements are, subject to the limitation set forth in paragraph G below,
intended to express our views on those matters as if the substantive law of
California were applicable.
B. We express no opinion as to (i) the effect of any bankruptcy,
insolvency, reorganization, arrangement, fraudulent conveyance, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, including, without limitation, laws relating to fraudulent
transfers or conveyances and preferences; (ii) rights to indemnification
and contribution which may be limited by applicable law or equitable
principles; or (iii) the effect of general principles of equity, including
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing, and the possible unavailability of specific performance,
injunctive relief or other equitable relief, whether considered in a
proceeding in equity or at law.
C. We express no opinion with respect to the validity, binding
nature or enforceability of (i) any vaguely or broadly stated waiver,
including without limitation, the waivers of diligence, presentment,
demand, protest or notice contained in any Agreement; (ii) any provisions
of any Agreements imposing penalties or forfeitures, late payment charges
or any increase in interest rate, upon delinquency in payment or the
occurrence of a default to the extent they constitute a penalty or
forfeiture or are otherwise contrary to public policy; (iii) any provision
of the Agreements to the effect that a statement, certificate,
determination or record shall be deemed conclusive absent manifest error
(or similar effect), including, without limitation, that any such
statement, certificate, determination or record shall be prima facie
evidence of a fact; or (iv) any provision of the Agreements which provides
that notice not actually received may be binding on any party.
D. We express no opinion with respect to the legality, validity,
binding nature or enforceability of any provision of the Agreements to the
effect that rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to any other right or
remedy, that the election of some particular remedy or remedies does not
preclude recourse to one or more other remedies or that fail-
B-3
<PAGE>
ure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such right or remedy.
E. We express no opinion as to any provision of the Agreements
requiring written amendments or waivers of such documents insofar as it
suggests that oral or other modifications, amendments or waivers could not
be effectively agreed upon by the parties or that the doctrine of
promissory estoppel might not apply.
F. We express no opinion regarding compliance or non-compliance (or
the effect thereof) with state securities laws, or the "Blue Sky" laws of
any state or other jurisdiction.
G. Our opinions expressed herein concerning the validity, binding
effect and enforceability of the Securities and the Indenture could be
limited by the application of the provisions of Article XV of the
California Constitution and California statutes related to usury; however,
in our view, a California court or a federal court applying California law,
to which the issue is properly presented and which follows the cases set
forth below, should give effect to the choice of New York law set forth in
the Securities and the Indenture and apply New York law and not California
law to the issue of usury. California courts have held that the choice of
law of the parties to a contract will be respected where the relationship
of a party to the contract to another jurisdiction is substantial, except
to the extent that any provision of the contract or any applicable
provision of the law of the other jurisdiction violates a fundamental
policy of the State of California. We note that California courts have
held (i) that if one of the parties to the contract is domiciled in the
other jurisdiction the relationship to that jurisdiction is sufficiently
substantial so as to permit the application of the law of the other
jurisdiction to the contract and (ii) that California does not have such a
strong public policy against contracts having rates of interest that would
be usurious if California law were to apply so as to preclude the
application of non-California law to contracts on the issue of usury. URY
v. JEWELERS ACCEPTANCE CORP., 227 Cal. App.2d 11,20 (1964); See also GAMER
v. DUPONT GLORE FORGAN, INC., 65 Cal. App.3d 280 (1976). See, also, MENCOR
ENTERPRISES, INC. v. HETA EQUITIES CORP., 190 Cal. App.3d 432 (1987).
H. In rendering the opinions set forth in paragraph 1 below, (i) in
order to determine in which states qualification is appropriate, we have
relied solely upon a certificate from an officer of the Company that
describes the states in which the Company owns or leases property or
maintains offices or has employees and (ii) as to the qualification and
good standing of the Company, we have relied exclusively on certificates of
public officials.
I. With respect to our opinions set forth in paragraph 13 below, we
have assumed, with your permission, that no offers or sales have been made
by you within
B-4
<PAGE>
the United States to entities or persons who are not "qualified
institutional buyers" within the meaning of Rule 144A of the Securities
Act, and that all actions are taken by the Company and by you subsequent to
the date hereof (including, without limitation, compliance by the Company
with any applicable post-sale Regulation S reporting requirements) as are
required to perfect (and no actions are taken by the Company or you
subsequent to the date hereof that would disqualify such offers and sales
by the Company and you from) the exemptions for the offer and sale of the
Securities relied upon under Regulation S and Rule 144A promulgated
pursuant to the Securities Act as contemplated by the Purchase Agreement
and the Final Memorandum.
J. Our opinion in paragraph 9 below that the execution, delivery and
performance of the Agreements, will not contravene any applicable law,
judgment, order or decree or that charters or bylaws of the Company is
intended to express our opinion that the execution, delivery and
performance by the Company, respectively, of the Agreements are neither
prohibited by, nor subject the Company to a fine, penalty or similar
sanction that would be materially adverse to the Company and its
subsidiaries taken as a whole, under, any law of the State of California or
United States federal law or any judgment, law or decree of any California
or United States federal governmental entity, body or court that a lawyer
in the State of California exercising customary professional diligence
would reasonably recognize to be directly applicable to the Company, the
sale of the Securities, or both.
K. In rendering the opinion set forth in paragraph 10 below with
respect to the existence of any proceedings pending or threatened against
the Company, we have relied solely upon a certificate from an officer of
the Company.
L. We express no opinion as to whether the performance by the
Company of its obligation under the Registration Rights Agreement to
consummate, under certain circumstances, the Registered Exchange Offer (as
defined in the Registration Rights Agreement) while simultaneously
undertaking a Private Exchange (as defined in the Registration Rights
Agreement) would not constitute a violation of the Securities Act, the
rules and regulations promulgated thereunder and the interpretations of the
Securities and Exchange Commission thereof.
M. This opinion speaks only at and as of its date and is based
solely on the facts and circumstances known to us at and as of such date.
We express no opinion as to the effect on rights under the Agreements of
any statute, rule, regulation or other law which is enacted or becomes
effective after, or of any court decision which changes the law relevant to
such rights which is rendered after, the date of this opinion or the
conduct of the parties following the closing of the contemplated
transactions. In addition, in rendering this opinion, we assume no
obligation to revise or supplement this opinion should the present laws of
the jurisdictions mentioned herein be changed by legislative action,
judicial decision or otherwise.
B-5
<PAGE>
On the basis of the foregoing and in reliance thereon and having
regard for legal considerations which we deem relevant, and subject to the
limitations and qualifications set forth herein, we advise you that in our
opinion:
1. The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of California and
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification (except to
the extent that the failure to be so qualified or be in good standing could
not reasonably be expected to have a Material Adverse Effect), and has the
corporate power and authority to own or lease its property and to conduct
the business in which it is engaged as described in the Final Memorandum.
Three A's is duly organized and validly existing as a limited liability
company in good standing under the laws of the State of Delaware and is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification (except to
the extent that the failure to be so qualified or be in good standing could
not reasonably be expected to have a Material Adverse Effect), and has the
corporate power and authority to own or lease its property and to conduct
the business in which it is engaged as described in the Final Memorandum.
2. The Company has the requisite corporate power to enter into and
perform its obligations under the Agreements, including, without
limitation, the corporate power to issue, sell and deliver the Securities
as contemplated by the Purchase Agreement.
3. All corporate and other actions of the Company and Parent
necessary to effect the Reorganization have been taken by the Company and
Parent and each of the agreements, documents, instruments and certificates
of the Company and Parent (collectively, the "Reorganization Documents")
that is required to consummate the Reorganization has been duly executed
and delivered by the Company or Parent, as applicable, and constitute the
valid and binding obligations of the Company or Parent, as applicable,
enforceable in accordance with their terms.
4. The Purchase Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company, enforceable in accordance with its terms. The statements in the
Final Memorandum under the caption "Plan of Distribution," insofar as such
statements purport to summarize the terms of the Purchase Agreement, fairly
summarize, in all material respects, the terms of the Purchase Agreement.
5. The Indenture has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company,
enforceable in accor-
B-6
<PAGE>
dance with its terms. The statements in the Final Memorandum under the
caption "Description of Notes," insofar as such statements purport to
summarize the terms of the Indenture, fairly summarize, in all material
respects, the terms of the Indenture.
6. The Securities have been duly authorized for issuance and sale to
the Initial Purchasers by the Company and, when duly issued, executed and
authenticated in accordance with the terms of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of
the Indenture and the Purchase Agreement, will be valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, and will be entitled to the benefits of the Indenture.
The statements in the Final Memorandum under the caption "Description of
Notes," insofar as such statements purport to summarize the terms of the
Securities, fairly summarize, in all material respects, the terms of the
Securities.
7. The Exchange Securities have been duly authorized for issuance
and sale to the Initial Purchasers by the Company and, when duly issued,
executed and authenticated in accordance with the terms of the Exchange
Offer and the Indenture, the Exchange Securities will be valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, and will be entitled to the benefits of the Indenture.
8. The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement
of the Company enforceable in accordance with its terms. The statements in
the Final Memorandum under the caption "Exchange and Registration Rights
Agreement," insofar as such statements purport to summarize the terms of
the Registration Rights Agreement, fairly summarize, in all material
respects, the terms of the Registration Rights Agreement.
9. The Execution and delivery by the Company of, and the performance
by the Company of its respective obligations under, the Agreements, the
issuance and sale of the Securities by the Company and the consummation by
the Company of the transactions contemplated by the Agreements will not
(i) conflict with the Articles of Incorporation or Bylaws of the Company or
(ii) except as set forth in the Final Memorandum, result in a material
breach or violation of any of the terms or provisions of, or constitute a
material default under any Reviewed Agreement, or (iii) except in the
limited circumstances described in paragraph L above as to which we express
no opinion, result in any material violation of any provision of applicable
United States federal or California state law, or any judgment, order or
decree known to us of any United States federal or California state court
or governmental agency or body having jurisdiction over the Company or by
which the Company or its properties or assets is bound, and, except for
such consents, approvals, authorizations, other orders, filings, or
qualifications or registrations as may be required under applicable state
securities
B-7
<PAGE>
laws in connection with the purchase and distribution of the Securities by
the Initial Purchasers or as set forth in the Registration Rights
Agreement, as to which we express no opinion, no consent, approval,
authorization, order, filing, qualification or registration with any United
States federal or California state court or governmental body or agency is
required for the performance by the Company of its obligations under the
Agreements and the issuance and sale of the Securities by the Company.
10. To our knowledge, there are no legal or governmental proceedings
pending to which the Company is a party or to which any of the property or
assets of the Company are subject which (i) would be required under the
Securities Act to be described in a registration statement or a prospectus
delivered at the time of the confirmation of the sale of an offering of
securities registered under the Securities Act that are not described in
the Final Memorandum, or (ii) question the validity or enforceability of
any of the Transaction Documents or any action taken or to be taken
pursuant thereto; and to our knowledge, no such proceedings are overtly
threatened in writing.
11. The Company is not subject to registration and regulation as an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
12. Neither the issuance and sale of the Securities nor the
application of the net proceeds thereof as set forth in the Final
Memorandum will violate the provisions of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
13. Assuming, without independent investigation, (a) that the
Securities are sold to the Initial Purchasers, and initially resold by the
Initial Purchasers, in accordance with the terms of, and in the manner
contemplated by, the Purchase Agreement and the Final Memorandum, (b) the
accuracy of the representations and warranties of the Company set forth in
the Purchase Agreement and in certain certificates, (c) the accuracy of the
Initial Purchasers' representations and warranties set forth in the
Purchase Agreement, (d) the due performance by the Company and the Initial
Purchasers of their respective covenants and agreements set forth in the
Purchase Agreement, (e) the Initial Purchasers' compliance with the
Offering and the transfer procedures and restrictions described in the
Final Memorandum, (f) the accuracy of any representations and warranties
made in accordance with the Purchase Agreement and the Final Memorandum by
each purchaser (each, a "Subsequent Purchaser") to whom the Initial
Purchasers initially resell Securities and (g) that each Subsequent
Purchaser to whom the Initial Purchasers initially resell Securities
receives a copy of the Final Memorandum if requested by such Subsequent
Purchaser prior to such sale, THEN the offer, issuance, sale and delivery
of the Securities to the Initial Purchasers, and the initial reoffer,
resale and delivery of the Securities by the Initial Purchasers to the
Subsequent Purchasers, in accordance with the terms of, and in the manner
contemplated by, the Pur-
B-8
<PAGE>
chaser Agreement and the Final Memorandum, do not require registration
under the Securities Act, or qualification of the Indenture under the Trust
Indenture Act, it being understood that no opinion is expressed as to any
subsequent resale of Securities or any resale of Securities by any person
other than the Initial Purchasers.
14. All of the outstanding member interests of Three A's have been
duly and validly authorized and issued and are owned by the Company, free
of any adverse claim.
--------------------------
In addition, we have participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants of the Company, and representatives of the Initial Purchasers and
their counsel at which the contents of the Final Memorandum were discussed; but
we cannot, of course, make any representation to you as to the accuracy or
completeness of statements contained in the Final Memorandum. Nothing, however,
has come to our attention that leads us to believe that the Final Memorandum, as
of its date or as of the date hereof, contained or contains an untrue statement
of a material fact or omitted or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading (it being understood that we have not been requested
to and do not make any comment in this paragraph with respect to the financial
statements, notes thereto and schedules or other financial or statistical data
included in the Final Memorandum).
B-9
<PAGE>
EXHIBIT A
Reviewed Agreements
<PAGE>
ANNEX C
We are attorneys in Japan of Tower Records Kabushiki Kaisha ("TRKK").
This opinion is rendered in connection with certain Purchase Agreement dated
April , 1998 among MTS Incorporated (the "Company") and you pursuant to which
you are purchasing from the Company on the date hereof the Company's % Senior
Subordinated Notes due 2005. This opinion is furnished to you pursuant to
Section 5(d) of the Purchase Agreement. Capitalized terms used herein shall
have the meaning given to them in the Purchase Agreement unless otherwise
defined herein.
1. TRKK is a corporation duly organized and existing under the laws
of Japan and has the corporate power and authority to own its property and
to conduct the business in which it is engaged.
2. All of the outstanding shares of capital stock of TRKK have been
duly and validly authorized and issued and are owned by the Company, free
of any other claim of any third party other than the lien securing the New
Credit Facility.
C-1
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDENTURE
DATED AS OF APRIL 23, 1998
BETWEEN
MTS, INCORPORATED, AS ISSUER,
AND
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
AS TRUSTEE
------------------
$110,000,000
9 3/8% SENIOR SUBORDINATED NOTES DUE 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ---------
<S> <C>
Section 310(a)(1). . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . 7.08, 7.10.
(b) . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 11.02
(c) . . . . . . . . . . . . . . . . . . . . N.A.
Section 311(a) . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . N.A.
Section 312(a) . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . 11.03
Section 313(a) . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1). . . . . . . . . . . . . . . . . . . N.A.
(b)(2). . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . 7.06
Section 314(a) . . . . . . . . . . . . . . . . . . . . 4.09; 4.11; 11.02
(b) . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . 11.04
(c)(2). . . . . . . . . . . . . . . . . . . 11.04
(c)(3). . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . N.A.
Section 315(a) . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . 6.11
Section 316(a)(last sentence). . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . 9.04
Section 317(a)(1). . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . 2.04
Section 318(a) . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
- ----------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT . . . 19
SECTION 1.03. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . 19
ARTICLE TWO THE SECURITIES
SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.02. EXECUTION AND AUTHENTICATION. . . . . . . . . . . . . . 21
SECTION 2.03. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . 22
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST. . . . . . . . . . 22
SECTION 2.05. HOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.06. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . 23
SECTION 2.07. REPLACEMENT SECURITIES. . . . . . . . . . . . . . . . . 23
SECTION 2.08. OUTSTANDING SECURITIES. . . . . . . . . . . . . . . . . 24
SECTION 2.09. TREASURY SECURITIES . . . . . . . . . . . . . . . . . . 24
SECTION 2.10. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . 24
SECTION 2.11. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.12. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . 25
SECTION 2.13. CUSIP NUMBER. . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.14. DEPOSIT OF MONEYS . . . . . . . . . . . . . . . . . . . 25
SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES . . . . . . 25
SECTION 2.16. REGISTRATION OF TRANSFERS AND EXCHANGES . . . . . . . . 26
ARTICLE THREE REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . . . 30
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. . . . . . . . . 30
SECTION 3.03. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . 31
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. . . . . . . . . . . . . 31
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . 32
SECTION 3.06. SECURITIES REDEEMED IN PART . . . . . . . . . . . . . . 32
ARTICLE FOUR COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . . 32
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . 33
SECTION 4.03. LIMITATION ON INDEBTEDNESS. . . . . . . . . . . . . . . 33
SECTION 4.04. LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. . . . . 35
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . 35
SECTION 4.06. DISPOSITION OF PROCEEDS OF ASSET SALES. . . . . . . . . 37
SECTION 4.07. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . 38
SECTION 4.08. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES . . . . . . . . . 38
SECTION 4.09. TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . 39
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SECTION 4.10. PROVISION OF FINANCIAL INFORMATION. . . . . . . . . . . 40
SECTION 4.11. FUTURE GUARANTEES . . . . . . . . . . . . . . . . . . . 40
SECTION 4.12. DESIGNATION OF UNRESTRICTED SUBSIDIARIES. . . . . . . . 41
SECTION 4.13. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . 42
SECTION 4.14. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . 43
SECTION 4.15. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . 44
SECTION 4.16. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . 44
SECTION 4.17. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES, INCORPORATOR, MANAGER AND SHAREHOLDERS . . 44
ARTICLE FIVE MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. MERGERS, SALE OF ASSETS, ETC. . . . . . . . . . . . . . 44
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . 45
ARTICLE SIX DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . 45
SECTION 6.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.04. WAIVER OF PAST DEFAULT. . . . . . . . . . . . . . . . . 48
SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . 48
SECTION 6.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . 48
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. . . . . . . . . . 49
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . . . . 49
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . 49
SECTION 6.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . 50
ARTICLE SEVEN SUBORDINATION OF SECURITIES
SECTION 7.01. AGREEMENT TO SUBORDINATE. . . . . . . . . . . . . . . . 50
SECTION 7.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. . . . . . . . . . 50
SECTION 7.03. DEFAULT ON SENIOR INDEBTEDNESS. . . . . . . . . . . . . 51
SECTION 7.04. ACCELERATION OF PAYMENT OF SECURITIES . . . . . . . . . 52
SECTION 7.05. WHEN DISTRIBUTION MUST BE PAID. . . . . . . . . . . . . 52
SECTION 7.06. SUBROGATION . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 7.07. RELATIVE RIGHTS . . . . . . . . . . . . . . . . . . . . 52
SECTION 7.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. . . . . . 53
SECTION 7.09. RIGHTS OF TRUSTEE AND PAYING AGENT. . . . . . . . . . . 53
SECTION 7.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. . . . . . . . 53
SECTION 7.11. ARTICLE SEVEN NOT TO PREVENT EVENTS OF DEFAULT OR
LIMIT RIGHT TO ACCELERATE . . . . . . . . . . . . . . 53
SECTION 7.12. TRUST MONEYS NOT SUBORDINATED . . . . . . . . . . . . . 53
SECTION 7.13. TRUSTEE ENTITLED TO RELY. . . . . . . . . . . . . . . . 54
SECTION 7.14. TRUSTEE TO EFFECTUATE SUBORDINATION . . . . . . . . . . 54
SECTION 7.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF
SENIOR INDEBTEDNESS . . . . . . . . . . . . . . . . . 54
SECTION 7.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. . . . . . . . . . . . . . . 54
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ARTICLE EIGHT TRUSTEE
SECTION 8.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . 55
SECTION 8.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . 56
SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . . . . 57
SECTION 8.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . . 57
SECTION 8.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . 57
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . . 57
SECTION 8.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . . 57
SECTION 8.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . . . . 58
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC. . . . . . . . . . . . 59
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . 59
SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY . 60
ARTICLE NINE DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. TERMINATION OF THE COMPANY'S OBLIGATIONS. . . . . . . . 60
SECTION 9.02. LEGAL DEFEASANCE AND COVENANT DEFEASANCE. . . . . . . . 61
SECTION 9.03. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE . 61
SECTION 9.04. APPLICATION OF TRUST MONEY; TRUSTEE ACKNOWLEDGMENT
AND INDEMNITY . . . . . . . . . . . . . . . . . . . . 63
SECTION 9.05. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . . . . 63
SECTION 9.06. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . 64
SECTION 10.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . . 64
SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT . . . . . . . . . . 65
SECTION 10.04. RECORD DATE FOR CONSENTS AND EFFECT OF CONSENTS . . . . 65
SECTION 10.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . 66
SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS, ETC . . . . . . . . . . . . 66
ARTICLE ELEVEN MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS. . . . . . . . . . . . . . 66
SECTION 11.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS. . . . . . 68
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. . . 68
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE. . . . . . . . . . . 68
SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR . . . . . . . 68
SECTION 11.07. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.08. NO RECOURSE AGAINST OTHERS. . . . . . . . . . . . . . . 69
SECTION 11.09. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 11.10. COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . 69
SECTION 11.11. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . 69
SECTION 11.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . 69
SECTION 11.13. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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ARTICLE TWELVE GUARANTEE
SECTION 12.01. UNCONDITIONAL GUARANTEE . . . . . . . . . . . . . . . . 70
SECTION 12.02. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . 70
SECTION 12.03. RELEASE OF A GUARANTOR. . . . . . . . . . . . . . . . . 70
SECTION 12.04. LIMITATION OF GUARANTOR'S LIABILITY . . . . . . . . . . 71
SECTION 12.05. CONTRIBUTION. . . . . . . . . . . . . . . . . . . . . . 71
SECTION 12.06. SUBORDINATION OF SUBROGATION AND OTHER RIGHTS . . . . . 71
ARTICLE THIRTEEN SUBORDINATION OF GUARANTEE
SECTION 13.01. AGREEMENT TO SUBORDINATE. . . . . . . . . . . . . . . . 72
SECTION 13.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. . . . . . . . . . 72
SECTION 13.03. DEFAULT ON GUARANTOR SENIOR INDEBTEDNESS. . . . . . . . 72
SECTION 13.04. ACCELERATION OF PAYMENT OF SECURITIES . . . . . . . . . 73
SECTION 13.05. WHEN DISTRIBUTION MUST BE PAID OVER . . . . . . . . . . 73
SECTION 13.06. SUBROGATION . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 13.07. RELATIVE RIGHTS . . . . . . . . . . . . . . . . . . . . 74
SECTION 13.08. SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTOR. . . . . 74
SECTION 13.09. RIGHTS OF TRUSTEE AND PAYING AGENT. . . . . . . . . . . 74
SECTION 13.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. . . . . . . . 75
SECTION 13.11. ARTICLE THIRTEEN NOT TO PREVENT EVENTS OF DEFAULT
OR LIMIT RIGHT TO ACCELERATE. . . . . . . . . . . . . 75
SECTION 13.12. TRUST MONEYS NOT SUBORDINATE. . . . . . . . . . . . . . 75
SECTION 13.13. TRUSTEE ENTITLED TO RELY. . . . . . . . . . . . . . . . 75
SECTION 13.14. TRUSTEE TO EFFECTUATE SUBORDINATION . . . . . . . . . . 75
SECTION 13.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF GUARANTOR
SENIOR INDEBTEDNESS . . . . . . . . . . . . . . . . . 76
SECTION 13.16. RELIANCE BY HOLDERS OF GUARANTOR SENIOR INDEBTEDNESS
ON SUBORDINATION PROVISIONS. . . . . . . . . . . . . 76
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBIT A Form of Series A Security. . . . . . . . . . . . . . . . . A-1
EXHIBIT B Form of Series B Security. . . . . . . . . . . . . . . . . B-1
EXHIBIT C Form of Legend for Global Securities . . . . . . . . . . . C-1
EXHIBIT D Form of Transfer Certificate . . . . . . . . . . . . . . . D-1
EXHIBIT E Form of Transfer Certificate for Institutional
Accredited Investors . . . . . . . . . . . . . . . . . . E-1
EXHIBIT F Form of Transfer Certificate for Regulation S Transfers. . F-1
</TABLE>
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NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of this Indenture.
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<PAGE>
INDENTURE dated as of April 23, 1998, between MTS
INCORPORATED, a California corporation (the "COMPANY"), and STATE STREET BANK
AND TRUST COMPANY OF CALIFORNIA, N.A., as trustee (the "TRUSTEE").
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACCELERATION NOTICE" has the meaning provided in Section 6.02.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person
(a) assumed in connection with an Acquisition from such Person, or (b) existing
at the time such Person becomes a Subsidiary of the Company or is merged or
consolidated with or into the Company or any Restricted Subsidiary of the
Company, in each case other than Indebtedness of the Acquired Person actually
repaid concurrent with any such transaction.
"ACQUIRED PERSON" means, with respect to any specified Person,
any other Person which merges with or into or becomes a Subsidiary of such
specified Person.
"ACQUISITION" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary of the Company to any other Person, or any acquisition or
purchase of Equity Interests of any other Person by the Company or any
Restricted Subsidiary of the Company, in either case pursuant to which such
Person shall become a Subsidiary of the Company or shall be consolidated with or
merged into the Company or any Restricted Subsidiary of the Company or (ii) any
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any Person which constitute substantially all of an operating unit or
line of business of such Person or which is otherwise outside of the ordinary
course of 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 purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
Unrestricted Subsidiaries of the Company shall be deemed Affiliates of the
Company.
"AFFILIATE TRANSACTION" has the meaning provided in Section
4.09.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"ASSET SALE" means any direct or indirect sale, conveyance,
transfer, lease (that has the effect of a disposition) or other disposition
(including, without limitation, any merger or consolidation) to any Person
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other than the Company or a Restricted Subsidiary, in one transaction or a
series of related transactions, of (i) any Equity Interest of any Restricted
Subsidiary of the Company (other than directors' qualifying shares, to the
extent mandated by applicable law); (ii) any assets of the Company or any
Restricted Subsidiary of the Company which constitute substantially all of an
operating unit or line of business of the Company or any Restricted Subsidiary
of the Company; or (iii) any other property or asset of the Company or any
Restricted Subsidiary of the Company outside of the ordinary course of business
(including the receipt of proceeds paid on account of the loss of or damage to
any property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings). For the purposes of this
definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with Section 5.01 and the creation of any Lien not
prohibited by Section 4.07; (b) sales of property or equipment that has become
worn out, obsolete or damaged or otherwise unsuitable for use in connection with
the business of the Company or any Restricted Subsidiary of the Company, as the
case may be; (c) any transaction consummated in compliance with Section 4.05
above; (d) a transfer of assets from the Company to a Restricted Subsidiary,
from a Restricted Subsidiary to the Company or from a Restricted Subsidiary to
another Restricted Subsidiary. In addition, solely for purposes of Section 4.06,
any sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions, involving
assets with a Fair Market Value not in excess of $2.0 million in any fiscal
year, shall be deemed not to be an Asset Sale. For purposes of this definition,
"ordinary course of business" shall be deemed to include, without limitation,
(i) the sale of rental inventory, consistent with past practices, and
(ii) closure of a store.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and lease-back
transaction means, as at the time of determination, the present value
(discounted according to GAAP at the cost of indebtedness implied in the lease)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such sale and lease-back transaction (including
any period for which such lease has been extended).
"BANKRUPTCY LAW" has the meaning provided in Section 6.01.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board
of Directors.
"BOARD RESOLUTION" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or
a day on which banking institutions in New York, New York or Los Angeles,
California are not required to be open.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP; PROVIDED that liabilities in respect of real property
leases shall not be deemed Capital Lease Obligations regardless of their
classification in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated) of capital stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"CASH EQUIVALENTS" means: (a) United States dollars,
(b) securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year from the date of acquisition, (c) certificates of
deposit, time deposits and euro-
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dollar time deposits with maturities of not more than one year from the date of
acquisition, bankers' acceptances with maturities of not more than one year from
the date of acquisition and overnight bank deposits, in each case with any
lender party to the New Credit Facility or any Indebtedness Incurred as a
refinancing of the New Credit Facility or with any commercial bank having
capital and surplus in excess of $500.0 million, (d) repurchase obligations with
a term of not more than thirty days for underlying securities of the types
described in clauses (b) and (c) above entered into with any financial
institution meeting the qualifications specified in clause (c) above,
(e) commercial paper rated at least P-2 by Moody's Investors Service, Inc. or at
least A-2 by Standard & Poor's Ratings Services with maturities of not more than
270 days from the date of acquisition, (f) readily marketable direct obligations
issued by any State of the United States of America or any political subdivision
thereof having maturities of not more than one year from the date of acquisition
and rated at least A by Moody's Investors Service, Inc. or A by Standard &
Poor's Ratings Services, (g) investment funds investing 95% of their assets in
securities of the types described in clauses (a) through (f) above and (h) in
the case of any Foreign Subsidiary, Investments: (i) in direct obligations of
the sovereign nation (or any agency thereof) in which such Foreign Subsidiary is
organized and is conducting business or in obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency thereof) or (ii) of the type
and maturity described in clauses (b) and (c) above of foreign obligors, which
Investment or obligors (or the parents of such obligors) have ratings described
in such clauses or equivalent ratings from comparable foreign rating agencies
and (h) other Investments which would constitute cash equivalents in accordance
with GAAP.
"CHANGE OF CONTROL" means the occurrence of any of the
following events (whether or not approved by the Board of Directors of the
Company): (i) any Person (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act), other than one or more Permitted Holders and their Related
Parties, is or becomes the "beneficial owner" (as defined in Rule 13d-3 and
13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time, upon the happening of an event or otherwise), directly or indirectly,
of more than 50% of the total voting power of the then outstanding Voting Equity
Interests of the Company; (ii) the Company consolidates with, or merges with or
into, another Person (other than a Wholly Owned Restricted Subsidiary) or the
Company or any of its Restricted Subsidiaries sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
assets of the Company and its Restricted Subsidiaries (determined on a
consolidated basis) to any Person (other than the Company or any Wholly Owned
Restricted Subsidiary), other than any such transaction where immediately after
such transaction the Person or Persons that "beneficially owned" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time) immediately prior to such transaction, directly or
indirectly, a majority of the total voting power of the then outstanding Voting
Equity Interests of the Company "beneficially own" (as so determined), directly
or indirectly, a majority of the total voting power of the then outstanding
Voting Equity Interests of the surviving or transferee Person; (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors of the Company then still in office who were either directors
at the beginning of such period of whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under
Section 5.01. For purposes of this definition, beneficial ownership of Parent
shall be deemed to be pro rata beneficial ownership of that portion of the
Company owned by Parent.
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"CHANGE OF CONTROL DATE" has the meaning provided in Section
4.13.
"CHANGE OF CONTROL OFFER" has the meaning provided in Section
4.13.
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth in
Section 4.13.
"CHANGE OF CONTROL REDEMPTION" has the meaning specified in
paragraph 5 of the Securities.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or
order signed in the name of the Company by its President, its Chief Executive
Officer, a Vice President or its Chief Financial Officer, and by its Treasurer,
its Secretary or an Assistant Secretary, and delivered to the Trustee.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated EBITDA for the four
quarter period of the most recent four consecutive fiscal quarters ending prior
to the date of such determination (the "FOUR QUARTER PERIOD") to
(ii) Consolidated Interest Expense for such Four Quarter Period; PROVIDED,
HOWEVER, that (1) if the Company or any Restricted Subsidiary of the Company has
incurred any Indebtedness since the beginning of such Four Quarter Period that
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter 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 Four Quarter Period (PROVIDED that if such Indebtedness is revolving
Indebtedness the amount thereof deemed to be incurred as of the first day of
such Four Quarter Period shall be the average daily balance of such Indebtedness
during the period since such revolving Indebtedness was initially incurred) and
the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
of the Company shall have made any Asset Sale, the Consolidated EBITDA for such
Four Quarter Period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets that are the subject of
such Asset Sale for such Four Quarter Period or increased by an amount equal to
the Consolidated EBITDA (if negative) directly attributable thereto for such
Four Quarter Period and Consolidated Interest Expense for such Four Quarter
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 of the Company repaid, repurchased or otherwise discharged with
respect to the Company and its continuing Subsidiaries in connection with such
Asset Sale for such Four Quarter Period (or, if the Equity Interests of any
Restricted Subsidiary of the Company are sold, the Consolidated Interest Expense
for such Four Quarter Period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Subsidiaries
are no longer liable for such Indebtedness after such sale), (3) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
of the Company (by merger or otherwise) shall have made an Investment in any
Subsidiary of the Company (or any Person that becomes a Restricted Subsidiary of
the Company) 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, Consolidated EBITDA and Consolidated Interest Expense for such Four
Quarter 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 Four Quarter Period, (4) if since
the beginning of such
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Four Quarter Period any Person (that subsequently became a Subsidiary or was
merged with or into the Company or any Restricted Subsidiary of the Company
since the beginning of such Four Quarter Period) shall have made any Asset Sale
or any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Subsidiary of the Company during such Four Quarter Period, Consolidated EBITDA
and Consolidated Interest Expense for such Four Quarter Period shall be
calculated after giving pro forma effect thereto as if such Asset Sale,
Investment or acquisition of assets occurred on, with respect to any Investment
or acquisition, the first day of such Four Quarter Period and, with respect to
any Asset Sale, the day prior to the first day of such Four Quarter Period, and
(5) if since the beginning of such period the Company shall have received the
proceeds of an Equity Offering, 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 Restricted Subsidiaries in connection with such receipt of
proceeds of such Equity Offering for 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
accordance with Regulation S-X under the Securities Act as in effect on the date
of such calculation. 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 agreement under
which Interest Rate Protection Obligations are outstanding applicable to such
Indebtedness if such agreement under which such Interest Rate Protection
Obligations are outstanding has a remaining term as at the date of determination
in excess of 12 months); PROVIDED, HOWEVER, that the Consolidated Interest
Expense of the Company attributable to interest on any Indebtedness Incurred
under a revolving credit facility computed on a pro forma basis shall be
computed based upon the average daily balance of such Indebtedness during the
Four Quarter Period.
"CONSOLIDATED EBITDA" means, for any period, the Consolidated
Net Income for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense
for such period; (ii) Consolidated Interest Expense for such period; and
(iii) Consolidated Non-cash Charges for such period, less all non-cash items
increasing Consolidated Net Income for such period.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to the
Company for any period, the provision for Federal, state, local and foreign
income taxes of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the
Company for any period, without duplication, the sum of (i) the interest expense
of the Company and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation,
(a) any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (e) all capitalized interest and all accrued
interest, (f) non-cash interest expense and (g) interest on Indebtedness of
another Person that is guaranteed by the Company or any Subsidiary of the
Company actually paid by the Company or any Subsidiary of the Company,
(ii) preferred stock dividend requirements on the preferred stock described in
clause (h) of the definition of Indebtedness and (iii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP. Notwithstanding the foregoing,
Consolidated Interest Expense shall not include any expense of the Company
incurred as one-time payments in connection with the extension of certain
Indebtedness of the Company in February 1998.
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"CONSOLIDATED NET INCOME" means, for any period, the
consolidated net income (loss) of the Company and its Subsidiaries, 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 of the Company, except that the Company's equity in the net income of
any such Person for such period shall be included in determining 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 distribution; (ii) any net income (loss) of any Person acquired by
the Company or a Restricted Subsidiary of the Company in a pooling of interests
transaction for any period prior to the date of such acquisition; PROVIDED that
there shall not be any such exclusion of the net income (loss) of any Person
acquired in connection with the reorganization of the Company; (iii) any net
income (but not loss) of any Restricted Subsidiary of the Company that is not a
Guarantor if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Subsidiary, directly or indirectly, to the Company to the extent of such
restrictions; (iv) any gain or loss realized upon the sale or other disposition
of any asset of the Company or its Restricted Subsidiaries (including pursuant
to any sale/lease-back transaction) outside of the ordinary course of business
including, without limitation, on or with respect to Investments (and excluding
dividends, distributions or interest thereon); (v) any extraordinary gain or
loss in accordance with GAAP; (vi) the cumulative effect of a change in
accounting principles after the Issue Date; and (vii) any restoration to income
of any contingency reserve of an extraordinary, non-recurring or unusual nature,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any
Person, for any period the sum of (a) depreciation, (b) amortization and
(c) other non-cash items presented on such Person's consolidated statement of
cash flows as "Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities," determined on a consolidated basis in accordance with
GAAP.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" means the office of the
Trustee at which at any particular time the trust created by this Indenture
shall be administered, which office at the date of original execution of this
Indenture is located at Library Tower, 633 West 5th Street, Twelfth Floor, Los
Angeles, CA 90071, Attention: Corporate Trust Department (MTS, Incorporated 9
3/8% Senior Subordinated Notes due 2005).
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement relating to
fluctuations in currency values.
"CUSTODIAN" has the meaning provided in Section 6.01.
"DEFAULT" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"DEPOSITORY" means, with respect to the Securities issued in
the form of one or more Global Securities, The Depository Trust Company or
another Person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness
outstanding under the New Credit Facility and (b) any other Senior Indebtedness
which, at the time of determination, has an aggregate principal amount
outstanding, together with any commitments to lend additional amounts, of at
least $10.0 million, if the instrument governing such other Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of this Indenture.
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"DISPOSITION" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"DISQUALIFIED EQUITY INTEREST" means any Equity Interest which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, or exchangeable into Indebtedness on or prior to
the earlier of the maturity date of the Securities or the date on which no
Securities remain outstanding.
"DOMESTIC SUBSIDIARY" means, with respect to a Subsidiary, a
Subsidiary whose jurisdiction of incorporation or formation is the United
States, any state thereof or the District of Columbia.
"EQUITY INTEREST" in any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate stock or other
equity participations, including partnership interests, whether general or
limited, in such Person, including any Preferred Equity Interests.
"EQUITY OFFERING" means (i) an underwritten public offering of
Qualified Equity Interests of Parent or the Company pursuant to an effective
registration statement filed under the Securities Act (excluding registration
statements filed on Form S-8) or (ii) a private offering of Qualified Equity
Interests of Parent or the Company pursuant to an exemption from registration
under the Securities Act in an aggregate purchase price of not less than $50.0
million.
"EVENT OF DEFAULT" has the meaning provided in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"EXCHANGE SECURITIES" means the 9 3/8% Senior Subordinated
Notes due 2005 to be issued in exchange for the Initial Securities pursuant to
the Registration Rights Agreement.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and
its Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the Issue Date, until such amounts are repaid.
"EXPIRATION DATE" has the meaning set forth in the definition
of "Offer to Purchase".
"FAIR MARKET VALUE" means, with respect to any asset, the price
(after taking into account any liabilities relating to such assets) which could
be negotiated in an arm's-length free market transaction, for cash or other
consideration, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction; PROVIDED, HOWEVER,
that the Fair Market Value of any such asset shall be determined conclusively by
the Board of Directors of the Company acting in good faith, and, with respect to
any determination of Fair Market Value in excess of $10.0 million, shall be
evidenced by a Board Resolution delivered to the Trustee.
"FINAL MATURITY DATE" means May 1, 2005.
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"FOREIGN SUBSIDIARY" means, with respect to a Subsidiary, a
Subsidiary other than a Domestic Subsidiary.
"FOUR QUARTER PERIOD" has the meaning set forth in the
definition of "Consolidated Coverage Ratio" above.
"FUNDING GUARANTOR" has the meaning provided in Section 12.05.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States which are applicable at the
Issue Date and which are consistently applied for all applicable periods,
including those set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (ii) statements and pronouncements of the Financial Accounting
Standards Board, and (iii) such other statements by such other entity as
approved by a significant segment of the accounting profession.
"GLOBAL SECURITIES" means one or more 144A Global Securities,
Regulation S Global Securities or IAI Global Securities.
"GUARANTEE" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"GUARANTOR BLOCKAGE NOTICE" has the meaning provided in Section
13.03.
"GUARANTOR PAYMENT BLOCKAGE PERIOD" has the meaning provided in
Section 13.03.
"GUARANTOR SENIOR INDEBTEDNESS" means, at any date, (a) all
obligations under Guarantees of the New Credit Facility, if any (including any
interest accruing after the commencement of any proceeding under any Bankruptcy
Law whether or not such interest is an allowable claim enforceable against the
Guarantor in any such proceeding); (b) all other Indebtedness of the Guarantor,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that the obligations in respect of such
Indebtedness are not superior in right of payment to the Guarantor's guarantee
of the Securities; and (c) all Obligations with respect to the foregoing;
PROVIDED, HOWEVER, that Guarantor Senior Indebtedness will not include (1) any
obligation of the Guarantor to any Subsidiary or any Affiliate of the Company or
any of such Affiliate's Subsidiaries; (2) to the extent that it may constitute
Indebtedness of the Guarantor, any liability for federal, state, foreign, local
or other taxes owed or owing by the Guarantor; (3) to the extent that it may
constitute Indebtedness of the Guarantor, 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) that portion of any Indebtedness that is Incurred by such Guarantor in
violation of this Indenture; (5) Indebtedness evidenced by a Guarantee of the
Securities; (6) Indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Guarantor; (7) to
the extent that it may constitute Indebtedness of
<PAGE>
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such Guarantor, any obligation owing under leases (other than Capital Lease
Obligations) or management agreements; and (8) any obligation that by operation
of law is subordinate to any general unsecured obligations of such Guarantor.
No Indebtedness shall be deemed to be subordinated to other Indebtedness solely
because such other Indebtedness is secured.
"GUARANTOR SENIOR SUBORDINATED INDEBTEDNESS" means, as to that
for the purpose of this definition, all references to the Company in the
definition of definition of Senior Subordinated Indebtedness shall be deemed
references to such Guarantor, any Guarantor, Senior Indebtedness of such
Guarantor, it being understood.
"GUARANTORS" means each Subsidiary of the Company (other than
Foreign Subsidiaries and Unrestricted Subsidiaries) which is required to become
a Guarantor pursuant to the terms of this Indenture.
"HOLDERS" means the registered holders of the Securities.
"IAI GLOBAL SECURITY" means a permanent global security in
registered form representing the aggregate principal amount of Securities
transferred after the Issue Date to Institutional Accredited Investors.
"INCUR" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (including by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall
have meanings correlative to the foregoing). Indebtedness of any Acquired Person
or any of its Subsidiaries existing at the time such Acquired Person becomes a
Subsidiary of the Company (or is merged into or consolidated with the Company or
any Restricted Subsidiary of the Company), whether or not such Indebtedness was
Incurred in connection with, as a result of, or in contemplation of, such
Acquired Person becoming a Restricted Subsidiary of the Company (or being merged
into or consolidated with the Company or any Restricted Subsidiary), shall be
deemed Incurred at the time any such Acquired Person becomes a Subsidiary or
merges into or consolidates with the Company or any Restricted Subsidiary.
"INDEBTEDNESS" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
(a) the principal amount of every obligation of such Person for money borrowed;
(b) the principal amount of every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including the principal amount
of such obligations incurred in connection with the acquisition of property,
assets or businesses; (c) reimbursement obligations of such Person with respect
to letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person; (d) the principal amount of obligations of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable incurred in the ordinary course of business and
payable in accordance with industry practices, or other accrued liabilities
arising in the ordinary course of business); (e) Capital Lease Obligations of
such Person; (f) net obligations under Interest Rate Protection Obligations or
similar agreements or Currency Agreements of such Person; (g) Attributable
Indebtedness; (h) any Disqualified Equity Interests of the Company or any
preferred stock of any Restricted Subsidiary of the Company not held by the
Company or a Restricted Subsidiary; (i) obligations of the type referred to in
clauses (a) through (j) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (j) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (i) above. Indebtedness
(i) with respect to reimbursement obligations as described under clause (c)
above, shall not be deemed Incurred if satisfied within 15 Business
<PAGE>
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Days of such Incurrence and (ii) which provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be deemed to be Incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination.
"INDENTURE" means this Indenture, as amended or supplemented
from time to time.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized
accounting, appraisal, investment banking firm or consultant (i) which does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INITIAL PURCHASERS" means Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
"INITIAL SECURITIES" means the 9 3/8% Senior Subordinated Notes
due 2005 of the Company issued hereunder.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"INTEREST" means, with respect to the Securities, the sum of
any cash interest and any Additional Interest (as defined in the Registration
Rights Agreement) on the Securities.
"INTEREST PAYMENT DATE" means each semiannual interest payment
date on May 1 and November 1 of each year, commencing on November 1, 1998.
"INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to
any Person, the Obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements,
and (ii) other agreements or arrangements relating to fluctuations in interest
rates.
"INTEREST RECORD DATE" for the interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the
April 15 or October 15 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"INVENTORY" means, with respect to any Person as of any date of
determination, the then book value of inventory which would appear on the
consolidated balance sheet of such Person in accordance with GAAP, plus the then
book value of video rental product recorded on the books of such Person in
accordance with GAAP.
"INVESTMENT" means, with respect to any Person, any direct or
indirect loan, advance, guarantee or other extension of credit or capital
contribution to (by means of transfers of cash or other property or assets to
others or payments for property or services for the account or use of others, or
otherwise), or purchase or acquisition of capital stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
Person. For purposes of Section 4.05, the amount of any Investment shall be the
original cost of such Investment, plus the cost of all additions thereto, but
without any other adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment; reduced by the
payment of dividends or distributions in connection with such Investment or any
other amounts received in respect of such In-
<PAGE>
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vestment; PROVIDED, HOWEVER, that no such payment of dividends or distributions
or receipt of any such other amounts shall reduce the amount of any Investment
if such payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income. In determining the amount of any
investment involving a transfer of any property or asset other than cash, such
property shall be valued at its fair market value at the time of such transfer,
as determined in good faith by the Board of Directors (or comparable body) of
the Person making such transfer.
"ISSUE DATE" means the date on which the Securities are
originally issued.
"LIEN" means any lien, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).
"MATURITY DATE" means the date, which is set forth on the face
of the Securities, on which the Securities will mature.
"NET CASH PROCEEDS" means the aggregate proceeds in the form of
cash or Cash Equivalents received by the Company or any Restricted Subsidiary of
the Company in respect of any Asset Sale, including all cash or Cash Equivalents
received upon any sale, liquidation or other exchange of proceeds of Asset Sales
received in a form other than cash or Cash Equivalents, net of (a) the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof; (b) taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements); (c) amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sales; (d) amounts deemed, in good faith,
appropriate by the Board of Directors of the Company to be provided as a
reserve, in accordance with GAAP, against any liabilities associated with such
assets which are the subject of such Asset Sale; including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an officers' certificate
delivered to the Trustee (provided that the amount of any such reserves shall be
deemed to constitute Net Cash Proceeds at the time such reserves shall have been
reversed or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by a Restricted Subsidiary, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"NET PROCEEDS UTILIZATION DATE" has the meaning set forth in
the second paragraph under Section 4.06.
"NEW CREDIT FACILITY" means the Credit Agreement, dated on or
before the Issue Date, by and among the Company, the Subsidiaries of the Company
identified on the signature pages thereto, the lenders named therein, and The
Chase Manhattan Bank, as Agent, as amended, including any deferrals, renewals,
extensions, replacements, refinancings or refundings thereof, or amendments,
modifications or supplements thereto and any agreement providing therefor,
whether by or with the same or any other lender, creditor, group of lenders or
group of creditors, and including related notes, guarantee and note agreements
and other instruments and agreements executed in connection therewith.
"NON-AFFILIATED JOINT VENTURE" means any Person (other than a
Subsidiary) in which the Company or its Subsidiaries have an ownership interest
in excess of 25% and in which no Affiliate of the Company
<PAGE>
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has any other interest; PROVIDED, HOWEVER, that the business of such joint
venture relates to the development, marketing or sale of products of the Company
and its Subsidiaries.
"OBLIGATIONS" means any principal, interest (including, without
limitation, Post-Petition Interest), premium, if any, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"OFFER" has the meaning set forth in the definition of "Offer
to Purchase" below.
"OFFER TO PURCHASE" means a written offer (the "OFFER") sent by
or on behalf of the Company by first-class mail, postage prepaid, to each Holder
at his address appearing in the register for the Securities on the date of the
Offer offering to purchase up to the principal amount of Securities specified in
such Offer at the purchase price specified in such Offer (as determined pursuant
to this Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "EXPIRATION DATE") of the Offer to Purchase,
which shall be not less than 30 nor more than 90 days after the date of such
Offer, and a settlement date (the "PURCHASE DATE") for purchase of Securities to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein and shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of this Indenture
pursuant to which the Offer to Purchase is being made and (2) the circumstances
and relevant facts and relevant financial information regarding the Offer to
Purchase.
An Offer to Purchase shall be governed by and effected in
accordance with the provisions above pertaining to any Offer.
"OFFICER" means the Chief Executive Officer, the President, any
Vice President, the Chief Financial Officer, the Treasurer or the Secretary of
the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Company complying with Sections 11.04 and 11.05.
"144A GLOBAL SECURITY" means a permanent global security in
registered form representing the aggregate principal amount of Initial
Securities sold in reliance on Rule 144A.
"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.
"PARTICIPANTS" has the meaning provided in Section 2.15.
"PAYING AGENT" has the meaning provided in Section 2.03.
"PERMITTED BUSINESS" means the businesses engaged in by the
Company and its Subsidiaries as of the Issue Date, businesses utilizing the
TOWER trademark, and businesses which are reasonably related or incidental to
the foregoing or which are extensions thereof.
<PAGE>
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"PERMITTED HOLDER" means each of Russell M. Solomon, Doris E.
Solomon, the Trusts, Michael Solomon, David Solomon, Stanley Goman, DeVaughn
Searson and Christopher Hopson.
"PERMITTED INDEBTEDNESS" has the meaning set forth in the
second paragraph of Section 4.03.
"PERMITTED INVESTMENTS" means (a) Investments in Cash
Equivalents or deposit accounts maintained in the ordinary course of business;
(b) Investments in prepaid expenses, negotiable instruments held for collection
and lease, utility and workers' compensation, performance and other similar
deposits; (c) Investments under Interest Rate Protection Obligations and
Currency Agreements; (d) Investments received in connection with the bankruptcy
or reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers, in each case
arising in the ordinary course of business; (e) Investments in the Company and
Investments in a Restricted Subsidiary of the Company and Investments in a
Person which is engaged in (or immediately after such Investment will be engaged
in) a Permitted Business and if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary;
(f) Investments acquired in exchange for Qualified Equity Interests; (g) loans
or advances to officers or employees of the Company and its Restricted
Subsidiaries in the ordinary course of business for bona fide business purposes
of the Company and its Subsidiaries (including travel and moving expenses); (h)
any Investment existing on the Issue Date and any amendment, modification,
restatement, supplement, extension, renewal, refunding, replacement,
refinancing, in whole or in part, thereof; (i) any Investment accepted as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.06; (j) advances and extensions of
credit in the nature of accounts receivable or notes receivable arising from the
sale or lease of goods or services or the licensing of property in the ordinary
course of business; (k) Investments in Non-Affiliated Joint Ventures in an
aggregate amount not to exceed $5.0 million during any fiscal year; (l) other
Investments by the Company or any Restricted Subsidiary in any Person having an
aggregate fair market value (measured as of the date each such Investment is
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (l) that are at
the time outstanding, not to exceed $15.0 million; and (m) intercompany
Investments permitted under clauses (c), (h) and (i) of Section 4.03.
"PERMITTED JUNIOR SECURITIES" means any securities of the
Company or any other Person that are (i) Equity Interests or (ii) debt
securities expressly subordinated in right of payment to all Senior Indebtedness
that may at the time be outstanding (and any Indebtedness or debt securities
issued in exchange for Senior Indebtedness), to substantially the same extent
as, or to a greater extent than, the Securities are subordinated as provided in
this Indenture, in any event pursuant to a court order so providing and as to
which (a) the rate of interest on such securities shall not exceed the effective
rate of interest on the Securities on the Issue Date, (b) such securities shall
not be entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such securities than those in effect with respect
to the Securities on the Issue Date and (c) such securities shall not provide
for amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness (as modified by the plan of reorganization of
readjustment pursuant to which such securities are issued).
"PERMITTED LIENS" means (i) Liens securing Senior Debt of the
Company and its Restricted Subsidiaries; (ii) Liens existing on the Issue Date;
(iii) Liens on the assets of the Company or any of its Restricted Subsidiaries
to secure Interest Rate Protection Obligations and Currency Agreements permitted
by this Indenture to be incurred; (iv) Liens on property of a Person existing at
the time such Person or such Person's parent corporation becomes a Subsidiary of
the Company or any Subsidiary of the Company; PROVIDED THAT such Liens were in
existence prior to the contemplation of such transaction and do not extend to
any assets other than
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those of such Person; (v) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, PROVIDED THAT such
Liens were in existence prior to the contemplation of such acquisition and
extend only to the property so acquired and the proceeds thereof; (vi) Liens to
secure any Indebtedness permitted by clause (h) of Section 4.03 incurred to
refinance any Indebtedness secured by any Lien referred to in the foregoing
clauses (i) through (v), PROVIDED, HOWEVER, that such new Lien shall be limited
to all or part of the same property that secured the original Lien (PROVIDED
THAT such Liens may extend to after-acquired property, including any assets or
Equity Interests of any subsequently formed or acquired Subsidiary, if such
original Lien included such property or assets as collateral) and the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than permitted under Section 4.03, or, in the case of other Senior Debt,
or, in the case of other Indebtedness, the outstanding principal amount or, if
greater, committed amount of the Indebtedness described under clauses
(i) through (v), as the case may be, at the time the original Lien became a
Permitted Lien; (vii) Liens in favor of the Company or any Guarantor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary that (a) are not incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than trade credit and
accruals in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Restricted
Subsidiary; (ix) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds, letters of credit, deposits to secure
the performance of bids, trade contracts, government contracts, leases or
licenses or other obligations of a like nature incurred in the ordinary course
of business (including, without limitation, landlord Liens on leased
properties); (x) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently prosecuted, PROVIDED
THAT any reserve or other appropriate provision as shall be required to conform
with GAAP shall have been made therefor; (xi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (e) of Section 4.03
covering only the assets acquired or financed with such Indebtedness, together
with any additions and accessions thereto and replacements, substitutions and
proceeds (including insurance proceeds) thereof; (xii) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business in respect of obligations not
overdue for a period in excess of 90 days or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently prosecuted;
PROVIDED, that any reserve or other appropriate provision as shall be required
to conform with GAAP shall have been made therefor; (xiii) easements,
rights-of-way, zoning and similar restrictions and other similar encumbrances or
title defects incurred, or leases or subleases granted to others, in the
ordinary course of business, which do not in any case materially detract from
the value of the property subject thereto or do not interfere with or adversely
affect in any material respect the ordinary conduct of the business of the
Company and its Restricted Subsidiaries taken as a whole; (xiv) Liens in favor
of customs and revenue authorities to secure payment of customs duties in
connection with the importation of goods in the ordinary course of business and
other similar Liens arising in the ordinary course of business; (xv) leases or
subleases granted to third Persons not interfering with the ordinary course of
business of the Company or its Restricted Subsidiaries; (xvi) Liens (other than
any Lien imposed by ERISA or any rule or regulation promulgated thereunder)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance, and other types of social
security; (xvii) deposits made in the ordinary course of business to secure
liability to insurance carriers, and Liens on the proceeds of insurance granted
to insurance carriers solely to secure the payment of financed premiums;
(xviii) any attachment or judgment Lien not constituting an Event of Default
under clause (vii) of Section 6.01; (xix) any interest or title of a lessor or
sublessor under any operating lease; (xx) Liens arising by virtue of any common
law, statutory or contractual provision relating to bankers' liens, rights of
set-off or similar rights and remedies as to deposit or securities accounts
maintained in the ordinary course of business; (xxi) Liens in favor of a trustee
under any indenture securing amounts due to the trustee in connection with its
services under such indenture; (xxii) Liens under licensing agreements for use
of intellectual property entered into in the ordinary course of business;
(xxiii) purchase money Liens on Inventory and the proceeds
<PAGE>
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thereof securing obligations owed to vendors in the ordinary course of business;
and (xxiv) Liens arising out of consignments or similar arrangements for the
sale of goods entered into in the ordinary course of business.
"PERMITTED LIFE INSURANCE" means life insurance on the lives of
Russell M. Solomon and Doris Solomon, the beneficiaries of which are the Company
(up to the amounts of the premiums paid by the Company) and the Trusts, and
certain other similar life insurance policies maintained on the lives of
executive officers of the Company, in each case described under the caption
"Certain Transactions" in the offering memorandum of the Company distributed in
connection with the issuance and sale of the Initial Securities.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, limited
liability limited partnership, trust, unincorporated organization or government
or any agency or political subdivision thereof.
"PHYSICAL SECURITIES" means one or more certificated Securities
in registered form.
"POST-PETITION INTEREST" means, with respect to any
Indebtedness of any Person, all interest accrued or accruing on such
Indebtedness after the commencement of any Insolvency or Liquidation Proceeding
against such Person in accordance with and at the contract rate (including,
without limitation, any rate applicable upon default) specified in the agreement
or instrument creating, evidencing or governing such Indebtedness, whether or
not, pursuant to applicable law or otherwise, the claim for such interest is
allowed as a claim in such Insolvency or Liquidation Proceeding.
"PREFERRED EQUITY INTEREST," in any Person, means an Equity
Interest of any class or classes (however designated) which is preferred as to
the payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over Equity Interests of any other class in such Person.
"PRINCIPAL" of a debt security means the principal of the
security plus, when appropriate, the premium, if any, on the security.
"PRIVATE EXCHANGE SECURITIES" has the meaning provided in the
Registration Rights Agreement.
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth
on the Initial Securities in the form set forth on EXHIBIT A hereto.
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of
April 20, 1998 by and among the Company and the Initial Purchasers.
"PURCHASE DATE" has the meaning set forth in the definition of
"Offer to Purchase" above.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company
or any Subsidiary of the Company (including, without limitation, conditional
sale obligations and title retention agreements) Incurred for the purpose of
financing all or any part of the purchase price or the cost of construction or
improvement of any property (real or personal) (if incurred within 270 days of
the date of purchase or completion of such construction or improvement);
PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refi-
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nancing of such Indebtedness that does not increase the aggregate principal
amount (or accreted amount, if less) thereof, plus any premium required to
accomplish such refinancing, as of the date of refinancing.
"QUALIFIED EQUITY INTEREST" in any Person means any Equity
Interest in such Person other than any Disqualified Equity Interest.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"REDEMPTION PRICE," when used with respect to any Security to
be redeemed, means the price fixed for such redemption pursuant to this
Indenture as set forth in the form of Security annexed hereto as EXHIBIT A.
"REGISTRAR" has the meaning provided in Section 2.03.
"REGISTRATION RIGHTS AGREEMENT" means the Exchange and
Registration Rights Agreement dated as of the Issue Date by and among the
Company and the Initial Purchasers.
"REGISTRATION" means a registered exchange offer for the
Securities by the Company or other registration of the Securities under the
Securities Act pursuant to and in accordance with the terms of the Registration
Rights Agreement.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S PERMANENT GLOBAL SECURITY" means a permanent
global Security in registered form representing the outstanding principal amount
of the Regulation S Temporary Global Security upon expiration of the Restricted
Period.
"REGULATION S TEMPORARY GLOBAL SECURITY" means a temporary
global security in registered form representing the aggregate principal amount
of Securities sold in reliance on Regulation S under the Securities Act.
"RELATED PARTY" with respect to any Permitted Holder means
(i) any controlling stockholder, 51% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Permitted Holder
or (ii) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a 51% or more
controlling interest of which consist of such Permitted Holder and/or such other
Persons referred to in the immediately preceding clause (i).
"REPRESENTATIVE" means this Indenture trustee or other trustee,
agent or representative in respect of any Senior Indebtedness; PROVIDED,
HOWEVER, that if, and for so long as, any issue of Senior Indebtedness lacks
such a representative, then the Representative for such issue of Senior
Indebtedness shall at all times constitute the holders of a majority in
outstanding principal amount of such issue of Senior Indebtedness.
"RESTRICTED PERIOD" means the 40-day restricted period as
defined in Regulation S under the Securities Act.
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"RESTRICTED SECURITY" has the meaning set forth in Rule
144(a)(3) under the Securities Act; PROVIDED, HOWEVER, that the Trustee shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Security is a Restricted Security.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
that has not been designated by the Board of Directors of the Company, by a
resolution of the Board of Directors of the Company delivered to the Trustee, as
an Unrestricted Subsidiary pursuant to Section 4.12. Any such designation may be
revoked by a resolution of the Board of Directors of the Company delivered to
the Trustee, subject to the provisions of such covenant.
"RULE 144A" means Rule 144A under the Securities Act.
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES" means, collectively, the Initial Securities, the
Private Exchange Securities and the Unrestricted Securities treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms of this Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"SENIOR INDEBTEDNESS" means, at any date, (a) all Indebtedness
of the Company under the New Credit Facility; (b) all other Indebtedness of the
Company, unless the instrument under which such Indebtedness of the Company is
Incurred expressly provides that such Indebtedness is not senior or superior in
right of payment to the Securities; and (c) all Obligations with respect to the
foregoing. Notwithstanding the foregoing, Senior Indebtedness shall not include
(a) to the extent that it may constitute Indebtedness, any Obligation for
federal, state, local or other taxes; (b) any Indebtedness among or between the
Company and any Subsidiary of the Company or any Affiliate of the Company or any
of such Affiliate's Subsidiaries; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) that portion of any Indebtedness that is Incurred in violation
of this Indenture; (e) Indebtedness evidenced by the Securities;
(f) Indebtedness of the Company that is expressly subordinate or junior in right
of payment to any other Indebtedness of the Company; (g) to the extent that it
may constitute Indebtedness, any obligation owing under leases (other than
Capital Lease Obligations) or management agreements; and (h) any obligation that
by operation of law is subordinate to any general unsecured obligations of the
Company. No Indebtedness shall be deemed to be subordinated to other
Indebtedness solely because such other Indebtedness is secured.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, at any date of
determination, (a) any Subsidiary of the Company that together with its
Subsidiaries (i) for the most recent fiscal year of the Company, accounted for
more than 10.0% of the consolidated revenues of the Company and its Subsidiaries
or (ii) as of the end of such fiscal year, owned more than 10.0% of the
consolidated assets of the Company and its Subsidiaries, all as set forth on the
consolidated financial statements of the Company and the Subsidiaries for such
year prepared in conformity with GAAP, and (b) any Subsidiary of the Company
which, when aggregated with all other Subsidiaries of the Company that are not
otherwise Significant Restricted Subsidiaries and as to which any event
described in clauses (viii) and (ix) of Section 6.01 above has occurred, would
constitute a Significant Restricted Subsidiary under clause (a) of this
definition.
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"STATED MATURITY" means, when used with respect to any Security
or any installment of interest thereon, the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"SUBORDINATED INDEBTEDNESS" means, with respect to the Company,
any Indebtedness of the Company which is expressly subordinated in right of
payment to the Securities.
"SUBSIDIARY" means, with respect to any Person, (a) any
corporation of which the outstanding Voting Equity Interests having at least a
majority of the votes entitled to be cast in the election of directors shall at
the time be owned, directly or indirectly, by such Person, or (b) any other
Person of which at least a majority of Voting Equity Interests are at the time,
directly or indirectly, owned by such first named Person.
"SUBSIDIARY GUARANTEES" means the Guarantee of the securities
by the Guarantor under Article Twelve.
"SURVIVING PERSON" means, with respect to any Person involved
in or that makes any Disposition, the Person formed by or surviving such
Disposition or the Person to which such Disposition is made.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb), as amended, as in effect on the date of this Indenture
(except as provided in Section 9.03) until such time as this Indenture is
qualified under the TIA, and thereafter as in effect on the date on which this
Indenture is qualified under the TIA.
"TRUST OFFICER" means any officer within the Corporate Trust
Office of the Trustee (or any successor group of the Trustee) and also means,
with respect to a particular corporate trust matter, any other officer of the
Trustee to whom such trust matter is referred because of his knowledge of and
familiarity with the particular subject.
"TRUSTEE" means the party named as such in the first paragraph
of this Indenture until a successor replaces it in accordance with the
provisions of this Indenture and thereafter means such successor.
"TRUSTS" means, collectively, The Michael Solomon 1994 Trust
and The David Solomon 1994 Trust created under the trust agreement, dated as of
July 29, 1994, known as The Russell M. and Doris E. Solomon 1994 Children's
Trust, as amended.
"UNRESTRICTED SECURITIES" means one or more Securities that do
not and are not required to bear the Private Placement Legend in the form set
forth in EXHIBIT A hereto, including, without limitation, the Exchange
Securities and any Securities registered under the Securities Act pursuant to
and in accordance with the Registration Rights Agreement.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company
designated as such pursuant to Section 4.12. Any such designation may be revoked
by a resolution of the Board of Directors of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"UNUTILIZED NET CASH PROCEEDS" has the meaning set forth in the
third paragraph under Section 4.06.
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"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 EQUITY INTERESTS" means Equity Interests in a
corporation or other Person with voting power under ordinary circumstances
entitling the holders thereof to elect the Board of Directors or other governing
body of such corporation or Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment, by (b) the then
outstanding aggregate principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted
Subsidiary of the Company all of the outstanding Voting Equity Interests (other
then directors' qualifying shares) of which are owned, directly or indirectly,
by the Company.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"COMMISSION" means the SEC.
"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITY HOLDER" means a Holder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee.
"OBLIGOR" means the Company or any other obligor on the
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 and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
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(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles in effect from time to time, and any other reference in this
Indenture to "generally accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in
the plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Initial Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of EXHIBIT A hereto,
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of EXHIBIT B hereto, 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 or
usage. The Company and the Trustee shall approve the form of the Securities and
any notation, legend or endorsement (including the Guarantee) on them. Each
Security shall be dated the date of its issuance and shall show the date of its
authentication.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more Global Securities and Securities
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Regulation S Temporary Global Securities, substantially in
the form set forth in EXHIBIT A hereto, deposited with the Trustee, as custodian
for the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided and shall bear the legend set forth in EXHIBIT C
hereto. 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, as custodian for the Depository, as hereinafter provided. Securities
issued in exchange for interests in a Global Security pursuant to Section 2.16
may be issued in the form of Physical Securities in substantially the form set
forth in EXHIBIT A.
The Restricted Period for the Regulation S Temporary Global
Security shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depository, together with copies of certificates from
Euroclear and Cedel Bank certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal amount
of the Regulation S Temporary Global Security (except to the extent of any
beneficial owners thereof who acquired an interest therein during the Restricted
Period pursuant to another exemption from registration under the Securities Act
and who will take delivery of a beneficial ownership interest in a 144A Global
Security or an IAI Global Security) and (ii) receipt of an Opinion of
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Counsel. Following the termination of the Restricted Period, beneficial
interests in the Regulation S Temporary Global Security shall be exchanged for
beneficial interests in Regulation S Permanent Global Securities.
Simultaneously with the authentication of Regulation S Permanent Global
Security, the Trustee shall cancel the Regulation S Temporary Global Security.
The aggregate principal amount of the Regulation S Temporary Global Security and
the Regulation S Permanent Global Security may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depository
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall
be applicable to transfers of beneficial interests in the Regulation S Temporary
Global Security and the Regulation S Permanent Global Security that are held by
participants through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers or an Officer and an Assistant Secretary shall
sign, or one Officer shall sign and one Officer and an Officer and an Assistant
Secretary (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to, the Securities for the Company by
manual or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Security or a Subsidiary Guarantee, as the case may be, was an Officer or
Assistant Secretary at the time of such execution but no longer holds that
office at the time the Trustee authenticates the Security or a Subsidiary
Guarantee, as the case may be, the Security or a Subsidiary Guarantee, as the
case may be, 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 (i) Initial Securities for
original issue in an aggregate principal amount not to exceed $110,000,000, (ii)
Private Exchange Securities from time to time only in exchange for a like
principal amount of Initial Securities and (iii) Unrestricted Securities from
time to time only in exchange for (A) a like principal amount of Initial
Securities or (B) a like principal amount of Private Exchange Securities, in
each case upon a written order of the Company in the form of an Officers'
Certificate. Each such written order shall specify the amount of Securities to
be authenticated and the date on which the Securities are to be authenticated,
whether the Securities are to be Initial Securities, Private Exchange Securities
or Unrestricted Securities and whether the Securities are to be issued as
Physical Securities or Global Securities (provided that Private Exchange
Securities shall only be issued as Physical Securities) and such other
information as the Trustee may reasonably request. The aggregate principal
amount of Securities outstanding at any time may not exceed $110,000,000, except
as provided in Sections 2.07 and 2.08.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate
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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 shall have the same rights as an Agent to deal with the
Company and Affiliates of the Company.
The Securities shall be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency, which shall be
in the Borough of Manhattan, The City of New York, where (a) Securities may be
presented or surrendered for registration of transfer or for exchange (the
"REGISTRAR"), (b) Securities may be presented or surrendered for payment (the
"PAYING AGENT") and (c) notices and demands in respect of the Securities and
this Indenture may be served. The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company, upon notice to the
Trustee, may appoint one or more co-Registrars and one or more additional Paying
Agents. The term "Paying Agent" includes any additional Paying Agent. Except
as provided herein, the Company may act as Paying Agent, Registrar or
co-Registrar.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions 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, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 8.07.
The Company initially appoints the Trustee as Registrar and
Paying Agent until such time as the Trustee has resigned or a successor has been
appointed.
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets 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. The Company
at any time may require a Paying Agent to distribute all assets held by it to
the Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent (if other than the Company), the Paying Agent shall have no further
liability for such assets. If the Company or any of their Affiliates acts as
Paying Agent, it shall, on or before each due date of the principal of or
interest on the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and will promptly notify the Trustee of its action or
failure so to act.
SECTION 2.05. HOLDER 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 Holders. If the Trustee is not the Registrar, the Company shall
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furnish to the Trustee before each Interest Record Date and at such other times
as the Trustee may request in writing a list as of such date and in such form as
the Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
SECTION 2.06. TRANSFER AND EXCHANGE.
Subject to the provisions of Sections 2.15 and 2.16, when
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount of Securities of other authorized denominations of the
same series, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
PROVIDED, HOWEVER, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.10 or 3.06). The
Registrar or co-Registrar shall not be required to register the transfer or
exchange of any Security (i) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing and (ii) selected for
redemption in whole or in part pursuant to Article Three hereof, except the
unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee and any Agent of the Company shall
treat the Person in whose name the Security is registered as the owner thereof
for all purposes whether or not the Security shall be overdue, and none of the
Company, the Trustee nor any such Agent shall be affected by notice to the
contrary. Any consent, waiver or actions of a Holder shall be binding upon any
subsequent Holders of such Security or a Security received upon transfer. Any
Holder of a beneficial interest in a Global Security shall, by acceptance of
such beneficial interest in a Global Security, agree that transfers of
beneficial interests in such Global Security may be effected only through a
book-entry system maintained by the Depository (or its agent), and that
ownership of a beneficial interest in a Global Security shall be required to be
reflected in a book entry.
SECTION 2.07. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee 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 Trustee's requirements for replacement of Securities
are met. If required by the Company or the Trustee, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of the Company and
the Trustee, to protect the Company, the Trustee and any Agent from any loss
which any of them may suffer if a Security is replaced. The Company may charge
such Holder for their reasonable out-of-pocket expenses in replacing a Security,
including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
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SECTION 2.08. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those canceled by it, those
delivered to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any Affiliates of the Company holds the
Security.
If a Security is replaced pursuant to Section 2.07 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a BONA FIDE purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Final Maturity Date the Paying
Agent holds money sufficient to pay all of the principal and interest due on the
Securities payable on that date, and is not prohibited from paying such money to
the Holders pursuant to the terms of this Indenture, then on and after that date
such Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. TREASURY SECURITIES.
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, the Guarantors or any of their respective
Affiliates shall be disregarded, except that, for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities that a Trust Officer of the Trustee actually knows
are so owned shall be disregarded.
The Company shall notify the Trustee, in writing, when the
Company or any of its Affiliates repurchases or otherwise acquires Securities,
of the aggregate principal amount of such Securities so repurchased or otherwise
acquired.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities upon receipt
of a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated.
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 upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. 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 transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent, and no one else, shall cancel, and at the written direction of the
Company, dispose of and deliver evidence of such disposal of all Securities
surrendered for transfer, exchange, payment or cancellation. Subject to Section
2.07 and except for
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the issuance of the Exchange Securities, the Company may not issue new
Securities to replace Securities that it has paid or delivered to the Trustee
for cancellation. If the Company shall acquire any of the Securities, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. DEFAULTED INTEREST.
The Company shall pay interest on overdue principal from time
to time on demand at the rate of interest then borne by the Securities. The
Company shall, to the extent lawful, pay interest on overdue installments of
interest (without regard to any applicable grace periods) from time to time on
demand at the rate of interest then borne by the Securities.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest to the Persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day preceding
the date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior
to the expiration of the 30-day period set forth in Section 6.01(i) shall be
paid to Holders as of the Interest Record Date for the Interest Payment Date for
which interest has not been paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Securities will use a "CUSIP" number
and the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Securities, and that reliance may be
placed only on the other identification numbers printed on the Securities. The
Company shall promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 11 a.m. New York City time on each Interest Payment
Date, Redemption Date, and the Final Maturity Date, the Company shall deposit
with the Paying Agent in immediately available funds money sufficient to make
cash payments, if any, due on such Interest Payment Date, Redemption Date or
Final Maturity Date, as the case may be, in a timely manner which permits the
Paying Agent to remit payment to the Holders on such Interest Payment Date,
Redemption Date or Final Maturity Date, as the case may be.
SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in EXHIBIT C.
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Members of, or participants in, the Depository ("PARTICIPANTS")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Security, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
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 Depository or impair, as between the
Depository and Participants, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in the Global Securities
may be transferred or exchanged for Physical Securities in accordance with the
rules and procedures of the Depository and the provisions of Section 2.16;
PROVIDED, HOWEVER, that Physical Securities shall be transferred to all
beneficial owners in exchange for their beneficial interests in Global
Securities if (i) the Depository notifies the Company that it is unwilling or
unable to continue as Depository for any Global Security or the Depository
ceases to be registered as a clearing agency under the Exchange Act and a
successor Depository is not appointed by the Company within 90 days of such
notice, (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of the securities as Physical Securities, or (iii)
an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depository to issue Physical Securities; PROVIDED
that in no event shall the Regulation S Temporary Global Security be exchanged
by the Company for Physical Securities prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Securities, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(c) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
SECTION 2.16. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF PHYSICAL SECURITIES. When
Physical Securities are presented to the Registrar or co-Registrar with a
request:
(i) to register the transfer of the Physical Securities;
or
(ii) to exchange such Physical Securities for an equal
principal amount of Physical Securities of other authorized
denominations,
<PAGE>
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the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; PROVIDED, HOWEVER, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(II) in the case of Physical Securities the offer and sale
of which have not been registered under the Securities Act, such Physical
Securities shall be accompanied, in the sole discretion of the Company,
by the following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the
Registrar or co-Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification from such Holder to that
effect (substantially in the form of EXHIBIT D
hereto); or
(B) if such Physical Security is being transferred to a
QIB in accordance with Rule 144A, a certification to
that effect (substantially in the form of EXHIBIT D
hereto); or
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the
form of EXHIBIT D hereto) and a transferee letter of
representation (substantially in the form of
EXHIBIT E hereto) and, at the option of the Company,
an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(D) if such Physical Security is being transferred in
reliance on Regulation S, delivery of a certification
to that effect (substantially in the form of EXHIBIT
D hereto) and a transferor certificate for Regulation
S transfers substantially in the form of EXHIBIT F
hereto and, at the option of the Company, an Opinion
of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with
the Securities Act; or
(E) if such Physical Security is being transferred in
reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect
(substantially in the form of EXHIBIT D hereto) and,
at the option of the Company, an Opinion of Counsel
reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the
Securities Act; or
(F) if such Physical Security is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (substantially in the form of EXHIBIT
D hereto) and, at the option of the Company, an
Opinion of Counsel reasonably acceptable to the
Company to the effect that such transfer is in
compliance with the Securities Act.
(b) RESTRICTIONS ON TRANSFER OF A PHYSICAL SECURITY FOR A
BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Physical Security the offer and
sale of which has not been registered under the Securities Act may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth
<PAGE>
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below. Upon receipt by the Registrar or co-Registrar of a Physical Security,
duly endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Registrar or co-Registrar, together with:
(A) certification, substantially in the form of EXHIBIT D
hereto, that such Physical Security is being
transferred (I) to a QIB, (II) to an Accredited
Investor or (III) in an offshore transaction in
reliance on Regulation S and, with respect to (II) or
(III), at the option of the Company, an Opinion of
Counsel reasonably acceptable to the Company to the
effect that such transfer is in compliance with the
Securities Act; and
(B) written instructions directing the Registrar or
co-Registrar to make, or to direct the Depository to
make, an endorsement on the applicable Global
Security to reflect an increase in the aggregate
amount of the Securities represented by the Global
Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Securities represented by the applicable
Global Security to be increased accordingly. If no 144A Global Security, IAI
Global Security or Regulation S Global Security, as the case may be, is then
outstanding, the Company shall, unless either of the events in the proviso to
Section 2.15(b) have occurred and are continuing, issue and the Trustee shall,
upon written instructions from the Company in accordance with Section 2.02,
authenticate such a Global Security in the appropriate principal amount.
Private Exchange Securities, as such, may not be exchanged for a beneficial
interest in a Global Security.
(c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor; PROVIDED, HOWEVER, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Temporary Regulation S Global
Security may not be made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Upon receipt by the Registrar or
Co-Registrar of written instructions, or such other instruction as is customary
for the Depository, from the Depository or its nominee, requesting the
registration of transfer of an interest in a 144A Global Security, an IAI Global
Security or a Regulation S Global Security, as the case may be, to another type
of Global Security, together with the applicable Global Securities (or, if the
applicable type of Global Security required to represent the interest as
requested to be obtained is not then outstanding, only the Global Security
representing the interest being transferred), the Registrar or Co-Registrar
shall reflect on its books and records (and the applicable Global Security) the
applicable increase and decrease of the principal amount of Securities
represented by such types of Global Securities, giving effect to such transfer.
If the applicable type of Global Security required to represent the interest as
requested to be obtained is not outstanding at the time of such request, the
Company shall issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate a new Global Security of
such type in principal amount equal to the principal amount of the interest
requested to be transferred.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR
A PHYSICAL SECURITY.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Physical Security; PROVIDED, HOWEVER, that prior to the Registration, a
transferee that is a QIB or Institutional Accredited Investor may not
exchange a beneficial interest in Global Security for a Physical
Security; PROVIDED that in no event shall Physical Securities be issued
upon the transfer or exchange of beneficial interests in the Regulation S
Temporary Global Security prior to (x) the expiration of the Restricted
Period and (y) the receipt by the Registrar of any certificates
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required pursuant to Rule 903 under the Securities Act as stated in an
Opinion of Counsel. Upon receipt by the Registrar or co-Registrar of
written instructions, or such other form of instructions as is customary
for the Depository, from the Depository or its nominee on behalf of any
Person having a beneficial interest in a Global Security and upon receipt
by the Trustee of a written order or such other form of instructions as
is customary for the Depository or the Person designated by the
Depository as having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange of a
beneficial interest in Securities the offer and sale of which have not
been registered under the Securities Act, the following additional
information and documents:
(A) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect
(substantially in the form of EXHIBIT D hereto) and,
at the option of the Company, an Opinion of Counsel
reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the
Securities Act; or
(B) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (substantially in the form of EXHIBIT
D hereto) and, at the option of the Company, an
Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal amount of the
applicable Global Security to be reduced and, following such reduction,
the Company will execute and, upon receipt of an authentication order in
the form of an Officers' Certificate in accordance with Section 2.02,
the Trustee will authenticate and deliver to the transferee a Physical
Security in the appropriate principal amount.
(ii) Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.16(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Registrar or co-Registrar
in writing. The Registrar or co-Registrar shall deliver such Physical
Securities to the Persons in whose names such Physical Securities are so
registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL
SECURITIES. Notwithstanding any other provisions of this Indenture, a Global
Security may not be transferred as a whole except by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private Placement
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act;(ii) such
Security has been sold pursuant to an effective registration statement under the
Securities Act (including pursuant to a Registration); or (iii) the date of such
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transfer, exchange or replacement is two years after the later of (x) the Issue
Date and (y) the last date that the Company or any affiliate (as defined in Rule
144 under the Securities Act) of the Company was the owner of such Securities
(or any predecessor thereto).
(g) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Participants
or beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.15 or this Section
2.16. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to
paragraph 5 of the Securities at the applicable redemption price set forth
thereon, it shall notify the Trustee in writing of the Redemption Date and the
principal amount of Securities to be redeemed. The Company shall give such
notice to the Trustee at least 45 days before the Redemption Date (unless a
shorter notice shall be agreed to by the Trustee in writing), together with an
Officers' Certificate stating that such redemption will comply with the
conditions contained herein and in the Securities, the Redemption Date, the
redemption price and the principal amount of the Securities to be redeemed. Any
such notice may be canceled (with at least five days' notice in writing) at any
time prior to notice of such redemption being mailed to any Holder and shall
thereby be void and of no effect.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed pursuant
to paragraph 5 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a PRO RATA basis;
PROVIDED, HOWEVER, that no Securities of $1,000 or less shall be redeemed in
part; PROVIDED, FURTHER, HOWEVER, that if a partial redemption is made with the
net cash proceeds of an Equity Offering received by the Company, selection of
the Securities or portions thereof for redemption shall be made by the Trustee
only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable
(subject to the procedures
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of the Depository), unless such method is otherwise prohibited. On and after
the Redemption Date, interest shall cease to accrue on the Securities or
portions thereof called for redemption, whether or not such Securities are
presented for payment.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first-class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address;
PROVIDED, HOWEVER, that notice of a redemption pursuant to paragraph 5(b) of the
Securities shall be mailed to each Holder whose Securities are to be redeemed no
later than 60 days after the date of the closing of the relevant Equity Offering
of the Company.
Each notice of redemption shall identify the Securities to be
redeemed (including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(5) that, as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price
pursuant to this Indenture, interest on Securities called for redemption
ceases to accrue on and after the Redemption Date and the only remaining
right of the Holders is to receive payment of the redemption price upon
surrender to the Paying Agent;
(6) in the case of any redemption pursuant to paragraph 5
of the Securities, if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that, after
the Redemption Date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof
will be issued;
(7) the subparagraph of the Securities pursuant to which
such redemption is being made; and
(8) that no representation is made as to the accuracy of
the CUSIP number listed in such notice or printed on such Security.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities
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shall be paid at the redemption price, plus accrued interest thereon, if any, to
the Redemption Date, but interest installments whose maturity is on or prior to
such Redemption Date shall be payable to the Holders of record at the close of
business on the relevant Interest Record Date.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before the Redemption Date, the Company shall deposit
with the Paying Agent (or if the Company is its own Paying Agent, it shall, on
or before the Redemption Date, segregate and hold in trust) money sufficient to
pay the redemption price of and accrued interest, if any, on all Securities to
be redeemed on that date other than Securities or portions thereof called for
redemption on that date which have been delivered by the Company to the Trustee
for cancellation.
If any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid on the Redemption Date due to
the failure of the Company to deposit with the Paying Agent money sufficient to
pay the redemption price thereof, the principal and accrued and unpaid interest,
if any, thereon shall, until paid or duly provided for, bear interest as
provided in Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the
Trustee shall authenticate for the Holder a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the
Securities in the manner provided in the Securities and the Registration Rights
Agreement. An installment of principal or interest shall be considered paid on
the date due if the Trustee or Paying Agent (other than the Company or any
Affiliates of the Company) holds on that date money designated for and
sufficient to pay the installment in full and is not prohibited from paying such
money to the Holders of the Securities pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the
same rate per annum borne by the Securities. The Company shall pay cash
interest on overdue installments of interest at the same rate per annum borne by
the Securities, to the extent lawful, as provided in Section 2.12.
Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal, premium or interest payments hereunder.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of any office or agency required
by Section 2.03. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 11.
SECTION 4.03. LIMITATION ON INDEBTEDNESS.
The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness; PROVIDED,
HOWEVER, that the Company may Incur Indebtedness if, at the time of and
immediately after giving pro forma effect to such Incurrence of Indebtedness and
the application of the proceeds therefrom, the Consolidated Coverage Ratio would
be greater than (x) 2.00 to 1.00 if such Indebtedness is Incurred prior to
the second anniversary of the Issue Date or (y) 2.25 to 1.00 if such
Indebtedness is incurred thereafter.
The limitations contained in the preceding paragraph will not
apply to the Incurrence of any of the following (collectively, "PERMITTED
INDEBTEDNESS"), each of which shall be given independent effect:
(a) Indebtedness under the Securities and any Guarantees;
(b) Indebtedness Incurred under the New Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (x) the maximum committed amount (without giving effect to any
borrowing base restrictions) under the New Credit Facility on the Issue
Date or (y) the sum of (i) the cash and Cash Equivalents of the Company
and its Restricted Subsidiaries, (ii) 80% of the then book value of
accounts receivable of the Company and its Restricted Subsidiaries as
such amount would appear on a consolidated balance sheet of the Company
prepared in accordance with GAAP, and (iii) 80% of the then book value of
Inventory of the Company and its Restricted Subsidiaries;
(c) Indebtedness of any Restricted Subsidiary of the Company
owed to and held by the Company or any Restricted Subsidiary, and
Indebtedness of the Company owed to and held by any Restricted Subsidiary
and that is unsecured and subordinated in right of payment in liquidation
to the payment of the Company's obligations under any Senior
Indebtedness, this Indenture and the Securities; PROVIDED, HOWEVER, that
an Incurrence of Indebtedness that is not otherwise permitted by this
clause (c) shall be deemed to have occurred upon (i) any sale or other
disposition of any Indebtedness of the Company or any Restricted
Subsidiary of the Company referred to in this clause (c) to a Person
(other than the Company or a Restricted Subsidiary), or (ii) any sale or
other disposition of Equity Interests of any Subsidiary which holds
Indebtedness of the Company or another Subsidiary;
(d) Indebtedness under Interest Rate Protection Obligations;
PROVIDED, HOWEVER, that such Interest Rate Protection Obligations have
been entered into for bona fide business purposes and not for
speculation;
(e) Purchase Money Indebtedness and Capitalized Lease
Obligations of the Company or any Restricted Subsidiary in an aggregate
principal amount (including refinancings thereof) at any one time
outstanding not to exceed 5% of aggregate total revenue of the Company
and its Restricted Subsidiaries
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during the most recently completed four fiscal quarter period on a
consolidated basis (determined at the time of Incurrence); PROVIDED,
HOWEVER, that the Company and its Restricted Subsidiaries may incur any
amount of additional Indebtedness of the type specified above in this
clause (e) which is secured by real estate and any improvements thereon
so long as the sole recourse of the obligee with respect to such
Indebtedness is to the real property and/or improvements financed,
fixtures related thereto and any accessions and additions thereto,
replacements and substitutions therefor and the proceeds (including
insurance proceeds thereof);
(f) Indebtedness under Currency Agreements; PROVIDED, HOWEVER,
that such Currency Agreements have been entered into for bona fide
business purposes and not for speculation;
(g) Existing Indebtedness;
(h) Indebtedness to the extent representing a replacement,
renewal, defeasance, refinancing or extension (collectively, a
"REFINANCING") of any outstanding Indebtedness; PROVIDED, HOWEVER, that
(i) any such refinancing shall not exceed the sum of the principal amount
(or accreted amount (determined in accordance with GAAP), if less) of the
Indebtedness being refinanced (or in the case of a refinancing of the New
Credit Facility the maximum permitted amount under clause (b) above),
plus the amount of accrued interest thereon, plus the amount of any
reasonably determined prepayment premium necessary to accomplish such
refinancing and such reasonable fees and expenses incurred in connection
therewith, (ii) Indebtedness representing a refinancing of Indebtedness
other than Senior Indebtedness shall have a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of the Indebtedness being refinanced and (iii) Indebtedness that is pari
passu with, or subordinate to the Securities may only be refinanced with
Indebtedness that is made PARI PASSU with or subordinate in right of
payment to the Securities and Subordinated Indebtedness may only be
refinanced with Subordinated Indebtedness; PROVIDED, FURTHER, that
Indebtedness of the Company may be refinanced by Indebtedness of a
Restricted Subsidiary and Indebtedness of a Restricted Subsidiary of the
Company may be refinanced by Indebtedness of the Company;
(i) guarantees by the Company or a Restricted Subsidiary of
Indebtedness Incurred by the Company or a Restricted Subsidiary so long
as the Incurrence of such Indebtedness is otherwise permitted by the
terms of this Indenture.
(j) Acquired Indebtedness and Indebtedness Incurred in
connection with the acquisition of assets; PROVIDED that such
Indebtedness was incurred by the prior owner of such assets prior to such
acquisition by the Company or one of its Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by
the Company or one of its Restricted Subsidiaries; PROVIDED FURTHER that
the principal amount (or accreted value, as applicable) of such
Indebtedness, together with any other outstanding Indebtedness (including
refinancings thereof) incurred pursuant to this clause (j), does not
exceed $5.0 million;
(k) additional Indebtedness of Restricted Subsidiaries of the
Company, incurred after the Issue Date, in an aggregate principal amount
at any time outstanding (including refinancings thereof) not to exceed
$20.0 million;
(l) Indebtedness in respect of worker's compensation,
self-insurance obligations, performance, surety, appeal and similar bonds
and completion guarantees provided in the ordinary course of business;
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(m) Indebtedness incurred in connection with the acquisition
of capital stock of Restricted Subsidiaries existing on the Issue Date
representing minority interests in such Restricted Subsidiaries in an
aggregate principal amount (including refinancings thereof) not to exceed
$2.0 million; and
(n) additional Indebtedness of the Company or any of its
Restricted Subsidiaries, Incurred after the Issue Date, in an aggregate
principal amount at any time outstanding (including refinancings
thereof), not to exceed $20.0 million.
For purposes of determining compliance with this Section 4.03,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (a) through (n)
above or is entitled to be Incurred pursuant to the first paragraph of this
Section 4.03, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof or as having been divided
and incurred pursuant to more than one of such clauses or the first paragraph
hereof. Accrual of interest, the accretion of accreted value and the payment of
interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant. If the Indebtedness is
Incurred, denominated and payable in other than United States currency, then the
Indebtedness shall be converted into United States currency using the spot
foreign exchange rate of the currency in which such Indebtedness is Incurred,
denominated and payable on the date of Incurrence of such Indebtedness.
Indebtedness Incurred under clause (h) above as a refinancing of the New Credit
Facility may be Incurred as two or more separate facilities entered into at the
same time or at different times so long as such facilities in the aggregate
constitute a refinancing of the New Credit Facility in a maximum amount not to
exceed the amount permitted under clause (b) above.
SECTION 4.04. LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS.
The Company will not, directly or indirectly, Incur, or suffer
to exist, any Indebtedness that by its terms would expressly rank senior in
right of payment to the Securities and subordinate in right of payment to any
other Indebtedness of the Company.
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not cause or permit any
Restricted Subsidiary of the Company to, directly or indirectly,
(i) declare or pay any dividend or any other distribution
on any Equity Interests of the Company or make any payment or
distribution to the direct or indirect holders (in their capacities as
such) of Equity Interests of the Company (other than any dividends,
distributions and payments made solely in Qualified Equity Interests of
the Company or in options, warrants or other rights to purchase Qualified
Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any Subsidiary of the
Company (other than any such Equity Interests owned by the Company or any
Restricted Subsidiary of the Company);
(iii) make any Investment in any Person (other than
Permitted Investments); or
(iv) designate any Restricted Subsidiary as an Unrestricted
Subsidiary;
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(any such payment or any other action (other than any exception thereto)
described in (i), (ii) or (iii), a "RESTRICTED PAYMENT"), unless
(a) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving effect to such Restricted
Payment, the Company would be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Consolidated
Coverage Ratio test set forth in the first paragraph of Section 4.03; and
(c) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or made
on or after the Issue Date (excluding Restricted Payments permitted by
clauses (ii) and (iv) of the next succeeding paragraph) does not exceed
an amount equal to the sum of (1) 50% of cumulative Consolidated Net
Income determined for the period (taken as one period) from the beginning
of the first fiscal quarter commencing after the Issue Date and ending on
the last day of the most recent fiscal quarter immediately preceding the
date of such Restricted Payment for which consolidated financial
information of the Company is available (or if such cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss), plus
(2) the aggregate net cash proceeds received by the Company either (x) as
capital contributions to the Company after the Issue Date or (y) from the
issue and sale (other than to a Subsidiary of the Company) of its
Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests
financed, directly or indirectly, using funds borrowed from the Company
or any Subsidiary of the Company until and to the extent such borrowing
is repaid), plus (3) the principal amount (or accreted amount (determined
in accordance with GAAP), if less) of any Indebtedness of the Company or
any Subsidiary of the Company Incurred after the Issue Date which has
been converted into or exchanged for Qualified Equity Interests of the
Company (minus the amount of any cash or property distributed by the
Company or any Subsidiary of the Company upon such conversion or
exchange), plus (4) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date,
an amount equal to 100% of the net cash proceeds thereof (or dividends,
distributions or interest payments received in cash thereon), plus
(5) with respect to any Unrestricted Subsidiary that has been designated
or re-designated as a Restricted Subsidiary after the Issue Date, the
direct or indirect proportionate interest of the Company in such
Subsidiary multiplied by an amount equal to the excess of (x) the total
assets of such Subsidiary, valued on an aggregate basis at Fair Market
Value, over (y) the total liabilities of such Subsidiary, determined in
accordance with GAAP, plus (6) $5.0 million.
The foregoing provisions will not prevent (i) the payment of
any dividend or distribution on, or redemption of, Equity Interests within 60
days after the date or declaration of such dividend or distribution or the
giving of formal notice of such redemption, if at the date of such declaration
or giving of such formal notice such payment or redemption would comply with the
provisions of this Indenture; (ii) the purchase, redemption, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net cash proceeds of the substantially concurrent issue and sale (other than
to a Subsidiary of the Company) of, Qualified Equity Interests received by the
Company; PROVIDED, HOWEVER, that any such net cash proceeds or any Equity
Interest issued in exchange for such retired Equity Interests are excluded from
clause (c)(2) of the preceding paragraph (and were not included therein at any
time) and are not used to redeem the Securities pursuant to paragraph 5 of the
Securities; (iii) payments by the Company to, or to enable Parent to, purchase,
redeem or acquire for value shares of capital stock of the Company or Parent
(other than Disqualified Equity Interests) or options on such shares held by
officers or employees or former officers or employees (or their estates or
beneficiaries under their estates) upon the death, disability, retirement or
termination of employment of such current or
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former officers or employees pursuant to the terms of an employee benefit plan
or any other agreement pursuant to which such shares of capital stock or options
were issued or pursuant to a severance, buy-sell or right of first refusal
agreement with such current or former officer or employee; PROVIDED, HOWEVER,
that the aggregate cash consideration paid, or distributions made, pursuant to
this clause (iii) do not in any one fiscal year exceed $5.0 million;
(iv) Investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant to and in
compliance with Section 4.06; (v) the purchase of capital stock representing
minority interests in Restricted Subsidiaries; PROVIDED, HOWEVER, that the
aggregate cash consideration paid pursuant to this clause (v) does not exceed
$5.0 million; (vi) the payment of premiums in connection with the maintenance of
Permitted Life Insurance; (vii) payments by the Company to Parent to fund the
payment by Parent of audit, accounting, legal or other similar expenses, to pay
franchise or other similar taxes and to pay other corporate overhead expenses,
so long as such dividends are paid as and when needed by Parent so long as the
aggregate amount of payments pursuant to this clause (vii) does not exceed
$1.0 million in any fiscal year; and (viii) payments by the Company to fund
taxes of Parent for a given taxable year in an amount equal to the Company's
"separate return liability," as if the Company were the parent of a consolidated
group (for purposes of this clause (viii) "separate return liability" for a
given taxable year shall mean the hypothetical United States tax liability of
the Company defined as if the Company had filed its own U.S. federal tax return
for such taxable year); PROVIDED, HOWEVER, that in the case of each of
clauses (ii), (iii) and (iv), no Default or Event of Default shall have occurred
and be continuing or would arise therefrom.
The amount of any non-cash Restricted Payment shall be deemed
to be equal to the Fair Market Value thereof at the date of the making of such
Restricted Payment.
SECTION 4.06. DISPOSITION OF PROCEEDS OF ASSET SALES.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary of the Company to, directly or indirectly, make any Asset
Sale, unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of, and (ii) at least 75%
of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of (a) cash or Cash Equivalents or (b) property or
assets that are used or useful in a Permitted Business, or Equity Interests of
any Person primarily engaged in a Permitted Business if, as a result of the
acquisition by the Company or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary; PROVIDED that the amount of (x) any liabilities
of the Company or any Restricted Subsidiary (other than contingent liabilities
and liabilities of the Company that are by their terms subordinated to the
Securities or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to the customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash
Equivalents received) within 360 days following the closing of such Asset Sale,
will be deemed to be cash for purposes of this provision; PROVIDED FURTHER that
the 75% limitation referred to above shall not apply to any sale, transfer or
other disposition of assets in which the cash portion of the consideration
received therefor, determined in accordance with the foregoing proviso, is equal
to or greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation.
The Company or such Restricted Subsidiary of the Company, as
the case may be, may (i) apply the Net Cash Proceeds of any Asset Sale within
360 days of receipt thereof to repay Senior Indebtedness, or (ii) make an
Investment in property or assets that are used or useful in a Permitted
Business, or Equity Interests of any Person primarily engaged in a Permitted
Business if, as a result of the acquisition by the Company or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary.
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To the extent all or part of the Net Cash Proceeds of any Asset
Sale are not applied as described in clause (i) or (ii) of the immediately
preceding paragraph within the time periods set forth therein (the "NET PROCEEDS
UTILIZATION DATE") (such Net Cash Proceeds, the "UNUTILIZED NET CASH PROCEEDS"),
the Company shall, within 20 days after such Net Proceeds Utilization Date, make
an Offer to Purchase all outstanding Securities up to a maximum principal amount
(expressed as a multiple of $1,000) of Securities equal to such Unutilized Net
Cash Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
PROVIDED, HOWEVER, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $15.0 million,
at which time the entire amount of such Unutilized Net Cash Proceeds, and not
just the amount in excess of $15.0 million, shall be applied as required
pursuant to this paragraph.
With respect to any Offer to Purchase affected pursuant to this
Section 4.06, among the Securities, to the extent the aggregate principal amount
of Securities tendered pursuant to such Offer to Purchase exceeds the Unutilized
Net Cash Proceeds to be applied to the repurchase thereof, such Securities shall
be purchased pro rata based on the aggregate principal amount of such Securities
tendered by each Holder. To the extent the Unutilized Net Cash Proceeds exceed
the aggregate amount of Securities tendered by the Holders of the Securities
pursuant to such Offer to Purchase, the Company may retain and utilize any
portion of the Unutilized Net Cash Proceeds not required to be applied to
repurchase Securities tendered pursuant to such Offer for any purpose consistent
with the other terms of this Indenture.
In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act, and any violation of the provisions of this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
Each Holder shall be entitled to tender all or any portion of
the Securities owned by such Holder pursuant to the Offer to Purchase, subject
to the requirement that any portion of a Security tendered must be tendered in
an integral multiple of $1,000 principal amount and subject to any proration
among tendering Holders as described above.
SECTION 4.07. LIMITATION ON LIENS.
The Company will not, and will not cause or permit any
Restricted Subsidiary of the Company to, directly or indirectly, Incur, or
suffer to exist, any Liens of any kind against or upon any of their respective
properties or assets now owned or hereafter acquired, or any proceeds therefrom
or any income or profits therefrom, to secure any Indebtedness unless
contemporaneously therewith effective provision is made to secure the Securities
and all other amounts due under this Indenture, equally and ratably with such
Indebtedness (or, in the event that such Indebtedness is subordinated in right
of payment to the Securities prior to such Indebtedness) with a Lien on the same
properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness and (ii) Permitted Liens.
SECTION 4.08. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company will not, and will not cause or permit any
Restricted Subsidiary of the Company to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary of the Company to
(a) pay dividends or make any other distributions to the Company or any
Restricted Subsidiary of the Company on its Equity Interests or with respect
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to any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any Restricted Subsidiary of the
Company, (b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, or make any Investment in, the Company or any Restricted
Subsidiary of the Company or (c) transfer any of its properties or assets to the
Company or any Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of (i) the New Credit
Facility as in effect on the Issue Date, any other agreement of the Company or
its Restricted Subsidiaries outstanding on the Issue Date as in effect on the
Issue Date and any other agreement of the Company or its Restricted Subsidiaries
outstanding from time to time governing Senior Indebtedness, and any amendments,
restatements, renewals, replacements or refinancings thereof; (ii) applicable
law; (iii) any instrument governing Indebtedness or Equity Interests of an
Acquired Person acquired by the Company or any Restricted Subsidiary of the
Company as in effect at the time of such acquisition (except to the extent such
Indebtedness was Incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); PROVIDED, HOWEVER, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary of the Company, or the properties or assets of the Company
or any Restricted Subsidiary of the Company, other than the Acquired Person;
(iv) customary non-assignment, subletting or restriction on transfer provisions
or restrictions on cash or other deposits or net worth maintenance provisions
under leases, licenses or other contracts entered into in the ordinary course of
business; (v) Purchase Money Indebtedness for property acquired in the ordinary
course of business that only imposes encumbrances and restrictions on the
property so acquired and the proceeds thereof; (vi) any agreement for the sale
or disposition of the Equity Interests or assets of any Subsidiary of the
Company; PROVIDED, HOWEVER, that such encumbrances and restrictions described in
this clause (vi) are only applicable to such Subsidiary or assets, as
applicable, and any such sale or disposition is made in compliance with
Section 4.06 to the extent applicable thereto; (vii) refinancing Indebtedness
permitted under clause (h) of the second paragraph of Section 4.03; or (viii)
this Indenture.
SECTION 4.09. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not cause or permit any
Restricted Subsidiary of the Company to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates (including, without
limitation, any Unrestricted Subsidiary or the Company) or any officer, director
or employee of the Company or any Subsidiary of the Company (each an "AFFILIATE
TRANSACTION"), unless (i) such Affiliate Transaction is on terms which are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than would be available in a comparable transaction with an unaffiliated third
party and (ii) if such Affiliate Transaction (or series of related Affiliate
Transactions) involves aggregate payments or other consideration having a Fair
Market Value in excess of $5.0 million in any fiscal year, such Affiliate
Transaction is in writing and a majority of the disinterested members, if any,
of the Board of Directors of the Company shall have approved such Affiliate
Transaction and determined that such Affiliate Transaction complies with the
foregoing provisions. In addition, any Affiliate Transaction involving aggregate
payments or other consideration having a Fair Market Value in excess of
$10.0 million will also require a written opinion from an Independent Financial
Advisor (filed with the Trustee) stating that the terms of such Affiliate
Transaction are fair, from a financial point of view, to the Company or its
Subsidiaries involved in such Affiliate Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in
this Section 4.09 will not apply to (i) transactions with or among the Company
and any Restricted Subsidiary or between or among Restricted Subsidiaries or
between the Company and/or one or more of its Restricted Subsidiaries on the one
hand, and Non-Affiliated Joint Ventures, on the other hand; (ii) reasonable fees
and compensation (including customary benefit, deferred compensation, retirement
and stock incentive or similar plans) paid or made available to and indemnity
provided on behalf of, officers, directors, employees, consultants or agents of
the Company or any
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Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors; (iii) advances and loans to employees for
relocation, entertainment and travel expenses, drawing accounts and other
matters in the ordinary course of business, (iv) any transactions undertaken
pursuant to any contractual obligations in existence on the Issue Date (as in
effect on the Issue Date), (v) any Restricted Payments made in compliance with
Section 4.05, and (vi) transactions in connection with the maintenance of
Permitted Life Insurance.
SECTION 4.10. PROVISION OF FINANCIAL INFORMATION.
Whether or not the Company is subject to Section 13(a) or 15(d)
of the Exchange Act, or any successor provision thereto, the Company shall file
with the SEC (if permitted by SEC practice and applicable law and regulations)
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the SEC pursuant to such Section 13(a) or
15(d) or any successor provision thereto if the Company were so subject, such
documents to be filed with the SEC on or prior to the respective dates (the
"REQUIRED FILING DATES") by which the Company would have been required so to
file such documents if the Company were so subject. The Company shall also in
any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the SEC) (i) transmit (or cause to be
transmitted) by mail to all Holders, as their names and addresses appear in the
Note register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the SEC pursuant to the preceding sentence, or,
if such filing is not so permitted, information and data of a similar nature,
and (b) if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Securities remain outstanding and
prior to the later of the consummation of the exchange offer in respect of the
Initial Securities and the filing of the initial Shelf Registration Statement
(as defined in the Registration Rights Agreement), if required, the Company will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act, and, to any beneficial Holder of
Securities, if not obtainable from the SEC, information of the type that would
be filed with the SEC pursuant to the foregoing provisions, upon the request of
any such Holder. The first such report will be for the fiscal period ending
April 30, 1998.
SECTION 4.11. FUTURE GUARANTEES
At any time either (x) in excess of 10.0% of the consolidated
net assets of the Company are owned by Restricted Subsidiaries (other than
Foreign Subsidiaries) of the Company or (y) in excess of 10.0% of the
Consolidated EBITDA of the Company is derived from Restricted Subsidiaries
(other than Foreign Subsidiaries) of the Company, within 90 days of the filing
of the financial statements with the Commission which indicate that either
clause (x) or clause (y) above is applicable, the Company shall cause such
Restricted Subsidiaries (other than Foreign Subsidiaries) to (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall become a party
to this Indenture and thereby unconditionally guarantee on an unsecured senior
subordinated basis (on substantially the same terms as the subordination of the
Securities) (a "GUARANTEE") all of the Company's Obligations under the
Securities and this Indenture on the terms set forth therein and (ii) deliver to
the Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and constitutes
a valid, binding and enforceable obligation of such Restricted Subsidiary (which
opinion may be subject to customary assumptions and qualifications). Thereafter,
such Restricted Subsidiary shall (unless released in accordance with the terms
of this Indenture) be a guarantor (a "GUARANTOR") for all purposes of this
Indenture. The Guarantee of a Guarantor will be released upon the sale or
transfer of a majority of the capital
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stock of such Guarantor owned directly or indirectly by the Company, provided
that such sale or transfer complies with all of the terms of this Indenture, or
such Guarantor becoming an Unrestricted Subsidiary in accordance with the terms
of this Indenture.
Each Guarantee will be a continuing guarantee and will
(a) remain in full force and effect until payment in full of all of the
obligations covered thereby, (b) be binding upon each Guarantor and (c) inure to
the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
SECTION 4.12. DESIGNATION OF UNRESTRICTED SUBSIDIARIES.
The Company may designate after the Issue Date any Subsidiary
of the Company as an "Unrestricted Subsidiary" under this Indenture (a
"DESIGNATION") only if:
(i) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such
Designation;
(ii) immediately after giving effect to such Designation,
the Company could Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under Section 4.03; and
(iii) the Company would be permitted to make an Investment
(other than a Permitted Investment) at the time of Designation (assuming
the effectiveness of such Designation) pursuant to the first paragraph of
the Section 4.05 in an amount (the "DESIGNATION AMOUNT") equal to the
Fair Market Value of the parent's proportionate interest in the net worth
of such Subsidiary on such date calculated in accordance with GAAP.
Neither the Company nor any Restricted Subsidiary shall at any
time (x) provide credit support for or guarantee any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness); provided, that the Company may pledge Equity
Interests or Indebtedness of any Unrestricted Subsidiary on a nonrecourse basis
such that the pledgee has no claim whatsoever against the Company other than to
obtain such pledged property, (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary, except for any non-recourse guarantee given solely to support the
pledge by the Company of the capital stock of any Unrestricted Subsidiary. For
purposes of the foregoing, the Designation of a Subsidiary of the Company as an
Unrestricted Subsidiary shall be deemed to include the Designation of all of the
Subsidiaries of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "REVOCATION") only if:
(i) no Default or Event of Default shall have occurred
and be continuing at the time of and after giving effect to such
Revocation;
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
Incurred at such time, be permitted to be Incurred for all purposes of
this Indenture; and
(iii) any transaction (or series of related transactions)
between such Subsidiary and any of its Affiliates that occurred while
such Subsidiary was an Unrestricted Subsidiary would be permitted by
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Section 4.09 as if such transaction (or series of related transactions)
had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by
resolutions of the Board of Directors of the Company, delivered to the Trustee
certifying compliance with the foregoing provisions.
SECTION 4.13. CHANGE OF CONTROL.
(a) Following the occurrence of a Change of Control (the date
of such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall notify
the Holders of the Securities of such occurrence in the manner prescribed by
this Indenture and shall, within 60 days after the Change of Control Date, make
an Offer to Purchase all Securities then outstanding at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
(b) Prior to the mailing of the notice referred to below, but
in any event within 30 days following the date on which the Company becomes
aware that a Change of Control has occurred, the Company covenants that if the
purchase of the Securities would violate or constitute a default under any other
Indebtedness of the Company, then the Company shall, to the extent needed to
permit such purchase of Securities, either (i) repay all such Indebtedness and
terminate all commitments outstanding thereunder or (ii) obtain the requisite
consents, if any, under any such Indebtedness required to permit the purchase of
the Securities as provided below. The Company will first comply with the
covenant in the preceding sentence before it will be required to make the Change
of Control Offer or purchase the Securities pursuant to the provisions described
below.
(c) Within 30 days following the date on which the Company
becomes aware that a Change of Control has occurred (the "CHANGE OF CONTROL
DATE"), the Company shall send, by first class mail, postage prepaid, a notice
to each Holder of Securities, which notice shall govern the terms of the Change
of Control Offer. The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made
pursuant to this Section 4.15 and that all Securities validly tendered
and not withdrawn will be accepted for payment;
(2) the purchase price (including the amount of accrued
interest, if any) and the purchase date (which shall be no earlier than
30 days nor later than 45 days from the date such notice is mailed, other
than as may be required by law) (the "CHANGE OF CONTROL PAYMENT DATE");
(3) that any Security not tendered will continue to
accrue interest;
(4) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent and Registrar
for the Securities at the address specified in the notice prior to the
close of business on the Business Day prior to the Change of Control
Payment Date;
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(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than five Business Days
prior to the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Securities the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Security purchased;
(7) that Holders whose Securities are purchased only in
part will be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; PROVIDED, HOWEVER,
that each Security purchased and each new Security issued shall be in a
principal amount of $1,000 or integral multiples thereof; and
(8) the circumstances and relevant facts regarding such
Change of Control.
(d) On or before the Change of Control Payment Date, the
Company shall (i) accept for payment Securities or portions thereof (in integral
multiples of $1,000) validly tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal
Tender sufficient to pay the purchase price plus accrued and unpaid interest, if
any, of all Securities so tendered and (iii) deliver to the Trustee Securities
so accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. Upon receipt by the Paying
Agent of the monies specified in clause (ii) above and a copy of the Officers'
Certificate specified in clause (iii) above, the Paying Agent shall promptly
mail to the Holders of Securities so accepted payment in an amount equal to the
purchase price plus accrued and unpaid interest, if any, out of the funds
deposited with the Paying Agent in accordance with the preceding sentence. The
Trustee shall promptly authenticate and mail to such Holders new Securities
equal in principal amount to any unpurchased portion of the Securities
surrendered. Upon the payment of the purchase price for the Securities accepted
for purchase, the Trustee shall return the Securities purchased to the Company
for cancellation. Any monies remaining after the purchase of Securities
pursuant to a Change of Control Offer shall be returned within three Business
Days by the Trustee to the Company except with respect to monies owed as
obligations to the Trustee pursuant to Article Eight. For purposes of this
Section 4.15, the Trustee shall, except with respect to monies owed as
obligations to the Trustee pursuant to Article Eight, act as the Paying Agent.
(e) If the Company makes an Offer to Purchase, the Company
will comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and
any other applicable Federal or state securities laws and regulations and any
applicable requirements of any securities exchange on which the Securities are
listed, and any violation of the provisions of this Indenture relating to such
Offer to Purchase occurring as a result of such compliance shall not be deemed a
Default or an Event of Default.
SECTION 4.14. NOTICE OF DEFAULTS.
(a) In the event that any material Indebtedness of the Company
or any of its Subsidiaries is declared due and payable before its maturity
because of the occurrence of any default (or any event which, with notice or
lapse of time, or both, would constitute such a default) under such
Indebtedness, the Company shall promptly give written notice to the Trustee of
such declaration, the status of such default or event and what action the
Company is taking or proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default,
the Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
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SECTION 4.15. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee within 120 days after
the close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officer with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
failure of the Company to comply with any of its obligations under this
Indenture or any Default or Event of Default by the Company that occurred during
such fiscal year. If they do know of such a Default or Event of Default, their
status and the action the Company is taking or proposes to take with respect
thereto. The first certificate to be delivered by the Company pursuant to this
Section 4.15 shall be for the fiscal year ending July 31, 1998.
SECTION 4.16. CORPORATE EXISTENCE.
Subject to Article Five, the Company shall do or shall cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Subsidiary in accordance with the respective organizational documents of each
such Subsidiary and the rights (charter and statutory) and material franchises
of the Company and the Subsidiaries; PROVIDED, HOWEVER, that the Company shall
not be required to preserve any such right or franchise, or the corporate
existence of any Subsidiary, if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and the Subsidiaries, taken as a whole; PROVIDED,
FURTHER, HOWEVER, that a determination of the Board of Directors of the Company
shall not be required in the event of a merger of one or more Restricted
Subsidiaries of the Company with or into the Company or another Wholly-Owned
Restricted Subsidiary of the Company or another Person, if the surviving Person
is a Wholly-Owned Restricted Subsidiary of the Company organized under the laws
of the United States or a State thereof or of the District of Columbia. This
Section 4.16 shall not prohibit the Company from taking any other action
otherwise permitted by, and made in accordance with, another section of this
Indenture.
SECTION 4.17. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES,
INCORPORATOR, MANAGER AND SHAREHOLDERS.
No director, officer, employee, incorporator, manager or
shareholder of the Company or any of its Affiliates, as such, shall 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. Each Holder of Securities by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Securities. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. MERGERS, SALE OF ASSETS, ETC.
(a) The Company shall not consolidate with or merge with or
into any other Person and the Company shall not sell, convey, assign, transfer,
lease or otherwise dispose of all or substantially all of the
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Company's properties and assets to any entity in a single transaction or series
of related transactions, unless: (i) either (x) the Company shall be the
Surviving Person or (y) the Surviving Person (if other than the Company) shall
be a Person organized and validly existing under the laws of the United States
of America or any State thereof or the District of Columbia and shall, in any
such case, expressly assume by a supplemental indenture, the due and punctual
payment of the principal of, premium, if any, and interest on all the Securities
and the performance and observance of every covenant of this Indenture and the
Registration Rights Agreement to be performed or observed on the part of the
Company; and (ii) immediately thereafter on a pro forma basis, no Default or
Event of Default shall have occurred and be continuing.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all the properties and assets of one or
more Restricted Subsidiaries of the Company the Equity Interests of which
constitutes all or substantially all the properties and assets of the Company
shall be deemed to be the transfer of all or substantially all the properties
and assets of the Company.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
In the event of any transaction (other than a lease) described
in and complying with the conditions listed in Section 5.01 in which the Company
is not the surviving Person and the surviving Person is to assume all the
Obligations of the Company under the Securities and this Indenture, such
surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company shall be discharged from
its Obligations under this Indenture and the Securities.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following shall be an "EVENT OF DEFAULT" for
purposes of this Indenture:
(i) failure to pay principal of (or premium, if any, on)
any Security when due (whether or not prohibited by the provisions of
this Indenture described in Article Seven;
(ii) failure to pay any interest on any Security when due,
continued for 30 days or more (whether or not prohibited by the
provisions of this Indenture described in Article Seven;
(iii) default in the payment of principal of or interest on
any Security required to be purchased pursuant to any Offer to Purchase
required by this Indenture when due and payable or failure to pay if
required under this Indenture on the Purchase Date the purchase price for
any Security validly tendered pursuant to any Offer to Purchase (whether
or not prohibited by the provisions of this Indenture described in
Article Seven);
(iv) failure to perform or comply with any of the
provisions described in Section 5.01;
(v) failure to perform any other covenant, warranty or
agreement of the Company under this Indenture or in the Securities,
continued for 30 days or more after written notice to the Company by the
Trustee or Holders of at least 25% in aggregate principal amount of the
outstanding Securities;
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(vi) default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any
Significant Restricted Subsidiaries having an outstanding principal
amount of $15.0 million or more individually or in the aggregate that has
resulted in the acceleration of the payment of such Indebtedness or
failure by the Company or any Significant Restricted Subsidiary to pay
principal when due at the stated maturity of any such Indebtedness and
such default or defaults shall have continued after any applicable grace
period and shall not have been cured or waived;
(vii) the rendering of a final judgment or judgments (not
subject to appeal) against the Company or any Significant Restricted
Subsidiary in an amount of $15.0 million or more (net of any amounts
covered by reputable and creditworthy insurance companies) which remains
undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired;
(viii) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law: (i) commences a
voluntary case or proceeding under any Bankruptcy Law; (ii) consents to
the entry of an order for relief against it in an involuntary case or
proceeding under any Bankruptcy Law; (iii) consents or acquiesces in the
institution of a bankruptcy or insolvency proceeding against it;
(iv) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (v) makes a general assignment for
the benefit of its creditors, or any of them takes any action to
authorize or effect any of the foregoing; or
(ix) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against the
Company or any Significant Subsidiary of the Company in an involuntary
case or proceeding; (ii) appoints a Custodian of the Company or any
Significant Subsidiary of the Company for all or substantially all of its
property; or (iii) orders the liquidation of the Company or any
Significant Subsidiary of the Company; and in each case the order or
decree remains unstayed and in effect for 60 days; PROVIDED, HOWEVER,
that if the entry of such order or decree is appealed and dismissed on
appeal, then the Event of Default hereunder by reason of the entry of
such order or decree shall be deemed to have been cured.
The Trustee shall, within 30 days after the occurrence of any
Default or Event of Default with respect to the Securities outstanding, give the
Holders of the Securities thereof notice of all uncured Defaults or Events of
Default thereunder known to it; PROVIDED, HOWEVER, that, except in the case of a
Default or an Event of Default in payment with respect to the Securities or a
Default or Event of Default in complying with Section 5.01, the Trustee shall be
protected in withholding such notice if and so long as a committee of its trust
officers in good faith determines that the withholding of such notice is in the
interest of the Holders of the Securities.
No Holder of any Security will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default thereunder and unless the Holders of at least 25% of
the aggregate principal amount of the outstanding Securities shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding, and the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of such outstanding Securities a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Securities for enforcement of payment of the
principal of and premium, if any, or interest on such Security on or after the
respective due dates expressed in such Security.
The Company will be required to furnish to the Trustee annually
a statement as to the performance by the Company of certain of its obligations
under this Indenture and as to any material default in such performance.
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The term "BANKRUPTCY LAW" means Title 11, U.S. Code or any
similar Federal, state or foreign law for the relief of debtors. The term
"CUSTODIAN" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
SECTION 6.02. ACCELERATION.
If an Event of Default with respect to the Securities (other
than an Event of Default specified in clause (viii) or (ix) of Section 6.01)
occurs and is continuing and has not been waived pursuant to Section 6.04, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities, by notice in writing to the Company (and to the Trustee
if given by the Holders specifying the respective Event of Default and that it
is a "notice of acceleration" (an "ACCELERATION NOTICE")) may declare the unpaid
principal of (and premium, if any) and accrued interest to the date of
acceleration on all outstanding Securities to be due and payable immediately
and, upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in this Indenture or the
Securities to the contrary, shall become immediately due and payable.
If an Event of Default specified in clause (viii) or (ix) of
Section 6.01 occurs, all unpaid principal of and accrued interest on all
outstanding Securities shall IPSO FACTO become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
Any such declaration with respect to the Securities may be
rescinded and annulled by the Holders of a majority in aggregate principal
amount of the outstanding Securities by written notice to the Trustee if (i) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) all existing Events of Default have been cured or
waived except nonpayment of principal of or interest on the Securities that has
become due solely by such declaration of acceleration, (iii) to the extent the
payment of such interest is lawful, interest (at the same rate specified in the
Securities) on overdue installments of interest and overdue payments of
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of a
Default or Event of Default of the type described in Section 6.01(viii) and
(ix), the Trustee has received an Officers' Certificate and Opinion of Counsel
that such Default or Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity 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 Holder in exercising any right or
remedy maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
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SECTION 6.04. WAIVER OF PAST DEFAULT.
Subject to Sections 6.07 and 10.02, the Holders of not less
than a majority in aggregate principal amount of the outstanding Securities by
written notice to the Trustee may waive an existing Default or Event of Default
and its consequences, except a Default in the payment of principal of or
interest on any Security as specified in clauses (i) and (ii) of Section 6.01.
The Company shall deliver to the Trustee an Officers' Certificate stating that
the requisite percentage of Holders have consented to such waiver and attaching
copies of such consents. In case of any such waiver, the Company, the Trustee
and the Holders shall be restored to their former positions and rights hereunder
and under the Securities, respectively. This paragraph of this Section 6.04
shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section
316(a)(1)(B) of the TIA is hereby expressly excluded from this Indenture and
the Securities, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Subject to Section 2.09, the Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of another Holder, it being
understood that the Trustee shall have no duty (subject to Section 7.01) to
ascertain whether or not such actions or forebearances are unduly prejudicial to
such Holders, or that may involve the Trustee in personal liability; PROVIDED,
HOWEVER, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. In the event the Trustee takes
any action or follows any direction pursuant to this Indenture, the Trustee
shall be entitled to indemnification satisfactory to it in its sole discretion
against any loss or expense caused by taking such action or following such
direction. This Section 6.05 shall be in lieu of Section 316(a)(1)(A) of the
TIA, and such Section 316(a)(1)(A) of the TIA is hereby expressly excluded from
this Indenture and the Securities, as permitted by the TIA.
SECTION 6.06. LIMITATION ON SUITS.
A Holder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal
amount of the outstanding Securities make a written request to the
Trustee to pursue a remedy;
(iii) such Holder or Holders offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;
(iv) the Trustee does not comply with the request within
60 days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(v) during such 60-day period the Holders of a majority
in principal amount of the outstanding Securities do not give the Trustee
a direction which, in the opinion of the Trustee, is inconsistent with
the request.
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A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of or interest on a
Security, on or after the respective due dates expressed in the Security, 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 the Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest
specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with interest overdue on
principal and to the extent that payment of such interest is lawful, interest on
overdue installments of interest, in each case at the rate PER ANNUM borne by
the Securities and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. 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 (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 8.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of the Holders,
vote for the election of a trustee in bankruptcy or similar official and may be
a member of the creditors' committee.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 8.07;
Second: to Holders 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
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Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to the Holders pursuant to this
Section 6.10.
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 6.11 shall not apply to a suit by the Trustee,
a suit by a Holder or group of Holders of more than 10% in aggregate principal
amount of the outstanding Securities, or to any suit instituted by any Holder
for the enforcement or the payment of the principal or interest on any
Securities on or after the respective due dates expressed in the Security.
ARTICLE SEVEN
SUBORDINATION OF SECURITIES
SECTION 7.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Security
agrees, that the payment of the principal of, premium, if any, and interest on
such Security is subordinated in right of payment, to the extent and in the
manner provided in this Article Seven, to the prior payment in full in cash or
cash equivalents of all Senior Indebtedness.
SECTION 7.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY.
(a) Upon any payment or distribution of assets or securities
of the Company of any kind or character, whether in cash, property or
securities, upon any dissolution or winding up or total liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from funds deposited in accordance with, and held in trust for the benefit of
Holders as set forth in Section 9.02 (a "DEFEASANCE TRUST PAYMENT")), all
Senior Indebtedness then due shall first be paid in full in cash or cash
equivalents before the Holders of the Securities or the Trustee on behalf of
such Holders shall be entitled to receive any payment by the Company of the
principal of, premium, if any, or interest on the Securities, or any payment by
the Company to acquire any of the Securities for cash, property or securities,
or any distribution by the Company with respect to the Securities of any cash,
property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment).
(b) Before any payment may be made by, or on behalf of, the
Company of the principal of, premium, if any, or interest on the Securities upon
any such dissolution or winding up or total liquidation or reorganization,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash,
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property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment), to which the
Holders of the Securities or the Trustee on their behalf would be entitled, but
for the subordination provisions of this Indenture, shall be made by the Company
or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Senior Indebtedness (PRO RATA to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives or
to the trustee or trustees or agent or agents under any agreement or indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash or cash equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor, to or for the
holders of such Senior Indebtedness.
SECTION 7.03. DEFAULT ON SENIOR INDEBTEDNESS.
No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance
Trust Payment) by the Company of principal of, premium, if any, or interest
on the Securities, whether pursuant to the terms of the Securities, upon
acceleration, pursuant to an Offer to Purchase, as a payment into the
Defeasance Trust or otherwise, shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of any Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of
the holders of such Senior Indebtedness. In addition, during the continuance
of any non-payment event of default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such event of default
has been cured or waived or has ceased to exist or such Designated Senior
Indebtedness has been discharged or repaid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance
Trust Payment) will be made by the Company of principal of, premium, if any,
or interest on the Securities, whether pursuant to the terms of the
Securities, upon acceleration, pursuant to an Offer to Purchase or otherwise,
to such Holders, during a period (a "Payment Blockage Period") commencing on
the date of receipt of such notice by the Trustee and ending 179 days
thereafter. Notwithstanding anything in the subordination provisions of this
Indenture or the Securities to the contrary, (x) in no event will a Payment
Blockage Period extend beyond 179 days from the date the Payment Blockage
Notice in respect thereof was given, (y) there shall be a period of at least
181 consecutive days in each 360-day period when no Payment Blockage Period
is in effect and (z) not more than one Payment Blockage Period may be
commenced with respect to the Securities during any period of 360 consecutive
days. No event of default that existed or was continuing on the date of
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period (to the extent
the holder of Designated Senior Indebtedness, or trustee or agent, giving
notice commencing such Payment Blockage Period had knowledge of such existing
or continuing event of default) may be, or be made, the basis for the
commencement of any other Payment Blockage Period by the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
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SECTION 7.04. ACCELERATION OF PAYMENT OF SECURITIES.
If payment of the Securities is accelerated because of an Event
of Default, the Company shall promptly notify the holders or the Representative
(if any) of each issue of Designated Senior Indebtedness which is then
outstanding; PROVIDED, HOWEVER, that the Company and the Trustee shall be
obligated to notify such a Representative only if such Representative has
delivered or caused to be delivered an address for the service of such a notice
to the Company and the Trustee (and the Company and the Trustee shall only be
obligated to deliver the notice to the address so specified). If a notice is
required pursuant to the immediately preceding sentence, the Company may not pay
the Securities (except payment (i) in Qualified Equity Interests issued by the
Company to pay interest on the Securities or issued in exchange for the
Securities, (ii) in securities substantially identical to the Securities issued
by the Company in payment of interest accrued thereon or (iii) in securities
issued by the Company which are subordinated to the Senior Indebtedness at least
to the same extent as the Securities and have a Weighted Average Life to
Maturity at least equal to the remaining Weighted Average Life to Maturity of
the Securities, as long as the court, in approving any payment or distribution
or stock or securities of the type described in the preceding clauses (i)-(iii),
gives effect to the subordination provisions set forth in this Indenture), until
give Business Days after the respective Representative of the Designated Senior
Indebtedness receives notice (at the address specified in the preceding
sentence) of such acceleration and, thereafter, may pay the Securities only if
the provisions of this Article Seven otherwise permit payment at that time.
SECTION 7.05. WHEN DISTRIBUTION MUST BE PAID.
If a payment or distribution is made to the Trustee or to
Holders that because of this Article Seven should not have been made to them,
the Trustee (except as provided in Section 7.09) or the Holders who receive such
payment or distribution shall hold it in trust for holders of Senior
Indebtedness and promptly pay it over to them as their respective interests may
appear.
SECTION 7.06. SUBROGATION.
After all Senior Indebtedness is paid in full in cash or Cash
Equivalents, or other form acceptable to holders of Senior Indebtedness, and
until the Securities are paid in full, Holders shall be subrogated to the rights
of holders of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness. A payment or distribution made under this Article Seven to
holders of Senior Indebtedness which otherwise would have been made to Holders
is not, as between the Company and the Holders, a payment by the Company of
Senior Indebtedness.
SECTION 7.07. RELATIVE RIGHTS.
This Article Seven defines the relative rights of Holders of
the Securities on the one hand and holders of Senior Indebtedness on the other
hand. Nothing in this Indenture shall:
(1) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive payments or
distributions otherwise payable to Holders.
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SECTION 7.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by the failure of the Company to
comply with this Indenture.
SECTION 7.09. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding Section 7.03, the Trustee or Paying Agent may
continue to make payments on the Securities and shall not be charged with
knowledge of the existence of facts that would prohibit the making of any such
payments unless, not less than one Business Day prior to the date of such
payment, a Trust Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article Seven. The Company, the Registrar
or co-registrar, the Paying Agent, a Representative or a holder of Senior
Indebtedness may give the notice; PROVIDED, HOWEVER, that if an issue of Senior
Indebtedness has a Representative, only the Representative may give the notice.
Each Paying Agent shall have the same rights and obligations under this Article
Seven as does the Trustee.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
The Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article Seven with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article Seven shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article Seven shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 8.07.
SECTION 7.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a payment or distribution is to be made or a notice
given to holders of Senior Indebtedness, the payment or distribution may be made
and the notice given to their Representative (if any).
SECTION 7.11. ARTICLE SEVEN NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT
TO ACCELERATE.
The failure to make any payment or distribution on account of
the Securities by reason of any provision in this Article Seven will not
prevent, or be construed as preventing, the occurrence of a Default or Event of
Default. Nothing in this Article Seven shall have any effect on the right of
the Holders or the Trustee to accelerate the maturity of the Securities.
SECTION 7.12. TRUST MONEYS NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government Obligations held in trust
under Article Nine by the Trustee for the payment of principal of and interest
on the Securities shall not be subordinated to the prior payment of any Senior
Indebtedness or subject to the restrictions set forth in this Article Seven, and
none of the Holders shall be obligated to pay over any such amount to the
Company, any holder of Senior Indebtedness of the Company, or any other creditor
of the Company.
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SECTION 7.13. TRUSTEE ENTITLED TO RELY.
Upon any payment or distribution pursuant to this Article
Seven, the Trustee and the Holders shall be entitled to rely (i) upon any order
or decree of a court of competent jurisdiction in which any proceedings of the
nature referred to in Section 7.02 are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Holders or (iii) upon the Representatives for the
holders of Senior Indebtedness for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Seven. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness to participate in any payment
or distribution pursuant to this Article Seven, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article Seven, and, if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment or distribution. The Trustee shall have the right to seek a declaratory
judgment as to any right of such Person to receive such payment or distribution.
The provisions of Sections 8.01 and 8.02 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article Seven.
SECTION 7.14. TRUSTEE TO EFFECTUATE SUBORDINATION
Each Holder by accepting a Security authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Holder and the holders
of Senior Indebtedness as provided in this Article Seven and appoints the
Trustee as attorney-in-fact for any and all such purposes.
SECTION 7.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and, subject to the first sentence of
Section 7.09, shall not be liable to any such holders if it shall mistakenly pay
over or distribute to Holders or the Company, or any other Person, money or
assets to which any holders of Senior Indebtedness shall be entitled by virtue
of this Article Seven or otherwise.
SECTION 7.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION
PROVISIONS.
Each Holder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Indebtedness.
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ARTICLE EIGHT
TRUSTEE
SECTION 8.01. DUTIES OF TRUSTEE.
(a) If a Default has occurred and is continuing, the Trustee
shall exercise such of the rights, as well as the obligations of the Guarantors
under their respective Subsidiary Guarantees, 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
its own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the
performance of such duties as are specifically set forth herein; 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 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 such certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee shall not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section 8.01;
(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 6.05.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of such
funds is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
8.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
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SECTION 8.02. RIGHTS OF TRUSTEE.
Subject to Section 8.01:
(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 and/or an Opinion of Counsel, which
shall conform to the provisions of Section 11.05. The Trustee shall not
be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence
of any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care and appointed with the consent of the
Company.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) Before the Trustee acts or refrains from acting, it may
consult with counsel and the advice or opinion of such counsel as to
matters of law shall be full and complete authorization and protection
from liability in respect of any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of
such counsel.
(f) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and
any resolution of the Board of Directors may be sufficiently evidenced by
a Board Resolution.
(g) 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.
(h) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any
Event of Default unless a Trust Officer of the Trustee has actual
knowledge thereof or unless the Trustee shall have received written
notice thereof at the Corporate Trust Office of the Trustee, and such
notice references the Securities and this Indenture.
(j) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties hereunder.
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(k) The permissive rights of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable for other than its gross negligence or
willful misconduct.
SECTION 8.03. 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
their Affiliates with the same rights it would have if it were not Trustee,
subject to Section 8.10 hereof. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 8.10 and 8.11.
SECTION 8.04. 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 any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 8.05. NOTICE OF DEFAULTS.
If a Default or an Event of Default occurs and is continuing
and the Trustee has actual knowledge of such Defaults or Events of Default, the
Trustee shall mail to each Holder notice of the Default or Event of Default
within 30 days after the occurrence thereof. Except in the case of a Default or
an Event of Default in payment of principal of or interest on any Security
including an accelerated payment and the failure to make payment on the Change
of Control Payment Date pursuant to a Change of Control Offer or a Default or
Event of Default in complying with Section 5.01, 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 interest of Holders. This
Section 8.05 shall be in lieu of the proviso to Section 315(b) of the TIA and
such proviso to Section 315(b) of the TIA is hereby expressly excluded from
this Indenture and the Securities, as permitted by the TIA.
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS.
If required by TIA Section 313(a), as amended, within 60 days
after each April 1 beginning with April 1, 1998, the Trustee shall mail to each
Holder a report dated as of such April 1 that complies with TIA Section 313(a).
The Trustee also shall comply with TIA Section 313(b), (c) and (d).
A copy of each such report at the time of its mailing to
Holders shall be filed with the SEC and each stock exchange, if any, on which
the Securities are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 8.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time, and the
Trustee shall be entitled to, such compensation as the Company and the Trustee
shall from time to time agree in writing for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The
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Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances, including all costs and expenses of
collection (including reasonable fees, disbursements and expenses of its agents
and outside counsel) incurred or made by it in addition to the compensation for
its services except any such disbursements, expenses and advances as may be
attributable to the Trustee's negligence or willful misconduct. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents, accountants, experts and outside counsel.
The Company shall indemnify the Trustee for, and hold it
harmless against any and all loss, damage, claims, liability or expense,
including taxes (other than franchise taxes imposed on the Trustee and taxes
based upon, measured by or determined by the income of the Trustee), arising out
of or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent that
such loss, damage, claim, liability or expense is due to its own negligence or
willful misconduct. The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. However, the
failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder unless the Company has been prejudiced thereby. The
Company shall defend the claim and the Trustee shall cooperate in the defense at
the Company's expense, PROVIDED that the Company shall not be liable in any
action or for which it has assumed the defense for the expenses of separate
counsel to the Trustee unless (1) the employment of separate counsel has been
authorized by the Company, (2) the Trustee has reasonably concluded (based upon
advice of counsel to the Trustee) that there may be legal defenses available to
the Trustee that are different from or in addition to those available to the
Company or (3) a conflict or potential conflict exists (based upon advice of
counsel to the Trustee) between the Trustee and the Company, and PROVIDED,
FURTHER, that in any such event the Company's reimbursement obligation with
respect to separate counsel of the Trustee will be limited to the reasonable
fees and expenses of such counsel.
The Company need not pay for any settlement made without its
written consent, which consent shall not be unreasonably withheld. The Company
need not reimburse any expense or indemnify against any loss or liability
incurred by the Trustee as a result of its own negligence or willful misconduct.
To secure the Company's payment obligations in this Section
8.07, the Trustee shall have a Lien prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee, except
money or property held in trust to pay principal of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(viii) or (ix) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under
this Section 8.07 and any claim arising hereunder shall survive the resignation
or removal of any Trustee, the discharge of the Company's obligations pursuant
to Article Eight and any rejection or termination under any Bankruptcy Law.
SECTION 8.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Company
in writing at least 10 days in advance. The Holders of a majority in principal
amount of the outstanding Securities may remove the Trustee by so notifying the
Trustee and the Company in writing and may appoint a successor Trustee with the
Company's consent. The Company may remove the Trustee if:
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(a) the Trustee fails to comply with Section 8.10;
(b) the Trustee is adjudged bankrupt or insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 8.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 8.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 8.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 8.08, the Company's obligations under Section 8.07 shall continue for
the benefit of the retiring Trustee.
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business (including
the trust created by this Indenture) to, another corporation or banking
corporation, the resulting, surviving or transferee corporation or banking
corporation without any further act shall be the successor Trustee; PROVIDED,
HOWEVER, that such corporation shall be otherwise qualified and eligible under
this Article Eight.
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee which shall be
eligible to act as Trustee under TIA Sections 310(a)(1) and 310(a)(2). The
Trustee (or, in the case of a Trustee that is an Affiliate of a bank holding
company, its bank holding company) 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. If the Trustee has or shall acquire any "conflicting interest"
within the meaning of TIA Section 310(b), the Trustee and the Company shall
comply with the provisions of TIA
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Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA Section 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 Section 310(b)(1) are met. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 8.10, the
Trustee shall resign immediately in the manner and with the effect hereinbefore
specified in this Article Eight. The provisions of TIA Section 310 shall apply
to the Company and any other obligor of the Securities.
SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. TERMINATION OF THE COMPANY'S OBLIGATIONS.
The Company may terminate its obligations under the Securities
and this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 9.01, if:
(i) either (a) all the Securities theretofore
authenticated and delivered (except lost, stolen or destroyed Securities
which have been replaced or paid and Securities for whose payment money
has theretofore been deposited in trust or segregated and held in trust
by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or
(b) all Securities not theretofore delivered to the Trustee for
cancellation have become due and payable or have been called for
redemption and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Securities not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if
any, and interest on the Securities to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case
may be;
(ii) the Company has paid all other sums payable under
this Indenture by the Company; and
(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions
precedent under this Indenture relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the first paragraph of this Section 9.01, the
Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 8.07, 8.08, 9.05
and 9.06 shall survive until the Securities are no longer outstanding. After
the Securities are no longer outstanding, the Company's obligations in Sections
8.07, 8.08, 9.05 and 9.06 shall survive.
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After such delivery or irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the Company's and
Guarantors' obligations under the Securities, the Subsidiary Guarantees and this
Indenture except for those surviving obligations specified above.
SECTION 9.02. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
(a) The Company may at its option terminate its obligations in
respect of the Securities by delivering all outstanding Securities to the
Trustee for cancellation and paying all sums payable by it on account of
principal of and interest on all Securities or otherwise. In addition to the
foregoing, the Company may, at its option, at any time elect to have either
paragraph (b) or (c) below be applied to all outstanding Securities, subject in
either case to compliance with the conditions set forth in Section 9.03.
(b) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be deemed to have paid
and discharged the entire indebtedness represented by the outstanding
Securities, except for (i) the rights of Holders to receive payments in respect
of the principal of, premium, if any, and interest on the Securities when such
payments are due, (ii) the Company's obligations with respect to the Securities
concerning issuing temporary Securities, registration of Securities, mutilated,
destroyed, lost or stolen Securities and the maintenance of an office or agency
for payments, (iii) the rights, powers, trust, duties and immunities of the
Trustee under this Indenture and the Company's obligations in connection
therewith and (iv) Article Nine of this Indenture (hereinafter, "LEGAL
DEFEASANCE"). Subject to compliance with this Article Nine, the Company may
exercise its option under this paragraph (b) notwithstanding the prior exercise
of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be released from its
obligations under the covenants contained in Sections 4.03 through 4.13,
inclusive, and Article Five with respect to the outstanding Securities
(hereinafter, "COVENANT DEFEASANCE") and thereafter any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Securities. In addition, upon the Company's exercise under
paragraph (a) hereof of the option applicable to this paragraph (c), subject to
the satisfaction of the conditions set forth in Section 9.03, any failure or
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Securities.
SECTION 9.03. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
In order to exercise either Legal Defeasance pursuant to
Section 9.02(b) or Covenant Defeasance pursuant to Section 9.02(c):
(a) the Company must irrevocably deposit or cause to be
deposited with the Trustee, in trust, for the benefit of the Holders,
cash in U.S. legal tender or United States Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants, to pay the principal of premium, if any, and interest on the
Securities on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(b) in the case of an election under 9.02(b), the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee or confirming that the
Holders of Securities will not recognize income, gain or loss for federal
income tax purposes as a result
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of such Legal 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 Legal Defeasance had not occurred;
(c) in the case of an election under Section 9.02(c), the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A)
the Company has received from, or there has been published by, the
Internal Revenue Service, a ruling or (B) since the Issue Date, 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 Holders of the Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
from bankruptcy or insolvency events are concerned at any time in the
period ending on the 91st day after the date of the deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit);
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of or constitute a Default under this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Officer's Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or
the Covenant Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that (A) the trust funds will not be subject to
any rights of holders of Senior Indebtedness, including without
limitation those arising under this Indenture and (B) assuming no
intervening bankruptcy or insolvency of the Company between the date of
deposit and the 91st day following the deposit and that no Holder is an
insider of the Company, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (b) above need not be delivered if all Securities not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable on the Final Maturity Date within one year or (z)
are to be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company.
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SECTION 9.04. APPLICATION OF TRUST MONEY; TRUSTEE ACKNOWLEDGMENT AND
INDEMNITY.
The Trustee shall hold in trust money or United States
Government Obligations deposited with it pursuant to this Article nine, and
shall apply the deposited money and the money from United States Government
Obligations in accordance with this Indenture solely to the payment of principal
of and interest on the Securities.
After such delivery or irrevocable deposit and delivery of any
Officers' Certificate or Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations specified
above.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the United States
Government Obligations deposited pursuant to this Article Nine or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Securities.
SECTION 9.05. REPAYMENT TO COMPANY.
Subject to Sections 8.07 and 9.04, the Trustee and the Paying
Agent shall promptly pay to the Company upon written request any excess money
held by them at any time. The Trustee and the Paying Agent shall promptly pay
to the Company request any money held by it for the payment of principal or
interest that remains unclaimed for one year; PROVIDED, HOWEVER, that the
Trustee or such Paying Agent before being required to make any payment may at
the expense of the Company cause to be published once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money notice that such money remains unclaimed and that, after a date specified
therein which shall be at least 30 days from the date of such publication or
mailing, any unclaimed balance of such money then remaining shall be repaid to
the Company. After payment to the Company, Holders entitled to money must look
solely to the Company for payment as general creditors unless an applicable
abandoned property law designates another person and all liability of the
Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 9.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or
United States Government Obligations 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 Section 9.03 until such
time as the Trustee or Paying Agent is permitted to apply all such money or
United States Government Obligations in accordance with Section 9.03; PROVIDED,
HOWEVER, that if the Company has made any payment of interest on or principal of
any Securities because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money or United States Government Obligations held by the
Trustee or Paying Agent.
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ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Guarantors, if any, when authorized by a
resolution of the Board of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency; PROVIDED,
HOWEVER, that such amendment or supplement does not adversely affect the
rights of any Holder in any material respect;
(b) to effect the assumption by a successor Person of all
obligations of the Company under the Securities and this Indenture in
connection with any transaction complying with Article Five of this
Indenture;
(c) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(d) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(e) to make any change that would provide any additional
benefit or rights to the Holders;
(f) to make any other change that does not adversely affect
the rights of any Holder in any material respect under this Indenture;
(g) 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; or
(h) to add a Guarantor in accordance with Section 4.11 or
otherwise;
PROVIDED, HOWEVER, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07, the Company and the Guarantors, if
any, when authorized by a Board Resolution, and the Trustee may modify, amend or
supplement, or waive compliance by the Company with any provision of, this
Indenture or the Securities with the written consent of the Holders of at least
a majority in principal amount of the outstanding Securities. However, without
the consent of each Holder affected, no such modification, amendment, supplement
or waiver, including a waiver pursuant to Section 6.04, may:
(a) change the maturity of the principal of or any installment
of interest on any such Security or alter the optional redemption or
repurchase provisions of any such Security or this Indenture in a manner
adverse to the Holders of the Securities;
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(b) reduce the principal amount of (or the premium of) any
such Security;
(c) reduce the rate of or extend the time for payment of
interest on any such Security;
(d) change the place or currency of payment of principal of
(or premium) or interest on any such Security;
(e) modify any provisions of this Indenture relating to the
waiver of past defaults (other than to add sections of this Indenture or
the Securities subject thereto) or the right of the Holders of Securities
to institute suit for the enforcement of any payment on or with respect
to any such Security or Guarantee or the modification and amendment
provisions of this Indenture and the Securities (other than to add
sections of this Indenture or the Securities which may not be modified,
amended, supplemented or waived without the consent of each Holder
affected);
(f) reduce the percentage of the principal amount of
outstanding Securities necessary for amendment to or waiver of compliance
with any provision of this Indenture or the Securities or for waiver of
any Default in respect thereof;
(g) waive a default in the payment of principal of, interest
on, or redemption payment with respect to, the Securities (except a
rescission of acceleration of the Securities by the Holders thereof as
provided in this Indenture and a waiver of the payment default that
resulted from such acceleration);
(h) modify the ranking or priority of any Security in respect
thereof in any manner adverse to the Holders or modify the definition of
Senior Indebtedness or amend or modify the subordination provisions of
this Indenture in any manner adverse to the Holders of the Securities; or
(i) modify the provisions of any covenant (or the related
definitions) in this Indenture requiring the Company to make an Offer to
Purchase in a manner materially adverse to the Holders of Securities
affected thereby otherwise than in accordance with this Indenture.
It shall not be necessary for the consent of the Holders under
this Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
10.02 becomes effective, the Company shall mail to the Holders affected thereby
a notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 10.04. RECORD DATE FOR CONSENTS AND EFFECT OF CONSENTS.
Until an amendment, supplement or, waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evi-
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dences the same debt as the consenting Holder's Security, even if notation of
the consent is not made on any Security. Subject to the following paragraph,
any such Holder or subsequent Holder may revoke the consent as to such Holder's
Security or portion of a Security by notice to the Trustee or the Company
received before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver (at which time such amendment, supplement or waiver shall
become effective).
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders of Securities entitled to
consent to any amendment, supplement or waiver. If a record date is fixed, then
those persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 120 days
after such record date. The Trustee is entitled to rely upon any electronic
instruction from beneficial owners to the Holders of any Global Security.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(a) through (i) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 10.05. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver 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
about 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 issue a new Security
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to customary exceptions). The
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this Indenture
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modifies any TIA provision that may be so modified, such TIA provision shall be
deemed to apply to this Indenture as so modified. If any provision of this
Indenture excludes any TIA provision that may be so excluded, such TIA provision
shall be excluded from this Indenture.
The provisions of TIA Sections 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 11.02. NOTICES.
Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:
if to the Company:
MTS, INCORPORATED
2500 Del Monte Street, Bldg. C
West Sacramento, CA 95691
Attention: DeVaughn D. Searson
Facsimile: (916) 373-2471
Telephone: (916) 373-2500
if to the Trustee:
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, CA 90071
Attention: Corporate Trust Department
Facsimile: (213) 362-7357
Telephone: (213) 362-7300
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, first-class, postage
prepaid, to a Holder including any notice delivered in connection with TIA
Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b),
shall be mailed to him at his address as set forth on the register of Secutities
kept by the Registrar and shall be sufficiently given to him if so mailed within
the time prescribed. To the extent required by the TIA, any notice or
communication shall also be mailed to any Person described in TIA Section
313(c).
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
Except for a notice to the Trustee, which is deemed given only when received, if
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
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SECTION 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take or refrain from taking any action under this Indenture, the Company
shall furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance
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 satisfactory
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with; PROVIDED, HOWEVER, that
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE.
Each certificate with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate 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 contained in such
certificate are based;
(3) a statement that, in the opinion of such person, such
person has made such examination or investigation as is necessary to
enable such person to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 11.07. GOVERNING LAW.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE,
THE SECURITIES AND THE SUBSIDIARY GUARANTEES WITHOUT REGARD TO PRINCIPLES OF
CON-
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FLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.08. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of
the Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Securities or the
Subsidiary Guarantees, as the case may be, or this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 11.09. SUCCESSORS.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of each Guarantor in this
Indenture shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 11.10. COUNTERPART 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.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture, in the Securities or
in the Subsidiary Guarantees 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, and a Holder shall have no claim
therefor against any party hereto.
SECTION 11.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or a Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.13. LEGAL HOLIDAYS.
If a payment date is not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day.
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ARTICLE TWELVE
GUARANTEE
SECTION 12.01. UNCONDITIONAL GUARANTEE.
Subject to the provisions of Article Thirteen, each Person who
becomes a Guarantor pursuant to Section 4.13 of this Indenture shall hereby
fully and unconditionally, jointly and severally, guarantee (each, a
"GUARANTEE") to each Holder of a Security authenticated by the Trustee and to
the Trustee and its successors and assigns that the principal of and interest on
the Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise, and interest on
the overdue principal and interest on any overdue interest on the Securities and
all other obligations of the Company to the Holders or the Trustee hereunder or
under the Securities will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; subject, however, to the
limitations set forth in Section 13.04. Each Guarantor hereby agrees that its
obligations hereunder shall be full and unconditional, irrespective of the
validity, regularity or enforceability of the Securities or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Securities with respect to any provisions hereof or thereof, the recovery
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture, and this Guarantee. If
any Holder or the Trustee is required by any court or otherwise to return to the
Company, any Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Company or any Guarantor, any amount paid by
the Company or any Guarantor to the Trustee or such Holder, this Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between each Guarantor, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six for
the purpose of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Six, such obligations (whether or not due and payable)
shall forth become due and payable by each Guarantor for the purpose of this
Guarantee.
SECTION 12.02. SEVERABILITY.
In case any provision of this Guarantee shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.03. RELEASE OF A GUARANTOR.
If the Securities are defeased in accordance with the terms of
this Indenture, or if a Guarantor becomes an Unrestricted Subsidiary or if all
or substantially all of the assets of any Guarantor or a majority of the equity
interests of any Guarantor are sold (including by issuance or otherwise) or
transferred by the Company in a transaction constituting an Asset Sale and (x)
the Net Cash Proceeds from such Asset Sale are used in accordance with Section
4.08 or (y) the Company delivers to the Trustee an Officers' Certificate to the
effect that the Net Cash Proceeds from such Asset Sale shall be used in
accordance with Section 4.08 and within the time limits specified by Section
4.08, then each Guarantor (in the case of defeasance) or such Guarantor (in the
event
<PAGE>
-71-
of a sale or other disposition of a majority of the Equity Interests of such
Guarantor) or the corporation acquiring such assets (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be released and discharged from all obligations under this Article Twelve
without any further action required on the part of the Trustee or any Holder.
The Trustee shall, at the sole cost and expense of the Company and upon receipt
at the reasonable request of the Trustee of an Opinion of Counsel that the
provisions of this Section 12.03 have been complied with, deliver an appropriate
instrument evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 12.03. Any Guarantor not so released remains liable for the full
amount of principal of and interest on the Securities and the other obligations
of the Company hereunder as provided in this Article Twelve.
SECTION 12.04. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor, and by its acceptance hereof each Holder and
the Trustee, hereby confirms that it is the intention of all such parties that
the guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of title 11 of the United States
Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar U.S. Federal or state or other applicable law. To
effectuate the foregoing intention, the Holders and each Guarantor hereby
irrevocably agree that the obligations of each Guarantor under its Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 12.05, result in the obligations of such Guarantor under its
Guarantee not constituting such a fraudulent transfer or conveyance.
SECTION 12.05. CONTRIBUTION.
In order to provide for just and equitable contribution among
the Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "FUNDING GUARANTOR") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a PRO RATA amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 12.04, for all payments, damages and expenses incurred by such
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Guarantor's obligations with respect to the Guarantee.
SECTION 12.06. SUBORDINATION OF SUBROGATION AND OTHER RIGHTS.
Each Guarantor hereby agrees that any claim against the Company
that arises from the payment, performance or enforcement of such Guarantor's
obligations under its Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Securities in accordance
with the provisions provided therefor in this Indenture.
<PAGE>
-72-
ARTICLE THIRTEEN
SUBORDINATION OF GUARANTEE
SECTION 13.01. AGREEMENT TO SUBORDINATE.
Each Guarantor agrees, and each Holder by accepting a Security
agrees, that the Indebtedness evidenced by the Securities and other Obligations
with respect to the Securities (including the Subsidiary Guarantee) are
subordinated in right of payment, to the extent and in the manner provided in
this Article Thirteen, to the payment when due of all Guarantor Senior
Indebtedness of such Guarantor and that such subordination is for the benefit of
and enforceable by the holders of Guarantor Senior Indebtedness. The Subsidiary
Guarantees shall in all respects rank PARI PASSU with all other Guarantor Senior
Subordinated Indebtedness of a Guarantor, and only Indebtedness of a Guarantor
which is Guarantor Senior Indebtedness will rank senior to the Securities and
the Subsidiary Guarantees in accordance with the provisions set forth herein.
All provisions of this Article Thirteen shall be subject to Section 13.12.
SECTION 13.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY.
Upon any payment or distribution of the assets of a Guarantor
upon a total or partial liquidation or dissolution or reorganization or
bankruptcy of or similar proceeding relating to a Guarantor or its property:
(1) holders of Guarantor Senior Indebtedness of such
Guarantor shall be entitled to receive payment in full in cash or cash
equivalents of all Guarantor Senior Indebtedness of such Guarantor before
Holders shall be entitled to receive any payment of principal of or
interest on or other Obligations with respect to the Securities; and
(2) until the Guarantor Senior Indebtedness of such
Guarantor is paid in full in cash or cash equivalents, or other form
acceptable to holders of Guarantor Senior Indebtedness, any payment or
distribution to which Holders would be entitled but for the provisions of
this Article Thirteen shall be made to holders of Guarantor Senior
Indebtedness as their interests may appear.
SECTION 13.03. DEFAULT ON GUARANTOR SENIOR INDEBTEDNESS.
No Guarantor may pay the principal of, premium (if any), or
interest on, and other Obligations with respect to, the Securities or the
Subsidiary Guarantees or make any deposit pursuant to Section 9.01 or
repurchase, redeem or otherwise retire any Securities or the Subsidiary
Guarantees (collectively, "PAY THE SECURITIES") if (i) any Guarantor Senior
Indebtedness is not paid in cash or cash equivalents when due or (ii) any other
default on Guarantor Senior Indebtedness occurs and the maturity of such
Guarantor Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, (x) the default has been cured or waived or is no longer
continuing and/or and any such acceleration has been rescinded or (y) such
Guarantor Senior Indebtedness has been paid in full in cash or cash equivalents,
or other form acceptable to holders of Guarantor Senior Indebtedness; PROVIDED,
HOWEVER, that the Guarantor may pay the Securities but subject to the provisions
of the first sentence of this Section 13.03 and the provisions of Section 13.02,
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representatives of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of this sentence has occurred or is continuing. During the continuance
of any default (other than a default described in clause (i)
<PAGE>
-73-
or (ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, a
Guarantor may not pay the Securities (except (i) in Qualified Equity Interest
issued by such Guarantor to pay interest on the Securities or issued in exchange
for its Subsidiary Guarantee, (ii) in securities substantially identical to its
Subsidiary Guarantee issued by such Guarantor in payment of interest accrued
thereon or (iii) in securities issued by such Guarantor which are subordinated
to the Guarantor Senior Indebtedness at least to the same extent as its
Subsidiary Guarantee and having a Weighted Average Life to Maturity at least
equal to the remaining Weighted Average Life to Maturity of the Securities, as
long as the court, in approving any payment or distribution or stock or
securities of the type described in the preceding clauses (i)-(iii), gives
effect to the subordination provisions set for in this Indenture) for a period
(a "GUARANTOR PAYMENT BLOCKAGE PERIOD") commencing upon the receipt by the
Trustee (with a copy to the Company) of written notice (a "GUARANTOR BLOCKAGE
NOTICE") of such default from the Representative of the holders of such
Designated Senior Indebtedness specifying an election to effect a Guarantor
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Guarantor Payment Blockage Period is terminated (i) by written notice to the
Trustee and the Company from the Person or Persons who gave such Guarantor
Blockage Notice, (ii) because the default giving rise to such Guarantor Blockage
Notice is no longer continuing or (iii) because such Designated Senior
Indebtedness has been repaid in full.) Notwithstanding the provisions of the
immediately preceding sentence, but subject to the provisions of the first
sentence of this Section 13.03 and the provisions of Section 13.02, the
Guarantor may resume payments on the Securities after the end of such Payment
Blockage Period. Not more than one Blockage Notice may be given, and not more
than one Payment Blockage Period may occur, in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
SECTION 13.04. ACCELERATION OF PAYMENT OF SECURITIES.
If a notice is required pursuant to the first sentence of
Section 7.04, no Guarantor may pay the Securities (except payment (i) in
Qualified Equity Interest issued by the Guarantor to pay interest on the
Securities or issued in exchange for its Subsidiary Guarantee, (ii) in
securities substantially identical to the Subsidiary Guarantee issued by the
Guarantor in payment of interest accrued thereon or (iii) in securities issued
by the Guarantor which are subordinated to the Guarantor Senior Indebtedness at
least to the same extent as the Subsidiary Guarantee and have a Weighted Average
Life to Maturity at least equal to the remaining Weighted Average Life to
Maturity of the Securities, as long as the court, in approving any payment or
distribution or stock or securities of the type described in the preceding
clauses (i)-(iii), gives effect to the subordination provisions set forth in
this Indenture), until five Business Days after the respective Representative of
the Designated Senior Indebtedness receives notice (at the address specified in
the preceding sentence) of such acceleration and, thereafter, may pay the
Securities only if the provisions of this Article Thirteen otherwise permit
payment at that time.
SECTION 13.05. WHEN DISTRIBUTION MUST BE PAID OVER.
If a payment or distribution is made to the Trustee or to
Holders that because of this Article Thirteen should not have been made to them,
the Trustee (except as provided in Section 13.09) or the Holders who receive
such payment or distribution shall hold it in trust for holders of Guarantor
Senior Indebtedness and promptly pay it over to them as their respective
interests may appear.
<PAGE>
-74-
SECTION 13.06. SUBROGATION.
After all Guarantor Senior Indebtedness is paid in full in cash
or Cash Equivalents, or other form acceptable to holders of Senior Indebtedness,
and until the Securities are paid in full, Holders shall be subrogated to the
rights of holders of Guarantor Senior Indebtedness to receive distributions
applicable to Guarantor Senior Indebtedness. A distribution made under this
Article Thirteen to holders of Guarantor Senior Indebtedness which otherwise
would have been made to Holders is not, as between the Guarantor and the
Holders, a payment by any Guarantor of Guarantor Senior Indebtedness.
SECTION 13.07. RELATIVE RIGHTS.
This Article Thirteen defines the relative rights of Holders of
the Securities on the one hand and holders of Guarantor Senior Indebtedness on
the other hand. Nothing in this Indenture shall:
(1) impair, as between the Guarantor and the Holders, the
obligation of any Guarantor, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Guarantor Senior Indebtedness to receive payments or
distributions otherwise payable to Holders.
SECTION 13.08. SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTOR.
No right of any holder of Guarantor Senior Indebtedness to
enforce the subordination of the Indebtedness evidenced by the Securities or the
Subsidiary Guarantees shall be impaired by any act or failure to act by any
Guarantor or by the failure of any Guarantor to comply with this Indenture.
SECTION 13.09. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding Section 13.03, the Trustee or Paying Agent may
continue to make payments on the Securities and shall not be charged with
knowledge of the existence of facts that would prohibit the making of any such
payments unless, not less than one Business Day prior to the date of such
payment, a Trust Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article Twelve. A Guarantor, the Registrar
or co-registrar, the Paying Agent, a Representative or a holder of Guarantor
Senior Indebtedness may give the notice; PROVIDED, HOWEVER, that if an issue of
Guarantor Senior Indebtedness has a Representative, only the Representative may
give the notice. Each Paying Agent shall have the same rights and obligations
under this Article Thirteen as does the Trustee.
The Trustee in its individual or any other capacity may hold
Guarantor Senior Indebtedness with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article Thirteen with respect to any Guarantor Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of
Guarantor Senior Indebtedness; and nothing in Article Thirteen shall deprive the
Trustee of any of its rights as such holder. Nothing in this Article Thirteen
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 8.07.
<PAGE>
-75-
SECTION 13.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a payment or distribution is to be made or a notice
given to holders of Guarantor Senior Indebtedness, the payment or distribution
may be made and the notice given to their Representative (if any).
SECTION 13.11. ARTICLE THIRTEEN NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE.
The failure to make a payment in respect of the Securities by
reason of any provision in this Article Thirteen shall not be construed as
preventing the occurrence of a Default or Event of Default. Nothing in this
Article Thirteen shall have any effect on the right of the Holders or the
Trustee to accelerate the maturity of the Securities.
SECTION 13.12. TRUST MONEYS NOT SUBORDINATE.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government Obligations held in trust
under Article Nine by the Trustee for the payment of principal of and interest
on the Securities shall not be subordinated to the prior payment of any
Guarantor Senior Indebtedness or subject to the restrictions set forth in this
Article Thirteen, and none of the Holders shall be obligated to pay over any
such amount to such Guarantor, any holder of Guarantor Senior Indebtedness of
such Guarantor, or any other creditor of such Guarantor.
SECTION 13.13. TRUSTEE ENTITLED TO RELY.
Upon any payment or distribution pursuant to this Article
Thirteen, the Trustee and the Holders shall be entitled to rely (i) upon any
order or decree of a court of competent jurisdiction in which any proceedings of
the nature referred to in Section 13.02 are pending, (ii) upon a certificate of
the liquidating trustee or agent or other Person making such payment or
distribution to the Trustee or to the Holders or (iii) upon the Representatives
for the holders of Guarantor Senior Indebtedness for the purpose of ascertaining
the Persons entitled to participate in such payment or distribution, the holders
of Guarantor Senior Indebtedness and other Indebtedness of any Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Thirteen. In
the event that the Trustee determines, in good faith, that evidence is required
with respect to the right of any Person as a holder of Guarantor Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article Thirteen, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Guarantor Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and other facts pertinent to the
rights of such Person under this Article Thirteen, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment or
distribution. The Trustee shall have the right to seek a declaratory judgment
as to any right of such Person to receive such payment or distribution. The
provisions of Sections 8.01 and 8.02 shall be applicable to all actions or
omissions of actions by the Trustee pursuant to this Article Thirteen.
SECTION 13.14. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder by accepting a Security authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the
<PAGE>
-76-
Holder and the holders of Guarantor Senior Indebtedness as provided in this
Article Thirteen and appoints the Trustee as attorney-in-fact for any and all
such purposes.
SECTION 13.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF GUARANTOR SENIOR
INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Guarantor Senior Indebtedness and, subject to the first sentence
of Section 13.09, shall not be liable to any such holders if it shall mistakenly
pay over or distribute to Holders or the Guarantor, or any other Person, money
or assets to which any holders of Guarantor Senior Indebtedness shall be
entitled by virtue of this Article Thirteen or otherwise.
SECTION 13.16. RELIANCE BY HOLDERS OF GUARANTOR SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS.
Each Holder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Guarantor Senior
Indebtedness, whether such Guarantor Senior Indebtedness was created or acquired
before or after the issuance of the Securities, to acquire and continue to hold,
or to continue to hold, such Guarantor Senior Indebtedness and such holder of
Guarantor Senior Indebtedness shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Guarantor Senior Indebtedness.
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
MTS, INCORPORATED
By: /s/ DeVaughn D. Searson
-----------------------------
Name: DeVaughn D. Searson
Title: CFO
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
By: /s/ Mark Henson
----------------------------------
Name: Mark Henson
Title: Assistant Vice President
<PAGE>
EXHIBIT A
[FORM OF INITIAL SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE
OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN
INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM
AND, IN THE CASE OF THE FOREGOING CLAUSE (D), A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUERS AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
A-1
<PAGE>
MTS, INCORPORATED
Initial Security
9 3/8% Senior Subordinated Note due 2005
CUSIP No.
No. $
MTS, INCORPORATED, a California corporation (the "COMPANY",
which term includes any successor corporation), for value received, promises to
pay to CEDE & CO. or registered assigns the principal sum of Dollars,
on May 1, 2005.
Interest Payment Dates: May 1 and November 1, commencing on
November 1, 1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
MTS, INCORPORATED
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
Dated:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 3/8% Senior Subordinated Notes due 2005,
described in the within-mentioned Indenture.
Dated:
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.,
as Trustee
By:
-----------------------------------------
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
MTS, INCORPORATED
9 3/8% Senior Subordinated Note due 2005
1. INTEREST.
MTS, INCORPORATED, a California corporation (the "COMPANY"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Cash 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 April 23, 1998. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing on November 1, 1998. 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 from time
to time on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall 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
("U.S. LEGAL TENDER"). However, the Company may pay principal and interest by
wire transfer of Federal funds (provided that the Paying Agent shall have
received wire instructions on or prior to the relevant Interest Record Date), or
interest by check payable in such U.S. Legal Tender. The Company may deliver
any such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
N.A. (the "TRUSTEE") will act as Paying Agent and Registrar. The Company may
change any Paying Agent or Registrar without notice to the Holders. The Company
may, subject to certain exceptions, act as Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as
of April 23, 1998 (the "INDENTURE"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. This Security is one of a duly authorized issue of Securities
of the Company designated as its 9 3/8% Senior Subordinated Notes due 2005,
Series A (the "INITIAL SECURITIES"), limited in aggregate principal amount to
$110,000,000, which may be issued under the Indenture. The Securities include
the Initial Securities, the Private Exchange Securities (as defined in the
Indenture) and the Unrestricted Securities (as defined in the Indenture). All
Securities issued under the Indenture are treated as a single class of
securities under the Indenture. The terms of the Securities include those
stated in the Indenture and those made part of the
A-4
<PAGE>
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture (except as
otherwise indicated in the Indenture) until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a
Security, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
5. OPTIONAL REDEMPTION.
(a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after May 1, 2002, at the
redemption prices (expressed as a percentage of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the Redemption Date
(subject to the right of holders of record on the relevant Interest Record Date
to receive interest due on the relevant Interest Payment Date) if redeemed
during the 12-month period commencing on May 1 of the years indicated below:
<TABLE>
<S> <C>
Year Percentage
---- ----------
2002 104.688%
2003 102.344%
2004 100.000%
</TABLE>
(b) Prior to May 1, 2001, the Company may, at its option, use
the net cash proceeds of one or more Equity Offerings to redeem in the aggregate
up to 35% of the originally issued aggregate principal amount of the Securities
at a redemption price equal to 109.375% of the principal amount thereof plus
accrued and unpaid interest to the redemption date; PROVIDED, HOWEVER, that
after any such redemption, at least 65% of the aggregate principal amount of the
Securities originally issued would remain outstanding immediately after giving
effect to such redemption (excluding any Securities held by the Company or any
of its Affiliates). Any such redemption will be required to occur on or prior
to the date that is one year after the receipt by the Company of the proceeds of
an Equity Offering. The Company shall effect such redemption on a pro rata
basis.
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 its registered address. The Trustee may
select for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to the
Holders pursuant to the terms of the Indenture.
A-5
<PAGE>
7. CHANGE OF CONTROL OFFER.
Following the occurrence of a Change of Control (the date of
such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within
60 days after the Change of Control Date, be required to offer to purchase all
Securities then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of such purchase (subject to the right of Holders of record on
the relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date).
8. LIMITATION ON DISPOSITION OF ASSETS.
The Company is, subject to certain conditions and certain
exceptions, obligated to offer to purchase the Securities at a purchase price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase (subject to the right of Holders
of record on the Interest Relevant Record Date to receive interest due on the
relevant Interest Payment Date) with the proceeds of certain asset dispositions.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
10. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
11. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at their written request. After that, all liability of the
Trustee and such Paying Agent with respect to such funds shall cease.
12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company may be discharged from its obligations under the
Indenture and the Securities, except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture and the Securities
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding, and any existing Default or Event of Default or compliance with any
provision may be
A-6
<PAGE>
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that does
not materially adversely affect the rights of any Holder of a Security.
14. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to sell assets, to permit
restrictions on dividends and other payments by Subsidiaries to the Company, to
consolidate, merge or sell all or substantially all of its assets and to engage
in transactions with affiliates. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to
the Trustee on compliance with such limitations.
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH COMPANY.
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 the Company, its Subsidiaries or its Affiliates as if it were not the
Trustee.
17. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of
the Company shall 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. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Securities.
18. AUTHENTICATION.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
A-7
<PAGE>
19. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. 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 as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
21. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement, the Company will
be obligated to consummate an exchange offer pursuant to which the Holder of
this Security shall have the right to exchange this Security for a 9 3/8% Senior
Subordinated Note due 2005 of the Company which has been registered under the
Securities Act, in like principal amount and having terms identical in all
material respects to the Initial Securities. The Holders shall be entitled to
receive certain liquidated damages in the form of additional interest payments
in the event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the Registration
Rights Agreement.
22. GOVERNING LAW.
The laws of the State of New York shall govern the Indenture
and this Security without regard to principles of conflicts of laws to the
extent that the application of the laws of another jurisdiction would be
required thereby.
A-8
<PAGE>
[FORM OF GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
For value received, the undersigned Guarantor (as defined in
the Indenture referred to in the Security upon which this notation is endorsed)
hereby unconditionally guarantees on a senior subordinated basis (such Guarantee
by the Guarantor being referred to herein as the "GUARANTEE") the due and
punctual payment of the principal of, premium, if any, and interest on the
Securities, whether at maturity, by acceleration or otherwise, the due and
punctual payment of interest on the overdue principal, premium and interest on
the Securities, and the due and punctual performance of all other obligations of
the Issuers to the Holders or the Trustee, all in accordance with the terms set
forth in Article Twelve of the Indenture (as defined below). This Guarantee
will become effective in accordance with Article Twelve of the Indenture and its
terms shall be evidenced therein. The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of April 23, 1998, among
MTS, INCORPORATED and State Street Bank and Trust Company of California, N.A.,
as trustee, as amended or supplemented (the "INDENTURE").
The obligations of the undersigned to the Holders of Securities
and to the Trustee pursuant to this Guarantee and the Indenture are expressly
set forth in Article Twelve of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
The obligations of the Guarantor to the Holders of Securities
and to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth, and are expressly subordinated and subject in right of payment to the
prior payment in full of all Guarantor Senior Indebtedness (as defined in the
Indenture) of such Guarantor, to the extent and in the manner provided in
Article Twelve and Article Thirteen of the Indenture, and reference is hereby
made to such Indenture for the precise terms of the Guarantee therein made.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflicts
of laws to the extent that the application of the laws of another jurisdiction
would be required thereby.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
[GUARANTORS]
By:
------------------------------------
Name:
Title:
A-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
--------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------- ------------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or Section 4.13 of the Indenture, check the
appropriate box:
Section 4.06 [ ] Section 4.13 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.06 or Section 4.13 of the
Indenture, state the amount: $_____________
Dated: Signed:
------------------- ------------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT B
[FORM OF EXCHANGE SECURITY]
MTS, INCORPORATED
Initial Security
9 3/8% Senior Subordinated Note due 2005
CUSIP No.
No. [ ] $[ ]
MTS, INCORPORATED., a California corporation (the "COMPANY",
which term includes any successor corporation), for value received, promises to
pay to or registered assigns the principal sum of
Dollars, on May 1, 2005.
Interest Payment Dates: May 1 and November 1, commencing on
November 1, 1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
MTS, INCORPORATED
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
Dated:
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 9 3/8% Senior Subordinated Notes due 2005,
described in the within-mentioned Indenture.
Dated:
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee
By:
---------------------------------------
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
MTS, INCORPORATED
9 3/8% Senior Note due 2005
1. INTEREST.
MTS, INCORPORATED, a California corporation (the "COMPANY"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Cash 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 April 23, 1998. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing on November 1, 1998. 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 from time
to time on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand, in
each case at the rate borne by the Securities.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall 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
("U.S. LEGAL TENDER"). However, the Company may pay principal and interest by
wire transfer of Federal funds (provided that the Paying Agent shall have
received wire instructions on or prior to the relevant Interest Record Date), or
interest by check payable in such U.S. Legal Tender. The Company may deliver
any such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
N.A. (the "TRUSTEE") will act as Paying Agent and Registrar. The Company may
change any Paying Agent or Registrar without notice to the Holders. The Company
may, subject to certain exceptions, act as Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as
of April 23, 1998 (the "INDENTURE"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. This Security is one of a duly authorized issue of Securities
of the Company designated as its 9 3/8% Senior Subordinated Notes due 2005
limited in aggregate principal amount to $110,000,000, which may be issued under
the Indenture. The Securities include the Initial Securities (as defined in the
Indenture), the Private Exchange Securities (as defined in the Indenture) and
the Unrestricted Securities (as defined in the Indenture). All Securities
issued under the Indenture are treated as a single class of securities under the
Indenture. The terms of the Securities include those stated in the Indenture
and those made part of the
B-3
<PAGE>
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture (except as
otherwise indicated in the Indenture) until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general unsecured obligations of the Company. The Securities are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a
Security, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
5. OPTIONAL REDEMPTION.
(a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after May 1, 2002, at the
redemption prices (expressed as a percentage of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the Redemption Date
(subject to the right of holders of record on the relevant Interest Record Date
to receive interest due on the relevant Interest Payment Date) if redeemed
during the 12-month period commencing on May 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.688%
2003 102.344%
2004 100.000%
</TABLE>
(b) Prior to May 1, 2001, the Company may, at its option, use
the net cash proceeds of one or more Equity Offerings to redeem in the aggregate
up to 35% of the originally issued aggregate principal amount of the Securities
at a redemption price equal to 109.375% of the principal amount thereof plus
accrued and unpaid interest to the redemption date; PROVIDED, HOWEVER, that
after any such redemption, at least 65% of the aggregate principal amount of the
Securities originally issued would remain outstanding immediately after giving
effect to such redemption. Any such redemption will be required to occur on or
prior to the date that is one year after the receipt by the Company of the
proceeds of an Equity Offering. The Company shall effect such redemption on a
pro rata basis.
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 its registered address. The Trustee may
select for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to the
Holders pursuant to the terms of the Indenture.
B-4
<PAGE>
7. CHANGE OF CONTROL OFFER.
Following the occurrence of a Change of Control (the date of
such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within
60 days after the Change of Control Date, offer to purchase all Securities then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the date of
such purchase (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date).
8. LIMITATION ON DISPOSITION OF ASSETS.
The Company is, subject to certain conditions and certain
exceptions, obligated to offer to purchase the Securities at a purchase price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase (subject to the right of Holders
of record on the Interest Relevant Record Date to receive interest due on the
relevant Interest Payment Date) with the proceeds of certain asset dispositions.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
10. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
11. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at their written request. After that, all liability of the
Trustee and such Paying Agent with respect to such funds shall cease.
12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company may be discharged from its obligations under the
Indenture and the Securities, except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture and the Securities
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding, and any existing Default or Event of Default or compliance with any
provision may be
B-5
<PAGE>
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that does
not materially adversely affect the rights of any Holder of a Security.
14. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to sell assets, to permit
restrictions on dividends and other payments by Subsidiaries to the Company, to
consolidate, merge or sell all or substantially all of its assets and to engage
in transactions with affiliates. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to
the Trustee on compliance with such limitations.
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH COMPANY.
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 the Company, its Subsidiaries or its Affiliates as if it were not the
Trustee.
17. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of
the Company shall 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. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Securities.
18. AUTHENTICATION.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
B-6
<PAGE>
19. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. 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 as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
21. GOVERNING LAW.
The laws of the State of New York shall govern the Indenture
and this Security without regard to principles of conflicts of laws to the
extent that the application of the laws of another jurisdiction would be
required thereby.
B-7
<PAGE>
[FORM OF GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
For value received, the undersigned Guarantor (as defined in
the Indenture referred to in the Security upon which this notation is endorsed)
hereby unconditionally guarantees on a senior subordinated basis (such Guarantee
by the Guarantor being referred to herein as the "GUARANTEE") the due and
punctual payment of the principal of, premium, if any, and interest on the
Securities, whether at maturity, by acceleration or otherwise, the due and
punctual payment of interest on the overdue principal, premium and interest on
the Securities, and the due and punctual performance of all other obligations of
the Issuers to the Holders or the Trustee, all in accordance with the terms set
forth in Article Twelve of the Indenture (as defined below). This Guarantee
will become effective in accordance with Article Twelve of the Indenture and its
terms shall be evidenced therein. The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of April 23, 1998, among
MTS, INCORPORATED and State Street Bank and Trust Company of California, N.A.,
as trustee, as amended or supplemented (the "INDENTURE").
The obligations of the undersigned to the Holders of Securities
and to the Trustee pursuant to this Guarantee and the Indenture are expressly
set forth in Article Twelve of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
The obligations of the Guarantor to the Holders of Securities
and to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth, and are expressly subordinated and subject in right of payment to the
prior payment in full of all Guarantor Senior Indebtedness (as defined in the
Indenture) of such Guarantor, to the extent and in the manner provided in
Article Twelve and Article Thirteen of the Indenture, and reference is hereby
made to such Indenture for the precise terms of the Guarantee therein made.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflicts
of laws to the extent that the application of the laws of another jurisdiction
would be required thereby.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
[GUARANTORS]
By:
------------------------------------
Name:
Title:
B-8
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
--------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
---------------------- ------------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or Section 4.13 of the Indenture, check the
appropriate box:
Section 4.06 [ ] Section 4.13 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.06 or Section 4.13 of the
Indenture, state the amount: $_____________
Dated: Your Signature:
------------------- -----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.16 OF THE INDENTURE.
C-1
<PAGE>
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 9-3/8% Senior Subordinated Notes due 2005
(the "Securities") of MTS, INCORPORATED
---------------------------------------
This Certificate relates to $_______ principal amount of
Securities held in the form of* ___ a beneficial interest in a Global Security
or* _______ Physical Securities by ______ (the "TRANSFEROR").
The Transferor:*
/ / has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Physical Security or Physical Securities in definitive, registered
form of authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
/ / has requested that the Registrar by written order exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 2.16 of such Indenture,
and that the transfer of the Securities does not require registration under the
Securities Act of 1933, as amended (the "ACT"), because*:
/ / Such Security is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.16 of the Indenture).
/ / Such Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Act), in reliance on
Rule 144A.
/ / Such Security is being transferred to an institutional
"accredited investor" (within the meaning of subparagraph (a)(1), (2), (3) or
(7) of Rule 501 under the Act) which delivers a certificate to the Trustee in
the form of EXHIBIT D to the Indenture.
/ / Such Security is being transferred in reliance on Rule 144
under the Act.
/ / Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act other
than Rule 144A or Rule 144 under the Act to a person other than an institutional
"accredited investor." An Opinion of Counsel to the effect that such transfer
does not require registration under the Securities Act accompanies this
certification.
-----------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------
[Authorized Signatory]
Date:
-----------------
*Check applicable box.
D-1
<PAGE>
EXHIBIT E
FORM OF TRANSFEREE LETTER OF REPRESENTATION
MTS, INCORPORATED
c/o STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
Library Tower
633 West 5th Street
Twelfth Floor
Los Angeles, CA 90071
Ladies and Gentlemen:
This certificate is delivered to request a transfer of
$________ principal amount of the 9-3/8% Senior Subordinated Notes due 2005
(the "NOTES") of MTS, INCORPORATED (the "COMPANY"). Upon transfer, the Notes
would be registered in the name of the new beneficial owner as follows:
Name:
---------------------------------
Address:
------------------------------
Taxpayer ID Number:
-------------------
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the
"SECURITIES ACT")) purchasing for our own account or for the account of such an
institutional "accredited investor" at least $250,000 principal amount of the
Notes, and we are acquiring the Notes not with a view to, or for offer or sale
in connection with, any distribution in violation of the Securities Act. We
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risk of our investment in the Notes and we
invest in or purchase securities similar to the Notes in the normal course of
our business. We and any accounts for which we are acting are each able to bear
the economic risk of our or its investment.
2. We understand that the Notes have not been registered under
the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf
of any investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to the date which is two years after the
later of the date of original issue and the last date on which the Company or
any affiliate of the Company was the owner of such Notes (or any predecessor
thereto) (the "RESALE RESTRICTION TERMINATION DATE") only (a) to the Company,
(b) pursuant to a registration statement which has been declared effective under
the Securities Act, (c) in a transaction complying with the requirements of
Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers and
sales that occur outside the United States within the meaning of Regulation S
under the Securities Act, (e) to an institutional "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
purchasing for its own account or for the account of such an institutional
"accredited investor," in each case in a minimum principal amount of Notes of
$250,000, or (f) pursuant to any other available exemption from the registration
re-
E-1
<PAGE>
quirements of the Securities Act, subject in each of the foregoing cases to any
requirement of law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their control and in
compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed to
be made pursuant to clause (e) above prior to the Resale Restriction Termination
Date, the transferor shall deliver a letter from the transferee substantially in
the form of this letter to the Company and the Trustee, which shall provide,
among other things, that the transferee is an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act and that it is acquiring such Notes for investment purposes and
not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Company and the Trustee reserve the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination Date
of the Notes pursuant to clause (d), (e) or (f) above to require the delivery of
an opinion of counsel, certificates and/or other information satisfactory to the
Company and the Trustee.
Dated: TRANSFEREE:
------------------------- -----------------------------
By:
------------------------------------
E-2
<PAGE>
EXHIBIT F
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
_______________, ____
MTS, INCORPORATED
c/o STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
Library Tower,
633 West 5th Street
Twelfth Floor
Los Angeles, CA 90071
Re: MTS, INCORPORATED (the "Company")
9 3/8% Senior Subordinated Notes due 2005 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person
in the United States;
(2) either (a) at the time the buy offer was originated,
the transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the
United States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
F-1
<PAGE>
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------
[Authorized Signatory]
F-2
<PAGE>
Exhibit 4.3
MTS, INCORPORATED
$110,000,000
9 3/8% Senior Subordinated Notes due 2005
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
April 20, 1998
CHASE SECURITIES INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
MTS, INCORPORATED, a California corporation (the "COMPANY"), proposes
to issue and sell to Chase Securities Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "INITIAL PURCHASERS"), upon the terms and subject to the
conditions set forth in a purchase agreement dated April 20, 1998 (the "PURCHASE
AGREEMENT") between the Company and the Initial Purchasers, $110,000,000
aggregate principal amount of its 9 3/8% Senior Subordinated Notes due 2005 (the
"SECURITIES"). Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchasers thereunder, the Company agrees with the Initial Purchasers, for the
benefit of the holders (including the Initial Purchasers) of the Securities, the
Exchange Securities (as defined herein) and the Private Exchange Securities (as
defined herein) (collectively, the "HOLDERS"), as follows:
1. REGISTERED EXCHANGE OFFER. The Company shall (i) prepare and,
not later than 80 days following the date of original issuance of the Securities
(the "ISSUE DATE"), file with the Commission a registration statement (the
"EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders of the Securities
(the "REGISTERED EXCHANGE OFFER") to issue and deliver to such Holders, in
exchange for the Securities, a like aggregate principal amount of debt
securities of the Company that are identical in all material respects to the
Securities (the "EXCHANGE SECURITIES"), except for the transfer restrictions
relating to the Securities, (ii) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to become effective under the Securities
Act no later than 180 days after the Issue Date and the Registered Exchange
Offer to be consummated no later than 225 days after the Issue Date and (iii)
keep the Exchange Offer Registration Statement effective for not less than 30
days (or longer, if required by applicable
<PAGE>
-2-
law) after the date on which notice of the Registered Exchange Offer is mailed
to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION
PERIOD"). The Exchange Securities will be issued under the Indenture or an
indenture (the "EXCHANGE SECURITIES INDENTURE") between the Company and the
Trustee or such other bank or trust company that is reasonably satisfactory to
the Initial Purchasers, as trustee (the "EXCHANGE SECURITIES TRUSTEE"), such
indenture to be identical in all material respects to the Indenture, except for
the transfer restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company, or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not an Initial
Purchaser holding Securities that have, or that are reasonably likely to have,
the status of an unsold allotment in an initial distribution, (c) acquires the
Exchange Securities in the ordinary course of such Holder's business, and (d)
has no arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Company, the Initial Purchasers
and each Exchanging Dealer acknowledge that, pursuant to current interpretations
by the Commission's staff of Section 5 of the Securities Act, each Holder that
is a broker-dealer electing to exchange Securities acquired for its own account
as a result of market-making activities or other trading activities for Exchange
Securities (an "EXCHANGING DEALER") is required to deliver a prospectus
containing substantially the information set forth in ANNEX A hereto on the
cover of such prospectus, in ANNEX B hereto in the "Exchange Offer Procedures"
and "Purpose of the Exchange Offer" sections of such prospectus, and in ANNEX C
hereto in the "Plan of Distribution" section of such prospectus in connection
with a sale of any such Exchange Securities received by such Exchanging Dealer
pursuant to the Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "PRIVATE EXCHANGE"), a like aggregate
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Securities (the "PRIVATE EXCHANGE
SECURITIES"), except for the transfer restrictions relating to such Private
Exchange Securities. The Private Exchange Securities will be issued under the
same indenture as the
<PAGE>
-3-
Exchange Securities, and the Company shall use its reasonable best efforts to
cause the Private Exchange Securities to bear the same CUSIP number as the
Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for exchange.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; PROVIDED that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by
<PAGE>
-4-
an Exchanging Dealer (as hereinafter defined) such period shall be the lesser of
180 days and the date on which all Exchanging Dealers have sold all Exchange
Securities held by them and (ii) the Company shall make such prospectus and any
amendment or supplement thereto available to any broker-dealer for use in
connection with any resale of any Exchange Securities for a period of not less
than 90 days after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been paid
on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Company or,
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
2. SHELF REGISTRATION. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company is not
permitted to effect the
<PAGE>
-5-
Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) any
Securities validly tendered pursuant to the Registered Exchange Offer are not
exchanged for Exchange Securities within 225 days after the Issue Date, or (iii)
any Initial Purchaser so requests with respect to Securities or Private Exchange
Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer, or (iv) any applicable law or interpretations do not
permit any Holder to participate in the Registered Exchange Offer, or (v) any
Holder that participates in the Registered Exchange Offer does not receive
freely transferable Exchange Securities in exchange for tendered Securities, or
(vi) the Company so elects, then the following provisions shall apply:
(a) The Company shall use its reasonable best efforts to file as
promptly as practicable (but in no event more than 180 days after so
required or requested, in each case pursuant to this Section 2) with the
Commission, and thereafter shall use its reasonable best efforts to cause
to be declared effective, a shelf registration statement on an appropriate
form under the Securities Act relating to the offer and sale of the
Transfer Restricted Securities (as defined below) by the Holders thereof
from time to time in accordance with the methods of distribution set forth
in such registration statement (hereafter, a "SHELF REGISTRATION STATEMENT"
and, together with any Exchange Offer Registration Statement, a
"REGISTRATION STATEMENT").
(b) Subject to Section 4(b), the Company shall use its reasonable
best efforts to keep the Shelf Registration Statement continuously
effective in order to permit the prospectus forming part thereof to be used
by Holders of Transfer Restricted Securities for a period ending on the
earlier of (i) two years from the Issue Date or such shorter period that
will terminate when all the Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold pursuant thereto and (ii) the
date on which the Securities become eligible for resale without volume
restrictions pursuant to Rule 144 under the Securities Act (in any such
case, such period being called the "SHELF REGISTRATION PERIOD"). The
Company shall be deemed not to have used its reasonable best efforts to
keep the Shelf Registration Statement effective during the requisite period
if it voluntarily takes any action that would result in Holders of Transfer
Restricted Securities covered thereby not being able to offer and sell such
Transfer Restricted Securities during that period, unless such action is
required by applicable law.
(c) Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Shelf Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies
in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Shelf Registration
Statement and any amendment thereto (in either case, other than with
respect to information included therein in reliance upon or in
<PAGE>
-6-
conformity with written information furnished to the Company by or on
behalf of any Holder specifically for use therein (the "HOLDERS'
INFORMATION")) does not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any prospectus forming
part of any Shelf Registration Statement, and any supplement to such
prospectus (in either case, other than with respect to Holders'
Information), does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. ADDITIONAL INTEREST. (a) The parties hereto agree that the
Holders of Transfer Restricted Securities will suffer damages if the Company
fails to fulfill its obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed with the
Commission on or prior to 80 days after the Issue Date, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 180 days after the Issue Date (or in the case
of a Shelf Registration Statement required to be filed in response to a change
in law or the applicable interpretations of the Commission's staff, if later,
within 45 days after publication of the change in law or interpretation), (iii)
the Registered Exchange Offer is not consummated on or prior to 225 days after
the Issue Date (unless the Shelf Registration Statement has been filed in lieu
thereof) or (iv) the Shelf Registration Statement is filed and declared
effective within 180 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission's staff, if later, within 45
days after publication of the change in law or interpretation) but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 60 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), additional
interest ("ADDITIONAL INTEREST") will accrue on the Securities and the Exchange
Securities (in addition to the stated interest on the Securities and Exchange
Securities). Additional Interest will accrue at a rate of 0.25% per annum
during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by 0.25% per annum at the end of each
subsequent 90-day period but in no event shall exceed 1.00% per annum, until (a)
the applicable Registration Statement is filed, (b) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (c) the Shelf Registration Statement is declared effective or
(d) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of Additional
Interest will cease. As used herein, the term "TRANSFER RESTRICTED SECURITIES"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered un-
<PAGE>
-7-
der the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) each Security or Private Exchange Security until the date on
which it is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act, or any
successor provision. Notwithstanding anything to the contrary in this Section
3(a), the Company shall not be required to pay Additional Interest to a Holder
of Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under
the Indenture immediately upon the happening of each and every Registration
Default. The Company shall pay the Additional Interest due on the Transfer
Restricted Securities by depositing with the Paying Agent (which may not be the
Company for these purposes), in trust, for the benefit of the Holders thereof,
prior to 10:00 a.m., New York City time, on the next interest payment date
specified by the Indenture and the Securities, sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date specified by the Indenture and the Securities to the
record holder entitled to receive the interest payment to be made on such date.
Each obligation to pay Additional Interest shall be deemed to accrue from and
including the date of the applicable Registration Default, and excluding the
date on which all Registration Defaults have been cured.
(c) The parties hereto agree that the Additional Interest provided
for in this Section 3 constitutes a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. REGISTRATION PROCEDURES. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such
comments as any Initial Purchaser may reasonably propose; (ii) include the
information set forth in ANNEX A hereto on the cover, in ANNEX B hereto in
the "Exchange Offer Procedures" and "Purpose of the Exchange Offer"
sections and in ANNEX C hereto in the "Plan of Distribution" section of the
prospectus forming a part of the Exchange Offer Registration Statement, and
include the information set forth in ANNEX D hereto in the Letter of
Transmittal delivered pursuant to the
<PAGE>
-8-
Registered Exchange Offer; and (iii) if requested by any Initial Purchaser,
include the information required by Items 507 or 508 of Regulation S-K, as
applicable, in the prospectus forming a part of the Exchange Offer
Registration Statement.
(b) Commencing upon effectiveness of any Registration Statement, and
solely with respect to such Registration Statement, the Company shall
advise each Initial Purchaser, each Exchanging Dealer and the Holders (if
applicable) and, if requested by any such person, confirm such advice in
writing (which advice pursuant to clauses (ii)-(v) hereof shall be
accompanied by an instruction to suspend the use of the prospectus until
the requisite changes have been made):
(i) when any Registration Statement and any amendment
thereto has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities, the
Exchange Securities or the Private Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(v) of the happening of any event that requires the making
of any changes in any Registration Statement or the prospectus
included therein in order that the statements therein are not
misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(c) The Company will make every reasonable effort to obtain the
withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if
<PAGE>
-9-
any such Holder so requests in writing, all exhibits thereto (including
those, if any, incorporated by reference).
(e) The Company will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within
the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company consents to
the use of such prospectus or any amendment or supplement thereto by each
of the selling Holders of Transfer Restricted Securities in connection with
the offer and sale of the Transfer Restricted Securities covered by such
prospectus or any amendment or supplement thereto.
(f) The Company will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests, without charge,
at least one conformed copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements
and schedules and, if any Initial Purchaser or Exchanging Dealer or any
such Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
(g) The Company will, during the Exchange Offer Registration Period
or the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as such Initial Purchaser,
Exchanging Dealer or other persons may reasonably request; and the Company
consents to the use of such prospectus or any amendment or supplement
thereto by any such Initial Purchaser, Exchanging Dealer or other persons,
as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company will use its reasonable best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in
connection with the registration or qualification of, such Securities,
Exchange Securities or Private Exchange Securities for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holder
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities, Exchange Securities or Private Exchange Securities
covered by such Registration Statement; PROVIDED that the Company will not
be required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action which would subject it to
general service of process or to taxation in any such jurisdiction where it
is not then so subject.
<PAGE>
-10-
(i) The Company will cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates (if requested) representing
Securities, Exchange Securities or Private Exchange Securities to be sold
pursuant to any Registration Statement free of any restrictive legends and
in such denominations and registered in such names as the Holders thereof
may request in writing prior to sales of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company is required to maintain an
effective Registration Statement, the Company will promptly prepare and
file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other
required document so that, as thereafter delivered to purchasers of the
Securities, Exchange Securities or Private Exchange Securities from a
Holder, the prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may
be, and provide the applicable trustee with printed certificates for the
Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Company will comply with all applicable rules and regulations
of the Commission and will make generally available to its security holders
as soon as practicable after the effective date of the applicable
Registration Statement an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act; PROVIDED that in no event shall such
earning statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning
with the first month of the Company's first fiscal quarter commencing after
the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.
(m) The Company will cause the Indenture or the Exchange Securities
Indenture, as the case may be, to be qualified under the Trust Indenture
Act as required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement
or, if an Initial Purchaser has requested the inclusion of information
required by Item 507 or 508 of Regulation S-K pursuant to Section 4(a)(iii)
hereof, the Exchange Offer Registration
<PAGE>
-11-
Statement to furnish to the Company such information concerning the Holder
and the distribution of such Transfer Restricted Securities as the Company
may from time to time reasonably require for inclusion in such Registration
Statement, and the Company may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of
any notice from the Company pursuant to Section 4(b)(ii) through (v), such
Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended
prospectus contemplated by Section 4(j) or until advised in writing (the
"ADVICE") by the Company that the use of the applicable prospectus may be
resumed. If the Company shall give any notice under Section 4(b)(ii)
through (v) during the period that the Company is required to maintain an
effective Registration Statement (the "EFFECTIVENESS PERIOD"), such
Effectiveness Period shall be extended by the number of days during such
period from and including the date of the giving of such notice to and
including the date when each seller of Transfer Restricted Securities
covered by such Registration Statement shall have received (x) the copies
of the supplemental or amended prospectus contemplated by Section 4(j) (if
an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company shall
enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other action,
if any, as Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold
or the managing underwriters (if any) shall reasonably request in order to
facilitate any disposition of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and
Private Exchange Securities being sold and any underwriter participating in
any disposition of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasona-
<PAGE>
-12-
bly requested by such representative, Special Counsel or any such
underwriter (an "INSPECTOR") in connection with such Shelf Registration
Statement.
(r) In the case of a Shelf Registration Statement, the Company shall,
if requested by Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection
with such Shelf Registration Statement, use its reasonable best efforts to
cause (i) its counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates requested by
Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold, their
Special Counsel or the managing underwriters (if any) and (iii) its
independent public accountants to provide a comfort letter or letters in
customary form, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards
No. 72.
5. REGISTRATION EXPENSES. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Company will reimburse the Initial Purchasers and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities to be sold pursuant to each Registration Statement (the
"SPECIAL COUNSEL") acting for the Initial Purchasers or Holders in connection
therewith.
6. INDEMNIFICATION. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, any such Initial Purchaser or Exchanging
Dealer), its affiliates, each person who controls such Holder or such affiliates
within the meaning of the Securities Act or Exchange Act and their respective
officers, directors, employees, representatives and agents (collectively
referred to for purposes of this Section 6 and Section 7 as a "Holder") from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of Securities, Exchange
Securities or Private Exchange Securities), to which that Holder may become
subject, whether commenced or threatened, under the Securities Act, the Exchange
Act, any other federal or state statutory law or regulation, at common law or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any such Registration Statement or any prospectus
forming part thereof or in any amendment or supplement thereto or (ii) the
omission or al
<PAGE>
-13-
leged omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and shall reimburse
each Holder promptly upon demand for any legal or other expenses reasonably
incurred by that Holder in connection with investigating or defending or
preparing to defend against or appearing as a third party witness in connection
with any such loss, claim, damage, liability or action as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon and in
conformity with any Holders' Information; and PROVIDED, FURTHER, that with
respect to any such untrue statement in or omission from any related preliminary
prospectus, the indemnity agreement contained in this Section 6(a) shall not
inure to the benefit of any Holder from whom the person asserting any such loss,
claim, damage, liability or action received Securities, Exchange Securities or
Private Exchange Securities to the extent that such loss, claim, damage,
liability or action of or with respect to such Holder results from the fact that
both (A) a copy of the final prospectus was not sent or given to such person at
or prior to the written confirmation of the sale of such Securities, Exchange
Securities or Private Exchange Securities to such person and (B) the untrue
statement in or omission from the related preliminary prospectus was corrected
in the final prospectus unless, in either case, such failure to deliver the
final prospectus was a result of non-compliance by the Company with
Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement or in connection
with any prospectus delivery pursuant to an Exchange Offer Registration
Statement by an Initial Purchaser or Exchanging Dealer, as applicable, each
Holder, severally and not jointly, shall indemnify and hold harmless the
Company, its affiliates, each person who controls such Holder or such affiliates
within the meaning of the Securities Act or Exchange Act and their respective
officers, directors, employees, representatives and agents (collectively
referred to for purposes of this Section 6(b) and Section 7 as the "Company"),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Company may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any such Registration Statement or any prospectus forming part
thereof or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with any
Holders' Information furnished to the Company by such Holder, and shall
reimburse the Company for any legal or other expenses
<PAGE>
-14-
reasonably incurred by the Company in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred; PROVIDED, HOWEVER, that no such Holder shall be liable
for any indemnity claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying
party in writing of the claim or the commencement of that action; PROVIDED,
HOWEVER, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and PROVIDED, FURTHER, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 6. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; PROVIDED, HOWEVER,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition
<PAGE>
-15-
to any local counsel) at any one time for all such indemnified party or parties.
Each indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without the
prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
7. CONTRIBUTION. If the indemnification provided for in Section 6
is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company from the offering and sale
of the Securities, on the one hand, and a Holder with respect to the sale by
such Holder of Securities, Exchange Securities or Private Exchange Securities,
on the other, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and such Holder on the other with respect
to the statements or omissions that resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and a Holder on the other with respect to such offering and such sale shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) received by or on behalf of the
Company as set forth in the table on the cover of the Offering Memorandum, on
the one hand, bear to the total proceeds received by such Holder with respect to
its sale of Securities, Exchange Securities or Private Exchange Securities, on
the other. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to the Company or
information supplied by the Company on the one hand or to any Holders'
Information supplied by such Holder on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 7 were
to be determined by pro rata allocation or by any other method of allocation
that does
<PAGE>
-16-
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section 7 shall be deemed to include, for purposes of this Section 7, any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 7, an indemnifying party that is
a Holder of Securities, Exchange Securities or Private Exchange Securities shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Securities, Exchange Securities or Private Exchange
Securities sold by such indemnifying party to any purchaser exceeds the amount
of any damages which such indemnifying party has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. RULES 144 AND 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any Holder of Transfer Restricted Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
9. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Company (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled
<PAGE>
-17-
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
10. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 10(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Chase Securities Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated;
(2) if to an Initial Purchaser, initially at its address set forth in
the Purchase Agreement; and
(3) if to the Company, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
<PAGE>
-18-
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) DEFINITION OF TERMS. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in
Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
(f) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(h) REMEDIES. In the event of a breach by the Company or by any
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery of
damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which Additional Interest have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agree that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(i) NO INCONSISTENT AGREEMENTS. The Company represents, warrants and
agrees that (i) it has not entered into, and shall not, on or after the date of
this Agreement, enter into any agreement that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof, (ii) it has not previously entered into any agreement which
remains in effect granting any registration rights with respect to any of its
debt securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Company to register any
debt securities of the Company under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
(j) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of
its security holders (other than the Holders of Transfer Restricted Securities
in such capacity)
<PAGE>
-19-
shall have the right to include any securities of the Company in any Shelf
Registration or Registered Exchange Offer other than Transfer Restricted
Securities.
(k) SEVERABILITY. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
<PAGE>
S-1
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers.
Very truly yours,
MTS, INCORPORATED
By: /s/ DeVaughn D. Searson
-----------------------------
Name: DeVaughn D. Searson
Title: CFO
Accepted:
CHASE SECURITIES INC.
By: /s/ James P. Casey
--------------------------------
Authorized Signatory
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Jack Mann
--------------------------------
Authorized Signatory
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _______________,
1998, all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers
for their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange
Securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
ANNEX D
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
Exhibit 4.4
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR
BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUERS OR
THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.16 OF THE INDENTURE.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY),
ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT
<PAGE>
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A OR (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES
OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
(E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2),
(3), OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT
OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO
OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS' AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND, IN
THE CASE OF THE FOREGOING CLAUSE (D), A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUERS AND THE TRUSTEE. THIS LEGEND WILL BE REVOKED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
2
<PAGE>
144A GLOBAL SECURITY
MTS, INCORPORATED
9 3/8% Senior Subordinated Note due 2005
CUSIP No. 55376WAA7
No. 1 $104,720,000
MTS, INCORPORATED, a California corporation (the "COMPANY", which term
includes any successor corporation), for value received, promises to pay to
CEDE & CO. or registered assigns the principal sum of One Hundred Four
Million Seven Hundred Twenty Thousand Dollars, on May 1, 2005.
Interest Payment Dates: May 1 and November 1 commencing on November 1,
1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
MTS, INCORPORATED
By: /s/ DeVaughn D. Searson
----------------------------------
Name: DeVaughn D. Searson
Title: Chief Financial Officer
By: /s/ Sandra L. Cortes
----------------------------------
Name: Sandra Cortes
Title: Assistant Secretary
Dated: April 23, 1998
3
<PAGE>
This is one of the 9 3/8% Senior Subordinated Notes due 2005 described
in the within-mentioned Indenture.
Dated: April 23, 1998
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: /s/ Mark Henson
----------------------------------
Authorized Signatory
4
<PAGE>
(REVERSE OF SECURITY)
MTS, INCORPORATED
9 3/8 Senior Subordinated Note due 2005
1. INTEREST.
MTS, INCORPORATED, a California corporation (the "Company") promises to
pay interest on the principal amount of this Security at the rate per annum
shown above. Cash 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 May 1, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing on November 1, 1998. 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 from time to time on
demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand,
in each case at the rate borne by the Securities.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer
or registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall 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 ("U.S. LEGAL TENDER"). However, the Company may pay principal and
interest by wire transfer of Federal funds (provided that the Paying Agent
shall have received wire instructions on or prior to the relevant interest
Record Date), or interest by check payable in such U.S. Legal Tender. The
Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. (the
"TRUSTEE") will act as Paying Agent and Registrar. The Company may change
any Paying Agent or Registrar without notice to the Holders. The Company
may, subject to certain exceptions, act as Registrar.
5
<PAGE>
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of April
23, 1998 (the "INDENTURE"), between the Company and the Trustee. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
herein. This Security is one of a duly authorized Issue of Securities of the
Company designated as its 9 3/8% Senior Subordinated Notes due 2005 (the
"INITIAL SECURITIES"), limited in aggregate principal amount to $110,000,000,
which may be issued under the Indenture. The Securities include the Initial
Securities, the Private Exchange Securities (as defined in the Indenture) and
the Unrestricted Securities (as defined in the Indenture). All Securities
issued under the Indenture are treated as a single class of securities under
the Indenture. 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. Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture (except as otherwise indicated in the
Indenture) until such time as the Indenture is qualified under the TIA, and
thereafter as in effect on the date on which the Indenture is qualified under
the TIA. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and holders of securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
unsecured obligations of the Company. The Securities are subordinated in
right of payment to all Senior Indebtedness of the Company to the extent and
in the manner provided in the Indenture. Each Holder of a Security, by
accepting a Security, agrees to such subordination, authorizes the Trustee to
give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
5. OPTIONAL REDEMPTION.
1. (a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after May 1, 2002, at
the redemption prices (expressed as a percentage of principal amount)
set forth below, plus accrued and unpaid interest thereon, if any, to
the Redemption Date (subject to the right of holders of record on the
relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date) if redeemed during the 12-month period commencing
on May 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.688%
2003 102.344%
2004 100.000%
</TABLE>
2. (b) Prior to May 1, 2001, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings to redeem in the
aggregate up to 35% of the originally issued aggregate principal amount
of the Securities at a redemption price equal to 109.375% of the
principal amount thereof plus accrued and unpaid interest to the
redemption date; PROVIDED, HOWEVER, that after any such redemption, at
least 65% of the aggregate principal amount of the Securities originally
issued would remain outstanding immediately after giving effect to such
redemption (excluding any Securities held by the Company or any of its
Affiliates). Any such redemption will be required to occur on or prior
to the date that is one year after the
6
<PAGE>
receipt by the Company of the proceeds of an Equity Offering. The
Company shall effect such redemption on a pro rata basis.
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 its registered address. The Trustee may select
for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities
and portions of them the Trustee so selects shall be in amounts of $1,000
principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of redemption
that relates to such Security shall state the portion of the principal amount
thereof to be redeemed. A new Security in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called
for redemption so long as the Company has deposited with the Paying Agent for
the Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to
the Holders pursuant to the terms of the Indenture.
7. CHANGE OF CONTROL OFFER.
Following the occurrence of a Change of Control (the date of such
occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within 60
days after the Change of Control Date, be required to offer to purchase all
Securities then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the date of such purchase (subject to the right of Holders of
record on the relevant Interest Record Date to receive interest due on the
relevant Interest Payment Date).
8. LIMITATION ON DISPOSITION OF ASSETS.
The Company is, subject to certain conditions and certain exceptions,
obligated to offer to purchase the Securities at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase (subject to the right of
Holders of record on the Interest Relevant Record Date to receive interest
due on the relevant Interest Payment Date) with the proceeds of certain asset
dispositions.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000. A Holder shall register the
transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or
similar governmental charges payable in connection therewith as permitted by
the Indenture. The Registrar
7
<PAGE>
need not register the transfer of or exchange any Securities or portions
thereof selected for redemption, except the unredeemed portion of any
security being redeemed in part.
10. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
11. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the
Company at their written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company may be discharged from its obligations under the Indenture
and the Securities, except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding,
and any existing Default or Event of Default or compliance with any provision
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Securities then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the
Indenture and the Securities to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to
or in place of certificated Securities or comply with any requirements of the
SEC in connection with the qualification of the Indenture under the TIA, or
make any other change that does not materially adversely affect the rights of
any Holder of a Security.
14. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other things, limit
the ability of the Company and the Restricted Subsidiaries to make restricted
payments, to incur indebtedness, to sell assets, to permit restrictions on
dividends and other payments by Subsidiaries to the Company, to consolidate,
merge or sell all or substantially all of its assets and to engage in
transactions with affiliates. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to
the Trustee on compliance with such limitations.
8
<PAGE>
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately
in the manner and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or
the Securities unless it has received indemnity satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders
of a majority in aggregate principal amount of the Securities then
outstanding to direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Securities notice of certain continuing
Defaults or Events of Default if it determines that withholding notice is in
their interest.
16. TRUSTEE DEALINGS WITH COMPANY.
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 the Company, its Subsidiaries or its Affiliates as if it were not
the Trustee.
17. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of the
Company shall 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. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Securities.
18. AUTHENTICATION.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee of Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to
be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such
9
<PAGE>
numbers as printed on the Securities and reliance may be placed only on the
other identification numbers printed hereon.
21. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement, the Company will be
obligated to consummate an exchange offer pursuant to which the Holder of
this Security shall have the right to exchange this Security for a 9 3/8%
Senior Subordinated Note due 2005 of the Company which has been registered
under the Securities Act, in like principal amount and having terms identical
in all material respects to the Initial Securities. The Holders shall be
entitled to receive certain liquidated damages in the form of additional
interest payments in the event such exchange offer is not consummated and
upon certain other conditions, all pursuant to and in accordance with the
terms of the Registration Rights Agreement.
22. GOVERNING LAW.
The laws of the State of New York shall govern the Indenture and this
Security without regard to principles of conflicts of laws to the extent that
the application of the laws of another jurisdiction would be required thereby.
10
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to _________________________________
______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint ______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:__________________________________
(Signed exactly as name appears on the other side of this Security)
Signature Guarantee:
___________________________________
Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor program reasonably acceptable to the Trustee)
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or Section 4.13 of the Indenture, check the
appropriate box:
Section 4.06 [ ] Section 4.13 [ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or Section 4.13 of the Indenture, state the
amount: $___________________
Dated:______________________ Your Signature:____________________________
(Signed exactly as name appears on the other side of this Security)
Signature Guarantee:
__________________________________
Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor program reasonably acceptable to the Trustee)
12
<PAGE>
Exhibit 4.5
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR
BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUERS OR
THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.16 OF THE INDENTURE.
THIS SECURITY IS A TEMPORARY REGULATION S GLOBAL SECURITY WITHIN THE MEANING
OF THE INDENTURE REFERRED TO HEREINAFTER. EXCEPT IN THE CIRCUMSTANCES
DESCRIBED IN SECTION 2.01 OF THE INDENTURE, INTERESTS IN THIS TEMPORARY
REGULATION S GLOBAL SECURITY MAY NOT BE OFFERED OR SOLD TO A U.S. PERSON OR
FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE
RESTRICTED PERIOD (AS DEFINED IN THE INDENTURE), AND NO TRANSFER OR EXCHANGE
OF AN INTEREST IN THIS TEMPORARY REGULATION S GLOBAL SECURITY MAY BE MADE FOR
AN INTEREST IN A RESTRICTED GLOBAL SECURITY OR IN A PERMANENT REGULATION S
GLOBAL SECURITY EXCEPT AS SET FORTH IN THE INDENTURE.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE
ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY),
ONLY (A) TO THE COMPANY, (B) PURSUANT TO
<PAGE>
A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A OR (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, IN EACH
CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION
WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (E) TO AN
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3), OR (7)
UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR
OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS' AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND, IN
THE CASE OF THE FOREGOING CLAUSE (D), A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUERS AND THE TRUSTEE. THIS LEGEND WILL BE REVOKED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
2
<PAGE>
TEMPORARY REGULATION S GLOBAL SECURITY
MTS, INCORPORATED
9 3/8% Senior Subordinated Note due 2005
CUSIP No. U60754AA3
No. 2 $5,280,000
MTS, INCORPORATED, a California corporation (the "COMPANY", which term
includes any successor corporation), for value received, promises to pay to
CEDE & CO. or registered assigns the principal sum of Five Million Two
Hundred Eighty Thousand Dollars, on May 1, 2005.
Interest Payment Dates: May 1 and November 1 commencing on November 1,
1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
MTS, INCORPORATED
By: /s/ DeVaughn D. Searson
------------------------------------
Name: DeVaughn D. Searson
Title: Chief Financial Officer
By: /s/ Sandra L. Cortes
------------------------------------
Name: Sandra Cortes
Title: Assistant Secretary
Dated: April 23, 1998
3
<PAGE>
This is one of the 9 3/8% Senior Subordinated Notes due 2005 described
in the within-mentioned Indenture.
Dated: April 23, 1998
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: /s/ Mark Henson
-----------------------------------
Authorized Signatory
4
<PAGE>
(REVERSE OF SECURITY)
MTS, INCORPORATED
9 3/8 Senior Subordinated Note due 2005
1. INTEREST.
MTS, INCORPORATED, a California corporation (the "Company") promises to
pay interest on the principal amount of this Security at the rate per annum
shown above. Cash 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 May 1, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date, commencing on November 1, 1998. 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 from time to time on
demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand,
in each case at the rate borne by the Securities.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer
or registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall 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 ("U.S. LEGAL TENDER"). However, the Company may pay principal and
interest by wire transfer of Federal funds (provided that the Paying Agent
shall have received wire instructions on or prior to the relevant interest
Record Date), or interest by check payable in such U.S. Legal Tender. The
Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. (the
"TRUSTEE") will act as Paying Agent and Registrar. The Company may change
any Paying Agent or Registrar without notice to the Holders. The Company
may, subject to certain exceptions, act as Registrar.
5
<PAGE>
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of April
23, 1998 (the "INDENTURE"), between the Company and the Trustee. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
herein. This Security is one of a duly authorized Issue of Securities of the
Company designated as its 9 3/8% Senior Subordinated Notes due 2005 (the
"INITIAL SECURITIES"), limited in aggregate principal amount to $110,000,000,
which may be issued under the Indenture. The Securities include the Initial
Securities, the Private Exchange Securities (as defined in the Indenture) and
the Unrestricted Securities (as defined in the Indenture). All Securities
issued under the Indenture are treated as a single class of securities under
the Indenture. 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. Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture (except as otherwise indicated in the
Indenture) until such time as the Indenture is qualified under the TIA, and
thereafter as in effect on the date on which the Indenture is qualified under
the TIA. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and holders of securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
unsecured obligations of the Company. The Securities are subordinated in
right of payment to all Senior Indebtedness of the Company to the extent and
in the manner provided in the Indenture. Each Holder of a Security, by
accepting a Security, agrees to such subordination, authorizes the Trustee to
give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose.
5. OPTIONAL REDEMPTION.
1. (a) The Securities will be redeemable at the option of the
Company, in whole or in part, at any time on or after May 1, 2002, at
the redemption prices (expressed as a percentage of principal amount)
set forth below, plus accrued and unpaid interest thereon, if any, to
the Redemption Date (subject to the right of holders of record on the
relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date) if redeemed during the 12-month period commencing
on May 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.688%
2003 102.344%
2004 100.000%
</TABLE>
2. (b) Prior to May 1, 2001, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings to redeem in the
aggregate up to 35% of the originally issued aggregate principal amount
of the Securities at a redemption price equal to 109.375% of the
principal amount thereof plus accrued and unpaid interest to the
redemption date; PROVIDED, HOWEVER, that after any such redemption, at
least 65% of the aggregate principal amount of the Securities originally
issued would remain outstanding immediately after giving effect to such
redemption (excluding any Securities held by the Company or any of its
Affiliates). Any such redemption will be required to occur on or prior
to the date that is one year after the
6
<PAGE>
receipt by the Company of the proceeds of an Equity Offering. The
Company shall effect such redemption on a pro rata basis.
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 its registered address. The Trustee may select
for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities
and portions of them the Trustee so selects shall be in amounts of $1,000
principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of redemption
that relates to such Security shall state the portion of the principal amount
thereof to be redeemed. A new Security in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called
for redemption so long as the Company has deposited with the Paying Agent for
the Securities funds in satisfaction of the redemption price pursuant to the
Indenture and the Paying Agent is not prohibited from paying such funds to
the Holders pursuant to the terms of the Indenture.
7. CHANGE OF CONTROL OFFER.
Following the occurrence of a Change of Control (the date of such
occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within 60
days after the Change of Control Date, be required to offer to purchase all
Securities then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the date of such purchase (subject to the right of Holders of
record on the relevant Interest Record Date to receive interest due on the
relevant Interest Payment Date).
8. LIMITATION ON DISPOSITION OF ASSETS.
The Company is, subject to certain conditions and certain exceptions,
obligated to offer to purchase the Securities at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of such purchase (subject to the right of
Holders of record on the Interest Relevant Record Date to receive interest
due on the relevant Interest Payment Date) with the proceeds of certain asset
dispositions.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000. A Holder shall register the
transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or
similar governmental charges payable in connection therewith as permitted by
the Indenture. The Registrar
7
<PAGE>
need not register the transfer of or exchange any Securities or portions
thereof selected for redemption, except the unredeemed portion of any
security being redeemed in part.
10. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
11. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the
Company at their written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company may be discharged from its obligations under the Indenture
and the Securities, except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding,
and any existing Default or Event of Default or compliance with any provision
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Securities then outstanding. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the
Indenture and the Securities to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to
or in place of certificated Securities or comply with any requirements of the
SEC in connection with the qualification of the Indenture under the TIA, or
make any other change that does not materially adversely affect the rights of
any Holder of a Security.
14. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other things, limit
the ability of the Company and the Restricted Subsidiaries to make restricted
payments, to incur indebtedness, to sell assets, to permit restrictions on
dividends and other payments by Subsidiaries to the Company, to consolidate,
merge or sell all or substantially all of its assets and to engage in
transactions with affiliates. The limitations are subject to a number of
important qualifications and exceptions. The Company must report annually to
the Trustee on compliance with such limitations.
8
<PAGE>
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately
in the manner and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or
the Securities unless it has received indemnity satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders
of a majority in aggregate principal amount of the Securities then
outstanding to direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Securities notice of certain continuing
Defaults or Events of Default if it determines that withholding notice is in
their interest.
16. TRUSTEE DEALINGS WITH COMPANY.
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 the Company, its Subsidiaries or its Affiliates as if it were not
the Trustee.
17. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of the
Company shall 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. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Securities.
18. AUTHENTICATION.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee of Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to
be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such
9
<PAGE>
numbers as printed on the Securities and reliance may be placed only on the
other identification numbers printed hereon.
21. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement, the Company will be
obligated to consummate an exchange offer pursuant to which the Holder of
this Security shall have the right to exchange this Security for a 9 3/8%
Senior Subordinated Note due 2005 of the Company which has been registered
under the Securities Act, in like principal amount and having terms identical
in all material respects to the Initial Securities. The Holders shall be
entitled to receive certain liquidated damages in the form of additional
interest payments in the event such exchange offer is not consummated and
upon certain other conditions, all pursuant to and in accordance with the
terms of the Registration Rights Agreement.
22. GOVERNING LAW.
The laws of the State of New York shall govern the Indenture and this
Security without regard to principles of conflicts of laws to the extent that
the application of the laws of another jurisdiction would be required thereby.
10
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to _________________________________
______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint ______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:_____________________ Signed:__________________________________
(Signed exactly as name appears on the other side of this Security)
Signature Guarantee:
___________________________________
Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor program reasonably acceptable to the Trustee)
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or Section 4.13 of the Indenture, check the
appropriate box:
Section 4.06 [ ] Section 4.13 [ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.06 or Section 4.13 of the Indenture, state the
amount: $______________________
Dated:____________________ Your Signature:_______________________________
(Signed exactly as name appears on the other side of this Security)
Signature Guarantee:
________________________________
Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor program reasonably acceptable to the Trustee)
12
<PAGE>
CONFORMED COPY
MTS, INCORPORATED
TOWER RECORDS KABUSHIKI KAISHA
US$125,000,000 and Y19,810,500,000
CREDIT AGREEMENT
dated as of
April 23, 1998
among
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
CHASE SECURITIES INC.,
AS ADVISOR AND ARRANGER
CHASE
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Classification of Loans and Borrowings. . . . . . . . 27
SECTION 1.03. Terms Generally . . . . . . . . . . . . . . . . . . . 28
SECTION 1.04. Accounting Terms; GAAP. . . . . . . . . . . . . . . . 28
SECTION 1.05 Exchange Rates. . . . . . . . . . . . . . . . . . . . 28
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.02. Loans and Borrowings. . . . . . . . . . . . . . . . . 30
SECTION 2.03. Requests for Revolving Borrowings . . . . . . . . . . 31
SECTION 2.04. Competitive Bid Procedure . . . . . . . . . . . . . . 32
SECTION 2.05. Swingline Loans . . . . . . . . . . . . . . . . . . . 35
SECTION 2.06. Funding of Borrowings . . . . . . . . . . . . . . . . 38
SECTION 2.07. Interest Elections. . . . . . . . . . . . . . . . . . 39
SECTION 2.08. Termination and Reduction of
Commitments . . . . . . . . . . . . . . . . . . . . 40
SECTION 2.09. Repayment of Loans; Evidence of Debt. . . . . . . . . 41
SECTION 2.10. Optional Prepayment of Loans. . . . . . . . . . . . . 42
SECTION 2.11 Mandatory Prepayment of Loans . . . . . . . . . . . . 42
SECTION 2.12. Fees. . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.13. Interest. . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.14. Alternate Rate of Interest. . . . . . . . . . . . . . 45
SECTION 2.15. Increased Costs . . . . . . . . . . . . . . . . . . . 46
SECTION 2.16. Break Funding Payments. . . . . . . . . . . . . . . . 47
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs . . . . . . . . . . . . . . . . 49
SECTION 2.19. Mitigation Obligations; Replacement of
Lenders . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 2.20. Extension of Maturity Date. . . . . . . . . . . . . . 52
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Organization; Powers. . . . . . . . . . . . . . . . . 53
SECTION 3.02. Authorization; Enforceability . . . . . . . . . . . . 53
SECTION 3.03. Governmental Approvals; No Conflicts. . . . . . . . . 53
SECTION 3.04. Financial Condition; No Material Adverse
Change. . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.05. Properties. . . . . . . . . . . . . . . . . . . . . . 54
<PAGE>
2
SECTION 3.06. Litigation and Environmental Matters. . . . . . . . . 55
SECTION 3.07. Compliance with Laws and Agreements;
Margin Regulations. . . . . . . . . . . . . . . . . 55
SECTION 3.08. Investment and Holding Company Status . . . . . . . . 55
SECTION 3.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 3.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.11. Disclosure. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.12. Security Documents. . . . . . . . . . . . . . . . . . 56
SECTION 3.13. Subsidiaries. . . . . . . . . . . . . . . . . . . . . 57
SECTION 3.14. Millennium Compliance . . . . . . . . . . . . . . . . 57
ARTICLE IV
CONDITIONS
SECTION 4.01. Effective Date. . . . . . . . . . . . . . . . . . . . 57
SECTION 4.02. Each Credit Event . . . . . . . . . . . . . . . . . . 60
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. Financial Statements and Other
Information . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.02. Notices of Material Events. . . . . . . . . . . . . . 62
SECTION 5.03. Existence; Conduct of Business. . . . . . . . . . . . 62
SECTION 5.04 Payment of Obligations. . . . . . . . . . . . . . . . 63
SECTION 5.05. Maintenance of Properties; Insurance. . . . . . . . . 63
SECTION 5.06. Books and Records; Inspection Rights. . . . . . . . . 63
SECTION 5.07. Compliance with Laws. . . . . . . . . . . . . . . . . 63
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . . . . . 64
SECTION 5.09. Additional Subsidiaries;
Guarantee Requirement; Collateral
Requirement; Further Assurances . . . . . . . . . . 64
SECTION 5.10. Completion of Reorganization. . . . . . . . . . . . . 65
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Indebtedness. . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.03. Sale-Leaseback Transactions . . . . . . . . . . . . . 66
SECTION 6.04. Fundamental Changes . . . . . . . . . . . . . . . . . 67
SECTION 6.05. Investments, Loans, Advances, Guarantees
and Acquisitions. . . . . . . . . . . . . . . . . . 67
SECTION 6.06. Asset Sales . . . . . . . . . . . . . . . . . . . . . 68
SECTION 6.07. Capital Expenditures. . . . . . . . . . . . . . . . . 69
SECTION 6.08. Restricted Payments; Certain Payments
of Indebtedness . . . . . . . . . . . . . . . . . . 69
SECTION 6.09. Transactions with Affiliates. . . . . . . . . . . . . 70
SECTION 6.10. Restrictive Agreements. . . . . . . . . . . . . . . . 70
SECTION 6.11. Amendment of Material Documents . . . . . . . . . . . 71
SECTION 6.12. Fixed Charge Coverage Ratio . . . . . . . . . . . . . 71
SECTION 6.13. Balance Sheet Coverage Ratio. . . . . . . . . . . . . 71
SECTION 6.14. Tangible Net Worth. . . . . . . . . . . . . . . . . . 71
SECTION 6.15 Leverage Ratio. . . . . . . . . . . . . . . . . . . . 72
SECTION 6.16. Fiscal Year . . . . . . . . . . . . . . . . . . . . . 72
<PAGE>
3
ARTICLE VII
EVENTS OF DEFAULT; CAM
SECTION 7.01. Events of Default . . . . . . . . . . . . . . . . . . 72
SECTION 7.02. Implementation of CAM . . . . . . . . . . . . . . . . 74
ARTICLE VIII
THE AGENTS . . . . . . . . . . . 75
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 9.02. Waivers; Amendments . . . . . . . . . . . . . . . . . 78
SECTION 9.03. Expenses; Indemnity; Damage Waiver. . . . . . . . . . 79
SECTION 9.04. Successors and Assigns. . . . . . . . . . . . . . . . 80
SECTION 9.05. Survival. . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.06. Counterparts; Integration; Effectiveness. . . . . . . 83
SECTION 9.07. Severability. . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.08. Right of Setoff . . . . . . . . . . . . . . . . . . . 84
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process. . . . . . . . . . . . . . . . . 84
SECTION 9.10. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . 85
SECTION 9.11. Headings. . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 9.12. Confidentiality . . . . . . . . . . . . . . . . . . . 85
SECTION 9.13. Interest Rate Limitation. . . . . . . . . . . . . . . 86
SECTION 9.14. Conversion of Currencies. . . . . . . . . . . . . . . 86
SECTION 9.15. European Economic and Monetary Union. . . . . . . . . 87
SECTION 9.16. Release of Collateral . . . . . . . . . . . . . . . . 89
SECTION 9.17. Agreement on Bank Transactions. . . . . . . . . . . . 90
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES:
<S> <C>
Schedule 1.01A -- Non-Designated Subsidiaries
Schedule 1.01B -- Assets Contributed to MTS Pursuant to Reorganization
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 3.13 -- Subsidiaries
Schedule 4.01(k) -- Existing Credit Agreements
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.10 -- Existing Restrictions
<PAGE>
4
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B-1 -- Opinion of Wilson, Sonsini, Goodrich & Rosati, US counsel to
the Borrowers
Exhibit B-2 -- Opinion of Rakisons, Solicitors, English counsel to the
Borrowers
Exhibit B-3 -- Opinion of Haruki, Sawai & Inoue, Japanese counsel to the
Borrowers
Exhibit B-4 -- Opinion of McCann Fitzgerald, Irish counsel to the Lenders
Exhibit B-5 -- Opinion of Maclay Murray & Spens, Scottish counsel to the
Lenders
Exhibit C -- Guarantee Agreement
Exhibit D -- Pledge Agreement
Exhibit E-1 -- US Security Agreement
Exhibit E-2 -- Japanese Security Agreement
Exhibit E-3 -- UK Security Agreement
Exhibit E-4 -- Irish Security Agreement
Exhibit F -- Perfection Certificate
</TABLE>
<PAGE>
CREDIT AGREEMENT dated as of April 23, 1998, among MTS,
INCORPORATED, a California corporation; TOWER RECORDS KABUSHIKI
KAISHA, a Japanese corporation; the LENDERS party hereto; and THE
CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ACCOUNTS RECEIVABLE" has the meaning assigned to such term in the
Security Agreements.
"ADJUSTED LIBO RATE" means, with respect to any Eurocurrency Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"AGENTS" means the Administrative Agent and the Japanese Agent.
"AGREEMENT ON BANK TRANSACTIONS" means any agreement (GINKO TORIHIKI
YAKUJOSHO) between a Japanese bank (or a Japanese branch of a non-Japanese bank)
and a customer thereof, substantially in a standard form from time to time
prescribed by the Federation of Bankers Associations of Japan, providing for
general terms and conditions applicable to all loans by such bank to such
customer.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to
the greatest of (a) the Prime Rate in effect on
<PAGE>
2
such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective from and including the effective
date of such change in the Prime Rate, the Base CD Rate or the Federal Funds
Effective Rate, respectively.
"APPLICABLE AGENT" means, (a) with respect to a Loan or Borrowing in
US Dollars or in Pounds Sterling, the Administrative Agent or (b) with respect
to a Loan or Borrowing in Yen, the Japanese Agent.
"APPLICABLE PERCENTAGE" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment, or,
with respect to any Facility A or Facility B Lender, the percentage of the total
Facility A or Facility B Commitments, as the case may be, represented by such
Lender's Commitment. If the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.
"APPLICABLE PERIOD" means, on any day, the most recent period of four
fiscal quarters in respect of which financial statements have been delivered
pursuant to Section 5.01 at least three Business Days (as such term is defined
in connection with Borrowings in US Dollars) prior to such day.
"APPLICABLE RATE" means, for any day, with respect to any Eurocurrency
Revolving Loan, or with respect to the facility fees payable hereunder, the
applicable rate per annum set forth below under the caption "LIBOR Margin" or
"Facility Fee Rate", as the case may be, based upon the Fixed Charge Coverage
Ratio for the Applicable Period (subject to the conditions set forth below):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3 Category 4 Category 5
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Charge Greater than Less than 1.85 and Less than 1.70 and Less than 1.55 and Less than 1.40
Coverage Ratio or equal to 1.85 Greater than Greater than Greater than
or equal to 1.70 or equal to 1.55 or equal 1.40
- -----------------------------------------------------------------------------------------------------------------------------------
Facility Fee Rate .225% .250% .275% .300% .350%
- -----------------------------------------------------------------------------------------------------------------------------------
LIBOR Margin .400% .500% .600% .700% .900%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Each change in the Applicable Rate shall apply during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change.
Notwithstanding the foregoing, the "LIBOR Margin" and "Facility Fee Rate" shall
be based (a) upon Category 3 until but excluding the date that is three Business
Days (as such term is defined in connection with Borrowings in US Dollars) after
the date on which the financial statements with respect to MTS's fiscal quarter
ended April 30, 1998, have been furnished pursuant to Section 5.01 and
(b) subject to the Administrative Agent's discretion or at the request of the
Required Lenders, upon Category 5 during any period on and after a date on which
the
<PAGE>
3
Borrowers' Agent has defaulted in its obligation to deliver financial statements
required to be delivered under Section 5.01(a) or (b), as the case may be, and
the grace period referred to in Section 7.01(e) shall have expired, until but
excluding the date that is three Business Days (as such term is defined in
connection with Borrowings in US Dollars) after the date on which such financial
statements are delivered. In the event that, at any time after the date of this
Agreement, MTS shall receive net cash proceeds in excess of $50,000,000 from an
offering or placement of capital stock, MTS shall be entitled to deliver to the
Administrative Agent financial statements for the Applicable Period used to
determine the Applicable Rate at the time of such receipt, prepared on a pro
forma basis to reflect the issuance of such capital stock and the receipt and
application of such net cash proceeds as if such events had occurred on the
first day of the second quarter of such Applicable Period (the "Pro Forma
Date"), and such pro forma statements shall, effective as of the date three
Business Days after their receipt by the Administrative Agent, be the statements
used in determining the Applicable Rate (and pro forma financial statements for
subsequent Applicable Periods may likewise be delivered reflecting such
issuance, receipt and application as if they had occurred on the Pro Forma
Date).
"ASSESSMENT RATE" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R.
Part 327 (or any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time deposits made in dollars
at the offices of such member in the United States; PROVIDED that if, as a
result of any change in any law, rule or regulation, it is no longer possible to
determine the Assessment Rate as aforesaid, then the Assessment Rate shall be
such annual rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Applicable Agent, in the form of
Exhibit A or any other form approved by the Administrative Agent.
"AVAILABILITY PERIOD" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"BALANCE SHEET COVERAGE RATIO" means, for MTS and the Subsidiaries
on a consolidated basis at any date, the ratio of (a) the sum of Inventory
(including video product) and Accounts Receivable, in each case in respect of
which the Lenders have on such date a first priority perfected security
interest under the Security Documents securing the Obligations or a
significant portion thereof (less the amount of applicable reserves in
accordance with GAAP) to (b) the aggregate principal amount of Indebtedness
outstanding on such date under the Loan Documents minus cash and cash
equivalents (as defined in accordance with
<PAGE>
4
GAAP) on such date. For purposes of calculating this ratio, the Exchange
Rates used shall be those used in preparing the financial statements
delivered pursuant to Section 5.01 as of the most recent fiscal quarter end.
"BASE CD RATE" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"BAYSIDE" means Three A's Holdings, L.L.C., a Delaware limited
liability company doing business as "Bayside Entertainment Distribution" that is
a subsidiary of MTS.
"BOARD" means the Board of Governors of the Federal Reserve System of
the United States of America.
"BORROWERS" means MTS and TRKK.
"BORROWERS' AGENT" means MTS, in its capacity as agent for the
Borrowers.
"BORROWING" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Money Market Rate
Loans or Eurocurrency Loans, as to which a single Interest Period is in effect,
(b) a Competitive Loan or group of Competitive Loans of the same Type made on
the same date and as to which a single Interest Period is in effect, (c) a
Swingline Loan or (d) a Loan specified in Section 2.02(e).
"BORROWING REQUEST" means a request by a Borrower for a Revolving
Borrowing in accordance with Section 2.03.
"BUSINESS DAY" means (a) when used in connection with Borrowings in US
Dollars, any day that is not a Saturday, Sunday or other day on which commercial
banks in New York City or Los Angeles, California are authorized or required by
law to remain closed, (b) when used in connection with Borrowings in Pounds
Sterling, any day that is not a day on which banks are authorized or required by
law to remain closed with respect to dealings in US Dollar or Pounds Sterling
deposits in the London interbank market and (c) when used in connection with
Borrowings in Yen, any day that is not a day on which banks are authorized or
required by law to remain closed with respect to dealings in Yen deposits in the
Tokyo interbank market.
"CALCULATION DATE" means the last Business Day of each calendar
quarter or, if the US Dollar Equivalent of outstanding non-US Dollar Loans under
Facility A is greater than US$20,000,000, the last Business Day of each calendar
month or, if a Default shall have occurred and be continuing, more frequently at
the option of the Administrative Agent or the Required Lenders.
"CAM" means "Collection Allocation Mechanism", which is the mechanism
for the allocation and exchange of interests in the Credit Facilities and
collections thereunder established under Section 7.02.
<PAGE>
5
"CAM EXCHANGE" means the exchange of the Lenders' interests provided
for in Section 7.02.
"CAM EXCHANGE DATE" means the fifth Business Day after the CAM Trigger
Date.
"CAM PERCENTAGE" means, as to each Lender, a fraction, expressed as a
decimal, of which (a) the numerator shall be the sum of (i) the aggregate US
Dollar Equivalent of the Designated Obligations owed to such Lender and (ii) the
Swingline Exposure of such Lender, in each case immediately prior to the CAM
Exchange Date and (b) the denominator shall be the sum of (i) the aggregate US
Dollar Equivalent of the Designated Obligations owed to all the Lenders and (ii)
the aggregate Swingline Exposure of all the Lenders, in each case immediately
prior to such CAM Exchange Date. Notwithstanding any other provision of this
Agreement, for purposes of determining the Lenders' CAM Percentages, the
Exchange Rates employed to determine the US Dollar Equivalents of the Designated
Obligations shall be those in effect on the CAM Exchange Date.
CAM TRIGGER DATE" means the first date on which any event referred to
in paragraph (h) or (i) of Section 7.01 shall occur in respect of MTS.
"CAPITAL EXPENDITURES" means, in respect of any Person for any period,
the aggregate of all expenditures by such Person during such period that, in
accordance with GAAP, are or should be included in "additions to property, plant
or equipment" or similar items reflected in the statement of cash flows of such
Person, and shall include all expenditures for property, plant or equipment by
way of Capital Lease Obligations; PROVIDED, that "Capital Expenditures" shall in
any event exclude (a) acquisitions of video products, (b) expenditures of
insurance proceeds and amounts attributable to self-insurance maintained by such
Person under its self insurance programs in respect of lost, destroyed or
damaged property and (c) expenditures pursuant to obligations under a lease of
real property.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) personal property, or a combination
thereof, which obligations are required to be classified and accounted for as
capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in
accordance with GAAP; PROVIDED, that in no event shall obligations under a lease
of real property be deemed to be Capital Lease Obligations.
"CASH RENTAL EXPENSE" means, in respect of any period, the gross
amount of Rent Expense paid or payable in cash during such period net of the
amount of sub-lease income received in cash during such period.
A "CHANGE IN CONTROL" shall occur if (a) Russell Solomon, Doris
Solomon and the Trusts (for the benefit of the beneficiaries named therein on
the date hereof), individually or
<PAGE>
6
together, cease to own shares representing at least 51%, or any Person or
Persons acting in concert other than Russell Solomon, Doris Solomon or the
Trusts (for the benefit of the beneficiaries named therein on the date hereof),
individually or together, owns shares representing more than 35%, of (i) the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of, or the economic interest represented by the issued and
outstanding common stock of the Parent or (ii) either directly or indirectly
through the Parent, the economic interest represented by the issued and
outstanding common stock of MTS; (b) the Parent ceases to own shares
representing at least 51% of (i) the aggregate ordinary voting power represented
by the issued and outstanding capital stock of MTS or (ii) the economic interest
represented by the issued and outstanding common stock of MTS; or (c) MTS ceases
to own shares representing at least 51% of (i) the aggregate ordinary voting
power represented by the issued and outstanding capital stock of TRKK or (ii)
the economic interest represented by the issued and outstanding common stock of
TRKK.
"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.15(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"CLASS", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans,
Competitive Loans or Swingline Loans.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" means any and all "Collateral", as defined in the
Security Documents.
"COLLATERAL AGENT" has the meaning ascribed to it in the Security
Agreements.
"COLLATERAL REQUIREMENT" means at any date that (a) the Pledge
Agreement creates in favor of the Collateral Agent, for the benefit of the
Secured Parties, first priority perfected pledges of and security interests in
the capital stock or other equity interests owned by MTS or any US Subsidiary in
each Material Subsidiary that is a Non-US Subsidiary (but in no event more than
65% of the issued and outstanding capital stock or other equity interests of any
Non-US Subsidiary) and (b) the Security Agreements create in favor of the
Collateral Agent, for the benefit of the Lenders, first priority perfected
security interests in the Inventory and Accounts Receivable of each Borrower or
Material Subsidiary securing the Obligations (other than, as to the Inventory
and Accounts Receivable of any Non-US Subsidiary, the Excluded Obligations).
<PAGE>
7
"COMMITMENT" means, with respect to any Lender, such Lender's
Facility A Commitment and Facility B Commitment.
"COMPETITIVE BID" means an offer by a Lender to make a Competitive
Loan in accordance with Section 2.04.
"COMPETITIVE BID RATE" means, with respect to any Competitive Bid, the
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"COMPETITIVE BID REQUEST" means a request by any Borrower for
Competitive Bids in accordance with Section 2.04.
"COMPETITIVE LOAN" means a Facility A Loan made pursuant to Section
2.04.
"CONSOLIDATED NET INCOME" means, for any period, the net income or
loss of MTS and the Subsidiaries determined on a consolidated basis for such
period; PROVIDED that there shall be excluded (a) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary or is merged into or
consolidated with a Borrower or any of the Subsidiaries (other than a merger or
consolidation pursuant to the Reorganization) or the date that Person's assets
are acquired by a Borrower or any of the Subsidiaries and (b) the net income of
any Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Subsidiary.
"CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"CREDIT FACILITY" means Facility A or Facility B.
"DEFAULT" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"DESIGNATED OBLIGATIONS" means all Obligations of the Loan Parties in
respect of (a) principal of and interest on the Loans (excluding Loans made
pursuant to Sections 2.02(e), 2.04, 2.05A and 2.05B) and (b) Fees, whether or
not the same shall at the time of any determination be due and payable under the
terms of the Loan Documents.
"DESIGNATED SUBSIDIARY" means any Material Subsidiary other than a
Non-U.S. Subsidiary or a Subsidiary that is to be merged into MTS as part of the
Reorganization; PROVIDED, that any Subsidiary that (a) guarantees the Senior
Subordinated Debt or any other Indebtedness of a Borrower or (b) owns any
capital stock of or other equity interest in any Designated Subsidiary shall in
any event be a Designated Subsidiary.
<PAGE>
8
"DISCLOSED MATTERS" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"EBITDA" means, for any period, Consolidated Net Income for such
period plus, without duplication and to the extent deducted in determining such
Consolidated Net Income, the sum of income tax expense, depreciation expense,
amortization expense, Interest Expense, non-cash charges and extraordinary
charges, minus, without duplication and to the extent added in determining such
Consolidated Net Income, non-cash income and extraordinary income, all as
determined in accordance with GAAP on a consolidated basis for MTS and the
Subsidiaries.
"EBITDAR" means, for any period, EBITDA for such period plus, without
duplication and to the extent deducted in determining such EBITDA, Rent Expense
for such period, all as determined in accordance with GAAP on a consolidated
basis for MTS and the Subsidiaries.
"EFFECTIVE DATE" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of MTS or any Subsidiary directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with MTS, is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of
ERISA and Section 412 of the Code, is treated as a single employer under Section
414 of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with
<PAGE>
9
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by MTS or any of its ERISA Affiliates of any liability
under Title IV of ERISA with respect to the termination of any Plan; (e) the
receipt by MTS or any ERISA Affiliate from the PBGC or a plan administrator of
any notice relating to an intention to terminate any Plan or Plans or to appoint
a trustee to administer any Plan; (f) the incurrence by MTS or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by MTS or any ERISA
Affiliate of any notice, or the receipt by any Multiemployer Plan from MTS or
any ERISA Affiliate of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA.
"EUROCURRENCY", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to (a) in the case of such Loan or
Borrowing denominated in a currency other than Yen, the Adjusted LIBO Rate (or,
in the case of a Competitive Loan, the LIBO Rate) and (b) in the case of such
Loan or Borrowing denominated in Yen, the TIBO Rate.
"EVENT OF DEFAULT" has the meaning assigned to such term in
Article VII.
"EXCHANGE" means the transactions described in clause (a) of the
definition of "Reorganization".
"EXCHANGE RATE" means, on any day, (a) with respect to Yen or Pounds
Sterling, the rate at which such currency may be exchanged into US Dollars at
11:00 a.m., New York time based on the most recent fixing by the Federal Reserve
Bank of New York, and (b) with respect to US Dollars, the rate at which US
Dollars may be exchanged into (i) Yen at 11:00 a.m., Tokyo time based on the
most recent fixing by the Bank of Japan, and (ii) Pounds Sterling at 11:00 a.m.,
London time based on the most recent fixing by the Bank of England. In the
event that such rate cannot be determined pursuant to the preceding sentence,
the Exchange Rate shall be the arithmetic average of the spot rates of exchange
of the Administrative Agent in the market where its foreign currency exchange
operations in respect of such currency are then being conducted, at or about the
applicable time set forth above, on such date for the purchase of US Dollars,
Yen or Sterling, as the case may be, with the applicable currency for delivery
two Business Days later; PROVIDED, that if at the time of any such
determination, for any reason, no such spot rate is being quoted, the
Administrative Agent may use any reasonable method it deems appropriate to
determine such rate, and such determination shall be conclusive absent manifest
error.
"EXCLUDED OBLIGATIONS" means, with respect to any Non-US Subsidiary,
(a) any US Obligations and (b) any other
<PAGE>
10
Obligations to the extent (and only to the extent) that the guarantee by such
Non-US Subsidiary of such Obligations or the pledge by such Non-US Subsidiary of
assets to secure such Obligations (i) could reasonably be expected to be
prohibited by applicable law or to cause such Non-US Subsidiary or its officers
or directors to incur civil or criminal liabilities or penalties under
applicable law or (ii) would, in the reasonable judgment of MTS, cause MTS or
any of its Subsidiaries to incur significant tax or other disadvantages.
"EXCLUDED TAXES" means, with respect to the Agents, any Lender or any
other recipient of any payment to be made by or on account of any obligation of
a Borrower hereunder, (a) income or franchise taxes imposed on (or measured by)
its net income by the United States of America, or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which a Borrower is located
and (c) in the case of a Foreign Lender (other than with respect to any Loan or
interest in a Loan acquired by such Foreign Lender through an assignment
pursuant to a request by a Borrower under Section 2.19(b) or through an exchange
of interests pursuant to Section 7.02), any withholding tax that is imposed on
amounts payable to such Foreign Lender by the jurisdiction in which the Borrower
paying such amounts is organized or has its principal office at the time such
Foreign Lender becomes a party to this Agreement (or designates a new lending
office) or is attributable to such Foreign Lender's failure to comply with
Section 2.17(e), except to the extent that such Foreign Lender (or its assignor,
if any) was entitled, at the time of designation of a new lending office (or
assignment), to receive additional amounts from any Borrower with respect to
such withholding tax pursuant to Section 2.17(a) and has satisfied any
applicable mitigation obligations under Section 2.19(a).
"EXISTING CREDIT AGREEMENTS" means (a) the Amended and Restated Credit
Agreement dated as of February 13, 1996, as amended, among MTS, the Trusts, the
several financial institutions from time to time party thereto, Wells Fargo
Bank, N.A., as successor to First Interstate Bank of California and J.P. Morgan
Securities Inc., in the amount of US$195,000,000, (b) the Credit Agreement dated
as of December 31, 1996 between MTS and Union Bank of California, N.A. in the
amount of the Yen Equivalent of US$50,000,000, (c) the Loan Agreement dated as
of December 31, 1996 between Three A's Holdings, L.L.C. and U.S. Bank of
California in the amount of US$7,500,000, (d) the Loan Agreements between TRKK
and Sanwa Bank Limited dated April 25, 1997, in the amount of Y500,000,000 and
Y1,700,000,000, respectively, and (e) the Loan Agreement dated as of
November 17, 1992 between TRKK and Banque Nationale De Paris in the amount of
Y1,230,000,000.
"FACILITY A" means the credit facility contemplated by the Facility A
Commitments and, when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are made by a
Facility A Lender pursuant to its Facility A Commitment (or under Facility A
pursuant to the
<PAGE>
11
competitive advance procedures set forth in Section 2.04). References herein to
the "Facility A Loans" will include the Facility A Swingline Loans.
"FACILITY A AVAILABILITY PERIOD" means the period from and including
the Effective Date to but excluding the earlier of the Maturity Date and the
date of termination of the Facility A Commitments.
"FACILITY A COMMITMENT" means, with respect to each Lender, the
commitment, if any, of such Lender to make Facility A Revolving Loans hereunder
as set forth in Part A of Schedule 2.01, as the same may be reduced from time to
time pursuant to Section 2.08. The initial aggregate amount of the Lenders'
Facility A Commitments is US$125,000,000.
"FACILITY A LENDER" means a Lender that has a Facility A Commitment.
"FACILITY A REQUIRED LENDERS" means, at any time, Facility A Lenders
having Facility A Revolving Exposures and unused Facility A Commitments
representing at least 51% of the sum of the total Facility A Revolving Exposures
and unused Facility A Commitments at such time, subject to the proviso in the
definition of "Required Lenders" herein.
"FACILITY A REVOLVING EXPOSURE" means, with respect to any Facility A
Lender at any time, the sum of the US Dollar Equivalent of the outstanding
principal amount of such Lender's Facility A Revolving Loans and its Facility A
Swingline Exposure at such time.
"FACILITY A SWINGLINE EXPOSURE" means, at any time, the aggregate
principal amount of all Facility A Swingline Loans outstanding at such time.
The Facility A Swingline Exposure of any Facility A Lender at any time shall be
its Applicable Percentage of the total Facility A Swingline Exposure at such
time.
"FACILITY A SWINGLINE LENDER" means The Chase Manhattan Bank, in its
capacity as lender of Facility A Swingline Loans.
"FACILITY A SWINGLINE LOAN" means a Loan made under Facility A
pursuant to Section 2.05A.
"FACILITY B" means the credit facility contemplated by the Facility B
Commitments and, when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are made by a
Facility B Lender pursuant to its Facility B Commitment. References herein to
the "Facility B Loans" will include the Facility B Swingline Loans.
"FACILITY B COMMITMENT" means, with respect to each Lender, the
commitment, if any, of such Lender to make Facility B Revolving Loans hereunder
as set forth in Part B of Schedule 2.01, as the same may be increased or reduced
from time to time pursuant to Section 2.08. The initial aggregate amount of the
Lenders' Facility B Commitments will be Y19,810,500,000.
<PAGE>
12
"FACILITY B LENDER" means a Lender that has a Facility B Commitment.
"FACILITY B REQUIRED LENDERS" means, at any time, Facility B Lenders
having Facility B Revolving Exposures and unused Facility B Commitments
representing at least 51% of the sum of the total Facility B Revolving Exposures
and unused Facility B Commitments at such time, subject to the proviso in the
definition of "Required Lenders" herein.
"FACILITY B REVOLVING EXPOSURE" means, with respect to any Facility B
Lender at any time, the sum of the Yen Equivalent of the outstanding principal
amount of such Lender's Facility B Revolving Loans and its Facility B Swingline
Exposure at such time.
"FACILITY B SWINGLINE EXPOSURE" means, at any time, the aggregate
principal amount of all Facility B Swingline Loans outstanding at such time.
The Facility B Swingline Exposure of any Facility B Lender at any time shall be
its Applicable Percentage of the total Facility B Swingline Exposure at such
time.
"FACILITY B SWINGLINE LENDER" means The Sanwa Bank, Limited in its
capacity as lender of Facility B Swingline Loans, and its successors and
assigns.
"FACILITY B SWINGLINE LOAN" means a Loan made under Facility B
pursuant to Section 2.05B.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or controller of the applicable Borrower.
"FINANCING" means (a) the execution, delivery and performance by MTS
of the Senior Subordinated Debt Documents, the issuance of the Senior
Subordinated Debt for gross cash proceeds of not less than US$100,000,000 and
the use of such proceeds, or (b) the issuance of equity securities by MTS for
gross proceeds of not less than US$100,000,000 and the use of such proceeds.
"FIXED CHARGE COVERAGE RATIO" means, for MTS and the Subsidiaries on a
consolidated basis for any period of four consecutive fiscal quarters, the ratio
of (a) EBITDAR for such period to (b) the sum of Interest Expense, Cash Rental
Expense and cash dividends paid with respect to preferred stock for such
<PAGE>
13
period and the current portion of Indebtedness with an original maturity of more
than one year payable during such period (other than the current portion of
Indebtedness under this Agreement). Unless otherwise specified, the Fixed
Charge Coverage Ratio shall be determined as of the date financial calculations
are delivered pursuant to Section 5.01(c) in respect of the period of four
consecutive fiscal quarters ending with the most recent fiscal quarter in
respect of which financial statements have been delivered under Section 5.01(a)
or (b).
"FIXED RATE" means, with respect to any Competitive Loan (other than a
Eurocurrency Competitive Loan), the fixed rate of interest per annum specified
by the Lender making such Competitive Loan in its related Competitive Bid.
"FIXED RATE LOAN" means a Competitive Loan bearing interest at a Fixed
Rate.
"FOREIGN LENDER" means any Lender that is organized under the laws of
a jurisdiction other than that in which a Borrower under such Credit Facility is
located. For purposes of this definition, the United States of America, each
State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.
"GAAP" means generally accepted accounting principles in the United
States of America.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America, Japan, the United Kingdom, any other nation or any political
subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"GRANTOR" means each Borrower and each Subsidiary that is, or is
required by Section 5.09 to be, a party to the Pledge Agreement or a Security
Agreement.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part), PROVIDED that the term Guarantee shall
not include (a) endorsements for collection or deposit in the ordinary course of
business or (b) agreements entered into in the ordinary course of business to
purchase inventory or retail store fixtures of another Person at a price not
greater than the market value
<PAGE>
14
thereof. The term "Guarantee" used as a verb has a corresponding meaning.
"GUARANTEE AGREEMENT" means a Guarantee Agreement in substantially the
form of Exhibit C hereto among the Guarantors and the Administrative Agent
acting on behalf of the Lenders, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions hereof.
"GUARANTEE REQUIREMENT" means at any date that MTS and each Designated
Subsidiary is a Guarantor, in accordance with the terms of the Guarantee
Agreement; PROVIDED, HOWEVER, that the Guarantee Requirement shall in no event
be met unless each Subsidiary that guarantees the Senior Subordinated Debt or
any other subordinated Indebtedness of the Borrowers shall be a Guarantor.
"GUARANTORS" means MTS and the Subsidiaries that become party to the
Guarantee Agreement pursuant to Section 4.01(h) and (i), Section 5.09 or
otherwise.
"HAZARDOUS MATERIALS" means all explosive or radioactive substances
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding accounts
payable on normal payment terms and accruals in the ordinary course of
business), (f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person
of Indebtedness of others, (h) all Capital Lease Obligations of such Person,
(i) all obligations, contingent or otherwise, of such Person as an account party
in respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a
<PAGE>
15
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INFORMATION MEMORANDUM" means the Confidential Information Memorandum
dated September 1997, relating to the Borrowers and the Transactions.
"INTEREST ELECTION REQUEST" means a request by a Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.07.
"INTEREST EXPENSE" means, for any period, the gross interest expense
of MTS and the Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan (other
than a Swingline Loan that is an ABR Loan), the last day of each March, June,
September and December, (b) with respect to any Money Market Rate or
Eurocurrency Loan (other than a Swingline Loan that is a Money Market Rate or
Eurocurrency Loan), the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurocurrency
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period, (c) with respect
to any Fixed Rate Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Fixed Rate
Borrowing with an Interest Period of more than 90 days' duration, each day prior
to the last day of such Interest Period that occurs at intervals of 90 days'
duration after the first day of such Interest Period, and any other dates that
are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing and (d) in the case of any Special Sterling
Loan, the last day of the Interest Period applicable thereto.
"INTEREST PERIOD" means (a) with respect to any Eurocurrency
Borrowing (other than a Facility B Swingline Loan that is a Eurocurrency
Loan) the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three
or six months (and, in addition to the foregoing periods, (i) in the case of
a Facility A Revolving Borrowing denominated in Pounds Sterling, one week or
two weeks, (ii) in the case of a Facility B Revolving Borrowing denominated
in Yen, if consented to by each Facility B Lender, two weeks and (iii) in the
case of any Eurocurrency Borrowing (other than a Facility B Swingline Loan
that is a Eurocurrency Loan), if available from each Lender, nine or twelve
months) thereafter, as the applicable Borrower may elect, (b) with respect to
any Swingline Loan, (i) in the case of a Facility A Swingline Loan that is a
Money Market Rate Loan, the period commencing on the date of such Loan and
ending one to five Business Days thereafter, as the applicable Borrower may
elect, and (ii) in the case of a
<PAGE>
16
Facility B Swingline Loan that is (x) a Eurocurrency Loan, the period
commencing on the date of such Loan and ending one week, two weeks or one
month thereafter, as the applicable Borrower may elect, and (y) a Yen Base
Rate Loan, the period as agreed to by the applicable Borrower and the
Facility B Swingline Lender, (c) with respect to any Money Market Rate
Borrowing, the period commencing on the date of such Borrowing and ending one
or two weeks thereafter, as the applicable Borrower may elect, (d) with
respect to any Fixed Rate Borrowing, the period (which shall not be less than
seven days or more than 360 days) commencing on the date of such Borrowing
and ending on the date specified in the applicable Competitive Bid Request,
and (e) with respect to any Special Sterling Loan, the period agreed upon by
the applicable Borrower and the applicable Lenders pursuant to Section
2.02(e); PROVIDED, that (i) if any Interest Period would end on a day other
than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurocurrency Borrowing only,
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day
and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that
commences on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and, in the case
of a Revolving Borrowing, thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
"INVENTORY" has the meaning assigned to such term in the Security
Agreements.
"IRELAND TR" means, prior to the completion of the Reorganization,
Ireland TR, Incorporated, a corporation organized under the laws of California.
"IRISH SECURITY AGREEMENT" means the Security Agreement substantially
in the form of Exhibit E-4 hereto between Ireland TR and the Collateral Agent on
behalf of the Secured Parties, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions hereof.
"JAPANESE AGENT" means The Chase Manhattan Bank Tokyo Branch.
"JAPANESE SECURITY AGREEMENT" means the Security Agreement
substantially in the form of Exhibit E-2 hereto between TRKK and the Collateral
Agent acting on behalf of the Secured Parties, as the same may be amended,
modified or supplemented from time to time in accordance with the provisions
hereof.
"LENDERS" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the
term "Lenders" includes the Swingline Lender.
<PAGE>
17
"LEVERAGE RATIO" means, for MTS and the Subsidiaries on a consolidated
basis at any date, the ratio of (a) Senior Indebtedness at the end of the most
recent fiscal quarter to (b) EBITDA for the period of four fiscal quarters then
ended.
"LIBO RATE" means, with respect to any Eurocurrency Borrowing (other
than a Eurocurrency Borrowing denominated in Yen) for any Interest Period, the
interest rate per annum for deposits for a maturity most nearly comparable to
such Interest Period in the currency in which such Borrowing is denominated
appearing on Page 3740 or 3750, as applicable, of Dow Jones Markets (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of such service, as determined by the Applicable Agent
from time to time for purposes of providing quotations of interest rates in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period. In the event that such
rate is not available at such time for any reason, then the "LIBO RATE" with
respect to such Eurocurrency Borrowing for such Interest Period shall be the
rate at which deposits for a maturity most nearly comparable to such Interest
Period in the currency in which such Borrowing is denominated are offered by the
principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time
(or, if such Borrowing is denominated in Pounds Sterling, in immediately
available funds in the Paris interbank market at approximately 11:00 a.m., Paris
time, two Business Days prior to the commencement of such Interest Period.
"LIEN" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"LOAN DOCUMENTS" means this Agreement, the Guarantee Agreement and the
Security Documents and any promissory note evidencing the Loans under this
Agreement.
"LOAN PARTIES" means the Borrowers and the Subsidiary Loan Parties.
"LOANS" means the loans made by the Lenders to any Borrower pursuant
to this Agreement.
"LOCAL TIME" means (a), with respect to a Borrowing Request (including
a Competitive Bid Request) or any other notice under this Agreement, (i) Tokyo
time for any such request or notice for Yen, (ii) London time for any such
request or notice for Pounds Sterling or (iii) New York City time for any such
request or notice for US Dollars, or (b) with respect to funding
<PAGE>
18
of a Borrowing, local time determined by reference to the location of the
account established or designated by the Applicable Agent for such purpose.
"MARGIN" means, with respect to any Competitive Loan bearing interest
at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be
added to or subtracted from the LIBO Rate to determine the rate of interest
applicable to such Loan, as specified by the Lender making such Loan in its
related Competitive Bid.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
MTS and the Subsidiaries taken as a whole, (b) the ability of any Borrower to
perform any of its obligations under the Loan Documents or (c) the rights of or
benefits available to the Lenders under the Loan Documents.
"MATERIAL INDEBTEDNESS" means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of MTS and the
Subsidiaries in an aggregate principal amount exceeding US$10,000,000. For
purposes of determining Material Indebtedness, the "principal amount" of the
obligations of MTS or any Subsidiary in respect of any Hedging Agreement at any
time shall be the maximum aggregate net amount that MTS or such Subsidiary would
be required to pay if such Hedging Agreement were terminated at such time.
"MATERIAL SUBSIDIARY" means at any time (a) any Subsidiary that
individually accounts for more than 10% of the assets on a consolidated basis or
produces more than 10% of the consolidated EBITDA of MTS and the Subsidiaries
for the most recently ended period of four fiscal quarters for which financial
statements have been delivered pursuant to Section 5.01, (b) any Subsidiary that
would not be a Material Subsidiary under clause (a) but that is designated as a
Material Subsidiary by the Borrowers' Agent in a notice delivered to the
Administrative Agent (it being agreed that no such designation may be
subsequently rescinded by the Borrowers' Agent) and (c) any Subsidiary that owns
a Material Subsidiary.
"MATURITY DATE" means April 23, 2001, or any later date as determined
in accordance with Section 2.20.
"MONEY MARKET RATE" means, for any day with respect to any Money
Market Rate Loan for any Interest Period, a rate per annum equal to the
arithmetic average (rounded upwards, if necessary, to the next 1/100 of 1%) of
the rates per annum quoted to the Administrative Agent by each Reference Bank
(or, in the case of Swingline Loans, the rate of the applicable Swingline
Lender) for a loan in US Dollars of a comparable principal amount and with a
maturity comparable to such Interest Period, which in the case of any Money
Market Borrowing, shall be the rate quoted by each Reference Bank as of 12:00
noon one Business Day prior to the date of such proposed Money Market Borrowing.
Any rate quoted by a Reference Bank pursuant hereto may not necessarily be the
lowest rate offered by such Reference Bank for any particular loan or loans.
"MONEY MARKET RATE", when used in reference to any Loan
<PAGE>
19
or Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the Money
Market Rate.
"MTS" means MTS, Incorporated, a California corporation.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NON-US OBLIGATIONS" means the Obligations of TRKK or any other Non-US
Subsidiary.
"NON-US SUBSIDIARY" means any Subsidiary that is not a US Subsidiary.
"OBLIGATIONS" means (a) the due and punctual payment of (i) the
principal of and interest (including interest accruing during the pendency of
any bankruptcy, insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, and (ii) all other monetary obligations, including
fees, costs, expenses and indemnities, whether primary, secondary, direct,
contingent, fixed or otherwise (including monetary obligations incurred during
the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Loan Parties to the Secured Parties under the Credit Agreement, the
Guarantee Agreement and the other Loan Documents and (b) all obligations of the
Loan Parties, monetary or otherwise, under each Hedging Agreement entered into
to mitigate interest rate risks in respect of the Loans with a counterparty that
was a Lender at the time such Hedging Agreement was entered into (unless
otherwise agreed with such Lender at such time).
"OTHER TAXES" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"PARENT" means TOWER RECORDS INCORPORATED, a Delaware corporation.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"PERFECTION CERTIFICATE" means a certificate in the forms of Exhibit F
hereto or any other form or forms approved by the Collateral Agent.
"PERMITTED INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to
<PAGE>
20
the extent such obligations are backed by the full faith and credit of the
United States of America), in each case maturing within one year from the
date of acquisition thereof;
(b) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, any State of the
United States having, at the date of acquisition thereof, a rating of
at least AA by S&P or Aa2 by Moody's, in each case maturing within one
year from such date of acquisition;
(c) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from S&P or from Moody's;
(d) investments in certificates of deposit, banker's acceptances and
time and other deposits maturing within one year from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any commercial bank organized
under the laws of the United States of America or any State thereof or any
nation in which any Borrower or Subsidiary is doing business which has a
combined capital and surplus and undivided profits of not less than
US$450,000,000 or the equivalent thereof in any other currency;
(e) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in
clause (c) above;
(f) money market funds organized under the laws of the United States
or any state thereof that invest solely in the foregoing investments
permitted under clauses (a), (b), (c), (d) and (e) above; and
(g) investments consisting of prepaid expenses and negotiable
instruments held for collection.
"PERMITTED LIENS" means:
(a) Liens for Taxes not yet due or which are being contested;
(b) other Liens (including statutory landlords' liens) incidental to
the conduct of the businesses of MTS and the Subsidiaries or the ownership
of their property and assets which were not incurred in connection with the
borrowing of money or the obtaining of advances or credit, and which do not
in the aggregate materially detract from the value of their properties or
assets or materially impair the use thereof in the operation of their
businesses;
<PAGE>
21
(c) Liens on property or assets of MTS or a Subsidiary to secure
obligations of MTS or such Subsidiary to MTS or to another Subsidiary;
(d) Liens required by the Loan Documents;
(e) any Lien on property of MTS or a Subsidiary which is in existence
on the date hereof and set forth on Schedule 6.02 hereto;
(f) any Lien existing on any property or asset prior to the
acquisition thereof by MTS or a Subsidiary or existing on any property or
asset of any Person that becomes a Subsidiary after the date hereof prior
to the time such Person becomes a Subsidiary; PROVIDED that (i) such Lien
is not created in contemplation of or in connection with such acquisition
or such Person becoming a Subsidiary, as the case may be, (ii) such Lien
shall not apply to any other property or assets of MTS or any Subsidiary
and (iii) such Lien shall secure only those obligations which it secures on
the date of such acquisition or the date such Person becomes a Subsidiary,
as the case may be;
(g) Liens on fixed or capital assets acquired, constructed or improved
by MTS or any Subsidiary; PROVIDED that (i) such security interests secure
Indebtedness permitted by clause (d) of Section 6.01, (ii) such security
interests and the Indebtedness secured thereby are incurred prior to or
within 120 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does
not exceed the cost of acquiring, constructing or improving such fixed or
capital assets and (iv) such security interests shall not apply to any
other property or assets of MTS or any Subsidiary;
(h) any Lien renewing, extending or refunding any Lien permitted by
clauses (e), (f) or (g) above; PROVIDED that (A) the principal amount
secured is not increased and (B) the Lien is not extended to other
property;
(i) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business and securing obligations that are not due and payable or
which are being contested;
(j) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(k) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, letters of credit,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
<PAGE>
22
(l) Liens consisting of interests of lessors under Capital Lease
Obligations permitted by Section 6.01;
(m) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of MTS or
any Subsidiary;
(n) purchase money Liens on Inventory securing obligations owed to any
vendor in an amount on any date not in excess of the amount of accounts
payable that have been created in favor of such vendor during the three
month period ending on such date; PROVIDED that (i) such Liens are
subordinated to the Liens created by the Security Agreements on terms
approved in writing by the Administrative Agent and (ii) the cost of
perfecting such Liens shall be borne by the vendors receiving the benefit
thereof;
(o) Liens that are deemed to be a part of ordinary course franchise
agreements to which MTS or any Subsidiary, as a franchisor, is party; and
(p) other Liens securing obligations in an amount not in excess of 10%
of Tangible Net Worth in the aggregate for all such obligations.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 302 of ERISA, and in respect of which MTS or
any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"PLEDGE AGREEMENT" means the Pledge Agreement substantially in the
form of Exhibit D hereto among MTS, the applicable Subsidiaries and the
Collateral Agent acting on behalf of the Secured Parties, as the same may be
amended, modified or supplemented from time to time in accordance with the
provisions hereof.
"POUNDS STERLING" or "L" refers to lawful money of the United Kingdom.
"PRIME RATE" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
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23
"REFERENCE BANKS" means The Chase Manhattan Bank and Union Bank of
California, N.A. or such other two Lenders as MTS, with the consent of the
Administrative Agent and the Required Lenders, may from time to time designate.
"REGISTER" has the meaning set forth in Section 9.04.
"RELATED PARTIES" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"RENT EXPENSE" means, for any period, the rental expense (net of
sub-lease income) of MTS and the Subsidiaries for such period under all leases
of real and personal property, determined on a consolidated basis in accordance
with GAAP (excluding any such expense that is included in Interest Expense for
such period).
"REORGANIZATION" means a series of transactions pursuant to which
(a) the current holders of the capital stock of MTS will contribute those such
shares to the Parent in exchange for the shares of capital stock of the Parent;
(b) the Trusts will contribute those assets, liabilities and equity interests
held or owned by them and related to the business of MTS and its subsidiaries
(including the assets listed on Schedule 1.01B hereto) to the Parent in exchange
for shares of capital stock of the Parent; (c) the Parent will contribute to MTS
the assets, liabilities and equity interests referred to in clause (b); (d) TRS
will merge into MTS in a transaction in which MTS is the surviving corporation;
and (e) each other US Subsidiary (other than Bayside) will merge into MTS in a
transaction in which MTS is the surviving corporation and each holder other than
MTS of shares of capital stock of any such US Subsidiary will receive only cash
in return for such shares.
"REQUIRED LENDERS" means, at any time, Lenders having Revolving Credit
Exposures and unused Commitments representing at least 51% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time (with Yen
amounts being converted into US Dollar amounts for this purpose at the Exchange
Rate for Yen at such time); PROVIDED that, for purposes of declaring the Loans
to be due and payable pursuant to Article VII, and for all purposes after the
Loans become due and payable pursuant to Article VII or the Commitments expire
or terminate, the outstanding Competitive Loans of the Lenders shall be included
in their respective Revolving Credit Exposures in determining the Required
Lenders.
"RESTRICTED PAYMENT" means any dividend or other distribution (whether
in cash, securities or other property) with respect to any shares of any class
of capital stock of MTS or any Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancelation or
termination of any such shares of capital stock of
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24
MTS or any Subsidiary or any option, warrant or other right to acquire any such
shares of capital stock of MTS or any Subsidiary.
"REVOLVING CREDIT EXPOSURE" means, with respect to any Lender at any
time, the sum of its Facility A Revolving Exposure and its Facility B Revolving
Exposure.
"REVOLVING LOAN" means a Loan made pursuant to Section 2.03.
"SECURED PARTIES" shall have the meaning ascribed to such term in the
Security Agreements.
"SECURITY AGREEMENTS" means (a) the US Security Agreement, (b) the
Japanese Security Agreement, (c) the UK Security Agreement and (d) any security
agreement entered into with respect to Collateral in any country other than the
United States, Japan and the United Kingdom.
"SECURITY DOCUMENTS" means the Security Agreements, the Pledge
Agreement and each other security agreement or other instrument or document
executed and delivered pursuant to Section 4.01 or 5.09 in satisfaction of the
Collateral Requirement.
"SENIOR INDEBTEDNESS" means all Indebtedness of MTS and the
Subsidiaries other than (a) the Senior Subordinated Debt and (b) other
Indebtedness in respect of which no principal amounts are required to be paid,
prepaid, redeemed, repurchased or defeased prior to the Maturity Date, and which
is subordinated to the Obligations on terms, and contains covenants and events
of default, approved in writing by the Administrative Agent.
"SENIOR SUBORDINATED DEBT" means the senior subordinated notes to be
issued by MTS on or prior to the Effective Date in the aggregate principal
amount of not less than US$100,000,000 and the Indebtedness represented thereby.
"SENIOR SUBORDINATED DEBT DOCUMENTS" means the indenture under which
the Senior Subordinated Debt is issued and all other instruments, agreements and
other documents evidencing or governing the Senior Subordinated Debt or
providing for any Guarantee or other right in respect thereof.
"SPECIAL STERLING LOAN" means a Loan made pursuant to Section 2.02(e).
"STATUTORY RESERVE RATE" means, with respect to any currency, a
fraction (expressed as a decimal), the numerator of which is the number one and
the denominator of which is the number one minus the aggregate of the maximum
reserve, liquid asset or similar percentages (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal established by any
Governmental Authority of the United States or of the jurisdiction of such
currency or in which any subject Loans in such currency are made to which banks
in such jurisdiction are subject for any category of deposits or liabilities
customarily used to fund loans in such currency or by reference to which
interest rates
<PAGE>
25
applicable to Loans in such currency are determined. Such reserve, liquid asset
or similar percentages shall, in the case of US Dollars, include those imposed
pursuant to Regulation D (and for purposes of Regulation D, Eurocurrency Loans
shall be deemed to constitute "Eurocurrency Liabilities"). Loans shall be
deemed to be subject to such reserve requirements without benefit of or credit
for proration, exemptions or offsets that may be available from time to time to
any Lender under Regulation D or any other applicable law, rule or regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person (the "PARENT") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or, in the case
of a partnership, more than 50% of the general partnership interests are, as of
such date, owned, controlled or held.
"SUBSIDIARY" means any subsidiary of MTS.
"SUBSIDIARY LOAN PARTY" means any Subsidiary that is a party to the
Guarantee Agreement or Security Documents.
"SWINGLINE EXPOSURE" means, at any time, the sum of the Facility A
Swingline Exposure and the US Dollar Equivalent of the Facility B Swingline
Exposure. The Swingline Exposure of any Lender at any time shall be the sum of
its Applicable Percentage of the Facility A Swingline Exposure and its
Applicable Percentage of the US Dollar Equivalent of the Facility B Swingline
Exposure.
"SWINGLINE LENDERS" means the Facility A Swingline Lender and the
Facility B Swingline Lender.
"SWINGLINE LOAN" means a Facility A Swingline Loan or a Facility B
Swingline Loan.
"TANGIBLE NET WORTH" means, as of any date, Total Assets MINUS Total
Liabilities; PROVIDED, HOWEVER, that there shall be excluded from Total Assets
the following: (a) all assets which would be classified as intangible assets in
accordance with GAAP, including goodwill, organizational expense, research and
development expense, patent applications, patents, trademarks, trade names,
brands, copyrights, trade secrets, customer lists, licenses, franchises,
covenants not to compete and any such other intangible assets related to
minority interests; (b) all unamortized debt discount and expense; and (c) all
treasury stock.
"TAXES" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
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26
"THREE-MONTH SECONDARY CD RATE" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"TIBO RATE" means, with respect to any Eurocurrency Borrowing
denominated in Yen for any Interest Period, the interest rate per annum (rounded
upwards, if necessary, to the next 1/100 of 1%) for deposits for a maturity most
nearly comparable to such Interest Period in Yen appearing on Reuters Screen
Page TIBM for the average of five banks (or on any successor or substitute page
of such service, providing rate quotations comparable to those currently
provided on such page of such service, as determined by the Japanese Agent from
time to time for purposes of providing quotations of interest rates in the Tokyo
interbank market) at approximately 11:00 a.m., Tokyo time, two Business Days
prior to the commencement of such Interest Period. In the event that such rate
is not available at such time for any reason, then the "TIBO RATE" with respect
to such Eurocurrency Borrowing denominated in Yen for such Interest Period shall
be the rate at which deposits for a maturity most nearly comparable to such
Interest Period in Yen are offered by the principal Tokyo office of the
Facility B Swingline Lender in immediately available funds in the Tokyo
interbank market at approximately 11:00 a.m., Tokyo time, two Business Days
prior to the commencement of such Interest Period.
"TOTAL ASSETS" means, as of any date of determination, the total
assets of MTS and the Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"TOTAL LIABILITIES" means, as of any date, the total liabilities of
MTS and the Subsidiaries, determined on a consolidated basis in accordance with
GAAP (excluding from liabilities (a) an amount equal to those adjustments
arising from cumulative straight line adjustments under Financial Accounting
Standards Board No. 13 and non-cash translation adjustments made to the equity
section of MTS's balance sheet and (b) minority interests, to the extent
classified as liabilities under GAAP).
"TRANSACTIONS" means (a) the execution, delivery and performance by
each Loan Party of the Loan Documents to which it is to be a party, the
borrowing of Loans and the use of the proceeds thereof, (b) the Financing and
(c) the Reorganization.
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27
"TRKK" means Tower Records Kabushiki Kaisha, a Japanese corporation.
"TRS" means, prior to the completion of the Reorganization, T.R.
Services, Incorporated, a corporation organized under the laws of the state of
California.
"TRUSTS" means The Michael Solomon 1994 Trust, an irrevocable trust
organized under the laws of the state of California, and The David Solomon 1994
Trust, an irrevocable trust organized under the laws of the state of California,
which trusts are collectively known as the Russell M. and Doris E. Solomon 1994
Children's Trust.
"TYPE", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate
Base Rate, the Money Market Rate, the TIBO Rate, the Yen Base Rate or, in the
case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate.
"UK SECURITY AGREEMENT" means the Security Agreement substantially in
the form of Exhibit E-3 hereto between TRS and the Collateral Agent acting on
behalf of the Secured Parties, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions hereof.
"US DOLLARS" or "US$" refers to lawful money of the United States of
America.
"US DOLLAR EQUIVALENT" means (a) as to any Loan denominated in US
Dollars, the principal amount thereof, and (b) as to any Loan denominated in
Pounds Sterling or Yen, the principal amount thereof in US Dollars determined by
the Administrative Agent pursuant to Section 1.05(a) using the Exchange Rate
with respect to such currency at the time in effect.
"US OBLIGATIONS" means the Obligations of MTS or any US Subsidiary.
"US SECURITY AGREEMENT" means the Security Agreement substantially in
the form of Exhibit E-1 hereto among MTS and the Subsidiaries (other than TRKK
and its subsidiaries and any Non-US Subsidiaries) and the Collateral Agent
acting on behalf of the Secured Parties, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions hereof.
"US SUBSIDIARY" means any Subsidiary that is organized under the laws
of the United States or any state or other political subdivision, territory or
possession thereof.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
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28
"YEN" or "Y" refers to lawful money of Japan.
"YEN BASE RATE" means, with respect to any Yen Base Rate Borrowing for
any Interest Period, the rate of interest per annum publicly announced from time
to time by the Facility B Swingline Lender as its prime rate in effect at its
principal office in Tokyo; each change in the Yen Base Rate shall be effective
from and including the date such change is publicly announced as being
effective.
"YEN EQUIVALENT" means (a) as to any amount denominated in Yen, such
amount, and (b) as to any amount denominated in US Dollars, the equivalent of
such amount in Yen determined by the Administrative Agent pursuant to
Section 1.05(a) using the applicable Exchange Rate at the time in effect.
SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes
of this Agreement, Loans may be classified and referred to by Class (E.G., a
"Revolving Loan") or by Type (E.G., a "Eurocurrency Loan") or by Class and Type
(E.G., a "Eurocurrency Revolving Loan"). Borrowings also may be classified and
referred to by Class (E.G., a "Revolving Borrowing") or by Type (E.G., a
"Eurocurrency Borrowing") or by Class and Type (E.G., a "Eurocurrency Revolving
Borrowing").
SECTION 1.03. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement, (e) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights
and (f) unless otherwise specified herein, any references to a statute or
regulation shall be construed to include such statute or regulation as it may be
amended or superseded.
SECTION 1.04. ACCOUNTING TERMS; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect on the date hereof.
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29
SECTION 1.05. EXCHANGE RATES. (a) Not later than 1:00 p.m., New
York time, on each Calculation Date, the Administrative Agent shall
(i) determine the Exchange Rate as of such Calculation Date for exchanges of Yen
into US Dollars, US Dollars into Yen and, if any Loans denominated in Pounds
Sterling are outstanding, Pounds Sterling to US Dollars and (ii) give notice
thereof to the Lenders and the Borrowers. The Exchange Rates so determined
shall become effective on the first Business Day immediately following the
relevant Calculation Date (a "RESET DATE"), shall remain effective until the
next succeeding Reset Date and shall for all purposes of this Agreement (except
as provided in the next sentence or in connection with any provision expressly
requiring the use of a current Exchange Rate) be the Exchange Rates employed in
converting any amounts between US Dollars, Yen and Pounds Sterling. For
purposes of Articles V and VI and Section 7.01, all amounts expressed in US
Dollars shall be deemed to refer to US Dollars and/or equivalent amounts in
other currencies, determined (A) in the case of any amount appearing on the
financial statements delivered pursuant to Section 5.01, on the basis of the
exchange rates used in preparing such financial statements and (B) in the case
of any other amount, on the basis of the applicable Exchange Rate in effect at
the time such amount is required to be determined.
(b) Not later than 5:00 p.m., New York time, on each Reset Date and
each date on which a Borrowing shall occur, the Administrative Agent shall
(i) determine the US Dollar Equivalent of the aggregate principal amount of the
Facility A Loans then outstanding (after giving effect to any Loans made or
repaid on such date), (ii) determine the Yen Equivalent of the aggregate
principal amount of the Facility B Loans then outstanding (after giving effect
to any Loans made or repaid on such date) and (iii) notify the Borrowers of the
Facility A Revolving Exposures and the Facility B Revolving Exposures of the
Lenders.
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. (a) Subject to the terms and conditions
set forth herein, each Facility A Lender agrees to make Revolving Loans in US
Dollars from time to time during the Availability Period (i) to MTS in an
aggregate principal amount that will not result in (x) such Lender's Facility A
Revolving Exposure exceeding such Lender's Facility A Commitment or (y) the sum
of the total Facility A Revolving Exposures plus the aggregate principal amount
of outstanding Facility A Competitive Loans and the US Dollar Equivalent of the
aggregate principal amount of outstanding Special Sterling Loans exceeding the
total Facility A Commitments; and (ii) subject to the conditions stated in
clause (i) of this paragraph (a), in the case of TRKK, to a branch of TRKK
located in the United States in an aggregate principal amount such that the US
Dollar Equivalent of the aggregate principal amount of TRKK's Facility A
Revolving Loans, Facility A Swingline Loans and Competitive Loans does not
exceed US$25,000,000; PROVIDED that (A) Revolving Loans under this paragraph (a)
may be
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30
made in Pounds Sterling in an aggregate amount up to the US Dollar Equivalent of
US$30,000,000 and (B) Money Market Rate Loans shall not be made under this
paragraph (a) to the extent the aggregate outstanding amount of all Money Market
Rate Loans would exceed US$50,000,000.
(b) Subject to the terms and conditions set forth herein, each
Facility B Lender agrees to make Revolving Loans from time to time during the
Availability Period (i) to TRKK or MTS, in Yen (which such Loan, in the case of
MTS, will be made to a branch of MTS located in Japan), in an aggregate
principal amount that will not result in such Lender's Facility B Revolving
Exposure exceeding such Lender's Facility B Commitment or the sum of the total
Facility B Revolving Credit Exposures exceeding the total Facility B
Commitments; (ii) subject to the conditions stated in clause (i) of this
paragraph (b) and in clause (ii) of paragraph (a) above, to MTS or TRKK in US
Dollars (which such Loan, in the case of TRKK, will be made to a branch of TRKK
located in the United States), if (x) the aggregate US Dollar Equivalent of the
outstanding Facility A Loans equals the aggregate Facility A Commitments minus
the Facility A Swingline Exposure, (y) the aggregate principal amount of the
Facility B Loans is less than the aggregate Facility B Commitments minus the
Facility B Swingline Exposure and (z) the amount of the Facility B Loans to TRKK
shall not as a result of such Loans exceed US$25,000,000; PROVIDED, that Money
Market Rate Loans shall not be made under this paragraph (b) to the extent the
aggregate outstanding amount of all Money Market Rate Loans would exceed
US$50,000,000.
(c) Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrowers may borrow, prepay and reborrow
Revolving Loans.
SECTION 2.02. LOANS AND BORROWINGS. (a) Each Revolving Loan shall
be made as part of a Borrowing consisting of Revolving Loans made by the Lenders
ratably in accordance with their respective applicable Commitments. Each
Competitive Loan shall be made in accordance with the procedures set forth in
Section 2.04. The failure of any Lender to make any Loan required to be made by
it shall not relieve any other Lender of its obligations hereunder; PROVIDED
that the Commitments and Competitive Bids of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.14, (i) each Revolving Borrowing denominated
in US Dollars shall be comprised entirely of ABR Loans, Money Market Rate Loans
or Eurocurrency Loans as the Borrowers may request in accordance herewith,
(ii) each Revolving Borrowing denominated in Yen shall be comprised entirely of
Eurocurrency Loans, (iii) each Revolving Borrowing denominated in Pounds
Sterling shall be comprised entirely of Eurocurrency Loans and (iv) each
Competitive Borrowing shall be comprised entirely of Eurocurrency Loans or Fixed
Rate Loans in US Dollars as the Borrowers may request in accordance herewith.
Each Facility A Swingline Loan shall be a Money Market Rate Loan or an ABR Loan
<PAGE>
31
and each Facility B Swingline Loan shall be a Yen Base Rate Loan or a
Eurocurrency Loan, in each case, as the Borrowers may request in accordance
herewith. Each Lender at its option may make any Eurocurrency Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
PROVIDED that (x) any exercise of such option shall not affect the obligation of
the applicable Borrower to repay such Loan in accordance with the terms of this
Agreement and (y) any such branch or Affiliate of a Facility B Lender shall be a
resident of (or have its applicable lending office in), and will book its
Facility B Revolving Loans in, a jurisdiction such that under applicable law on
the date hereof no interest withholding tax will be payable on Facility B
Borrowings from such branch or Affiliate if payments thereunder are made from
Japan or the United States of America.
(c) At the commencement of each Interest Period for any Eurocurrency
Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of US$100,000 and not less than US$5,000,000 (for such
Borrowing denominated in US Dollars) or an integral multiple of L250,000 and not
less than L750,000 (for such Borrowing denominated in Pounds Sterling) or an
integral multiple of Y10,000,000 and not less than Y500,000,000 (for such
Borrowing denominated in Yen). At the time that each ABR Revolving Borrowing or
Money Market Rate Revolving Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of US$100,000 and not less than
US$1,000,000; PROVIDED that an ABR Revolving Borrowing or Money Market Rate
Revolving Borrowing may be in an aggregate amount that is equal to (or is the US
Dollar Equivalent of) the entire unused balance of the Facility A or Facility B
Commitments if such balance is less then US$1,000,000. Each Competitive
Borrowing shall be in an aggregate amount that is an integral multiple of
US$1,000,000 and not less than US$5,000,000. Each Facility A Swingline Loan
shall be in an amount that is an integral multiple of US$50,000 and not less
than US$250,000 and each Facility B Swingline Loan shall be in an amount that is
an integral multiple of Y5,000,000 and not less than Y25,000,000. Borrowings of
more than one Type and Class may be outstanding at the same time; PROVIDED that
there shall not at any time be more than a total of 10 Eurocurrency Revolving
Borrowings outstanding under each of Facility A and Facility B.
(d) Notwithstanding any other provision of this Agreement, a Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
(e) At any time, MTS and any Lender may at any time agree that such
Lender will make a Loan to MTS in Pounds Sterling with an agreed upon Interest
Period (which shall not be longer than one month) and bearing interest at an
agreed upon rate; PROVIDED, that the aggregate outstanding principal amount of
all Loans made pursuant to this Section shall at no time exceed L3,000,000. MTS
and the applicable Lender shall promptly notify the Administrative Agent of the
date and principal amount of any Loan made pursuant to this Section and the
Interest Period and interest rate applicable thereto.
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32
SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS. To request a
Revolving Borrowing, a Borrower shall notify the Applicable Agent of such
request by telephone (a) in the case of a Eurocurrency Borrowing, not later than
11:00 a.m., Local Time (or, with respect to such Borrowing in US Dollars, not
later than 1:30 p.m., New York time), three Business Days before the date of the
proposed Borrowing (or, with respect to such Borrowing by MTS in Yen, not later
than 5:00 p.m., San Francisco time, four Business Days before the date of the
proposed Borrowing), (b) in the case of an ABR Borrowing, not later than
1:30 p.m., Local Time, one Business Day before the date of the proposed
Borrowing or (c) in the case of a Money Market Rate Borrowing, not later than
1:00 p.m., Local Time, the Business Day of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Applicable Agent of a written
Borrowing Request in a form approved by the Applicable Agent and signed by the
applicable Borrower. Each such telephonic and written Borrowing Request shall
specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Facility A Borrowing or
Facility B Borrowing;
(iv) the currency of such Borrowing;
(v) whether such Borrowing is to be an ABR Borrowing, a Money Market
Rate Borrowing or a Eurocurrency Borrowing;
(vi) in the case of a Money Market Rate Borrowing or a Eurocurrency
Borrowing, the initial Interest Period to be applicable thereto, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(vii) the location and number of the applicable Borrower's account to
which funds are to be disbursed, which shall comply with the requirements
of Section 2.06.
If no election as to the currency of a Facility A Borrowing is specified, then
the requested Borrowing shall be denominated in US Dollars; if no election as to
the currency of a Facility B Borrowing is specified, then the requested
Borrowing shall be denominated in Yen. If no election as to the Type of a
Revolving Borrowing is specified, then the requested Revolving Borrowing shall
be a Money Market Rate Borrowing if denominated in US Dollars or a Eurocurrency
Borrowing if denominated in Pounds Sterling or in Yen. If no Interest Period is
specified with respect to any Money Market Rate Borrowing or Eurocurrency
Revolving Borrowing requested or deemed to have been requested, then the
applicable Borrower shall be deemed to have selected an Interest Period of one
week's duration, in the case of a Money Market Rate Borrowing, or one month's
duration, in the case of a
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33
Eurocurrency Borrowing. Promptly following receipt of a Borrowing Request in
accordance with this Section, the Applicable Agent shall advise each Facility A
or Facility B Lender, as the case may be, of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. COMPETITIVE BID PROCEDURE. (a) Subject to the terms
and conditions set forth herein (including, with respect to TRKK, those set
forth in Section 2.01(a)(ii)), from time to time during the Facility A
Availability Period a Borrower may request Competitive Bids and may (but shall
not have any obligation to) accept Competitive Bids and borrow Competitive Loans
denominated in US Dollars; PROVIDED that the sum of the total Facility A
Revolving Exposures plus the aggregate principal amount of outstanding
Competitive Loans at any time shall not exceed the total Facility A Commitments.
To request Competitive Bids, a Borrower shall notify the Administrative Agent of
such request by telephone, in the case of a Eurocurrency Borrowing, not later
than 1:30 p.m., New York time, four Business Days before the date of the
proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than
1:30 p.m., New York time, one Business Day before the date of the proposed
Borrowing; PROVIDED that a Borrower may submit up to (but not more than) three
Competitive Bid Requests on the same day, but a Competitive Bid Request shall
not be made within five Business Days after the date of any previous Competitive
Bid Request, unless any and all such previous Competitive Bid Requests shall
have been withdrawn or all Competitive Bids received in response thereto
rejected. Each such telephonic Competitive Bid Request shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Competitive Bid Request in a form approved by the Administrative Agent and
signed by the applicable Borrower. Each such telephonic and written Competitive
Bid Request shall specify the following information in compliance with Section
2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurocurrency Borrowing or a
Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(v) the location and number of the applicable Borrower's account to
which funds are to be disbursed, which shall comply with the requirements
of Section 2.06.
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Facility A Lenders of the
details thereof by telecopy, inviting such Lenders to submit Competitive Bids.
<PAGE>
34
(b) Each Facility A Lender may (but shall not have any obligation to)
make one or more Competitive Bids to a Borrower in response to a Competitive Bid
Request. Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurocurrency Competitive Borrowing, not later than
1:00 p.m., New York time, three Business Days before the proposed date of such
Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than
9:30 a.m., New York time, on the proposed date of such Competitive Borrowing.
Competitive Bids that do not conform substantially to the form approved by the
Administrative Agent may be rejected by the Administrative Agent, and the
Administrative Agent shall notify the applicable Lender as promptly as
practicable. Each Competitive Bid shall specify (i) the principal amount (which
shall be a minimum of US$5,000,000 and an integral multiple of US$1,000,000 and
which may equal the entire principal amount of the Competitive Borrowing
requested by the applicable Borrower) of the Competitive Loan or Loans that the
Facility A Lender is willing to make, (ii) the Competitive Bid Rate or Rates at
which the Facility A Lender is prepared to make such Loan or Loans (expressed as
a percentage rate per annum in the form of a decimal to no more than four
decimal places) and (iii) the Interest Period applicable to each such Loan and
the last day thereof.
(c) The Administrative Agent shall promptly notify the applicable
Borrower by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Lender that shall have
made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, a Borrower may
accept or reject any Competitive Bid. The applicable Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in a form approved by
the Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurocurrency Competitive
Borrowing, not later than 2:00 p.m., New York time, three Business Days before
the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 10:30 a.m., New York time, on the proposed date of the
Competitive Borrowing; PROVIDED that (i) the failure of the applicable Borrower
to give such notice shall be deemed to be a rejection of each Competitive Bid,
(ii) the applicable Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if such Borrower rejects a Competitive Bid made
at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive
Bids accepted by the applicable Borrower shall not exceed the aggregate amount
of the requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, the
applicable Borrower may accept Competitive Bids at the same Competitive Bid Rate
in part, which acceptance, in the case of multiple Competitive Bids at such
Competitive Bid Rate, shall be made pro rata in accordance with the amount of
each such Competitive Bid, and (v) except pursuant to clause (iv) above, no
Competitive Bid shall be accepted for a Competitive Loan unless such Competitive
Loan is in a minimum principal amount of US$5,000,000 and an
<PAGE>
35
integral multiple of US$1,000,000; PROVIDED FURTHER that if a Competitive Loan
must be in an amount less than US$5,000,000 because of the provisions of clause
(iv) above, such Competitive Loan may be for a minimum of US$1,000,000 or any
integral multiple thereof, and in calculating the pro rata allocation of
acceptances of portions of multiple Competitive Bids at a particular Competitive
Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral
multiples of US$1,000,000 in a manner determined by the applicable Borrower. A
notice given by a Borrower pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and, if
so, the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive
Bid in its capacity as a Facility A Lender, it shall submit such Competitive Bid
directly to the applicable Borrower at least one quarter of an hour earlier than
the time by which the other Lenders are required to submit their Competitive
Bids to the Administrative Agent pursuant to paragraph (b) of this Section.
SECTION 2.05A. FACILITY A SWINGLINE LOANS. (a) Subject to the terms
and conditions set forth herein (including those set forth in
Section 2.01(a)(ii)), the Facility A Swingline Lender agrees to make Facility A
Swingline Loans denominated in US Dollars to either Borrower from time to time
during the Availability Period, in an aggregate principal amount at any time
outstanding that will not result in (i) the aggregate principal amount of
outstanding Facility A Swingline Loans exceeding US$30,000,000, or (ii) the sum
of the total Facility A Revolving Exposures plus the aggregate principal amount
of outstanding Facility A Competitive Loans exceeding the total Facility A
Commitments. Within the foregoing limits and subject to the terms and
conditions set forth herein, a Borrower may borrow, prepay and reborrow Facility
A Swingline Loans.
(b) To request a Facility A Swingline Loan, a Borrower shall notify
the Facility A Swingline Lender (which shall promptly notify the Applicable
Agent) of such request by telephone (confirmed by telecopy), not later than
1:30 p.m., New York time, on the day of a proposed Facility A Swingline Loan.
Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) of the requested Facility A Swingline Loan, the
amount of the requested Facility A Swingline Loan and whether such Facility A
Swingline Loan will be an ABR Loan or a Money Market Rate Loan. The Facility A
Swingline Lender shall make each Facility A Swingline Loan available to the
applicable Borrower by means of a credit to the general deposit account of the
applicable Borrower with the Applicable Agent by 3:00 p.m., New York time, on
the requested date of such Facility A Swingline Loan.
<PAGE>
36
(c) The Facility A Swingline Lender may by written notice given to
the Applicable Agent not later than 12:00 noon, New York Time, on any Business
Day require the Facility A Lenders to acquire participations on such Business
Day in all or a portion of the Facility A Swingline Loans outstanding, together
with interest accrued thereon. Such notice shall specify the aggregate amount
of Facility A Swingline Loans in which Facility A Lenders will participate.
Promptly upon receipt of such notice, the Applicable Agent will give notice
thereof to each Facility A Lender, specifying in such notice such Lender's
Applicable Percentage of such Facility A Swingline Loan or Loans, together with
interest accrued thereon. Each Facility A Lender hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to the
Applicable Agent, for the account of the Facility A Swingline Lender, such
Lender's Applicable Percentage of such Facility A Swingline Loan or Loans. Each
Facility A Lender acknowledges and agrees that its obligation to acquire
participations in Facility A Swingline Loans pursuant to this paragraph is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of a Default or reduction
or termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever. Each
Facility A Lender shall comply with its obligation under this paragraph by wire
transfer of immediately available funds, in the same manner as provided in
Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall
apply, MUTATIS MUTANDIS, to the payment obligations of the Facility A Lenders),
and the Applicable Agent shall promptly pay to the Facility A Swingline Lender
the amounts so received by it from the Facility A Lenders. The Applicable Agent
shall notify the applicable Borrower of any participations in any Facility A
Swingline Loan acquired pursuant to this paragraph, and thereafter payments in
respect of such Facility A Swingline Loan shall be made to the Applicable Agent
and not to the Facility A Swingline Lender. Any amounts received by the
Facility A Swingline Lender from the applicable Borrower (or other party on
behalf of the applicable Borrower) in respect of a Facility A Swingline Loan
after receipt by the Facility A Swingline Lender of the proceeds of a sale of
participations therein shall be promptly remitted to the Applicable Agent; any
such amounts received by the Applicable Agent shall be promptly remitted by the
Applicable Agent to the Facility A Lenders that shall have made their payments
pursuant to this paragraph and to the Facility A Swingline Lender, as their
interests may appear. The purchase of participations in a Facility A Swingline
Loan pursuant to this paragraph shall not relieve the applicable Borrower of any
default in the payment thereof.
SECTION 2.05B. FACILITY B SWINGLINE LOANS. (a) Subject to the terms
and conditions set forth herein (including those set forth in Section 2.01(b)),
the Facility B Swingline Lender agrees to make Facility B Swingline Loans
denominated in Yen to TRKK from time to time during the Availability Period, in
an aggregate principal amount at any time outstanding that will not result in
(i) the aggregate principal amount of outstanding
<PAGE>
37
Facility B Swingline Loans exceeding Y2,200,000,000 (1) or (ii) the total
Facility B Revolving Exposures exceeding the total Facility B Commitments.
Within the foregoing limits and subject to the terms and conditions set forth
herein, TRKK may borrow, prepay and reborrow Facility B Swingline Loans.
(b) To request a Facility B Swingline Loan, TRKK shall notify the
Facility B Swingline Lender (which shall promptly notify the Applicable Agent)
of such request by telephone (confirmed by telecopy), not later than (i) in the
case of a Yen Base Rate Loan, 10:00 a.m., Local Time, on the day of a proposed
Facility B Swingline Loan and (ii) in the case of a Eurocurrency Loan, not later
than 11:00 a.m., Local Time, three Business Days before the date of the proposed
Loan. Each such notice shall be irrevocable and shall specify the requested
date (which shall be a Business Day) and the amount and Type of the requested
Facility B Swingline Loan and, in the case of a Eurocurrency Loan, the Interest
Period to be applicable thereto. Each Facility B Swingline Loan will be a Yen
Base Rate Loan or a Eurocurrency Loan denominated in Yen. The Facility B
Swingline Lender shall make each Facility B Swingline Loan available to TRKK by
means of a credit to the general deposit account of TRKK with the Facility B
Swingline Lender by 1:00 p.m., Local Time, on the requested date of such
Facility B Swingline Loan.
(c) The Facility B Swingline Lender may by written notice given to
the Applicable Agent not later than 11:00 a.m., Local Time, on any Business Day
require the Facility B Lenders to acquire participations on such Business Day in
all or a portion of the Facility B Swingline Loans outstanding, together with
interest accrued thereon. Such notice shall specify the aggregate amount of
Facility B Swingline Loans in which Facility B Lenders will participate.
Promptly upon receipt of such notice, the Applicable Agent will give notice
thereof to each Facility B Lender, specifying in such notice such Lender's
Applicable Percentage of such Facility B Swingline Loan or Loans, together with
interest accrued thereon. Each Facility B Lender hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to the
Applicable Agent, for the account of the Facility B Swingline Lender, such
Lender's Applicable Percentage of such Facility B Swingline Loan or Loans. Each
Facility B Lender acknowledges and agrees that its obligation to acquire
participations in Facility B Swingline Loans pursuant to this paragraph is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of a Default or reduction
or termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever. Each
Facility B Lender shall comply with its obligation under this paragraph by wire
transfer of immediately available funds, in the same manner as provided in
Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall
apply, MUTATIS MUTANDIS, to the payment obligations of the Facility B Lenders),
and the Applicable Agent shall promptly pay to the Facility B Swingline
- -------------------
(1) Amount may be increased to Y2,600,000,000.
<PAGE>
38
Lender the amounts so received by it from the Facility B Lenders. The
Applicable Agent shall notify TRKK of any participations in any Facility B
Swingline Loan acquired pursuant to this paragraph, and thereafter payments in
respect of such Facility B Swingline Loan shall be made to the Applicable Agent
and not to the Facility B Swingline Lender. Any amounts received by the
Facility B Swingline Lender from TRKK (or other party on behalf of TRKK) in
respect of a Facility B Swingline Loan after receipt by the Facility B Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Applicable Agent; any such amounts received by the Applicable
Agent shall be promptly remitted by the Applicable Agent to the Facility B
Lenders that shall have made their payments pursuant to this paragraph and to
the Facility B Swingline Lender, as their interests may appear. The purchase of
participations in a Facility B Swingline Loan pursuant to this paragraph shall
not relieve TRKK of any default in the payment thereof.
(d) The Facility B Swingline Lender will promptly notify the
Applicable Agent of each request for a Facility B Swingline Loan received by it,
each borrowing or repayment of a Facility B Swingline Loan and each acquisition
by the Facility B Lenders of participations in any Facility B Swingline Loan.
(e) If at any time the Facility B Swingline Lender shall either (i)
have outstanding any senior, unsecured, non-credit enhanced long-term
Indebtedness for borrowed money that ceases to be rated BBB+ or better by
Standard & Poor's Ratings Group and Baa1 or better by Moody's Investors Service,
Inc., or in the case that the foregoing ratings are not available, the Japanese
equivalent of such ratings or (ii) merge with or into, consolidate or transfer
all or substantially all of its assets to any other Person and is not the
surviving entity as a result of such merger, consolidation or transfer, MTS may
replace the Facility B Swingline Lender with the written consent of the
Administrative Agent. Upon such replacement, MTS and the Administrative Agent
shall make arrangements acceptable to both the successor Facility B Swingline
Lender and the replaced Facility B Swingline Lender with respect to the rights,
powers, duties, privileges and obligations of and the discharge of duties and
obligations of the successor Facility B Swingline Lender and the replaced
Facility B Swingline Lender, respectively.
SECTION 2.06. FUNDING OF BORROWINGS. (a) Each Lender shall make
each Loan (other than a Special Sterling Loan) to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds by 12:00
noon, Local Time, to the account of the Applicable Agent most recently
designated by it for such purpose by notice to the Lenders; PROVIDED that
Swingline Loans shall be made as provided in Section 2.05A and Section 2.05B.
The Applicable Agent will make such Loans available to the applicable Borrower
by promptly crediting the amounts so received, in like funds, to an account of
such Borrower maintained with the Applicable Agent and designated by such
Borrower in the applicable Borrowing Request or Competitive Bid Request.
<PAGE>
39
(b) Unless the Applicable Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Applicable Agent such Lender's share of such Borrowing,
the Applicable Agent may assume that such Lender has made such share available
on such date in accordance with paragraph (a) of this Section and may, in
reliance upon such assumption, make available to the applicable Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Applicable Agent, then the
applicable Lender and the applicable Borrower severally agree to pay to the
Applicable Agent forthwith on demand such corresponding amount with interest
thereon (the Applicable Agent hereby agreeing that it will first make such
demand on the applicable Lender), for each day from and including the date such
amount is made available to such Borrower to but excluding the date of payment
to the Applicable Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate (in the case of Borrowings denominated in US
Dollars) and a rate determined by the Applicable Agent in accordance with
banking industry rules on interbank compensation or (ii) in the case of such
Borrower, the interest rate applicable to Money Market Rate Loans (in the case
of Borrowings denominated in US Dollars) or an interest rate determined by the
Administrative Agent from time to time to reflect its cost of overnight or
short-term funds in Pounds Sterling or Yen plus the Applicable Rate used to
determine interest rates applicable to Eurocurrency Loans (in the case of
Borrowings denominated in Pounds Sterling or Yen, respectively). If such Lender
pays such amount to the Applicable Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
(c) Notwithstanding the foregoing paragraph (b), in the case of any
request for a Borrowing denominated in US Dollars for an amount greater than
US$25,000,000 or a Borrowing denominated in Yen for an amount greater than
Y3,301,750,000, the Applicable Agent shall not make available to the applicable
Borrower any Lender's share of such Borrowing that has not been received into
the designated account of the Applicable Agent.
SECTION 2.07. INTEREST ELECTIONS. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Money Market Rate or Eurocurrency Revolving Borrowing,
shall have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the applicable Borrower may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Money Market
Rate or Eurocurrency Revolving Borrowing, may elect Interest Periods therefor,
all as provided in this Section. A Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the applicable Lenders holding the
Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing. This Section shall not apply to
Competitive Borrowings or Special Sterling Loans, neither of which may be
converted or continued.
<PAGE>
40
(b) To make an election pursuant to this Section, a Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if such Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
applicable Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing, a
Money Market Rate Borrowing or a Eurocurrency Borrowing (as such Types of
Borrowing are permitted by Section 2.02); and
(iv) if the resulting Borrowing is a Money Market Rate Borrowing or a
Eurocurrency Borrowing, the Interest Period to be applicable thereto after
giving effect to such election, which shall be a period contemplated by the
definition of the term "Interest Period".
If any such Interest Election Request requests a Money Market Rate Borrowing or
a Eurocurrency Borrowing but does not specify an Interest Period, then the
applicable Borrower shall be deemed to have selected an Interest Period of one
week's duration, in the case of a Money Market Rate Borrowing, or one month's
duration, in the case of a Eurocurrency Borrowing.
(d) Promptly following receipt of an Interest Election Request, the
Applicable Agent shall advise each applicable Lender of the details thereof and
of such Lender's portion of each resulting Borrowing.
(e) If a Borrower fails to deliver a timely Interest Election Request
with respect to a Eurocurrency Revolving Borrowing prior to the third Business
Day before the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be continued as a Eurocurrency Borrowing with an
<PAGE>
41
Interest Period of one month. If a Borrower fails to deliver a timely Interest
Election Request with respect to a Money Market Rate Borrowing prior to the end
of the Interest Period applicable thereto, then, unless such Borrowing is repaid
as provided herein, at the end of such Interest Period such Borrowing shall be
continued as a Money Market Rate Borrowing with an Interest Period of one week.
Notwithstanding any contrary provision hereof, if an Event of Default has
occurred and is continuing and the Administrative Agent, at the request of the
Required Lenders, so notifies the applicable Borrower or Borrowers, then, so
long as an Event of Default is continuing (i) no outstanding Revolving Borrowing
may be converted to or continued as a Money Market Rate or Eurocurrency
Borrowing and (ii) unless repaid, each Money Market Rate and Eurocurrency
Revolving Borrowing denominated in US Dollars shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto, each
Eurocurrency Revolving Borrowing denominated in Yen shall become due and payable
at the end of the Interest Period applicable thereto and each Eurocurrency
Revolving Borrowing denominated in Pounds Sterling shall become due and payable
at the end of the Interest Period applicable thereto.
SECTION 2.08. TERMINATION AND REDUCTION OF COMMITMENTS. (a) Unless
previously terminated, the Commitments shall terminate on the Maturity Date.
(b) MTS may at any time terminate, or from time to time reduce, the
Facility A or Facility B Commitments; PROVIDED that (i) each reduction of the
Facility A Commitments shall be in an amount that is an integral multiple of
US$100,000 and not less than US$5,000,000, (ii) each reduction of the Facility B
Commitments shall be in an amount that is an integral multiple of Y10,000,000
and not less than Y500,000,000 and (iii) MTS shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.10 and 2.11, (x) the sum of the Facility A Revolving
Exposures plus the aggregate principal amount of outstanding Competitive Loans
would exceed the total Facility A Commitments or (y) the sum of the Facility B
Revolving Exposures would exceed the total Facility B Commitments.
(c) MTS shall notify the Administrative Agent of any election to
terminate or reduce the Facility A or Facility B Commitments under paragraph (b)
of this Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by MTS
pursuant to this Section shall be irrevocable; PROVIDED that a notice of
termination of the Commitments delivered by MTS may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by MTS (by notice to the Administrative Agent on or
prior to the specified effective date) if such condition is not satisfied. Any
termination or reduction of the Commitments shall be permanent. Each reduction
of the Facility A or Facility B Commitments shall be made ratably among
<PAGE>
42
the Facility A and Facility B Lenders respectively in accordance with their
respective Commitments.
SECTION 2.09. REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) Each
Borrower hereby unconditionally promises to pay (i) to the Applicable Agent for
the account of each applicable Lender the then unpaid principal amount of each
Revolving Loan on the Maturity Date, (ii) to the Administrative Agent for the
account of each Facility A Lender the then unpaid principal amount of each
Competitive Loan or Special Sterling Loan on the last day of the Interest Period
applicable to such Competitive Loan or Special Sterling Loan and (iii) to the
applicable Swingline Lenders directly into their respective accounts the then
unpaid principal amount of each Swingline Loan on the earlier of the Maturity
Date and the last day of the Interest Period applicable to such Swingline Loan.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrowers to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Applicable Agents shall maintain accounts in which they shall
record (i) in the case of the Administrative Agent, the amount of each Loan made
to MTS, and in the case of the Japanese Agent, the amount of each Loan made to
TRKK, (provided that (x) the Administrative Agent shall maintain all such
accounts relating to Competitive Loans and Facility A Swingline Loans and
(y) the Facility B Swingline Lenders shall maintain all such accounts relating
to the Facility B Swingline Loans), (ii) the Class and Type of each such Loan
and the Interest Period applicable thereto, (iii) the amount and currency of any
principal or interest due and payable or to become due and payable from the
applicable Borrower to each Lender hereunder and (iv) the amount of any sum
received by such Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be PRIMA FACIE evidence of the
existence and amounts of the obligations recorded therein; PROVIDED that the
failure of any Lender or the Applicable Agents to maintain such accounts or any
error therein shall not in any manner affect the obligation of the Borrowers to
repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that all Loans made by it to any Borrower
be evidenced by a single promissory note. In such event, the applicable
Borrower shall promptly prepare, execute and deliver to such Lender a promissory
note payable to the order of such Lender (or, if requested by such Lender, to
such Lender and its registered assigns) and in a form approved by the
Administrative Agent. Thereafter, the Loans evidenced by such promissory note
and interest thereon shall at all times (including after assignment pursuant to
Section 9.04) be represented by one or more promissory notes in such form
payable to the order of the
<PAGE>
43
payee named therein (or, if such promissory note is a registered note, to such
payee and its registered assigns).
SECTION 2.10. OPTIONAL PREPAYMENT OF LOANS. (a) A Borrower shall
have the right at any time and from time to time to prepay any Borrowing in
whole or in part, subject to prior notice in accordance with paragraph (b) of
this Section; PROVIDED that a Borrower shall not have the right to prepay any
Competitive Loan without the prior consent of the Lender thereof.
(b) A Borrower shall notify the Applicable Agent (and, in the case of
prepayment of a Swingline Loan, the applicable Swingline Lenders) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurocurrency Revolving Borrowing, not later than 11:00 a.m.,
Local Time (or, with respect to such Borrowing in US Dollars, not later than
1:30 p.m., New York time), three Business Days before the date of prepayment,
(ii) in the case of prepayment of an ABR Revolving Borrowing, not later than
1:30 p.m., New York time, one Business Day before the date of prepayment,
(iii) in the case of prepayment of a Money Market Rate Borrowing, not later than
1:00 p.m., New York time, one Business Day before the date of prepayment or
(iv) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m.,
Local time, on the date of prepayment. Each such notice shall be irrevocable
and shall specify the prepayment date and the principal amount of each Borrowing
or portion thereof to be prepaid; PROVIDED that, if a notice of prepayment is
given in connection with a conditional notice of termination of the Commitments
as contemplated by Section 2.08, then such notice of prepayment may be revoked
if such notice of termination is revoked in accordance with Section 2.08.
Promptly following receipt of any such notice relating to a Revolving Borrowing,
the Applicable Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Revolving Borrowing shall be in an amount that would
be permitted in the case of an advance of a Revolving Borrowing of the same Type
as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing. Prepayments
shall be accompanied by accrued interest to the extent required by Section 2.13.
SECTION 2.11. MANDATORY PREPAYMENT OF LOANS. (a) If on any
Calculation Date the sum of the total Facility A Revolving Exposures plus the
aggregate principal amount of outstanding Competitive Loans shall be greater
than 105% of the total Facility A Commitments, the Administrative Agent shall so
notify the applicable Borrowers and such Borrowers shall, within seven Business
Days of such notice, prepay Revolving Loans in such amounts as shall be
necessary to eliminate such excess.
(b) If on any Calculation Date the total Facility B Revolving
Exposures shall be greater than 105% of the total Facility B Commitments, the
Administrative Agent shall so notify the applicable Borrowers and such Borrowers
shall, within seven Business Days of such notice, prepay such Revolving Loans as
the Borrowers may select in such amounts as shall be necessary to eliminate such
excess.
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44
(c) All prepayments under this Section 2.11 shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.12. FEES. (a) MTS agrees to pay and/or cause TRKK to pay
to the Administrative Agent for Facility A and to the Applicable Agent for
Facility B for the account of each applicable Lender a facility fee, which shall
accrue at the Applicable Rate on the daily amount of the Commitment of such
Lender (whether used or unused) during the period from and including the date
hereof to but excluding the later of (x) the date on which such Commitment
terminates and (y) the date on which such Lender ceases to have any Revolving
Credit Exposure, and be payable in US Dollars with respect to Facility A
Commitments and Revolving Credit Exposures and Yen with respect to Facility B
Commitments and Revolving Credit Exposures; PROVIDED that, if such Lender
continues to have any Revolving Credit Exposure after its Commitment terminates,
then such facility fee shall continue to accrue on the daily amount of such
Lender's Revolving Credit Exposure from and including the date on which its
Commitment terminates to but excluding the date on which such Lender ceases to
have any Revolving Credit Exposure. Accrued facility fees shall be payable in
arrears on the last day of March, June, September and December of each year and
on the date on which the Commitments terminate, commencing on the first such
date to occur after the date hereof; PROVIDED that any facility fees accruing
after the date on which the Commitments terminate shall be payable on demand.
All facility fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day). Payments of Facility Fees by MTS will be made to the
Administrative Agent and payments of Facility Fees by TRKK will be made to the
Japanese Agent.
(b) MTS agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between MTS and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Applicable Agent for distribution, in the
case of facility fees and participation fees, to the applicable Lenders. Fees
paid shall not be refundable under any circumstances.
SECTION 2.13. INTEREST. (a) The Loans comprising each ABR Borrowing
shall bear interest at the Alternate Base Rate.
(b) The Loans comprising each Money Market Rate Borrowing (including
each Swingline Borrowing that is a Money Market Rate Borrowing) shall bear
interest at the Money Market Rate for the Interest Period in effect for such
Borrowing.
(c) The Loans comprising each Yen Base Rate Borrowing shall bear
interest at the Yen Base Rate.
(d) The Loans comprising each Eurocurrency Borrowing shall bear
interest (i) (x) in the case of a Eurocurrency
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45
Revolving Loan denominated in a currency other than Yen, at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Applicable
Rate and (y) in the case of a Eurocurrency Revolving Loan denominated in Yen,
the TIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Rate, (ii) in the case of a Facility B Swingline Loan that is a
Eurocurrency Loan, at the TIBO Rate for such Loan (determined as if the Interest
Period in effect for such Loan were of one month's duration) plus the Applicable
Rate or (iii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate
for the Interest Period in effect for such Borrowing plus (or minus, as
applicable) the Margin applicable to such Loan.
(e) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
(f) Each Special Sterling Loan shall bear interest at the rate agreed
upon by MTS and the applicable Lender pursuant to Section 2.02(e).
(g) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by a Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise (but only,
in the case of any interest, fee or other amount, beginning two Business Days
after such Borrower is advised by the Applicable Agent of such non-payment but
no earlier than the lapse of the grace period provided for in clause (b) of
Article VII), such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan (and interest, in the case of a Loan denominated in Pounds Sterling),
2% plus the rate otherwise applicable to such Loan as provided in the preceding
paragraphs of this Section, (ii) in the case of any other amount payable in US
Dollars, 2% plus the rate applicable to ABR Loans as provided in paragraph (a)
of this Section or (iii) in the case of any other amount payable in Yen, 2% plus
the rate applicable to Yen Base Rate Loans as provided in paragraph (c) of this
Section.
(h) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Facility A or Facility B
Revolving Loans, upon termination of the Facility A or Facility B Commitments,
respectively; PROVIDED that (i) interest accrued pursuant to paragraph (g) of
this Section shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior
to the end of the Availability Period), accrued interest on the principal amount
repaid or prepaid shall be payable on the date of such repayment or prepayment
and (iii) in the event of any conversion of any Money Market Rate or
Eurocurrency Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion. All interest that accrues under a Loan denominated in US
Dollars, Yen or Pounds Sterling shall be payable in the currency of such Loan.
<PAGE>
46
(i) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to (i) the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate and
(ii) the Adjusted LIBO Rate and the LIBO Rate with respect to Borrowings
denominated in Pounds Sterling shall be computed on the basis of a year of 365
days (or 366 days in a leap year), and in each case shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day). The applicable Alternate Base Rate, Money Market Rate, Adjusted LIBO
Rate, LIBO Rate, TIBO Rate and Yen Base Rate shall be determined by the
Applicable Agent, and such determination shall be conclusive absent manifest
error.
(j) The Administrative Agent will furnish to the applicable Borrower
an invoice setting forth the amount of interest to become due on each Interest
Payment Date (other than any interest due with respect to a Loan made under
Section 2.02(e).
SECTION 2.14. ALTERNATE RATE OF INTEREST. If prior to the
commencement of any Interest Period for a Money Market Rate or Eurocurrency
Borrowing:
(a) the Administrative Agent determines or is advised by the
Applicable Agent (which determination shall be conclusive absent manifest
error) that adequate and reasonable means do not exist for ascertaining the
Money Market Rate, the Adjusted LIBO Rate, the LIBO Rate or the TIBO Rate,
as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the applicable Lenders
holding Commitments that represent at least 66-2/3% of the total Facility A
or Facility B Commitments (or, in the case of a Eurocurrency Competitive
Loan, the Lender that is required to make such Loan) that the Money Market
Rate, the Adjusted LIBO Rate, the LIBO Rate or the TIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans
(or its Loan) included in such Borrowing for such Interest Period, and such
Lender can reasonably demonstrate such fact;
then the Administrative Agent shall give notice thereof to the Borrowers' Agent
and the Lenders by telephone or telecopy as promptly as practicable thereafter
and, until the Administrative Agent notifies the Borrowers and the Lenders that
the circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Money Market Rate Borrowing or
Eurocurrency Borrowing shall be ineffective, (ii) if any Borrowing Request
requests a Money Market Rate or Eurocurrency Revolving Borrowing denominated in
US Dollars, Pounds Sterling or Yen, such Borrowing shall be made as an ABR
Borrowing and denominated in US Dollars and (iii) any request by a Borrower for
a Eurocurrency Competitive Borrowing
<PAGE>
47
shall be ineffective; PROVIDED that (A) if the circumstances giving rise to such
notice do not affect all the Lenders, then requests by a Borrower for
Eurocurrency Competitive Borrowings may be made to Lenders that are not affected
thereby and (B) if the circumstances giving rise to such notice affect only one
Type of Borrowings, then the other Types of Borrowings shall be permitted.
SECTION 2.15. INCREASED COSTS. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate or the TIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Money Market Rate Loans, Eurocurrency
Loans or Fixed Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Money Market Rate Loan, Eurocurrency Loan or
Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to
reduce the amount of any sum received or receivable by such Lender hereunder
(whether of principal, interest or otherwise), then MTS will pay to such Lender,
without duplication, such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time MTS will pay to such Lender, without
duplication, such additional amount or amounts as will compensate such Lender or
such Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender, as the case may be, the amount shown as due on any such certificate
within 10 Business Days after receipt thereof. Such amount shall be payable in
the currency in which the corresponding Loan is denominated.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute
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48
a waiver of such Lender's right to demand such compensation; PROVIDED that a
Borrower shall not be required to compensate a Lender pursuant to this Section
for any increased costs or reductions incurred more than 120 days prior to the
date that such Lender notifies such Borrower of the Change in Law giving rise to
such increased costs or reductions and of such Lender's intention to claim
compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 120-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
(e) Notwithstanding the foregoing provisions of this Section, (i) in
determining the amount of any compensation to which it is entitled under this
Section, a Lender shall exclude the effects of any Change in Law regarding
capital requirements to the extent such Change in Law is applicable to such
Lender as a result of a material deterioration in the creditworthiness of such
Lender after the date of this Agreement, and (ii) a Lender shall not be entitled
to compensation pursuant to this Section in respect of any Competitive Loan if
the Change in Law that would otherwise entitle it to such compensation shall
have been publicly announced prior to submission of the Competitive Bid pursuant
to which such Loan was made.
SECTION 2.16. BREAK FUNDING PAYMENTS. In the event of (a) the
payment of any principal of any Money Market Rate Loan, Eurocurrency Loan or
Fixed Rate Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the conversion of
any Money Market Rate Loan or Eurocurrency Loan other than on the last day of
the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.10(b) and is revoked in accordance therewith), (d) the
failure to borrow any Competitive Loan after accepting the Competitive Bid to
make such Loan, or (e) the assignment of any Money Market Rate Loan,
Eurocurrency Loan or Fixed Rate Loan other than on the last day of the
Interest Period applicable thereto as a result of a request by a Borrower
pursuant to Section 2.19, or any deemed assignment of any such Loan pursuant
to Section 7.02, then, in any such event, the applicable Borrower shall
compensate each applicable Lender for the loss, cost and expense attributable
to such event. In the case of a Money Market Rate Loan, Eurocurrency Loan or
Fixed Rate Loan, such loss, cost or expense to any Lender shall (except in
the case of a deemed assignment of any such Loan pursuant to Section 7.02) be
deemed to equal an amount determined by such Lender to be the excess, if any,
of (i) the amount of interest which would have accrued on the principal
amount of such Loan had such event not occurred, at the Money Market Rate (in
the case of a Money Market Rate Loan) or the Adjusted LIBO Rate or the TIBO
Rate, as the case may be, (in the case of a Eurocurrency Loan) that would
have been applicable to such Loan, for the period from the date of such event
to the last day of the then current Interest Period therefor (or, in the case
of a failure to borrow, convert or continue, for the period that would have
been the Interest Period for such Loan), over (ii) the amount of interest
<PAGE>
49
which would accrue on such principal amount for such period at the interest
rate which such Lender would bid were it to bid, at the commencement of such
period, for US Dollar, Pounds Sterling or Yen deposits, as the case may be,
of a comparable amount and period from other banks in the eurocurrency
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be
delivered to the applicable Borrower and shall be conclusive absent manifest
error. Such Borrower shall pay such Lender the amount shown as due on any
such certificate within 10 Business Days after receipt thereof in the
currency in which the corresponding Loan is denominated.
SECTION 2.17. TAXES. (a) Any and all payments by or on account of
any obligation of each Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if any
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Applicable Agent or Lender (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) such Borrower shall make such deductions and
(iii) such Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law. Each Facility B
Lender will make any Loans from a lending office that is able under laws,
regulations and treaties in effect on the date hereof to receive payments of
interest from borrowers in Japan or the United States of America free of
Japanese or US withholding tax.
(b) In addition, but without duplication, each Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with applicable
law.
(c) Each Borrower shall indemnify the Applicable Agents and each
Lender, within 10 Business Days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Applicable Agent or
such Lender, as the case may be, on or with respect to any payment by or on
account of any obligation of each such Borrower hereunder (including Indemnified
Taxes or Other Taxes imposed or asserted on or attributable to amounts payable
under this Section) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to any Borrower by a Lender, or by an Applicable Agent on
its own behalf or on behalf of a Lender, shall be conclusive absent manifest
error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by any Borrower to a Governmental Authority, such Borrower shall
deliver to the Applicable Agent the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the
<PAGE>
50
return reporting such payment or other evidence of such payment reasonably
satisfactory to the Applicable Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which a
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to such Borrower (with a
copy to the Applicable Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by such Borrower or the Applicable Agent as will
permit such payments to be made without withholding or at a reduced rate.
SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS. (a) Each Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or of amounts payable under
Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, Local Time (or,
with respect to such Borrowing in US Dollars, not later than 1:30 p.m., New York
time), on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Applicable Agent, be deemed to have been received on the next
succeeding Business Day for purposes of calculating interest thereon. All such
payments shall be made to (i) the Administrative Agent at its offices at 270
Park Avenue, New York, New York or (ii) the Japanese Agent at its offices at
Akasaka Park Building, 9th Floor, 2-20 Akasaka 5-chome, Minato-ku, Tokyo 107,
Japan, as the case may be, except payments to be made directly to the Swingline
Lenders as expressly provided herein and except that payments in respect of
Special Sterling Loans and payments pursuant to Sections 2.15, 2.16, 2.17 and
9.03 shall be made directly to the Persons entitled thereto. The Applicable
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof.
If any payment hereunder shall be due on a day that is not a Business Day, the
date for payment shall be extended to the next succeeding Business Day, and, in
the case of any payment accruing interest, interest thereon shall be payable for
the period of such extension. All payments hereunder for which no currency has
been specified shall be made in US Dollars.
(b) If at any time insufficient funds are received by and available
to the Applicable Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto
in accordance with the amounts of interest and fees then due to such parties,
and (ii) second, towards payment of principal then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal then
due to such parties.
(c) If any Facility A or Facility B Lender shall, by exercising any
right of setoff or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its applicable Revolving Loans or
participations in Swingline
<PAGE>
51
Loans resulting in such Lender receiving payment of a greater proportion of the
aggregate amount of its applicable Revolving Loans and, if applicable,
participations in Swingline Loans and accrued interest thereon than the
proportion received by any other Facility A or Facility B Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face value)
participations in the Facility A or Facility B Revolving Loans and
participations in Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the applicable Lenders
ratably in accordance with the aggregate amount of principal of and accrued
interest on their respective applicable Revolving Loans and participations in
Swingline Loans; PROVIDED that (i) if any such participations are purchased and
all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent
of such recovery, without interest, and (ii) the provisions of this paragraph
shall not be construed to apply to any payment made by a Borrower pursuant to
and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans to any assignee or participant, other than to
a Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of
this paragraph shall apply). Each Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against any Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of such
Borrower in the amount of such participation.
(d) Unless the Applicable Agent shall have received notice from a
Borrower prior to the date on which any payment is due to the Applicable Agent
for the account of the Lenders hereunder that such Borrower will not make such
payment, the Applicable Agent may assume that such Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the applicable Lenders the amount due. In such event,
if a Borrower has not in fact made such payment, then each of the applicable
Lenders severally agrees to repay to the Applicable Agent forthwith on demand
the amount so distributed to such Lender with interest thereon, for each day
from and including the date such amount is distributed to it to but excluding
the date of payment to the Applicable Agent, at the greater of (i) the Federal
Funds Effective Rate (in the case of payments to be made in US Dollars), (ii) a
rate determined by the Applicable Agent to reflect such Applicable Agent's cost
of funds for overnight borrowings in Pounds Sterling (in the case of payments to
be made in Pounds Sterling) and (iii) a rate determined by the Applicable Agent
to reflect such Applicable Agent's cost of funds for overnight borrowings in Yen
(in the case of payments to be made in Yen) and a rate determined by the
Applicable Agent in accordance with banking industry rules on interbank
compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.05(A)(c),
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52
2.05B(c), 2.06(b) or 2.18(d), then the Applicable Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Applicable Agent for the account of such Lender to satisfy such
Lender's obligations under such Sections until all such unsatisfied obligations
are fully paid.
SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.
(a) If any Lender requests compensation under Section 2.15, or if any Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The
Borrowers' Agent hereby agrees to pay all reasonable costs and expenses incurred
by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if a
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then MTS
may, at no expense to any such Lender (other than a Lender that has defaulted in
its obligation to fund Loans), upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in Section 9.04), all
its interests, rights and obligations under this Agreement (other than any
outstanding Competitive Loans held by it) to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); PROVIDED that (i) MTS shall have received the prior written consent
of the Administrative Agent (and, if a Commitment is being assigned, the
applicable Swingline Lender), which consent shall not unreasonably be withheld,
(ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans (other than Competitive Loans) and any
participations in Swingline Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the applicable
Borrower (in the case of all other amounts) and (iii) in the case of any such
assignment resulting from a claim for compensation under Section 2.15 or
payments required to be made pursuant to Section 2.17, such assignment will
result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling MTS
to require such assignment and delegation cease to apply.
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53
SECTION 2.20. EXTENSION OF MATURITY DATE. (a) MTS may, by notice to
the Administrative Agent (which shall promptly deliver a copy to each of the
applicable Lenders) given not more than 60 days prior to either or both the
first and second anniversary of the Effective Date while the Commitments remain
in effect, request that the Facility A and/or Facility B Lenders extend the
Maturity Date for an additional one year period (but in no event beyond the
fifth anniversary of the Effective Date) from the maturity date then in effect
(the "EXISTING MATURITY DATE"). Each applicable Lender shall, by notice to MTS
and the Administrative Agent given not later than the 15th Business Day after
the date of MTS's notice, advise MTS whether or not such Lender agrees to such
extension (and any Lender that does not so advise MTS on or before such day
shall be deemed to have advised MTS that it will not agree to such extension).
(b) MTS shall have the right on or before the date of such extension,
to require any Lender which shall have advised or been deemed to advise MTS that
it will not agree to an extension of the Maturity Date (each a "Non-Extending
Lender") to transfer without recourse (in accordance with and subject to the
restrictions contained in Section 9.04) all its interests, rights and
obligations under this Agreement to one or more other banks or other financial
institutions (any such bank or other financial institution being called a
"Substitute Lender"), which may include any Lender, provided that (i) such
Substitute Lender, if not already a Lender hereunder, shall be subject to the
approval of MTS, the Administrative Agent and the applicable Swingline Lender
(which approval shall not be unreasonably withheld) and shall execute all such
documentation as the Administrative Agent shall specify to evidence its status
as a Lender hereunder, (ii) such assignment shall become effective as of the
date of such extension (the "Extension Date") and (iii) MTS shall pay to such
Non-Extending Lender in immediately available funds (in US Dollars, Pounds
Sterling or Yen, as applicable) on the effective date of such assignment the
principal of and interest accrued to the date of payment on the Loans made by it
hereunder and all other amounts accrued for its account or owed to it hereunder.
(c) If (and only if) the applicable Lenders holding Commitments that
represent at least 66-2/3% of the total Facility A or Facility B Commitments on
the 60th day prior to the applicable anniversary of the Effective Date shall
have agreed to extend the Existing Maturity Date (such Lenders being called the
"CONTINUING LENDERS"), then (i) the Maturity Date for Facility A or Facility B
shall be extended to the first anniversary of the Existing Maturity Date
(PROVIDED, that if such date is not a Business Day, then the Maturity Date as so
extended shall be the next following Business Day) and (ii) the applicable
Commitment of each Non-Extending Lender shall terminate (with the result that
the total Facility A or Facility B Commitments will decrease by the amount of
such Commitment), and all applicable Loans of each such Lender shall become due
and payable, together with all interest accrued thereon and all other amounts
owed to such Lender hereunder, on the Existing Maturity Date.
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Notwithstanding the foregoing, no extension of the Maturity Date shall
be effective with respect to any Lender unless, on and as of the Extension
Maturity Date, the conditions set forth in paragraphs (a) and (b) of Section
4.02 shall be satisfied (with all references to a Borrowing being deemed to be
references to such extension) and the Administrative Agent shall have received a
certificate to that effect dated the Extension Date and executed by a Financial
Officer of MTS.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Lenders that:
SECTION 3.01. ORGANIZATION; POWERS. Each of the Borrowers and the
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. AUTHORIZATION; ENFORCEABILITY. The Transactions to be
entered into by each Loan Party are within such Loan Party's corporate or other
powers and have been duly authorized by all necessary corporate or other action
and, if required, stockholder action. This Agreement has been duly executed and
delivered by each Borrower and constitutes, and each other Loan Document to
which any Loan Party is to be a party, when executed and delivered by such Loan
Party, will constitute, a legal, valid and binding obligation of each Borrower
or such Loan Party (as the case may be), enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Borrowers or any of the Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any
indenture or material agreement or other instrument binding upon the Borrowers
or any of the Subsidiaries or their assets, or give rise to a right thereunder
to require any payment to be made by the Borrowers or any of the Subsidiaries,
and (d) will not result in the creation
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55
or imposition of any Lien on any asset of the Borrowers or any of the
Subsidiaries (other than those created under the Loan Document).
SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) The audited combined balance sheet of the MTS, the Trusts and their
subsidiaries (combining the consolidated results of the Trusts and their
subsidiaries with those of MTS and its subsidiaries) as at July 31, 1997, and
the related combined statements of income, shareholders, equity and cash flows
for the fiscal year then ended and the unaudited combined balance sheet of MTS,
the Trusts and their subsidiaries (combining the results of the Trusts and their
subsidiaries with those of MTS and its subsidiaries) as at January 31, 1998, are
complete and correct and fairly present the financial condition of MTS, the
Trusts and their subsidiaries as at such dates and the results of operations of
MTS, the Trusts and their subsidiaries for the periods covered by such
statements, in each case on a combined basis in accordance with GAAP
consistently applied, subject, in the case of the January 31, 1998 financial
statements, to normal year-end adjustments and the absence of footnotes.
(b) MTS has heretofore furnished to the Lenders a pro forma
consolidated balance sheet of MTS and the Subsidiaries as of January 31, 1998,
prepared giving effect to the Transactions (including the Reorganization) as if
such Transactions had occurred on such date. Such pro forma consolidated
balance sheet (i) has been prepared in good faith based on the same assumptions
used to prepare the pro forma financial statements included in the Information
Memorandum (which assumptions are believed by MTS to be reasonable), (ii) is
based on the best information available to MTS after due inquiry,
(iii) accurately reflects all adjustments necessary to give effect to the
Transactions (including the Reorganization) and (iv) presents fairly, in all
material respects, the pro forma financial position of MTS and the Subsidiaries
on a consolidated basis as of January 31, 1998, as if the Transactions
(including the Reorganization) had occurred on such date.
(c) Since July 31, 1997, there has been no material adverse change,
and no event that could reasonably be expected to result in a material adverse
change, in the business, assets, operations or condition, financial or
otherwise, of MTS and the Subsidiaries, taken as a whole.
SECTION 3.05. PROPERTIES. (a) Each of MTS and the Subsidiaries has
good title to, or valid leasehold interests in, all its real and personal
property material to its business, except for minor defects in title that do not
interfere in any material respect with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Each of MTS and the Subsidiaries owns, or is licensed or
otherwise has rights to use, all trademarks, tradenames, copyrights, patents and
other intellectual property material to its business, and the use thereof by MTS
and the
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56
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS. (a) There are
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrowers, threatened
against or affecting MTS or any of the Subsidiaries (i) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect (other than the Disclosed Matters) or
(ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither MTS nor any of the
Subsidiaries (i) to the best of its knowledge, has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) to the best of its
knowledge, has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS; MARGIN
REGULATIONS. (a) Each of MTS and the Subsidiaries is in compliance with all
laws, regulations and orders of any Governmental Authority applicable to it or
its property and all indentures, agreements and other instruments binding upon
it or its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing.
(b) The Borrowers have not, and are not presently, engaged in the
business of extending credit for the purpose of purchasing or carrying "margin
stock" (within the meaning of Regulations G or U of the Board). No part of the
proceeds of the Loans will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS. Neither MTS nor
any of the Subsidiaries is (a) an "investment company" as defined in, or subject
to regulation under, the Investment Company Act of 1940 or (b) a "holding
company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935.
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57
SECTION 3.09. TAXES. Each of the MTS and the Subsidiaries has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being, or promptly will be, contested in good
faith by appropriate proceedings and for which MTS or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than US$5,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than US$10,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. DISCLOSURE. Neither the Information Memorandum nor any
of the other reports, financial statements, certificates or other information
furnished by or on behalf of the Borrowers to the Administrative Agent, the
Japanese Agent or any Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; PROVIDED that,
to the extent such information was based upon or constitutes projected financial
information, the Borrowers represent only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. SECURITY DOCUMENTS. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable security interest in the
Collateral covered by the Pledge Agreement and, when the certificates and other
instruments referred to in Section 4.01(f) have been delivered to the Collateral
Agent, the Pledge Agreement shall constitute a fully perfected first priority
Lien on, and security interest in, all right, title and interest of the pledgors
thereunder in such Collateral securing the Obligations, in each case prior and
superior in right to any other person.
(b) The Security Agreements are effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest
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58
in the Collateral covered by the Security Agreements and, when financing
statements in appropriate form are filed in the offices specified on Schedule 5
to the Perfection Certificate, the Security Agreements shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the Grantors thereunder in such Collateral securing the Obligations
(except, in the case of any Guarantor that is a Non-US Subsidiary, any Excluded
Obligations), in each case prior and superior in right to any other person,
other than with respect to Liens expressly permitted by Section 6.02 and the
Security Agreements and, in the case of the UK Security Agreement and the Irish
Security Agreement, other than those Persons mandatorily preferred by law
applying to companies generally in England and Scotland and Ireland,
respectively.
SECTION 3.13. SUBSIDIARIES. Schedule 3.13 sets forth the name of,
and the ownership interest of MTS and each Subsidiary in, each Subsidiary and
identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of
the Effective Date (after giving effect to the Reorganization).
SECTION 3.14. MILLENNIUM COMPLIANCE. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (i) the
computer systems of MTS and the Subsidiaries and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which MTS' or any Subsidiary's systems interface) and the testing of all such
systems and equipment, as so reprogrammed, is expected to be completed by
September 1, 1999.
ARTICLE IV
CONDITIONS
SECTION 4.01. EFFECTIVE DATE. The obligations of the Lenders to make
Loans shall not become effective until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received favorable written
opinions (addressed to the Agents and the Lenders and dated the Effective
Date) of each of (i) Wilson, Sonsini, Goodrich & Rosati, US counsel to the
Borrowers, substantially in the form of Exhibit B-1, (ii) Rakisons,
Solicitors, English counsel to the Borrowers, substantially in the form of
Exhibit B-2, (iii) Haruki, Sawai & Inoue, Japanese counsel to the
Borrowers, substantially in the form of Exhibit B-3, (iv) McCann
Fitzgerald, Irish counsel to the
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Lenders, substantially in the form of Exhibit B-4, and (v) Maclay Murray &
Spens, Scottish counsel to the Lenders, substantially in the form of
Exhibit B-5, substantially in the form of Exhibit B-8, and covering such
other matters relating to the Borrowers, this Agreement or the Transactions
as the Required Lenders shall reasonably request. The Borrowers hereby
request such counsel to deliver such opinions.
(c) The Administrative Agent shall have received such documents and
certificates as the Agents or their respective counsel may reasonably
request relating to the organization, existence and good standing of each
Loan Party, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, this Agreement or the Transactions,
all in form and substance satisfactory to the Agents and their respective
counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of MTS, confirming compliance with the conditions set
forth in paragraph (g)(i) of Section 4.01 and paragraphs (a) and (b) of
Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all reasonable
out-of-pocket expenses required to be reimbursed or paid by either Borrower
hereunder.
(f) The Administrative Agent shall have received counterparts of the
Pledge Agreement signed on behalf of MTS and each Subsidiary party thereto,
together with stock certificates or other instruments (if any) representing
all the shares of capital stock or other equity interests pledged
thereunder and stock powers and instruments of transfer, endorsed in blank,
with respect to such stock certificates and other equity interests.
(g) The Administrative Agent shall have received counterparts of the
Security Agreements signed on behalf of the applicable Borrowers and
Subsidiaries, together with:
(i) all documents and instruments, including Uniform Commercial
Code financing statements, required by law or reasonably requested by
the Agents to be filed, registered or recorded to create or perfect
the Liens intended to be created under the Security Agreements; and
(ii) a completed Perfection Certificate dated the Effective Date
and signed by an executive officer or a Financial Officer of the
Borrowers' Agent, together with all attachments contemplated thereby,
including the results of a search of the Uniform Commercial Code
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(or equivalent) filings made with respect to the Loan Parties in the
jurisdictions contemplated by the Perfection Certificate and copies of
the financing statements (or similar documents) disclosed by such
search and evidence reasonably satisfactory to the Agents that the
Liens indicated by such financing statements (or similar documents)
are permitted by Section 6.02 and the Security Agreements or have been
released.
(h) The Administrative Agent shall have received counterparts of the
Guarantee Agreement signed on behalf of MTS and each Designated Subsidiary.
(i) The Collateral Requirement and the Guarantee Requirement shall
have been satisfied as of the Effective Date. The Agents shall have
completed to their satisfaction an audit of the Collateral, all records
related thereto and the premises upon which any of the Collateral is
located.
(j) MTS shall have received gross cash proceeds of not less than
US$100,000,000 from the Financing. The terms and conditions of the
Financing (including, in the case of issuance of Senior Subordinated Debt,
the provisions of the Senior Subordinated Debt Documents with respect to
maturity and amortization, pricing, covenants, events of default and
subordination) shall be satisfactory to the Administrative Agent. In the
case of issuance of Senior Subordinated Debt Documents, the Administrative
Agent shall have received copies of the Senior Subordinated Debt Documents,
certified by a Financial Officer of MTS as complete and correct.
(k) (i) The Existing Credit Agreements (other than up to
US$14,000,000 of certain credit facilities secured by equipment and real
property (which credit facilities are the only existing secured
facilities), all of which have been heretofore disclosed to the
Administrative Agent and are set forth in Schedule 4.01(k)) and (x) all
commitments in US Dollars thereunder to lend shall have been terminated,
all amounts outstanding or owed in US Dollars thereunder shall have been
paid in full and all Liens on the assets of any Loan Party securing any
obligations thereunder or under any related agreement shall have been
permanently released as a condition to the initial funding by the Lenders
of a Borrowing denominated in US Dollars and (y) all commitments in Yen
thereunder to lend shall have been terminated, all amounts outstanding or
owed in Yen thereunder shall have been paid in full and all Liens on the
assets of any Loan Party securing any obligations thereunder or under any
related agreement shall have been permanently released as a condition to
the initial funding by the Lenders of a Borrowing denominated in Yen and
(ii) the Administrative Agent shall have received evidence satisfactory in
form and substance to it demonstrating such termination, payment and
release.
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(l) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by a Financial Officer of MTS, setting forth
reasonably detailed calculations demonstrating that the ratio of
(i) consolidated Indebtedness of MTS and the Subsidiaries as of January 31,
1998 (and after giving effect to the Reorganization) to (ii) consolidated
EBITDA of MTS and the Subsidiaries for the period of four fiscal quarters
most recently ended is not greater than 4.00 to 1.00.
(m) The Reorganization shall have been, or shall simultaneously be,
completed (except that the transactions referred to in clauses (d) and (e)
of the definition of "Reorganization" need not have been completed to the
extent that, in the judgment of MTS, additional time is required to obtain
certain consents as to the merger of TRS and for the elimination of
minority interests in US Subsidiaries referred to in such clause (e)), and
the Administrative Agent shall have received (i) a certificate, dated the
Effective Date and signed by a trustee of each of the Trusts confirming
completion of the transactions referred to in clauses (a) through (c) of
the definition of "Reorganization" and (ii) evidence satisfactory to the
Administrative Agent as to the completion of such transactions.
(n) The US Dollar and Yen proceeds of the initial Borrowings shall
have been, or shall simultaneously be, applied in a manner consistent with
the "funds flow" statement provided by the Borrowers' Agent to the Agents.
The Administrative Agent shall notify the Borrowers' Agent and the Lenders of
the Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
shall not become effective unless each of the foregoing conditions is satisfied
(or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City
time, on April 30, 1998 (and, in the event such conditions are not so satisfied
or waived, the Commitments shall terminate at such time).
SECTION 4.02. EACH CREDIT EVENT. The obligation of each Lender to
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of the Borrowers set forth in
this Agreement shall be true and correct in all material respects on and as
of the date of such Borrowing, except to the extent they expressly relate
to an earlier date.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
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Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrowers on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each Borrower covenants and agrees with the Lenders that:
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Borrowers' Agent will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of MTS, the
consolidated balance sheet of MTS and the Subsidiaries as of the end of
such fiscal year, and the related consolidated statements of income,
shareholders equity and cash flows of MTS and the Subsidiaries for such
fiscal year, prepared on a consolidated basis in accordance with GAAP
consistently applied, all in reasonable detail and setting forth in
comparative form the figures for the previous fiscal year, accompanied by a
report thereon of Coopers & Lybrand or another firm of independent
certified public accountants of recognized national standing (which report
shall not be qualified with respect to the scope of the audit undertaken by
such firm or in any other material respect);
(b) within 120 days after the end of each fiscal year of TRKK, the
consolidated balance sheet of TRKK and its Subsidiaries as of the end of such
fiscal year, and the related consolidated statements of income, shareholders
equity and cash flows of TRKK and its Subsidiaries for such fiscal year,
prepared on a consolidated basis in accordance with GAAP consistently applied,
all in reasonable detail and setting forth in comparative form the figures for
the previous fiscal year, accompanied by an unqualified report thereon of
Coopers & Lybrand or another firm of independent certified public accountants of
recognized national standing;
(c) within 45 days after the end of each quarter of each fiscal year
of MTS, a consolidated balance sheet of MTS and the Subsidiaries as of the
end of such quarter, and the related consolidated statements of income,
shareholders, equity and cash flows of MTS and the Subsidiaries for such
quarter and the portion of the fiscal year through the end of such quarter,
prepared on a consolidated basis in accordance with GAAP consistently
applied, all in reasonable detail and setting forth in comparative form the
figures for the corresponding periods in the preceding fiscal year,
together with a certificate of a Financial Officer of the Borrowers' Agent
stating that such financial statements
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63
fairly present the financial condition of MTS and the Subsidiaries as at
such date and the results of operations of MTS and its Subsidiaries for the
period ended on such date and have been prepared on a consolidated basis in
accordance with GAAP consistently applied, subject to changes resulting
from normal, year-end audit adjustments and except for the absence of
footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrowers' Agent (i) certifying as to whether a Default has occurred and,
if a Default has occurred and is continuing, specifying the details thereof
and any action taken or proposed to be taken with respect thereto and
(ii) setting forth reasonably detailed calculations demonstrating
compliance with Sections 6.12, 6.13 and 6.14;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any uncured
Default with respect to any financial or numerical covenant in Article VI
(which certificate may be limited to the extent required by generally
accepted accounting rules or guidelines);
(f) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
MTS or any Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, as the case may be;
(g) prior to the start of each fiscal year of MTS, a consolidated
financial forecast for MTS and the Subsidiaries for the following fiscal
year, including forecasted consolidated balance sheets and consolidated
statements of income, shareholders equity and cash flows of MTS and the
Subsidiaries (which forecast shall (A) state the assumptions used in the
preparation thereof and (B) be in form reasonably satisfactory to the
Required Lenders); and
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of MTS
or any Subsidiary, or compliance with the terms of this Agreement, as the
Administrative Agent or any Lender may reasonably request.
SECTION 5.02. NOTICES OF MATERIAL EVENTS. The Borrowers' Agent will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
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64
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting MTS or
any Affiliate thereof that, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of MTS and the Subsidiaries in an aggregate amount
exceeding US$3,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or another executive officer of the Borrowers' Agent setting
forth the details of the event or development requiring such notice and any
action taken or proposed to be taken with respect thereto.
SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS. Each Borrower will,
and will cause each of the Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; PROVIDED that the foregoing shall not prohibit
any merger, consolidation, liquidation or dissolution permitted under
Section 6.04.
SECTION 5.04. PAYMENT OF OBLIGATIONS. Each Borrower will, and will
cause each of the Subsidiaries to, pay its obligations, including Taxes, that,
if not paid, could reasonably be expected to result in a Material Adverse Effect
before the same shall become delinquent or in default, except where (a) the
validity or amount thereof is being contested in good faith by appropriate
proceedings and (b) the applicable Borrower or Subsidiary has set aside on its
books adequate reserves with respect thereto in accordance with GAAP (or the
equivalent of GAAP in the applicable country).
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE. Each Borrower
will, and will cause each of the Subsidiaries to, (a) keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS. Each Borrower
will, and will cause each of the Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. Each Borrower will,
and
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65
will cause each of the Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice from the
Administrative Agent, to visit and inspect its properties, to examine and make
extracts from its books and records, and to discuss its affairs, finances and
condition with its officers and independent accountants; PROVIDED, that not more
than one such visit by representatives of Lenders shall occur during any
calendar year and any such visit shall be at the expense of the Lender or
Lenders requesting the same. The Collateral Agent shall audit annually (and at
other times upon reasonable request) the Collateral, all records related thereto
and the premises upon which any of the Collateral is located if so requested by
the Administrative Agent (and, unless an Event of Default shall have occurred
and be continuing, Lenders having Revolving Credit Exposures and unused
Commitments representing at least 66-2/3% of the aggregate Revolving Credit
Exposures and unused Commitments at such time (with Yen amounts being converted
into U.S. Dollar amounts for this purpose at the Exchange Rate for Yen at such
time)). The fee paid by the Borrowers for each such audit shall be no greater
than US$50,000; PROVIDED that if the Collateral Agent arranges for a bidding
process involving a reasonable number of reputable auditors, then the Collateral
Agent shall hire the auditor submitting the lowest bid to perform such audit at
such fee and the Borrowers shall pay such fee.
SECTION 5.07. COMPLIANCE WITH LAWS. Each Borrower will, and will
cause each of the Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. USE OF PROCEEDS. The proceeds of the Loans will be
used only for general corporate purposes, including the financing of working
capital requirements, the retirement of outstanding Indebtedness and
acquisitions. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations G, U and X.
SECTION 5.09. ADDITIONAL SUBSIDIARIES; GUARANTEE REQUIREMENT;
COLLATERAL REQUIREMENT; FURTHER ASSURANCES. (a) If any additional Material
Subsidiary is formed or acquired after the Effective Date, the Borrowers' Agent
will notify the Administrative Agent thereof within 30 days.
(b) If at any date the Guarantee Requirement is not met, the
Borrowers will promptly take all such actions, including causing any Designated
Subsidiaries that are not then Guarantors to become parties to the Guarantee
Agreement, as shall be necessary, or as the Required Lenders, the Administrative
Agent or the Collateral Agent may reasonably request, to cause the Guarantee
Requirement to be met.
(c) If at any date the Collateral Requirement is not met, the
Borrowers will promptly take and cause the Subsidiaries to take all such
actions, including causing any Designated
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Subsidiaries that are not then parties to the Pledge Agreement to become parties
to the Pledge Agreement and causing any Subsidiaries that are not then parties
to the Security Agreements to become parties to the Security Agreements, as
shall be necessary, or as the Required Lenders, the Administrative Agent or the
Collateral Agent may reasonably request, to cause the Collateral Requirement to
be met.
(d) The Borrowers will, and will cause each Subsidiary to, execute
any and all further documents, financing statements, agreements and instruments,
and take all further action (including filing Uniform Commercial Code and other
financing statements) that may be required under applicable law, or that the
Required Lenders, the Administrative Agent or the Collateral Agent may
reasonably request, in order to grant, confirm, preserve, protect and perfect
the validity and priority of the security interests created or intended to be
created by the Security Documents (including, with respect to any additional
Subsidiary formed or acquired after the Effective Date, causing it (x) not to
have a provision in its organizational documents stating that it will be
governed by Article 8 of the Uniform Commercial Code and (y) in the case of such
additional Subsidiary located in a country other than the United States, Japan
or the United Kingdom, to become a party to a Security Agreement of the type
described in clause (d) of the definition of Security Agreements). Such
security interests and Liens shall be created under the Security Documents and
other security agreements, mortgages, deeds of trust and other instruments and
documents in form and substance satisfactory to the Collateral Agent, and the
Borrowers shall deliver or cause to be delivered to the Lenders all such
instruments and documents (including legal opinions and lien searches) as the
Collateral Agent shall reasonably request to evidence compliance with this
paragraph (d). The Borrowers' Agent shall provide from time to time such
evidence as the Collateral Agent shall reasonably request as to the perfection
and priority status of each such security interest.
(e) Notwithstanding any other provision of this Section 5.09, the
requirements of the foregoing paragraphs (c) and (d) shall not be applicable at
any time when the Liens of the Security Documents shall be required to be
released, and shall not be required to be reinstated, pursuant to Section 9.16.
SECTION 5.10. COMPLETION OF REORGANIZATION. (a) The Borrowers will
cause each US Subsidiary that is to be merged into MTS as part of the
Reorganization, and that has not been so merged as of the Effective Date, to be
merged into MTS as contemplated in the definition of "Reorganization" not later
than the 270th day following the Effective Date.
(b) After the Effective Date, the Borrowers' Agent will notify the
Administrative Agent within 30 days after the completion of each merger of a US
Subsidiary into MTS pursuant to the Reorganization, and the Borrowers will, and
will cause each such US Subsidiary to, take all necessary action with respect to
such merger to satisfy the requirements of Section 5.09(d).
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ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
each Borrower covenants and agrees with the Lenders that:
SECTION 6.01. INDEBTEDNESS. The Borrowers will not, and will not
permit any of the Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except:
(a) Indebtedness created under the Loan Documents;
(b) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof;
(c) Indebtedness (i) resulting from any loan or advance by a Loan
Party to another Loan Party, (ii) resulting from any loan or advance by a
Subsidiary that is not a Loan Party to a Loan Party, (iii) resulting from
any loan or advance by any Subsidiary that is not a Loan Party to any other
Subsidiary that is not a Loan Party and (iv) resulting from any loan or
advance by any Loan Party to any Subsidiary that is not a Loan Party
PROVIDED that the aggregate outstanding principal amount of the
Indebtedness permitted solely by this subclause (iv) shall not exceed
US$12,000,000 in the aggregate for all Loan Parties at any time;
(d) Indebtedness of the Borrowers incurred to finance the acquisition,
construction or improvement of any fixed or capital assets, including
purchase money liens, Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured by
a Lien on any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof; PROVIDED that (i) such Indebtedness
is incurred prior to or within 120 days after such acquisition or the
completion of such construction or improvement and (ii) the aggregate
outstanding principal amount of Indebtedness permitted by this clause (d)
shall not exceed 10% of Tangible Net Worth at any time;
(e) Indebtedness of any Person that becomes a Subsidiary after the
date hereof; PROVIDED that such Indebtedness (i) exists at the time such
Person becomes a Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary and (ii) is without
recourse to and is not Guaranteed by MTS or any Subsidiary;
(f) Indebtedness of any Borrower as an account party in respect of
trade letters of credit;
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(g) in the case of MTS, the Senior Subordinated Debt;
(h) Indebtedness deemed to arise under Hedging Agreements entered into
to mitigate interest rate, exchange rate, commodity price or other risks
incurred by MTS and the Subsidiaries in the ordinary course of business and
not for speculative purposes; and
(i) other unsecured Indebtedness in an aggregate principal amount not
exceeding 10% of Tangible Net Worth at any time outstanding.
SECTION 6.02. LIENS. The Borrowers will not, and will not permit
any of the Subsidiaries to, create, incur, assume or allow to exist any Lien
upon or with respect to any of their properties, revenues or assets, whether now
owned or hereafter acquired, other than Permitted Liens.
SECTION 6.03. SALE-LEASEBACK TRANSACTIONS. The Borrowers will not,
and will not permit any of the Subsidiaries to, enter into any arrangement,
directly or indirectly, with any Person whereby they shall sell or transfer any
property, real or personal, used or useful in their business, whether now owned
or hereafter acquired, and thereafter rent or lease such property or other
property which they intend to use for substantially the same purpose or purposes
as the property being sold or transferred; PROVIDED that the Borrowers and the
Subsidiaries may enter into any such transaction to the extent the Capital Lease
Obligations and Liens associated therewith would be permitted by clauses (d) and
(e) of Section 6.01 and Section 6.02, respectively.
SECTION 6.04. FUNDAMENTAL CHANGES. (a) The Borrowers will not, nor
will they permit any Subsidiary to, merge or consolidate with or into, or
acquire all or substantially all of the assets of, any Person, or sell,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of their assets, except that:
(i) any Subsidiary (other than TRKK) may merge with, consolidate into
or transfer all or substantially all of its assets to another Subsidiary
and in connection therewith such Subsidiary may be liquidated or dissolved;
PROVIDED, that (A) MTS shall not own a lesser percentage of the surviving
or resulting Person than it owned in either of the constituent Persons or
the transferor, as the case may be, and (B) if a Guarantor, a Grantor or a
Subsidiary the capital stock of or other equity interests in which are
pledged pursuant to the Pledge Agreement shall merge, consolidate or
transfer all or substantially all of its assets, the Borrowers shall cause
each Subsidiary resulting from such merger or consolidation or receiving
assets as a result of such transfer, to become a party to the Guarantee
Agreement and the Security Documents, and shall cause the capital stock of
or other equity interests in such Subsidiary to be pledged pursuant to the
Pledge Agreement, to at least the same extent as such merging,
consolidating
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or transferring Subsidiary and the capital stock or other equity interests
thereof or therein;
(ii) the Borrowers or any of the Subsidiaries may sell or dispose of
assets in accordance with the provisions of Section 6.06;
(iii) the Borrowers or any of the Subsidiaries may make any investment
permitted by Section 6.05; and
(iv) either of the Borrowers may merge with or consolidate into any
other Person, PROVIDED that (A) the merging or consolidating Borrower is
the surviving corporation, (B) the Guarantee Requirement and the Collateral
Requirement continue to be satisfied and (C) no Default exists or would
occur as a result thereof.
(b) The Borrowers will not, nor will they permit any Subsidiary to,
engage to any material extent in any business other than businesses of the type
conducted by the such Borrower and its Subsidiaries on the date of execution of
this Agreement and businesses reasonably related thereto.
SECTION 6.05. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND
ACQUISITIONS. The Borrowers will not, nor will they permit any Subsidiary to,
purchase or otherwise acquire the capital stock, assets (constituting a business
unit), obligations or other securities of or any interest in any Person, or
otherwise extend any credit or advances to, Guarantee any obligations of or make
any additional investments in any Person (any of the foregoing being
collectively called "Investments"), other than:
(a) Investments existing on the date hereof and set forth in Schedule
6.05;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sales of goods or services in the ordinary
course of business;
(c) Indebtedness permitted by clause (c) of Section 6.01;
(d) Guarantees constituting Indebtedness permitted by Section 6.01;
PROVIDED that a Subsidiary shall not Guarantee the Senior Subordinated Debt
unless (A) such Subsidiary also has Guaranteed the Obligations pursuant to
the Guarantee Agreement, and (B) such Guarantee of the Senior Subordinated
Debt is subordinated to such Guarantee of the Obligations on terms no less
favorable to the Lenders than the subordination provisions of the Senior
Subordinated Debt;
(e) Permitted Investments;
(f) loans and advances to management and employees (i) existing on the
date hereof and set forth in Schedule 6.05, (ii) consisting of employee
trade receivables in connection with employee purchases of product and
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(iii) in addition to those loans and advances described in the foregoing
clauses (i) and (ii), not to exceed US$2,000,000 in any fiscal year;
(g) Hedging Agreements entered into to mitigate interest rate,
exchange rate, commodity price or other risks incurred by MTS and its
subsidiaries in the ordinary course of business and not for speculative
purposes; and
(h) additional purchases of or investments in the stock of
Subsidiaries, joint ventures or the capital stock, assets, obligations or
other securities of or interest in other Persons not exceeding, on a
cumulative basis, in any fiscal year, the sum of US$15,000,000 plus 50% of
Consolidated Net Income for the immediately prior fiscal year.
SECTION 6.06. ASSET SALES. The Borrowers will not, nor will they
permit any Subsidiary to, sell, transfer, lease or otherwise dispose of any
asset, including any capital stock, nor will the Borrowers permit any Subsidiary
to issue any additional shares of its capital stock or other ownership interest
in such Subsidiary, except:
(a) sales of Inventory and Permitted Investments in the ordinary
course of business;
(b) sales or other dispositions in the ordinary course of business of
assets that have become worn out or obsolete or that are promptly being
replaced;
(c) sales, transfers and dispositions to MTS or a Subsidiary; PROVIDED
that any such sales, transfers or dispositions involving a Subsidiary that
is not a Loan Party shall be made in compliance with Section 6.09;
(d) sales, transfers and dispositions of assets (other than capital
stock of any Borrower or Subsidiary and assets constituting any business
unit as a going concern) that are not permitted by any other clause of this
Section; PROVIDED that the aggregate fair market value of all assets sold,
transferred or otherwise disposed of under this paragraph (d) shall not
exceed US$20,000,000; and
(e) sales by MTS of up to 49% in the aggregate of the common stock of
TRKK; PROVIDED that after each such sale MTS Controls TRKK; and PROVIDED,
FURTHER, that MTS shall be required to apply the proceeds of any such sale
within 180 days of receipt thereof (i) to reinvest in the business of MTS
and its Subsidiaries or (ii) if not so reinvested, to repay Indebtedness
under this Agreement;
PROVIDED that all sales, transfers, leases and other dispositions permitted
hereby shall be made for fair value and, except in the case of a sale, transfer,
lease or other disposition to a Borrower or a Subsidiary, at least 75% of the
consideration for any such sale, transfer, lease or other disposition shall be
in cash.
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71
SECTION 6.07. CAPITAL EXPENDITURES. The Borrowers will not, and will
not permit their Subsidiaries to, permit Capital Expenditures of MTS and the
Subsidiaries on a consolidated basis during any fiscal year to exceed
US$45,000,000 plus 50% of the amount, if any, by which US$45,000,000 exceeds the
aggregate amount of Capital Expenditures of MTS and the Subsidiaries on a
consolidated basis during the immediately preceding fiscal year.
SECTION 6.08. RESTRICTED PAYMENTS; CERTAIN PAYMENTS OF INDEBTEDNESS.
(a) MTS will not, nor will it permit any of its Subsidiaries to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
except (i) Subsidiaries may declare and pay dividends ratably with respect to
their capital stock, (ii) Restricted Payments may be made to holders of minority
interests in Subsidiaries in connection with the elimination of such minority
interests in the Reorganization, (iii) MTS may make (x) Restricted Payments in
cash, not exceeding US$5,000,000 during any fiscal year, pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of MTS and the Subsidiaries and (y) non-cash Restricted Payments
pursuant to and in accordance with stock option plans or other benefit plans for
management or employees of MTS and the Subsidiaries, (iii) MTS or any Subsidiary
may declare and pay dividends payable solely in shares of its own common stock
and (iv) MTS may make Restricted Payments in amounts necessary (A) to enable the
Trusts or any settlors or beneficiaries of the Trusts to meet tax obligations
resulting from activities of the Trusts (to the extent the Trusts are engaged in
such activities on the date hereof) and (B) to pay annual insurance premiums on
the US$100,000,000 life insurance policy on the lives of Russell and Doris
Solomon, and in the event of any distribution to MTS in respect of such life
insurance policy as a return of insurance policy premiums paid by MTS, MTS may
make a Restricted Payment to the Parent in an amount not to exceed the amount of
such insurance policy premiums paid.
(b) MTS will not, nor will it permit any Subsidiary to, make or agree
to pay or make, directly or indirectly, any payment or other distribution
(whether in cash, securities or other property) of or in respect of principal of
or interest on any Indebtedness, or any payment or other distribution (whether
in cash, securities or other property), including any sinking fund or similar
deposit, on account of the payment, purchase, redemption, retirement,
acquisition, cancelation or termination of any Indebtedness, except:
(i) payment of Indebtedness created under the Loan Documents;
(ii) payment of regularly scheduled interest and principal payments as
and when due in respect of any Indebtedness, other than payments in respect
of the Senior Subordinated Debt prohibited by the subordination provisions
thereof;
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(iii) a payment by MTS in respect of Senior Subordinated Debt out of
amounts received by MTS from the Parent as capital contributions;
(iv) refinancings of Indebtedness to the extent permitted by Section
6.01; and
(v) payment of secured Indebtedness that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such
Indebtedness.
SECTION 6.09. TRANSACTIONS WITH AFFILIATES. The Borrowers will not,
nor will they permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property,
assets or services from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) transactions in the ordinary course of business
that are at prices and on terms and conditions not less favorable to the
relevant Borrower or such Subsidiary than could be obtained on an arm's-length
basis from unrelated third parties, (b) transactions between or among the
Borrowers and the Subsidiaries not involving any other Affiliate and (c) any
Restricted Payment permitted by Section 6.08.
SECTION 6.10. RESTRICTIVE AGREEMENTS. The Borrowers will not, nor
will they permit any Subsidiary to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrowers or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Subsidiary to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay loans or advances
to a Borrower or any other Subsidiary or to Guarantee Indebtedness of a Borrower
or any other Subsidiary; PROVIDED that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by any Loan Document or
Subordinated Debt Document, (ii) the foregoing shall not apply to restrictions
and conditions existing on the date hereof identified on Schedule 6.10 (but
shall apply to any extension or renewal of, or any amendment or modification
expanding the scope of, any such restriction or condition), (iii) the foregoing
shall not apply to customary restrictions and conditions contained in agreements
relating to the sale of a Subsidiary pending such sale, provided such
restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases and other
contracts restricting the assignment thereof.
SECTION 6.11. AMENDMENT OF MATERIAL DOCUMENTS. The Borrowers will
not, nor will they permit any Subsidiary to, (a) amend, modify or waive any of
its rights under any Senior Subordinated Debt Document if the effect of such
amendment,
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73
modification or waiver would be to change the terms on which any Senior
Subordinated Debt is subordinated to any other obligations, shorten the maturity
or weighted average life to maturity of any Senior Subordinated Debt, require,
either on one or more fixed dates or upon the happening of one or more events,
the repayment, purchase or defeasance of any Senior Subordinated Debt, add any
covenant or make more restrictive the covenants benefitting any Senior
Subordinated Debt or otherwise modify the terms of any Senior Subordinated Debt
in a manner that is adverse to the Borrowers or to the rights or interests of
the Lenders in any material respect, or (b) amend, modify or waive any of its
rights under its certificate of incorporation, by-laws or other organizational
documents in a manner that is adverse to the Borrowers or to the rights or
interests of the Lenders in any material respect.
SECTION 6.12. FIXED CHARGE COVERAGE RATIO. The Borrowers will not
permit the Fixed Charge Coverage Ratio for any period of four consecutive fiscal
quarters to be less than 1.25 to 1.00.
SECTION 6.13. BALANCE SHEET COVERAGE RATIO. So long as the Liens
created under the Security Documents are not required to be released pursuant to
Section 9.16, the Borrowers will not permit the Balance Sheet Coverage Ratio at
the end of any fiscal quarter to be less than 1.25 to 1.00.
SECTION 6.14. TANGIBLE NET WORTH. The Borrowers will not permit
Tangible Net Worth of the Borrowers and the Subsidiaries at the end of any
fiscal quarter to be less than (x) US$105,000,000 plus (y) 50% of cumulative
Consolidated Net Income for each fiscal year that ends after July 31, 1997
(excluding any fiscal year for which Consolidated Net Income is negative).
SECTION 6.15. LEVERAGE RATIO. At any time after the Liens created by
the Security Documents are required to be released as contemplated by Section
9.16, the Borrowers will not permit the Leverage Ratio at the end of and for any
period of four consecutive fiscal quarters to be greater than 2.75 to 1.00.
SECTION 6.16. FISCAL YEAR. The Borrowers will not, and will not
permit any Subsidiary to, have a fiscal year ending on any date other than the
date in existence of the Borrowers' and the Subsidiaries' respective fiscal
years as of the date of this Agreement; PROVIDED, however, that MTS or any
Subsidiary may change the existing date of its fiscal year end upon delivery to
the Lenders of any financial and financial reporting information as reasonably
requested by the Required Lenders.
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ARTICLE VII
EVENTS OF DEFAULT; CAM
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur:
(a) any Borrower shall fail to pay any principal of any Loan, when and
as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
(b) any Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Section) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of five Business Days;
(c) any representation, warranty or statement made or deemed made by
or on behalf of any Borrower or any Subsidiary in or in connection with any
Loan Document or any amendment or modification thereof or waiver
thereunder, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or
any amendment or modification thereof or waiver thereunder, shall prove to
have been incorrect in any material respect when made or deemed made;
(d) any Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.03 (with respect to
such Borrower's existence) or 5.08 or in Article VI;
(e) any Borrower or Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement or any other
Loan Document (other than those specified in clause (a), (b) or (d) of this
Article), and such failure shall continue unremedied for a period of
30 days after notice thereof from the Administrative Agent to the Borrower
(which notice will be given at the request of any Lender);
(f) any Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness, when and as the same shall become due and
payable;
(g) any event or condition occurs that results in any Material
Indebtedness (or obligations under leases of real property that would
constitute Material Indebtedness but for the proviso in the definition of
"Capital Lease Obligations") becoming due prior to the scheduled maturity
thereof or that enables or permits (with or without the giving of notice,
the lapse of time or both) the holder or holders of any Material
Indebtedness (or any such obligations) or any trustee or agent on its or
their behalf
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to cause any Material Indebtedness (or any such obligations) to become due,
or to require the prepayment, repurchase, redemption or defeasance thereof,
prior to its scheduled maturity; PROVIDED that this clause (g) shall not
apply to secured Indebtedness that becomes due as a result of the voluntary
sale or transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of any Borrower or any Material Subsidiary or its debts,
or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Borrower
or any Material Subsidiary or for a substantial part of its assets, and, in
any such case, such proceeding or petition shall continue undismissed for
60 days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) any Borrower or any Material Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (h)
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for such Borrower or Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting
any of the foregoing;
(j) any Borrower or any Material Subsidiary shall become unable, admit
in writing its inability or fail generally to pay its debts as they become
due;
(k) one or more judgments for the payment of money in an aggregate
amount (net of any insured amount as to which an insurance company has
acknowledged coverage) in excess of US$10,000,000 shall be rendered against
any Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the
Borrower or any Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with
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all other ERISA Events that have occurred, could reasonably be expected to
result in a Material Adverse Effect; or
(m) any Lien purported to be created under the Security Documents
shall cease to be, or shall be asserted by any Loan Party not to be, a
valid and perfected first priority Lien on any significant portion of the
Collateral, except (i) as a result of the sale or other disposition of the
applicable Collateral in a transaction permitted under the Loan Documents
or (ii) as a result of the Collateral Agent's failure to maintain
possession of any stock certificates delivered to it under the Pledge
Agreement;
(n) any Guarantee of any Guarantor under the Guarantee Agreement shall
cease to be, or shall be asserted by any Loan Party not to be, a legal,
valid and binding obligation of such Guarantor; or
(o) a Change in Control shall occur;
then, and in every such event (other than an event with respect to a Borrower
described in clause (h) or (i) of this Section), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower's Agent, take
either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrowers
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; and in case of any event with respect to a
Borrower described in clause (h) or (i) of this Section, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrowers accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers.
SECTION 7.02. IMPLEMENTATION OF CAM. On the CAM Exchange Date, the
Lenders shall automatically and without further act be deemed to have exchanged
interests in the Designated Obligations and Swingline Exposures outstanding
under the Credit Facilities such that in lieu of the interest of each Lender in
the Designated Obligations and Swingline Exposures outstanding under each Credit
Facility in which it shall participate as of such date, such Lender shall hold
an interest in the Designated Obligations and Swingline Exposures outstanding
under each of the Credit Facilities, whether or not such Lender shall previously
have participated therein, equal to such Lender's CAM Percentage thereof. Each
Participant that has acquired a participation from
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any Lender as contemplated by Section 9.04(e) and each Loan Party hereby
consents and agrees to the CAM Exchange. Each Loan Party agrees from time to
time to execute and deliver to the Administrative Agent all such promissory
notes and other instruments and documents as the Administrative Agent shall
reasonably request to evidence and confirm the respective interests of the
Lenders after giving effect to the CAM Exchange, and each Lender agrees to
surrender any promissory notes originally received by it in connection with its
Loans hereunder to the Administrative Agent against delivery of any promissory
notes so executed and delivered; PROVIDED, HOWEVER, that the failure of any Loan
Party to execute or deliver or of any Lender to accept any such promissory note,
instrument or document shall not affect the validity or effectiveness of the CAM
Exchange.
ARTICLE VIII
THE AGENTS
Each of the Lenders hereby irrevocably appoints each of the Agents as
its agent and authorizes each Agent to take such actions on its behalf and to
exercise such powers as are delegated to such Agent by the terms hereof,
together with such actions and powers as are reasonably incidental thereto.
Each bank serving as an Agent hereunder shall have the same rights and
powers in its capacity as a Lender as any other Lender and may exercise the same
as though it were not an Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
any Borrower or any Subsidiary or other Affiliate thereof as if it were not an
Agent hereunder.
The Agents shall not have any duties or obligations except those
expressly set forth herein. Without limiting the generality of the foregoing,
(a) no Agent shall be subject to any fiduciary or other implied duties (other
than as expressly assumed in the Security Documents), regardless of whether a
Default has occurred and is continuing, (b) no Agent shall have any duty to take
any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that such Agent is
required to exercise in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02), and (c) except as expressly set forth herein, no
Agent shall have any duty to disclose, and shall not be liable for the failure
to disclose, any information relating to any Borrower or any of its Subsidiaries
that is communicated to or obtained by the bank serving as Agent or any of its
Affiliates in any capacity. No Agent shall be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of
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its own gross negligence or wilful misconduct. Each Agent shall be deemed not
to have knowledge of any Default unless and until written notice thereof is
given to such Agent by a Borrower or a Lender, and no Agent shall be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement or any other
agreement, instrument or document, or (v) the satisfaction of any condition set
forth in Article IV or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to such Agent.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for a
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
Each Agent may perform any and all its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by any Agent.
Each Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of any such Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the Credit Facilities provided for herein as well as activities
as Agent.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, each Agent may resign at any time by notifying the
Lenders and the Borrowers or the Borrowers and the Required Lenders may replace
any Agent. Upon any such resignation, the Required Lenders shall have the
right, in consultation with the Borrowers' Agent (and with the Borrowers'
Agent's consent, unless an Event of Default shall have occurred and be
continuing), to appoint a successor. If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Agent gives notice of its resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent.
Upon any such replacement, the Borrowers and the Required Lenders shall cause
the successor Agent to purchase all of the replaced Agent's Commitments and the
related Loans at the time owing to the replaced Agent. Upon the acceptance of
its appointment as Agent
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79
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
The fees payable by the Borrowers to a successor Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After an Agent's resignation or replacement hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring or replaced Agent, its sub-agents and their respective
Related Parties in respect of any actions taken or omitted to be taken by any of
them while it was acting as Agent.
Each Lender acknowledges that it has, independently and without
reliance upon any Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon any Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any related agreement or any document
furnished hereunder or thereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to a Borrower, to it in care of the Borrowers' Agent at MTS,
Incorporated, 2500 Del Monte, West Sacramento, California 95691, Attention
of Mr. De Vaughn D. Searson (Telecopy No. 916-373-2471);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Ms. Janet Belden (Telecopy No. (212)
552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue,
New York 10017, Attention of Ms. Margaret Lane (Telecopy No.
(212) 270-5646);
(c) if to the Japanese Agent, to it at The Chase Manhattan Bank,
Tokyo, Banking Services Department, Akasaka Park Building, 9th Floor, 2-20
Akasaka 5-chome, Minato-ku, Tokyo 107, Japan, Attention of Mr. Naoko
Ishizaka (Telecopy No. 011-81-3-5570-7539);
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(d) if to the Facility A Swingline Lender, to it at The Chase
Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza,
8th Floor, New York, New York 10081, Attention of Ms. Janet Belden
(Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270
Park Avenue, New York 10017, Attention of Ms. Margaret Lane (Telecopy No.
(212) 270-5646); and
(e) if to the Facility B Swingline Lender, to it at The Sanwa Bank
Limited, Shinagawa Ekimae Branch, 23-17 Takanawa 3-chome, Minato-ku, Tokyo,
Japan, Attention of Mr. Makoto Tanaka (Telecopy No. 011-81-3-3473-3020)
with a copy to The Sanwa Bank, Limited, Los Angeles Branch, 601 South
Figueroa Street, Los Angeles, California 90017, Attention of Mr. Peter G.
Olson (Telecopy No. (213) 623-4912); and
(f) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. WAIVERS; AMENDMENTS. (a) No failure or delay by the
Administrative Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by a Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders or by the Borrowers and
the Administrative Agent with the consent of the Required Lenders; PROVIDED that
no such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or any interest
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thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender,
(v) change any of the provisions of this Section or the definition of "Required
Lenders" or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, or (vi) release any Lien created
by the Security Documents or any Guarantee created by the Guarantee Agreement
(other than as permitted pursuant to the terms of this Agreement or any relevant
Security Document) without the written consent of each Lender; PROVIDED FURTHER
that no such agreement shall (x) amend, modify or otherwise affect the rights or
duties of the Administrative Agent, the Japanese Agent or the Swingline Lender
hereunder without the prior written consent of such Agent or the Swingline
Lender, as the case may be, and (y) adversely affect one Credit Facility and not
the other without the prior written consent of Lenders representing at least 51%
of the Commitments and outstanding Loans under the adversely affected Credit
Facility.
SECTION 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) MTS shall pay
(i) all reasonable out-of-pocket expenses incurred by the Administrative Agent
(including in its capacity as Collateral Agent) and its Affiliates, including
the reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement, any amendments,
modifications or waivers of the provisions hereof or any release or
reinstatement of the Liens created by the Security Documents as contemplated by
Section 9.16 (whether or not the transactions contemplated hereby or thereby
shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by
any Agent or any Lender, including the fees, charges and disbursements of any
counsel for any Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights
under this Section, or in connection with the Loans made hereunder, including
all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans and (iii) the reasonable charges and
expenses associated with the Administrative Agent's audits of Collateral, all
records related thereto and the premises upon which any of the Collateral is
located pursuant to the terms of the Security Agreements (it being agreed that
so long as no Event of Default has occurred and is continuing, MTS shall be
required to pay such charges and expenses in connection with not more than one
audit of the Collateral during any fiscal year of MTS).
(b) The Borrowers shall, on a joint and several basis, indemnify the
Administrative Agent, each other Agent, and each Lender, and each Related Party
of any of the foregoing Persons (each such Person being called an "INDEMNITEE")
against, and hold each Indemnitee harmless from, any and all losses, claims,
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damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the consummation of the Transactions or any
other transactions contemplated hereby, (ii) any Loan or the use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by MTS or any Subsidiary, or
any Environmental Liability related in any way to MTS or any Subsidiary, or (iv)
any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory and regardless of whether any Indemnitee is a party thereto; PROVIDED
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses shall have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that either Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, any other Agent or the
Swingline Lender under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent, such Agent or the Swingline
Lender, as the case may be, such Lender's Applicable Percentage (determined as
of the time that the applicable unreimbursed expense or indemnity payment is
sought) of such unpaid amount; PROVIDED that the unreimbursed expense or
indemnified loss, claim, damage, liability or related expense, as the case may
be, was incurred by or asserted against the Administrative Agent, such Agent or
the Swingline Lender in its capacity as such.
(d) To the extent permitted by applicable law, no Borrower shall
assert, and each Borrower hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement or any agreement or instrument
contemplated hereby, the Transactions, any Loan or the use of the proceeds
thereof.
(e) All amounts due under this Section shall be payable not later
than 30 days after written demand therefor.
SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that no
Borrower may assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by any Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated
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hereby, the Related Parties of each of the Administrative Agent, the other
Agents and the Lenders) any legal or equitable right, remedy or claim under or
by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment, Facility A Commitment or Facility B Commitment and the
related Loans at the time owing to it); PROVIDED that (i) except in the case of
an assignment to any Federal Reserve Bank or to a Lender or an Affiliate of a
Lender, each of the Borrower's Agent and the Administrative Agent (and, in the
case of an assignment of all or a portion of a Facility A Commitment or a
Facility B Commitment or any Lender's obligations in respect of its Facility A
Swingline Exposure or Facility B Swingline Exposure, the Facility A Swingline
Lender or Facility B Swingline Lender, as applicable) must give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld), (ii) except in the case of an assignment to a Lender or an Affiliate
of a Lender or an assignment of the entire remaining amount of the assigning
Lender's Facility A Commitment or Facility B Commitment, the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than US$5,000,000 (or
the approximate Yen Equivalent) unless each of the Borrower's Agent and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement (or under one of the Credit
Facilities), except that this clause (iii) shall not apply to rights in respect
of outstanding Competitive Loans, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of US$3,500, and (v) the
assignee, if it shall not be a Lender, shall deliver to the Administrative Agent
an Administrative Questionnaire; and PROVIDED FURTHER that any consent of the
Borrower's Agent otherwise required under this paragraph shall not be required
if an Event of Default under Article VII has occurred and is continuing.
Subject to acceptance and recording thereof pursuant to paragraph (d) of this
Section, from and after the effective date specified in each Assignment and
Acceptance the assignee thereunder shall be a party hereto and, to the extent of
the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 2.15,
2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
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(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "REGISTER"). The entries in the Register shall be
conclusive absent manifest error, and the Borrowers, the Administrative Agent
and the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrowers and any Lender, at any reasonable time
and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrowers, the
Administrative Agent or the Swingline Lender, sell participations to one or more
banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Facility A Commitment, Facility B Commitment or Commitment and the related Loans
owing to it); PROVIDED that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrowers, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; PROVIDED that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
Subject to paragraph (f) of this Section, the Borrowers agree that each
Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted
by law, each Participant also shall be entitled to the benefits of Section 9.08
as though it were a Lender, provided such Participant agrees to be subject to
Section 2.18(c) as though it were a Lender.
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(f) A Participant shall not be entitled to receive any greater
payment under Section 2.15 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's Agent's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 2.17
unless the Borrower's Agent is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrowers, to
comply with Section 2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; PROVIDED that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. SURVIVAL. All covenants, agreements, representations
and warranties made by the Borrowers herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, any other Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.15, 2.16, 2.17, 9.03(a) and
9.03(b) and Article VIII shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, the expiration or termination of the Commitments or the
termination of this Agreement or any provision hereof; provided, that Sections
2.15, 2.16 and 9.03(a) shall so survive and remain in full force and effect for
up to 90 days after the termination of this Agreement.
SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement
and any separate letter agreements with respect to fees payable to the Agents
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in Section
4.01, this Agreement shall become effective when it shall have been executed
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by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07. SEVERABILITY. Any provision of this Agreement held to
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of any
Borrower against any of and all the obligations of the Borrowers now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under
this Section are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.
SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Administrative Agent or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement
against any Borrower or its properties in the courts of any jurisdiction.
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(c) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any court referred to
in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. HEADINGS. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. CONFIDENTIALITY. Each of the Administrative Agent, the
other Agents and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the enforcement of rights hereunder,
(f) subject to an agreement containing provisions substantially the same as
those of this Section, to any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement, (g) with the written consent of the Borrower's Agent or (h) to the
extent such Information (i) becomes publicly available other than as a result of
a breach of this
<PAGE>
88
Section or (ii) becomes available to the Administrative Agent, any other Agent
or any Lender on a nonconfidential basis from a source other than a Borrower.
For the purposes of this Section, "INFORMATION" means all information received
from the Borrower relating to a Borrower or its business, other than any such
information that is available to the Administrative Agent, any other Agent or
any Lender on a nonconfidential basis prior to disclosure by a Borrower;
PROVIDED that, in the case of information received from a Borrower after the
date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
SECTION 9.13. INTEREST RATE LIMITATION. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "CHARGES"), shall exceed the
maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
SECTION 9.14. CONVERSION OF CURRENCIES. (a) If, for the purpose of
obtaining judgment in any court, it is necessary to convert a sum owing
hereunder in one currency into another currency, each party hereto agrees, to
the fullest extent that it may effectively do so, that the rate of exchange used
shall be that at which in accordance with normal banking procedures in the
relevant jurisdiction the first currency could be purchased with such other
currency on the Business Day immediately preceding the day on which final
judgment is given.
(b) The obligations of each party hereto in respect of any sum due to
any other party hereto or any holder of the obligations owing hereunder (the
"Applicable Creditor") shall, notwithstanding any judgment in a currency (the
"Judgment Currency") other than the currency in which such sum is stated to be
due hereunder (the "Agreement Currency"), be discharged only to the extent that,
on the Business Day following receipt by the Applicable Creditor of any sum
adjudged to be so due in the Judgment Currency, the Applicable Creditor may in
accordance with normal banking procedures in the relevant jurisdiction purchase
the Agreement Currency with the Judgment Currency; if the amount
<PAGE>
89
of the Agreement Currency so purchased is less than the sum originally due to
the Applicable Creditor in the Agreement Currency, such party agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify the
Applicable Creditor against such loss. The obligations of the parties contained
in this Section 9.14 shall survive the termination of this Agreement and the
payment of all other amounts owing hereunder.
SECTION 9.15. EUROPEAN ECONOMIC AND MONETARY UNION. (a) DEFINITIONS.
In this Section 9.15 and in each other provision of this Agreement to which
reference is made in this Section 9.15 expressly or impliedly, the following
terms have the meanings given to them in this Section 9.15:
"COMMENCEMENT OF THE THIRD STAGE OF EMU" means the date of
commencement of the third stage of EMU (at the date of this Agreement
expected to be January 1, 1999) or the date on which circumstances arise
which (in the opinion of the Administrative Agent) have substantially the
same effect and result in substantially the same consequences as
commencement of the third stage of EMU as contemplated by the Treaty on
European Union.
"EMU" means economic and monetary union as contemplated in the Treaty
on European Union.
"EMU LEGISLATION" means legislative measures of the European Council
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the euro or otherwise), being in part
the implementation of the third stage of EMU;
"EURO" means the single currency of participating member states of the
European Union;
"EURO UNIT" means the currency unit of the euro;
"NATIONAL CURRENCY UNIT" means the unit of currency (other than a euro
unit) of a participating member state;
"PARTICIPATING MEMBER STATE" means each state so described in any EMU
legislation; and
"TREATY ON EUROPEAN UNION" means the Treaty of Rome of March 25, 1957,
as amended by the Single European Act 1986 and the Maastricht Treaty (which
was signed at Maastricht on February 7, 1992, and came into force on
November 1, 1993), as amended from time to time.
(b) EFFECTIVENESS OF PROVISIONS. The provisions of paragraphs (c) to
(j) below (inclusive) shall be effective at and from the commencement of the
third stage of EMU, PROVIDED, that if and to the extent that any such provision
relates to any state (or the currency of such state) that is not a participating
member state on the commencement of the third stage of EMU, such provision shall
become effective in relation to such state (and
<PAGE>
90
the currency of such state) at and from the date on which such state becomes a
participating member state.
(c) REDENOMINATION AND FOREIGN CURRENCIES. Each obligation under
this Agreement of a party to this Agreement which has been denominated in the
national currency unit of a participating member state shall be redenominated
into the euro unit in accordance with EMU legislation, PROVIDED, that if and to
the extent that any EMU legislation provides that following the commencement of
the third stage of EMU an amount denominated either in the euro or in the
national currency unit of a participating member state and payable within that
participating member state by crediting an account of the creditor can be paid
by the debtor either in the euro unit or in that national currency unit, each
party to this Agreement shall be entitled to pay or repay any such amount either
in the euro unit or in such national currency unit.
(d) LOANS. Any Loan in the currency of a participating member state
shall be made in the euro unit.
(e) BUSINESS DAYS. With respect to any amount denominated or to be
denominated in the euro or a national currency unit, any reference to a
"Business Day" shall be construed as a reference to a day (other than a Saturday
or Sunday) on which banks are generally open for business in
(i) London and New York City and
(ii) Frankfurt am Main, Germany (or such principal financial center or
centers in such participating member state or states as the
Administrative Agent may from time to time nominate for this purpose).
(f) PAYMENTS TO THE ADMINISTRATIVE AGENT. Sections 2.06 and 2.19
shall be construed so that, in relation to the payment of any amount of euro
units or national currency units, such amount shall be made available to the
Administrative Agent in immediately available, freely transferable, cleared
funds to such account with such bank in Frankfurt am Main, Germany (or such
other principal financial center in such participating member state as the
Administrative Agent may from time to time nominate for this purpose) as the
Administrative Agent shall from time to time nominate for this purpose.
(g) PAYMENTS BY THE ADMINISTRATIVE AGENT TO THE LENDERS. Any amount
payable by the Administrative Agent to the Lenders under this Agreement in the
currency of a participating member state shall be paid in the euro unit.
(h) PAYMENTS BY THE ADMINISTRATIVE AGENT GENERALLY. With respect to
the payment of any amount denominated in the euro or in a national currency
unit, the Administrative Agent shall not be liable to any of the Borrowers or
any of the Lenders in any way whatsoever for any delay, or the consequences of
any delay, in the crediting to any account of any amount required by this
Agreement to be paid by the Administrative Agent if the Administrative Agent
<PAGE>
91
shall have taken all relevant steps to achieve, on the date required by this
Agreement, the payment of such amount in immediately available, freely
transferable, cleared funds (in the euro unit or, as the case may be, in a
national currency unit) to the account with the bank in the principal financial
center in the participating member state which any Borrower or, as the case may
be, any Lender shall have specified for such purpose. In this paragraph (h),
"all relevant steps" means all such steps as may be prescribed from time to time
by the regulations or operating procedures of such clearing or settlement system
as the Administrative Agent may from time to time determine for the purpose of
clearing or settling payments of the euro.
(i) BASIS OF ACCRUAL. If the basis of accrual of interest or fees
expressed in this Agreement with respect to the currency of any state that
becomes a participating state shall be inconsistent with any convention or
practice in the London Interbank Market or, as the case may be, the Paris
Interbank Market for the basis of accrual of interest or fees in respect of the
euro, such convention or practice shall replace such expressed basis effective
as of and from the date on which such state becomes a participating member
state; PROVIDED, that if any Loan in the currency of such state is outstanding
immediately prior to such date, such replacement shall take effect, with respect
to such Loan, at the end of the then current Interest Period.
(j) ROUNDING AND OTHER CONSEQUENTIAL CHANGES. Without prejudice and
in addition to any method of conversion or rounding prescribed by any EMU
legislation and without prejudice to the respective liabilities for Indebtedness
of any Borrower to the Lenders and the Lenders to any Borrower under or pursuant
to this Agreement:
(i) each reference in this Agreement to a minimum amount (or an
integral multiple thereof) in a national currency unit to be paid to or by
the Administrative Agent shall be replaced by a reference to such
reasonably comparable and convenient amount (or an integral multiple
thereof) in the euro unit as the Administrative Agent may from time to time
specify; and
(ii) except as expressly provided in this Section 9.15, each provision
of this Agreement shall be subject to such reasonable changes of
construction as the Administrative Agent may from time to time specify to
be necessary or appropriate to reflect the introduction of or changeover to
the euro in participating member states.
SECTION 9.16. RELEASE OF COLLATERAL. If at any time when no Default
shall have occurred and be continuing MTS shall have outstanding any senior,
unsecured, non-credit enhanced long-term Indebtedness for borrowed money that
shall be rated BBB- or better by Standard & Poor's Ratings Group and Baa3 or
better by Moody's Investors Service, Inc., the Secured Parties agree that the
Liens created by the Security Documents will be promptly released by the
Collateral Agent by an instrument delivered to MTS. Following such release, the
Collateral Agent shall, at the
<PAGE>
92
expense of MTS, execute and deliver to the Loan Parties, and cooperate with the
Loan Parties in filing in appropriate public offices, all such instruments as
the Loan Parties may reasonably request to evidence such release. The Secured
Parties hereby authorize and direct the Collateral Agent to execute and deliver
all such instruments and documents and to take all such other actions as shall
be necessary or as the Borrowers shall reasonably request to effect or evidence
such release. In the event that after any such release MTS shall fail to have
outstanding any senior, unsecured, non-credit enhanced long-term Indebtedness
for borrowed money that shall be rated BBB- or better by Standard & Poor's
Ratings Group and Baa3 or better by Moody's Investors Service, Inc., the
Borrowers agree to, and the Collateral Agent agrees to request the Borrowers to,
take and cause the Subsidiaries to take all such actions as shall be necessary
or as the Collateral Agent or the Required Lenders shall reasonably request to
reinstate and reperfect the Liens created by the Security Documents and to cause
the Collateral Requirement to be satisfied to the same extent that would have
been required had the Liens of the Security Documents never been released.
SECTION 9.17. AGREEMENT ON BANK TRANSACTIONS. If there is in effect
at any time an Agreement on Bank Transactions between any Lender and TRKK, the
provisions of such Agreement on Bank Transactions shall not apply to any Loan or
other transaction contemplated by this Agreement notwithstanding anything to the
contrary contained in such Agreement on Bank Transactions.
<PAGE>
93
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
MTS, INCORPORATED,
by
/s/ DeVaughn Searson
-----------------------
Name: DeVaughn Searson
Title: Vice President -
Finance
TOWER RECORDS KABUSHIKI KAISHA,
by
/s/ DeVaughn Searson
-----------------------
Name: DeVaughn Searson
Title: Vice President -
Finance
THE CHASE MANHATTAN BANK, individually and
as Administrative Agent,
by
/s/ Marian N. Schulman
-----------------------
Name: Marian N. Schulman
Title: Vice President
BANQUE NATIONALE DE PARIS,
by
/s/ Debra Wright
-----------------------
Name: Debra Wright
Title: Vice President
by
/s/ Colleen S. Breit
-----------------------
Name: Colleen S. Breit
Title: Assistant Vice
President
CORESTATES BANK, N.A.,
by
/s/ John A. Ginter
-----------------------
Name: John A. Ginter
Title: Assistant Vice
President
<PAGE>
94
by
/s/ Keiichi Ozawa
-----------------------
Name: Keiichi Ozawa
Title: Joint General Manager
LLOYDS BANK PLC,
by
/s/ Windsor R. Davies
-----------------------
Name: Windsor R. Davies
Title: Director, Corporate
Banking, USA D061
by
/s/ David C. Rodway
-----------------------
Name: David C. Rodway
Title: Assistant Vice
Presidsent
THE MITSUBISHI TRUST AND BANKING
CORPORATION,
by
/s/ Yasushi Satomi
-----------------------
Name: Yasushi Satomi
Title: Senior Vice President
THE SAKURA BANK, LTD.,
NEW YORK BRANCH,
by
/s/ Yasumasa Kikuchi
-----------------------
Name: Yasumasa Kikuchi
Title: Senior Vice President
THE SANWA BANK, LIMITED,
by
/s/ Peter G. Olsen
-----------------------
Name: Peter G. Olsen
Title: First Vice President
SOCIETE GENERALE,
by
/s/ Jerry P. Johnston
-----------------------
Name: Jerry P. Johnston
Title: Assistant General
Manager
<PAGE>
95
SUMITOMO BANK OF CALIFORNIA,
by
/s/ Eric B. Larsen
-----------------------
Name: Eric B. Larsen
Title: Vice President
by
/s/ F. Clark Warden
-----------------------
Name: F. Clark Warden
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.,
by
/s/ Timothy P. Streb
-----------------------
Name: Timothy P. Streb
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION,
by
/s/ M. McElroy
-----------------------
Name: M. McElroy
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of April 23, 1998
(as in effect on the date hereof, the "Credit Agreement"), among MTS,
Incorporated, a California corporation, the other Borrower named therein, the
lenders parties thereto (the "Lenders") and The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent. Terms defined in the Credit
Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth in numbered Paragraph
3 hereof, the interests set forth on the second page hereof (the "Assigned
Interest") in the Assignor's rights and obligations under the Credit Agreement,
including, without limitation, the interests set forth on the second page hereof
in the Commitment of the Assignor on the Effective Date and the Loans owing to
the Assignor which are outstanding on the Effective Date, together with unpaid
interest accrued on the assigned Loans to the Effective Date and the amount, if
any, set forth on the second page hereof of the Fees accrued to the Effective
Date for the account of the Assignor. Each of the Assignor and the Assignee
hereby makes and agrees to be bound by all the representations, warranties and
agreements set forth in Section 9.04(c) of the Credit Agreement, a copy of which
has been received by each such party. From and after the Effective Date (i) the
Assignee shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and (ii) the Assignor shall, to the extent of the interests
assigned by this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is not already a Lender
under the Credit Agreement, an Administrative Questionnaire provided by the
Administrative Agent and (ii) a processing and recordation fee of $3,500.
3. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
Date of Assignment:_________________________________________
Legal Name of Assignor:_____________________________________
<PAGE>
2
Legal Name of Assignee:_____________________________________
Assignee's Address for Notices:_____________________________
Assignee's Address of Eurodollar
lending office:_____________________________________________
____________________________________________________________
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):__________________________
<TABLE>
<CAPTION>
Percentage
Assigned of
Facility/Commitment
(set forth, to at
least 8 decimals,
as a percentage of
Principal Amount the Total
Facility Assigned Commitment
- -------- -------- -----------
<S> <C> <C>
Commitment
Assigned: $ %
Loans:
Fees Assigned
(if any):
</TABLE>
The terms set forth above
are hereby agreed to: Accepted */
_______________, as Assignor THE CHASE MANHATTAN BANK, as
Administrative Agent,
by _________________________ by __________________________
Name: Name:
Title: Title:
<PAGE>
3
_______________, as Assignee MTS, Incorporated, as
Borrowers' Agent,
by _________________________ by __________________________
Name: Name:
Title: Title:
________________________
*/ To be completed unless Assignee is already a Lender party to the Credit
Agreement.
<PAGE>
Exhibit F to the
Credit Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Credit Agreement dated as of April 23,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among MTS, Incorporated, a California corporation, the
other Borrower named therein, the lenders from time to time party thereto (the
"Lenders"), The Chase Manhattan Bank, as administrative agent for the Lenders
and as Collateral Agent, and (b) the Guarantee Agreement dated as of April 23,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Guarantee Agreement"), among the Guarantors and the Collateral Agent.
The undersigned, a Financial Officer of the Borrowers' Agent, hereby
certifies to the Collateral Agent and each other Secured Party as follows:
1. NAMES. (a) The exact corporate name of each Grantor, as such name
appears in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had
in the past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed
its identity or corporate structure in any way within the past five years.
Changes in identity or corporate structure would include mergers, consolidations
and acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger or consolidation.
(d) The following is a list of all other names (including trade names
or similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer Identification Number of
each Grantor:
2. CURRENT LOCATIONS. (a) The chief executive office of each Grantor
is located at the address set forth opposite its name below:
Grantor Mailing Address County State
- ------- --------------- ------ -----
<PAGE>
2
(b) Set forth below opposite the name of each Grantor are all
locations where such Grantor maintains any books or records relating to any
Accounts Receivable (with each location at which chattel paper, if any, is kept
being indicated by an "*"):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(c) Set forth below opposite the name of each Grantor are all the
places of business of such Grantor not identified in paragraph (a) or (b) above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(d) Set forth below opposite the name of each Grantor are all the
locations where such Grantor maintains any Collateral not identified above (for
additional information requested regarding TRKK and its subsidiaries, see (f)
and (g) below):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(e) Set forth below opposite the name of each Grantor are the names
and addresses of all persons other than such Grantor that have possession of any
of the Collateral of such Grantor:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(f) Set forth below opposite the name of each of TRKK and its
subsidiaries are:
(i) the type of commodities held by each of TRKK and its subsidiaries
in Inventory:
(ii) the location of custody of Inventory of each of TRKK and its
subsidiaries:
(g) Set forth below opposite the name of each of TRKK and its
subsidiaries with respect to (i) outstanding Accounts Receivable and (ii) to the
extent possible, Accounts Receivable which may accrue in the future:
(A) Name and address of each obligor or Account Debtor;
(B) Brief description of each Account Receivable;
(C) Amount of each Account Receivable;
(D) Date of accrual of each Account Receivable; and
<PAGE>
3
(E) Due date for payment of each Account Receivable.
3. UNUSUAL TRANSACTIONS. All Accounts Receivable have been
originated by the Grantors and all Inventory has been acquired by the Grantors
in the ordinary course of business.
4. UCC FILINGS. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto (and equivalent registration
particulars in other jurisdictions) are being prepared for filing in the Uniform
Commercial Code filing office (or appropriate registry) in each jurisdiction
where a Grantor's chief executive office is located or where a Grantor has
Collateral as identified in Section 2 hereof.
5. SCHEDULE OF FILINGS. Attached hereto as Schedule 5 is a schedule
setting forth, with respect to the filings described in Section 4 above, each
filing/registration and the filing office/registry in which such
filing/registration is to be made.
6. STOCK OWNERSHIP. Attached hereto as Schedule 6 is a true and
correct list of all the duly authorized, issued and outstanding stock of each
Subsidiary and the record and beneficial owners of such stock. Also set forth
on Schedule 6 is each equity Investment of each Borrower and each Subsidiary
that represents 50% or less of the equity of the entity in which such investment
was made.
IN WITNESS WHEREOF, the undersigned have duly executed this
certificate on this 23rd day of April 1998.
MTS, INCORPORATED, as Borrowers' Agent,
by
-------------------------------
Name:
Title: Financial Officer
<PAGE>
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
MTS, Incorporated and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(dollars in millions)
<TABLE>
<CAPTION>
Twelve
Months
Ended
January 31,
Six months 1998
Ended (Pro Forma
Fiscal Year ended July 31, January 31, As Adjusted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997 1998 1998
Earnings:
Income before taxes $24.7 $27.4 $26.2 $17.2 $9.5 $10.0 $14.1 $11.8
Add fixed charges (from below) 18.2 22.3 31.0 37.2 37.6 21.1 18.7 36.8
Adjusted earnings $42.9 $49.7 $57.2 $54.4 $47.1 $31.1 $32.8 $48.6
Fixed charges:
Interest (a) $7.1 $8.2 $12.2 $15.3 $14.7 $9.6 $7.1 $14.0
Interest factor on lease rentals (b) 11.1 14.1 18.8 21.9 22.9 11.5 11.6 22.8
Total fixed charges $18.2 $22.3 $31.0 $37.2 $37.6 $21.1 $18.7 $36.8
Ratio of earnings to fixed charges 2.4x 2.2x 1.8x 1.5x 1.3x 1.5x 1.8x 1.3x
</TABLE>
(a) Interest includes interest expense, interest costs capitalized and the
amortization of deferred financing costs.
(b) Interest factor on lease rentals includes 35% of rental expense
representing management's determination of a reasonable approximation of
interest costs on rents.
<PAGE>
EXHIBIT 21.1
MATERIAL OPERATING SUBSIDIARIES
TOWER RECORDS, K.K. (JAPAN)
TR SERVICES, INC.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (to
be filed on or about May 29, 1998) of our report dated October 29, 1997 (except
for Notes 2 and 3 as to which the dates are April 20, 1998 and March 20, 1998,
respectively), on our audits of the financial statements of MTS Incorporated and
Subsidiaries. We also consent to the references to our firm under the caption
"Independent Accountants."
/s/ COOPERS & LYBRAND L.L.P.
Sacramento, California
May 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME OF MTS, INCORPORATED
IN THE REGISTRATION STATEMENT TO WHICH THIS FINANCIAL DATA SCHEDULE IS AN
EXHIBIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> JAN-31-1998 JUL-31-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996
<PERIOD-END> JAN-31-1998 JUL-31-1997
<CASH> 16,289 6,607
<SECURITIES> 0 0
<RECEIVABLES> 16,861 17,334
<ALLOWANCES> 527 420
<INVENTORY> 272,364 282,015
<CURRENT-ASSETS> 317,901 318,830
<PP&E> 344,591 343,174
<DEPRECIATION> 162,103 152,817
<TOTAL-ASSETS> 538,307 544,578
<CURRENT-LIABILITIES> 376,296 359,071
<BONDS> 0 0
0 0
0 0
<COMMON> 6 6
<OTHER-SE> 140,593 134,025
<TOTAL-LIABILITY-AND-EQUITY> 538,307 544,578
<SALES> 532,770 991,810
<TOTAL-REVENUES> 532,770 991,810
<CGS> 361,707 669,279
<TOTAL-COSTS> 511,389 958,683
<OTHER-EXPENSES> 411 9,287
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,908 14,298
<INCOME-PRETAX> 14,062 9,542
<INCOME-TAX> 6,085 4,543
<INCOME-CONTINUING> 7,977 4,999
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,236
<CHANGES> 0 0
<NET-INCOME> 7,884 3,539
<EPS-PRIMARY> 7.884 3.539
<EPS-DILUTED> 7.884 3.539
</TABLE>
